U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(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, 2002
[ ] 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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(Name of small business issuer in its charter)
DELAWARE 54-1789433
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
620 HERNDON PARKWAY, SUITE 360, HERNDON, VA 20170
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(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number (703) 563-6565
Securities registered pursuant to Section 12(b) of the Securities Exchange Act:
NONE
Securities registered pursuant to section 12(g) of the Securities Exchange Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section13
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of 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. [ ]
Issuer's revenues for its most recent fiscal year: $194,201
The aggregate market value of the shares of Common Stock held by non-affiliates
was $1,430,145 as of September 30, 2002. For purposes of the
foregoing calculation only, each of the issuer's officers and directors is
deemed to be an affiliate. The market value of the shares was calculated based
on the reported last price of shares traded on the National Quotation Bureau on
September 30, 2002.
As of September 30, 2002 30,112,878 shares of the issuer's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PART I
FORWARD-LOOKING STATEMENTS
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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ITEM 1 - DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
Iceweb, Inc. ("ICEW" or the "Company") is a publicly traded company (OTC BB:
ICEW). The Company was originally incorporated in Delaware under the name
"Mediplex Corporation" on February 25, 1969. According to documents filed in the
State of Delaware, Mediplex corporation forfeited its Certificate of
Incorporation on December 3, 1973, as a result of not having named a registered
agent as required by Delaware law; however, the Company was renewed and revived
pursuant to a Certificate of Renewal and Revival filed on June 4, 1974. On June
5, 1974, the Company changed its name to the "The Lawton-York Corporation." On
January 31, 1975, the Company merged into it a New York corporation of identical
name, which had been incorporated on February 10, 1966. The Company was the
surviving corporation of that merger.
The Company was, for many years, a wholesaler of custom one-, two-, three- and
four-color processed commercial printing, as well as disposable and durable
office equipment including stock paper, fax paper, fax and copy machines,
computers, file cabinets and safes. The Company conducted its business
throughout the United States of America and Puerto Rico from its headquarters in
New York.
On March 10, 1999, the Company changed the focus of its business and closed a
transaction by which it acquired 100% of the outstanding capital stock of North
Orlando Sports Promotions, Inc., a privately held Florida corporation ("NOSP"),
from the shareholders of NOSP. In connection with the transaction, the Company
adopted the name, "AuctionAnything.com, Inc.," (AAI) in order to more accurately
reflect its new core business. From 1999 until July 2001, AAI operated a variety
of Internet-related services however, they were unable to generate positive cash
flow from these Internet-related businesses. Following completion of the
acquisition of Disease SI, it became apparent to us that it would be in Disease
Sciences' best long term interest that the Internet operations be conducted
apart from the biopharmaceutical clinical diagnostics operations. On July 24,
2001, Disease Sciences sold Mr. Hotaling North Orlando Sports Promotions, Inc.,
in exchange for the assumption of all liabilities related to North Orlando and
its operations estimated at approximately $112,000, and which included the
forgiveness of $91,500 in accrued compensation. Included in the sale along with
the capital stock of North Orlando were fixed assets, rights to several domain
names and various contractual rights and obligations. On July 24, 2001, Messrs.
Hotaling and Meads resigned as members of DSSC Board of Directors.
On May 23, 2001, AuctionAnything.com, Inc. executed an Agreement and Plan of
Reorganization and Stock Purchase Agreement (the "Disease SI Agreement") with
Disease S.I., Inc., a Florida corporation ("Disease SI") and its shareholders
Dr. Wayne Goldstein and Mr. Brian S. John. Under the terms of the Disease SI
Agreement, AAI acquired 100% of the issued and outstanding stock of Disease SI
in exchange for 60,000,000 shares of AAI Common Stock. AAI issued Dr. Goldstein
and Mr. John a total of 21,209,384 shares at the closing, and agreed that the
balance of 38,790,616 shares would be delivered to them as soon as AAI amended
its Certificate of Incorporation to
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increase the authorized Common Stock in order to permit such issuance as
described herein. Giving effect to the recapitalization, AAI had a total of
80,768,922 shares of Common Stock issued and outstanding, of which 74.3% was
owned by Dr. Goldstein and Mr. John.
Concurrent with the closing of the Disease SI Agreement, Messrs Martin Meads and
John Hotaling, who had been AAI's executive officers, resigned their positions
as officers but remained directors of AuctionAnything.com and officers of North
Orlando Sports Promotions, Inc., a wholly-owned subsidiary. Dr. Goldstein and
Mr. John were appointed the officers and directors of AuctionAnything.com. The
consummation of the transaction with Disease SI resulted in a change in control
of AuctionAnything.com. The transaction was accounted for as a reverse
acquisition under the purchase method for business combinations. Accordingly,
the combination of the two companies was recorded as a recapitalization of
Disease S.I., Inc., pursuant to which Disease S.I., Inc. was treated as the
continuing entity.
On June 26, 2001, with the approval of the shareholders the Company changed its
name to Disease Sciences, Inc..
On December 3rd, 2001 Disease Sciences Board of Directors approved of a 1 for 10
reverse split of the common stock outstanding.
On March 21, 2002, Disease Sciences, Inc. executed an Agreement and Plan of
Merger (DSSC Agreement) with IceWEB Communications, Inc., a Delaware Corporation
and its shareholders. Under the terms of the DSSC Agreement IceWEB was acquired
by and became a wholly owned subsidiary of DSSC. Pursuant to the DSSC Agreement,
each of the 22,720,500 shares of common stock of ICEWEB issued and outstanding
immediately prior to the Merger were converted into the right to receive 1.07
shares of restricted common stock of DSSC, for an aggregate of 24,311,000 DSSC
Common Shares. The source of the approximately 24,311,000 DSSC Common Shares
being exchanged for approximately 22,720,500 IceWEB Common Shares is as follows:
5,600,000 DSSC Common Shares were returned to the DSSC Treasury following the
redemption of DSSC Common Shares; and approximately 18,711,000 additional DSSC
Common Shares were issued from the DSSC Treasury. DSSC redeemed 5,600,000 Common
Shares from Dr. Goldstein and Brian Johns in consideration for (a) forgiveness
of $10,000 promissory notes owing by each to DSSC; and (b) payment of $55,000 by
DSSC to each of Goldstein and John. Each of the 5,441,000 warrants to purchase
ICEWEB Common Shares issued and outstanding immediately prior to the Merger but
not exercised were converted into the right to receive one warrant to purchase
1.07 Common Shares upon exercise of said warrant. The 6,980,000 warrants to
purchase DSSC Common Shares remain issued and outstanding. None of said warrants
has been exercised. Options to purchase ICEWEB Common Shares issued and
outstanding immediately prior to the Merger but not exercised shall be converted
into the right to receive one option to purchase 1.07 Common Shares upon
exercise of said options. Giving effect to the acquisition, the exchanging
IceWEB Shareholders are the DSSC Controlling Shareholder after the Merger. DSSC
will have a total of 29,460,935 shares of Common Stock issued and outstanding.
The significant shareholders with 5% or more or the shares are John R.
