________________________________________________________________________________
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
____________________
COMMISSION FILE NUMBER 0-27865
ICEWEB INCORPORATED
DELAWARE 13-2640971
(STATE OF INCORPORATION) (I.R.S. ID)
620 HERNDON PARKWAY, SUITE 360, HERNDON, VA 20170
(703) 964-8000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 38,281,924 issued and
outstanding at December 31, 2003.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
Transitional Small Business Disclosure Format: Yes [ ] No [X]
________________________________________________________________________________
ICEWEB INCORPORATED
FORM 10-QSB
FOR THE QUARTER ENDED DECEMBER 31, 2003
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements..................................................4
Unaudited Consolidated Balance Sheet as at December 31, 2003..........4
Unaudited Consolidated Statements of Operations for the
three months ended December 31, 2003 and December 31, 2002............5
Unaudited Consolidated Statements of Cash Flows for the
three months ended December 31, 2003 and December 31, 2002............6
Notes to Unaudited Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis for Plan of Operations...........8
Item 3. Controls and Procedures ............................................12
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................12
Item 2. Changes in Securities and Small Business Issuer Purchases
of Equity Securities ................................................12
Item 3. Defaults upon Senior Securities......................................12
Item 4. Submission of Matters to a Vote of Security Holders..................12
Item 5. Other Information....................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signatures ...................................................................13
2
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.
3
PART I
ITEM 1. Financial Statements
ICEWEB INCORPORATED AND SUBSIDIARIES
DECEMBER 31, 2003
CONSOLIDATED BALANCE SHEET (UNAUDITED)
2003
----
Current Assets:
Cash .................................................... $ 65,693
Prepaid Expenses ........................................ 2,052
Accounts receivable, net ................................ 666,807
-----------
Total current assets .................................... 734,552
Property and equipment, net .................................. 104,386
Goodwill ..................................................... 718,353
Deposits ..................................................... 12,665
-----------
Total assets ................................................. $ 1,569,956
-----------
Liabilities and stockholders' equity
Current Liabilities
Deferred Revenue ........................................ $ 47,575
Accounts payable ........................................ 579,392
Accrued Expenses ........................................ 59,392
Notes Payable - related parties ......................... 459,306
-----------
Total Current Liabilities .................................... 1,145,665
-----------
Stockholders' equity:
Common stock, par value $.001
100,000,000 shares authorized,
38,281,924 issued and outstanding respectively .............. 38,282
Additional paid in capital ................................... 2,918,010
Accumulated deficit .......................................... (2,532,001)
-----------
Total stockholders' equity ................................... 424,291
-----------
Total liabilities and stockholders' equity ................... $ 1,569,956
-----------
See accompanying notes to consolidated financial statements
4
ICEWEB INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
2003 2002
---- ----
Revenue .......................................... $ 1,525,358 $ 19,811
Cost of Sales .................................... 1,002,782 8,121
------------ ------------
Gross Profit ..................................... 522,576 11,690
Operating Expenses:
Marketing & Selling .......................... 36,860 8,060
Research & Development ....................... 56,000 -
General and Administrative ................... 388,809 111,778
------------ ------------
Total Operating Expense ................. 481,669 119,838
Operating Income(Loss) ........................... 40,907 (108,148)
Interest (Expense) Income ........................ (10,976) 4
------------ ------------
Net Income(Loss) ................................. $ 29,931 $ (108,144)
------------ ------------
Basic & Diluted Income(Loss) per common share .... $ .00 $ (.00)
Weighted average common shares outstanding ....... 38,190,000 30,309,487
See accompanying notes to consolidated financial statements
5
ICEWEB INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED DECEMBER 31, 2003 AND DECEMBER 31, 2002
(UNAUDITED)
2003 2002
---- ----
--------- -------
NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES: ..... (121,480) (62,967)
--------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .................. (66,679) 0
Proceeds from disposal of property and equipment .... 0 250
--------- -------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES ...... (66,679) 250
--------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from related party ......................... 79,538 20,000
Issuance of Stock ................................... 70,000 30,000
--------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................ $ 149,538 50,000
--------- -------
NET (DECREASE) IN CASH ................................... (38,621) (12,717)
CASH AND EQUIVALENTS - beginning of year ................. 104,314 9,010
--------- -------
CASH AND EQUIVALENTS - end of year ....................... 65,693 (3,707)
--------- -------
See accompanying notes to consolidated financial statements
6
ICEWEB INCORPORATED and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED
DECEMBER 31, 2003
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 information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual Report for the year ended
September 30, 2003, which is included in the Company's Form 10-KSB for the year
ended September 30, 2003. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
Note 2 - Acquisitions
On October 4th, IceWEB entered into an Asset purchase agreement with Iplicity,
Inc. of VA. The Company purchased software licenses, source code, potential
patents and trademarks for a combined stock and cash value of approximately
$632,000. (These items are reflected in the Financials as $65,500 for software
and $566,487 goodwill.)
