UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
AMENDMENT NO. 1
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended SEPTEMBER 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 0-27865
ICEWEB, INC.
(Name of small business issuer in its charter)
DELAWARE 13-2640971
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
205 VAN BUREN STREET, SUITE 420, HERNDON, VA 20170 20170
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (703) 964-8000
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
___________________ _______NONE_______________________
__________________ _______NONE_______________________
Securities registered under Section 12(g) of the Exchange Act:
_____________COMMON STOCK____________
(Title of class)
______PAR VALUE 0.001 PER SHARE______
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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[ ] No[X]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $6,662,652 for
the 12 months ended September 30, 2004.
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 sold, or the average bid and asked prices of such common
equity, as of a specified date within the past 60 days. $14,440,351
State the number of shares outstanding of each of the issuer's class of
common equity, as of the latest practicable date. As of December 31, 2004,
434,399,240 shares of common stock are issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (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 ("Securities Act").
____________.
Transitional Small Business Disclosure Form (check one): Yes ___ No _X_
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ICEWEB, INC.
FORM 10-KSB
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
INDEX
PART I
Item 1. Description of Business...............................................5
Item 2. Description of Property..............................................14
Item 3. Legal Proceedings....................................................14
Item 4. Submission of Matters to a Vote of Security Holders .................14
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder
Matters and small business issuer purchases of equity securities ....15
Item 6. Management's Discussion and Analysis or Plan of Operation............15
Item 7. Financial Statements ................................................19
Item 8A. Controls and Procedures..............................................32
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act ...................32
Item 10. Executive Compensation...............................................34
Item 11. Security Ownership of Certain Beneficial Owners and Management.......35
Item 12. Certain Relationships and Related Transactions ......................35
Item 13. Exhibits and Reports on Form 8-K ....................................35
Item 14. Principle Accountant Fees and Services ..............................36
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FORWARD-LOOKING STATEMENTS AND OTHER MATTERS
When used in this Annual Report, the terms the "Company", "we", "our", "us",
"IceWEB" and "IceWEB, Inc." refer to IceWEB, Inc., a Delaware corporation and
its subsidiaries unless the context requires otherwise. Additionally, it is
important to note that all share and per share data contained herein gives pro
forma effect to the 10:1 forward split of our common stock which was effectuated
on October 13, 2004.
This Annual 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.
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PART I
ITEM 1. Description of Business
GENERAL
IceWEB, Inc., a Delaware corporation ("ICEW" or the "Company") is a diversified
technology company headquartered in Herndon, Virginia which was founded in April
2000, became public in April 2002 through a reverse merger, and began trading
publicly on the OTCBB under the Trading Symbol "ICEW". Since the Company's
founding, the Company's business plan has evolved. Part of this evolution has
not only affected the technical direction of the Company's product line, but has
additionally altered the Company's approach to growth. As with most small
startups, the Company was adversely affected by the tragic events of September
11, 2001. Economic conditions post-9/11 dictated a conservative approach to
organic growth through research and development of products and shifted the
Company's expansion focus towards government contracts and growth by
acquisitions. As a result, the Company has completed four corporate acquisition
transactions in the approximate 24 month period ending September 30, 2004. The
Company believes that these completed acquisitions, as well as the internal
growth experienced by the Company over the last 24 months have and will uniquely
position the Company to deliver an integrated solution of customized software,
services and hardware. Today, the Company offers skilled technical consulting
services, a full catalog of third party hardware and software and a branded
suite of online training, content management (CMS), collaboration, portal and
integration software products.
The Company's future growth and its continued support of a comprehensive product
line is dependent upon a significant growth in revenues from software licenses
and the availability of additional working capital to fund the next version of
software. To fuel the Company's revenue growth, and in reaction to customer
demands and recent market data from organizations such as Gartner, Inc., the
Company is in the process of consolidating its existing suite of products into a
single Smart Enterprise Suite offering for small and medium sized businesses and
government institutions. To accomplish this, the Company has embarked on the
development and launch of the new version of IceWEB software known as "Smart
Enterprise Suite 3.0". Smart Enterprise Suite 3.0 will include new features,
including wireless and PDA connectivity, more robust reporting tools and a
tightly integrated technology platform. The product will be offered under an
application service provider (ASP) model over the internet, and will include
functionality that allows the customer to click and choose what service is
needed and the length of time the software is to be used.
There has been no bankruptcy, receivership or similar proceeding with respect to
the Company.
BUSINESS OF ICEWEB
The Company is a diversified technology company headquartered in Herndon,
Virginia which was founded in 2000 and whose business plan has been in evolution
since that time. Notwithstanding market driven changes to the Company's original
business plan, the Company's focus has consistently remained on enabling
governmental organizations and small to medium size businesses to independently
manage, create, publish and deliver content easily and affordably over the
Internet in order to accomplish the Company's vision of making this proprietary
technology available and affordable and to open up the world of independent web
management and publishing to any organization. In this regard, the Company's
products and services are used by organizations in both the public and private
sectors with large, dispersed audiences of customers, employees, or other
trading or strategic partners. Through internal software development and a
series of acquisitions, the Company has developed a suite of robust, scalable
content creation, management, publication and delivery tools that can be
implemented on any website, as well as e-learning content and customized
e-learning portals. Complementing these products is the Company's hosted e-mail
solution, IceMAIL. In addition, the Company also offers consulting and product
support services to its customers on a project-by-project basis.
The Company's solutions are centered on knowledge based support, enabling
customers to increase organizational efficiency by converging knowledge based
information with easy to manage websites and e-learning portals. Going forward,
the Company intends to leverage its expertise in content management, creation
and delivery, and its e-learning portal framework, to develop a Smart Enterprise
Suite ("SES") that extends beyond digital content to include dynamic human
intelligence for greater information sharing and organizational efficiency
across the extended enterprise. According to the Gartner Group, an SES "covers
enterprise needs for content management, knowledge management and collaboration,
and supports the extended virtual workplace - inside and between enterprises.
The SES combines the functionality of portal, collaborative and content
management technologies, and delivers these in an integrated suite; provides a
broad foundation to support knowledge or information work within an enterprise,
or between groups in different enterprises, and may be considered the platform
for knowledge management; and focuses on support for unstructured work
processes, but through portal-based integration with business applications can
provide a comprehensive digital or electronic workplace." The Company's
objective in developing its Smart Enterprise Suite 3.0 is to provide an
affordable SES solution for governmental and small to medium size business
customers.
Like most startups the Company's business plan has continued to evolve.
Precarious economic conditions experienced over the past several years, dictated
a management change in direction to acquire stable, cash flow positive
synergistic businesses in the short term, providing for an opportunity to grow
in the software and services area upon a sustained economic recovery. To this
end:
o In June of 2001, we acquired the assets of LearningStream, Inc. from an
unrelated liquidating Chapter 11 bankruptcy. LearningStream was
considered to be at the forefront of the e-learning interactive content
movement, known today as Internet II. The acquisition provided an
immediate entry into the interactive e-learning space. Assets from the
acquisition include, but are not limited to, proprietary software
assets, website assets and fixed assets.
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o In August of 2002, IceWEB acquired two companies, Interlan
Communications and The Seven Corporation. The acquisitions provided the
Company with immediate revenue, positive cash flow and significant
contracts
o On October 5, 2003, IceWEB acquired the software ownership rights and
customers of Iplicity, Inc. of Virginia, giving us a competitive
product in the content management space
o On May 13, 2004, IceWEB acquired DevElements of Virginia, a company
focused on advanced customized software application development
focusing on the DotNet platform.
PRODUCTS
The Company's products and services are designed to provide our customers with a
comprehensive financial view of their core business, promote better cross
pollination of strategies and objectives between development, sales, marketing
and service organizations, and guide strategic planning efforts to meet key
corporate objectives of profitability and growth. These products form the basis
of the Company's emerging SES. The two key components of which currently consist
of:
ICE WEB CMS: IceWEB CMS is a powerful tool for efficient website management,
built upon a single unified architecture that allows users to quickly, easily
and affordably update their Web content and site structure. With IceWEB CMS,
users can manage, update, control and publish new content for Web sites anytime
and anyplace. Among the many advantages of IceWEB CMS are the ability to easily,
quickly and affordably deploy fresh Web content, the ability to control who can
edit, access and view content, and the ability to eliminate the costs and
constraints of utilizing "third party" vendors for website management. This
comprehensive content management solution offers unmatched flexibility and
scalability, while helping to reduce upfront development and ongoing support
costs. IceWEB CMS' user friendly interface and ease of use make it appealing to
non-technical users and organizations of any size.
ICESHOW: IceSHOW is an online synchronization/dynamic multimedia platform
technology that enables customers to quickly synchronize and store libraries of
video and PowerPoint presentations to be available "on-demand" by their end
users. Customers worldwide can log onto the Company's network at any time in
order to create, author and publish content. IceSHOW's powerful feature set and
intuitive viewer interface have been designed for ease of use, offering great
flexibility and convenience to non-technical users. In addition, through its
Application Service Provider (ASP) model with bundled storage, delivery and
support services, IceSHOW enables any user to transform existing videos and
slides into rich-media presentations and deliver them over the Internet quickly
and at an affordable price. A "wizard" guides users through the process of
uploading and converting existing media components, then stitching them together
seamlessly. IceSHOW is used by organizations providing internal communications
and training, as well as customers seeking to manage and resell training content
over the web. The software is "private label," allowing IceWEB customers to give
the system the look and feel of their corporate website or portal. It includes
pay-per-view registration, quizzing, surveying, delivery and synchronization of
audio and video, and much more.
Other IceWEB products and services include:
ICESLIDE(TM): IceSLIDE is a downloadable software product aimed at the marketing
and graphics community. The product converts Microsoft PowerPoint slides into
Macromedia Flash files on the fly. IceSLIDE eliminates hours of conversion time,
quickly transforming large PowerPoint files into compact, easily distributed
Flash-format files with high quality vector graphics. The resulting files can
easily be e-mailed or posted on a Web site or intranet. IceSLIDE was developed
from the slide conversion technology built into IceSHOW to be a standalone
application that runs on the viewer's PC.
ICEMAIL: IceMAIL is a hosted mail service providing synchronous access to e-mail
from a personal digital assistant ("PDA"). IceMAIL provides an affordable and
easily implemented way to gain all the benefits of Microsoft Exchange and
Outlook mail, calendaring and collaboration while supporting a mobile workforce,
without the expense of owning, maintaining and hosting an in-house mail server.
Features include browser based e-mail access, strong security and anti-spam
features, access to public folders and file sharing, and wireless
synchronization.
LEARNINGSTREAM.COM: LearningStream.com is an online business education portal
that offers pay-per-view online classes to mid-level managers seeking to update
their management and project skills. Additionally, LearningStream.com has a user
interface that enables experts and instructional designers to create and publish
courses online. The courses have to pass scrutiny and upon acceptance by
LearningStream.com staff will be published to the site. IceWEB provides the
hosting and streaming and shares in the revenue generated by the content
providers. Business professionals can choose among many different subjects such
as making presentations, managing people and learning software applications from
training developers such as Fred Pryor Seminars, CareerTrack and Evelyn Woods.
CUSTOM SMART ENTERPRISE SOLUTIONS: Through the acquisition of assets of
DevElements in May 2004, the Company increased its capabilities to provide a
custom smart enterprise solution, as DevElements has experience developing and
deploying complex web-based business solutions in over 27 languages, primarily
for Fortune 1000 businesses with offices in multiple countries. By leveraging
the core competencies acquired by the Company through DevElements, the Company
can assist organizations with:
- Custom Application/Software Development: full, life-cycle web
development of applications that improve everyday business tasks &
processes.
- Portal Integration: deploying, customizing and maintaining portal
frameworks, including custom development of applications to assist with
single sign-on authentication and extending the framework to meet
multiple language needs.
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- Collaboration: integration of today's hottest collaboration packages,
from embedded awareness in applications to custom "Webinar" reservation
management tools.
- Extension of Legacy Systems: extension of well-documented and developed
legacy systems to the web for either secured or public access.
STORAGE AND DISTRIBUTION: The Company offers a competitive level of data
security, backup and disaster recovery in order to ensure the integrity of the
Company's clients' data. IceWEB has redundant production services, a 3-tier
development cycle, tape backups and redundant connectivity.
CONSULTING SERVICES: The Company's consulting staff has years of experience in
providing custom, rich-media solutions. The Company's consulting services
include personalized project management, multimedia development, synchronization
of media assets, application design and development, software integration,
instructional design, graphic design, foreign language translations and delivery
methods
SUPPORT AND MAINTENANCE SERVICES: The Company provides engineering and technical
support to both government and commercial organizations. These services include
everything from security and network analysis to full network technology
refreshment and deployment. The Company also provides support and maintenance to
ensure that its solutions are deployed correctly and continue to operate
efficiently into the future.