Signorello with 61.7% or the shares and Michael VanPatten with 5.12% of the
shares. The closing of the agreement has resulted in a change in control of
Disease Sciences, Inc. Concurrent with the closing of the DSSC Agreement, the
pre-merger
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Directors and Officers of DSSC were replaced by the Directors and Officers of
IceWEB.
There has been no bankruptcy, receivership or similar proceeding with respect to
the Company.
BUSINESS OF ICEWEB, INC.
o In 2000, IceWEB Communications, Inc was founded to enable Interactive
Communications and Education on the Web. Market research revealed the
market need and growth potential of online training and interactive
marketing.
In June 2001, IceWEB Communications, Inc. acquired the assets in bankruptcy of
LearningStream, Inc. (LSI) of Silver Spring, MD, a provider of streaming
services. Reasons for this acquisition were:
o LSI had over $3M invested in proprietary software, which they used to make
their development of custom streaming solutions more efficient and
effective. The software was considered to be competitive because it helped
remove the complexity and cost from the implementation of this technology.
o Their customer list included "blue-chip" and Fortune 1000 companies. Some
of these accounts proved salvageable and have resumed buying services from
IceWEB, Inc.
o LSI key personnel were motivated to join IceWEB.
In September 2001 IceWEB relocated its offices to Herndon, VA, which is in the
heart of Northern Virginia's Information Technology center.
IceWEB had sales of $194,201 and a net loss of $751,925 during its most recent
fiscal year ended September 30, 2002.
Products and Services
IceWEB's core competency is in proprietary software that has been under
development since 1999. The software integrates audio, video, animated graphics,
captioning, and indexing into a highly interactive, customizable viewer
interface seamlessly tied to a tightly integrated database backend. IceWEB
developers use the software to create interactive, multimedia presentations in a
fraction of the time it would ordinarily take others to do it manually. The
company has also incorporated technology into an entire suite of products (all
positioned to make the creation and delivery of streaming applications easy and
affordable). The product suite includes IceSHOWTM for on-demand multimedia
presentations and IceSLIDETM for PowerPoint to Flash conversion. In addition,
the Company has added a new website called LearningStream.com to host
pay-per-view online training courses for business professionals.
Market
According to Streaming Media, Inc., the North American enterprise streaming
market is growing rapidly. They polled 111 US corporations and discovered that
in 2001, as compared with 2000:
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o 45% more companies are streaming this year than last o 86% increase in
total enterprise streaming spending o 35% increase in the number of people
served o 230% increase in the total number of stream hours delivered
o 465% increase in bytes transferred (suggesting the average bit rate
delivered has doubled)
Current applications range from live broadcasts of quarterly meetings, product
launches, sales conferences, and critical messages from senior executives to
on-demand training and delivery of marketing information to dealers or
resellers. The market for IceWEB's products and services is growing as early
adopters are now progressing from early trials into full-blown streaming
initiatives. This technology in North America alone is projected to grow at a
30% Compound Growth Rate for the next three years going from $318M in 2001 to
$1,329M in 2004. (Source: Streaming Media, Inc.) Organizations seek to lower
costs, increase revenues, improve productivity and shorten their time to market.
With IceWEB's software, they have the capability to do all this quickly, easily
and affordably.
Market
The streaming industry is broken down into four areas. IceWEB targets three of
these areas: training, corporate communications, and advertising/marketing. A
report from Streaming Media, Inc., dated July 2001, provides some valuable
metrics for each area. IceWEB has customers in the training, corporate
communications and advertising/marketing areas. At present the company does not
target the entertainment area.
Training - An ideal customer has a widely dispersed organization with regular
training needs that include registration, quizzes, interactivity and a learning
management system to track progress, compliance and effectiveness. An ideal
customer might be a hotel chain wanting to train clerks all over the world.
IceWEB is providing such services for the Cendant Corporation's Days Inn Hotels.
Corporate Communications - An ideal customer is a public corporation with sales
offices throughout the world. They use streaming technology for earnings calls,
company meetings, and press conferences. IceWEB's IceSHOW(TM) makes this
technology affordable for just about any organization.
Advertising & Marketing - Streaming technology can be used to sell or market
just about any industrial or consumer product. IceWEB has successfully employed
this technology in a web conference for Software AG to launch a software
product. Over 1,200 people signed up for the live conference.
Market Trends
The use of streaming media started in the entertainment industry, but it is also
demonstrating a natural adaptation for business. Slow implementation of
residential broadband has been an impediment to some business applications of
streaming media for business-to-customer product marketing and advertising.
Business-to-business is leading the
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way in streaming media adoption because businesses have high rates of broadband
access, the types of presentations used in business are compression friendly;
e.g., talking heads, the audiences are captive and businesses have the capital
and motivation to outperform their competitors. The Security and Exchanges
Regulation FD (Fair Disclosure) stipulates that insiders and the general public
all be notified simultaneously of any disclosures made by a public company. This
has stimulated some public companies to use Webcast streams for broadcasting
their financial data to everyone at the same time. Another key piece of
legislation that opens a new window of opportunity for IceWEB's streaming
products and services is the Section 508 of the Rehabilitation Act. Section 508
requires that all government agencies include captioning in presentations they
provide. IceWEB has successfully implemented closed captioning and foreign
language captioning in several of its projects, most notably NASA. In the
advertising industry, a recent survey of 100 ad agencies by the Yankee Group
indicated that 65 percent intend to recommend streaming media advertising to
their clients. Further 90 percent of the clients that have already used
streaming will continue to use it over the next 12 months. Overall the streaming
media industry is starting to mature. Customers are more educated and are
beginning to demand pricing and technology standards. IceWEB has the ability to
profitably sell its products and services while innovating to comply with the
leading technology standards. In addition, IceWEB's B2B focus will allow it to
market is products and services to the most active streaming media viewing
audience.
Applications
Organizations invest in streaming media applications to complement their
businesses' Internet strategy for promotions, customer acquisition, relationship
building and worldwide communications purposes.
Strategic Advantages
Two major IceWEB competitive advantages are its lean business model with low
fixed costs and its favorable margin products and services. IceWEB's core
competency of digital media production is manifested in its IceSHOW(TM) product.
It was designed to make streaming media easy and affordable, the two factors
that are key for streaming media to fulfill its growth expectations.
Originally, IceWEB's software gave the Company a competitive edge when creating
custom solutions for its customers. Now, the software has been rewritten as a
Web-based application and made available to anyone who wants to create & deliver
rich-media presentations. Thus, IceWEB's selling proposition is making this
technology available and affordable to open up the world of streaming media for
any organization. And, because IceWEB'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 can resell them.
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Technology
The majority of IceWEB'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 the client only needs a
browser to author and manage their presentations. In addition, ICEWEB has
developed a proprietary desktop product called IceSlideTM for automatic batch
conversion of PowerPoint slides directly into Flash. IceWEB also uses IceSlideTM
technology in IceSHOW(TM) to convert slides after they have been synchronized
with the media stream. IceWEB's software is designed for Microsoft's Windows
Operating Systems and applications that use Microsoft's SQL 7 database software.
