Attached files
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EX-5.1 - UnifiedOnline, Inc. | v210823_ex5-1.htm |
EX-23.1 - UnifiedOnline, Inc. | v210823_ex23-1.htm |
EX-4.14 - UnifiedOnline, Inc. | v210823_ex4-14.htm |
As
filed with the Securities and Exchange Commission on February 10,
2011
Registration
No. 333-167501UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment
No. 7
to
Form S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
ICEWEB,
INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
(State
or other jurisdiction of
|
incorporation
or organization)
|
3572
|
(Primary
Standard Industrial Classification Code
Number)
|
13-2640971
|
(I.R.S.
Employer Identification
No.)
|
22900
Shaw Road, Suite 111
Sterling,
VA 20166
(571)
287-2388
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
John R.
Signorello, Chairman and CEO
22900
Shaw Road, Suite 111
Sterling,
VA 20166
(571)
287-2388
(Name,
address, including zip code, and telephone number,
including
area code, of agent for service,)
Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after this Registration Statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company:
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
(Do
not check if a smaller reporting company)
|
CALCULATION
OF REGISTRATION FEE
Proposed
Maximum
|
Proposed
Maximum
|
Amount
of
|
||||||||||||||
Amount
to be
|
Offering
Price Per
|
Aggregate
Offering
|
Registration
|
|||||||||||||
Title
of Each Class of Securities to be Registered
|
Registered
|
Shares
|
Price
|
Fee
(1)
|
||||||||||||
Common
stock, $0.001 par value per share, (1)
|
18,019,388 | $ | 0.195 | $ | 3,513,781 | $ | 250.53 | |||||||||
Common
stock, par value $0.001 per share, issuable upon exercise of warrants
issued to investors (2)
|
7,992,100 | $ | 0.40 | $ | 3,196,840 | $ | 227.93 | |||||||||
Total
|
26,011,488 | $ | 6,710,621 | $ | 478.46 |
1
Represents shares of common stock which are
presently outstanding. Estimated solely for purposes of calculating the
registration fee pursuant to Rule 457 under the Securities Act of 1933 based on
the average of the high and low sale price of the common stock as reported on
the OTC Bulletin Board on June 10, 2010.
2
Represents shares of common stock issuable
upon the exercise of common stock purchase warrants with an exercise price of
$0.40 per share.
To the
extent permitted by Rule 416, this registration statement also covers such
additional number of shares of common stock as may be issuable as a result of
the anti-dilution provisions of the warrants in the event of stock splits, stock
dividends or similar transactions.
The registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this preliminary prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer or sale
is not permitted.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED FEBRUARY
10, 2011
26,011,488 Shares
IceWEB,
Inc.
Common
Stock
This
prospectus relates to the sale by the selling stockholders identified in this
prospectus of up to 26,011,488 shares of our common stock, which
includes 18,019,388 shares which are presently outstanding and 7,992,100
shares issuable upon the exercise of warrants with an exercise price of $0.40
per share. All of these shares of our common stock are being offered for
resale by the selling stockholders.
The
prices at which the selling stockholders may sell shares will be determined by
the prevailing market price for the shares or in negotiated transactions. We
will not receive any proceeds from the sale of these shares by the selling
stockholders. However, we will receive proceeds from the exercise of the
warrants if they are exercised for cash by the selling
stockholders.
We will
bear all costs relating to the registration of these shares of our common stock,
other than any selling stockholders’ legal or accounting costs or
commissions.
Our
common stock is quoted on the regulated quotation service of the OTC Bulletin
Board under the symbol “IWEB”. The last reported sale price of our common stock
as reported by the OTC Bulletin Board on February 9, 2011, was $0.19 per
share.
Investing
in our common stock is highly speculative and involves a high degree of risk.
You should carefully consider the risks and uncertainties described under the
heading “Risk Factors” beginning on page 4 of this prospectus before making a
decision to purchase our common stock.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is [ ], 2011
PROSPECTUS
SUMMARY
This
summary highlights information contained elsewhere in this prospectus. This
summary does not contain all of the information that you should consider in
making your investment decision. You should read the following summary together
with the entire prospectus, including the more detailed information regarding
us, the common stock being sold in this offering and our financial statements
and the related notes appearing elsewhere in this prospectus. You should
carefully consider, among other things, the matters discussed in the sections
entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in this prospectus before deciding to
invest in our common stock. Some of the statements in this prospectus constitute
forward-looking statements. See “Forward-Looking Statements.”
Except
where the context otherwise requires or where otherwise indicated, the terms
“IceWEB,” “we,” “us,” “our,” “our company” and “our business” refer IceWEB, Inc.
and its consolidated subsidiaries as a combined entity. Certain differences in
the numbers in the tables and text throughout this prospectus may exist due to
rounding.
The
fiscal year ends on September 30. References to fiscal 2010, for example, refer
to the fiscal year ending September 30, 2010.
ABOUT
US
We are a
leading provider of high-performance storage products that simplify the way
enterprises retain, access, manage and protect their data, headquartered in
Sterling, Virginia which was founded in April 2000, and became public in April
2002 through a reverse merger.
Our
principal executive offices are located at 22900 Shaw Road, Suite 111, Sterling
Virginia, 20166, and our telephone number is (571) 287-2388. Our website
is located at www.iceweb.com.
2
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Such statements include statements regarding our
expectations, hopes, beliefs or intentions regarding the future, including but
not limited to statements regarding our market, strategy, competition,
development plans (including acquisitions and expansion), financing, revenues,
operations, and compliance with applicable laws. Forward-looking statements
involve certain risks and uncertainties, and actual results may differ
materially from those discussed in any such statement. Factors that could cause
actual results to differ materially from such forward-looking statements include
the risks described in greater detail in the following paragraphs. All
forward-looking statements in this document are made as of the date hereof,
based on information available to us as of the date hereof, and we assume no
obligation to update any forward- looking statement. Market data used throughout
this prospectus is based on published third party reports or the good faith
estimates of management, which estimates are based upon their review of internal
surveys, independent industry publications and other publicly available
information. Although we believe that such sources are reliable, we do not
guarantee the accuracy or completeness of this information, and we have not
independently verified such information.
SELECTED
CONSOLIDATED FINANCIAL DATA
The
following summary of our financial information for the fiscal years ended
September 30, 2010 and 2009, which have been derived from, and should be read in
conjunction with, our consolidated financial statements included elsewhere in
this prospectus.
SELECTED
INCOME STATEMENT DATA:
Fiscal
Year Ended
|
||||||||
September
30,
|
||||||||
2010
|
2009
|
|||||||
Sales
|
$ | 3,353,286 | $ | 2,240,363 | ||||
Cost
of sales
|
1,742,110 | 1,326,385 | ||||||
Operating
Expenses:
|
||||||||
Sales
and marketing
|
1,690,684 | 1,004,970 | ||||||
Depreciation
and amortization
|
662,003 | 696,723 | ||||||
Research
and development
|
533,713 | 336,616 | ||||||
General
and administrative
|
5,325,898 | 3,538,086 | ||||||
Total
operating expenses
|
8,212,298 | 5,576,395 | ||||||
Other expense | (363,111 | ) | (460,889 | ) | ||||
Loss
from continuing operations
|
(6,964,233 | ) | (5,123,306 | ) | ||||
Income
from discontinued operations
|
- | 136,408 | ||||||
Gain
from sale of subsidiary
|
- | 2,666,236 | ||||||
Net
loss
|
$ | (6,964,233 | ) | $ | (2,526,602 | ) |
SELECTED
BALANCE SHEET DATA:
September 30,
|
September 30,
|
|||||||
2010
|
2009
|
|||||||
Working
Capital
|
$ | (1,250,033 | ) | $ | (3,158,232 | ) | ||
Cash
|
540,156 | 63,311 | ||||||
Accounts
receivable, net
|
1,529,852 | 424,918 | ||||||
Inventory
|
62,197 | 151,361 | ||||||
Total
current assets
|
2,170,310 | 671,161 | ||||||
Marketable
Securities
|
524,800 | - | ||||||
Property
and equipment, net
|
418,873 | 752,162 | ||||||
Intangibles,
net
|
546,952 | 790,041 | ||||||
Total
assets
|
$ | 3,674,255 | $ | 2,226,685 | ||||
Accounts
payable and accrued liabilities
|
1,711,621 | 1,971,376 | ||||||
Notes
payable-current
|
1,649,140 | 1,847,755 | ||||||
Deferred
revenue
|
59,582 | 10,261 | ||||||
Total
current liabilities
|
3,420,343 | 3,829,392 | ||||||
Notes
payable-long term
|
- | 934,756 | ||||||
Total
liabilities
|
3,420,343 | 4,764,148 | ||||||
Accumulated
deficit
|
(29,622,792 | ) | (22,658,556 | ) | ||||
Stockholders’
deficit
|
253,912 | (2,537,461 | ) |
3
THE OFFERING
This
prospectus covers the resale of a total of 26,011,488 shares of our common stock
by the selling security holders which includes 18,019,388 shares that are
presently outstanding and 7,992,100 shares that are issuable upon the exercise
of warrants with an exercise price of $0.40 per share. Selling security
holders may resell their shares from time-to-time, including through
broker-dealers, at prevailing market prices. We will not receive any proceeds
from the resale of our shares by the selling security holders. To the extent the
warrants are exercised on a cash basis, we will receive the exercise price of
the warrants. We will pay all of the fees and expenses associated with
registration of the shares covered by this prospectus.
Securities
Being Offered:
|
26,011,488 shares
of common stock, par value $0.001
|
||
Number
of Shares Outstanding
|
|||
Before
the Offering:
|
138,675,867
|
shares
as of December 31, 2010, excluding the conversion of 8,287,100 outstanding
warrants, 626,667 shares Series B convertible preferred stock, and options
exercisable into 8,144,404 shares of common stock.
|
|
Number
of Shares Outstanding After
|
|||
the
Offering, Assuming the Exercise of All of the Warrants included in this
Registration:
|
146,812,967
|
shares,
excluding the exercise of 150,000 warrants, 626,667 shares of Series B
convertible preferred stock, and stock options exercisable into 8,144,404
shares of common stock
|
|
OTC
Bulletin Board symbol
|
IWEB
|
TERMS
OF THE OFFERING WITH CERTAIN OF THE SELLING SECURITY HOLDERS
On May
18, 2010 we executed an Exclusive Finders’ Agreement pursuant to which the
Finder acted as the exclusive Finder with respect to sales by us in a private
placement transaction of up to $5 million in aggregate principal amount of
Equity, Equity-related or debt securities. We sold 10,080,000 units
in exchange for gross proceeds of $2,316,000. These sales were made in a
private transaction exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of the Act and Regulation D
thereunder.
Jesup
& Lamont Securities Incorporated, a broker-dealer and member of FINRA, acted
as finder for us in the Offering. Under the terms of a Finder’s Agreement
with the firm, we paid Jesup & Lamont Securities Incorporated a fee of
$162,120 and issued them one-year common stock purchase warrants to purchase an
aggregate of 877,100 shares of our common stock at an exercise price of $0.40
per share. In addition, we paid Jesup & Lamont Securities
Incorporated legal expenses totaling $25,000 incurred in the preparation of the
various transactional documents. We are using the net proceeds of this
offering for general working capital.
Terms of
the private placement
We
offered for sale restricted stock units, each Restricted Stock Unit (“Unit”)
being defined as one (1) share of our Common Stock (the “Shares”) and a
warrant (the “Warrants”) to purchase an additional 0.50 shares of our
common stock. The Warrants have a term of twelve (12) months, with an
exercise price of $0.40/share. The Warrant is callable by us in the event
the closing price of our Common Stock on the OTCBB exchange closes above
$0.50/share for ten (10) consecutive trading days.
Under the terms of the
Securities Purchase Agreement we also indemnified the purchasers and each of
their officers, directors, shareholders, partners, employees, agents and control
persons from any losses or damages as a result of a breach of the agreement by
us or any action instituted against a purchaser by any of our shareholders who
are not an affiliate of the purchasers with respect to this Offering, other than
in the instance of gross negligence or fraud by the purchaser.
Terms for
Other Certain Selling Shareholders
We issued
300,000 shares in June, 2010, to Avnet, Inc. in conjunction with a legal
settlement. Terms of the settlement provided for inclusion of the shares
in this registration statement.
We issued
1,000,000 shares in June, 2010 to International Business Machines Corporation in
conjunction with settlement of litigation. Terms of the settlement
provided for inclusion of the shares in this registration
statement.
In June,
2010, we issued 2,678,571 shares of common stock to Optimus Capital Partners,
LLC, to resolve litigation between the parties.
In
October, 2009, we sold 1,500,000 shares of common stock at a per share price of
$0.10, valued at $150,000 to an accredited investor, Gregory J. Moss, and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act. These
shares have been included in this registration statement.
RISK
FACTORS
AN
INVESTMENT IN OUR COMMON STOCK INVOLVES A SIGNIFICANT DEGREE OF RISK. YOU SHOULD
NOT INVEST IN OUR COMMON STOCK UNLESS YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT. YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND OTHER
INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN OUR COMMON
STOCK.
RISKS
RELATED TO OUR COMPANY
WE
HAVE A HISTORY OF LOSSES AND WE MAY NOT ATTAIN OR MAINTAIN PROFITABILITY IN THE
FUTURE.
We
incurred a net loss for the fiscal year ended September 30, 2010 and net losses
in each full fiscal year since our 2000 inception. As of September 30,
2010, our accumulated deficit was ($29,622,792). For the years ended September
30, 2010 and 2009 we had a net loss attributable to common stockholders of
approximately $6,964,233 and $2,526,602, respectively, and cash used in
operations was approximately $4,128,415 and $2,145,514, respectively. We
expect to make significant expenditures related to the development of our
business, including hiring additional personnel relating to sales and marketing,
customer service and support and technology development. As a result of
these increased expenditures, we will be required to generate and sustain
increased revenue to achieve profitability. The report of our independent
registered public accounting firm on our consolidated financial statements for
the fiscal year ended September 30, 2010 contains a qualification expressing
substantial doubt as to our ability to continue as a going concern as a result
of our net losses. While we reported an increase in our revenues from continuing
operations for fiscal 2010 as compared to fiscal 2009 of approximately 49.7%
which is primarily related to our focus on its storage business,. we
cannot assure you that our revenues will continue to increase in future periods,
nor can we assure you that they will not decrease. As long as our cash flow from
operations remains insufficient to fund our operations, we will continue
depleting our cash and other financial resources. Our failure to achieve
profitable operations in future periods will adversely affect our ability to
continue as a going concern. In this event, you could lose all of your
investment in our company.
4
WE
WILL NEED ADDITIONAL FINANCING WHICH WE MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE
TERMS. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY TO EXECUTE
OUR GROWTH STRATEGY AND FUND OUR ONGOING OPERATIONS WILL BE IN
JEOPARDY.
Historically,
our operations have been financed primarily through the issuance of equity and
short-term loans. Capital is typically needed not only to fund our ongoing
operations and to pay our existing obligations, but capital is also necessary if
we wish to acquire additional assets or companies and for the effective
integration, operation and expansion of these businesses. Our future capital
requirements, however, depend on a number of factors, including our ability to
internally grow our revenues, manage our business and control our expenses. At
September 30, 2010, we had a working capital deficit of $1,250,033 as compared
to a working capital deficit of $3,158,232 at September 30, 2009. We will
need to raise additional capital to fund our ongoing operations, pay our
existing obligations and for our future growth. We cannot assure you that
additional working capital is available to us in the future upon terms
acceptable to us. If we do not raise funds as needed, our ability to provide for
current working capital needs, make additional acquisitions, grow our company,
and continue our existing business and operations is in jeopardy. In this event,
you could lose all of your investment in our company.
OUR
TARGET MARKETS ARE HIGHLY COMPETITIVE AND DOMINATED BY LARGER COMPANIES AND WE
MAY NOT BE ABLE TO COMPETE EFFECTIVELY.
The
market for our products is highly competitive and we expect competition to
intensify in the future. This competition could result in increased pricing
pressure, reduced gross margins, increased sales and marketing expenses or our
failure to increase, or our loss of, market share, any of which could seriously
harm our business, operating results and financial condition.
Currently,
we face competition from a number of established companies, including Compellent
Technologies, Inc., EMC Corporation, or EMC, Hewlett-Packard Company, or HP,
Hitachi Limited, International Business Machines Corporation, or IBM, and
Network Appliance, Inc., or NetApp. We also face competition from a large
number of private companies and recent public company market entrants, such as
Isilon Systems, Inc. Many of our current competitors have, and some of our
potential competitors could have, longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical, sales, marketing and other resources than we have. Potential
customers may prefer to purchase from their existing suppliers rather than a new
supplier regardless of product performance or features.
NetApp is
our primary competition in the high performance unified network storage system
market. They have a significantly greater share of this market than we do. In
addition, they are a substantially larger company with more resources than we
have.
Our
ability to compete effectively in our target markets depends on a number of
factors, including:
•
|
our products’ scalability,
performance, ease of use and cost effectiveness relative to that of our
competitors’ products;
|
•
|
aggressive business tactics by
our competitors, including selling at a discount or asserting intellectual
property rights irrespective of the validity of the
claims;
|
•
|
our success in utilizing new and
proprietary technologies to offer products and features previously not
available in the
marketplace;
|
•
|
our success in identifying new
markets, applications and
technologies;
|
•
|
our ability to attract and retain
value-added resellers and
OEMs;
|
•
|
our name recognition and
reputation;
|
•
|
our ability to recruit
development engineers and sales and marketing
personnel; and
|
•
|
our ability to protect our
intellectual property.
|
5
We expect
increased competition from other established and emerging companies, including
companies such as networking infrastructure and storage management companies
that provide complementary technology and functionality. Some of our
competitors, including EMC, HP and NetApp, have made acquisitions of businesses
that allow them to offer more directly competitive and comprehensive solutions
than they had previously offered. Our current and potential competitors may also
establish cooperative relationships among themselves or with third parties. If
so, new competitors or alliances that include our competitors may emerge that
could acquire significant market share.
WE
RELY ON VALUE-ADDED RESELLERS AND OTHER DISTRIBUTION PARTNERS TO SELL
SUBSTANTIALLY ALL OF OUR PRODUCTS. OUR FAILURE TO DEVELOP AND MANAGE, OR
DISRUPTIONS TO, OUR DISTRIBUTION CHANNELS WOULD ADVERSELY AFFECT OUR
BUSINESS.
Our
ability to maintain or increase our revenue will depend in part on our ability
to maintain arrangements with our existing channel partners and to establish and
expand arrangements with new channel partners. If we fail to do so, our future
revenue would be harmed. Additionally, by relying on channel partners, we have
less contact with the ultimate users of our products, which may make it
difficult for us to establish and increase brand awareness, ensure proper
delivery and installation of our products, service ongoing customer requirements
and respond to evolving customer needs.
Recruiting
and retaining qualified channel partners and training them in our technology and
product offerings requires significant time and resources. In order to develop
and expand our distribution channel, we must continue to scale and improve the
processes and procedures that support our channel, including investment in
systems and training. Those processes and procedures may become increasingly
complex and difficult to manage as we expand our organization.
We have
no minimum purchase commitments from any of our channel partners, and our
contracts with these channel partners do not prohibit them from offering
products or services that compete with ours. Our competitors may provide
incentives to existing and potential channel partners to favor their products.
Our channel partners may choose not to offer our products exclusively or at all.
Establishing relationships with channel partners who have a history of selling
our competitors' products may also prove to be difficult. Our failure to
establish and maintain successful relationships with channel partners would
seriously harm our business and operating results.
WE
RECEIVE A SUBSTANTIAL PORTION OF OUR REVENUE FROM A LIMITED NUMBER OF CHANNEL
PARTNERS, AND THE LOSS OF, OR A SIGNIFICANT REDUCTION IN, ORDERS FROM ONE OR
MORE OF OUR MAJOR CHANNEL PARTNERS WOULD HARM OUR
BUSINESS.
6
Our
future success is highly dependent upon establishing and successfully
maintaining relationships with a large number of resellers and other
distribution partners, which we refer to as channel partners. We market and sell
our IceWEB 3000 and 5000 Series products through an all-channel assisted sales
model and we derive substantially all of our revenue from these channel
partners. We receive a substantial portion of our revenue from a limited number
of channel partners. We anticipate that we will continue to receive a
significant portion of our revenue from a limited number of channel partners for
the foreseeable future and, in some cases, a portion of our revenue attributable
to individual channel partners may increase in the future. The loss of one or
more key channel partners or a reduction in sales through any major channel
partner could harm our business.