MARKET AND TRENDS
The market for knowledge content and the management of that content is
expanding, as thousands of websites are being "born" every day, with new and
interactive content created at a staggering pace. Concurrently, broadband access
in corporations has become the standard and the consumer market is following
along, albeit at a slower pace. While the use of broadband technology started in
the entertainment industry, its applications to online learning and corporate
communications are rapidly advancing, especially in the B2B space. Tools for
dynamically authoring and publishing rich media content have ignited a wave of
technical opportunities, known today as Internet II. Wireless devices and PDA's
are beginning to transfer digital images and sounds. Colleges are now offering
degrees online and skills colleges are offering accreditation online.
According to varying sources, the current estimated market size for the
Company's products and services is between $20 and $50 billion. The Company's
goal is to attempt to achieve a one percent (1%) market share within five years
or roughly $200 million in revenue, derived from some of the estimated potential
78,000,000 worldwide potential Company customers, as a result of having
identified a market focal point in small to medium sized businesses and
governmental organizations that rely on their websites for sales, image,
information, training and the like.
SALES AND MARKETING
Direction: As with most companies, we sell our products primarily through our
direct sales force and online website. We intend to expand our indirect sales
channel through additional relationships with systems integrators, value-added
resellers and original equipment manufacturers, and we generate leads through
search engine optimization. Our fiscal 2005 marketing plan includes radio and
print advertising, Webinars, Seminars and Tradeshows, Direct Mail, Email
campaigns and customer-centric newsletters, Public Relations, as well as online
Pay Per Click venues such as Overture, Google, and KnowledgeStorm. We also
generate leads from a variety of sources, including businesses seeking partners
to develop Web-based applications. Initial sales activities typically include a
demonstration of our product capabilities followed by one or more detailed
technical reviews.
Online Community Outreach: Web forums, chat rooms, and user groups will be
marketed to online. Online communities are a critical component to "Buzz"
marketing. Our low end products will be used as "freeware" to gain early
adoption in the marketplace and to the open-source community. Loss leaders for
our training classes are also being used to open doors in large government and
commercial customers. Additional relationship marketing and community building
methods to be used include; the use of events bulletin boards and expert
discussions, online surveys and questionnaires to gather valuable feedback and
encourage customer communications, the creation and seeding of focused user
groups, adopting a charitable cause, initiating a referral program, building
membership communities and services that revolve around IceWEB's offerings, and
the development and support of customer evangelists that promote, and are
promoted by IceWEB's products.
Partnerships: Established partnerships with major industry vendors will add
value and distribution for our products.
Software Provider Channel (SPC): Currently, there are three corporations that
utilize core IceWEB technology. There are licensing agreements in place that are
starting to generate small revenue streams. The "SPC" is origin to a significant
source of revenue since most provider sales and marketing efforts are vertically
focused. The channel providers are utilizing IceWEB Technology to brand and
market their own line of products
LearningStream.com User Interface (LUI): IceWEB has successfully sold hundreds
of classes online. A need for subject matter experts and instructional designers
has been identified. Similar to users of EBAY, these users can take their
content and at anytime logon to the IceWEB LMS through LearningStream to create
and publish a course. The course will have to pass scrutiny and upon acceptance
by LearningStream staff will be published to the site for commerce sale. The
goal is to have anyone in the world be able to find the pertinent information on
any related topic. There is an abundance of free information on the Internet
today, but specific subject matter
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is always a premium. Businesses and consumers are willing to pay for
information. Once again, leveraging a user community can extend IceWEB reach.
We use a variety of marketing programs to build market awareness of our brand
name, our products, and the company's technical qualifications as well as to
attract potential customers for our products. A broad mix of programs are used
to accomplish these goals, including market research, product and strategy
updates with industry analysts, public relations activities, advertising, direct
marketing and relationship marketing programs, seminars, trade shows and
speaking engagements. Our marketing organization also produces marketing
materials in support of sales to prospective customers that include brochures,
data sheets, white papers, presentations and demonstrations.
Intellectual Property: The Company spent approximately $600,000 in research and
development over the last year to upgrade existing products.
STRATEGY
During fiscal 2005 the Company plans to greatly improve its technology in terms
of features and usability. In this regard, the Company's strategic product
objectives include (i) tighter integration of the Company's core products,
IceWEB CMS and IceSHOW to form one comprehensive product solution set and serve
as the basis for IceWEB's Smart Enterprise Suite, (ii) improved ease of use, and
(iii) greater business scalability (e.g., faster deployment of new customers
onto IceWEB's products) through automated tools. The Company will also continue
to enhance and expand its SES, as well as other complementary capabilities.
Specific Company initiatives planned for this time period include the following:
ICEWEB CMS - During fiscal 2005, the Company plans to launch IceWEB CMS 3.0.
This version of IceWEB CMS takes a major step forward in terms of usability by
eliminating several complexities that existed in previous versions of the
product. IceWEB CMS 3.0 will unify IceWEB CMS and the Company's IceSHOW E-Course
Engine to create one product from the end user's perspective. IceWEB CMS 3.0
will provide the end user with powerful tools to manage not only text but also
rich media in a "what you see is what you get" or WYSIWYG environment. IceWEB
CMS 3.0 will provide a comprehensive rich media content management system
coupled with modules for e-learning, content management and enterprise wide
portal deployment features, in a single turnkey solution. Version 3.0 also will
introduce several key features such as workflow, tested implementations on
multiple database back-ends and a much improved user interface.
SMART ENTERPRISE SUITE (SES) - The Company intends to continue to focus on the
development of its smart enterprise suite to help customers perform, communicate
and reach their internal and external constituents, partners and customers more
effectively. The Company's SES will be sold as a stand alone product suite or as
a plug-in to a portal (intranet/extranet) framework, and be able to integrate
with the industries' largest players (SharePoint, WebSphere, Plumtree, etc.). By
using "Best of Breed" technology platforms, such as Microsoft.NET and
open-source Java, IceWEB's SES will be both scalable and enterprise-ready, so as
to be available and affordable to every business type.
OUTSOURCED NETWORK OPERATIONS - The Company is developing a network operations
capability that will enable the Company to provide hosted content, network
management, monitoring, and problem resolution of computer and communications
problems to remote customer networks; so that customers will no longer need to
implement an expensive network operations center of their own, and instead will
be able to leverage the Company's technical expertise and cost effective
managed/outsourced network and security operations center.
OUTSOURCED MESSAGING MANAGEMENT (ICEMAIL) - Outsourcing of email has become
commonplace, yet finding Certified Network Administrators that are up to speed
with the latest Microsoft Exchange capabilities is extremely difficult. To
address this issue, the Company currently offers on-site Certified
Administrators to help manage customer messaging environments. During fiscal
2005, the Company intends to expand its ability to offer customers hosted email
via IceMAIL, taking the hardware costs, space and bandwidth issues away from the
customer's bottom line. IceMAIL will provide small to medium sized businesses
with hosted Microsoft Exchange services both through network as well as wireless
access.
LEARNINGSTREAM.COM - The Company intends to develop LearningStream.com into a
content aggregator for IceSHOW customers who would like to resell their content
through a secondary channel. This service will be specifically developed for
consumers to buy on-demand training on a range of topics, from IT Certification
to Management Best Practices. To facilitate market acceptance of this product,
the Company intends to form strategic relationships with content providers who
are seeking the ability to break out of CD-based training to offer on-demand web
learning.
ACQUISITIONS
The Company plans to continue to pursue strategic acquisitions that will broaden
its product offerings and customer base, advance and expand its technological
abilities, increase its cash flow and profitability, and diversify its
operations. To this end, the Company publicly announced on November 18, 2004
that it had entered into a Letter of Intent to acquire PlanGraphics, Inc.
("PGRA"), a leading global provider of Geographic Information Systems ("GIS")
consulting and design implementation and integration of e-government and
information technology solutions, principally to state and local governments and
public utilities. PGRA specializes in software applications, databases and data
warehouses, and secure data communication networks that manage, access and
leverage geographic (or spatial) information assets. PGRA's core competencies
include:
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o Enterprise spatial systems integration, including systems design
through testing and operation as well as the migration of legacy
systems to new systems
o Spatial database management and integration
o Information systems that support emergency management and public
safety, including assessment, planning, response, and recovery
o Non-emergency information management systems supporting decision making
and constituent/customer relations
o Spatial application development, including web deployment for the
internet, intranet, and extra-net applications
o Asset management systems for physical, infrastructure and real property
information
o Document and work management systems.
PGRA's domestic clients include the New York City Department of Information
Technology and Telecommunications, the U.S. Department of Housing and Urban
Development, the City of Columbus, Ohio and New England Gas. International
clients include the Sichuan Urban Environment Project Office in The People's
Republic of China.
Subject to the successful consummation of the proposed PGRA transaction by the
Company, the Company plans to integrate PGRA's technology into certain of its
existing product offerings, and to attempt to build on the combined core
competencies of the two companies in both web portal content management and
geographic information systems to offer next generation homeland security,
public and private sector security first responder portals. The Company believes
that together with PGRA it will be uniquely positioned to aggressively pursue
business intelligence and asset management opportunities on a global scale as
governments and private enterprises seek to better facilitate their information
systems and emergency preparedness technologies and infrastructure.
SALES AND MARKETING
The Company sells its products and services through its direct sales force,
online and through strategic and channel partners. The Company's direct sales
process typically includes a demonstration of individual product capabilities
followed by one or more detailed technical reviews. The Company's employees
utilize Company software to generate leads, sales, demos and references. The
Company's websites all run on IceWEB CMS, and the Company's training resides on
its intranet education portal.
The Company's online sales strategy includes generating leads through search
engine optimization as well as through pay-per-click venues such as Overture,
Google and KnowledgeStorm. Going forward, the Company intends to market online
to web forums, chat rooms and user groups, critical components to "buzz"
marketing. The Company plans to offer certain of its low end products as
"freeware" to gain early adoption in the marketplace. The Company's training
classes are also being used as loss leaders to open doors to large government
and commercial customers. The Company expects to implement a variety of other
online marketing initiatives as well, including event bulletin boards and expert
discussions, online surveys and questionnaires to gather valuable feedback and
encourage customer communications, focused user groups, referral programs,
membership communities and services that revolve around the Company's product
offerings, and the development and support of customer evangelists that promote,
and are promoted by, the Company's products.
The Company's indirect sales channel strategy is to form additional
relationships with systems integrators, value-added resellers and original
equipment manufacturers to resell Company products and services. The Company
also plans to generate leads from a variety of other sources, such as businesses
seeking partners to develop Web-based applications. Because the Company's
products are relatively inexpensive, easy to understand, sell and use, they lend
themselves to distribution by third parties such as audio/video production
companies, business centers and hosting/delivery vendors.
The Company complements its sales initiatives with a variety of marketing
programs to build market awareness of the Company's brand name and products, and
to attract potential customers. These marketing programs include market
research, product and strategy updates with customers and industry analysts,
public relations activities, radio and print advertising, direct marketing and
relationship marketing programs, webinars, seminars, trade shows and speaking
engagements. The Company's marketing organization also produces marketing
materials in support of prospective sales to new customers, including brochures,
data sheets, white papers, presentations and demonstrations.
COMPETITION
The Company's competitors include portal vendors, application service providers,
software vendors, systems integrators and information technology consulting
service providers who offer some or all of the same products as the Company to
the small to medium sized business and government markets. IceWEB's competitors,
particularly for larger customers within the Company's target markets, include
Plumtree, Vignette, Hummingbird, Websphere, Oracle, SAP and Microsoft's content
management system. The Company's competitive strategy is to undercut the pricing
model of its competitors while delivering a higher value to customers and
building brand name recognition for the Company and its products.
There are relatively low barriers to entry into the Company's business, and the
Company does not believe its proprietary technology would preclude or inhibit
competitors from entering its markets. As such, the Company anticipates that new
entrants will try to develop competing products and services as well as new
forums for conducting eCommerce that could be deemed competitors. However, the
Company believes it can continue to compete successfully by relying on the
Company's established infrastructure, marketing strategies, systems and
procedures, by continuing to add additional products and services in the future,
by periodically revising its
Page 9
methods of doing business and by continuing its expansion into international
markets, where the Company believes there is an overall lower level of
competition.
TECHNOLOGY
The Company has engineers on staff with expertise in Microsoft.NET, IBM Domino
and Java technologies. In addition, the Company has developed relationships with
Sun Microsystems, RSA Security, Cisco Systems, SonicWall, Good Technologies and
SurfControl Incorporated, enabling enhanced product and service solutions that
combine the expertise of the Company's engineering staff with the product
offerings of some of the leaders in the technology space. This is believed to be
significant for the Company's growing customer base in the integration and
customized software and services sector of the Company's business.
The Company's software is designed for Microsoft's Windows Operating Systems and
applications that use Microsoft's SQL 7 database software. The majority of the
Company's applications are based on client-server technology. The authoring and
content management application software has been developed using a combination
of C++, ColdFusion, Javascript, ASP, VBscript, Java and Flash. Since a majority
of the processing is done on the server, clients only need a browser to author
and manage their web content.
