________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT NO. 2
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
[ ] 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, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 13-2640971
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(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
205 VAN BUREN STREET, SUITE 420, HERNDON, VA 20170
--------------------------------------------------
(Address of principal executive offices)
703) 964-8000
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 5,825,620 issued and outstanding at
April 30, 2005.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
________________________________________________________________________________
EXPLANATORY NOTE
We are amending the Form 10-QSB/A for the period ended March 31, 2005
to restate our Consolidated Balance Sheet (unaudited) at March 31, 2005,
Consolidated Statements of Operations (unaudited) for the three and six months
ended March 31, 2005 and Consolidated Statements of Cash Flows (unaudited) for
the six months ended March 31, 2005 to reflect a change in classification of
assets relating to the acquisition of The Seven Corporation, Iplicity, Inc. and
DevElements, Inc. per SFAS 141. Amounts previously recorded as goodwill have
been reclassified as intangible assets. See Note 7 - Software Development Costs
to the Notes to Consolidated Financial Statements (unaudited) for a more
detailed explanation relating to intangibles and the associated amortization
expense.
The Items of this Form 10-QSB/A for the period ended March 31, 2005
which are amended and restated are as follows: Part I, Item 1. Financial
Statements including the Consolidated Balance Sheet (unaudited) at March 31,
2005, Consolidated Statements of Operations (unaudited) for the three and six
months ended March 31, 2005, Consolidated Statement of Cash Flows (unaudited)
for the six months ended March 31, 2005 and Notes to Consolidated Financial
Statements (unaudited), Item 2. Management's Discussion and Analysis or Plan or
Operation and Item 3. Controls and Procedures. Further, Part II, Item 6.
Exhibits and Reports on Form 8-K, includes currently dated certificates from the
Company's Chief Executive Officer and principal accounting and financial officer
in Exhibits 31.1, 31.2 and 32.1.
The remaining Items contained in this Form 10-QSB/A consist of all
other Items originally contained in our Form 10-QSB for the period ended March
31, 2005 as filed on May 16, 2005 and amended on August 4, 2005. This Form
10-QSB/A does not reflect events occurring after the filing of the original Form
10-QSB, nor modify or update those disclosures in any way other than as required
to reflect the effects of the restatement.
ICEWEB, INC.
FORM 10-QSB/A
FOR THE QUARTER ENDED MARCH 31, 2005
INDEX
PART I Financial Information
Item 1. Financial Statements 4
Unaudited Consolidated Balance Sheet at March 31, 2005 4
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 2005 and March 31, 2004 5
Unaudited Consolidated Statements of Operations for the six
months ended March 31, 2005 and March 31, 2004 6
Unaudited Consolidated Statements of Cash Flows for the six
months ended March 31, 2005 and March 31, 2004 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 11
Item 3. Controls and Procedures 14
PART II Other Information 15
Signatures 15
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.
When used in this prospectus, the terms the "Company," "Iceweb," " we," "our,"
and "us" refers to Iceweb, Inc., a Delaware corporation, and its subsidiaries.
All per share information contained in this Quarterly Report gives effect to the
One for eighty (1:80) reverse split of the company's common stock effected on
April 27th, 2005.
3
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
IceWEB, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
March 31, 2005
(Unaudited)
Current assets:
Cash 1,025,112
Accounts receivable, net of allowance of $20,946 1,026,626
Prepaid expense 34,752
-----------
Total current assets 2,086,490
Property and equipment, net of accumulated depreciation
of 333,562 144,260
Goodwill 41,800
Intangible, net 441,382
Deposits 16,170
Deferred financing costs 190,000
--------------------------------------------------------------- -----------
Total assets $ 2,920,102
--------------------------------------------------------------- -----------
Liabilities and stockholders' equity
Current liabilities:
Accounts payable 1,087,582
Accrued expenses 177,288
Line of credit 461,269
Deferred revenue 7,450
-----------
Total Current liabilities 1,733,589
Notes payable - related parties 416,639
--------------------------------------------------------------- -----------
Total liabilities $ 2,150,228
--------------------------------------------------------------- -----------
Stockholders' equity:
Preferred stock (par value $.001; 10,000,000 shares authorized;
Series A Convertible Preferred Stock, par value .001,
1,666,667 shares issued and 1,666,667 shares outstanding) 1,667
Common stock (par value $.001 1,000,000,000 shares authorized
5,988,120 issued, and 5,825,620 outstanding) 5,826
Treasury Stock, at cost, (162,500 shares) (13,000)
Subscription receivable (14,300)
Additional paid in capital 7,098,617
Accumulated deficit (6,308,936)
--------------------------------------------------------------- -----------
