________________________________________________________________________________
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 2004
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
____________________
COMMISSION FILE NUMBER 0-27865
ICEWEB INCORPORATED
DELAWARE 13-2640971
(STATE OF INCORPORATION) (I.R.S. ID)
205 VAN BUREN STREET, SUITE 420, HERNDON, VA 20170
(703) 964-8000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 42,864,924 issued and
outstanding at July 31, 2004.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
________________________________________________________________________________
ICEWEB INCORPORATED
FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 2004
INDEX
PART I Financial Information
Item 1. Financial Statements .................................................4
Unaudited Consolidated Balance Sheet at June 30, 2004................4
Unaudited Consolidated Statements of Operations for the
three months ended June 30, 2004 and June 30, 2003....................5
Unaudited Consolidated Statements of Operations for the
nine months ended June 30, 2004 and June 30, 2003.....................6
Unaudited Consolidated Statements of Cash Flows for the
nine months ended June 30, 2004 and June 30, 2003.....................7
Notes to Unaudited Consolidated Financial Statements..................8
Item 2. Management's Discussion and Analysis or Plan of Operation............10
Item 3. Controls and Procedures ............................................12
OTHER INFORMATION ...................................................12
PART II Signatures ..........................................................13
Page 2
FORWARD-LOOKING STATEMENTS
This Quarterly Report and related documents include "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Forward-looking statements involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual results,
performance (financial or operating) or achievements expressed or implied by
such forward looking statements not to occur or be realized. Such forward
looking statements generally are based upon the Company's best estimates of
future results, performance or achievement, based upon current conditions and
the most recent results of operations. Forward-looking statements may be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "believe," "estimate," "anticipate," "continue," or similar terms,
variations of those terms or the negative of those terms. Potential risks and
uncertainties include, among other things, such factors as: our high level of
indebtedness and ability to satisfy the same, our history of unprofitable
operations, the continued availability of financing in the amounts, at the times
and on the terms required, to support our future business and capital projects,
the extent to which we are successful in developing, acquiring, licensing or
securing patents for proprietary products, changes in economic conditions
specific to any one or more of our markets, changes in general economic
conditions, our ability to produce and install product that conforms to contract
specifications and in a time frame that meets the contract requirements, and the
other factors and information disclosed and discussed in other sections of this
report. Investors and shareholders should carefully consider such risks,
uncertainties and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could cause actual
results to differ materially from those provided in the forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Page 3
PART I
ITEM 1. Financial Statements
Iceweb, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
June 30, 2004
(Unaudited)
Current assets:
Cash $ 271,354
Accounts receivable, net 950,447
Prepaid expense 7,118
Other current assets 8,974
-----------------------------------------------------------------------------
Total current assets 1,237,893
Property and equipment, net 89,709
Goodwill 1,812,999
Deposits 25,703
Due from related party 71,938
-----------------------------------------------------------------------------
Total assets $ 3,238,242
-----------------------------------------------------------------------------
Liabilities and stockholders' equity
Current liabilities:
Deferred revenue $ 28,545
Accounts payable 810,808
Accrued expenses 173,990
Notes payable - related parties 430,387
Note payable 150,000
-----------------------------------------------------------------------------
Total current liabilities 1,593,730
-----------------------------------------------------------------------------
Stockholders' equity:
Preferred stock (par value $.001; 1,000,000 shares authorized) -
Common stock (par value $.001; 100,000,000 shares authorized,
42,864,924 issued, and 41,564,924 outstanding) 42,865
Treasury Stock, at cost, (1,300,000 shares) (13,000)
Additional paid in capital 4,505,068
Accumulated deficit (2,890,421)
-----------------------------------------------------------------------------
Total stockholders' equity 1,644,512
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,238,242
-----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 4
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
June 30, June 30,
2004 2003
(Unaudited) (Unaudited)
------------ ------------
Revenue $ 1,699,783 $ 595,631
Cost of Sales 1,153,591 452,817
-----------------------------------------------------------------------------
Gross Profit 546,192 142,814
Operating Expenses:
Marketing & Selling 58,231 10,683
Research & Development 199,614
General and Administrative 486,914 29,598
-----------------------------------------------------------------------------
Total Operating Expense 744,759 40,281
Operating Loss (198,567) 102,533
Other Income/Expense 38,652 0
Interest Expense (11,787) (7,850)
-----------------------------------------------------------------------------
Net Loss ($ 171,702) $ 94,683
-----------------------------------------------------------------------------
Basic & Diluted Loss per common share ($ 0.00) $ 0.00
-----------------------------------------------------------------------------
Weighted average common shares outstanding 41,190,451 31,909,100
-----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 5
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
June 30, June 30,
2004 2003
(Unaudited) (Unaudited)
------------ ------------
Revenue $ 4,848,499 $ 628,496
Cost of Sales 3,379,655 463,563
-----------------------------------------------------------------------------
Gross Profit 1,468,844 164,933
Operating Expenses:
Marketing & Selling 154,440 16,018
Research & Development 327,284
General and Administrative 1,314,072 231,721
-----------------------------------------------------------------------------
Total Operating Expense 1,795,796 247,739
Operating Loss (326,952) (82,806)
Other Income/Expense 38,652
Interest Expense (33,739) (17,447)
-----------------------------------------------------------------------------
Net Loss ($ 322,039) ($ 100,253)
-----------------------------------------------------------------------------
Basic & Diluted Loss per common share ($ 0.01) $ 0.00
-----------------------------------------------------------------------------
Weighted average common shares outstanding 39,385,335 31,909,100
-----------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 6
Iceweb, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
June 30, June 30,
2004 2003
(Unaudited) (Unaudited)
--------- ---------
------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 30,428 ($ 72,078)
------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (77,437) (26,502)
Cash acquired in acquisitions 103,107 85,713
Acquisition of subsidiaries 0 (42,000)
------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES 25,670 17,211
------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to related parties (44,318) (136,845)
Common stock issued for cash 158,600 289,310
Proceeds from the exercise of common stock options 9,660 0
Purchase of treasury stock (13,000) 0
------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 110,942 152,465
------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 167,040 97,598
CASH - beginning of period 104,314 9,010
------------------------------------------------------------------------------
CASH - end of period $ 271,354 106,608
------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Page 7
ICEWEB, INC and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
JUNE 30, 2004
Note 1 - Basis of Presentation
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustment) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual Report for the year ended
September 30, 2003, which is included in the Company's Form 10-KSB for the year
ended September 30, 2003. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Note 2 - Acquisitions
On May 13th, 2004, the Company, through its wholly owned subsidiary Propster,
Inc., acquired substantially all of the assets of DevElements, Inc. of VA. 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 1,500,000 shares of its common
stock and options to purchase 1,500,000 shares of common stock exercisable at a
price of $0.34 per share and expiring May 13, 2009. These items are reflected in
the Financial Statements as $103,107 in cash, $73,101 accounts receivable,
$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%.
DevElements, Inc. is a professional IT consultancy that designs, develops and
implements Web-based employee 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 the State of Virginia in June 1999. At the time
of acquisition, DevElements employed 30 people. Over the last five years,
revenues have increased from $800,000 in 1999 to $2,900,000 in 2003.
Note 3 - Related Parties
The Company has a note payable to John R. Signorello, the Chairman and CEO, for
$130,176 plus accrued interest of approximately $ 33,000. This note bears
interest at a rate of 12.5% per annum and is due on-demand. Other
Stockholders/Employees have loans totaling $226,186 plus accrued interest of
approximately $ 41,000. Of this amount, $149,000 bears interest at a rate of
12.5% per annum and is due on-demand. The remaining $77,186 bears zero interest
and is due on or before December 31, 2004.
The Company also has a receivable from related parties in the amount of $71,938
which represents payments made on behalf of Iplicity, Inc. and DevElements, Inc.
The Company purchased only the assets of the two entities, Iplicity, Inc. and
DevElements, Inc., but reserved the right to pay certain liabilities on their
behalf. These amounts are recorded as an asset and are due from the respective
entities. Of the total $71,938, approximately 40% is due from Iplicity, Inc. and
60% is due from DevElements, Inc.
Note 4 - Stockholder's 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 three month period ending June 30, 2004 the Company sold 1,545,000
shares to accredited investors for $158,600 exempt from registration pursuant to
Section 4(2). The investors were sophisticated and had access to the
consolidated financial statements of the corporation. The Company issued
1,545,000 stock options during the period, 1,500,000 of which were part of the
DevElements acquisition and 45,000 were to employees.
During March 2004, the Company granted options to purchase 150,000 shares of
common stock to employees recognizing $27,000 in compensation expense and
Page 8
$26,000 stock subscription receivable. During the current period, the $26,000
receivable was forgiven and recognized as compensation expense.
Note 5 - Stock Options
Stock option activity during the period is indicated as follows:
OPTIONS AVAILABLE EXERCISE
FOR GRANT OPTIONS PRICE
----------------- --------- ---------
Balance, September 30, 2003 6,098,000 3,902,000 .08 - .40
Granted 3,940,996 .35 - .40
Exercised (160,000) .20
Forfeited -
------------------------------------------------------------------------------
Balance, December 31, 2003 2,157,004 7,682,996
Granted 1,290,000 .18 - .39
Exercised (565,000) .12 - .20
Forfeited -
------------------------------------------------------------------------------
Balance, March 31, 2004 867,004 8,407,996
Granted 1,545,000 .34
Exercised (48,000) .11 - .37
Forfeited (4,486,509) .37
------------------------------------------------------------------------------
Balance, June 30, 2004 3,808,513 5,418,487
==============================================================================
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123") and SFAS No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS
148") requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS 123 specifies certain valuation techniques
that produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Company's Statement
of Operations, because Accounting Principles Board Opinion 25, "Accounting for
Stock issued to Employees" specifies that no compensation charge arises when the
price of the employees' stock options equal the market value of the underlying
stock at the grant date, as in the case of options granted to the Company's
employees.