Products
All IceWEB's products utilize its original technology in one form or another. By
leveraging the code of existing products, IceWEB uniquely decreases new product
development costs, shortens time to market and is therefore able to realize new
revenues from new products quickly.
IceSHOW - the company's core offering, is a unique multimedia creation and
delivery platform. IceSHOW's powerful feature set and intuitive viewer interface
are designed for ease of use - offering great flexibility and convenience to
non-technical users. In addition, by delivering the product via an Application
Service Provider (ASP) model with bundled storage, delivery and support
services, IceSHOW(TM) enables the user to transform existing videos and slides
into rich-media presentations over the Internet. Anyone with encoded media and
MS Powerpoint slides can publish a multimedia presentation over the Internet
within a matter of minutes at an affordable price using IceSHOW(TM). A "wizard"
literally steps users through the process of uploading and converting existing
media components, then stitching them together seamlessly. There are options for
adding a branded interface and other interactive elements as well. Taking only
minutes to complete (depending on the presentation length), the resulting show
is ready for distribution via the Internet or an intranet.
IceSlide - A PowerPoint-to-Flash format conversion tool, IceSLIDE(TM) makes your
PowerPoint show small enough to distribute via the Internet. IceSLIDE(TM)
creates a compact, easily distributed Flash-format file with high quality vector
graphics. The resulting file can be easily e-mailed or posted on a Web site or
intranet. IceSLIDE(TM) was developed from the slide conversion technology built
into IceSHOW(TM). However, IceSLIDE(TM) is a standalone application that runs on
the viewer's PC.
LearningStream.com is a pay-per-view online training site for business
professionals. IceWEB provides the hosting and streaming and shares the
generated revenue with the course 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.
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Services
Consulting - IceWEB's consulting staff has years of experience in providing
custom rich-media solutions to all size organizations. IceWEB consulting
services include personalized project management, multimedia development,
synchronization of all media assets, application design and development,
software integration, instructional design, graphic design, foreign language
translations and delivery methods
IceSTUDIO Productions - IceWEB's production professionals provide audio/video
studio services that a customer would need to repurpose existing media assets to
the Web. Production services include audio/video production, live Webcasting,
audio/video editing, audio/video encoding, audio/video transcription, and
voiceovers.
Storage & Distribution - IceWEB offers a competitive level of data security,
backup and disaster recovery in order to ensure the integrity of our clients'
data. We have redundant production services; a 3-tier development cycle; tape
backups; and, redundant connectivity.
Sales & Marketing
Strategy
The ultimate users of IceWEB's products and services are organizations in both
the public and private sectors with large, dispersed audiences of customers,
employees, or partners. IceWEB reaches these "users" directly with its own sales
organization and through "Strategic and Channel Partners" who resell IceWEB
Services and Standard Products.
Marketing
Streaming technology offers any organization marketing opportunities. A
four-color print brochure has been created to communicate the overall corporate
message. The brochure is designed to accommodate a business-card-size,
demonstration CD. The demo CD content also resides on the IceWEB Website. Direct
mail, email, and outbound telemarketing are used to uncover new prospects and
invite them to view the IceWEB website and browse the gallery of Webcasts. The
direct mail and email campaigns are also vertical/niche driven. The goal is to
not only raise the company's profile, but also establish IceWEB as an expert
source in the streaming media arena. The company has initially targeted larger
firms and/or those who can resell IceWEB's products and services.
Sales
Custom services are sold directly by IceWEB consultative sales personnel to the
organizations utilizing the services or to intermediaries. Sales personnel are
assigned target accounts within target markets. Some specific target markets
are:
o Training and Marketing Departments of companies (with annual revenues of
$100M or more) in the DC metropolitan area and select companies in the
nearby regional states.
o Companies with expensive, complex products are specifically targeted for
IceWEB's web conferencing services.
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o Audio & Video Production (A/V), Advertising, Promotional and Trade Show
services companies who add lceWEB IceSHOW products and services to their
standard offerings and resell them to their clients.
Financial
IceWEB is currently seeking additional funding from a variety of sources. The
company has created and is delivering proprietary software products and
services. The funding will be used to:
o Protect the company's intellectual property through US Patent Applications
o Capital equipment acquisitions and additional production equipment
o Additional technical personnel to accelerate new product development
o Additional marketing personnel, advertising & promotions to stimulate sales.
o Strategic acquisitions
IceWEB, Inc.'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. IceWEB
will encounter various risks in implementing and executing its business strategy
and we can provide no assurance that it will be successful in addressing such
risks, and the failure to do so could have a material adverse effect on our
business. Our current cash forecast indicates that there will be negative cash
flow from our operations for the foreseeable future.
As of September 30, 2002, IceWEB employed a total of 7 employees, all of whom
work full-time. IceWEB has no collective bargaining agreements with any unions
and believes that the overall relations with its employees are satisfactory.
ITEM 2 - DESCRIPTION OF PROPERTY
OFFICE SPACE
IceWEB leases approximately 6,933 square feet of office space on a two-year
lease that ends on April 30, 2004 for an average of approximately $6,933 per
month through December 2002. The Company has renegotiated its lease at its
current location for $4,500 per month starting January 10, 2003 and ending on
December 31st, 2003. IceWEB 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.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than those
stated below:
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On December 27, 2001, an action was instituted in the Circuit Court for the
Fifteenth Judicial Circuit for Palm Beach County, Florida, entitled Christopher
Mayr v. Disease Science, Inc. f/k/a Auction Anything.com, Inc. The Complaint
seeks damages in an undisclosed amount from the Company arising out of an
incentive Stock Option Agreement dated August 25, 2000 held by a former employee
who blames the Company for his failure to exercise his option on a timely basis
following his departure from employment.
On February 5, 2002, the Company received a Notice of Demand for Arbitration
from Investek Holding, LLC claiming the Company violated a no-reverse stock
split provision in their agreement with the Company. Documentation involving
this transaction is incomplete and somewhat contradictory, but stock records for
the Company reflect Investek Holdings maintaining 1,000 shares of common stock
(i.e., 10,000 shares pre-reverse stock split). No formal arbitration has been
requested by Investek.
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, 2002, through the
solicitation of proxies or otherwise.
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
As of September 30, 2002, the Company had 30,112,878 shares of Common Stock
issued and outstanding with a par value of $0.001 per share. According to the
records of the Company's transfer agent, Olde Monmouth Stock Transfer Co., Inc.,
a total of 2,213,993 of those shares were freely tradable over the counter. The
Common Stock of the Company has been traded on the over-the-counter market since
September 1998, initially under the symbol, LWTN. The stock began trading under
the symbol, UBUY, on March 22, 1999 and has traded under the symbol, ICEW since
June 2002. The high and low bid prices each fiscal quarter in decimal form,
since the fourth quarter of 2000 is as follows:
High Low
4th Quarter 2000 .21 .03
1st Quarter 2001 .07 .03
2nd Quarter 2001 .26 .03
3rd Quarter 2001 .55 .18
4th Quarter 2001 .38 .06
1st Quarter 2002 .80 .07
2nd Quarter 2002 .53 .16
3rd Quarter 2002 .16 .11
Note: The Company's fiscal year end is September 30, but the above prices are by
calendar quarter.