The Company believes that it successfully surmounted a significant product
development challenge by leveraging the capabilities of the Microsoft.NET
development environment and integrating many of the disparate technologies
driving the Company's core software platforms. All of the Company's products
utilize their original technology in one form or another. By leveraging the code
of existing products, the Company has been able to decrease product development
costs, shorten time to market and realize revenues from new products quickly.
This has also provided a significant advantage to the Company's customers,
enhancing the stability of new software versions and new product offerings and
reducing the effort required to upgrade or deploy the Company's software.
In summary, fiscal 2004 was a positive year for the Company's technology, as we
launched more customers on our technology in fiscal 2004 than in the two
previous fiscal years combined and effectively quadrupled the number of
customers using our products over the previous two years. Fiscal 2004 also saw
the transition from a Java based environment to a Microsoft DotNet technology
for all of our products and services. With this transition, the Company has made
great strides on several fronts, including usability, stability, overall quality
and most importantly scalability of our products. Scalability of our products
have been tested with real world customer deployments, and have provided us with
positive validation of our engineering design objectives. The transition to the
DotNet technology has allowed the Company to expand our product offerings and
provide customers with a more cost effective and faster to market set of
solutions.
Fiscal 2004 was also a favorable year in terms of deployment. In addition to a
steep rise in the number of deployments per quarter, the time to deploy a web
presence within an enterprise or on the Internet using Company software was
dramatically reduced. Deployment operations that took one to two weeks in prior
years now take a few hours. By improving internal processes to gain efficiencies
and building several tools internally to automate manual and time intensive
tasks, the Company's engineering staff has accomplished all its goals for fiscal
2004 and in many respects exceeded its objectives.
TECHNOLOGY OUTLOOK 2005
Building on our performance in 2004, the future of the Company's product
technology strategy for fiscal 2005 comprises three key objectives:
o Core product development: CMS, LMS, Commerce
o Dotnetnuke module development such as: Calendars, catalogs, rss
readers, website skins
o Integration services
IceWEB will continue to follow Microsoft's products strategy on .Net application
development with a specific focus on the integration of applications for the dot
net nuke framework. We will continue developing our products within the open
source environment thus enabling IceWEB to deploy applications faster and more
affordable.
The modules will be sold via commercial open source channels i.e.
www.snowcovered.com and as a yearly license subscription. This approach fosters
continued progress of the open source movement.
PRIMARY RISK FACTORS
The Company's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stages of
development, particularly companies in new and rapidly evolving markets. As a
result, the Company will encounter various risks in implementing and executing
its business strategy and we can provide no assurance that we will be successful
in addressing such risks, and note that our failure to do so could have a
material adverse effect on our business. Specific risks facing the Company
include, but are not limited to the following.
THE COMPANY HAS A HISTORY OF LOSSES AND ITS FUTURE RESULTS ARE UNCERTAIN
For the twelve months ended September 30, 2004, the Company increased revenue
approximately 296% to $6,662,652 compared to total revenue of $1,681,505 for the
twelve month period ended September 30, 2003. During this same period the
Company reported a
Page 10
net loss of $1,087,008, and for the year earlier twelve month period a net loss
of $105,844. There can be no assurance that the Company will ever achieve a
profitable level of operations or that profitability, if achieved, can be
sustained on an ongoing basis. The Company's prospects must be considered in
light of the risks, and uncertainties, expenses and difficulties frequently
encountered by companies in their early stages of development. The Company
expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. There can be no assurance that the Company will
ever achieve a continual profitable level of operations or that profitability,
if achieved, can be sustained on an ongoing basis.
THE COMPANY WILL REQUIRE ADDITIONAL FINANCING WHICH THE COMPANY MAY NOT BE ABLE
TO OBTAIN ON ACCEPTABLE TERMS
The Company's internal growth strategy will require additional working capital
in the very near future. The amount and timing of this additional working
capital is dependent upon a number of factors, including how rapidly the Company
expands its operations, the Company's ability to grow its revenues, the success
or failure of the proposed PlanGraphics acquisition and the integration of same,
and the Company's ability to effectively manage its business.
To fund its existing operations and future product development and growth
strategy, the Company may seek to raise additional capital through the issuance
of debt, the sale of equity, or a combination of debt and equity. If the Company
raises additional capital through the issuance of debt, this will result in
increased interest expense and greater Balance Sheet leverage. If the Company
raises additional funds through the issuance of equity or convertible debt
securities, the percentage ownership by existing stockholders will be reduced,
and those stockholders may experience significant dilution. In addition, new
securities may contain certain rights, preferences or privileges that are senior
to the Company's common stock and senior to warrants to purchase common stock.
There can be no assurance that acceptable financing can be obtained on suitable
terms, if at all. The Company's business could suffer if it is unable to raise
the additional funds timely on acceptable terms.
THE COMPANY IS DEPENDENT ON ITS MANAGEMENT. THE COMPANY'S MANAGEMENT HAS LIMITED
EXPERIENCE IN THE INTERNET INDUSTRY. THE COMPANY'S MANAGEMENT CONTROLS THE
COMPANY'S OPERATIONS
The Company is dependent upon the services of John R. Signorello, the Company's
Chairman and Chief Executive Officer, and other members of the Company's senior
management team. The Company is not a party to a written employment contract
with Mr. Signorello or with a number of the Company's other officers, and the
loss of one or more of these individuals could have a material adverse affect on
the Company's business and operations.
While the Company's management has experience in various aspects of the
technology industry in general, they have limited experience within certain of
the Company's target markets. Should the proposed PlanGraphics merger be
completed, the Company's current management team has no experience in the
Geographic Information Systems (GIS) business and, hence, will rely on
PlanGraphics management and/or third party managers and consultants to guide
Company management in the GIS business. While the Company does not believe this
limited experience will adversely affect the Company's ability to continue to
implement the Company's business plan, the Company cannot know with certainty
that this assumption is correct. If the Company should be required to hire
additional employees who are specialists in the Company's market segments, the
Company cannot guarantee that it will be able to secure the services of these
individuals upon terms and conditions which are reasonable to the Company.
THE COMPANY'S ABILITY TO GENERATE REVENUES COULD BE ADVERSELY AFFECTED BY
SYSTEMS INTERRUPTIONS
The Company's ability to generate revenues depends, in part, on the ability of
the Company's customers to reliably access servers and on the appeal of the
Company's web site and product offerings. Any system interruptions that result
in the unavailability of the Company's IT systems could reduce the
attractiveness of the Company's products and services. Like many companies whose
operations are dependent upon IT systems, the Company has occasionally
experienced system interruptions in the past, and it is likely that the Company
will continue to experience system interruptions from time to time in the
future.
THE COMPANY WILL BE REQUIRED TO MAKE SOFTWARE AND HARDWARE UPGRADES TO REMAIN
COMPETITIVE
The Company will be required to add additional software and hardware and further
develop and upgrade the Company's existing technology. Any delay or inability on
the Company's part in upgrading its systems or technology may cause
unanticipated system disruptions, slower response times, impaired quality and or
delays in reporting information. There can be no assurance that the Company will
be able to accurately project the rate of increases, if any, in the use of the
Company's web site or in a timely manner upgrade the Company's existing systems.
Any inability to do so could have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
THE COMPANY DOES NOT HAVE A DISASTER RECOVERY PLAN
The Company's systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, break-ins and similar
events. The Company's 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. The Company does not currently have a disaster
recovery plan, and the Company does not carry business interruption insurance to
compensate the Company for losses that may occur. The Company is also vulnerable
to computer viruses and/or physical disruptions, which could lead to
Page 11
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 the Company's business, prospects, financial condition and results of
operations.
THE COMPANY'S MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE FUTURE
ACQUISITIONS AND TO MANAGE THE COMPANY'S GROWTH, AND IT MAY BE UNABLE TO FULLY
REALIZE ANY ANTICIPATED BENEFITS OF ANY ACQUISITION
The Company's business strategy includes growth through acquisition and internal
development. The Company is subject to various risks associated with the
Company's growth strategy, including the risk that the Company 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 the Company's in many respects. In June 2001, the Company acquired the
assets of LearningStream, Inc., and the Company is still in the process of
integrating its operations into the Company's. Numerous acquisitions have been
consummated since that date, some of which are likewise still in the process of
being integrated into the Company's operations. If the Company should consummate
one or more acquisitions, the Company's directors and senior management will
face a significant challenge in their efforts to integrate the Company's
business and the business of the acquired companies or assets, and to
effectively manage the Company's continued growth. There can be no assurance
that the Company's efforts to integrate the operations of any acquired assets or
companies acquired in the future will be successful, that the Company can manage
its 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 the Company's 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 the Company's integration efforts, either of
which could have a material adverse effect on the Company's operating results.
THE COMPANY'S STRATEGY OF SEEKING JOINT VENTURES OR STRATEGIC ALLIANCES MAY BE
UNSUCCESSFUL
The Company may also choose to expand the Company's operations by entering into
joint ventures or other strategic alliances with other parties. Any such
transaction would be accompanied by the risks commonly encountered in such
transactions. These include, among others, the difficulty of assimilating the
operations and personnel, vicarious liability for the acts or omissions of joint
venture partners, and other various factors. There can be no assurance should
the Company enter into any strategic alliance with a third party that the
Company will be successful in overcoming these risks or any other problems
encountered in connection with joint ventures or other strategic alliances, or
that such transactions will not have a material adverse effect on the Company's
business, financial condition and results of operations.
THE SUCCESS OF THE COMPANY'S GROWTH STRATEGY IS DEPENDENT ON CONTINUED GROWTH OF
THE INTERNET
The Company's Internet strategy is a key component in the Company's overall
business strategy. Future sales and profits, which may come, if any, depend in
part upon the widespread acceptance and use of the Internet as an effective
medium of business and communication. Rapid growth in the use of and interest in
the Internet has occurred only recently. As a result, acceptance and use may not
continue to develop at historical rates, and a sufficiently broad base of
consumers may not adopt, and continue to use, the Internet and other online
services as a medium of commerce.
The Internet may not be accepted as a viable long-term commercial marketplace
for a number of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. The success of the Company's business strategy
will depend, in large part, upon third parties maintaining the Internet
infrastructure to provide a reliable network backbone with the speed, data
capacity, security and hardware necessary for reliable Internet access and
services.
GOVERNMENTAL REGULATION OF THE INTERNET AND DATA TRANSMISSION OVER THE INTERNET
COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS
Laws and regulations directly applicable to communications or commerce over the
Internet are becoming more prevalent. The laws regarding the Internet, however,
remain largely unsettled, even in areas where there has been some legislative
action. It may take years to determine whether and how existing laws such as
those governing privacy, libel and taxation apply. The rapid growth and
development of the market for online commerce may prompt calls for more
stringent consumer protection laws, both in the United States and abroad, that
may impose additional burdens on companies conducting business online. The
adoption or modification of laws or regulations relating to Internet businesses
could adversely affect the Company's ability to attract and serve customers.
THE COMPANY'S BUSINESS MAY BE ADVERSELY AFFECTED IF THE COMPANY DOES NOT KEEP UP
WITH TECHNOLOGICAL CHANGES
The Internet is characterized by technological change. The Company's success
will depend, in part, on the Company's ability to enhance its existing services,
develop new services that address the needs of the Company's prospective
customers and respond to technological advances and practices on a timely basis.
The development of a web site entails significant technical, financial and
business risks. There can be no assurance that the Company will successfully
implement new technologies or adapt the Company's web site, proprietary
technology and transaction-processing systems to customer requirements or
emerging industry standards. If the Company is unable, for technical, legal,
financial or other reasons, to adapt in a timely manner in response to changing
market conditions, such inability could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
Page 12
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY COMPETE
The Company operates in a competitive segment of a highly competitive industry.
Most of the Company's competitors do not yet offer the full range of Internet
professional services that the Company believes its target market requires, but
many are currently offering some of these services. These competitors at any
time could elect to focus additional resources in the Company's target markets,
which could materially adversely affect the Company's business, prospects,
financial condition and results of operations. Many of the Company's current and
potential competitors have longer operating histories, larger customer bases,
longer relationships with clients and significantly greater financial,
technical, marketing and public relations resources than the Company. In
addition, in pursuing strategic acquisition opportunities, the Company may
compete with other companies with similar growth strategies, some of which may
be larger and have greater financial and other resources than the Company does.
Competition for acquisition targets could also result in increased prices and a
diminished pool of companies available for acquisition.
THE COMPANY DOES NOT ANTICIPATE PAYING DIVIDENDS
No dividends have been paid on the Company's common shares in the past, and the
Company does not anticipate the payment of cash dividends on shares of the
Company's common stock in the foreseeable future. If the Company's operations
become profitable, it is anticipated that for the foreseeable future any income
received therefrom would be devoted to the Company's future operations and that
cash dividends would not be paid to the Company's stockholders.