IF
WE ARE UNABLE TO CONTINUE TO DEVELOP AND INTRODUCE NEW PRODUCTS AND RESPOND TO
TECHNOLOGICAL CHANGES, OUR REVENUE COULD BE REDUCED.
Our
future growth depends on the successful development and introduction of new
systems and software products. Due to the complexity of network storage systems,
these products are subject to significant technical risks that may impact our
ability to introduce these products successfully. Our new products also may not
achieve market acceptance. In addition, our new products must respond to
technological changes and evolving industry standards. If we are unable for
technological or other reasons to develop and introduce new products in a timely
manner in response to changing market conditions or customer requirements, or if
these products do not achieve market acceptance, our revenue could be
reduced.
IMPROVEMENTS
IN ALTERNATIVE MEANS TO ACCELERATE STORAGE PERFORMANCE OR REDUCE STORAGE COSTS
COULD HARM OUR BUSINESS AS THE DEMAND FOR OUR SYSTEMS MAY BE
REDUCED.
Our
products are designed to improve the performance of many applications, including
applications that are based on Microsoft Corporation’s, or Microsoft, protocols.
Accordingly, improvements to Microsoft application protocols to accelerate
storage performance or reduce storage costs may reduce the need for our
products, adversely affecting our business, operating results and financial
condition. Improvement in other application protocols or in the Transmission
Control Protocol could have a similar effect.
IF
WE ARE UNABLE TO CONTINUE TO CREATE VALUABLE INNOVATIONS IN SOFTWARE AND
HARDWARE, WE MAY NOT BE ABLE TO GENERATE ADDITIONAL HIGH-MARGIN REVENUE THAT
WILL ENABLE US TO MAINTAIN OR INCREASE OUR GROSS MARGINS, WHICH COULD REDUCE OUR
REVENUE.
Our
industry has a history of declining network storage hardware prices as measured
on a “dollar per gigabyte of storage capacity” basis. To maintain or increase
our gross margins, we will need to continue to create valuable software that is
included with our network storage systems and/or sold separately as a licensed
software application. Any new feature or application that we develop or acquire
may not be introduced in a timely or cost- effective manner and may not achieve
the broad market acceptance necessary to help increase our overall gross margin.
If we are unable to successfully develop or acquire and then market and sell
additional software and hardware functionality, our revenue could be
reduced.
OUR
ABILITY TO SELL OUR PRODUCTS IS HIGHLY DEPENDENT ON THE QUALITY OF OUR SUPPORT
SERVICES, AND ANY FAILURE TO OFFER HIGH-QUALITY SUPPORT SERVICES COULD REDUCE
OUR PRODUCT SALES AND REVENUE.
After our
products are deployed within our customers’ networks, our customers depend on
our support services organization to resolve issues relating to our products and
how they perform within our customer’s environment. High-quality support
services are therefore critical for the successful marketing and sale of our
products. If we do not succeed in helping our customers to quickly resolve
post-deployment issues and provide ongoing support if our partners do not
effectively assist our customers in deploying our products, it would adversely
affect our ability to sell our products to existing customers and could harm our
prospects with potential customers. In addition, as we expand our operations
internationally, our support services organization will face additional
challenges, which we expect to include those issues that are associated with
delivering support, training and documentation in languages other than English.
As a result, our failure to maintain high-quality support services could reduce
our product sales and revenue.
7
OUR
PRODUCTS ARE HIGHLY TECHNICAL AND MAY CONTAIN UNDETECTED SOFTWARE OR HARDWARE
DEFECTS, WHICH COULD CAUSE DATA UNAVAILABILITY, LOSS OR CORRUPTION THAT MIGHT,
IN TURN, RESULT IN LIABILITY TO OUR CUSTOMERS, HARM TO OUR REPUTATION AND A
REDUCTION OF PRODUCT SALES AND REVENUE.
Our
network storage products are highly technical and complex and are often used to
store information critical to our customers’ business operations. Our products
have contained and may contain undetected errors, defects or security
vulnerabilities that could result in data unavailability, loss or corruption or
other harm to our customers. Some errors in our products may only be discovered
after they have been installed and used by customers. Any errors, defects or
security vulnerabilities discovered in our products after commercial release, as
well as any computer virus or human error on the part of our customer support or
other personnel resulting in a customer’s data unavailability, loss or
corruption could result in a loss of customers or increased support and warranty
costs, any of which may adversely affect our business, operating results and
financial condition. In addition, we could face claims for product liability,
tort or breach of warranty, including claims relating to changes to our products
made by our partners. Our contracts with customers contain provisions relating
to warranty disclaimers and liability limitations, which may be difficult to
enforce. Defending a lawsuit, regardless of its merit, could be costly and might
divert management’s attention and adversely affect the market’s perception of us
and our products. In addition, if our business liability insurance coverage
proves inadequate for a claim, or future coverage is unavailable on acceptable
terms or at all, our product sales and revenue could be reduced.
OUR
FACTORING AGREEMENT WITH SAND HILL FINANCE, LLC CONTAINS CERTAIN TERMS WHICH MAY
ADVERSELY AFFECT OUR ABILITY TO RAISE CAPITAL IN FUTURE PERIODS.
In
December 2005 and as amended during fiscal 2006 and fiscal 2008, we entered into
a Finance Agreement with Sand Hill Finance, LLC for a $2.75 million accounts
receivable factoring line. Under the terms of this agreement we agreed not to
take certain actions including undertaking a transaction which would result in a
change of control of our company or the transfer of more than 20% of our
securities and incurring any indebtedness other than trade credit in the
ordinary course of business. These restrictions may limit our ability to raise
working capital as needed.
OUR
PRIMARY ASSETS SERVE AS COLLATERAL UNDER OUR ACCOUNTS RECEIVABLE FACTORING LINE.
IF WE WERE TO DEFAULT ON THIS AGREEMENT, THE LENDER COULD FORECLOSE ON OUR
ASSETS.
The
revolving line with Sand Hill Finance, LLC is collateralized by a blanket
security interest in our assets. If we should default under the terms of this
agreement, the lender could seek to foreclose on our primary assets. If the
lender was successful, we would be unable to conduct our business as it is
presently conducted and our ability to generate revenues and fund our ongoing
operations would be materially adversely affected.
WE
DO NOT HAVE A DISASTER RECOVERY PLAN AND WE DO NOT CARRY BUSINESS INTERRUPTION
INSURANCE.
Our
systems and operations are vulnerable to damage or interruption from fire,
flood, power loss, telecommunications failure, break-ins and similar events. Our
headquarters are physically located in Fairfax County, Virginia, a Washington,
DC suburb, in close proximity to the US Capitol, White House, Pentagon, CIA, and
numerous other agencies within the intelligence community. All these government
installations are considered potential targets of any future terrorist attacks.
We do not currently have a disaster recovery plan, nor do we carry business
interruption insurance to compensate our company for losses that may occur. We
are also vulnerable to computer viruses and/or physical disruptions, which could
lead to interruptions, delays, loss of data or the inability to accept orders.
The occurrence of any of the foregoing events could have a material adverse
effect on our business, prospects, financial condition and results of
operations.
OUR
MANAGEMENT MAY BE UNABLE TO EFFECTIVELY INTEGRATE OUR ACQUISITIONS AND TO MANAGE
OUR GROWTH AND WE MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS OF
THESE ACQUISITIONS.
8
Our
business strategy includes growth through acquisition and internal development.
We are subject to various risks associated with our growth strategy, including
the risk that we will be unable to identify and recruit suitable acquisition
candidates in the future or to integrate and manage the acquired companies.
Acquired companies’ histories, geographical locations, business models and
business cultures can be different from ours in many respects. Our directors and
senior management face a significant challenge in their efforts to integrate our
businesses and the business of the acquired companies or assets, and to
effectively manage our continued growth. There can be no assurance that our
efforts to integrate the operations of any acquired assets or companies acquired
in the future will be successful, that we can manage our growth or that the
anticipated benefits of these proposed acquisitions will be fully realized. The
dedication of management resources to these efforts may detract attention from
our day-to-day business. There can be no assurance that there will not be
substantial costs associated with these activities or of the success of our
integration efforts, either of which could have a material adverse effect on our
operating results.
WE
HAVE NOT VOLUNTARILY IMPLEMENTED VARIOUS CORPORATE GOVERNANCE MEASURES, IN THE
ABSENCE OF WHICH, STOCKHOLDERS MAY HAVE MORE LIMITED PROTECTIONS AGAINST
INTERESTED DIRECTOR TRANSACTIONS, CONFLICTS OF INTEREST AND SIMILAR
MATTERS.
Recent
Federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in
the adoption of various corporate governance measures designed to promote the
integrity of the corporate management and the securities markets. Some of these
measures have been adopted in response to legal requirements. Others have been
adopted by companies in response to the requirements of national securities
exchanges, such as the NYSE or The Nasdaq Stock Market, on which their
securities are listed. Among the corporate governance measures that are required
under the rules of national securities exchanges are those that address board of
directors’ independence, audit committee oversight, and the adoption of a code
of ethics. Because our stock is not listed on an exchange we are not required to
adopt these corporate governance standards. While our board of directors has
adopted a Code of Ethics and Business Conduct and our Board has established
Audit and Compensation Committees, we have not adopted all of the corporate
governance measures which we might otherwise have been required to adopt if our
securities were listed on a national securities exchange. It is possible that if
we were to adopt all of these corporate governance measures, stockholders would
benefit from somewhat greater assurances that internal corporate decisions were
being made by disinterested directors and that policies had been implemented to
define responsible conduct. Prospective investors should bear in mind our
current lack of corporate governance measures in formulating their investment
decisions.
THE
EXERCISE OF WARRANTS AND OPTIONS AND THE CONVERSION OF SHARES OF OUR SERIES B
CONVERTIBLE PREFERRED STOCK WILL BE DILUTIVE TO OUR EXISTING
STOCKHOLDERS.
At
September 30, 2010 we had outstanding:
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•
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134,443,725
shares of our common stock,
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•
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626,667
shares of Series B Convertible Preferred Stock owned by our Chief
Executive Officer which is convertible into 626,667 shares of our common
stock,
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•
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common
stock purchase warrants to purchase a total of 8,287,100 shares of our
common stock with exercise prices ranging from $0.20 to $2.00 per share,
and
|
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•
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Stock
options granted under our 2000 Management and Director Equity Incentive
and Compensation Plan which are exercisable into 11,604,404 shares of our
common stock with a weighted average exercise price of $0.296 per
share.
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CERTAIN
OF OUR OUTSTANDING WARRANTS CONTAIN CASHLESS EXERCISE PROVISIONS WHICH MEANS WE
WILL NOT RECEIVE ANY CASH PROCEEDS UPON THEIR EXERCISE.
In
December 2005, we issued a seven year common stock purchase warrant to purchase
25,000 shares of our common stock with an exercise price of $1.00 per share in
connection with our accounts receivable financing agreement with Sand Hill
Finance, LLC.
These
warrants were exercisable on a cashless basis which means that the holders,
rather than paying the exercise price in cash, may surrender a number of
warrants equal to the exercise price of the warrants being exercised. The
utilization of this cashless exercise feature deprived us of additional capital
which might otherwise be obtained if the warrants did not contain a cashless
feature.
9
PROVISIONS
OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DELAY OR PREVENT A TAKE-OVER
WHICH MAY NOT BE IN THE BEST INTERESTS OF OUR STOCKHOLDERS.
Provisions
of our certificate of incorporation and bylaws may be deemed to have
anti-takeover effects, which include when and by whom special meetings of our
stockholders may be called, and may delay, defer or prevent a takeover attempt.
In addition, certain provisions of the Delaware General Corporations Law also
may be deemed to have certain anti-takeover effects which include that control
of shares acquired in excess of certain specified thresholds will not possess
any voting rights unless these voting rights are approved by a majority of a
corporation’s disinterested stockholders.
In
addition, our certificate of incorporation authorizes the issuance of up to
10,000,000 shares of preferred stock with such rights and preferences as may be
determined from time to time by our Board of Directors. We presently have
outstanding 626,667 shares of Series B Convertible Preferred Stock. Our
Board of Directors may, without stockholder approval, issue additional series of
preferred stock with dividends, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
our common stock.
OUR
COMMON STOCK COULD BE REMOVED FROM QUOTATION ON THE OTCBB IF WE FAIL TO TIMELY
FILE OUR ANNUAL OR QUARTERLY REPORTS. IF OUR COMMON STOCK WAS NO LONGER ELIGIBLE
FOR QUOTATION ON THE OTCBB, THE LIQUIDITY OF OUR STOCK MAY BE FURTHER ADVERSELY
IMPACTED.
Under the
rules of the Securities and Exchange Commission we are required to file our
quarterly reports within 45 days from the end of the fiscal quarter and our
annual report within 90 days from the end of our fiscal year. Under rules
adopted by the Financial Industry Regulatory Authority (FINRA) in 2005 which is
informally known as the “Three Strikes Rule”, a FINRA member is prohibited from
quoting securities of an OTCBB issuer such as our company if the issuer either
fails to timely file these reports or is otherwise delinquent in the filing
requirements three times in the prior two year period or if the issuer’s common
stock has been removed from quotation on the OTCBB twice in that two year
period. If we were to fail to file three reports on a timely basis our stock
would be removed from quotation on the OTCBB and would in all likelihood then be
quoted on the Pink Sheets Electronic Quotation Service. Pink Sheets offers a
quotation service to companies that are unable to list their securities on the
OTCBB or an exchange. The requirements for listing on the Pink Sheets are
considerably lower and less regulated than those of the OTCBB an exchange. If
our common stock were to be quoted on the Pink Sheets, it is possible that even
fewer brokers or dealers would be interested in making a market in our common
stock which would further adversely impact its liquidity.
ECONOMIC
CONDITIONS AND WORLD EVENTS COULD AFFECT OUR OPERATING RESULTS.
We, and
our customers, may be adversely affected by an economic downturn such as changes
in consumer and investor confidence, instability in the credit and financial
markets, volatile corporate profits, and reduced business and consumer spending.
The economy as a whole also may be affected by future world events such as acts
of terrorism, developments in the war on terrorism, conflicts in international
situations, and by natural disasters. These factors may affect our results of
operations by reducing our sales, margins and/or net income as a result of a
slowdown in customer orders or order cancellations. In addition, political and
social turmoil related to international conflicts and terrorist acts may put
further pressure on economic conditions abroad. Unstable political, social and
economic conditions may make it difficult for our customers, suppliers and us to
accurately forecast and plan future business activities. If such conditions
persist, our business, financial condition, results of operations and cash flow
could be negatively affected.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC Bulletin Board
under the symbol IWEB. The reported high and low sales prices for the common
stock as reported on the OTC Bulletin Board are shown below for the periods
indicated. The quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and may not represent actual
transactions.
10
High
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Low
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|||||||
Fiscal
2009
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||||||||
First
quarter ended December 31, 2008
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$ | 0.18 | $ | 0.041 | ||||
Second
quarter ended March 31, 2009
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$ | 0.15 | $ | 0.052 | ||||
Third
quarter ended June 30, 2009
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$ | 0.11 | $ | 0.05 | ||||
Fourth
quarter ended September 30, 2009
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$ | 0.14 | $ | 0.05 | ||||
Fiscal
2010
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||||||||
First
quarter ended December 31, 2009
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$ | 0.235 | $ | 0.07 | ||||
Second
quarter ended March 31, 2010
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$ | 0.23 | $ | 0.075 | ||||
Third
quarter ended June 30, 2010
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$ | 0.47 | $ | 0.135 | ||||
Fourth
quarter ended September 30, 2010
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$ | 0.30 | $ | 0.105 | ||||
Fiscal
2011
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First
quarter ended December 31, 2010
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$ | 0.30 | $ | 0.17 |
On
February 9, 2011, the last sale price of our common stock as reported on the OTC
Bulletin Board was $0.19. As of December 31, 2010, there were
approximately 3,800 record owners of our common
stock.
DIVIDEND
POLICY
We have never paid cash dividends on our common
stock. Under Delaware law, we may declare and pay dividends on our capital stock
either out of our surplus, as defined in the relevant Delaware statutes, or if
there is no such surplus, out of our net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year. If, however, the
capital of our company, computed in accordance with the relevant Delaware
statutes, has been diminished by depreciation in the value of our property, or
by losses, or otherwise, to an amount less than the aggregate amount of the
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, we are prohibited from declaring and
paying out of such net profits and dividends upon any shares of our capital
stock until the deficiency in the amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets shall have been repaired.
PLAN
OF DISTRIBUTION
This
prospectus includes 26,011,488 shares of common stock offered by the selling
stockholders.
Each
selling stockholder and any of its pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of its shares of
common stock on the OTC Bulletin Board or any other stock exchange, market or
trading facility on which our shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. A selling stockholder may use
any one or more of the following methods when selling shares:
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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11
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privately
negotiated transactions;
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settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
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broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
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Through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
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a
combination of any such methods of sale;
or
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Any
other method permitted pursuant to applicable
law.
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The
selling stockholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended, if available, rather than under this
prospectus.
A selling
stockholder or its pledgees, donees, transferees or other successors in
interest, may also sell the shares directly to market makers acting as
principals and/or broker-dealers acting as agents for themselves or their
customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling stockholder and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. A
selling stockholder cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholder. The selling
stockholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities
Act.
We are
required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling stockholder,
but excluding brokerage commissions or underwriter discounts.
The
selling stockholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
A selling
stockholder may pledge its shares to their brokers under the margin provisions
of customer agreements. If a selling stockholder defaults on a margin loan, the
broker may, from time to time, offer and sell the pledged shares. The selling
stockholder and any other persons participating in the sale or distribution of
the shares will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations under such act,
including, without limitation, Regulation M. These provisions may restrict
certain activities of, and limit the timing of purchases and sales of any of the
shares by, the selling stockholder or any other such person. In the event that
the selling stockholder is deemed affiliated with purchasers or distribution
participants within the meaning of Regulation M, then the selling stockholder
will not be permitted to engage in short sales of common stock. Furthermore,
under Regulation M, persons engaged in a distribution of securities are
prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions. In regards to short sells, the selling stockholder is contractually
restricted from engaging in short sells. In addition, if such short sale is
deemed to be a stabilizing activity, then the selling stockholder will not be
permitted to engage in a short sale of our common stock. All of these
limitations may affect the marketability of the shares.
We have
agreed to indemnify certain of the selling stockholders, or their transferees or
assignees, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribute to payments the selling
stockholder or their respective pledgees, donees, transferees or other
successors in interest, may be required to make in respect of such
liabilities.
12
If the
selling stockholder notifies us that it has a material arrangement with a
broker-dealer for the resale of the common stock, then we would be required to
amend the registration statement of which this prospectus is a part, and file a
prospectus supplement to describe the agreements between the selling stockholder
and the broker-dealer.
We agreed
to use commercially reasonable efforts to keep this prospectus effective until
the earlier of (i) the date on which the shares may be resold by the selling
stockholders without registration and without regard to any volume limitations
by reason of Rule 144 under the Securities Act or any other rule of similar
effect or (ii) all of the shares have been sold pursuant to this prospectus or
Rule 144 under the Securities Act or any other rule of similar
effect.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS
OF ICEWEB
Headquartered
just outside of Washington, D.C., we manufacture and market Unified data
storage, purpose built appliances, network and cloud attached storage solutions
and deliver on-line cloud computing application services. Our customer
base includes U.S. government agencies, enterprise companies, and small to
medium sized businesses (SMB).
A unified
storage system simultaneously enables storage of file data and handles the
block-based I/O (input/output) of enterprise applications. We believe one
advantage of unified storage is reduced hardware requirements. Instead of
separate storage platforms, like NAS for file-based storage and a RAID
(Redundant Array of Independent Disks) disk array for block-based storage,
unified storage combines both modes in a single device. Alternatively, a single
device could be deployed for either file or block storage as
required.
In addition to lower capital
expenditures for the enterprise, unified storage systems can also be simpler to
manage than separate products. The IceWEB Storage System offers one
platform for file and block data of all kinds.
The IceWEB Storage System is
an all-inclusive storage management system which includes de-duplication;
unlimited snapshots; thin provisioning; local or remote, real-time or scheduled
replication; capacity and utilization reporting, and integration with virtual
server environments. Unified storage systems enjoy the same level of
reliability as dedicated file or block storage systems.