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The quotations above reflect reported historical quotes obtained from
Bigcharts.com and Yahoo.com, without retail markup, mark down or commission, and
may not represent actual transactions.
According to the Company's transfer agent, as of September 30, 2002 the Company
had over 365 Shareholders on record of its Common Stock. 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
The Company has a private placement of up to 3,000,000 units as of September 30,
2002 that is due to close December 31, 2002. The company is going to extend the
offering period for an additional 90 days. Each Unit consists of one share of
common stock and one common stock purchase warrant. Each warrant entitles the
holder to purchase one share of common stock at a purchase price of $.60 per
share. The Warrants are immediately exercisable and will expire on July 1, 2004.
Upon 15 days written notice, the Company may call any Warrant at a call price of
$.001 per underlying share should the common stock trade at or above $1 for 10
consecutive trading days prior to the date of such notice. The Company had sold
674,378 shares as of September 30, 2002.
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.
We Have Been The Subject Of A Going Concern Opinion From Our Independent
Auditors
Our independent auditors have added explanatory paragraphs to their audit
opinions issued in connection with the 2002 and 2001 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 recently 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.
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Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the financial
statements.
Revenue Recognition - revenues are recognized at the time of shipment of the
respective products and/or services. Our Company includes shipping and handling
fees billed to customers as revenues. Costs of sales include outbound freight.
Use of Estimates
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues, and expenses, and related disclosure of
contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including those related to allowances for doubtful accounts
receivable and the carrying value of inventories and long-lived assets.
Management bases these estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis of making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
Results of Operations
Since June 2001, working capital to fund our operations was generated from the
proceeds of Regulation D private placement offerings of our securities and also
from sales of our product and services to both legacy LSI customers and new
customers.
Net revenues - for the year ended September 30, 2002, the Company had total
revenue of $194,201 compared to total revenue of $212,104 for the year ended
September 30, 2001. The primary reason for this was a change in our marketing
and sales strategy to build our business around the IceShow products. We also
changed our E-commerce business to sell third-party classes and on-line training
over the Internet.
Cost of revenues - our cost of revenues consists of costs related to production
of custom services, Internet and telephony communication access costs,
personnel, and technical support. Our cost of revenues as a percentage of total
revenues decreased from 101% in 2001 to 33% in 2002. This was primarily due to
conversion of our production costs to a variable from a fixed expense, better
bidding on new projects, more aggressive control of costs, and elimination of
certain non-recurring costs associated with the acquisition of Learning Stream,
Inc.
Marketing and Sales - our sales and marketing expense consists of
Personnel costs, including commissions, public relations, advertising, marketing
programs, lead generation, travel and trade shows. Marketing and sales costs
increased 48% to $255,593 from $172,627 for the year ended September 30, 2001.
This increase was the result of continued
13
upgrading of our sales and marketing personnel, commission expenses and
marketing programs.
General and administrative expense - our general and administrative expense
consists primarily of personnel costs, rent, legal, accounting, human resources,
engineering, telecommunications, office supplies and corporate governance and
compliance. General and administrative expense decreased $15,043 or 2% to
$597,275 from $612,318 during the same period in FY 2001. The primary reasons
for this were a reduction in rent expense and the fact that the LSI acquisition
costs occurred in June 2001.
Income taxes - because we incurred net operating losses in the year ended
September 30, 2002, we paid no federal, state or foreign income taxes in that
period. 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 per share was $(.03) for the fiscal year ended September 30,
2002 compared to $(.04) for the same period in 2001. The lower loss per share in
2002 is due primarily to write-off of goodwill that was booked in September of
2001.
We expect to generate losses resulting principally from costs incurred in
conjunction with our marketing and sales initiatives, and we expect that the
costs of these activities will increase as the implementation of our business
plan continues. However, as we continue to implement our plan of operation, we
expect general and administrative expenses to remain nearly flat and actually
decrease as a percentage of sales due to the process efficiencies we have
already put in place.
In order to provide sufficient working capital to fund our ongoing operations we
will be required to raise additional capital to fund these anticipated costs.
There are no assurances that we will be able to obtain the additional capital in
which event our future operations would be materially and adversely affected.
Liquidity and Capital Resources
Since inception, our operating and investing activities have used more cash than
they have generated. Because of the continued need for substantial amounts of
working capital to fund the growth of the business, and to pay our operating
expenses, we expect to continue to experience significant negative operating and
investing cash flows for the foreseeable future. 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 which may result in dilution to our existing shareholders. We
currently have no commitments to provide us with any additional working capital.
If we do not have sufficient working capital to implement our plan of operation
described above, it is likely that we will cease operations.
14
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 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.
15
ITEM 7 - FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
Iceweb, Inc:
We have audited the accompanying balance sheets of Iceweb, Inc. as of September
30, 2002 and 2001 and the related statements of operations, stockholders'
deficit and cash flows for the years then ended. These 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 audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Iceweb, Inc. as of September
30, 2002 and 2001 and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 16 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 Note 16. The 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
16
ICEWEB, INC.
Balance Sheets
For Fiscal Years Ended September 30, 2002 and 2001
2002 2001
---- ----
ASSETS
Current Assets:
Cash and cash equivalents ................. $ 9,010 $ 15,484
Accounts receivable, net .................. 13,470 95,211
Prepaid expenses .......................... 0 1,751
----------- -----------
Total current assets ...................... 22,480 $ 112,446
Property and equipment, net ........................ 116,707 242,420
Other assets:
Trademarks, net ........................... 0 10,435
Deposits .................................. 9,533 1,547
Due from related parties .................. 0 107,448
----------- -----------
Total other assets ................................. 9,533 119,430
Total assets ....................................... $ 148,720 $ 474,296
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable .......................... $ 368,182 $ 106,843
Accrued expenses .......................... 17,611 55,158
Line of credit - related party ............ 326,341 399,723
Notes payable - related party ............. 250,000 0
Deferred revenue .......................... 495 41,044
----------- -----------
Total Liabilities ......................... $ 962,629 $ 602,768
Stockholders' deficit:
Common stock, par value $.001
100,000,000 shares authorized
30,112,878 and 24,310,400 issued and outstanding,
respectively ....................................... $ 30,113 $ 29,660
Treasury stock ..................................... 0 (5,350)
Additional paid in capital ......................... 1,612,066 1,551,381
Accumulated deficit ................................ (2,456,088) (1,704,163)
----------- -----------
Total stockholders' deficit ........................ (813,909) (128,472)
Total liabilities and stockholders' deficit
$ 148,720 $ 474,296
=========== ===========
See accompanying notes to financial statements.
17
ICEWEB, INC.