THERE IS A LIMITED PUBLIC MARKET FOR THE COMPANY'S COMMON SHARES, AND IF AN
ACTIVE MARKET DOES NOT DEVELOP, INVESTORS MAY HAVE DIFFICULTY SELLING COMMON
SHARES OBTAINED THROUGH PURCHASE OF UNITS AND THROUGH EXERCISE OF THE DETACHABLE
WARRANTS
There is a limited public market for the Company's common stock. The Company
cannot predict the extent to which investor interest in the Company will lead to
the development of an active trading market or how liquid that trading market
might become or remain. If a trading market does not develop or is not
sustained, it may be difficult for investors to sell shares of the Company's
common stock at a price that is attractive. As a result, an investment in the
Company's Units may be illiquid and investors may not be able to liquidate their
investment readily or at all when they desire to sell.
THE COMPANY'S BOARD OF DIRECTORS HAS THE AUTHORITY TO ISSUE PREFERRED STOCK
WHICH IF ISSUED COULD BE HIGHLY PREJUDICIAL TO HOLDERS OF COMMON STOCK
The Company's Board of Directors has the authority, without further action by
the Company's stockholders, to issue up to 1,000,000 shares of preferred stock,
in one or more series and to fix the privileges and rights of each series; none
of which are currently issued or outstanding. These privileges and rights may be
greater than those of the common stock. The Company's Board of Directors,
without further stockholder approval, can issue preferred stock with voting,
conversion or other rights that could adversely affect the voting power and
other rights of the holders of common stock. This type of "blank check preferred
stock" makes it possible for the Company to issue preferred stock quickly with
terms calculated to delay or prevent a change in the Company's control or make
removal of the Company's management more difficult. The issuance of this
preferred stock could be highly prejudicial to common stock holders.
CERTAIN OF THE COMPANY'S SUBSIDIARIES ARE INVOLVED IN BUSINESSES WITH RISKS FOR
WHICH THEY ARE NOT INSURED
The Company's Integrated Power Solutions, Inc. (IPS) subsidiary sells
uninterruptible power supplies (UPS) that back up substantial computer networks.
If a UPS sold by IPS were to fail and bring down a large computer network, IPS
and the Company could both be sued for damages caused by this failure. IPS and
the Company's current insurance coverage may not cover all of the damages
resulting from such a catastrophe. The Company's Seven Corporation subsidiary
performs computer network engineering services for the District of Columbia
government in mission critical areas of the government. Were a District of
Columbia government network to fail, Seven Corporation and the Company could
both be sued for damages caused by this failure. Seven Corporation and the
Company's current insurance coverage may not cover all of the damages resulting
from such a catastrophe. Other Company divisions carry comparable risks.
THE COMPANY IS A HOLDING COMPANY WITH MULTIPLE SUBSIDIARIES. LIABILITIES OF ANY
ONE OR MORE OF THESE SUBSIDIARIES COULD BE IMPOSED ON OTHER OF THE SUBSIDIARIES
OR ON THE COMPANY
The Company is a holding company with multiple operating subsidiaries. These
subsidiaries work together from time to time. Were litigation to be instituted,
a successful plaintiff might attempt to "pierce the corporate veil" or seek
"reverse veil piercing" of one of the Company's subsidiaries and attempt to hold
another subsidiary and/or the Company itself liable for the alleged wrongdoing
of the subsidiary principally targeted by the litigation. Were the plaintiff in
such litigation successful, the resulting judgment could be highly prejudicial
to the corporation or other business entity subsidiary of the Company and/or
highly prejudicial to the Company itself were a judgment entered against the
subsidiary not directly responsible for the alleged wrong and/or against the
Company itself.
THE PLANGRAPHICS MERGER MAY NOT MATERIALIZE, OR IF IT DOES IT MAY NOT BE
SUCCESSFULLY INTEGRATED INTO THE COMPANY
The Company has entered into a letter of intent to acquire, by way of merger,
PlanGraphics, Inc. Such proposed acquisition is subject to a number of closing
conditions as well as completion of due diligence by the Company and approval of
the PlanGraphics shareholders. The Company can give no assurances that the
proposed merger with PlanGraphics will in fact be consummated, or if
Page 13
consummated will be successfully integrated into the Company's ongoing business
operations. PlanGraphics has a history of losses, and while the Company believes
it can generate substantial savings from synergies between the two companies, no
assurances can be given that such synergies or savings associated therewith will
in fact materialize. As such, should the proposed acquisition of PlanGraphics in
fact be consummated by the Company, no assurances can be given that the Company
will in fact be able to achieve profitability with its PlanGraphics acquisition.
THE COMPANY EXECUTED A FORBEARANCE AND CONSENT AGREEMENT WITH ITS PRINCIPAL
LENDER COMERICA BANK ON NOVEMBER 17, 2004.
As of November 17, 2004, the Company was in technical default of the loan
covenants under the terms of the loan agreements between the Company and
Comerica Bank, which provides the Company with a $500,000 secured credit line.
The technical defaults are a failure, as of August 31, 2004 and thereafter, to
maintain a so-called "quick ratio" of 1.0 to 1.0 and a tangible net worth of
$190,000. Comerica and the Company entered into a forbearance agreement under
which Comerica will forbear in taking action against the Company for these
technical defaults until at least February 28, 2005, by which time the Company
believes it will once again be in compliance with the existing loan covenants.
However, should the Company be unable to cure these defaults, Comerica Bank
could, following the conclusion of the forbearance period, foreclose on all or a
portion of the collateral in which Comerica holds a senior security interest
(which includes capital stock in operating subsidiaries of the Company, cash and
accounts receivable) and thereby severely prejudice the Company. To cure this
default, the Company commenced a private placement of shares of its common stock
during the month of December 2004 and in connection therewith is seeking to
raise up to an additional $1,250,000. As of January 12th 2005 the Company has
received proceeds of $500,000, which amount is sufficient to cure the Company's
technical default with Comerica bank. The Company anticipates that this private
placement will be completed prior to February 28, 2005, although no assurance
can be given that the Company will be successful in this regard.
EMPLOYEES
As of September 30, 2004, IceWEB employed a total of 41 employees and 12
consultants, all of whom work full-time. The Company has no collective
bargaining agreements with any unions and believes that the overall relations
with its employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 12,000 square feet of office space on a
nineteen (19) month sub-lease that ends on December 31, 2005, for an average of
approximately $11,437 per month through December 2005. The Company believes that
these facilities are adequate to meet current and foreseeable requirements and
that suitable additional or substitute space will be available on commercially
reasonable terms if needed.
The Company also leases 2,000 square feet of office space that ends on June 30,
2005 at 1455 Pennsylvania Ave. NW Washington DC. The price per month is $2,100.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company has submitted no matters to a vote of security holders during the
fourth quarter of the fiscal year ended September 30, 2004, through the
solicitation of proxies or otherwise. Effective as of October 13th 2004, the
Company affected a 10 for one forward split of its common stock in accordance
with the 14C filed with the SEC. Other than the foregoing the company has
submitted no matters to a vote of security holders during fiscal 2004.
Page 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the OTCBB under symbol ICEW. On September 30,
2004, there were 488 registered holders of record of our common stock. The high
and low common stock prices per share were as adjusted for the 10 for one
forward split effective on October 12th is as follows:
QUARTER ENDED DEC. 31 MAR. 31 JUNE 30 SEPT. 30
FISCAL 2003
COMMON STOCK PRICE PER SHARE:
High $0.023 $0.021 $0.031 $0.044
Low $0.010 $0.010 $0.009 $0.019
--------------------------------------------------------------------------------
FISCAL 2004
COMMON STOCK PRICE PER SHARE:
High $0.041 $0.065 $0.051 $0.059
Low $0.016 $0.016 $0.032 $0.024
--------------------------------------------------------------------------------
FISCAL 2005
COMMON STOCK PRICE PER SHARE:
High $0.047
Low $0.030
--------------------------------------------------------------------------------
As of September 30, 2004, the Company had 434,399,240 shares of Common Stock
issued and 421,299,240 outstanding with a par value of $0.001 per share as
adjusted for the 10 for one forward split effective on October 12th are as
follows. Quotations above reflect reported historical quotes obtained from
Bigcharts.com and Yahoo.com as adjusted for the 10 for one forward split
effective on October 12th are as follows, without retail markup, mark down or
commission, and may not represent actual transactions As of January 12th, 2005
the stock price for our common shares was .038 cents.
The Company has not previously paid cash dividends on its Common Stock. The
payment of cash dividends from current earnings is not prohibited by any
agreements to which the Company is a party, but is subject to the discretion of
the Board of Directors and will be dependent upon many factors, including the
Company's earnings, its capital needs and its general financial condition. The
Company currently does not intend to pursue a policy of payment of dividends,
but rather to utilize any excess proceeds to finance the development and
expansion of its business.
RECENT SALES OF UNREGISTERED SECURITIES
No sales of unregistered securities took place during the 4th quarter of fiscal
2004.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
OVERVIEW
IceWEB, Inc. is a diversified technology company headquartered in Herndon, VA,
with satellite offices in Portland, OR, Miami, FL and Charlotte, NC. Since our
formation in 2001, our business plan has evolved. Part of this evolution has not
only effected the technical direction of our product line, but has altered our
approach to growth. As with most small startups, we were adversely affected by
the terrorist's attacks of September 11, 2001. Economic conditions post-9/11
dictated a conservative approach to organic growth through research and
development of products and shifted our expansion focus towards government
contracts and growth by acquisitions. As a result, we have completed five
transactions in the last 24 months. We believe that these acquisitions and the
internal growth over the last 24 months have positioned our Company uniquely to
deliver an integrated solution of customized software, services and hardware.
Today, we offer skilled technical consulting services, a full catalog of third
party hardware and software and a branded suite of online training, content
management (CMS), collaboration, portal and integration products.
Page 15
Our future growth and the continued support of a comprehensive product line is
dependent upon a significant growth in revenues from software licenses and the
availability of additional working capital to fund the next version of software.
While we continue to explore acquisition opportunities, our short-term focus is
development and launch of the new version of IceWEB software know as "Smart
Enterprise Suite 3.0." This version of the IceWEB product line will include new
features, including wireless and PDA connectivity, more robust reporting tools
and a tightly integrated technology platform. The product will be offered as an
application service over the internet. It will include functionality that allows
the customer to click and choose what service is needed and the length of which
time the software is to be used.
In reaction to customer demands and recent market data from organizations such
as Gartner, we have over the last six months made an internal investment of
approximately $300,000 in research and development in order to consolidate our
suite of products into a single Smart Enterprise Suite offering for small and
medium sized businesses and government institutions. Our goal is to launch the
Smart Enterprise Suite at the end of the second quarter of fiscal 2005. In the
third quarter of fiscal 2003 we launched, IPS, a subsidiary which is an offshoot
of our integration business to supply networking infrastructure and support for
government and commercial customers.
Our client base has also broadened over the last three quarters by marketing and
selling our products, services and solutions to businesses, nonprofits and
government institutions in two key regions - Metropolitan Miami, Florida and
Metropolitan Washington, D.C. Washington, D.C. provides us with certain key
advantages including proximity to the Federal government and many of the large
systems integrators who work directly with Federal customers and the region's
traditional economic condition which tends to be more stable and self-sustaining
than other regions. Miami and its surrounding areas were targeted because they
provide us with the opportunity to expand our reach in the hospitality vertical
market, due to its destination as a vacation spot.
In order to reach potential customers in these key areas, we are utilizing a
combination of direct sales, lead generation activities, web site marketing,
search engine optimization and strategic partnerships. In addition, we believe
that the contracts obtained during recent acquisitions, combined with the
breadth and depth of experience of our management team, have created momentum in
consulting services sales
We have been the subject of a going concern opinion from our independent
auditors.
Our independent auditors have added an explanatory paragraph to their audit
opinions issued in connection with the 2004, and 2003 financial statements which
states that our Company is dependent on outside financing and has had losses
since inception that raise substantial doubt about our ability to continue as a
going concern. Our financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
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 - Generally, revenues from sales of products are recognized
when products are shipped unless we have 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.
We use the Percentage of Completion method to recognize revenue and expense from
contracts extending through fiscal quarters. Revenue from services is recorded
each month as it is earned. 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.
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.
RESULTS OF OPERATIONS
REVENUES
We generate revenues from application development and network management
services and integration technology, infrastructure solutions and third party
hardware sales. For the year ended September 30, 2004, approximately 45% and
approximately 55%, respectively, were derived from these sources. For the year
ended September 30, 2004, we generated revenues of $6,662,652 compared to
$1,681,505 for the prior year ended September 30, 2003, an increase of
approximately 296%. The primary reason for the increases in our revenues is the
successful integration of the subsidiaries acquired over the last 18 months.