We
generate revenues from the manufacture and sale of high-performance unified data
storage products, data storage appliances and servers, and the sale of software
services. We believe that the key factors to our continued growth and
profitability include the following:
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•
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Increasing
the number of channel partners selling our
products
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•
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Continued
investment in product development and research
efforts
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•
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Raising
approximately $5 million of additional working capital to expand our
marketing, research and development, and restructure our
debt.
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•
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Hiring
additional qualified, technical employees,
and
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•
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The
number of new customers added.
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CHANGE IN
PRESENTATION
We have
changed the presentation of our results for the fiscal year ended September 30,
2009 to reflect as discontinued operations the results of operations of our
IceWEB Virginia, Inc. subsidiary in response to comments from the staff of the
SEC. This change did not result in a restatement of our 2009 financial
statements. We sold 100% of the capital stock of our wholly-owned
subsidiary, IceWEB Virginia, Inc. to an unrelated party in March, 2009.
Discontinued operations reflect the results from IceWEB Virginia, Inc.
through the date of sale.
GOING
CONCERN
We have a
history of losses and have incurred net losses of approximately $29.6 million
since inception through September 30, 2010. Our current operations are not an
adequate source of cash to fund future operations. The report of our independent
registered public accounting firm on our consolidated financial statements for
the years ended September 30, 2010 and 2009 contains an explanatory
paragraph regarding our ability to continue as a going concern based upon our
net losses. Our ability to continue as a going concern is dependent upon our
ability to obtain the necessary financing to meet our obligations and repay our
liabilities when they become due and to generate profitable operations in the
future. We plan to continue to provide for our capital requirements through the
sale of equity securities and debt, however, we have no firm commitments from
any third party to provide this financing and we cannot assure you we will be
successful in raising working capital as needed. There are no assurances that we
will have sufficient funds to execute our business plan, pay our operating
expenses and obligations as they become due or generate positive operating
results.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles and include our
accounts and the accounts of our wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
Certain
reclassifications have been made to previously reported amounts to conform to
2008 amounts. The reclassifications had no impact on previously reported results
of operations or shareholders’ deficit.
Going
Concern
Our
auditors stated in their report on our consolidated financial statements for the
Years ended September 30, 2010 and 2009 that we have had losses since inception
that raise doubt about our ability to continue as a going concern. In addition
and as discussed further in Note 6, we are not in compliance with debt covenants
under our Financing Agreements with Sand Hill Finance LLC. For the year ended
September 30, 2010 we incurred a net loss of $6,964,233. The consolidated
financial statements do not include any adjustments related to the recovery and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event we cannot continue in
existence.
13
Management
has established plans intended to increase the sales of our products and
services. Management intends to seek new capital from new equity securities
offerings to provide funds needed to increase liquidity, fund growth, and
implement its business plan. However, no assurances can be given that we will be
able to raise any additional funds.
Fair
value of financial instruments
The
carrying amounts of financial instruments, including cash, accounts receivable,
prepaid expenses, and other current assets, accounts payable and accrued
liabilities, and deposits approximated fair value as of September 30, 2010 and
2009, because of the relatively short-term maturity of these instruments and
their market interest rates.
Marketable
Securities
IceWEB
accounts for the purchase of marketable equity securities in accordance with ASC
320, “Investment – Debt and Equity Securities” with any unrealized gains and
losses included as a net amount as a separate component of stockholders’
equity. However, those securities may not have the trading volume to
support the stock price if the Company were to sell all their shares in the open
market at once, so the Company may have a loss on the sale of marketable
securities even though they record marketable equity securities at the current
market value.
Use
of Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheets and the reported amounts of sales and expenses during the
reporting periods. Actual results could differ from those estimates. Significant
estimates in 2009 and 2008 include the allowance for doubtful accounts, the
valuation of stock-based compensation, the allowance for inventory obsolescence
and the useful life of property and equipment and intangible assets, and
litigation reserves.
Cash
and Cash Equivalents
We
consider all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable consists of normal trade receivables. We recorded a bad debt
allowance of $309,000 at September 30, 2010 and $9,000 as of September
30, 2009. Management performs ongoing evaluations of its accounts receivable.
Management believes that all remaining receivables are fully collectable. Bad
debt expense amounted to $336,568 and $29,324 for the years ended September 30,
2010 and 2009, respectively.
Inventory
Inventory
is valued at the lower of cost or market, on an average cost basis.
Property
and Equipment
Property
and equipment is stated at cost, net of accumulated depreciation. Depreciation
is provided by using the straight-line method over the estimated useful lives of
the related assets.
Intangible
Assets
Intangible
assets, net consists of the cost of acquired customer relationships. We
capitalize and amortize the cost of acquired intangible assets over their
estimated useful lives on a straight-line basis. The estimated useful life of
our acquired customer relationships is five years.
Long-lived
Assets In accordance with ASC Topic 360, “Property, Plant, and Equipment”
(formerly SFAS 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets”), we review the carrying value of intangibles and other
long-lived assets for impairment at least annually or whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value.
Revenue
Recognition
We follow
the guidance of Accounting Standards Codification (ASC) Topic 605, “Revenue
Recognition” (formerly Staff Accounting Bulletin (SAB) No. 104, “Revenue
Recognition”) for revenue recognition. In general, we record revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured. The following policies
reflect specific criteria for our various revenues streams:
14
Revenues
from sales of products are generally recognized when products are shipped unless
we 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.
Revenue
from services is recorded as it is earned. Commissions earned on third party
sales are recorded in the month in which contracts are awarded. Customers are
generally billed every two weeks based on the units of production for the
project. Each project has an estimated total which is based on the estimated
units of production and agreed upon billing rates. Amounts billed in advance of
services being provided are recorded as deferred revenues and recognized in the
consolidated statement of operations as services are provided.
Earnings
per Share
We
compute earnings per share in accordance with ASC Topic 260, “Earnings Per
Share” (formerly SFAS No. 128, “Earnings per Share”) Under the provisions
of ASC Topic 260, basic earnings per share is computed by dividing the net
income (loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares consist of the common shares issuable upon
the exercise of stock options and warrants (using the treasury stock method) and
upon the conversion of convertible preferred stock (using the if-converted
method). Potentially dilutive common shares are excluded from the calculation if
their effect is antidilutive. At September 30, 2009, there were options
and warrants to purchase 11,169,483 shares of common stock, 626,667 shares
issuable upon conversion of Series B preferred stock, and no shares of Series C
preferred stock outstanding which could potentially dilute future earnings per
share.
Stock-Based
Compensation
As more
fully described in Note 12, we have a stock option plan that provides for
non-qualified and incentive stock options to be issued to directors, officers,
employees and consultants (the 2000 Management and Director Equity Incentive and
Compensation Plan (the “Plan”).
Prior to
October 1, 2005, we accounted for stock options issued under the Plan under the
recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, as permitted by ASC Topic 718,
“Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments. No stock-based compensation cost related to employee
stock options was recognized in the Consolidated Statement of Operations for the
year ended September 30, 2005 as all options granted under the Plan had an
exercise price equal to the market value of the underlying common stock on the
date of grant.
Effective
October 1, 2005, we adopted the fair value recognition provisions of ASC Topic
718, “Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments using the modified-prospective-transition method. Under
that transition method, compensation cost recognized in the year ended September
30, 2006 includes: (a) compensation cost for all share-based payments granted
prior to, but not yet vested as of September 30, 2005, based on the grant date
fair value estimated in accordance with the original provisions of Statement
123, and (b) compensation cost for all share-based payments granted subsequent
to October 1, 2005, based on the grant-date fair value estimated in accordance
with the provisions of Statement 123(R). Financial results for the year ended
September 30, 2005 have not been restated.
Recently
Issued Accounting Pronouncements
In
June 2009, the Financial Accounting Standards Board (FASB) issued a
standard that established the FASB Accounting Standards Codification (ASC)
and amended the hierarchy of generally accepted accounting principles (GAAP)
such that the ASC became the single source of authoritative nongovernmental U.S.
GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify
user access to all authoritative U.S. GAAP by providing all the authoritative
literature related to a particular topic in one place. All previously existing
accounting standard documents were superseded and all other accounting
literature not included in the ASC is considered non-authoritative. New
accounting standards issued subsequent to June 30, 2009 are
communicated by the FASB through Accounting Standards Updates (ASUs). We
adopted the ASC on July 1, 2009. This standard did not have an impact on
our consolidated results of operations or financial condition. However,
throughout the notes to the consolidated financial statements references that
were previously made to various former authoritative U.S. GAAP pronouncements
have been changed to coincide with the appropriate section of the
ASC.
15
In
April 2009, the FASB issued an accounting standard which provides guidance
on (1) estimating the fair value of an asset or liability when the volume
and level of activity for the asset or liability have significantly declined and
(2) identifying transactions that are not orderly. The standard also
amended certain disclosure provisions for fair value measurements and
disclosures in ASC 820 to require, among other things, disclosures in interim
periods of the inputs and valuation techniques used to measure fair value as
well as disclosure of the hierarchy of the source of underlying fair value
information on a disaggregated basis by specific major category of investment.
The standard was effective prospectively beginning April 1, 2009. The
adoption of this standard did not have a material impact on our consolidated
results of operations or financial condition.
In
April 2009, the FASB issued an accounting standard which modifies the
requirements for recognizing other-than-temporarily impaired debt securities and
changes the existing impairment model for such securities. The standard also
requires additional disclosures for both annual and interim periods with respect
to both debt and equity securities. Under the standard, impairment of debt
securities will be considered other-than-temporary if an entity (1) intends
to sell the security, (2) more likely than not will be required to sell the
security before recovering its cost, or (3) does not expect to recover the
security’s entire amortized cost basis (even if the entity does not intend to
sell). The standard further indicates that, depending on which of the above
factor(s) causes the impairment to be considered other-than-temporary,
(1) the entire shortfall of the security’s fair value versus its amortized
cost basis or (2) only the credit loss portion would be recognized in
earnings while the remaining shortfall (if any) would be recorded in other
comprehensive income. The standard requires entities to initially apply its
provisions to previously other-than-temporarily impaired debt securities
existing as of the date of initial adoption by making a cumulative-effect
adjustment to the opening balance of retained earnings in the period of
adoption. The cumulative-effect adjustment potentially reclassifies the
noncredit portion of a previously other-than-temporarily impaired debt
security held as of the date of initial adoption from retained earnings to
accumulated other comprehensive income. The adoption of this standard did not
have a material impact our consolidated results of operations or financial
condition.
In
April 2009, the FASB issued an accounting standard regarding interim
disclosures about fair value of financial instruments. The standard essentially
expands the disclosure about fair value of financial instruments that were
previously required only annually to also be required for interim period
reporting. In addition, the standard requires certain additional disclosures
regarding the methods and significant assumptions used to estimate the fair
value of financial instruments. The adoption of this standard did not have a
material impact on our consolidated results of operations or financial
condition.
In
May 2009, the FASB issued a new accounting standard regarding subsequent
events. This standard incorporates into authoritative accounting literature
certain guidance that already existed within generally accepted auditing
standards, with the requirements concerning recognition and disclosure of
subsequent events remaining essentially unchanged. This guidance addresses
events which occur after the balance sheet date but before the issuance of
financial statements. Under the new standard, as under previous practice, an
entity must record the effects of subsequent events that provide evidence about
conditions that existed at the balance sheet date and must disclose but not
record the effects of subsequent events which provide evidence about conditions
that did not exist at the balance sheet date. This standard added an additional
required disclosure relative to the date through which subsequent events have
been evaluated and whether that is the date on which the financial statements
were issued. For us, this standard was
effective beginning April 1, 2009.
In
June 2009, the FASB issued a new standard regarding the accounting for
transfers of financial assets amending the existing guidance on transfers of
financial assets to, among other things, eliminate the qualifying
special-purpose entity concept, include a new unit of account definition that
must be met for transfers of portions of financial assets to be eligible for
sale accounting, clarify and change the derecognition criteria for a transfer to
be accounted for as a sale, and require significant additional disclosure. The
standard is effective for new transfers of financial assets beginning
January 1, 2010. The adoption of this standard did not have a material
impact on our consolidated results of operations or financial
condition.
In
June 2009, the FASB issued an accounting standard that revised the
consolidation guidance for variable-interest entities. The modifications include
the elimination of the exemption for qualifying special purpose entities, a new
approach for determining who should consolidate a variable-interest
entity, and changes to when it is necessary to reassess who should
consolidate a variable-interest entity. The standard is effective
January 1, 2010. The adoption of this standard did not have a material
impact our consolidated results of operations or financial
condition.
16
In
August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair
Value, which provides additional guidance on how companies should measure
liabilities at fair value under ASC 820. The ASU clarifies that the quoted price
for an identical liability should be used. However, if such information is not
available, a entity may use, the quoted price of an identical liability when
traded as an asset, quoted prices for similar liabilities or similar liabilities
traded as assets, or another valuation technique (such as the market or income
approach). The ASU also indicates that the fair value of a liability is not
adjusted to reflect the impact of contractual restrictions that prevent its
transfer and indicates circumstances in which quoted prices for an identical
liability or quoted price for an identical liability traded as an asset may be
considered level 1 fair value. This ASU is effective October 1, 2009. The
adoption of this standard did not have a material impact on our consolidated
results of operations or financial condition.
In
January 2010, the FASB issued ASU No. 2010-6, Improving Disclosures About Fair
Value Measurements, that amends existing disclosure requirements under
ASC 820 by adding required disclosures about items transferring into and out of
levels 1 and 2 in the fair value hierarchy; adding separate disclosures about
purchase, sales, issuances, and settlements relative to level 3 measurements;
and clarifying, among other things, the existing fair value disclosures about
the level of disaggregation. This ASU is effective for the first quarter of
2010, except for the requirement to provide level 3 activity of purchases,
sales, issuances, and settlements on a gross basis, which is effective beginning
the first quarter of 2011. Since this standard impacts disclosure requirements
only, its adoption will not have a material impact on our consolidated results
of operations or financial condition.
In
September 2009, the FASB issued ASU No. 2009-12, Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent), that amends ASC
820 to provide guidance on measuring the fair value of certain alternative
investments such as hedge funds, private equity funds and venture capital funds.
The ASU indicates that, under certain circumstance, the fair value of such
investments may be determined using net asset value (NAV) as a practical
expedient, unless it is probable the investment will be sold at something other
than NAV. In those situations, the practical expedient cannot be used and
disclosure of the remaining actions necessary to complete the sale is required.
The ASU also requires additional disclosures of the attributes of all
investments within the scope of the new guidance, regardless of whether an
entity used the practical expedient to measure the fair value of any of its
investments. This ASU is effective October 1, 2009. The adoption of this
standard did not have a material impact on our consolidated results of
operations or financial condition.
In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements—a consensus of the FASB Emerging Issues Task Force, that
provides amendments to the criteria for separating consideration in
multiple-deliverable arrangements. As a result of these amendments,
multiple-deliverable revenue arrangements will be separated in more
circumstances than under existing U.S. GAAP. The ASU does this by establishing a
selling price hierarchy for determining the selling price of a deliverable. The
selling price used for each deliverable will be based on vendor-specific
objective evidence if available, third-party evidence if vendor-specific
objective evidence is not available, or estimated selling price if neither
vendor-specific objective evidence nor third-party evidence is available. A
vendor will be required to determine its best estimate of selling price in a
manner that is consistent with that used to determine the price to sell the
deliverable on a standalone basis. This ASU also eliminates the residual method
of allocation and will require that arrangement consideration be allocated at
the inception of the arrangement to all deliverables using the relative selling
price method, which allocates any discount in the overall arrangement
proportionally to each deliverable based on its relative selling price. Expanded
disclosures of qualitative and quantitative information regarding application of
the multiple-deliverable revenue arrangement guidance are also required under
the ASU. The ASU does not apply to arrangements for which industry specific
allocation and measurement guidance exists, such as long-term construction
contracts and software transactions. The ASU is effective beginning
January 1, 2011. We are currently evaluating the impact of this
standard on our consolidated results of operations and financial
condition.
In
October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements That
Include Software Elements—a consensus of the FASB Emerging Issues Task
Force, that reduces the types of transactions that fall within the
current scope of software revenue recognition guidance. Existing software
revenue recognition guidance requires that its provisions be applied to an
entire arrangement when the sale of any products or services containing or
utilizing software when the software is considered more than incidental to the
product or service. As a result of the amendments included in ASU
No. 2009-14, many tangible products and services that rely on software will
be accounted for under the multiple-element arrangements revenue recognition
guidance rather than under the software revenue recognition guidance. Under the
ASU, the following components would be excluded from the scope of software
revenue recognition guidance: the tangible element of the product,
software products bundled with tangible products where the software components
and non-software components function together to deliver the product’s essential
functionality, and undelivered components that relate to software that is
essential to the tangible product’s functionality. The ASU also provides
guidance on how to allocate transaction consideration when an arrangement
contains both deliverables within the scope of software revenue guidance
(software deliverables) and deliverables not within the scope of that guidance
(non-software deliverables). The ASU is effective beginning January 1,
2011. We are currently evaluating the impact of this standard on our
consolidated results of operations and financial condition.
Subsequent
Events: In February 2010, the Financial Accounting Standards
Board (FASB) issued Accounting Standards Update (ASU) No. 2010-09 “Subsequent Events (Topic 855) –
Amendments to Certain Recognition and Disclosure
Requirements.” ASU 2010-09 amends the subsequent events
disclosure guidance. The amendments include a definition of an SEC
filer, requires an SEC filer or conduit bond obligor to evaluate subsequent
events through the date the financial statements are issued, and removes the
requirement for an SEC filer to disclose the date through which subsequent
events have been evaluated. ASU 2010-09 was effective upon issuance
except for the use of the issued date for conduit debt obligors. The
impact of ASU 2010-09 on our disclosures is reflected in Note 15 - Subsequent
Events.
Fair Value Measurements and
Disclosures: In January 2010, the FASB issued ASU No. 2010-06
“Fair Value Measurements and
Disclosures (Topic 820) – Improving Disclosures about Fair Value
Measurements.” ASU 2010-06 amends the fair value disclosure
guidance. The amendments include new disclosures and changes to
clarify existing disclosure requirements. ASU 2010-06 was effective
for interim and annual reporting periods beginning after December 15, 2009,
except for the disclosures about purchases, sales, issuances, and settlements of
Level 3 fair value measurements. Those disclosures are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The impact of ASU 2010-06 on our disclosures is
reflected in Note 10 - Fair Value Measurements.
Consolidations: In
December 2009, the FASB issued ASU No. 2009-17 (formerly Statement No. 167),
“Consolidations (Topic 810) –
Improvements to Financial Reporting for Enterprises involved with Variable
Interest Entities”. ASU 2009-17 amends the consolidation guidance
applicable to variable interest entities. The amendments to the consolidation
guidance affect all entities, as well as qualifying special-purpose entities
(QSPEs) that are currently excluded from previous consolidation guidance. ASU
2009-17 was effective as of the beginning of the first annual reporting period
that begins after November 15, 2009. ASU 2009-17 did not have an impact on our
financial condition, results of operations, or disclosures.
Accounting for Transfers of
Financial Assets: In December 2009, the FASB issued ASU No.
2009-16 (formerly Statement No. 166), “Transfers and Servicing (Topic 860)
– Accounting for Transfers of Financial Assets”. ASU 2009-16 amends the
derecognition accounting and disclosure guidance. ASU 2009-16 eliminates the
exemption from consolidation for QSPEs and also requires a transferor to
evaluate all existing QSPEs to determine whether they must be consolidated. ASU
2009-16 was effective as of the beginning of the first annual reporting period
that begins after November 15, 2009. ASU 2009-16 did not have an impact on our
financial condition, results of operations, or disclosures.