Total stockholders' equity 769,874
--------------------------------------------------------------- -----------
Total liabilities and stockholders' equity $ 2,920,102
--------------------------------------------------------------- -----------
See accompanying notes to unaudited consolidated financial statements
4
IceWEB, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31, March 31,
2005 2004
(Unaudited) (Unaudited)
----------- -----------
Revenue $ 1,514,920 $ 1,623,358
Cost of Sales 985,111 1,294,952
-------------------------------------------------- ----------- -----------
Gross Profit 529,809 328,406
Operating Expenses:
Marketing & Selling 3,199 59,349
General and Administrative 443,157 424,875
Depreciation Expense 11,598 13,474
Amortization Expense 195,691 -
-------------------------------------------------- ----------- -----------
Total Operating Expenses 653,645 497,698
Operating (Loss)/Income (123,836) (169,292)
Interest Expense (10,636) (10,976)
-------------------------------------------------- ----------- -----------
Net (Loss)Income $ (134,472) $ (180,268)
Less: Preferred stock dividend (1,000,000) -
-------------------------------------------------- ----------- -----------
Loss available to common shareholders $(1,134,472) $ -
-------------------------------------------------- ----------- -----------
Basic Income (Loss) per common share $ (0.20) $ (0.04)
-------------------------------------------------- ----------- -----------
Diluted Income (Loss) per common share $ (0.20) $ -
-------------------------------------------------- ----------- -----------
Weighted average common shares outstanding basic 5,623,435 4,846,944
-------------------------------------------------- ----------- -----------
Weighted average common shares outstanding diluted 5,741,004 -
-------------------------------------------------- ----------- -----------
See accompanying notes to unaudited consolidated financial statements
5
IceWEB, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended
March 31, March 31,
2005 2004
(Unaudited) (Unaudited)
----------- -----------
Revenue $ 2,957,577 $ 3,148,716
Cost of Sales 2,258,595 2,353,734
-------------------------------------------------- ----------- -----------
Gross Profit 698,982 794,982
Operating Expenses:
Marketing & Selling 15,902 96,209
General and Administrative 944,589 800,133
Depreciation Expense 27,960 27,025
Amortization Expense 391,382 -
-------------------------------------------------- ----------- -----------
Total Operating Expenses 1,379,833 923,367
Operating (Loss)/Income (680,851) (128,385)
Interest Expense (30,937) (21,952)
-------------------------------------------------- ----------- -----------
Net (Loss)Income $ (711,788) $ (150,337)
Less: Preferred stock dividend (1,000,000) -
-------------------------------------------------- ----------- -----------
Loss available to common shareholders $(1,711,788) $ -
-------------------------------------------------- ----------- -----------
Basic & Diluted Loss per common share $ (0.30) $ (0.03)
-------------------------------------------------- ----------- -----------
Weighted average common shares outstanding basic
and diluted 5,660,472 4,846,944
-------------------------------------------------- ----------- -----------
See accompanying notes to unaudited consolidated financial statements
6
IceWEB, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
March 31, March 31,
2005 2004
(Unaudited) (Unaudited)
----------- -----------
-------------------------------------------------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES $ (409,284) $ (177,853)
-------------------------------------------------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (75,969) (66,679)
-------------------------------------------------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (75,969) (66,679)
-------------------------------------------------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments from(to) related parties (7,822) 52,382
Payment of subscription receivable 37,700 -
Common Stock issued for cash 393,775 255,000
Preferred Stock issued for cash 880,631 -
Proceeds from the exercise of common
stock options 27,300 72,380
-------------------------------------------------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,331,584 379,762
-------------------------------------------------- ----------- -----------
NET INCREASE IN CASH 846,331 135,230
CASH - beginning of year 178,781 104,314
-------------------------------------------------- ----------- -----------
CASH - end of period 1,025,112 239,544
-------------------------------------------------- ----------- -----------
See accompanying notes to the unaudited consolidated financial statements
7
ICEWEB, INC and Subsidiaries
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
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 adjustments) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain amounts in the 2004 consolidated financial statements have been
reclassified to conform to the 2005 consolidated financial statement
presentation. These reclassifications had no impact on previously reported net
results of operations or stockholders' equity (deficit).
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, 2004, as amended. The financial data for the interim periods
presented may not necessarily reflect the results to be anticipated for the
complete year.