Statements of Operations
For the Fiscal Years Ending September 30, 2002 and 2001
2002 2001
---- ----
Revenues ......................................... $ 194,201 $ 212,104
Cost of revenues ................................. 63,711 214,414
Gross Profit ..................................... 130,490 (2,310)
Operating Expenses:
Selling expense ......................... 255,593 172,627
General and Administrative .............. 597,275 766,568
Operating loss ................................... (722,378) (941,505)
Interest income .................................. 8 1,563
Interest expense ................................. 11,340 16,990
Loss on disposal of assets and goodwill impairment 18,215 39,542
Net loss ......................................... $ (751,925) $ (996,474)
============ ============
Loss per share ................................... (.03) (.04)
Weighted average shares
Outstanding basic and diluted .................... 27,067,776 27,496,175
See accompanying notes to financial statements.
18
ICEWEB, INC.
Statements of Stockholders' Deficit
For the Period Ending September 30, 2002
Common Stock Additional Accumulated
Shares Amount Paid in capital Deficit Total
------ ------ --------------- ------- -----
Balance at 30 Sep 00 ... 26,750,000 $ 26,750 $ 1,009,441 $ (707,689) $ 328,502
Contributed capital .... 0 0 2,280 0 2,280
Common stock issued .... 2,910,400 2,910 539,310 0 542,220
Treasury stock (at cost) (5,350,000) (5,350) 350 0 (5,000)
Net loss for year ...... 0 0 0 (996,474) (996,474)
----------- ----------- ----------- ----------- -----------
Balance at 30 Sep 01 ... 24,310,400 $ 24,310 $ 1,551,381 $(1,704,163) $ (128,472)
Contributed capital .... 0 0 128 0 128
Common stock
issued in reverse
merger ................. 5,128,100 $ 5,128 $ (9,115) 0 $ (3,987)
Common stock issued .... 674,378 675 69,672 0 70,346
Net loss for year ...... 0 0 0 (751,925) (751,925)
----------- ----------- ----------- ----------- -----------
Balance at 30 Sep 02 ... 30,112,878 $ 30,113 $ 1,612,066 $(2,456,088) $ (813,909)
=========== =========== =========== =========== ===========
See accompanying notes to financial statements
19
ICEWEB, INC.
Statements of Cash Flows
For the Fiscal Years Ending September 30, 2002 and 2001
2002 2001
---- ----
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss ............................................. $(751,925) $(996,474)
Adjustments to reconcile net loss to net cash in
operating activities:
Depreciation and amortization ........................ 116,855 111,922
Loss on disposal of assets and goodwill impairment ... 18,215 193,793
Changes in operating assets and liabilities, net of
effects from acquisition:
(Increase) decrease in:
Accounts receivable .................................. 81,741 75,433
Prepaid expenses ..................................... 1,751 (263)
Deposits ............................................. (7,986) 4,203
Increase (decrease) in:
Accounts payable ..................................... 261,339 58,688
Accrued expenses ..................................... (37,547) 55,158
Deferred revenue ..................................... (40,549) 41,044
NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES: ... $(358,106) $(456,496)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in acquisition ............................. (3,987) (173,000)
Purchase of property and equipment ................... (8,921) (54,314)
Proceeds from disposal of property and equipment ..... 10,000 10,652
Purchase of intangibles .............................. 0 (48,496)
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES .... $ (2,908) $(265,158)
CASH FLOWS FROM FINANCING ACTIVITIES
(Payments on) Proceeds from line of credit ........... (73,382) 149,222
Payments to related party ............................ 0 (34,328)
Proceeds from related party .......................... 357,448 42,552
Contributed capital .................................. 70,474 539,500
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES .... $ 354,540 $ 696,946
NET DECREASE IN CASH ................................... (6,474) (24,708)
CASH AND EQUIVALENTS - beginning of year ............... 15,484 40,192
CASH AND EQUIVALENTS - end of year ..................... 9,010 15,484
Cash paid for interest ................................. 0 0
See accompanying notes to financial statements.
20
ICEWEB, INC.
Notes to Financial Statements
September 30, 2002
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
IceWEB Communications, Inc. (the "Company") was originally incorporated in
Virginia in March 1996, and then was incorporated as IceWEB, Inc. in Delaware in
September 2001. The Company first operated as a full service provider of
computer systems and professional services to corporate businesses and to the
federal government under a General Services Administration (GSA) schedule
contract for computer systems and peripherals. The Company acquired the assets
of Learning Stream, Inc. in June 2001, which coincided, with the transition of
the Company's business model to focus on streaming audio and video, web-casting
and digital web animation. 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 will be
separated from the post merger company. The Company filed the required documents
to record the merger and change the name to Iceweb, Inc. with the Delaware
Secretary of State in September 2002.
All common stock amounts in the financials statements as of September 30,
2002 and 2001 have been restated to reflect the reverse merger occurring in
March 2002, as disclosed in Note 10.
(b) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
(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. Revenues from services
are recognized at the time the services are completed.
(d) 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
21
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.
(e) STOCK OPTION PLAN
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, "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.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
(g) Property and Equipment
Property and equipment is recorded at cost and is depreciated using the
straight-line method over their estimated useful lives.
(h) Intangible Assets
Trademarks were acquired in September 2000. They are recorded at cost and
are amortized using the straight-line method over 5 years. The Company
continually reviews its intangible assets to evaluate whether events or changes
have occurred that would suggest an impairment of carrying value. An impairment
would be recognized when expected future operating cash flows are lower than the
carrying value. As of September 30, 2002, $10,435 was recorded as an impairment
loss on the trademark asset.
(i) Advertising Costs
Advertising costs are included in selling expenses, and are expensed as
incurred. Advertising expense was $3,000 and $5,195 for the years ended
September 30, 2002 and 2001, respectively.
22
(j) Amortization of 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 an impairment exists, the amount of such impairment is
calculated based on the estimated fair value of the asset. The Company
determined the goodwill associated with the acquisition of American Computer
Systems was impaired and the entire amount of goodwill, $257,081 and accumulated
amortization, $102,832 was written off in September 2001.
(k) Recent Accounting Pronouncements
In April 2002, the FASB issued SFAS 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of the FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds the provisions of SFAS No. 4 that requires
companies to classify certain gains and losses from debt extinguishments as
extraordinary items, eliminates the provisions of SFAS No. 44 regarding
transition to the Motor Carrier Act of 1980 and amends the provisions of FASB
No. 13 to require that certain lease modifications be treated as sale leaseback
transactions. The provisions of FASB 145 related to classification of debt
extinguishments are effective for fiscal years beginning after May 15, 2002. The
provisions of SFAS 145 related to lease modifications is effective for
transactions occurring after May 15, 2002. Earlier application is encouraged.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. The standard requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
In July 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions. The provisions of this Statement institute the
application of the purchase method of accounting to all acquisitions of
financial institutions, except transactions between two or more mutual
enterprises. Further, the provisions of the Statement that relate to the
application of Statement 144 apply to certain long-term customer-relationship
intangible assets recognized in an acquisition of a financial institution,
including those acquired in transactions between mutual enterprises.
(l) 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.