17
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
Results
of Operations
FISCAL
YEAR 2010 AS COMPARED TO FISCAL YEAR 2009
The
following table provides an overview of certain key factors of our results of
operations for fiscal year 2010 as compared to fiscal year 2009:
|
|
Fiscal Year Ended
September 30,
|
|
|
$
|
|
|
%
|
|
|||||||
2010
|
2009
|
Change
|
Change
|
|||||||||||||
Sales
|
$
|
3,353,286
|
$
|
2,240,363
|
$
|
1,112,923
|
49.7
|
%
|
||||||||
Cost
of sales
|
1,742,110
|
1,326,385
|
415,725
|
31.3
|
%
|
|||||||||||
Operating
Expenses:
|
||||||||||||||||
Sales
and marketing
|
1,690,684
|
1,004,970
|
685,714
|
68.2
|
%
|
|||||||||||
Depreciation
and amortization
|
662,003
|
696,723
|
(34,720
|
)
|
(5.0
|
)%
|
||||||||||
Research
and development
|
533,713
|
336,616
|
197,097
|
58.6
|
%
|
|||||||||||
General
and administrative
|
5,325,898
|
3,538,086
|
1,787,812
|
50.5
|
%
|
|||||||||||
Total
operating expenses
|
8,212,298
|
5,576,395
|
2,635,903
|
47.3
|
%
|
|||||||||||
Other
expense
|
(363,111
|
)
|
(460,889
|
)
|
97,778
|
21.2
|
%
|
|||||||||
Loss
from continuing operations
|
(6,964,233
|
)
|
(5,123,306
|
)
|
(1,840,927
|
)
|
35.9
|
%
|
||||||||
Income
from discontinued operations
|
—
|
136,408
|
(136,408
|
)
|
(100.0
|
)%
|
||||||||||
Interest
expense related to discontinued operations
|
—
|
(205,940
|
)
|
205,940
|
100.0
|
%
|
||||||||||
Gain
from sale of subsidiary
|
—
|
2,666,236
|
(2,666,236
|
)
|
(100.0
|
)%
|
||||||||||
Net
loss
|
$
|
(6,964,233
|
)
|
$
|
(2,526,602
|
)
|
(4,437,631
|
)
|
175.6
|
%
|
Other Key
Indicators:
Fiscal
|
Fiscal
|
|||||||||||
2010
|
2009
|
Change
|
||||||||||
Cost
of sales as a percentage of sales
|
51.95 | % | 59.20 | % | (7.3 | )% | ||||||
Gross
profit margin
|
48.05 | % | 40.80 | % | 7.3 | % | ||||||
General
and administrative expenses as a percentage of sales
|
158.83 | % | 157.92 | % | 0.9 | % | ||||||
Total
operating expenses as a percentage of sales
|
244.90 | % | 248.91 | % | (4.0 | )% |
Sales
Our sales
increased approximately 49.7% in fiscal year 2010 from fiscal year
2009. Of our total net sales for fiscal 2010, approximately
$3,152,346 is attributable to our sale of storage products, and approximately
$200,940 is attributable to sales from our online products and services. Of our
total net sales for fiscal 2009, approximately $1,957,856 is attributable to our
sale of storage products, and approximately $282,507 is attributable to sales
from our online products and services.
The
increase in fiscal 2010 net sales from fiscal 2009 is primarily due to the
increase in our IceWEB storage products, as we have refocused our efforts on our
leading edge storage products. We anticipate revenues for fiscal 2011
will increase due to sales of our Unified Network Storage Solutions and other
data storage products.
.
Cost of
Sales and Gross Profit
Our cost
of sales consists primarily of products purchased to manufacture our storage
products. For fiscal 2010, cost of sales was approximately 52.0% of
sales, as compared to approximately 59.0% of sales, for fiscal 2009. The
decrease in costs of sales as a percentage of revenue and the corresponding
increase in our gross profit margin for fiscal 2010 as compared to fiscal 2009
was the result of an increase in higher margin storage sales in fiscal 2010. We
anticipate that our cost of sales as a percentage of revenue will remain in the
50% to 55% range in fiscal 2011, as 95% of our fiscal 2010 revenues are expected
to come primarily from our higher margin storage business.
Total
Operating Expenses
Our total
operating expenses increased approximately 47% for fiscal 2010 as compared to
fiscal 2009. The increase is primarily due to increased headcount in
sales and marketing, increased investment in research and development, and our
investment in launching our channel sales distribution model. This
increase includes:
18
•
Sales and Marketing.
Sales and marketing expense includes salaries, commission, occupancy, telephone,
travel, and entertainment expenses for direct sales personnel. For
the fiscal year ended September 30, 2010, sales and marketing costs were
$1,690,684 as compared to $1,004,970 for the fiscal year ended September 30,
2009, an increase of $685,714 or approximately 68.2%. The increase was due
primarily to hiring additional sales and marketing personnel to support our
channel distribution sales and marketing approach during the fiscal year ended
September 30, 2010
•
Depreciation and amortization
expense. For fiscal 2010, depreciation and amortization expense decreased
approximately 5% from fiscal 2009.
Amortization
expense is related to the customer relationships and manufacturing GSA schedule
which are intangible assets that we generated through our acquisition of Inline
Corporation. The GSA schedule is being amortized on a straight-line
basis over three years. Amortization expense was $243,090 for both fiscal 2010
and fiscal 2009.
• Research and development
expense. For fiscal 2010, research and development expenses
increased approximately 59% from fiscal 2009. This increase is
related to increased research and development efforts related to our storage
products. We anticipate the spending on research and development in
fiscal 2011 will be approximately $175,000 per quarter related to developing and
enhancing our storage solutions and pursuing intellectual property patents when
we believe it is warranted.
•
General and administrative
expense. For fiscal 2010, general and administrative expenses increased
approximately 51% from fiscal 2009. This increase is primarily attributable to
higher stock-based compensation, higher investor relations expense, higher bad
debt expense, and higher legal and professional fees. For fiscal 2010
and 2009, general and administrative expenses consisted of the
following:
2010
|
2009
|
|||||||
Salaries/benefits
|
3,483,798 | 2,897,647 | ||||||
Occupancy
|
24,139 | 50,258 | ||||||
Professional
fees
|
659,547 | 82,929 | ||||||
Other
|
518,303 | 125,922 | ||||||
Consulting
|
193,783 | 85,738 | ||||||
Investor
Relations
|
358,780 | 173,686 | ||||||
Travel/Entertainment
|
32,361 | 26,867 | ||||||
Internet/Phone
|
8,883 | 35,967 | ||||||
Insurance
|
46,304 | 59,072 | ||||||
5,325,898 | 3,538,086 |
The
principal changes in fiscal 2010 as compared to fiscal 2009
include:
•
|
For
fiscal 2010, salaries and related taxes and benefits increased
approximately 20.2% from fiscal 2009. The increase was primarily
attributable to the increase in headcount, the increase in stock based
compensation, and expense recorded in accordance with ASC Topic 718,
“Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments”), for fiscal 2010 of $329,604, an increase of
15%.
|
•
|
For
fiscal 2010, occupancy expense decreased approximately 52% from fiscal
2009. The decrease was due to consolidation and relocation of
office locations.
|
•
|
For
fiscal 2010, professional fees increased $576,619, or approximately 695%
from fiscal 2009. The increase was primarily attributable to an increase
in legal fees incurred and the settlement of lawsuits against us in fiscal
2010.
|
•
|
For
fiscal 2010, other expense increased approximately 312% from fiscal 2009.
The increase is primarily due to an increase in bad debt expense of
$300,000, and hosting fees of
$48,735.
|
•
|
For
fiscal 2010, consulting expense increased by approximately 126% from
fiscal 2009. The increase was primarily due to non-recurring consulting
fees related to our capital raising activities, and human resources
recruiting fees.
|
•
|
For
fiscal 2010, investor relations expense increased approximately 107% from
fiscal 2009. The increase was attributable to an increase in general
investor relations activity versus fiscal 2009. We expect that
in fiscal 2011 our investor relations activity and related expense will be
substantially flat.
|
19
•
|
For
fiscal 2010, internet and telephone expense decreased approximately 75%.
The decrease was attributable to cost cutting measures adopted by
us.
|
•
|
For
fiscal 2010, travel and entertainment expense increased approximately 20%.
The increase was attributable to an increase in general business, and
travel-related investor relations
activity.
|
•
|
For
fiscal 2010, insurance expense decreased approximately 22% from fiscal
2009. The decrease was attributable to lower premiums paid for general
business and directors and officer’s
insurance.
|
TOTAL
OTHER INCOME (EXPENSES)
Interest Expense. For fiscal
2010, interest expense decreased approximately 17%. The decrease in interest
expense is primarily attributable to lower average outstanding note balances
during fiscal 2010, and lower deferred loan fee amortization in fiscal 2010 of
$27,015 as compared to deferred loan fee amortization of $127,015 in fiscal
2009.
LOSS FROM
CONTINUING OPERATIONS
Our loss
from operations increased approximately 42% in fiscal year 2010 as compared to
fiscal year 2009. This increase is primarily the result of increased
headcount, increased research and development efforts, and our investment in our
channel marketing sales programs.
GAIN ON
DISCONTINUED OPERATIONS
Results
from discontinued operations were as follows:
Fiscal
Year Ended
September
30,
|
||||||||
2010
|
2009
|
|||||||
Sales
|
$
|
—
|
$
|
1,694,322
|
||||
Cost
of sales
|
—
|
1,348,307
|
||||||
Operating
Expenses:
|
||||||||
Sales
and marketing
|
—
|
163,694
|
||||||
Depreciation
and amortization
|
—
|
45,913
|
||||||
Subtotal
|
—
|
209,607
|
||||||
Income
from discontinued operations
|
—
|
136,408
|
||||||
Interest
expense related to discontinued operations
|
—
|
(205,940
|
)
|
|||||
Gain
from sale of discontinued operations
|
—
|
2,666,236
|
||||||
Total
Gain from discontinued operations
|
$
|
—
|
$
|
2,596,704
|
During
the fiscal second quarter of 2009 we sold our wholly owned subsidiary, Iceweb
Virginia, Inc. to an unrelated third party.
For 2009
we earned revenues in discontinued operations of $1,694,322. We had no
comparable discontinued operations in fiscal 2010.
Total
operating expenses of discontinued operations in fiscal 2009 amounted to
$209,607, and consisted of primarily sales and marketing expenses associated
with IceWEB Virginia, Inc. and the amortization of the GSA schedule through the
date of sale of the subsidiary.
Gain (loss) from sale of
assets. During the fiscal year 2009 we recorded a gain of $2,666,236 on
the sale of our IceWEB Virginia, Inc. subsidiary. We did not have a comparable
transaction in fiscal 2010.
NET
LOSS
Our net
loss was $6,964,233 for fiscal 2010 compared to $2,526,602 for fiscal 2009, an
increase of $4,437,631 or approximately 176%.
20
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
is the ability of a company to generate adequate amounts of cash to meet its
needs for cash.
September 30,
2010
|
September 30,
2009
|
$
Change
|
%
Change
|
|||||||||||||
Working
Capital
|
$ | (1,250,033 | ) | $ | (3,158,232 | ) | $ | 1,908,199 | (60.4 | )% | ||||||
Cash
|
540,156 | 63,310 | 476,846 | 753.2 | % | |||||||||||
Accounts
receivable, net
|
1,529,852 | 424,919 | 1,104,933 | 260.0 | % | |||||||||||
Inventory
|
62,197 | 151,361 | (89,164 | ) | (58.9 | )% | ||||||||||
Total
current assets
|
2,170,310 | 671,160 | 1,499,150 | 223.4 | % | |||||||||||
Property
and equipment, net
|
418,873 | 752,162 | (333,289 | ) | (44.3 | )% | ||||||||||
Intangibles,
net
|
546,952 | 790,042 | (243,090 | ) | (30.8 | )% | ||||||||||
Marketable
securities
|
524,800 | — | 524,800 | N/A | ||||||||||||
Total
assets
|
$ | 3,674,255 | $ | 2,226,684 | $ | 1,447,571 | 70.9 | % | ||||||||
Accounts
payable and accrued liabilities
|
1,711,619 | 1,971,376 | (259,757 | ) | (13.2 | )% | ||||||||||
Notes
payable-current
|
1,649,140 | 1,847,755 | (198,615 | ) | (10.7 | )% | ||||||||||
Deferred
revenue
|
59,582 | 10,261 | 49,321 | 480.7 | % | |||||||||||
Total
current liabilities
|
3,420,342 | 3,829,392 | (409,050 | ) | (10.7 | )% | ||||||||||
Notes
payable-long term
|
0 | 934,756 | (934,756 | ) | (100.0 | )% | ||||||||||
Total
liabilities
|
3,420,343 | 4,764,148 | (1,343,805 | ) | (28.2 | )% | ||||||||||
Accumulated
deficit
|
(29,622,792 | ) | (22,658,560 | ) | (6,964,232 | ) | 30.7 | % | ||||||||
Stockholders’
equity (deficit)
|
253,912 | (2,537,464 | ) | 2,791,376 | (115.2 | )% |
At
September 30, 2010, we had a working capital deficit of $1,250,033 compared to a
working capital deficit of $3,158,232 at September 30, 2009, a decrease of
$1,908,199. The decrease in the deficit is primarily attributable to
the cash raised in our private placement in June, 2010, in the amount of
approximately $2.3 million. In addition, the changes are primarily
attributable to the decreases in accounts payable and accrued expenses of
$259,757, and the decrease in our current notes payable of $198,615, offset by
the increase in accounts receivable of $1,104,934, and an increase in marketable
securities of $524,800. Also contributing was the decrease in inventory of
$89,164 and the increase in deferred revenue of $49,321.
Net cash
used in operating activities was $4,128,415 for fiscal 2010 as compared to net
cash used in operating activities of $2,145,514 for fiscal 2009, an increase of
$1,982,901. For fiscal 2010, our cash used in operations of
$4,128,415 consisted of a net loss of $6,964,233, offset by non-cash items
totaling $2,835,818 including items such as depreciation and amortization of
$662,003, stock based compensation of $867,365, the amortization of deferred
compensation of $1,627,919, and other non-cash items of
$938,282. Additionally, during fiscal 2010 we had a decrease in
operating liabilities and an increase in operating assets which incremented our
net loss. This change in operating assets and liabilities primarily consisted of
an increase in accounts receivable of $1,104,934 attributable to an increase in
annual sales, and an increase in prepaid expenses of $33,545,offset by a
decrease in net inventory of $89,164, a decrease in accounts payable and accrued
liabilities of $259,757 and an increase in deferred revenue of
$49,321.
For
fiscal 2009, our cash used in operations of $2,145,514 consisted of a net loss
of $2,526,602, offset by non-cash items totaling $381,088 including items such
as depreciation and amortization of $742,636, stock based compensation of
$1,167,721, the amortization of deferred compensation of $1,016,134, and other
non-cash items of $162,748. Additionally, during fiscal 2010 we had a
decrease in operating liabilities and a decrease in operating assets which
offset our net loss. This change in operating assets and liabilities primarily
consisted of a decrease in accounts receivable of $2,669,191 attributable to a
decrease in annual sales, and a decrease in prepaid expenses of $29,975, a
decrease in deposits of $33,035, and a decrease in net inventory of $248,951,
offset by a decrease in accounts payable and accrued liabilities of $3,020,165
and an increase in deferred revenue of $2,902.
Net cash
used in investing activities for fiscal 2010 was $133,624 as compared to net
cash used in investing activities of $99,762 for fiscal 2009. During
fiscal 2010 we used cash of $85,624 for property and equipment purchases, and
$48,000 to invest in marketable securities. During fiscal 2009, net cash used in
investing activities was $99,762 which was cash used for property and equipment
purchases.
21
Net cash
provided by financing activities for fiscal 2010 was $4,738,885 as compared to
$2,303,806 for fiscal 2009, an increase of $2,435,079. The primary reason for
the increase was due to the proceeds from the sale of common stock of
$2,380,630, and the exercise of common stock options of $2,591,626. In addition
we made payments on notes payable of $1,835,395, and borrowed $1,602,024 under
our financing line.
At
September 30, 2010 we had an accumulated deficit of $29,622,792 and the report
from our independent registered public accounting firm on our audited financial
statements at September 30, 2010 contained an explanatory paragraph regarding
doubt as to our ability to continue as a going concern as a result of our net
losses in operations. In spite of our sales, there is no assurance that we will
be able to maintain or increase our sales in fiscal 2010 or that we will report
net income in any future periods.
We do not
have any working capital commitments nor do we not presently have any external
sources of working capital. Historically, our sales have not been sufficient to
fund our operations and we have relied on capital provided through the sale of
equity securities, and various financing arrangements and loans from related
parties. At September 30, 2010 we had cash on hand of $540,156. In
addition to the cash necessary to fund our operating losses, research and
development, marketing and general growth, we will need cash to satisfy certain
obligations. In fiscal 2006, we entered into a receivable factoring
agreement with Sand Hill Finance, LLC under which we can sell certain accounts
receivable to the lender on a full recourse basis at 80% of the face amount of
the receivable up to an aggregate of $1.8 million. This financing agreement was
amended in fiscal 2009 to increase the line amount to $2,750,000, and to add an
18 month term loan of $1,000,000 with an interest rate of 24% per
annum. As of September 30, 2010, we had $1,100,860 available under
the line of credit facility.
Our
working capital needs in future periods depend primarily on the rate at which we
can increase our sales while controlling our expenses and decreasing the use of
cash to fund operations. Additional capital may be needed to fund acquisitions
of additional companies or assets, although we are not a party to any pending
agreements at this time and, accordingly, cannot estimate the amount of capital
which may be necessary, if any, for acquisitions.
As long
as our cash flow from operations remains insufficient to completely fund
operations, we will continue depleting our financial resources and seeking
additional capital through equity and/or debt financing. Under the
terms of the financing agreement with Sand Hill Finance, LLC we agreed not to
incur any additional indebtedness other than trade credit in the ordinary course
of business. These covenants may also limit our ability to raise capital in
future periods. There can be no assurance that acceptable financing can be
obtained on suitable terms, if at all. Our ability to continue our
existing operations and to fund our working capital needs will suffer if we are
unable to raise the additional funds on acceptable terms which will have the
effect of adversely affecting our ongoing operations and limiting our ability to
increase our sales and maintain profitable operations in the future. If we are
unable to secure the necessary additional working capital as needed, we may be
forced to curtail some or all of our operations.
Off
Balance Sheet Arrangements.
None.
OUR
BUSINESS
OVERVIEW
IWEB was originally founded to
serve the commercial and federal markets with network security products and
proprietary on-line software solutions. In 2008, IWEB narrowed its
focus and expanded its capabilities by acquiring INLINE Corporation, a data
storage company specializing in custom designed, short-production run storage
solutions for the Geospatial Information Systems (GIS) market.
In March,
2009, we sold our wholly owned subsidiary, IceWEB Virginia, Inc. to an unrelated
3rd
party, and in the process exited its low-margin IT re-seller business products
business to further focus on the higher margin data storage manufacturing
business.
At the
close of Fiscal year 2010, we have three key product offerings:
IceWEB
3000/5000 Unified Network Storage Solutions
Purpose
Built Network/Data Appliances
Cloud
Computing Products/Services
IceWEB 3000/5000 Unified
Network Storage Solutions
IceWEB is
a leading provider of high performance Unified Network Storage
solutions. Our product offerings have broad appeal in the enterprise
and federal marketplaces, and are used as core building blocks (enabling
technologies) of business critical storage infrastructure for a diverse group of
data intensive key vertical market segments such as geospatial information
systems, entertainment, security and defense, higher education, Internet Service
Providers and Managed Service Providers, Oil and Gas, and Health
Care. Our innovative storage systems deliver levels of performance,
scalability, versatility and simplicity that exceed existing network storage
alternatives. Our Unified Network Storage offerings, called the IceWEB 3000 and
IceWEB 5000 are deployed as storage operating system software on our network
attached storage (NAS), and storage area network (SAN) hardware products. The
IceWEB 3000/5000 Unified Network Storage environments empowers companies
to:
22
|
-
|
Quickly and easily deploy large
complex data storage infrastructure
environments
|
|
-
|
Reduce administrative costs for
managing their storage by making complex technical tasks far more simple
to accomplish
|
|
-
|
Reduce hardware and capital
expenditure costs by more effectively using the storage within the system
and repurposing older legacy
hardware
|
|
-
|
Protect their business critical
data by leveraging IceWEB 5000’s built-in data replication
features
|
|
-
|
Integrate with emerging server
virtualization software (VMWare, Citrix Xen and Microsoft’s Hyper V) to
better manage those
solutions
|
The
IceWEB 3000/5000 replaces complex and performance-limited products with high
performance, scalable and easy to use systems capable of handling the most data
intensive applications and environments. Our users value the IceWEB
3000/5000s solution because it delivers three key benefits:
Performance -
which equals or exceeds all competitive products.