Note 2 - Related Parties
The Company has a note payable to John R. Signorello, the Chairman and CEO, for
$93,177 plus accrued interest of approximately $41,600. This note bears interest
at a rate of 12.5% per annum and is due on-demand. Other Stockholders/Employees
have loans totaling $227,186 plus accrued interest of approximately $62,400. Of
this amount, $150,000 bears interest at a rate of 12.5% per annum. The Company
has issued the note holder 125,000 shares of common stock in exchange for the
individual to extend the maturity date of the note by 10 years. The cost
associated with these shares has been accounted for as deferred finance charges,
and are being amortized over the life of the deferral period. The shares were
valued at $200,000 the fair value at the date of issuance. Also included in this
amount is $77,000 due to employees' payable on demand.
The Chairman and CEO of the Company, from time to time, provided advances to the
Company for operating expenses. These advances are short-term in nature and
non-interest bearing. The amount due to the Chairman and CEO at March 31, 2005
is included in Notes payable - related parties on the accompanying balance
sheet.
Note 3 - Stockholder's Equity
On January 4th the Company issued a Private Placement Memorandum. The Company
received $393,775 net of expenses. The pricing of the placement is $2.00 per
unit. The units consist of one common share at par value .001 and two warrants
priced at $4.00 and $8.00 expiring in 2009 and 2010 respectively.
8
On March 30th the Company entered into a preferred stock agreement with Barron
Partners, LP a private investment company. Documents are incorporated by
reference as an 8k. In March 2005, the Company sold 1,666,667 shares as Series A
Convertible Preferred Stock. In connection with the preferred stock issuance,
the Company also issued it's A common stock purchase warrants to purchase
2,000,000 shares of common stock at $2 per share. It's B common stock purchase
warrants to purchase 1,250,000 shares of common stock at $4.80 per share, and
it's C common stock purchase warrants to purchase 1,250,000 shares of common
stock at $9.60 per share. All the warrants expire on March 30, 2010. Based on
the guidance provided by APB No. 14 (accounting for convertible debt and debt
issued with stock purchase warrants). The Company recorded a $1,000,000
preferred stock dividend as a result of this issuance.
During the period 7,500 common stock options were exercised by employees. The
average exercise price of the options was $ .92. The Company realized proceeds
of $6,900 from the exercise of the options.
Note 4 - Stock Options
Stock option activity during the period is indicated as follows:
OPTIONS AVAILABLE EXERCISE
FOR GRANT OPTIONS GRANTED PRICE
Balance, December 31, 2004 346,308 903,692 .80 - 3.80
Granted (16,250) 16,250
Forfeited 140,482 (140,482)
-------------------------- ----------------- --------------- ----------
Balance, March 31, 2005 470,540 779,460 .80 - 3.80
========================== ================= =============== ==========
SFAS No. 123 "Accounting for Stock Based Compensation" ("SFAS 123") and SFAS No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure" ("SFAS
148") requires the Company to disclose pro forma information regarding option
grants made to its employees. SFAS 123 specifies certain valuation techniques
that produce estimated compensation charges that are included in the pro forma
results below. These amounts have not been reflected in the Company's Statement
of Operations, because Accounting Principles Board Opinion 25, "Accounting for
Stock issued to Employees" specifies that no compensation charge arises when the
price of the employees' stock options equal the market value of the underlying
stock at the grant date, as in the case of options granted to the Company's
employees.
Pro forma results are as follows for the three months ended March 31st, 2005:
Actual net income (134,472)
SFAS 123 Compensation Cost 1,312
--------
Pro forma net income (135,784)
--------
Pro forma basic and diluted net income per share (.02)
9
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 52%
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 5 - Accounts Receivable
Accounts receivable consist of normal trade receivables. The Company assesses
the collectability of its accounts receivable regularly.
Note 6 - Subsequent Events
On April 19, 2005, Messrs. Signorello and Bond both agreed to convert the debt
on the company's balance sheet to 541,667 shares of common stock based on the
fair market value of the company's common stock as of that date.
On April 27th, 2005, the Company effected a 1 for 80 reverse split of its issued
and outstanding common stock. All amounts have been retroactively adjusted to
reflect this split.
NOTE 7 - Software Development Costs
Under the criteria set forth in SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed," capitalization of
software development costs begins upon the establishment of technological
feasibility of the software. The establishment of technological feasibility and
the ongoing assessment of the recoverability of these costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, anticipated future gross product revenues, estimated economic
life, and changes in software and hardware technology. Capitalized software
development costs are amortized utilizing the straight-line method over the
estimated economic life of the software not to exceed three years.