Page 16
COST OF SALES
Our cost of sales consists of products purchased for resale, salaries of
technical personnel, third party contractors, hosting and sales commissions. For
the year ended September 30, 2004, cost of sales was $5,015,494, or
approximately 75% of revenues, compared to $1,264,338, or approximately 75% of
revenues, for the prior year ended September 30, 2003. There was no change in
our gross margin percentages from the prior fiscal year. The primary reason is
that over the course of the year, we increased the sales of both the services
and infrastructure and hardware, at an equal rate.
TOTAL OPERATING EXPENSES
Our total operating expense increased approximately 301% for the year ended
September 30, 2004 as compared to the year ended September 30, 2003. These
increases include:
Marketing and Selling - our marketing and selling expense consists of personnel
costs, public relations, advertising, marketing programs, lead generation,
travel and trade shows. For the year ended September 30, 2004, marketing and
selling costs were $125,414 as compared to $20,104 for the prior year ended
September 30, 2003, an increase of $105,310 or approximately 524%. These
increases were the result of additional marketing personnel, trade show events,
online web marketing, advertising and print advertising during fiscal 2004.
Research and development - our research and development expense consists
primarily of personnel costs related to the development of the software
products. For the year ended September 30, 2004, research and development
expenses were $580,053 as compared to $0 for the prior year ended September 30,
2003. The research and development expenses in fiscal 2004 are related to
efforts to further develop and enhance certain software products acquired by us
during this fiscal year.
General and administrative expense - our general and administrative expense
consists primarily of personnel costs, rent, legal, accounting, human resources,
telecommunications, office supplies and corporate governance and compliance. For
the year ended September 30, 2004, general and administrative expenses were
$1,947,392 as compared to $560,245 for the prior year ended September 30, 2003,
an increase of $1,387,147 or approximately 247%. These increased general and
administrative expenses reflect increases in personnel costs and other fixed
expenses resulting from acquisitions made by us during fiscal 2004. Like many
companies that grow through mergers and acquisition, we have recently
experienced attrition in our technical consulting division. This attrition has
not presently impacted client delivery as there is skill set overlap in many
areas. As we continue to implement our business strategies, we expect general
and administrative expenses to potentially decrease as a percentage of sales due
to the process efficiencies we have already put in place. At this time, we do
not anticipate any significant changes in the number of employees through hiring
or firing practices, however, any additional acquisitions could result in
increased general and administrative expenses.
DEPRECIATION EXPENSE
Depreciation expense is provided by use of the straight-line method over the
estimated useful lives of the assets. The property and equipment are stated at
cost. For the year ended September 30, 2004, depreciation expense was $52,716 as
compared to $95,242 for the prior year ended September 30, 2003. The decrease is
primarily due to the fact that the majority of the assets have already been
fully depreciated.
INTEREST EXPENSE
Interest expense consists primarily of the amounts accrued on the notes payable
to John R. Signorello and a third party shareholder as described in Note 5 of
the Notes to Consolidated Financial Statements and the interest paid to Comerica
Bank on the line of credit as described in Note 6 of the Notes to Consolidated
Financial Statements, appearing elsewhere herein. For the year ended September
30, 2004 interest expense was $60,879 as compared to $30,736 for the prior year
ended September 30, 2003.
INCOME TAXES
Because we incurred net operating losses in the years ended September 30, 2004
and 2003, we paid no federal, state or foreign income taxes in those periods. We
have also not recognized any tax benefits for the related tax operating loss
carry forwards and may not until we conclude that such benefits will be
utilized.
Overall, our loss was ($1,087,008) or ($.00) per share for the fiscal year ended
September 30, 2004 compared to ($105,844) or ($.00) for the prior year ended
September 30, 2003. The increased loss per share in 2004 is due primarily to the
increased expenses due to the acquisitions that occurred during the year, which
include cost for research and development of the software products acquired.
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.
Page 17
In order for the company to continue its current exponential growth rates and
secure market position, the Company will need to raise additional capital. There
are no assurances that the Company will obtain the additional capital.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2004, we had a cash balance of $178,781 and a working capital
deficit of $1,049,557. The report of our independent auditors on our financial
statements for the year ended September 30, 2004 contains an explanatory
paragraph regarding our ability to continue as a going concern. Net cash used in
operations was ($794,861) for the year ended September 30, 2004, as compared to
net cash used in operations of ($204,090) for the prior year ended September 30,
2003. For the year ended September 30, 2004, we used cash to fund our loss of
($1,087,008) offset by non-cash items such as depreciation expense of $52,716
and common stock issued for a settlement in the amount of $2,600, as well as
changes in assets and liabilities of $236,831.
Net cash provided by investing activities for the year ended September 30, 2004
was $27,454 as compared to net cash used in investing activities of ($215,629)
for the prior year ended September 30, 2003. For the year ended September 30,
2004, we used ($10,183) in capital expenditures and received $37,637 in cash
from the acquisition of subsidiaries. For the year ended September 30, 2003, we
used ($40,763) in capital expenditures and recorded ($174,866) in goodwill
related to the acquisitions of Interlan Corporation and The Seven Corporation.
Net cash provided by financing activities for the year ended September 30, 2004
was $841,874 as compared to $515,023 for the prior year ended September 30,
2003. For the year ended September 30, 2004, we received $334,269 from the line
of credit as described in Note 6 of the Notes to Consolidated Financial
Statements appearing elsewhere herein. We also received $413,600 from the sale
of common stock, $85,311 from the exercise of common stock options, and $21,694
in net proceeds from related parities. This is offset by the re-purchase of
1,300,000 shares of common stock for ($13,000).
Our operations continue to use more cash than they currently generate. We have
expended funds not only for our continuing operations but to fund research and
development costs associated with our software. We currently do not have any
commitments for capital expenditures. Because of the continued need for
substantial amounts of working capital to fund the growth of the business and to
pay our operating expenses, we expect to continue to experience negative
operating and investing cash flows for the foreseeable future. While we
presently expect an increase in software and network engineering services as
well as third party hardware sales into fiscal 2005, which would have a positive
effect on the operating cash flow, as a result of the current uncertainty of the
these 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
and there are no assurances additional working capital will be available to us
when needed, if at all. If we do not have sufficient working capital to fund our
ongoing operations, our ability to implement our business model and continue to
grow our company will be adversely affected.
As of November 17, 2004, the Company was in technical default of the loan
covenants under the terms of the loan agreements between the Company and
Comerica Bank, which provides the Company with a $500,000 secured credit line.
The technical defaults are a failure, as of August 31, 2004 and thereafter, to
maintain a so-called "quick ratio" of 1.0 to 1.0 and a tangible net worth of
$190,000. Comerica and the Company entered into a forbearance agreement under
which Comerica will forbear in taking action against the Company for these
technical defaults until at least February 28, 2005, by which time the Company
believes it will once again be in compliance with the existing loan covenants.
However, should the Company be unable to cure these defaults, Comerica Bank
could, following the conclusion of the forbearance period, foreclose on all or a
portion of the collateral in which Comerica holds a senior security interest
(which includes capital stock in operating subsidiaries of the Company, cash and
accounts receivable) and thereby severely prejudice the Company. To cure this
default, the Company commenced a private placement of shares of its common stock
during the month of December 2004 and in connection therewith is seeking to
raise up to an additional $1,250,000. As of January 12th 2005 the Company has
received proceeds of $500,000, which amount is sufficient to cure the Companies
technical default with Comerica bank. The Company anticipates that this private
placement will be completed prior to February 28, 2005, although no assurance
can be given that the Company will be successful in this regard.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and oral statements made from time to time
by the Company may contain so-called "forward-looking statements," all of which
are subject to risks and uncertainties. One can identify these forward-looking
statements by their use of words such as "expects," "plans," "will,"
"estimates," "forecasts," "projects" and other works of similar meaning. One can
identify them by the fact that they do not relate strictly to historical or
current facts. These statements are likely to address the Company's growth
strategy, financial results, and product and development programs. One must
carefully consider any such statement and should understand that many factors
could cause actual results to differ from the Company's forward-looking
statements. These factors include inaccurate assumptions and a broad variety of
other risks and uncertainties, including some that are known and some that are
not. No forward-looking statement can be guaranteed and actual future results
may vary materially.
The Company does not assume the obligation to update any forward-looking
statement. One should carefully evaluate such statements in light of factors
described in the Company's filings with the Securities and Exchange Commission,
especially on Forms 10-KSB, 10-QSB and 8-K. In various filing the Company has
identified important factors that could cause actual results to differ from
expected or
Page 18
historic results. The Company notes these factors for investors as permitted by
the Private Securities Litigation Reform Act of 1995. One should understand that
it is not possible to predict or identify all such factors. Consequently, the
reader should not consider any such list to be a complete list of all potential
risks or uncertainties.
ITEM 7. FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
IceWEB, Inc.
We have audited the accompanying consolidated balance sheet of IceWEB, Inc. and
Subsidiaries as of September 30, 2004 and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit 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. 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 audit provides 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, 2004 and the consolidated results of
their operations and their cash flows for the year 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 15 to
the consolidated financial statements, the Company had net losses and cash used
in operations of $1,087,008 and $794,861 respectively, for the year ended
September 30, 2004. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regards to these
matters are also described in Note 15. 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
New York, New York
January 11, 2005
Page 19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors and Stockholders of IceWEB, Inc. and subsidiaries:
We have audited the accompanying consolidated statements of operations,
stockholders' deficit and cash flows of IceWEB, Inc. and subsidiaries for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
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 results of its operations and its cash
flows for the year September 30, 2003, 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 Notes to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Notes. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/Daszkal Bolton LLP
Daszkal Bolton LLP
Boca Raton, Fl
January 14, 2004
Page 20
Iceweb, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
September 30, 2004
Assets
Current assets:
Cash $ 178,781
Accounts receivable, net 1,062,707
------------------------------------------------------------------------------
Total current assets 1,241,488
Property and equipment, net 86,251
Goodwill 1,812,999
Deposits 16,170
------------------------------------------------------------------------------
Total assets $ 3,156,908
------------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Note payable $ 461,269
Accounts payable 1,233,708
Accrued expenses 152,577
Deferred revenue 19,030
Notes payable - related parties 424,461
------------------------------------------------------------------------------
Total current liabilities 2,291,045
------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock (par value $.001; 1,000,000 shares
authorized and no shares issued and outstanding) -
Common stock (par value $.001; 1,000,000,000 shares authorized,
434,399,240 issued, and 421,399,240 outstanding) 434,399
Subscription receivable (52,000)
Additional paid in capital 4,145,404
Accumulated deficit (3,648,940)
Treasury Stock, at cost, (13,000,000 shares) (13,000)
------------------------------------------------------------------------------
Total stockholders' equity 865,863
------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,156,908
------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 21
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended September 30, 2004 and 2003
2004 2003
------------------------------------
Revenue $ 6,662,652 $ 1,681,505
Cost of sales 5,015,494 1,264,338
------------------------------------------------------------------------------
Gross profit 1,647,158 417,167
Operating expenses
Marketing and selling 125,414 20,104
Stock compensation expense 2,600 -
Research and development 580,053 -
Depreciation expense 52,716 95,242
General and administrative 1,947,392 560,245
------------------------------------------------------------------------------
Total operating expense 2,708,175 675,591
Operating loss (1,061,017) (258,424)
Rental revenue 34,888 -
Change in estimate - 183,316
Interest expense (60,879) (30,736)
------------------------------------------------------------------------------
Net loss $ (1,087,008) $ (105,844)
------------------------------------------------------------------------------
Basic & diluted loss per common share $ (0.00) $ (0.00)
------------------------------------------------------------------------------
Weighted average common shares
outstanding - basic and diluted 403,949,470 319,004,670
------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 22
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended September 30, 2004 and 2003
Common Stock Subscription Additional Accumulated Treasury Stock
Shares Amount Receivable Paid-In Deficit Share Amount Total
----------- -------- ------------ ---------- ----------- ----------- -------- ----------
Balance at
September 30, 2002 301,128,780 $301,130 $ - $1,341,049 ($2,456,088) - $ - $ (813,909)
Common stock issued 47,700,000 47,700 - 374,300 - - - 422,000
Equity issued for services 1,680,000 1,680 - 47,480 - - - 49,160
Common stock issued
in satisfaction -
of liabilities 5,500,000 5,500 - 104,965 - - - 110,465
Common stock issued in
acquisitions 5,000,000 5,000 - 91,000 - - - 96,000
Net loss for the year - - - - (105,844) - - (105,844)
-----------------------------------------------------------------------------------------------------
Balance at
September 30, 2003 361,008,780 361,010 - 1,958,794 (2,561,932) - - (242,128)
Sale of common stock 31,200,000 31,200 - 382,400 - - - 413,600
Common stock issued in
acquisitions 30,310,460 30,309 - 1,676,179 - - - 1,706,488
Common stock issued for
the exercise of common
stock options 12,080,000 12,080 (52,000) 125,231 - - - 85,311
Common stock issued for
settlement 100,000 100 - 2,500 - - - 2,600
Common stock cancelled (300,000) (300) - 300 - - - -
Treasury stock - - - - - (13,000,000) (13,000) (13,000)
Net loss for the year - - - - (1,087,008) - - (1,087,008)
-----------------------------------------------------------------------------------------------------
Balance at
September 30, 2004 434,399,240 $434,399 $(52,000) $4,145,404 ($3,648,940) (13,000,000) $(13,000) $ 865,863
=====================================================================================================
See accompanying notes to consolidated financial statements
Page 23
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended September 30, 2004 and 2003
2004 2003
------------ -----------
CASH FLOWS FROM OPERATIONS:
Net loss $ (1,087,008) $ (105,844)
Adjustments to reconcile net loss to net cash in operating activities:
Common stock and options issued for settlement 2,600 -
Depreciation 52,716 95,242
Changes in operating assets and liabilities, net of acquisitions:
(Increase) decrease in:
-----------------------
Accounts receivable (672,934) (303,201)
Prepaid expense 8,056 (938)
Deposits (3,505) (3,132)
Increase (decrease) in:
-----------------------
Accounts payable 856,363 9,163
Accrued expense 43,236 91,700
Deferred revenue 5,615 12,920
--------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (794,861) (204,090)
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (10,183) (40,763)
Cash acquired in acquisitions, net 37,637 -
Acquisition of subsidiaries - (174,866)
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 27,454 (215,629)
--------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments on) Proceeds from line of credit 334,269 (206,075)
Payments to related parties (43,805) (54,528)
Proceeds from related party 65,499 98,000
Common stock issued for cash 413,600 -
Exercise of common stock options 85,311 -
Contributed capital - 677,626
Purchase of treasury stock (13,000) -
--------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 841,874 515,023
--------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 74,467 95,304
CASH - beginning of year 104,314 9,010
--------------------------------------------------------------------------------------------------------------------
CASH - end of year $ 178,781 $ 104,314
--------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid for interest $ 6,175 $ -
--------------------------------------------------------------------------------------------------------------------
Cash paid for taxes $ - $ -
--------------------------------------------------------------------------------------------------------------------
Non-cash investing and financing activities:
Common stock issued for acquisitions $ 1,706,488 $ -
--------------------------------------------------------------------------------------------------------------------
Stock subscription receivable $ 52,000 $ -
--------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 24
ICEWEB, INC and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2004 and 2003
NOTE 1--ORGANIZATION
Iceweb Communications, Inc. was originally incorporated in Virginia in March
1996, and then was reincorporated as Iceweb, Inc. in Delaware in September 2001.