Management – which requires
less expertise and time from overburdened technical staffers
Cost – our solutions
typically can be deployed costing two to three times less than those
of ours competitors, and are far more feature rich
The
Competitive Landscape
Traditionally
a company such as IceWEB would compete with other storage vendors of similar
size, some of those competitors would be Compellent, Isilon, and LeftHand
Networks. In actuality the company more often finds itself becoming
an alternative in our customers’ eyes to purchasing additional equipment from
large and expensive legacy storage providers such as EMC Corporation, IBM,
Hewlett Packard, Network Appliance and Hitachi Data Systems. What
IceWEB is finding is that with data growing at alarming rates within all
organizations, budgetary and common sense decision making is creating a 2nd Tier
storage marketplace where our IceWEB 5000 is perceived as very
compelling. Customers are recoiling from the high costs and fork-lift
upgrades often required by the larger Tier 1 storage providers that would be
necessary to accommodate their rapid data growth. Therefore, rather
than purchasing additional expensive solutions from their existing vendors they
opt to deploy our product with its versatile and feature rich capabilities in an
overflow or project by project type environment. Because IceWEB 5000
storage space can be purchased two to three times more cheaply than the legacy
alternatives, these customers are actually able to purchase ahead of their
perceived data growth rate.
Purpose Built Network and
Data Appliances
IceWEB
has been building Purpose Built Network and Data Appliances for several
years. Purpose Built Network & Data Appliances are devices which
provide computer resources (processors & memory), data storage, and specific
software for a specific application. The main appliance products that
IceWEB has been building have been centered around a single large business
partner. ESRI Corporation. IceWEB and ESRI have
collaborated to create ultra-high performance IceWEB/ESRI GIS systems that allow
customers to analyze data in ways never before possible. ESRI
corporation takes full responsibility for marketing to their customers and
business partners, via their worldwide sales and consultancy
organization.
IceWEB,
in an effort to capitalize on what has been a successful model built within the
Geographical Information System space with ESRI has expanded our marketing of
our appliance design, manufacturing and support capabilities to additional
prospective partners. In October 2009 IceWEB, Spot Image (a large
satellite GIS data provider from France, and Google Corporation agreed that
IceWEB would build an appliance to deliver GIS imagery from Spot Image satellite
data, powered by Google Earth Enterprise. This Google Earth Engine
appliance will be marketed worldwide through existing Spot Image and Google
business partners. IceWEB has also recently introduced a Cloud
Storage Appliance, a device which allows organizations and/or service providers
to rapidly and easily deploy cloud based storage services to their constituents
and customers. The company is aggressively pursuing other Purpose
Built Appliance opportunities and hopes that this strategy will begin to
contribute significantly to our business ramping over the next six
month. Our goal is that the Appliance business segment be grown to
contribute approximately 35% of overall business revenue by the end of Fiscal
Year 2010.
23
Cloud Computing Products
& Services
Cloud Computing
Services
In
December 2005, IceWEB launched IceMAIL TM a
packaged software service that provides network –hosted groupware, email, and
calendaring and collaboration functionality. Customers are typically
organizations wishing to use Microsoft Exchange and Outlook without having to
procure, maintain and manage their own equipment and
software. Online services were subsequently expanded to include
IcePORTAL TM which
provides customers with a complete Intranet portal and IceSECURE TM a
hosted email encryption service. Originally such hosted services were
referred to with the acronym ‘SaaS’, which stands for
Software-as-a-Service. Such services, hosted across the internet are
today commonly referred to as Cloud Computing. The benefits of
cloud computing are many. First, adoption of an application,
infrastructure, or storage environment which is available on-demand, with no
capital expenditures for the user company represents an attractive proposition
from the financial perspective. Secondly, such models greatly reduce
the need for highly paid internal technical staff, freeing critical resources to
work on more core business related functions. Thirdly, the
application software, hardware, and infrastructure needs of organizations are
constantly growing and evolving – Cloud Computing allows ad-hoc allocation of
resources, cost free software upgrades, and freedom from hardware/infrastructure
obsolescence.
Cloud Storage Appliances
(CSA)
Knowing
full well there will be many early entrants into the much hyped Cloud Computing
marketspace, IceWEB has focused our engineering and research and development
efforts on crafting our products to perform as scalable ‘building blocks’ for
those companies or service providers wishing to rapidly deploy high performance
infrastructure to enable delivery of Cloud based services. In September 2009
IceWEB introduced a line of devices called “Cloud Storage Appliances” (CSA). A
cloud storage appliance is a purpose built storage device configured for either
branch office or central site deployment which allows the housing and delivery
of customer data across not only their internal networking infrastructure, but
also to make that data available to employees or business partners securely via
the internet (often called the cloud). The CSA line has been built to address
concerns within the enterprise marketplace which revolve around hesitation to
entrust corporate data to third party providers such as Amazon S3, Mozy,
Nirvanix, and others, and to address additional concerns about data access
latency and performance. Companies, by implementing our CSA devices, can gain
all of the benefits of cloud computing, while mitigating vendor lock-in issues,
reducing the potential for security breaches, and maintaining high performance
data transfer by back-hauling the data (and replicating it) from remote branch
offices across existing wide area network links to the corporate IT
infrastructure. An additional obvious benefit derived from the deployment of
private or hybrid storage clouds on the CSA products is that companies do not
have to pay per-megabyte or per-gigabyte transfer and storage fees to third
party service companies.
Sales
and Marketing Plans
We intend
to sell of all of our products via full “channel-based” model. In a Channel
Based sales model, companies with products or services build partnerships with
Systems Integrators, other manufacturers, vertical companies (such as ESRI and
Spot Image), and distributors and leverage the sales resources of those groups
to drive sales of products/services. The value of a Channel Based sales model is
twofold. First it allows IceWEB to grow total sales volume significantly while
keeping sales staff (and hence SG&A) low. Rather than building a significant
worldwide sales force of our own, this model allows to build a small Channel
Organization responsible for identification, training and support of partner
organizations to ensure their success and productivity. The second value of the
Channel Based model is that partners bring their own knowledge of key accounts
and have relationships already in place – this compresses the sales cycle,
increases the close ratio on new business and funnels more sales into IceWEB
products and services.
We have
recently signed partnership agreements with Utilipath LLC, Spot Image, and
others and are already realizing the value of these relationships as they
translate into hard sales.
Manufacturing
Manufacturing
is conducted at our headquarters in Sterling, VA. Utilizing chassis from premium
manufacturers such as AIC Corporation, Xyratex and others, all systems are
built, burned, and tested at this facility by our in-house engineering and
production staff.
24
Competition
The
market for IceWEB storage is highly competitive and likely to become even more
competitive in the future. Established companies have historically dominated the
storage market, including EMC, Network Appliance, Dell, Hewlett-Packard, Sun
Microsystems, Hitachi Data Systems and IBM.
In
addition there is additional competition from smaller companies such as
Compellent Technologies and LeftHand Networks. In the future, new competitors
will emerge as well as increased competition, both domestically and
internationally, from other established storage companies. The
principal competitive market factors are:
•
|
Industry
credibility.
|
•
|
Product
scalability, performance and
reliability
|
•
|
Ease
of installation and management;
|
•
|
Software
functionality;
|
•
|
Total
cost of ownership;
|
•
|
Customer
support
|
•
|
Market
presence
|
IceWEB
competes effectively across all of these factors. In particular, our product
architecture provides significant competitive advantages in terms of
performance, scalability, ease of management and low total cost of ownership
. OEM partners provide us with a significant number of reference
account s which address credibility and helps marketing to new
customers.
Many of
the competitors have longer operating histories, better name recognition, larger
customer bases and significantly greater financial, technical, sales and
marketing resources than we have. Competitors may also be able to devote greater
resources to the development, promotion, sale and support of their products.
Competitors may also have more extensive customer bases and broader customer
relationships than us including relationships with potential IceWEB
customers.
Intellectual
Property
Success
in our technological markets depends, in part, upon our ability to obtain and
maintain proprietary protection for its products, technology and know-how
. This must be accomplished without infringing the proprietary rights
of others and while simultaneously preventing others from infringing upon our
own proprietary rights.
IceWEB
seeks to protect its proprietary positions by, among other methods, filing
patent applications. Patent efforts are focused in the United States and, when
justified by cost and strategic importance, we file related foreign patent
applications in jurisdictions such as the European Union and Japan. As of
September 30, 2008, we applied for three provisional U.S. patents
.
Pending
patent applications relate to the rapid ingestion of massive amounts of video
and other data and other network storage concepts. It is unknown if
any of the patent applications will issue as patents. The patent
applications may be opposed, contested, circumvented, designed around by a third
party, or found to be invalid or unenforceable.
Copy
right law, trademarks and trade secret agreements are also used to protect and
maintain proprietary positions. Our proprietary information is
protected by internal and external controls, including contractual agreements
with employees, end-users and channel partners. There is no assurance that these
parties will abide by the terms of their agreements.
Trademarks
are used on some of the IceWEB products and these distinctive marks may be an
important factor in marketing the products. Inline ® and Inline logo
trademarks have been registered in the United States.
Many of
the competitors have longer operating histories, better name recognition, larger
customer bases and significantly greater financial, technical, sales and
marketing resources than we have. Competitors may also be able to devote greater
resources to the development, promotion, sale and support of their products.
Competitors may also have more extensive customer bases and broader customer
relationships than us, including relationships with potential IWEB
customers.
25
CHANGE IN
PRESENTATION
We have
changed the presentation of our results for the fiscal year ended September 30,
2009 to reflect as discontinued operations the results of operations of our
IceWEB Virginia, Inc. subsidiary in response to comments from the staff of the
SEC. This change did not result in a restatement of our 2009 financial
statements. As noted above, we sold 100% of the capital stock of our
wholly-owned subsidiary, IceWEB Virginia, Inc. to an unrelated party in March,
2009. Discontinued operations reflect the results from IceWEB Virginia,
Inc. through the date of sale.
Our
History
We were
originally formed under the laws of the State of Delaware in February 1969. For
many years, we were 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. We conducted our business throughout the United States
of America and Puerto Rico from our headquarters in New York.
In March
1999, we changed the focus of our business and closed a transaction by which we
acquired 100% of the outstanding capital stock of North Orlando Sports
Promotions, Inc., a privately held Florida corporation. From 1999 until July
2001, we operated a variety of Internet-related services; however, we were
unable to generate positive cash flow from these Internet-related
businesses.
In May
2001, we executed an Agreement and Plan of Reorganization and Stock Purchase
Agreement with Disease S.I., Inc. Under the terms of the agreement, we acquired
100% of the issued and outstanding stock of Disease S.I., Inc. in exchange for
750,000 shares of our common stock. 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. Disease S.I., Inc. was a developmental stage
biopharmaceutical clinical diagnostics company planning to employ a broad array
of technologies to detect, identify and quantify substances in blood or other
bodily fluids and tissues. It intended to derive revenues from patent
sub-licensing fees, royalties from pharmaceutical sales, appropriate milestone
payments and research and development contracts.
Following
completion of the acquisition of Disease S.I., Inc., it became apparent to us
that it would be in our best long-term interest that the Internet operations be
conducted apart from the biopharmaceutical clinical diagnostics operations. On
July 24, 2001, we sold a former officer and director 100% of our subsidiary
North Orlando Sports Promotions, Inc., in exchange for the assumption of all
liabilities related to North Orlando Sports Promotions, Inc. 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 Sports Promotions, Inc. were fixed assets, rights to
several domain names and various contractual rights and
obligations.
On
November 27, 2001, we acquired 9,050,833 shares of the common stock of
Healthspan Sciences, Inc., a privately held California corporation in exchange
for 5,000 shares of our common stock in a private transaction exempt from
registration under the Securities Act of 1933 in reliance on Section 4(2) of
that act. This agreement was rescinded on March 21, 2002. Pursuant to the
rescission, Healthspan Sciences, Inc. returned all 5,000 shares of our common
stock issued in the exchange and we returned all 9,050,833 shares of Healthspan
Sciences, Inc. which we had received.
26
On March
21, 2002, we executed an Agreement and Plan of Merger with IceWEB
Communications, Inc., a Delaware corporation and its stockholders. Founded in
2000, IceWEB Communications, Inc. enabled interactive communications and
education on the web. In June 2001, it had acquired the assets in bankruptcy of
Learning Stream, Inc., a provider of streaming services. Pursuant to the
agreement, each of the 22,720,500 shares of common stock of IceWEB
Communications, Inc. issued and outstanding immediately prior to the merger were
converted into the right to receive 0.13375 shares of our common stock, for an
aggregate of 303,888 shares of common stock. Each of the warrants to purchase an
aggregate of 680,125 shares of IceWEB Communications, Inc. common stock issued
and outstanding immediately prior to the merger were converted into the right to
receive one warrant to purchase 0.13375 shares of our common stock upon exercise
of said warrant.
In
June 2003, we acquired 100% of the capital stock of Interlan Communications,
Inc., a privately held corporation, in exchange for 25,000 shares of our common
stock. In June 2003, we also acquired 100% of the capital stock of Seven
Corporation in exchange for 37,500 shares of our common stock and cash
consideration of $123,000. As described later in this section, we sold Seven
Corporation in February 2007.
In
October 2003, we acquired 19% of the capital stock of IceWEB 5000, Inc. of
Virginia, together with substantially all of its assets including software
licenses, source code, potential patents and trademarks for a combined stock and
cash value of approximately $632,000 which included the issuance of 191,381
shares of our common stock and cash consideration of $65,500.
In
May 2004, we acquired substantially all of the assets of DevElements, Inc. of
Virginia, including software licenses, source code, potential patents and
trademarks, cash, hardware, and equipment. As consideration for the purchase of
the assets, we paid DevElements $100,000 and agreed to the assumption of
liabilities up to an aggregate of $150,000. In exchange for the 19% interest in
DevElements, we issued to the stockholders of DevElements 187,500 shares of our
common stock and options to purchase 187,500 shares of common stock exercisable
at a price of $27.20 per share and expiring May 13, 2009. We issued to the
stockholders options to purchase 6,250 shares, which were contingently
exercisable upon the satisfaction of certain performance criteria. The
performance criteria, which required contracts, task orders and other work
assignments involving billing of at least $840,000 during the six-month period
ending November 13, 2004, was not met and the options were
cancelled.
On
October 18, 2004, we entered into a non-binding letter of intent to acquire 100%
of the issued and outstanding stock of Plan Graphics, Inc. The transaction was
subject to approval by the Plan Graphics, Inc. stockholders, and certain terms
and conditions, including terms and conditions which are customary to this type
of transaction. On April 29, 2005 the letter of intent expired without a
definitive agreement having been executed or all conditions precedent to the
closing having been completed.
In March
2006 we acquired PatriotNet, Inc., an Internet service provider, for total
consideration of $290,000 of which $190,000 was paid in cash and $100,000 was
paid through the issuance of 100,000 shares of our common stock. We granted
Patriot Computer Group, Inc., the seller in the transaction, certain piggyback
registration rights for the 100,000 shares of our common stock issued as partial
consideration in the transaction. At the time of the acquisition, the purchase
price exceeded the fair value of the assets acquired by $390,600 which we
treated as goodwill for accounting purposes. From the date of acquisition
through September 30, 2007 revenues from PatriotNet were approximately $316,000
and represented approximately 6% of our consolidated revenues. On December 1,
2006 we sold PatriotNet to Leros Online, Inc., a third party, for $150,000 in
cash and the assumption of $60,000 in liabilities. At September 30, 2007 we
recorded goodwill impairment of $180,000 related to this
transaction.
On
December 1, 2006 we sold 100% of the capital stock of our wholly-owned
subsidiary, Integrated Power Solutions, Inc. to Mr. John Younts, our Vice
President of Integrated Power Solutions and a key employee, for the assumption
of approximately $180,000 in liabilities and the payment of $12,000 we owed him.
For the fiscal year ended September 30, 2006, revenues for Integrated Power
Solutions were approximately $457,000, or approximately, 9.5%, of our total
sales.
27
On
November 15, 2006, we acquired certain of the assets of True North Solutions
related to its governmental customer business for $350,000 of which $250,000 was
paid in cash and the balance was paid through the delivery of a $100,000
principal amount promissory note secured by collateral pledge of the assets,
payable immediately upon accomplishment of the novation of the GSA Schedule.
Under the terms of the agreement, we acquired the customers, forecast, contract
renewals, and GSA schedule of True North Solutions. We permitted True North
Solutions to use the purchased assets until December 31, 2006 pursuant to which
we acted as the seller’s subcontractor until the novation of the GSA Schedule
was complete. The novation of the GSA schedule was completed in March,
2008.
On
February 16, 2007 we sold 100% of the outstanding stock of our subsidiary, The
Seven Corporation of Virginia, Inc., to PC NET in exchange for the waiver of
approximately $11,000 we owed PC NET. Under the terms of the agreement we may
not engage in any staffing services businesses as The Seven Corporation had
conducted for a period of at least two years. For the fiscal year ended
September 30, 2006 revenues from The Seven Corporation were $360,000 or
approximately 7.5%, of our total sales.
On
December 22, 2007, we acquired 100% of the outstanding stock of Inline for
$2,412,731 in cash, plus 503,356 shares of IceWEB common stock valued at
$276,846, the fair market value on the date of acquisition. The acquisition was
accounted for using the purchase method of accounting. The results of operations
are included in the financial statements of operations from the date of
acquisition. Inline is a leading provider of intelligent enterprise data storage
solutions and services for the geospatial intelligence marketplace. Inline’s
proprietary products include reliable, high performance Storage Area Network
Solutions, Network Attached Storage, and Direct Attached Storage and the rapidly
expanding OEM Storage Centric Appliances. Today, Inline has developed its fifth
generation of advanced data storage solutions, marketed under the brands TruEnterprise and FileStorm. All Inline systems
function in a heterogeneous operating system environment, including Windows,
UNIX and Linux. The purchase of Inline Corporation included the acquisition of
assets of $3,904,245, and liabilities of $614,668. The aggregate purchase price
consisted of the following:
Cash
payment to seller
|
$
|
2,412,731
|
||
Fair
value of common stock issued to seller
|
276,846
|
|||
Estimated
direct transaction fees and expenses
|
600,000
|
|||
$
|
3,289,577
|
On March
30, 2009, we completed the sale of IceWEB Virginia, Inc., a wholly owned
subsidiary, to ABC Networks, Inc., a privately held U.S. company. Pursuant to
the terms of the transaction, ABC Networks, Inc. acquired 100% of the
outstanding common stock of IceWEB, Virginia, Inc.
The
aggregate sales price consisted of the following:
Common
stock issued to purchaser
|
$
|
80,000
|
||
Net
book value of disposed subsidiary
|
(2,746,236
|
)
|
||
$
|
(2,666,236
|
)
|
The
following table summarizes the estimated fair values of IceWeb Virginia’s assets
and liabilities disposed of at the date of the sale:
Intangible
assets, net
|
$
|
(53,565
|
)
|
|
IceWEB,
Inc. common stock
|
(80,000
|
)
|
||
Accounts
payable and accrued liabilities
|
2,799,801
|
|||
Estimated
gain on the sale
|
$
|
2,666,236
|
EMPLOYEES
At
January 3, 2011, we had 23 full-time employees, including our executive
officers. None of our employees are covered by collective bargaining
agreements, and we believe our relationships with our employees to be
good.
LEGAL
PROCEEDINGS
We were
named as the defendant in a legal proceeding brought by Immixtechnology, Inc.
(the plaintiff) in the Fairfax County Circuit Court, Fairfax, Virginia. The
plaintiff asserts that Iceweb failed to pay for certain computer components
purchased from plaintiff.
28
We were
named as the defendant in a legal proceeding brought by International Business
Machines Corporation-IBM Internet Security Systems Division (the plaintiff) in
the Supreme Court f the State of New York, County of Westchester. The plaintiff
asserts that the Company failed to pay certain invoices for goods or services
sold to IceWeb Virginia, Inc. by plaintiff for resale to its
customers.
We were
named as the defendant in a legal proceeding brought by Charles Rothermel (the
plaintiff) in the Equal Opportunity Commission. The plaintiff asserts that
Iceweb breached its employment agreement with him.
We were
named as the defendant in a legal proceeding brought by Charles Rothermel (the
plaintiff) in the Equal Opportunity Commission. The plaintiff asserts that
Iceweb discriminated against him on the basis of age.
We were
named as the defendant in a legal proceeding brought by FedEx Customer
Information Services, Inc. (the plaintiff) in the Circuit Court of Fairfax
County, Virginia. The plaintiff asserts that Iceweb failed to pay for delivery
of services provided by plaintiff.
We were
named as the defendant in a legal proceeding brought by FedEx Customer
Information Services, Inc. (the plaintiff) in the Circuit Court of Fairfax
County, Virginia. The plaintiff asserts that Iceweb failed to pay for delivery
of services provided by plaintiff.
We were
named as the defendant in a legal proceeding brought by Computerlinks of North
America, Inc. (the plaintiff) in the Circuit Court of Travis County, Texas. The
plaintiff asserts that Iceweb failed to pay for delivery of services provided by
plaintiff. The plaintiff received a Summary Judgment for $141,144.22 as of
November 5, 2010.