23
(2) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
2002 2001
---- ----
Computer equipment ........................... $ 159,813 $ 168,266
Computer software ............................ 96,615 90,815
Furniture and fixtures ....................... 19,195 21,593
Vehicles ..................................... 3,600 17,737
Leasehold improvement ........................ 0 3,773
Total property and equipment ................. 279,223 302,184
Less: accumulated depreciation ............... (162,516) (59,764)
Property and equipment, net .................. $ 116,707 $ 242,420
Depreciation expense for the years ended September 30, 2002 and 2001 was
$116,855 and $55,506 respectively.
(3) OPERATING LEASES
The Company leases facilities in Herndon, VA for office space and developmental
work through April 2004 at an average cost of $6,933 per month in the first year
of the lease. Total rental expense for the years ended September 31, 2002 and
2001 was $25,056 and $20,442, respectively. The Company has renegotiated its
lease at its current location for $4,500 per month starting January 10, 2003;
and continues until December 31st, 2003. The minimum lease obligation for the
next five years is:
Fiscal Year Amount
----------- ------
2003 $54,000
(4) ACCOUNTS RECEIVABLE
Accounts receivable consist of normal trade receivables. The Company assesses
the collectibility of its accounts receivable regularly. Based on this
assessment, an allowance against accounts receivable has been established. The
allowance for doubtful accounts is $500 and $8,500 as of September 30, 2002 and
2001, respectively. Bad debt expense is $725 and $8,500 for the years ended
September 30, 2002 and 2001, respectively.
(5) RELATED PARTY TRANSACTIONS
At September 30, 2002 and 2001, the Company had a note receivable from a
shareholder of $0 and $107,448. This advance is non-interest bearing and due on
demand. Also, the Company had a line of credit with Merrill Lynch Business
Financial Services, Inc. of up to $500,000. The line of credit was secured by
the assets of the Company, and was personally guaranteed by the majority
shareholder. The line of credit expired in January 2002 and was assumed by the
shareholder. This note payable is due on demand and accrues interest at 12.5%
per year. On September 2002 and 2001 the amount of the note was $326,341 and
$399,723 respectively.
24
(6) CONCENTRATION OF CREDIT RISK
The Company maintains its cash bank deposits at various financial institutions.
Accounts at these institutions are insured by the Federal Deposit Insurance
Corporation up to $100,000 and the balances, at times, may exceed federally
insured limits. At September 30, 2002 and 2001, the balances in each account
were below this limit.
(7) MAJOR CUSTOMERS
Sales to three customers represented approximately 64% and 54% of total sales in
September 30, 2002 and 2001, respectively. As of September 30, 2002 and 2001,
approximately 87% and 62% of the Company's accounts receivable were due from
these three customers.
(8) INCOME TAXES
As of September 30, 2002 and 2001, the Company had an unused net operating loss
carry forward of approximately $2,225,503 and $1,507,697 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.
2002 2001
---- ----
Deferred tax asset:
Tax benefit of net operating loss carry forward .... $ 837,457 $ 567,347
Tax provision of accumulated depreciation .......... (10,993) (7,599)
Tax benefit of allowance for doubtful accounts ..... 273 3,199
Tax benefit of accumulated depreciation ............ 0 83,841
Less: valuation allowance ......................... (826,737) (646,788)
Total deferred tax asset ............................. $ 0 $ 0
The loss originating in FY 2001 will expire in 2021 and the loss originating in
2002 will expire in 2022. The utilization of the above loss carry forwards, for
federal income tax purposes may be subject to limitation resulting from changes
in ownership.
(9) PRIVATE PLACEMENT
In July 2000, the Company commenced a stock offering under Regulation D. The
offering consisted of 10,000 units at $100 per unit, each unit contained 500
shares of common stock at a price of $0.20 per share. As of September 30,
2000,no common stock had been issued, nor had any funds been received. As of
September 2001, approximately $542,000 was received and approximately 2,910,400
shares of common stock had been issued. Each share of common stock that was sold
was subsequently issued two warrants for each common share for a total of
5,441,000 warrants.
The Company has a private placement offering of up to 3,000,000 units as of
September 30, 2002 that is due to close December 31, 2002. Each Unit consists of
one share of common stock and one common stock purchase warrant. Each warrant
entitles the holder to purchase one
25
share of common stock at a purchase price of $.60 per share. The Warrants are
immediately exercisable and will expire on July 1, 2004. Upon 15 days written
notice, the Company may call any Warrant at a call price of $.001 per underlying
share should the common stock trade at or above $1 for 10 consecutive trading
days prior to the date of such notice. The Company had sold 675,000 shares as of
September 30, 2002 for approximately $70,000.
(10) MERGER
In March 2002, Disease Sciences, Inc. executed an Agreement and Plan of Merger
(DSSC Agreement) with Iceweb, Inc., a Delaware Corporation and its shareholders.
Under the terms of the DSSC Agreement Iceweb was acquired by and became a wholly
owned subsidiary of DSSC. The share exchange agreement and resulting
recapitalization meant that the exchanging Iceweb shareholders were the DSSC
controlling shareholders after the merger. The closing of the agreement resulted
in a change in control of Disease Sciences, Inc.
(11) SEC ADMINISTRATIVE PROCEEDING
On November 15, 2001, the Securities and Exchange Commission ("SEC")issued an
order instituting a cease-and-desist proceeding against Disease Sciences, Inc.
The SEC found that Disease Sciences did on October 16, 2001 issue a press
release headlined "Disease Sciences, In. Ultra High Pressure Pulse Technology
Kills Conventional Pathogens Including Anthrax." Among other things, the press
release stated that using High Pressure Pulse ("HPP") technology Disease
Sciences "may be able to develop a simple, inexpensive method for cleaning our
food and water supplies should they come under attack from bio-terrorism, as
well as sterilize other items, such as mail and packages that could be
accommodated in the pressure apparatus." On October 17, 2001, Disease Sciences
issued a press release stating that "Disease Sciences is presently investigating
a commercially viable project" using HPP technology. The Disease Sciences press
releases omitted to state that at the time of the press releases, HPP had not
been tested for or shown to be practical or economical for the uses suggested in
the Disease Sciences October 16 press release; and Disease Sciences did not yet
have a license to use HPP for any of the uses suggested in the October 16 press
release. Section 10(b) of the Exchange Act and Rule 10b-5 hereunder prohibit, in
connection with the purchase or sale of any security, making any untrue
statement of a material fact or omitting to state a material fact necessary to
make the statements made in light of the circumstances under which they were
made, not misleading. Disease Sciences issued publicly the statements set forth
above. Disease Sciences knew, or was reckless in not knowing, that these
statements were false and misleading at the time they were made. Accordingly,
the Commission found that Disease Sciences violated Section 10(b) of the
Exchange Act and Rule 10b-5 hereunder. No further actions have been taken
against the Company from the SEC regarding this matter; furthermore, in the
opinion of management there is no need for an accrual.
26
(12) NOTES PAYABLE
In 2002, the Company borrowed $150,000 from a related party. The principal and
interest are payable upon demand. The interest rate on the unpaid balance is
12.5% for first seven months and 18% thereafter.