Pro forma results are as follows for the three months ended June 30, 2004:
Actual net loss .............................. (171,702)
SFAS 123 Compensation Cost ................... 77,600
--------
Pro forma net loss ........................... (249,302)
--------
Pro forma basic and diluted net loss per share (0.01)
Under SFAS 123, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model. The following weighted
average assumptions were used:
Risk free interest rate ...................... 4%
Expected dividends ........................... 0
Volatility factor ............................ 119%
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 6 - Accounts Receivable
Accounts receivable consist of normal trade receivables. The Company assesses
the collectibility of its accounts receivable regularly. Based on the most
recent assessment, we recorded bad debt expense of $9,955 in the period ending
June 30, 2004. The majority of this amount was due from a company that has
declared bankruptcy and is no longer conducting business. Management believes
that all remaining receivables are fully collectable.
Note 7 - Subsequent Events
On July 21st, 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. The
terms of the agreement give Comerica Bank a first position on the Company's
debt. The Loan and Security agreement is attached hereto as an exhibit.
Page 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS or PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
OVERVIEW
We are a diversified technology company headquartered in Herndon, VA, 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.
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 three 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 2004 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 two 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 believe that the combined efforts of sales, marketing and partner
relationships will sustain our operations as well as provide funding for ongoing
research and development efforts. To continue the current growth rate it is
estimated that the company will need to raise approximately $2,000,000 over the
next two quarters. In the event that we cannot raise additional capital, the
growth of the company will be impaired significantly.
RESULTS OF OPERATIONS
Revenues
We generate revenues from software, application development and network
management services and integrated technology, infrastructure solutions and
third party hardware sales. For the nine months ended June 30, 2004,
approximately 52% and approximately 48%, respectively, were derived from these
sources. For the three months ended June 30, 2004, we generated revenues of
$1,699,783 compared to $595,631 the comparative period in 2003, an increase of
approximately 185%. For the nine months ended June 30, 2004, we generated
revenues of $4,848,499 compared to $628,496 the comparative period in 2003, an
increase of approximately 671%. The primary reason for the increases in our
revenues is the successful integration of the subsidiaries acquired over the
last 12 months.
Page 10
Cost of Sales
For the three months ended June 30, 2004, cost of sales was $1,153,591, or
approximately 67% of revenues, compared to $452,817, or approximately 76% of
revenues, for the three months ended June 30, 2003. For the nine months ended
June 30, 2004, cost of sales was $3,379,655, or approximately 69% of revenues,
compared to $463,563, or approximately 74% of revenues, for the comparative nine
month period in 2003. The increase in our gross margins during fiscal 2004 is
largely due to the two software acquisitions made this fiscal year which
represent higher margin business. The gross margin for the software and
application development division is currently running at approximately 50% and
the gross margins for the hardware and network management and power solutions
divisions are approximately 20% to 30%.
Total Operating Expenses
Our total operating expenses increased approximately 175% and approximately 625%
for the three months and nine months ended June 30, 2004 as compared to the same
periods in fiscal 2003. These increases include:
MARKETING AND SELLING - our marketing and selling expense consists of personnel
costs, including commissions, public relations, advertising, marketing programs,
lead generation, travel and trade shows. For the three months ended June 30,
2004, marketing and selling costs were $58,231 as compared to $10,683 for
comparative period in 2003, an increase of $47,548 or approximately 445%. For
the nine months ended June 30, 2004, marketing and selling costs were $154,440
as compared to $16,018 for the comparative period in 2003, an increase of
$138,422 or approximately 864%. 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 three months ended June 30, 2004, research and development
expenses were 199,614 as compared to $0 the comparative period in 2003. For the
nine months ended June 30, 2004 research and development expenses were $327,284
as compared to $0 the comparative period in 2003. The research and development
expenses in fiscal 2004 are related to efforts to further develop and enhance
certain software products acquired by us during this fiscal year
GENERAL AND ADMINISTRATIVE EXPENSE - our general and administrative expense
consists primarily of personnel costs, rent, legal, accounting, human resources,
telecommunications, office supplies and corporate governance and compliance. For
the three months ended June 30, 2004, general and administrative expenses were
$486,914 as compared to $29,598 for the comparative period in 2003, an increase
of $457,316 or approximately 1,545%. For the nine months ended June 30, 2004,
general and administrative expenses were $1,314,072 as compared to $231,721 the
comparative period in 2003, an increase of $1,082,351 or approximately 467%.