We were
named as the defendant in a legal proceeding brought by FCN, Inc. (the
plaintiff) in the Maryland Court of Special Appeals. The plaintiff asserts that
Iceweb failed to pay for delivery of services provided by plaintiff. This suit
was settled on October 22, 2010 in the amount of $65,000.
From time
to time, we may become involved in various lawsuits and legal proceedings, which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business.
PROPERTIES
We lease
approximately 9,000 square feet of office and warehouse space in Sterling,
Virginia from an unrelated third party which serves as our principal executive
offices. Under the term of the two year lease which expires on March 31, 2011 we
pay rent of approximately $75,600 per year which will increase 3% annually
during the term of the lease.
MANAGEMENT
Our
executive officers and directors, their ages and positions are as
follows:
Name
|
Age
|
Positions
|
||
John
R. Signorello
|
44
|
Chairman
and Chief Executive Officer
|
||
Mark
B. Lucky
|
52
|
Chief
Financial Officer
|
||
Harold
F. Compton (1)(2)
|
63
|
Director
|
||
Raymond
H. Pirtle (2)
|
67
|
Director
|
||
Joseph
L. Druzak (1)
|
56
|
Director
|
||
Jack
Bush(1)
|
73
|
Director
|
||
Harry
E. Soyster
|
|
73
|
|
Director
|
(1)
Member of the Compensation Committee
(2)
Member of the Audit Committee
John R. Signorello.
Mr. Signorello has served as Chairman of the Board and CEO of IceWEB, Inc. since
March 2000. From 1991 until September 1997, Mr. Signorello served as the Chief
Executive Officer of STMS -”Solutions That Make Sense” - a private technology
company which he founded that specialized in computer networks, systems
integration and information technology. In 1996, STMS was ranked the 17th fastest
growing technology company in America by The National Technology Council’s “The
Fast Five Hundred”. In September 1997, the company was acquired by Steelcloud
(Nasdaq: SCLD), and Mr. Signorello remained as Vice President of Sales and
Marketing until November 1998. Mr. Signorello is an accomplished musician, and
serves as a principal in New York City Lights Entertainment. Mr. Signorello
received a B.B.A. in Marketing from Radford University in 1989.
29
We
believe that as a result of his years of managerial and operational experience,
Mr. Signorello brings to the board of directors a demonstrated management
ability at senior levels. In addition, his experience with a variety of
technology companies brings valuable insight to his role as CEO and to our board
of directors. These experiences, qualifications and attributes have led to our
conclusion that Mr. Signorello should be serving as a member of our Board of
Directors in light of our business and structure.
Mark B. Lucky. Mark
B. Lucky has served as our Chief Financial Officer of IceWEB, Inc. since March
2007. He has over 25 years professional experience in high growth/start-up
ventures and established companies with multi-industry experience including
financial services, technology, software, real estate, biotech and entertainment
and media. Prior to joining IceWEB, he consulted at Bearing Point on their
financial restatement project. From 2004 to 2005 he was Vice President of
Finance and Administration at Galt Associates, Inc., a Sterling, Virginia
informatics/ technology and medical research services company and from 2001 to
2004 he was Vice President of Finance and Administration of MindShare Design,
Inc., a San Francisco, California-based internet technology company. While at
both Galt Associates, Inc. and MindShare Design, Inc. Mr. Lucky was the senior
financial officer for the company, providing strategic and tactical analysis and
managing day to day finance, accounting, cash management, financial reporting
and human resource responsibilities. During his career Mr. Lucky has also been
employed by Axys Pharmaceuticals, Inc., a NASDAQ-listed San Francisco,
California-based early stage drug discovery biotech company (acting CFO and
Senior Director of Finance), PriceWaterhouseCoopers, LLC, COMPASS Management and
Leasing, Inc. (Vice President - Finance 1997 to 1998), Mindscape, Inc. (Director
of Financial Planning and Analysis 1995 to 1996), The Walt Disney Company
(Manager, Operations Planning & Analysis, Manager of Corporate Planning 1991
to 1995), and KPMG. Mr. Lucky is a CPA and received his B.A., Economics, from
the University of California, Los Angeles. Since March, 2009, Mr. Lucky has been
a member of the Board of Directors and Chief Financial Officer of Hasco Medical,
Inc. (OTCBB: HASC), a low cost provider of a broad range of home healthcare
services that serve patients in Alabama, Florida, and Mississippi. Mr. Lucky
devotes approximately 3% of his time to the business of Hasco Medical, Inc. From
January, 2010 until September 2010, Mr. Lucky was a member of the Board of
Directors and Chief Financial Officer of VOIS, Inc. (OTCBB: VOIS), a cloud
computing technology company. Mr. Lucky devoted approximately 2% of his time to
the business of VOIS Inc.
Harold F. Compton.
Mr. Compton has been a member of our Board of Directors since June 2005.
Mr. Compton most recently served as President and Chief Executive Officer,
CompUSA Inc. He joined CompUSA in 1994 as Executive Vice
President—Operations, becoming Chief Operating Officer in January 1995 and
President/CompUSA Stores in July 1996. In March 2000, he became President and
Chief Executive Officer, CompUSA Inc. Prior to joining CompUSA, he served
as President and COO of Central Electric Inc. (1993 – 1994).
Previously, he served as Executive Vice President—Operations and Human
Resources, and Director of Stores for HomeBase (1989 – 1993), Senior
Vice President—Operations, and Director of Stores for Roses Discount Department
Stores (1986 – 1989), and held various management positions including
Store Manager, District Manager, Regional Vice President and Zone Vice President
for Zayre Corporation for 21 years (1965 – 1986).
Mr. Compton served on the Board of Directors of Linens 'n Things, Inc.
until its sale in February 2006. Mr. Compton was named to the Board of
Directors of Maidenform. in April 2006. In June of 2009, Mr. Compton became
the Chairman of the Board of Directors of Hasco Medical Inc, having served
as a member of its Board since January 2009. Since March 2009 he has served as a
member of the Board of Directors of VOIS Inc. (OTCBB:
VOIS). Mr. Compton was Co-Chairman and a 25.5% owner of the
Country Sampler Stores, LLC, which filed for bankruptcy under
Chapter 7 of the Federal Bankruptcy Code in 2006.
We
believe that as a result of his years of managerial and operational
experience, Mr. Compton brings to the board of directors demonstrated
management ability at senior levels. In addition, his experience as a director
of a variety of companies, and his more than 30 years of experience as a
retailer brings valuable insight to our board of directors. These
experiences, qualifications and attributes have led to our conclusion that Mr.
Compton should be serving as a member of our Board of Directors in light of our
business and structure.
30
Raymond Pirtle. Jr.
Mr. Pirtle has been a member of our Board of Directors since June 2005.
From 1966 until 1989 he was employed by J.C. Bradford & Co., a large
regional investment banking and brokerage, departing as a general partner. From
1989 until 2001 he was a Director and co-head of institutional sales of
Equitable Securities Corp., a banking and institutional brokerage firm later
known as SunTrust Equitable. In 2001 he was one of the founding partners of
Avondale Partners, LLC, an institutional equity research and investment banking
firm focusing on small companies generally with a market cap in the range of
$200 million to $2 billion, and Senior Managing Director of the firm until March
2005. In March 2005 Mr. Pirtle founded Clairidge Company, LLC, a consulting
firm that represents micro-cap to small-cap companies with a public equity
valuation under $200 million or larger companies that are seeking to attract
broad attention from institutional portfolio managers, research analysts or
investment bankers. Since 1985 Mr. Pirtle has been serving on the board of
both public and private companies. He has been a director of Tricell, Inc. since
September 2006, and a director of Premier Global Services, Inc.
(NYSE: PGI) since 1997. He was previously a member of the audit
committee of Tricell, a director and member of the audit and compensation
committees of China Wind Systems, Inc. from 2008 to 2009, a director and member
of the audit committee of eNucleus, Inc. from June to December, 2005 and a
director and Chairman of the compensation committee of Sirrom Capital
Corporation, from 1994 to 1998 which was acquired by Finova Group.
Mr. Pirtle
is a veteran of the financial services industry, having spent the past three
decades in a variety of senior roles in corporate finance, institutional sales,
investment banking, and equity research. These experiences, qualifications and
attributes have led to our conclusion that Mr. Pirtle should be serving as a
member of our Board of Directors in light of our business and
structure.
Joseph L. Druzak.
Mr. Druzak has been a member of our Board of Directors since June 2005.
After first joining the company more than 20 years ago, since 1985
Mr. Druzak has served President and CEO of Kreher Steel Company, LLC., a
large, privately-held specialty steel distribution company serving such diverse
markets as automotive, rail, construction, oil and gas, aerospace and
defense.
With his
years of managerial and operational experience, Mr. Druzak brings to the
board of directors demonstrated management ability at senior levels and his
insight and direction will assist the company in achieving its objectives. We
believe that these experiences, qualifications and attributes have led to our
conclusion that Mr. Druzak should be serving as a member of our Board of
Directors in light of our business and structure.
Jack E. Bush.
Mr. Bush has been a member of our Board of Directors since August 2005.
Mr. Bush has served as the President of Raintree Partners, Inc., a
management consulting company, since September 1995. He is also currently
Chairman and Director of IdeaForest.com (Joann.com), and Vice Chairman and
Director of FPE Corporation (Framed Picture Enterprises). From 1995 to 1999 he
served as Chairman of Aaron Brothers Holding Company and of Carolina Art &
Frame Co. He was a founder, Chief Concept Officer and Director of Artistree Art,
Frame & Design Company. During this time he was also a Director of
Cyberplay, New York Coffee & Bagels, Bradlees Stores, Stage Stores, Telequip
and Jumbo Sports Company. He served on the board of Bradlees during a successful
reorganization and served as special assistant to the board of Stage Stores
during a successful reorganization. From 1997 to 1999 he served as Chairman, CEO
and President of Jumbo Sports Co. From 1991 to August 1995, he was President and
Director of Michaels Stores, Inc. and was Chairman of Michaels of Canada. The
company grew from 136 to 530 stores and became the largest arts and crafts
retailer in the world. Upon leaving the NASDAQ-listed company, sales reached
$1.5 billion and had 22,000 associates. From 1990 to 1991 he served as Executive
Vice President, Director of Operations and Stores for Ames Department Stores.
From 1985 to 1990 Mr. Bush was President and Director of Roses stores, a
NASDAQ-listed company. During his tenure the company grew to 226 stores with
$1.6 billion in sales and 25,000 associates. From 1980 to 1985 He served as Vice
President of Zayre Corporation, an NYSE-listed company responsible for 105
stores and $750 million in sales. From 1958 to 1980 he served in a variety of
positions with J.C. Penney Company, an NYSE-listed company. Mr. Bush was a
U.S. Air Force Reserve officer and holds a Bachelor of Science from the
University of Missouri.
We
believe that Mr. Bush’s extensive senior management, operational, and board
experience bring valuable knowledge to our board of directors and that these
experiences, qualifications and attributes have led to our conclusion that Mr.
Bush should be serving as a member of our Board of Directors in light of our
business and structure.
Harry E.
Soyster. General Soyster has been a member of our Board of
Directors since March 2008. General Soyster served as Director,
Defense Intelligence Agency during Desert Shield/Storm. He also
served as Deputy Assistant Chief of Staff for Intelligence, Department of the
Army; Commanding General, U.S. Army Intelligence and Security Command; and in
the Joint Reconnaissance Center, Joint Chiefs of Staff. In Vietnam,
he was a field artillery battalion operations officer, and was twice decorated
for valor and wounded in action. Upon retirement, General Soyster was
Vice President for International Operations with Military Professional Resources
Incorporated where he helped pioneer the concept of providing retired military
expertise to support emerging democracies in Eastern Europe and
Africa. In 2006, he served as Special Assistant to the SEC Army for
World War II 60th
Anniversary Commemorations. Currently, he serves as consultant to
numerous corporations and participates in studies by the Center for Strategic
and International Studies and the National Institute for Public
Policy. In 1957, General Soyster graduated from the United States
Military Academy with a Bachelor of Science degree in Engineering. He also holds
a Master’s of Science degree in Chemistry from Pennsylvania State University in
Chemistry and a Master’s of Science degree in Management from the University of
Southern California. His military education includes completion of the Field
Artillery School, Basic and Advanced Courses; the U.S. Army Command and General
Staff College; and the National War College. General Soyster has an
active TS/SCI (Top Secret/Sensitive Compartmented Information)
clearance.
31
General
Soyster provides our board with extensive knowledge, experience, and
relationships with agencies in the federal government. He has
significant organizational, operational, and managerial experience and we
believe he brings valuable insight to growing our company and assist us in
meeting our business objectives. We believe that these experiences,
qualifications and attributes have led to our conclusion that General Soyster
should be serving as a member of our Board of Directors in light of our business
and structure.
There are
no family relationship between any of the executive officers and directors.
Directors are elected at our annual meeting of stockholders and hold office
until the next annual meeting of stockholders or until his or her resignation,
removal, or death. In addition to their individual skills and backgrounds which
are focused on our industry as well as financial and managerial experience, we
believe that the collectively skills and experience of our Board members are
well suited to guide us as we continue to grow our company.
Committees
of the Board of Directors
Our Board
of Directors has created both an Audit Committee and a Compensation Committee.
We do not have a Nominating Committee or any committee performing a similar
function. The functions that such a committee would undertake are being
undertaken by the entire board as a whole. We do not have a policy regarding the
consideration of any director candidates which may be recommended by our
stockholders, including the minimum qualifications for director candidates, nor
has our Board of Directors established a process for identifying and evaluating
director nominees. We have not adopted a policy regarding the handling of any
potential recommendation of director candidates by our stockholders, including
the procedures to be followed. Our Board has not considered or adopted any of
these policies as we have never received a recommendation from any stockholder
for any candidate to serve on our Board of Directors or any inquiry as to what
the procedures may be if a stockholder wished to make such a
recommendation. Since 2008 the Board has been developing a nominating
and approval process and policy to guide the handling of potential
recommendations of board candidates. While there have been no nominations of
additional directors proposed, in the event such a proposal is made, all members
of our Board will participate in the consideration of director
nominees.
Audit Committee. The Audit
Committee of our Board of Directors was formed to assist the Board of Directors
in fulfilling its oversight responsibilities for the integrity of our
consolidated financial statements, compliance with legal and regulatory
requirements, the independent registered public accounting firm’s qualifications
and independence, and the performance of our internal audit function and
independent auditors. The Audit Committee will also prepare the report that SEC
rules require be included in our annual proxy statement. The Audit Committee has
adopted a charter which sets forth the parameters of its authority The Audit
Committee Charter provides that the Audit Committee is empowered
to:
•
|
Appoint, compensate, and oversee
the work of the independent registered public accounting firm employed by
our company to conduct the annual audit. This firm will report directly to
the audit committee;
|
•
|
Resolve any disagreements between
management and the auditor regarding financial
reporting;
|
•
|
Pre-approve all auditing and
permitted non-audit services performed by our external audit
firm;
|
•
|
Retain independent counsel,
accountants, or others to advise the committee or assist in the conduct of
an investigation;
|
•
|
Seek any information it requires
from employees - all of whom are directed to cooperate with the
committee’s requests - or external
parties;
|
•
|
Meet with our officers, external
auditors, or outside counsel, as necessary;
and
|
•
|
The committee may delegate
authority to subcommittees, including the authority to pre-approve all
auditing and permitted non-audit services, provided that such decisions
are presented to the full committee at its next scheduled
meeting.
|
32
Each
Audit Committee member is required to:
•
|
satisfy the independence
requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934,
and all rules and regulations promulgated by the SEC as well as the rules
imposed by the stock exchange or other marketplace on which our securities
may be listed from time to time,
and
|
•
|
meet the definitions of
“non-employee director” for purposes of SEC Rule 16b-3 and “outside
director” for purposes of Section 162(m) of the Internal Revenue
Code.
|
Each
committee member is required to be financially literate and at least one member
is to be designated as the “financial expert,” as defined by applicable
legislation and regulation. No committee member is permitted to simultaneously
serve on the audit committees of more than two other public companies.
Mr. Pirtle is considered an “audit committee financial expert” under the
definition under Item 407 of Regulation S-K. As we expand our Board of Directors
with additional independent directors the number of directors serving on the
Audit Committee will also increase.
A copy of the Audit
Committee Charter is available on our website at www.iceweb.com under the
“Investor Relations” tab.
Compensation Committee. The
Compensation Committee was appointed by the Board to discharge the Board’s
responsibilities relating to:
•
|
compensation of our
executives,
|
•
|
equity-based compensation plans,
including, without limitation, stock option and restricted stock plans, in
which officers or employees may participate,
and
|
•
|
arrangements with executive
officers relating to their employment relationships with our company,
including employment agreements, severance agreements, supplemental
pension or savings arrangements, change in control agreements and
restrictive covenants.
|
The
Compensation Committee has adopted a charter. The Compensation Committee charter
provides that the Compensation Committee has overall responsibility for
approving and evaluating executive officer compensation plans, policies and
programs of our company, as well as all equity-based compensation plans and
policies. In addition, the Compensation Committee oversees, reviews and approves
all of our ERISA and other employee benefit plans which we may establish from
time to time. The Compensation Committee is also responsible for producing an
annual report on executive compensation for inclusion in our proxy statement and
assisting in the preparation of certain information to be included in other
periodic reports filed with the SEC.
Each
Compensation Committee member is required to:
•
|
satisfy the independence
requirements of Section 10A(m)(3) of the Securities Exchange Act of 1934,
and all rules and regulations promulgated by the SEC as well as the rules
imposed by the stock exchange or other marketplace on which our securities
may be listed from time to time,
and
|
•
|
meet the definitions of
“non-employee director” for purposes of SEC Rule 16b-3 and “outside
director” for purposes of Section 162(m) of the Internal Revenue
Code.
|
Pursuant
to our Compensation Committee Charter, the Compensation Committee is charged
with evaluating and recommending for approval by the Board of Directors the
compensation of our executive officers. In addition, the Compensation Committee
also evaluates and makes recommendations to the entire Board of Directors
regarding grants of options which may be made as director compensation. The
Compensation Committee does not delegate these authorities to any other persons
nor does it use the services of any compensation consultants.
Messrs. Compton,
Druzak and Bush are the members of our Compensation Committee. As we expand our
Board of Directors with additional independent directors the number of directors
serving on the Compensation Committee will also increase. A copy of the
Compensation Committee Charter is available on our website at www.iceweb.com
under the “Investor Relations” tab.
Code of
Ethics
In May
2005, we adopted a Code of Business Conduct and Ethics applicable to our Chief
Executive Officer, principal financial and accounting officers and persons
performing similar functions. A Code of Business Conduct and Ethics is a written
standard designed to deter wrongdoing and to promote:
•
|
honest
and ethical conduct,
|
•
|
full,
fair, accurate, timely and understandable disclosure in regulatory filings
and public statements,
|
33
•
|
compliance
with applicable laws, rules and
regulations,
|
•
|
the
prompt reporting violation of the code,
and
|
•
|
accountability
for adherence to the Code.
|
A copy of our Code of
Business Conduct and Ethics is filed as an exhibit to this annual report. We
will provide a copy, without charge, to any person desiring a copy of the Code
of Business Conduct and Ethics, by written request to us at our principal
offices to the attention of Corporate Secretary.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table summarizes all compensation recorded by us in each of the last
two completed fiscal years for our principal executive officer, each other
executive officer serving as such whose annual compensation exceeded $100,000
and up to two additional individuals for whom disclosure would have been made in
this table but for the fact that the individual was not serving as an executive
officer of our company at September 30, 2010. The value attributable to any
option awards is computed in accordance with accordance with ASC Topic 718,
“Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments. The assumptions made in the valuations of the option
awards are included in Note 12 of the Notes to our Financial Statements for
fiscal 2010 appearing later in this report.
SUMMARY COMPENSATION
TABLE
Name and
principal position
(a)
|
Year
(b)
|
Salary
($)
(c)
|
Bonus
($)
(d)
|
Stock
Awards
($)
(e)
|
Option
Awards
($)
(f)
|
Non-Equity
Incentive Plan
Compensation
($)
(g)
|
Nonqualified
Deferred
Compensation
Earnings
($)
(h)
|
All
Other
Compensation
($)
(i)
|
Total
($)
(j)
|
|||||||||||||||||||||||||
John Signorello
(1)
|
2010
|
239,559 | — | 430,000 | — | — | — | 8,914 | 678,476 | |||||||||||||||||||||||||
2009
|
145,230 | — | 392,789 | — | — | — | 8,174 | 556,342 | ||||||||||||||||||||||||||
Mark
B. Lucky (2)
|
2010
|
201,424 | — | 197,800 | — | — | — | 8,923 | 408,147 |
(1) Mr. Signorello
is our Chief Executive Officer. All other compensation in fiscal 2010 includes
$8,914 which represents the value of health insurance premiums we pay for Mr.