The Company first operated as a full service provider of computer systems and
professional services to private sector corporations and to the federal
government under a General Services Administration (GSA) schedule contract for
computer systems and peripherals. The Company acquired the assets of
LearningStream, Inc. in June 2001, which coincided with the transition of the
Company's business model to focus on e-learning. In March 2002, the Company
executed a reverse merger with Disease Sciences, Inc. and began trading publicly
on the OTC Bulletin Board. Under the agreement, the former business of Disease
Sciences was separated from the post merger company. The Company filed the
required documents to record the merger and change the name to Iceweb, Inc.
("the Company") with the Delaware Secretary of State in September 2002. In June
2003, the Company added two subsidiaries, acquiring all of the outstanding stock
of Interlan Corporation and The Seven Corporation. Interlan is a full service
provider of computer equipment and integration services. The Seven Corporation
provides network engineering services. On October 5, 2003, the Company acquired
the software ownership rights and customers of Iplicity, Inc. of Virginia.
Iplicity had developed a complete content management software platform based on
open source architecture to run in any operating environment. On May 13, 2004,
the Company, through its wholly owned subsidiary Propster, Inc., acquired
substantially all of the assets of DevElements, Inc. of Virginia. DevElements is
a professional IT consultancy firm that designs, develops and implements
web-based productivity solutions for the customers.
On October 13, 2004, the Company effected a 10:1 forward split of its common
stock. Additionally, the Company amended its Articles of Incorporation to
increase its authorized number of shares to 1,000,000,000. All amounts presented
in these financial statements have been retroactively restated to give effect to
the forward split of the Company's stock.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(b) Accounts Receivable
Accounts receivable consist of normal trade receivables. The Company recorded an
allowance of $28,446 for the year ended September 30, 2004. Management performs
ongoing evaluations of its accounts receivable and customer base. Managements
believe that all remaining receivables are fully collectable. Bad debt expense
is $100,244 and $0 for the years ended September 30, 2004 and 2003,
respectively.
(c) Revenue Recognition
Generally, revenues from sales of products are recognized when products are
shipped unless the Company has obligations remaining under sales or licensing
agreements, in which case revenue is either deferred until all obligations are
satisfied or recognized ratably over the term of the contract. The Company uses
the percentage of completion method to recognize revenue and expense from
contracts extending through fiscal quarters. Revenue from services is recorded
each month as it is earned. 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.
(d) Property and equipment
Property and equipment are stated at cost, and depreciation is provided by use
of the straight-line method over the estimated useful lives of the assets.
(e) Earnings Per Share
The Company computes earnings per share in accordance with Statement of
Accounting Standards No. 128, "Earnings per Share ("SFAS No. 128"). Under the
provisions of SFAS No. 128, basic earnings per share is computed by dividing the
net income (loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares consist of the common shares issuable upon
the exercise of stock options and warrants (using the treasury stock method) and
upon the conversion of convertible preferred stock (using the if-converted
method). Potentially dilutive common shares are excluded form the calculation if
their effect is antidilutive.
Page 25
(f) Stock Based Compensation
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25" issued in March 2000, to account for its
fixed plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123 and SFAS No. 148, "Accounting for
Stock-Based compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123, the Company has elected to
continue to apply the intrinsic value-based method of accounting described
above, and has adopted the disclosure requirements of SFAS No. 123 and SFAS No.
148.
(g) 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 revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
(h) Goodwill
Goodwill represents the amount by which the purchase price of a business
acquired exceeds the fair market value of the net assets acquired under the
purchase method of accounting. The Company assesses whether its goodwill and
other intangible assets are impaired as required by SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed of," based on an
evaluation of undiscounted projected cash flows through the remaining
amortization period. If impairment exists, the amount of such impairment is
calculated based on the estimated fair value of the asset. The Company has not
amortized or recognized any impairment of goodwill during the year ended
September 30, 2004.
(i) Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS 153 "Exchanges of Non-Monetary Assets" -
an amendment of APB Opinion No. 29. This Statement amended APB Opinion 29 to
eliminate the exception for non-monetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The adoption of this Standard is not
expected to have any material impact on the Company's financial position,
results of operations or cash flows.
In December 2004, the FASB issued SFAS 123 (revised 2004) "Share-Based Payment".
This Statement requires that the cost resulting from all share-based
transactions be recorded in the financial statements. The Statement establishes
fair value as the measurement objective in accounting for share-based payment
arrangements and requires all entities to apply a fair-value-based measurement
in accounting for share-based payment transactions with employees. The Statement
also establishes fair value as the measurement objective for transactions in
which an entity acquires goods or services from non-employees in share-based
payment transactions. The Statement replaces SFAS 123 "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25 "Accounting for
Stock Issued to Employees". The provisions of this Statement will be effective
for the Company beginning with its fiscal year ending 2007. The Company is
currently evaluating the impact this new Standard will have on its financial
position, results of operations or cash flows.
(j) Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported results of operations or retained earnings.
Page 26
NOTE 3--PROPERTY AND EQUIPMENT
The major classes of property and equipment are as follows:
ESTIMATED
USEFUL LIFE 9/30/2004
----------------- -------------------
Computer equipment 3 years $ 198,406
Computer software 3 years 163,314
Furniture and fixtures 5 years 30,133
-------------------
Total property and equipment 391,853
Less: accumulated depreciation (305,602)
-------------------
Property and equipment, net $ 86,251
===================
Depreciation expense for the years ended September 30, 2004 and 2003 was $52,716
and $95,242 respectively.
NOTE 4--OPERATING LEASES
The Company leases facilities in Herndon, VA for office space and developmental
work through December 2005. During 2004, the Company negotiated to lease office
space at its current location, as the prior lease expired in April 2004. Total
rental expense for the years ended September 30, 2004 and 2003 was $103,037 and
$49,875, respectively. The Company also leases facilities for one of its
subsidiaries at $2,100 per month. This lease continues through June 30, 2005.
The Company assumed responsibility for the remainder of the office lease of
Iplicity, Inc., which was acquired in the beginning of the current fiscal year.
The monthly rental expense for this space is $3,885. The Company has sub-leased
this space beginning November 1, 2003 through March 31, 2005, for a monthly
payment of $3,172. The total of all rental payments for the term of the sublease
were paid up-front. As of September 30, 2004, $34,888 of sub-lease rental income
and deferred revenue includes $19,030 representing sub-lease income for October
2004 through March 2005.
The Company also assumed responsibility for four lease agreements with Dell
Financial, for computer equipment, and one lease with GE Capital for an office
copy and fax machine. These leases were entered into by the companies acquired
during the year. The total minimum lease obligation for the office space and
equipment leases combined for the next five fiscal years is as follows:
Fiscal Year Amount
----------- ------
2005 $ 191,685
2006 $ 57,541
2007 $ 2,798
-------------
$ 252,024
=============
NOTE 5--RELATED PARTY TRANSACTIONS
At September 30, 2004, the Company had a note payable to John R. Signorello, the
Chairman and CEO, for $109,176 plus accrued interest of approximately $44,490.
This note bears interest at a rate of 12.5% per annum and is due on-demand.
At September 30, 2004, the Company had a note payable to one of its shareholders
for $150,000 plus accrued interest of approximately $43,607. This note bears
interest at a rate of 12.5% per annum and is due on-demand.
At September 30, 2004 other Stockholders/Employees have loans totaling $77,188.
These notes are non-interest bearing and are due on or before December 31, 2004.
NOTE 6--NOTE PAYABLE
On July 21, 2004, the Company entered into a Loan and Security agreement with
Comerica Bank, to obtain a revolving credit line in the amount of $500,000. At
September 30, 2004, the amount outstanding was $461,269. The term of the
agreement is 364 days from the date of closing. The terms of the agreement give
Comerica Bank a first position on the Company's debt. In addition this note is
collateralized by the assets of the Company. Advances on the credit line bear
interest at a variable rate equal to one (1) percentage point above the Prime
Rate. The Prime Rate is defined as that most recently announced by Comerica Bank
as its "prime rate", whether or not such rate is the lowest available from the
Bank. The agreement includes financial covenants for a Quick Ratio of at least
1.00 to 1.00 and Tangible Net Worth of $190,000 through January 30, 2005. The
Tangible Net Worth increases incrementally thereafter.
Page 27
At September 30, 2004, the Company does not meet the financial covenants for
Quick Ratio and Tangible Net Worth and is therefore in default per the terms of
the agreement. On November 18, 2004, the Company executed a Forbearance and
Consent agreement with Comerica Bank, which recognizes the default and contains
certain forbearances by the Bank from enforcing rights and exercising remedies
in connection with the default.
NOTE 7--CONCENTRATION OF CREDIT RISK
The Company maintains its cash bank deposits at various financial institutions
which, at times, may exceed federally insured limits. Accounts are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At September
30, 2004 the Company had approximately $75,030 in excess of FDIC insured
limites. The Company has not experienced any losses in such accounts.
NOTE 8--MAJOR CUSTOMERS
Sales to two customers represented approximately 34% and 27% of total sales for
the years ended September 30, 2004 and 2003, respectively. As of September 30,
2004 approximately 36% of the Company's accounts receivable were due from these
two customers.
NOTE 9--INCOME TAXES
As of September 30, 2004 the Company had an unused net operating loss carry
forward of approximately $3,533,823 available for use on its future corporate
federal tax returns. The Company's evaluation of the tax benefit of its net
operating loss carry forward is presented in the following table. The tax
amounts have been calculated using the Company's effective income tax rate
resulting from the use of graduated rates.
2004
----
Deferred tax asset:
Tax benefit of net operating loss carry forward $ 1,325,184
Tax provision of accumulated depreciation (6,607)
Tax benefit of allowance for doubtful accounts 15,531
Tax benefit of accumulated depreciation -
Less: valuation allowance (1,334,108)
-------------
Total deferred tax asset $ -
The table below summarizes the differences between the Company's effective tax
rate and the statutory federal rate as follows for fiscal 2004:
2004
----
Computed "expected" tax expense (benefit) (34.0)%
State income taxes (3.5)%
Change in valuation allowance 37.50%
Effective tax rate 0.0%
The valuation allowance at September 30, 2004 was $1,334,108. The increase
during fiscal 2004 was $441,018.
Net operating loss carryforward expires between 2021 and 2024. The utilization
of the above loss carry forwards, for federal income tax purposes may be subject
to limitation resulting from changes in ownership.