As of March 31, 2005, such capitalized software development costs were
approximately $77,000. These costs will be amortized over a period of three
years beginning April 1, 2005. The Company regularly reviews the carrying value
of software development assets and a loss is recognized when the unamortized
costs are deemed unrecoverable based on the estimated cash flows to be generated
from the applicable software.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The statements contained in this Quarterly Report on Form 10-QSB/A that are not
purely historical statements are forward-looking statements within the meaning
of Section 21E of the Securities and Exchange Act of 1934, including statements
regarding our expectations, beliefs, hopes, intentions or strategies regarding
the future. These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those indicated in such
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this Quarterly Report on Form
10-QSB to conform these statements to actual results. Factors that might cause
or contribute to such a difference include, but are not limited to, those
discussed elsewhere in this Report in the section entitled "Risk Factors That
May Affect Future Results" and the risks discussed in our other historical
Securities and Exchange Commission filings.
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 provides hosted web-based collaboration solutions that enable
organizations to establish Internet, Intranet, and Email/Collaboration services
immediately and with little or no up-front capital investment. IceWEB's Portal
and IceMAIL Collaboration software services are available on a monthly or annual
subscription basis to Small and Medium Business (SMB), Non-Profit, and
Government organizations. No longer do organizations need to spend months
getting their online Internet, Intranet, and Email/Collaboration systems
operational--with IceWEB, organizations can be up and running in hours, not
months.
IceWEB enables customers to quickly implement an important Internet, Intranet,
and Email/Collaboration system through the following key products and services:
o The ICEPORTAL product is a complete framework for managing web
content, rich-media content, discussion threads, customer/user
management, and dynamic content that enables our customers to
quickly deploy and manage a world-class Internet portal. Far
more than "just a web site", IcePORTAL is designed to allow
customers the flexibility to create, manage, and deploy some
of the most technically advanced and scalable Internet and
Intranet portals available today.
o ICEMAIL is a packaged service that provides a network-hosted
groupware, email, calendaring, and collaboration solution
utilizing the most widely used enterprise system
available--Microsoft Exchange 2003. Customers can leverage the
full capabilities of Microsoft Exchange 2003 and Outlook
without the initial implementation and maintenance costs
associated with such an advanced system--all for pennies a
day. In addition to provided hosted Exchange services, IceMAIL
will have a substantial focus on providing wireless
PDA/SmartPhone synchronization services that enable our
customers to have everything in Outlook/Exchange available
while traveling away from their office. IceWEB will be a
single-source provider of wireless PDA/SmartPhones, GoodLink
or Blackberry software, and the cellular carrier services.
11
o CONSULTING SERVICES. IceWEB Consulting Services has a proven
history of providing our larger enterprise and Government
customers with superior Network Infrastructure, Enterprise
Email/Collaboration, and Internet/Intranet Portal
implementation and support services. IceWEB offers
pre-packaged and custom services, using proven best practices
to help organizations define their online business objectives
and quickly deploy their Internet, Intranet, and
Email/Collaboration systems. Although most of our SMB
customers purchase and activate our solutions online, our
professional services teams work closely with our Government,
Non-Profit, and larger customers to deploy customized
solutions--even our largest customers benefit from IceWEB's
pre-built Portal and Email/Collaboration framework to minimize
implementation costs and deployment timelines.
In addition to our focus on subscription-based "software as a service"
offerings, IceWEB is engaged in a comprehensive Research and Development Plan to
integrate our Portal and Email/Collaboration offerings into the next generation
of online applications. This next generation of online hosted application
services will focus on integrating "traditional email" and portal systems into
an integrated Smart Enterprise Suite with both applications running on both
Internet/Intranet as well as synchronized wireless/PDA systems.
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 six months ended March 31st, 2005, we
generated revenues of $1,514,920 compared to $1,623,358 in the comparative six
months period in 2004, a decrease of approximately 7%.
Cost of Sales
For the six months ended March 31st, 2005, cost of sales was $985,110, or
approximately 65% of revenues, compared to $1,294,952 or approximately 80% of
revenues, for the six months ended March 31st, 2004. The Company attributes the
decrease in the cost of sales to an increase in revenue from software sales,
software services, IT infrastructure consulting and other technical human
resources while sales of hardware decreased.
Total Operating Expenses
Our total operating expenses increased approximately 31% for the three months
ended March 31st, 2005 as compared to the same period in fiscal 2004. These
decreases are attributable to the following:
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 March 31st,
2005, marketing and selling costs were $3,199 as compared to $59,349 for
comparative period in 2004, a decrease of $56,150 or approximately 95%. These
decreases were the result of a reduction in 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. We have capitalized during the six month period approximately $77,000
of Research and Development Costs relating to IceMail, IcePortal and, CMS
software products.