Signorello. In fiscal 2010, we granted him 5,000,000 shares of our
restricted common stock, valued at $430,000. All other compensation
in fiscal 2009 includes $8,174 which represents the value of health insurance
premiums we pay for Mr. Signorello. In fiscal 2009, we granted him
8,147,222 shares of our restricted common stock, valued at
$392,789. The compensation for Mr. Signorello in fiscal 2009 included
$26,500 in salary that had been accrued and not yet paid. The
compensation table above excludes the compensation provided to Mr. Signorello as
a member of the Board of Directors.
(2) Mr. Lucky
is our Chief Financial Officer. All other compensation in fiscal 2010 and 2009
represents the value of health insurance premiums we pay for Mr. Lucky. In
fiscal 2010, we granted him 2,300,000 shares of our restricted common stock,
valued at $197,800. In fiscal 2009, we granted him 3,100,606 shares
of our restricted common stock, valued at $176,148. The compensation
for Mr. Lucky in fiscal 2009 included $40,000 in salary that had been
accrued and not yet paid.
34
How Mr.
Signorello’s compensation is determined
Mr. Signorello,
who has served as our CEO since March 2000, is not a party to an employment
agreement with our company. His compensation is determined by the Compensation
Committee of our Board of Directors. The Compensation Committee considered a
number of factors in determining Mr. Signorello’s compensation including
the scope of his duties and responsibilities to our company and the time he
devotes to our business. The Compensation Committee did not consult with any
experts or other third parties in fixing the amount of Mr. Signorello’s
compensation. During fiscal 2010 Mr. Signorello’s compensation package
included a base salary of $250,000 and company provided health care
benefits. Mr. Signorello’s compensation excludes option grants he
received as a member of the Board of Directors.
How Mr.
Lucky’s compensation is determined
Mr. Lucky,
who has served as our CFO since March 2007, is not a party to an employment
agreement with our company. His compensation is determined by the Compensation
Committee of our Board of Directors. The Compensation Committee considered a
number of factors in determining Mr. Lucky’s compensation including the
scope of his duties and responsibilities to our company and the time he devotes
to our business. The Compensation Committee did not consult with any experts or
other third parties in fixing the amount of Mr. Lucky’s compensation.
During fiscal 2010 Mr. Lucky’s compensation package included a base salary
of $200,000 and company provided health care benefits. Mr. Lucky did not receive
any stock option grants during this fiscal year. The amount of
compensation payable to Mr. Lucky can be increased at any time upon the
determination of the Compensation Committee of our Board of
Directors.
Director
Compensation
We have
not established standard compensation arrangements for our directors and the
compensation payable to each individual for their service on our Board is
determined from time to time by our Board of Directors based upon the amount of
time expended by each of the directors on our behalf. The following table
provides information concerning the compensation of our directors for their
services as members of our Board of Directors for the fiscal year ended
September 30, 2010.
Name
|
Fees
Earned
or Paid
in Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||
Harold
Compton
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Jack
Bush
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
John
R. Signorello
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Raymond
Pirtle
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Harry
E. Soyster
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||||||||||
Joseph
Druzak
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information concerning unexercised options, stock that
has not vested and equity incentive plan awards for each named executive officer
outstanding as of September 30, 2010:
35
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END
OPTION AWARDS
|
STOCK AWARDS
|
|||||||||||||||||||||||||||||
Name
(a)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
|
Option
Exercise
Price
($)
(e)
|
Option
Expiration
Date
(f)
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
(g)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
(h)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(i)
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
(j)
|
|||||||||||||||||||||
John
R. Signorello
|
100,000 | — | $ | 0.70 |
04/29/2012
|
|||||||||||||||||||||||||
500,000 | — | $ | 0.58 |
05/06/2015
|
||||||||||||||||||||||||||
250,000 | — | $ | 0.60 |
09/06/2012
|
||||||||||||||||||||||||||
250,000 | — | $ | 0.10 |
03/09/2014
|
||||||||||||||||||||||||||
50,000 | — | $ | 0.47 |
09/06/2011
|
||||||||||||||||||||||||||
Mark
Lucky
|
100,000 | — | $ | 0.58 |
05/06/2012
|
|||||||||||||||||||||||||
150,000 | — | $ | 0.55 |
06/14/2012
|
||||||||||||||||||||||||||
150,000 | — | $ | 0.60 |
09/06/2012
|
||||||||||||||||||||||||||
29,167 | 20,833 | $ | 0.001 |
03/18/2013
|
STOCK
OPTION PLAN
In August
2000, our Board of Directors adopted our 2000 Management and Director Equity
Incentive and Compensation Plan (the “Plan”). The Plan was approved by our
stockholders in August 2001. As amended in May 2006, June, 2007, February, 2009,
and October, 2009, we have reserved an aggregate of 60,000,000 shares of common
stock for issuance under the Plan. At December 31, 2010 we have outstanding
options to purchase 8,144,404 shares of our common stock under the Plan. Our
Board of Directors (or at their discretion a committee of our Board members)
administers the Plan including, without limitation, the selection of recipients
of awards under the Plan, the granting of stock options, restricted shares or
performance shares, the determination of the terms and conditions of any such
awards, the interpretation of the Plan and any other action they deem
appropriate in connection with the administration of the Plan.
The
purpose of the Plan is to advance our interests and those of our stockholders by
providing a means of attracting and retaining key employees, directors and
consultants. In order to serve this purpose, we believe the Plan encourages and
enables key employees, directors and consultants to participate in our future
prosperity and growth by providing them with incentives and compensation based
on our performance, development and financial success. Participants in the Plan
may include our officers, directors, other key employees and consultants who
have responsibilities affecting our management, development or financial
success.
Awards
may be made under the Plan in the form of Plan options, shares of our common
stock subject to a vesting schedule based upon certain performance objectives
(“performance shares”) and shares subject to a vesting schedule based on the
recipient’s continued employment (“restricted shares”). Plan options may either
be options qualifying as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended or options that do not so qualify. Any
incentive stock option granted under our Plan must provide for an exercise price
of not less than 100% of the fair market value of the underlying shares on the
date of such grant, but the exercise price of any incentive option granted to an
eligible employee owning more than 10% of our common stock must be at least 110%
of such fair market value as determined on the date of the grant. Only persons
who are our officers or other key employees are eligible to receive incentive
stock options and performance share grants. Any non-qualified stock option
granted under our Plan must provide for an exercise price of not less than 50%
of the fair market value of the underlying shares on the date of such
grant.
36
The term
of each Plan option and the manner in which it may be exercised is determined by
the Board of Directors, provided that no Plan option may be exercisable more
than three years after the date of its grant and, in the case of an incentive
option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant. The exercise price of the
stock options may be paid in either:
•
|
cash,
or
|
•
|
delivery
of unrestricted shares of our common stock having a fair market value on
the date of delivery equal to the exercise price,
or
|
•
|
surrender
of shares of our common stock subject to the stock option which has a fair
market value equal to the total exercise price at the time of exercise,
or
|
•
|
a
combination of the foregoing
methods.
|
All Plan
options are nonassignable and nontransferable, except by will or by the laws of
descent and distribution and, during the lifetime of the optionee, may be
exercised only by such optionee. At the discretion of the Board of Directors, it
may approve the irrevocable transfer, without payment, of non-qualified options
to the option holder’s spouse, children, grandchildren, nieces or nephews, or to
the trustee of a trust for the principal benefit of one or more such persons, or
to a partnership whose partners are one or more of such persons. If an
optionee’s employment is terminated for any reason, other than due to his or her
death, disability or termination for cause, or if an optionee is not our
employee but is a member of our Board of Directors and his or her service as a
director is terminated for any reason, other than due to his or her death or
disability, the Plan option granted may be exercised on the earlier of the
expiration date or 90 days following the date of termination. If the optionee
dies during the term of his or her employment, the Plan option granted to him or
her shall lapse to the extent unexercised on the earlier of the expiration date
of the Plan option or the date one year following the date of the optionee’s
death. If the optionee’s employment, membership on the Board of Directors or
engagement as a consultant terminates by reason of the optionee’s retirement,
then the Plan option granted may be exercised until the earlier of 90 days
following the date of termination or the expiration date. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Internal Revenue Code, the Plan option granted to him or her lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
At the
time of the restricted share grant, the Board of Directors may determine the
vesting schedule of such shares and that after vesting, such shares may be
further restricted as to transferability or be subject to repurchase by us or
forfeiture upon the occurrence of certain events. Awards of restricted shares
must be accepted by the participant within 30 days of the grant.
At the
time of the award of performance shares, the Board of Directors shall establish
a range of performance goals to be achieved during the performance period,
including, without limitation, earnings, return on capital, or any performance
goal approved by our stockholders in accordance with Section 162(m) of the
Internal Revenue Code. Attainment of the highest performance goal for the
performance period will earn 100% of the performance shares awarded for the
performance period; failure to attain the lowest performance goal will result in
the participant earning no performance shares. Attainment of the performance
goals will be calculated from our financial statements, excluding changes in
federal income tax rates and the effect of non-recurring and extraordinary
items. The performance goals may vary for different performance periods and need
not be the same for each participant receiving an award during a performance
period.
If the
participant’s employment by us, membership on our Board of Directors, or
engagement by us as a consultant is terminated before the end of any performance
period, or upon the participant’s death, retirement or disability, the Board of
Directors, taking into consideration the performance of such participant and our
performance over the performance period, may authorize the issuance to the
participant or his or her legal representative or designated beneficiary all or
a portion of the performance shares which would have been issued to him or her
had the participant’s employment, Board membership or consulting engagement
continued to the end of the performance period. If the participant’s employment,
Board membership or consulting engagement terminates before the end of the
performance period for any other reason, all performance shares are
forfeited.
37
Notwithstanding
the foregoing, but subject to any stockholder approval or other requirements of
Section 162(m) of the Internal Revenue Code, the Board of Directors in its
discretion and as determined at the time of award of the performance shares, may
provide the participant with the option of receiving cash in lieu of the
performance shares in an amount determined at the time of award including,
without limitation, by one or more of the following methods:
•
|
the
fair market value of the number of shares subject to the performance
shares agreement on the date of award,
or
|
•
|
part
or all of any increase in the fair market value since such date,
or
|
•
|
part
or all of any dividends paid or payable on the number of shares subject to
the performance share agreement, or
|
•
|
any
other amounts which in the Board’s sole discretion are reasonably related
to the achievement of the applicable performance goals,
or
|
•
|
any
combination of the foregoing.
|
The
purchase price for restricted shares or performance shares granted under the
Plan shall be set by the Board of Directors but may not be less than par value.
Payment of the purchase price for the restricted shares or performance share may
be made in either,
•
|
cash,
or
|
•
|
by
delivery of unrestricted shares of our common stock having a
fair
|
•
|
market
value on the date of such delivery equal to the
total
|
•
|
purchase
price, or
|
•
|
a
combination of either of these
methods.
|
The
restricted stock awards, performance stock awards and stock options are subject
to accelerated vesting in the event of our change of control. We may, at our
option, terminate all unexercised stock options 30 days after a change in
control and pay to the participant holding these unexercised options cash in an
amount equal to the difference between fair market value and the exercise price
of the stock option. If the fair market value is less than the exercise price,
we may terminate the options without payment to the holder. The per share
purchase price of shares subject to Plan options granted under the Plan or
related to performance share awards or restricted share awards may be adjusted
in the event of certain changes in our capitalization, but any such adjustment
shall not change the total purchase price payable upon the exercise in full of
such option or award. No participant in our Plan has any rights as a stockholder
until the shares subject to the Plan options or stock awards have been duly
issued and delivered to him or her.
We have
an option to purchase any shares of our common stock which have been issued to
Plan participants pursuant to restricted stock awards, performance stock awards
or stock options if the participant ceases to be our employee, a member of our
Board of Directors or a consultant to us for any reason. We must exercise our
repurchase right at the time of termination. The purchase price for any shares
we repurchase will be equal to the fair market value of the our total
stockholders’ equity divided by the total outstanding shares of our common stock
on the last day of that calendar month, calculated on a fully-diluted basis. If
we exercise our repurchase right, we much close the transaction within 20 days
from the termination date. At closing, we are entitled to delivery of a one-year
promissory note as payment for the purchase price or, at our option, we may pay
same in cash at closing.
We also
have a right of first refusal to meet the offer if the holder of any shares of
our common stock awarded or issued pursuant to our Plan desires to sell such
shares to a third party.
The Board
of Directors may amend, suspend or terminate our Plan at any time, except that
no amendment shall be made which:
•
|
affects
outstanding Plan options or any exercise right thereunder,
or
|
•
|
extends
the term of any Plan option beyond 10 years,
or
|
•
|
extends
the termination date of the
Plan.
|
38
Unless
the Plan shall be earlier suspended or terminated, the Plan shall terminate 10
years from the date of the Plan’s adoption by our stockholders. Any such
termination of our Plan shall not affect the validity of any Plan options
previously granted there under.
LIMITATION
ON LIABILITY
Under
our certificate of incorporation, our directors are not liable for monetary
damages for breach of fiduciary duty, except in connection with:
o
|
breach of the director's duty of
loyalty to us or our
stockholders;
|
o
|
acts or omissions not in good
faith or which involve intentional misconduct, fraud or a knowing
violation of law;
|
o
|
a transaction from which our
director received an improper benefit;
or
|
o
|
an act or omission for which the
liability of a director is expressly provided under Delaware
law.
|
In
addition, our bylaws provides that we must indemnify our officers and directors
to the fullest extent permitted by Delaware law for all expenses incurred in the
settlement of any actions against such persons in connection with their having
served as officers or directors.
Insofar as the
limitation of, or indemnification for, liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, or persons controlling us
pursuant to the foregoing, or otherwise, we have been advised that, in the
opinion of the Securities and Exchange Commission, such limitation or
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
From time
to time we have borrowed operating funds from our Mr. John Signorello, our
Chief Executive Officer, for working capital. The advances were
payable upon demand and were interest free. During fiscal 2007 Mr.
Signorello advanced $28,319 to us, and we repaid $36,422. The highest amount
that we owed Mr. Signorello during fiscal 2007 was $15,000. During
fiscal 2008 Mr. Signorello advanced $20,782 to us, and we repaid $20,782. The
highest amount that we owed Mr. Signorello during fiscal 2008 was
$20,000. During fiscal 2009 Mr. Signorello advanced $66,300 to us,
and we repaid $66,300. The highest amount that we owed Mr. Signorello during
fiscal 2009 was $25,000.At each of the last three fiscal year ends, 2007, 2008,
and 2009, the amount owed to Mr. Signorello was $0. As of December
31, 2010, the amount owed to Mr. Signorello was $0.
On August
28, 2007 we sold 350,000 shares of common stock at a per share price of $0.50,
valued at $175,000 to Harold Compton, a member of our Board of
Directors. The fair market value of our common stock on the date of
the transaction was $0.67 per share. The shares were issued at a
discount to the fair market value of our common stock of approximately 25% due
to their restricted status, because we needed the cash, our access to capital
was limited, and it was the price negotiated and agreed to by the
buyer.
On June
8, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to Jack Bush, a member of our Board of Directors. The fair
market value of our common stock on the date of the transaction was $0.07 per
share. The shares were issued at a discount to the fair market value
of our common stock of approximately 43% due to their restricted status, because
we needed the cash, our access to capital was limited, and it was the price
negotiated and agreed to by the buyer.
On August
10, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to Joseph Druzak, a member of our Board of Directors. The fair
market value of our common stock on the date of the transaction was $0.10 per
share. The shares were issued at a discount to the fair market value
of our common stock of approximately 60% due to their restricted status, because
we needed the cash, our access to capital was limited, and it was the price
negotiated and agreed to by the buyer.
During
March, 2009, we sold 2,000,000 shares of common stock at a per share price of
$0.042, valued at $83,000 to Florence Signorello, an accredited investor who is
the mother of John Signorello, our chief executive officer. The fair market
value of our common stock on the date of the transaction was $0.145 per share.
As of June 30, 2010 we had not received the proceeds from the investor and as a
result we recorded the subscription receivable as a contra equity account on our
balance sheet.
39
During
November, 2009, we sold 1,000,000 shares of common stock, valued at $130,000 to
Hal Compton, a member of our Board of Director for $40,000, and recognized stock
based compensation expense of $90,000. The shares were issued at a
discount to the fair market value of our common stock of approximately 69% due
to their restricted status, because we needed the cash, our access to capital
was limited, and it was the price negotiated and agreed to by the
buyer.
We and
certain of our affiliates have entered into a series of transactions involving
VOIS Inc. (OTCBB: VOIS), a public company which had developed and launched a
social commerce website. On November 3, 2009 we purchased 160,000,000
shares of the common stock of VOIS Inc., which represented approximately 16% of
that company, for $48,000 in a private transaction exempt from registration
under the Securities Act of 1933 in reliance on an exemption provided by Section
4(2) of that act resulting in gross proceeds to us of $48,000. At the time of
our investment, Mr. Mark Lucky, our Chief Financial Officer, was a member of
VOIS’ board of directors, having been elected in October 2009. In
exchange for this strategic interest, VOIS received non-exclusive access to
distribute IceMAIL, IcePORTAL and IceSECURE to their existing and prospective
new user base, and our cloud storage network. Mr. Lucky resigned his
positions with VOIS in September 2010. As of the date hereof, VOIS
has not integrated this access within its business and we have had no subsequent
business relationship with it, other than as set forth herein.
Prior to
our investment in VOIS, both Messrs. John R. Signorello and Robert Druzak had
personal relationships with the founders of VOIS. In an unrelated
transaction in November 2009 Mr. Signorello, a member of our board of directors
and our CEO, purchased 225,000,000 shares of VOIS’ common stock from a former
officer and director of VOIS for nominal consideration in a private
transaction. The shares of common stock purchased by Mr. Signorello
represented approximately 27% of VOIS’ outstanding common stock purchase of the
shares by us. Thereafter, in an unrelated transaction in January 2010
Mr. Druzak purchased 225,000,000 shares of VOIS’ common stock from a former
officer and director of VOIS for nominal consideration in a private
transaction. The shares of common stock purchased by Mr. Druzak
represented approximately 22% of VOIS’ outstanding common
stock. Immediately following the closing of this transaction Mr.
Druzak was appointed to VOIS’ board of directors and named President and Chief
Executive Officer of VOIS. Mr. Druzak, the brother of Joseph Druzak,
a member of our board, was formerly a vice president of our company from March
2005 to January, 2010, but was not considered an executive officer of our
company. Mr. Robert Druzak resigned his positions with VOIS in March
2010.
While,
five out of the 6 board members qualify as unrelated and independent, as
they are independent from management and free from any interest, function,
business or other relationship that could, or could reasonably be perceived to,
materially, interfere with the Director’s ability to act in the our best
interest, we do not have any policies or procedures for the review, approval or
ratification of any related party transactions and no review or ratification of
any of the foregoing related party truncations by our board has
occurred.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
At
December 31, 2010, there were 138,675,867 shares of our common stock issued and
outstanding. Our common stock is the only outstanding class of our voting
securities. The following table sets forth, as of December 31, 2010, information
known to us relating to the beneficial ownership of these shares
by:
•
|
each
person who is the beneficial owner of more than 5% of the outstanding
shares of common stock;
|
•
|
each
director;
|
•
|
each
named executive officer; and
|
•
|
all
named executive officers and directors as a
group.
|
Unless
otherwise indicated, the address of each beneficial owner in the table set forth
below is care of 22900 Shaw Road, Suite 111, Sterling, Virginia
20166.
We
believe that all persons named in the table have sole voting and investment
power with respect to all shares of beneficially owned by them. Under securities
laws, a person is considered to be the beneficial owner of securities he owns
and that can be acquired by him within 60 days from December 31, 2010 upon the
exercise of options, warrants, convertible securities or other understandings.
We determine a beneficial owner’s percentage ownership by assuming that options,
warrants or convertible securities that are held by him, but not those held by
any other person and which are exercisable within 60 days of December 31, 2010,
have been exercised or converted. Unless otherwise noted, the address of each of
these principal stockholders is our principal executive
offices.