In 2002, the Company borrowed $100,000 from three shareholders. All three
shareholders have agreed that the notes are non-interest bearing and will be
converted to equity at $0.20/share subsequent to year-end.
(13) 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 8,000,000 shares. As of June 30, 2002, 3,175,000 of
the shares authorized under the plan have been issued. 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 year
ended September 30, 2002.
Stock option activity during the period is indicated as follows:
Options
Available Exercise
For Grant Options Price
--------- --------- -----
Balance, 30 Sep 01 .............. 10,000,000 0
Granted DSSC .................... 2,000,000
Granted ICEW .................... 3,175,000 .20
Exercised DSSC .................. (2,000,000)
Forfeited ....................... (1,750,000)
Balance, 30 Sep 02 .............. 4,825,000 1,425,000 .20
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"), 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 numbers are as follows for the fiscal year periods ended
September 30, 2002 and 2001:
27
2002 2001
-------- -------
Actual net (loss) .................... (751,925) (996,474)
SFAS 123 Compensation Cost ........... 602,700 0
-------- -------
Pro forma net income (loss) .......... (1,354,625) (996,474)
======== ========
Pro forma basic and diluted
Net income (loss) per share ......... (.05) (.04)
======== ========
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 ....................................6%
Expected dividends .........................................0
Volatility factor ........................................2.65%
Weighted average expected
Life of options ...........................................3
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.
(14) EARNINGS PER COMMON SHARE
Earnings per common share are calculated under the provisions of SFAS No. 128,
"Earnings per Share," which established new standards for computing and
presenting earnings per share. SFAS No. 128 requires the Company to report both
basic earnings per share, which is based on the weighted-average number of
common shares outstanding, and diluted earnings per share, which is based on the
weighted-average number of common shares outstanding plus all potential dilutive
common shares outstanding.
The weighted average common shares used in the computations of basic earnings
per common share and earnings per common share assuming dilution are as follows:
Fiscal Year Fiscal Year
Ended September 30 Ended September 30
2002 2001
---- ----
Average common shares
Outstanding ............. 27,067,776 27,496,175
Common shares issuable (1) 299,250 0
---------- ----------
Average common shares
outstanding assuming
dilution (2) ......... 27,367,026 27,496,175
========== ==========
28
----------
(1) issuable under stock option plans
(2) excluded from the computation of diluted net loss per share for the periods
ended September 30, 2002 because their effect would have been antidilutive
(15) SIGNIFICANT CUSTOMER 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 condensed statements of operations.
Therefore, Iceweb has determined that it operates in a single operating segment,
specifically, web communications services. For the periods ended June 30, 2002
and 2001, all material assets and revenues of Iceweb were in the United States.
(16) GOING CONCERN
The Company's auditors stated in their reports on the financial statements of
the Company for the years ended September 30, 2002 and 2001 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 years ended September 30, 2002 and 2001, the Company incurred net annual
losses of $751,925 and $996,474, respectively. 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. 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.
(17) LITIGATION
The company is involved in various claims and lawsuits arising in the normal
course of business. At this time, any outcome cannot be estimated and the
results may be material to the Company's financial position.
29
On December 27, 2001, an action was instituted in the Circuit Court for the
Fifteenth Judicial Circuit for Palm Beach County, Florida, entitled Christopher
Mayr v. Disease Science, Inc. f/k/a Auction Anything.com, Inc. The Complaint
seeks damages in an undisclosed amount from the Company arising out of an
incentive Stock Option Agreement dated August 25, 2000 held by a former employee
who blames the Company for his failure to exercise his option on a timely basis
following his departure from employment.
On February 5, 2002, the Company received a Notice of Demand for Arbitration
from Investek Holding, LLC claiming the Company violated a no-reverse stock
split provision in their agreement with the Company. Documentation involving
this transaction is incomplete and somewhat contradictory, but stock records for
the Company reflect Investek Holdings maintaining 1,000 shares of common stock
(i.e., 10,000 shares pre-reverse stock split). No formal arbitration has been
requested by Investek.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
At a meeting held on May 10, 2002, the Board of Directors of Disease Sciences,
Inc. (the "Company") approved the engagement of Daszkal Bolton, LLP as
independent auditors of the Company for the fiscal year ended January 31, 2002,
to replace Feldman Sherb & Co., who were dismissed as the Company's auditors
effective on May 10, 2002.
The reports of independent auditors of Feldman Sherb on the Company's financial
statements for the two years ended January 31, 2001 and 2000 did not contain an
adverse opinion or disclaimer of opinion, and were not qualified or modified as
to uncertainty, audit scope, or accounting principles; however, Feldman Sherb's
opinion dated August 15, 2001 relative to the financial statements as of and for
each of the two years ended January 31, 2001 included an explanatory paragraph
relative to Disease Sciences, Inc.'s ability to continue as a going concern.
During the two fiscal years ended January 31st, there were no disagreements with
Feldman Sherb on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of Feldman Sherb would have caused Feldman Sherb to make
reference to the subject matter in their report.
Prior to engaging Daszkal Bolton, LLP, the Company did not consult Daszkal
Bolton, LLP regarding the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements or any other financial
presentation whatsoever.
The Company requested Feldman Sherb to furnish it a letter addressed to the
Commission stating whether it agrees with the above statements. Feldman Sherb
provided this letter, dated May 16, 2002 and it was filed as an exhibit to
Current Report Form 8-K filed with the Commission on May 16, 2002.
30
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The following presents directors, executive officers, promoters and control
persons of the Company as of September 30, 2002:
NAME AGE TITLE TERM OF OFFICE
John R. Signorello 36 Chairman Ind
Chief Executive Officer
Director 1
John R. Signorello has served as President and CEO and a member of the Board of
Directors since October 1999. 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 September 1997, the company
was acquired by Steelcloud Company, formerly known as Dunn Computer Corporation
(Nasdaq:SCLD), and Mr. Signorello remained as Vice President of Sales and
Marketing until November 1998. From December 1998 to September 1999 he was
involved with several internet companies. Prior to founding STMS, Mr. Signorello
served as a business consultant for Applied Accounting Technology. Mr.
Signorello, an accomplished musician, is also a principal in New York City
Lights Entertainment. Mr. Signorello received a B.B.A. in Marketing from Radford
University in 1989.
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
John R. Signorello filed initial Statements of Beneficial Ownership of
Securities on Form 3 on April 11, 2002
31
ITEM 10 - EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the last fiscal year
to the officer of Iceweb, Inc. The Iceweb executive officer of the Company has
served since October 1, 1999.
Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
----------------------------------------------------
Annual Compensation Awards Payouts
------------------------------------------- ----------------------------- ---------------------
Restricted Securities
Other Annual Stock Underlying LTIP All Other
Name and Principle Position Year Salary($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) Payouts Compensation
--------------------------- ---- --------- -------- --------------- ----------- --------------- ------- ------------
John R. Signorello 2001 19,000 0 0 0 0 0 0
Chief Executive Officer
Prinicipal Financial Officer
Director
John R. Signorello 2002 68,000 0 0 120,000 600,000 0 0
Chief Executive Officer
Prinicipal Financial Officer
Director
32
The following table summarizes option grants during 2002 to the named executive
officer.