Note 10--ACQUISITIONS
For the year ended September 30, 2004, two companies were acquired, Iplicity,
Inc. and DevElements, Inc. On October 4, 2003, the Company acquired
substantially all of the assets of Iplicity, Inc. of Virginia. The Company
purchased software licenses, source code, potential patents and trademarks for a
combined stock and, cash value of approximately $632,000. These items are
reflected in the Financial Statements as $65,500 for software and $566,487
goodwill. Iplicity had developed a complete content management software platform
based on open source architecture to run in any operating environment.
Page 28
On May 13, 2004, the Company, through its wholly owned subsidiary Propster,
Inc., acquired substantially all of the assets of DevElements, Inc. of Virginia.
The Company purchased software licenses, source code, potential patents and
trademarks, cash, hardware, and equipment for a combined stock and cash value of
approximately $1,290,000. The Company issued 15,000,000 shares of common stock
and options to purchase 15,000,000 shares of common stock exercisable at a price
of $0.34 per share and expiring May 13, 2009. These items were reflected in the
Financial Statements as $103,107 in cash, $73,101 accounts receivable and $7,118
other current asset, $12,028 fixed assets, $1,094,645 goodwill and $150,000 note
payable to SunTrust Bank, which was assumed by Iceweb in lieu of a cash payment
to DevElements, Inc. The SunTrust liability was an open-ended revolving line of
credit in the amount of $150,000, principle due on demand and interest charged
at a rate of prime plus 2.00%. Pursuant to the Asset Purchase Agreement, the
future owners of DevElements, Inc. could be eligible for contingent cash
payments up to $100,000. Potential payments were to be based on the achievement
of certain cash flow objectives. To date these objectives have not been met.
DevElements, Inc. is a professional IT consultancy that designs, develops and
implements web-based productivity solutions for organizations with operational
efficiency goals. By combining leading edge technologies with an innovative
approach to business process management, the staff builds solutions that
capitalize on an organization's strengths and empower their employees to do
their jobs better, faster and cheaper. From highly creative, interactive,
sales-focused web sites to knowledge management and employee information
systems, DevElements solutions embody the vision of the paperless workplace.
DevElements was incorporated in Virginia in June 1999. At the time of the
acquisition, DevElements employed 30 people.
For the year ended September 30, 2003, two companies were acquired, Interlan
Corporation and The Seven Corporation. In June 2003, the Company acquired all of
the outstanding stock of Interlan and Seven in exchange for $165,000 in cash,
$42,000 paid at closing and $123,000 payable over the next six months and
5,000,000 shares of Iceweb stock. The total value of cash and stock paid was
$261,000, resulting in goodwill recorded of $174,866.
During the first quarter of fiscal 2004, the note payable due to the seller of
The Seven Corporation agreed to reduce the amount owed by $23,000. This amount
was reflected as an adjustment to the purchase price and goodwill.
The following unaudited pro forma consolidated results of operations have been
prepared as if the acquisitions of Interlan, Seven Corporation, Iplicity and
Develements had occurred as of the beginning of the following periods:
Year Ended September 30,
2004 2003
----------- -----------
Net revenues $ 8,053,984 $6,278,890
Net loss from continuing operations $(1,216,214) $ (415,102)
Net loss $(1,249,203) $ (277,447)
Net loss per share $ (0.00) $ (0.00)
Pro forma data does not purport to be indicative of the results that would have
been obtained had these events actually occurred at the beginning of the periods
presented and is not intended to be a projection of future results.
NOTE 11--STOCKHOLDERS' EQUITY
The Company is authorized to issue 1,000,000 shares of Preferred Stock, par
value $.001, with such designations, rights and preferences as may be determined
from time to time by the Board of Directors. There are currently zero shares of
Preferred Stock issued and outstanding.
During the year ended September 30, 2004, the Company sold 31,200,000 shares of
common stock to accredited investors for $413,600 exempt from registration
pursuant to Section 4(2). The investors were sophisticated and had access to the
consolidated financial statements of the corporation. During the year ending
September 30, 2003, the Company sold 47,700,000 shares of common stock for
$422,000.
On October 4, 2003, the Company issued 15,310,460 shares of common stock as part
of the acquisition agreement with Iplicity, Inc (See Note 10).
On May 13, 2004, the Company issued 15,000,000 shares of common stock as part of
the acquisition agreement with DevElements, Inc (See Note 10).
The Company issued 67,759,960 stock options to employees under the Company's
stock option plan (See Note 12).
Page 29
NOTE 12--STOCK OPTION PLAN
During March 2002, the Company adopted the "Management and Director Equity
Incentive and Compensation Plan." The maximum number of shares authorized and
available under the plan is 10,000,000 shares. Under the terms of the plan, the
options expire after 5 years, as long as the employees remain employed with the
Company. The following is a summary of option activity for the years ended
September 30, 2004 and 2003:
Stock option activity during the period is indicated as follows:
OPTIONS AVAILABLE EXERCISE
FOR GRANT OPTIONS PRICE
----------------- ----------- ---------
Balance, September 30, 2002 85,750,000 14,250,000 .02
Granted 39,820,000 .01 - .04
Forfeited (15,050,000) .01 - .04
-------------------------------------------------------------------------
Balance, September 30, 2003 60,980,000 39,020,000 .01 - .04
Granted 67,759,960 .02 - .04
Exercised (12,080,000) .01 - .04
Forfeited (47,636,000) .01 - .04
-------------------------------------------------------------------------
Balance, September 30, 2004 40,856,040 47,063,960 .01 - .04
=========================================================================
Options and Warrants Options and Warrants
Outstanding Exercisable
--------------------------------------------------- -------------------------
Weighted
Number Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise September 30, Contractual Exercise September 30, Exercise
Price 2004 Life (Years) Price 2004 Price
-------- -------------- ------------ -------- -------------- --------
.008-.012 8,655,000 1.60 $ 0.01 3,859,000 $ 0.009
.013-.020 19,235,000 2.20 0.02 7,142,600 0.018
.021-.040 19,173,960 2.09 0.03 6,054,150 0.033
---------- ------ --------- -------
47,063,960 $ 0.02 7,055,750 $ 0.022
========== ====== ========= =======
The employee option grants provide that the option will be canceled ninety days
after an employee leaves employment with the Company.
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
SFAS No. 123 pro forma results are as follows for the fiscal year periods ended
September 30, 2004 and 2003:
2004 2003
---- ----
Actual net loss $1,087,008 $105,844
SFAS 123 Compensation Cost 237,198 53,238
---------- --------
Pro forma net loss $1,324,206 $159,082
========== ========
Pro forma basic and diluted net loss per share ($0.00) ($0.00)
========== ========
Page 30
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The following weighted
average assumptions were used:
Risk free interest rate 4%
Expected dividends 0
Volatility factor 148%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of the Company's options.
NOTE 13--SIGNIFICANT CUMSTOMER INFORMATION AND SEGMENT REPORTING
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, establishes standards for the reporting by business enterprises of
information about operating segments, products and services, geographic areas,
and major customers. The method for determining what information to report is
based on the way that management organizes the operating segments with Iceweb
for making operational decisions and assessments of financial performance.
IceWEB's chief operating decision-maker is considered to be the chief executive
officer (CEO). The CEO reviews financial information presented on a consolidated
basis for purposes of making operating decisions and assessing financial
performance. The financial information reviewed by the CEO is identical to the
information presented in the accompanying consolidated statements of operations.
Therefore, Iceweb has determined that it operates in a single operating segment,
specifically, web communications services. For the periods ended September 30,
2004 and 2003 all material assets and revenues of IceWEB were in the United
States.
NOTE 14--CHANGE IN ESTIMATE
During the year ended September 30, 2003, the Company recognized approximately
$183,316 in reduced expenses. This reduction in expenses related to 2002 accrued
payroll and expenses that were either forgiven or settled for less than the
original amount.
NOTE 15--GOING CONCERN
The Company's auditors stated in their reports on the financial statements of
the Company for the years ended September 30, 2004 and 2003 that the Company is
dependent on outside financing and has had losses since inception that raise
substantial doubt about our ability to continue as a going concern.
For the year ended September 30, 2004, the Company incurred net annual losses of
($1,087,008) and used cash in operations of $794,861. The financial statements
do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that might
be necessary in the event the Company cannot continue in existence.
Management has established plans intended to increase the sales of the Company's
products and services. Management intends to seek new capital from new equity
securities offerings to provide funds needed to increase liquidity, fund growth
and implement its business plan; however, no assurance can be given that the
Company will be able to raise any additional capital.
NOTE 16--SUBSEQUENT EVENTS
a) On October 13, 2004 the Iceweb stock was forward split 10:1. As of that
date, the stock began trading at one-tenth of the share price from the
previous day close. Each shareholder received nine (9) additional
shares for every one share owned.
b) On October 18, 2004, the Company entered into a Letter of Intent to
purchase PlanGraphics, Inc. Subsequently, on November 11, 2004, the
Company received preliminary consent by their banking partner,
Comerica, to move forward with the letter of intent to merge the two
companies. The merger is subject to approval by the PlanGraphics, Inc.
shareholders, and certain terms and conditions as are customary to this
type of transaction.
c) On December 1, 2004, the Company released a Confidential Offering
Memorandum through the investment banking firm of Cove Partners, LLC.
The total offering is 50,000,000 units at a price of $0.025 per unit.
Each unit consists of one share of the Company's common stock together
with two detachable warrants to purchase shares of the Company's common
stock at prices of $0.05 and $0.10 per share, respectively. The five
cent warrants have an approximate 3 year exercise period and the ten
cent warrants have an approximate 5 year exercise period. The minimum
offering is $500,000 for 20,000,000 units and the maximum offering is
$1,250,000 for 50,000,000 units.
d) A related party note payable in the amount of $150,000 plus accrued
interest of approximately $43,607 will be converted to 1,000,000 shares
of pre-split common stock. The related expense will be amortized by the
company over 10 years.
NOTE 17--CONTINGENCIES
From time to time the Company faces litigation in the ordinary course of
business. Currently, we are not involved with any litigation which will have a
material adverse effect on our financial condition.
Page 31
ITEM 8A. 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. 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.
CHANGES IN ACCOUNTANTS
(a) Previous Independent Accountants
Daszkal Bolton LLP, Certified Public Accountants ("Daszkal Bolton"), by
letter dated February 17, 2004, was dismissed as the independent accountant for
IceWeb, Inc. (the "Company") for the reasons specified in the last paragraph of
this item. Daszkal Bolton had been the independent accountant for, and audited
the financial statements of, the Company for the fiscal years ended September
30, 2003 and 2002.
The reports of Daszkal Bolton on the financial statements of the
Company for the past two fiscal years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles, except the reports expressed that the financial
statements were prepared assuming that the Company would continue as a going
concern. This qualification was attributable to the circumstance that the
Company had suffered recurring losses from operations and had a net capital
deficiency.
The Company's Board of Directors unanimously approved the dismissal of
Daszkal Bolton.
In connection with the audits for the two most recent fiscal years and
in connection with Daszkal Bolton's review of the subsequent interim period
preceding dismissal, there have been no disagreements between the Company and
Daszkal Bolton on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which would have caused
Daszkal Bolton to make a reference thereto in its report on the Company's
financial statements for those periods. During the two most recent fiscal years
and prior to the date hereof, the Company had no reportable events (as defined
in Item 304 (a)(1)(v) of Regulation S-K).
(b) Engagement of New Independent Auditors
The Company engaged Sherb & Co., LLP ("Sherb") as its new independent
accountants as of February 13, 2004 as the Company's Board of Directors
determined that it would be more cost effective and efficient using the services
of Sherb. Prior to such date, the Company did not consult with Sherb regarding
(i) the application of accounting principles, or (ii) the type of audit opinion
that might be rendered by Sherb.
ITEM 8B. OTHER INFORMATION
Not applicable
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
NAME AGE TITLE
---- --- -----
John R. Signorello 38 Chairman
Chief Executive Officer
Director
Michael N. Cachine, Sr. 40 Chief Operating Officer Secretary
Director
Andrew Hill 32 Vice President of Product Development
James M. Bond 34 Vice President of Program Management
G. Anthony Munno 42 Vice President of Sales and Marketing
Andrea T. Williams, Ph.D. 50 Vice President of E-Learning
JOHN R. SIGNORELLO - Chairman and Chief Executive Officer
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, the company was acquired by Steelcloud
(Nasdaq: SCLD), and Mr. Signorello remained as Vice President of Sales and
Marketing until November 1998. From 1998 through 2000, Mr. Signorello served as
a Director for a publicly traded Internet Venture Fund. 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.