Goodwill has been increased by $566,487 due to the Asset Purchase of Ipilicity,
Inc and a reduction of $23,000 related to the acquisition of The Seven
Corporation.
Note 3 - Related Parties
The Company has a note payable to John R. Signorello, the Chairman and CEO, for
$180,000 plus accrued interest of approximately $ 32,000 . Other
Stockholders/Employees have loans totaling $247,306.
Note 4 - Common Stock & Stock Options
The Company sold 650,000 shares to accredited investors for $70,000 exempt from
registration pursuant to Section 4(2). The investors were sophisticated and had
access to the consolidated financial statements of the corporation. As part of
the acquisition agreement with Iplicity the company issued 1,531,046 shares of
common stock. The company issued 3,940,996 stock options to employees under the
Company's stock option plan.
7
Note 5 - Stock Options
Stock option activity during the period is indicated as follows:
Option Available Exercise
for Grant Options Price
---------------- --------- --------
Balance, September 30, 2003 6,098,000 3,902,000 .08-.40
Granted 3,940,996 .35-.40
Exercised (160,000) .20
Forfeited -
--------- ---------
Balance, December 31, 2003 2,157,004 7,682,996
========= =========
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS or PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION CONTAINED
IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS REPORT.
IceWEB markets proprietary software products and integration services. The
software's first version began shipping in 2001. The company also launched an
e-learning portal in 2002. Prior to this year the company had significant
problems generating revenue and was forced to scale the company back after
September 2001. In 2003, the business of IceWEB started on an upswing. We
acquired two companies that provide liquidity from contracts stemming from two
large customers. We do not believe the contracts are in jeopardy but the loss of
those contracts could impair our positive momentum. In the past we incurred
substantial operating losses. A substantial part of the losses was acquired from
prior acquisitions and the reverse merger in 2002. The Company currently is
operating at break even but will need additional outside funding to sustain the
current growth. The Company believes with additional financing, increased sales
and marketing and a release of the next version of software, it will be able to
generate positive cash flow. Over the course of the year, expenses were in line
with budget, and expect to be in line again in 2004.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was 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. Management believes the following critical
accounting policies affect the significant judgments and estimates used in the
preparation of the financial statements.
Management believes the following critical accounting policies effect the
significant judgements and estimates used in the preparation of 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.
8
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.
(a) Recent Accounting Pronouncements
In April 2003, the Financial Accounting Standards Board issued Statement of
Financial Account Standards No. 149, Amendment of Statement 133 on Derivative
Instruments and Hedging Activities. This Statement amends Statement No. 133 to
clarify the financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. This statement is effective for contracts entered into or
modified after June 30, 2003.
In May 2003, the Financial Accounting Standards Board issued Statement of
Financial Account Standards No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability. The requirements of this Statement apply to issuers'
classification and measurement of freestanding financial instruments. This
Statement is effective for financial instruments entered into or modified after
May 31, 2003 and otherwise effective at the beginning of the first interim
period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of nonpublic entities. For nonpublic entities, mandatorily
redeemable financial instruments are subject to the provisions of this Statement
for the first fiscal period beginning after December 15, 2003.