Option/ SAR Grants in Fiscal Years 2001 and 2002
-----------------------------------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------------------------------------------------
Number of % of Total
Securities Option/SARs
Underlying Granted to Excercise or Market Price
Options/SARs Employees in Base Price Date of
Name Year Granted Fiscal Year ($/Share) Grant Expiration Date
-------------------------------------------------------------------------------- ------------ ---------------
John R. Signorello 2001 0 0 0 0 0
Chief Executive Officer
Prinicipal Financial Officer
Director
John R. Signorello 2002 600,000 19% 0.20 0.20 February 2007
Chief Executive Officer
Prinicipal Financial Officer
Director
Aggregate Option/SAR Exercises in Fiscal Year 2002 and FY End Option/SAR Values
-----------------------------------------------------------------------------------------------------------------
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money
on Value Options/SARs at FY-End (#) Options/SARs at FY-End ($)
Excercise Realized --------------------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
---------------------------------------------------------------------------------- ---------------------------
John R. Signorello (1) 0 0 126,000 474,000 0 0
Chief Executive Officer
Prinicipal Financial Officer
Director
(1) Mr. Signorello was granted options to purchase 600,000 shares at $0.20/each,
expiring in February 2007. The options vest with the following schedule: (1) 3%
on the date of grant (March 22, 2002), (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.
EMPLOYMENT CONTRACTS
As of September 30, 2002 there was one existing employment contract with Michael
VanPatten. The contract expires on March 20th, 2003 and the term of the contract
can be extended for additional one (1) year periods by written notice given by
the Company to the Executive at least 60 days before the expiration of the term.
33
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(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, 2002. 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 18,179,300 Direct 60%
620 Herndon Parkway
Suite 360
Herndon, VA 20170
Common Stock Michael VanPatten 1,508,700 Direct 5%
620 Herndon Parkway
Suite 360
Herndon, VA 20170
Common Stock Gary J. Schultheis 2,035,000 Direct 6.5%
6413 Congress Ave.
Suite 230
Boca Raton, FL 33487
(b) As of September 30, 2002 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, 2002) is
believed by management to be 20,758,000 shares, or approximately 70.5% of the
outstanding shares of Common Stock.
(c) As stated in Item 6 above, the Company's inability to generate positive cash
flow has forced the Company to pursue all possible financing alternatives,
including the sale of the Company, a merger or a reverse merger.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the year ended September 30, 2001, the company held notes receivable from a
corporation related through common ownership and separately from a shareholder
of the Company. At September 30, 2002 and 2001, the Company had a note
receivable from a shareholder of $73,470 and $107,478. This advance is
non-interest bearing and due on demand. The Company advanced a corporation
related through common ownership $3,204 and $4,242 at September 30, 2002 and
2001, respectively. The advance is non-interest bearing and due on demand. Also,
the Company had a line of credit with Merrill Lynch Business Financial Services,
Inc. of up to $500,000. The line of credit was secured by the assets of the
Company, and was personally guaranteed by the majority shareholder. The line of
credit expired in January 2002 and is in fact a note payable to the majority
shareholder. The terms of this net note payable to the majority shareholder are
12.5% and due on demand. These amounts have been netted and are shown on the
liabilities section of the balance sheet as "line of credit - related party".
34
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:
EXHIBIT NO. EXHIBIT
----------- -------
2.1 Agreement and Plan of Reorganization (FILED AS EXHIBIT TO CURRENT REPORT
ON FORM 8-K ON JUNE 6, 2001, AND INCORPORATED BY REFERENCE)
2.2 Agreement and Plan of Merger (FILED AS EXHIBIT TO CURRENT REPORT ON FORM
8-K ON APRIL 4, 2002, AND INCORPORATED BY REFERENCE)
5 Atlas Pearlman Legal Opinion of Registration Statement on Form S-8;
Disease Sciences (FILED AS EXHIBIT 5 TO REGISTRATION STATEMENT ON FORM S-8
ON AUGUST 17, 2001, AND INCORPORATED BY REFERENCE)
10.1 Asset Purchase Agreement (FILED AS EXHIBIT 10.1 TO CURRENT REPORT ON FORM
8-K ON JULY 26, 2001, AND INCORPORATED BY REFERENCE)
10.2 Form of Stock Purchase Agreement (FILED AS EXHIBIT 10.1 TO CURRENT REPORT
ON FORM 8-K ON DECEMBER 4, 2001, AND INCORPORATED BY REFERENCE)
10.3 Research and Development Agreement (FILED AS EXHIBIT 10.2 TO CURRENT
REPORT ON FORM 8-K ON DECEMBER 4, 2001, AND INCORPORATED BY REFERENCE)
16.1 Change of Certifying Accountant (FILED AS EXHIBIT TO CURRENT REPORT ON
FORM 8-K ON JUNE 7, 2001, AND INCORPORATED HEREIN BY REFERENCE)
16.2 Change of Certifying Accountant (FILED AS EXHIBIT TO CURRENT REPORT ON
FORM 8-K ON MAY 16, 2002, AND INCORPORATED HEREIN BY REFERENCE)
23.1 Consent of Independent Auditors (FILED AS EXHIBIT 23.1 TO REGISTRATION
STATEMENT ON FORM S-8 ON AUGUST 17, 2001, AND INCORPORATED BY REFERENCE)
99.1 Independent Auditors Report (FILED AS EXHIBIT 99.1 TO CURRENT REPORT ON
FORM 8-KA ON JUNE 29, 2001 AND INCORPORATED BY REFERENCE)
99.2 Unaudited Pro Forma Combined Financial Statements (FILED AS EXHIBIT 99.2
TO CURRENT REPORT ON FORM 8-KA ON JUNE 29, 2001, AND INCORPORATED BY
REFERENCE)
99.3 Certification of Chief Executive Officer and Principal Financial Officer
Relating to a Periodic Report containing Financial Statements
35
(b) Reports on Form 8-K
The Company filed ONE report on Form 8-K during the last quarter of the fiscal
year ENDED January 31, 2002. The Company filed ONE report on Form 8-K during the
first quarter ENDED April 30, 2002.
ITEM 14 - 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.
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.
DISEASE SCIENCES, INC.
SIGNATURE TITLE
/s/ JOHN R. SIGNORELLO Chief Executive Officer
---------------------- Principal Financial Officer
John R. Signorello Director
Date: Janurary 17, 2003
36
CERTIFICATION OF CHIEF EXECUTIVE OFFICER and PRINCIPAL FINANCIAL OFFICER
I, John R Signorello, Chief Executive Officer and Principal Financial Officer of
Disease Sciences, Inc. certifies that:
1. I have reviewed this annual report on Form 10-KSB of Disease Sciences, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors: (or persons performing the equivalent
functions)
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls, and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: January 17, 2003 By: /s/ John R. Signorello
John R. Signorello,
Chief Executive Office and Principal Financial Officer
37