MICHAEL N. CACHINE, SR. - Chief Operating Officer and Secretary of the Board of
Directors
Mr. Cachine has served as IceWEB, Inc. Secretary of the Board of Directors and
Chief Operating Officer since October 2003. Prior to joining IceWEB, Mr. Cachine
was COO of iPlicity Inc., a web content management software firm, assets of
which were acquired by IceWEB. Previously, Mr. Cachine served as founder and CEO
of Vistranet Communications (a broadband Internet service provider), where he
led the company in closing of $60M in venture funding and ultimately its
acquisition by Mindshift Technologies. From 1986 to 1998, Mr. Cachine was an
executive with MCI Communications where he was responsible for all corporate
technology and the delivery of information services globally for the Fortune 100
enterprise. Mr. Cachine currently serves on the boards of IceWEB, Inc.,
KidMail.Net, Information Systems Security Solutions, Inc., and Information
Networks, Inc. Since 1998, Mr. Cachine has served as the board technology
advisor to the William G. McGowan Charitable Fund, a $130M philanthropic
organization that focuses on charitable giving to medical research, education
and improving the lives of disadvantaged youth. Mr. Cachine attended Strayer
University in Washington DC, with a focus on Computer Information Systems and
Business Management.
ANDREW HILL - Vice President of Product Development
Mr. Hill founded and served as President and CEO of DevElements Incorporated,
assets of which were acquired by IceWEB in May of 2004. Previously, Mr. Hill was
a senior consultant at Computer Associates Inc. (CA), where he served as the
technical lead and
Page 32
architect for the development of the U.S. Department of Commerce Web site and
other high profile web projects. Before joining CA, Mr. Hill worked at
Technology Investments, Inc., where he served as lead developer on Walt Disney
World's Y2K tracking system and managed their Y2K compliance initiative.
Previously, he worked for Creative Technology, Inc. (CTI) and participated on a
number of team projects, including creating a database scanning system for a
U.S. government-based intelligence agency. Before CTI, Mr. Hill worked at Antic,
Inc., where he was a senior developer for the U.S. Marine Corps (USMC)
responsible for designing a state-of-the-art system to help USMC track
Congressional inquiries. Over the years, Mr. Hill has served as an independent
consultant to numerous companies including Dynatrend, EG&G, IBM, Kline
Automotive, Lotus, Nortel and OurBeginning.com. Mr. Hill graduated from the 2002
MindShare Class, an invitation only program for CEOs of promising high tech
start-up companies in the Greater Washington Metropolitan region. Mr. Hill is a
Board member for Starlight Children's Foundation - MidAtlantic, and co-chairs
the organization's annual charity golf tournament.
JAMES M. BOND - Vice President of Program Management
Mr. Bond is President of The Seven Corporation, which is the Consulting Services
division of IceWEB Communications, and has over 15 years of Information
Technology Design and Implementation experience. He has architected and
implemented solutions for medium and large corporate and Government
organizations with some multi-year projects exceeding $50M. Mr. Bond was
previously Vice President with Steelcloud, where he ran the Professional
Services division with over 50 consulting engineers and revenues exceeding $15M
annually. Mr. Bond's earlier work experience includes senior engineering,
architecture/design, and project management responsibilities with companies such
as Electronic Data Systems (EDS) and Computer Sciences Corporation (CSC). Mr.
Bond holds a Bachelor degree from the University of Maryland in Computer Science
and is currently pursuing a Master's Degree. He has been a certified engineer
for products and companies including Microsoft, Novell, 3Com, NetFRAME, Tricord,
and currently serves on the Microsoft Architect's Council for the Mid-Atlantic
region.
G. ANTHONY MUNNO - Vice President of Sales and Marketing
Mr. Munno was the founder, President and CEO of Interlan Communications, Inc. a
privately held Virginia based data networking and network Security Company. From
March 1990 to August 1995 Mr. Munno was a Director of Sales for Microcom
Incorporated, a publicly traded manufacturer of modems and other wide area
networking products. From October 1988 to March 1990, Mr. Munno held the
position of Major Business Opportunities, Manager of Systems, and Tests for
Government Technology Services Inc. (GTSI), a publicly traded systems provider
to government and education. From January 1987 to October 1988, Mr. Munno was
employed as a Product Specialist for SMS Data Products Group of Virginia. Prior
to starting his civilian career, Mr. Munno was a member of the US Army for seven
years where he was awarded the Meritorious Service Medal twice while a member of
the US Army Signal Corps. Mr. Munno attended the City College of Chicago.
ANDREA T. WILLIAMS, PH.D. - Vice President of E-Learning
Dr. Williams is responsible for implementing the Company's marketing strategy
for state and local agencies, educational institutions, and select target
accounts. Dr. Williams came to IceWEB from Lightspan, Inc. where she was
Associate Vice President of Internet Client Development. There she was
responsible for Internet marketing and new business development. While there she
helped launch and complete large-scale implementations of a new suite of
Internet products, and re-position Lightspan's online content as a primary
resource to educators throughout the US. She has held national level positions
with Excel, Inc., and The Educational Management Group, a digital satellite
company owned by Viacom, where educational institutions received on-demand
video, audio, and software. She has designed and directed state and national
training initiatives while working for state education department divisions, and
has experience in learning assessment from CTB McGraw-Hill. Dr. Williams earned
a Doctor of Philosophy in Education Administration at the University of
Pittsburgh.
To the knowledge of management, no director, executive officer, promoter or
control person has been involved in any legal proceedings during the past five
years that are material to an evaluation of the ability or integrity of such
director, person nominated to become a director, executive officer, promoter or
control person of the Company. None of the individuals listed in this Item 9 has
had a bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of such
bankruptcy, if any, or within two years prior to that time. No director,
executive officer, promoter or control person was or has been convicted in a
criminal proceeding or is subject to a pending criminal proceeding or subject to
any order, judgment, or decree, not subsequently reversed, suspended, or
vacated, of any court of competent jurisdiction, permanently or temporarily
enjoining, borrowing, or otherwise limiting his or her involvement in any type
of business, securities or banking activities. No director, executive officer,
promoter or control person has been found by a court of competent jurisdiction
in a civil action to have violated federal or state securities or commodities
laws.
CODE OF ETHICS
The Company is in the process of developing a Code of Ethics, which is expected
to be implemented prior to the end of our next fiscal year. Such Code of Ethics
will promptly be filed with the Securities and Exchange Commission upon its
completion by the Company.
Page 33
The company currently has no formalized audit committee or audit committee
financial expert. It is in the process of developing an audit committee.
ITEM 10. Executive Compensation
The following table sets forth the compensation paid during the last fiscal year
to the only executive officer of the Company.
Long Term Compensation
-------------------------------------------------
Annual Compensation Awards Payouts
--------------------------- -------------------------- ---------------------
Securities
Other Annual Restricted Underlying LTIP All Other
Name and Principal Position Year Salary Bonus Compensation Stock Awards Options/SARs Payouts Compensation
($) ($) ($) ($) (#)
-------------------------------------------------------------- -------------------------- ---------------------
John R. Signorello
Chief Executive Officer
Principal Financial Officer
Director 2001 19,000 0 0 0 0 0 0
2002 68,000 0 0 0 6,000,000 0 0
2003 5,000 0 0 0 6,000,000 0 0
2004 80,000 0 0 0 0 0 0
The following table summarizes option grants during 2004 to the named executive
officer.
Option/SAR Grants in Fiscal Years 2002, 2003, and 2004
------------------------------------------------------
Individual Grants
Number of Securities
Underlying Unexercised % of Total Options/SARS Exercise Price
Options/SARS at FY-End Granted to employees or Base Price Market Price
Name and Principal Position Year (#) in Fiscal Year ($/share) Date of Grant Expiration Date
----------------------------------------------------------------------------------------------------------------------------------
John R. Signorello
Chief Executive Officer
Principal Financial Officer
Director 2001 0 0% 0.00 0.00
2002 6,000,000 19% 0.02 0.02 February 2007
2003 6,000,000 21% 0.04 0.04 September 2008
2004 0 0% 0.00 0.00
Aggregate Option/SAR Exercises in Fiscal Year 2004 and Fiscal Year End Option/SAR Values
----------------------------------------------------------------------------------------
Value of Unexercised
Shares Number of Securities Underlying In-The-Money
Unexercised Options/SARS at
Acquired on FY-End Options/SARS at FY-End
------------------------------- ----------------------------
Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
Name and Principal Position (#) ($) (#) (#) ($) ($)
----------------------------------------------------------------------------------------- ----------------------------
John R. Signorello 2,000,000 0 8,760,000 3,240,000 0 0
Chief Executive Officer
Principal Financial Officer
Director
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In fiscal year 2002, Mr. Signorello was granted options to purchase 6,000,000
shares at $0.20/each, expiring in February 2007. In fiscal year 2003, Mr.
Signorello was granted options to purchase 6,000,000 shares at $0.40/each,
expiring in September 2008. The options vest with the following schedule: (1) 3%
on the date of grant, (2) 3% on each monthly anniversary of the date of grant up
to the 32nd month and (3) 1% on each monthly anniversary of the date of grant
for months 33 to 36.
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25" issued in March 2000, to account for its
fixed plan stock options. Under this method, compensation expense is recorded on
the date of grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123 and SFAS No. 148, "Accounting for
Stock-Based compensation," established accounting and disclosure requirements
using a fair value-based method of accounting for stock-based employee
compensation plans. As allowed by SFAS No. 123 and SFAS No. 148, the Company has
elected to continue to apply the intrinsic value-based method of accounting
described above, and has adopted the disclosure requirements of SFAS No. 123.
EMPLOYMENT CONTRACTS
Mr. Signorello does not have an employment contract.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
(a) Based on information from the Company's transfer agent, the Company believes
that the following individuals/entities hold five percent (5%) or more of the
outstanding voting stock of the Company as of September 30, 2004. No other
individual or any group is known to the Company to be the beneficial owner of
more that five percent (5%) of any class of the Company's voting securities.
Title of Class Name and Address Amount & Nature %
-------------- ---------------- ------------------ -----
Common Stock John R. Signorello 176,243,000 Direct 40.5%
205 Van Buren St. Suite 420
Herndon, VA 20170
Michael N. Cachine, Sr. 1,270,000 <1%
205 Van Buren St. Suite 420
Herndon, VA 20170
All Officers and Directors as a 221,160,500 48%
group.
205 Van Buren St. Suite 420
Herndon, VA 20170
(b) As of September 30, 2004 all management shareholders of record are shown
above in (a). The number of shares of Common Stock owned by all officers and
directors as a group (directly or indirectly as of September 30, 2004) is
believed by management to be 17,624,300 shares, or approximately 37% of the
outstanding shares of Common Stock.
EQUITY COMPENSATION PLANS
(a) (b) (c)
Plan category Number of securities to be Weighted-average Number of securities remaining
issued upon exercise of exercise price of available for future issuance under
outstanding options, outstanding options, equity compensation plans (excluding
warrants and rights warrants and rights securities reflected in column (a))
--------------------- -------------------------- -------------------- ------------------------------------
Equity compensation 10,000,000 .21 4,085,604
plans approved by
security holders
Equity compensation 0 0 0
plans not approved by
security holders
Total 10,000,000 .21 4,085,604
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
At September 30, 2004, the Company had a note payable to John R. Signorello for
$109,176 plus accrued interest of approximately $44,490. This note payable is
due on demand and accrues interest at 12.5% per year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as exhibits to
previous filings with the Commission and are incorporated herein by this
reference:
Page 35
EXHIBIT NO. EXHIBIT
---------- -------
2
3.1 Certificate of Incorporation (to be filed by subsequent amendment)
3.2 Bylaws (to be filed by subsequent amendment)
31.1 CEO & CFO certification pursuant to Section 302 of the Sarbanes Oxley
Act of 2002 as required by Rule 13a-14(a)
32.1 Certification pursuant to Section 906 of the Sarbanes Oxley Act of 2002
as required by Rule 13a-14(b).
(b) Reports on Form 8-K
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 for the fiscal
years ended September 30, 2004 and 2003 were $29,613 and $29,000, respectively.
AUDIT RELATED FEES
The aggregate fees billed for assurance and related services by our principal
accountant that are reasonably related to the performance of the audit or review
of our financial statements, other than amounts previously reported in this Item
14 for the fiscal years ended September 30, 2004 and 2003 were $18,000 and $0,
respectively.
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, 2004 and 2003, were $0 and $0, respectively.
ALL OTHER FEES
There were no other fees billed by our principal accountant for the fiscal years
ended September 30, 2004 and 2003, except as provided above.
AUDIT COMMITTEE
Our sole director serves as our audit committee and pre-approved all of the
above amounts billed to the Company prior to incurring the expenses associated
therewith.
Page 36
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
IceWEB, INC.
SIGNATURE TITLE
/s/ JOHN R. SIGNORELLO Chief Executive Officer
---------------------- Principal Financial Officer
John R. Signorello Director
Date: January 18, 2005
In accordance with 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
/s/ JOHN R. SIGNORELLO Chief Executive Officer,
---------------------- Principal Financial Officer,
John R. Signorello Director
Date: January 18, 2005
/s/ MICHAEL N. CACHINE, SR. Chief Operating Officer,
--------------------------- Director
Michael N. Cachine, Sr.
Date: January 18, 2005
Page 37