12
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 six months ended March 31st, 2005, general and administrative expenses were
$443,158 as compared to $438,349 for the comparative period in 2004, an increase
of $4,809 or approximately 2%. These minor increases in general and
administrative expenses reflect increases in personnel costs and other operating
expenses incurred in the period. We have stabilized general and administrative
expenses and continue to decrease as a percentage of sales due to the process
efficiencies we have been developing. 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.
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 2 of
the notes to the unaudited consolidated Financial Statements appearing elsewhere
herein. For the three months ended March 31, 2005 interest expense was $10,636
as compared to $10,976 the comparative period in 2004.
Amortization Expense
Amortization expense for intangibles is provided by use of the straight-line
method for developed software and the expected cash flow method for custom
relationship capitalized during acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31st, 2005, we had a cash balance of $1,025,112 and a working capital
surplus of $352,901. Net cash used in operations was ($409,284) for the six
months ended March 31st, 2005, as compared to net cash used in operations of
($177,853) for the six months ended March 31st, 2004. For the six months ended
March 31st, 2005, we used cash to fund our net loss of ($330,406) offset by
non-cash items such as depreciation and amortization expense of $37,960 reduce
accounts payable. 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 investing activities for the six months ended March 31st, 2005
was $75,969 as compared to $66,679 for the comparative period in 2004. Net cash
provided by financing activities for the six months ended March 31st, 2005 was
$1,331,584 as compared to $379,762 for the comparative period in 2004. See Note
3.
Over the course of the past 4 months the company has raised net cash of $1.33
million. The proceeds will be used to continue our plan to increase software
sales and develop additional upgrades to our existing products. The company does
plan to raise additional capital to fund potential acquisitions and to provide
working capital to fund strategic internal growth of the company.
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.
Licenses and software are billed as services are rendered on a biweekly
schedule.
13
Use of Estimates - Management's discussion and analysis of financial condition
and results of operations is based upon our unaudited consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
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
Our Chief Executive Officer who also serves as our principal financial and
accounting officer, has conducted an evaluation of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated
under the Securities and Exchange Act of 1934, as amended) as of a date (the
"Evaluation Date") as of the end of the period covered by the report. As set
forth below management determined that there was a material weakness in the
Company's internal control over financial reporting as of March 31, 2005 as more
fully described below. Based upon that evaluation, the Company's Chief Executive
Officer has concluded that our disclosure controls and procedures were not
effective because of the material weakness described below.
In this Quarterly Report on Form 10-QSB/A the Company is restating its
Consolidated Balance Sheet (unaudited) at March 31, 2005 and its Consolidated
Statement of Operations (unaudited) for the three and six months ended March 31,
2005 and Consolidated Statement of Cash Flows (unaudited) for the six months
ended March 31, 2005 which appeared in its Quarterly Report on Form 10-QSB for
the period ended March 31, 2005 as previously filed with the Securities and
Exchange Commission. These restatements were made to reflect a change in
classification of assets relating to the acquisition of The Seven Corporation,
Iplicity, Inc. and DevElements, Inc. per SFAS 141. Amounts previously recorded
as goodwill have been reclassified as intangible assets which resulted in
recording amortization expense of these intangible assets in the period ended
March 31, 2005. The restatements resulted from comments from the staff of the
Securities and Exchange Commission.
As a result of these restatements and the amortization of these intangible
assets, the amount of the Company's total assets was overstated, the amount of
its additional paid-in capital and accumulated deficit was understated and the
amount of its total stockholders' equity and total liabilities and stockholders'
equity were overstated, all as which appear on its Consolidated Balance Sheet
(unaudited) at March 31, 2005 from that as previously reported. In addition,
these changes resulted in an increase of the Company's net loss for period ended
and an increase in loss available to common stockholders both as reflected on
the Company's Consolidated Statement of Operations (unaudited) appearing
elsewhere herein. Finally, the Consolidated Statement of Cash Flows for the six
months ended March 31, 2005 has been restated to incorporate the foregoing
changes.
Because of these accounting errors, the Company has determined that a deficiency
in internal controls existed related to the classification of goodwill and
intangible assets. Accordingly, management determined that this control
deficiency constituted a material weakness. Management has taken the remedial
steps necessary to eliminate the material weakness relating to financial
disclosure controls that resulted in the restatement discussed above. Other than
the changes discussed above, there have been no changes made in the Company's
internal controls or in other factors that could materially affect its internal
controls subsequent to the end of the period covered by this report based on
such evaluation.
14
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 2. Changes in Securities and small business issuer purchases of equity
securities
None.
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
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
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: November 9, 2005 By: /s/ John R. Signorello
John R. Signorello, Chairman and CEO,
principal executive officer and principal
financial and accounting officer
15