On January 17, 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities, An Interpretation of Accounting Research Bulletin No. 51. The primary
objectives of FIN 46 are to provide guidance on how to identify entities for
which control is achieved through means other than through voting rights
(variable interest entities "VIE" and how to determine when and which business
enterprise should consolidate the VIE. This new model for consolidation applies
to an entity in which either (1) the equity investors do not have a controlling
financial interest or (2) the equity investment at risk is insufficient to
finance that entity's activities without receiving additional subordinated
financial support from other parties. FIN 46 will be fully adopted in the third
quarter of 2003. The Company does not believe the adoption of this standard will
have a material impact on its financial reporting.
The following discussion should be read together with the information contained
in the financial statements and related notes included elsewhere in this report.
9
PLAN OF OPERATION
For the remaining fiscal year 2004, IceWEB will continue to grow internally and
through acquisitions. The company continues to focus marketing efforts on the
Federal Government and Corporate customers. The Iplicity Asset acquisition was
finalized in October. The engineering resources from Learningstream and Iplicity
are now merged. The company plans to continue to invest in Research and
Development to deliver several new products over the next three quarters.
IceWEB's integration service continues to grow through contract awards and
maintenance customers. The New product lines; IceMAIL and IceWEB NOC should
begin to ship in the next 3 to 6 months. Additional investment will be needed to
market and develop upgrades to the product lines.
PRIMARY RISK FACTOR
IceWEB Incorporated'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.
RESULTS OF OPERATIONS
Net revenues - for the three months ended December 31, 2003, we generated
revenues of $1,525,358 compared to $19,811 the comparative period in 2002, An
increase of 7,699%. Sales for the three months ending December 31, 2003 were
higher than the previous quarter and higher than the same quarter for the
previous fiscal year. The primary reason for this was an increase in contract
sales as well as successfully integrated acquisitions.
Marketing and Selling - our selling and marketing expense consists of personnel
costs, including commissions, public relations, advertising, marketing programs,
lead generation, travel and trade shows. Marketing and selling costs increased
from $8,060 for the three months ended December 31, 2002 to $36,860 for the
three months ended December 31, 2003, an increase of $28,800 or 357%. This
increase was the result of additional marketing personnel, trade show events,
online web marketing, advertising and print advertising.
General and administrative expense - our general and administrative expense
consists primarily of personnel costs, rent, legal, accounting, human resources,
telecommunications, office supplies and corporate governance and compliance.
General and administrative expense increased from $111,778 for the three months
ended December 31, 2002 to $388,809 for the three months ended December 31, 2003
an increase of $ 277,031 or 248%. The primary reason for this increase was do to
acquisitions relating to increases in personnel costs and other fixed expenses.
Overall, our income per share was $.001 for the three months ended December 31,
2003.
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.
10
In order to provide sufficient working capital to fund our growing operation, we
will be required to raise additional capital to fund these anticipated costs.
There are no assurances that we will be able to obtain the additional capital in
which event our future operations would be materially and adversely affected.
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. 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
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-K, 10-Q 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.
11
Item 3. Controls and Procedures
Evaluation of disclosure controls and procedures
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, they concluded that the Company's disclosure controls and procedures
are effective in gathering, analyzing and disclosing information needed to
satisfy the Company's disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and small business issuer purchases of equity
securities
During the first quarter of the Fiscal Year, the company made isolated sales to
accredited investors of shares of our common stock. The company raised a total
of $70,000 pursuant to individually negotiated agreements with accredited
investors who were sophisticated, had access to relevant information about
IceWEB and acquired these shares for investment.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 31 Certification pursuant to Section 302
Exhibit 32 Certification pursuant to Section 906
b) Reports on Form 8-K
Form 8-K filed 2-17-04 regarding change in accountants.
12
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 INCORPORATED
Dated: February 18, 2004 By: /s/ John R. Signorello
----------------------
John R. Signorello,
Chairman and CEO
13