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 remain nearly flat
and 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.
Other Income/Expense
For the three months and nine months ended June 30, 2004, we recognized other
income of $38,652 which represented the write-off of certain payables that have
either been resolved or were determined to have been carried on the books in
error. These items date back to 2001 and were previously reflected as liability
to be conservative, since no resolution had been determined. During the current
period, we were able to resolve these items.
Interest Expense
Interest expense consists primarily of the amounts accrued on the notes payable
to John R. Signorello and an unaffiliated third party as described in Note 3 of
the Notes to Consolidated Financial Statements appearing elsewhere herein. For
the three months ended June 30, 2004 interest expense was $11,787 as compared to
$7,850 the comparative period in 2003. For the nine months ended June 30, 2004,
interest expense was $33,739 as compared to $17,447 the comparative period in
2003.
Page 11
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004, we had a cash balance of $271,354 and a working capital
deficit of $355,837. The report of our independent auditors on our financial
statements for the year ended September 30, 2003 contains an explanatory
paragraph regarding our ability to continue as a going concern. Net cash
provided by operations was $30,428 for the nine months ended June 30, 2004, as
compared to net cash used in operations of ($72,078) for the nine months ended
June 30, 2003. For the nine months ended June 30, 2004, we used cash to fund our
net loss of ($322,039) offset by non-cash items such as depreciation expense of
$40,256, and acquisition of subsidiaries of $468,628 as well as changes in
assets and liabilities of ($156,417). The acquisition of subsidiaries amount
relates to the DevElements, Inc. acquisition which was in essence a cashless
transaction since we assumed $150,000 liability in lieu of a cash payment.
Net cash provided by investing activities for the nine months ended June 30,
2004 was $25,670 as compared to $17,211 for the comparative period in 2003. For
the nine months ended June 30, 2004, we received $103,107 in cash from the
acquisition of subsidiaries offset by ($77,437) in capital expenditures. For the
nine months ended June 30, 2003, we received $43,713 in cash form the
acquisition of subsidiaries offset by ($26,502) in capital expenditures.
Net cash provided by financing activities for the nine months ended June 30,
2004 was $110,942 as compared to $152,465 for the comparative period in 2003.
For the nine months ended June 30, 2004, we received $158,600 from the issuance
of common stock and $9,660 from the exercise of common stock option by employees
offset by the re-purchase of 1,300,000 shares of common stock for ($13,000) and
the net amount paid to related parties of ($44,318).
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 do not have any commitments
for capital expenditures during the balance of fiscal 2004. Because of the
continued need for substantial amounts of working capital to fund the growth of
the business and to pay our operating expenses, we expect to continue to
experience negative operating and investing cash flows for the foreseeable
future. While we presently expect an increase in software sales during the
balance of fiscal 2004 and into fiscal 2005, which would have a positive effect
on the operating cash flow, as a result of the current uncertainty of the
software revenues it is likely that our existing working capital will not be
sufficient to fund the continued implementation of our plan of operation during
the next 12 months and to meet 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.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the U.S. Securities
and Exchange Commission encourages all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our consolidated financial statements include a summary of the
significant accounting policies and methods used in the preparation of our
consolidated financial statements. Management believes the following critical
accounting policies affect the significant judgments and estimates used in the
preparation of the financial statements.
Revenue Recognition - revenues are recognized at the time of shipment of the
respective products and/or services. Our Company includes shipping and handling
fees billed to customers as revenues. Costs of sales include outbound freight.
Page 12
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.
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
Within the 90 days prior to the filing date of this report we carried out an
evaluation of the effectiveness of the design and operation of its disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. This evaluation
was done under the supervision and with the participation of our Chief Executive
Officer. Based upon that evaluation, he concluded that our disclosure controls
and procedures are effective in gathering, analyzing and disclosing information
needed to satisfy our disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in our internal controls or in other factors
that could significantly affect those controls since the most recent evaluation
of such controls.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and small business issuer purchases of equity
securities
During the third quarter of the fiscal 2004, we sold an aggregate of 1,545,000
shares of our common stock to five (5) accredited investors in private
transactions exempt from registration under the Securities Act of 1933 in
reliance on Section 4(2) t hereof. We received gross proceeds of $158,600. These
investors had access to relevant information about our company and represented
to us that they acquired these shares for investment.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Comerica Bank Loan and Security Agreement
Exhibit 31.1 Certification of Chief Executive Officer
pursuant to Section 302
Exhibit 31.2 Certification of Principal Financial Officer
pursuant to Section 302
Exhibit 32.1 Certification of Chief Executive Officer
pursuant to Section 906
b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ICEWEB Inc.
Dated: August 19, 2004 By: /s/ John R. Signorello
--------------- --------------------------
John R. Signorello,
Chairman and CEO
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