40
Name of Beneficial Owner
|
Amount and
Nature of
Beneficial
Ownership
|
Percentage
of Class
|
||||||
John
R. Signorello (1)
|
16,384,785 | 11.88 | % | |||||
Hal
Compton (2)
|
2,231,833 | 1.62 | % | |||||
Raymond
H. Pirtle (3)
|
428,167 | 0.31 | % | |||||
Joseph
L. Druzak (4)
|
1,645,293 | 1.20 | % | |||||
Mark
B. Lucky (5)
|
5,729,167 | 4.18 | % | |||||
Ed
Soyster (6)
|
57,750 | 0.04 | % | |||||
Jack
Bush (7)
|
1,678,167 | 1.22 | % | |||||
All
executive officers and as a group (seven persons)
|
24,816,918 | 20.46 | % |
(1) The
number of shares beneficially owned by Mr. Signorello includes options to
purchase 50,000 shares of our common stock at an exercise price of $0.47 per
share, options to purchase 100,000 shares of our common stock at an exercise
price of $0.70 per share, options to purchase 500,000 shares of our common stock
at an exercise price of $0.58 per share, options to purchase 250,000 shares of
our common stock at an exercise price of $0.60 per share, and options to
purchase 250,000 shares of our common stock at an exercise price of $0.10 per
share. The number of shares beneficially owned by Mr. Signorello
excludes 626,667 shares of our common stock issuable upon the conversion of
626,667 shares of Series B Convertible Preferred Stock. Under the
designations, rights and preferences of such security, the Series B Convertible
Preferred Stock is not convertible by the holder if such conversion would result
in the holder becoming the beneficial owner of in excess of 4.99% of our common
stock. This provision may be waived or amended only with the consent
of the holders of all of the Series B Convertible Preferred Stock and the
consent of the holders of a majority of our outstanding shares of common stock w
ho are not our affiliates.
(2) The
number of shares beneficially owned by Mr. Compton includes options to
purchase 50,000 shares of our common stock at an exercise price of $0.47 per
share, options to purchase 100,000 shares of our common stock at an exercise
price of $0.70, options to purchase 150,000 shares of our common stock at an
exercise price of $0.60 per share, options to purchase 206,833 shares of our
common stock at an exercise price of $0.001 per share, and options to purchase
250,000 shares of our common stock at an exercise price of $0.10 per
share.
(3) The
number of shares beneficially owned by Mr. Pirtle includes options to
purchase 50,000 shares of our common stock at an exercise price of $0.47 per
share, options to purchase 100,000 shares of our common stock at an exercise
price of $0.70 per share, options to purchase 150,000 shares of our common stock
at an exercise price of $0.60 per share, and options to purchase 128,167 shares
of our common stock at an exercise price of $0.001 per share.
(4) The
number of shares beneficially owned by Mr. Druzak includes options to
purchase 50,000 shares of our common stock at an exercise price of $0.47 per
share, options to purchase 100,000 shares of our common stock at an exercise
price of $0.70 per share, options to purchase 150,000 shares of our common stock
at an exercise price of $0.60 per share, and options to purchase 42,167 shares
of our common stock at an exercise price of $0.001 per share.
(5) The
number of shares beneficially owned by Mr. Lucky includes options to
purchase 100,000 shares of our common stock at an exercise price of $0.58 per
share, options to purchase 150,000 shares of our common stock at an exercise
price of $0.55 per share, options to purchase 150,000 shares of our common stock
at an exercise price of $0.60 per share, and options to purchase 29,167 shares
of our common stock at an exercise price of $0.001 per share.
(6) The
number of shares beneficially owned by Mr. Soyster includes options to
purchase 24,750 shares of our common stock at an exercise price of $0.37 per
share, and options to purchase 33,000 shares of our common stock at an exercise
price of $0.001 per share.
(7) The
number of shares beneficially owned by Mr. Bush
includes options to purchase 50,000 shares of our common stock at an exercise
price of $0.47 per share, options to purchase 100,000 shares of our common stock
at an exercise price of $0.70 per share, options to purchase 150,000 shares of
our common stock at an exercise price of $0.60 per share, options to purchase
128,167 shares of our common stock at an exercise price of $0.001 per share, and
options to purchase 250,000 shares of our common stock at an exercise price of
$0.10 per share.
41
Securities
Authorized For Issuance Under Equity Compensation Plans
The
following table sets forth securities authorized for issuance under equity
compensation plans, including individual compensation arrangements, by us under
our 2000 Management and Director Equity Incentive and Compensation Plan and any
compensation plans not previously approved by our stockholders as of September
30, 2010.
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights (a)
|
Weighted
average
exercise
price of
outstanding
options,
warrants and
rights (b
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a)) (c)
|
||||||||||
Plan
category
|
||||||||||||
Plans
approved by our stockholders:
|
||||||||||||
2000
Management and Director Equity Incentive and Compensation
Plan
|
11,604,404 | $ | 0.296 | 74,752 | ||||||||
Plans
not approved by stockholders:
|
||||||||||||
None
|
0 | n/a | n/a |
A
description of each of these plans is contained earlier in this report under
Part III Item 10. Executive Compensation – Stock Option Plan.
A
description of each of these plans is contained later in this report under Part
III Item 10. Executive Compensation – Stock Option Plan.
USE
OF PROCEEDS
We are
registering these shares pursuant to the registration rights granted to the
Selling Stockholders in connection with a registration rights agreement with the
Selling Stockholders. The Selling Stockholders will receive all of
the net proceeds from the sale of the shares of our common stock offered for
resale by them under this prospectus. We will not receive any proceeds
from the resale of shares of our common stock by the Selling Stockholders
covered by this prospectus; however, we will receive proceeds from cash payments
made in connection with the exercise of warrants held by Selling Stockholders
that are covered by this prospectus. We expect to use the proceeds received
from the exercise of the warrants, if any, for working capital and general
corporate purposes.
SELLING
STOCKHOLDERS
We are
registering for resale shares of our common stock. We are registering the shares
to permit the selling stockholders and their pledgees, donees, transferees and
other successors-in-interest that receive their shares from a selling
stockholder as a gift, partnership distribution or other non-sale related
transfer after the date of this prospectus to resell the shares when and as they
deem appropriate in the manner described in the “Plan of Distribution.” The
information included below is based on information that has been provided to us
by or on behalf of the selling stockholders. The information assumes all of the
shares covered hereby are sold or otherwise disposed of by the Selling
Stockholders pursuant to this prospectus. However, we do not know whether the
selling stockholders will in fact sell or otherwise dispose of the shares of
common stock listed next to their names below.
42
The
following table sets forth:
|
•
|
the name of the selling
stockholders,
|
|
•
|
the number of shares of our
common stock that the selling stockholders beneficially owned prior to the
offering for resale of the shares under this
prospectus,
|
|
•
|
the maximum number of shares of
our common stock that may be offered for resale for the account of the
selling stockholders under this prospectus,
and
|
|
•
|
the number and percentage of
shares of our common stock to be beneficially owned by the selling
stockholders after the offering of the shares (assuming all of the offered
shares are sold by the selling
stockholders).
|
43
Shares of Common Stock Beneficially Owned Prior to this Offering
|
Shares of Common Stock Beneficially
Owned After this Offering
|
|||||||||||||||||||
|
Number of
|
|||||||||||||||||||
|
Shares Owned
|
% of
|
Number of Shares
|
% of
|
||||||||||||||||
|
Prior to the
|
Outstanding
|
Number of
|
Owned After the
|
Outstanding
|
|||||||||||||||
Name of Selling Stockholder
|
Offering
|
Shares (1)
|
Shares Offered
|
Offering
|
Shares (1)
|
|||||||||||||||
Gregory
J. Moss
|
3,090,000
|
(37)
|
2.10
|
%
|
2,250,000
|
840,000
|
0.57
|
%
|
||||||||||||
Lee
and Susan Fishman
|
1,450,000
|
(2)
|
0.98
|
%
|
1,450,000
|
0
|
0.00
|
%
|
||||||||||||
Saul
R. Epstein
|
1,500,000
|
(3)
|
1.02
|
%
|
1,500,000
|
0
|
0.00
|
%
|
||||||||||||
Richard
Famiglietti
|
1,500,000
|
(4)
|
1.02
|
%
|
1,500,000
|
0
|
0.00
|
%
|
||||||||||||
Stanton
and Renee Cherry
|
450,000
|
(5)
|
0.31
|
%
|
450,000
|
0
|
0.00
|
%
|
||||||||||||
Jon
R. Perry
|
750,000
|
(6)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Neil
R. Rosen
|
750,000
|
(7)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
William
S. Goodman
|
750,000
|
(8)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Daniel
Erlanger
|
187,500
|
(9)
|
0.13
|
%
|
187,500
|
0
|
0.00
|
%
|
||||||||||||
Michael
W. Goodman
|
1,500,000
|
(10)
|
1.02
|
%
|
1,500,000
|
0
|
0.00
|
%
|
||||||||||||
Richard
B. Goodman
|
300,000
|
(11)
|
0.20
|
%
|
300,000
|
0
|
0.00
|
%
|
||||||||||||
Steven
M. Recht and Geri C. Recht, JTWROS
|
225,000
|
(12)
|
0.15
|
%
|
225,000
|
0
|
0.00
|
%
|
||||||||||||
David
D Feuer Trust
|
75,000
|
(13)
|
0.05
|
%
|
75,000
|
0
|
0.00
|
%
|
||||||||||||
Peter
Marmaros
|
750,000
|
(14)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Susan
G Feuer
|
150,000
|
(15)
|
0.10
|
%
|
150,000
|
0
|
0.00
|
%
|
||||||||||||
David
D Feuer DDS PA PST
|
75,000
|
(16)
|
0.05
|
%
|
75,000
|
0
|
0.00
|
%
|
||||||||||||
Dino
S. Colombo
|
375,000
|
(17)
|
0.26
|
%
|
375,000
|
0
|
0.00
|
%
|
||||||||||||
Lawrence
J. Wert
|
375,000
|
(18)
|
0.26
|
%
|
375,000
|
0
|
0.00
|
%
|
||||||||||||
James
S. Ruttenberg
|
37,500
|
(19)
|
0.03
|
%
|
37,500
|
0
|
0.00
|
%
|
||||||||||||
Bradley
G. Bulloch
|
187,500
|
(20)
|
0.13
|
%
|
187,500
|
0
|
0.00
|
%
|
||||||||||||
Dean
A. Suhre
|
307,500
|
(21)
|
0.21
|
%
|
307,500
|
0
|
0.00
|
%
|
||||||||||||
Richard
David Doermer
|
750,000
|
(22)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
James
P. & Susan B. Geiskopf Charitable Remainder Unitrust
|
750,000
|
(23)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Larry
Kubinski
|
750,000
|
(24)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
William
Smith
|
225,000
|
(25)
|
0.15
|
%
|
225,000
|
0
|
0.00
|
%
|
||||||||||||
Victor
J. Dowling, Jr.
|
187,500
|
(26)
|
0.13
|
%
|
187,500
|
0
|
0.00
|
%
|
||||||||||||
Ben
Johnston and Anne Johnston
|
300,000
|
(27)
|
0.20
|
%
|
300,000
|
0
|
0.00
|
%
|
||||||||||||
David
Charnota
|
675,000
|
(28)
|
0.46
|
%
|
675,000
|
0
|
0.00
|
%
|
||||||||||||
Lester
B. Boelter
|
750,000
|
(29)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Nicholas
Carosi III
|
750,000
|
(30)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
David
A. Dent
|
750,000
|
(31)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Robert
A. Melnick
|
300,000
|
(32)
|
0.20
|
%
|
300,000
|
0
|
0.00
|
%
|
||||||||||||
Sam
J. Piccione III
|
75,000
|
(33)
|
0.05
|
%
|
75,000
|
0
|
0.00
|
%
|
||||||||||||
Ed
Kraus
|
10,817
|
0.01
|
%
|
10,817
|
0
|
0.00
|
%
|
|||||||||||||
Michael
M. Schmahl
|
750,000
|
(34)
|
0.51
|
%
|
750,000
|
0
|
0.00
|
%
|
||||||||||||
Jesup
& Lamont Securities Corp.
|
877,100
|
(35)
|
0.60
|
%
|
877,100
|
0
|
0.00
|
%
|
||||||||||||
John
E Kyees and Judy A. Kyees
|
187,500
|
(36)
|
0.13
|
%
|
187,500
|
0
|
0.00
|
%
|
||||||||||||
Avnet,
Inc.
|
300,000
|
0.20
|
%
|
300,000
|
0
|
0.00
|
%
|
|||||||||||||
International
Business Machines Corporation
|
1,000,000
|
0.68
|
%
|
1,000,000
|
0
|
0.00
|
%
|
|||||||||||||
Optimus
Capital Partners, LLC
|
2,678,571
|
1.83
|
%
|
2,678,571
|
0
|
0.00
|
%
|
|||||||||||||
26,851,488
|
26,011,488
|
840,000
|
(1)
|
Based
on 138,675,867 shares of common stock outstanding as of December 31,
2010.
|
(2)
|
Includes 550,000 shares of common
stock issuable upon the exercise of outstanding
warrants.
|
(3)
|
Includes 500,000 shares of common
stock issuable upon the exercise of outstanding
warrants.
|
(4)
|
Includes 500,000 shares of common
stock issuable upon the exercise of outstanding
warrants.
|
(5)
|
Includes
150,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(6)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(7)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
44
(8)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(9)
|
Includes
62,500 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(10)
|
Includes
500,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(11)
|
Includes
100,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(12)
|
Includes
75,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(13)
|
Includes
25,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(14)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(15)
|
Includes
50,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(16)
|
Includes
25,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(17)
|
Includes
125,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(18)
|
Includes
125,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(19)
|
Includes
12,500 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(20)
|
Includes
62,500 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(21)
|
Includes
102,500 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(22)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(23)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(24)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(25)
|
Includes
75,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(26)
|
Includes
62,500 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(27)
|
Includes
100,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(28)
|
Includes
225,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(29)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(30)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(31)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(32)
|
Includes
100,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(33)
|
Includes
25,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(33)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(34)
|
Includes
250,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(35)
|
Includes
877,100 shares of common stock issuable upon the exercise of outstanding
warrants.
|
(36)
|
Includes
62,500 shares of common stock issuable upon the exercise of outstanding
warrants
|
(37)
|
Includes
750,000 shares of common stock issuable upon the exercise of outstanding
warrants.
|
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 1,000,000,000 shares of common stock,
$0.001 par value per share, and 10,000,000 shares of preferred stock,
par value $0.001 per share. As of December 31, 2010 there
were 138,675,867 shares of common stock and 626,667 shares of Series B
preferred stock issued and outstanding.
COMMON
STOCK
Holders
of common stock are entitled to one vote for each share on all matters
submitted to a stockholder vote. Holders of common stock do not
have cumulative voting rights. Holders of common stock are entitled to
share in all dividends that the Board of Directors, in its discretion,
declares from legally available funds. In the event of our liquidation,
dissolution or winding up, subject to the preferences of any shares of
preferred stock which may then be authorized and outstanding, each
outstanding share entitles its holder to participate in all assets that
remain after payment of liabilities and after providing for each class of
stock, if any, having preference over the common stock.
45
Holders
of common stock have no conversion, preemptive or other subscription
rights, and there are no redemption provisions for the common stock. The
rights of the holders of common stock are subject to any rights that may be
fixed for holders of preferred stock, when and if any preferred stock
is authorized and issued. All outstanding shares of common stock are
duly authorized, validly issued, fully paid and
non-assessable.
PREFERRED
STOCK
We are
authorized to issue 10,000,000 shares of preferred stock issuable in such
series and bearing such voting, dividend, conversion, liquidation and other
rights and preferences as the Board of Directors may determine.
The preferred stock is so-called "blank check" preferred stock, which means
that our Board of Directors, in its sole discretion, are able to issue
the shares of preferred stock in one or more series of classes having such
terms, designations and preferences as determined by the Board of Directors
and without authorization or confirmation by our stockholders.
Series B Convertible
Preferred Stock
The
designations, rights and preferences of the Series B Convertible Preferred Stock
provide:
•
|
no dividends are payable on the
Series B Convertible Preferred Stock. So long as these shares are
outstanding, we cannot pay dividends on our common stock nor can it redeem
any shares of its common stock, the shares of Series B Convertible
Preferred Stock do not have any voting rights, except as may be provided
under Delaware law,
|
•
|
so long as the shares are
outstanding, we cannot change the designations of the Series B Convertible
Preferred Stock, create a class of securities that in the instance of
payment of dividends or distribution of assets upon our liquidation ranks
senior to or pari passu with the Series B Convertible Preferred Stock or
increase the number of authorized shares of Series B Convertible Preferred
Stock, the shares carry a liquidation preference of $0.2727 per
share,
|
•
|
each share of Series B
Convertible Preferred Stock is convertible at the option of the holder
into one share of our common stock based upon an initial conversion value
of $0.2727 per share. The conversation ratio is subject to adjustment in
the event of stock dividends, stock splits or reclassification of our
common stock. The conversion ratio is also subject to adjustment in the
event we should sell any shares of its common stock or securities
convertible into common stock at an effective price less than the
conversion ratio then in effect, in which case the conversion ratio would
be reduced to the lesser price. No conversion of the Series B Convertible
Preferred Stock may occur if a conversion would result in the holder, and
any of its affiliates beneficially owning more than 4.9% of our
outstanding common shares following such conversion. This provision may be
waived or amended only with the consent of the holders of all of the
Series B Convertible Preferred Stock and the consent of the holders of a
majority of our outstanding shares of common stock who are not
affiliates,
|
•
|
so long as the Series B
Convertible Preferred Stock is outstanding, we have agreed not to issue
any rights, options or warrants to holders of its common stock entitling
the holders to purchase shares of its common stock at less than the
conversion ratio without the consent of the holders of a majority of the
outstanding shares of Series B Convertible Preferred Stock. If we should
elect to undertake such an issuance and the Series B holders consent, the
conversion ratio would be reduced. Further, if we should make a
distribution of any evidence of indebtedness or assets or rights or
warrants to subscribe for any security to our common stockholders, the
conversion value would be
readjusted,
|
•
|
the shares of Series B
Convertible Preferred Stock automatically convert into shares of our
common stock in the event of change of control of our company,
and
|
•
|
so long as the shares of Series B
Convertible Preferred Stock are outstanding, we cannot sell or issue any
common stock, rights to subscribe for shares of common stock or securities
which are convertible or exercisable into shares of common stock at an
effective purchase price of less than the then conversion value of the
Series B Convertible Preferred
Stock.
|
During
fiscal 2009, the remaining 626,667 shares of Series B Preferred Stock were
acquired from the original holders by John Signorello, our CEO, for total
consideration of $75,000.
46
On the
date of issuance of the Series B Preferred Stock, the effective conversion price
was at a discount to the price of the common stock into which it was
convertible. In fiscal 2006, we recorded a $500,000 preferred stock dividend
related to the beneficial conversion feature and the fair value of the warrants
granted in connection with the preferred stock.
The
warrants issued in conjunction with the Series B Convertible Preferred Stock
transaction were fully converted into shares of our common stock in fiscal
2008. There are no outstanding warrants related to the Series B
Convertible Preferred Stock transaction.
COMMON
STOCK PURCHASE WARRANTS
We
currently have outstanding common stock purchase warrants to purchase an
aggregate of 8,142,100 shares of our common stock at exercise prices ranging
from $0.20 per share to $2.00 per share. These warrants expire between May 31,
2011 and February 28, 2015. The exercise price of the warrants is subject to
pro-rata adjustment in the event of stock splits, recapitalizations and similar
corporate events.
TRANSFER
AGENT
Our
transfer agent is Olde Monmouth Stock Transfer, 200 Memorial Pkwy, Atlantic
Highlands, NJ 07716. Its telephone number is (732) 872-2727.
SHARES
ELIGIBLE FOR FUTURE SALE
As of
December 31, 2010 there were 138,675,867 shares of common stock and 626,667
shares of Series B preferred stock issued and outstanding, of which
approximately 49,196,994 are "restricted securities." In general,
under Rule 144, as currently in effect, a person, or person whose shares
are aggregated, who is not our affiliate or has not been an affiliate
during the prior three months and owns shares that were purchased from us,
or any affiliate, at least six months previously, is entitled to
make unlimited public resales of such shares provided there is current
public information available at the time of the resales. After a one-year
holding period a non-affiliate is entitled to make unlimited public resales
of our shares without the requirement that current public information be
available at the time of the resales. A person, or persons whose shares are
aggregated, who are affiliates of our company and own shares that were
purchased from us, or any affiliate, at least six months previously is
entitled to sell within any three month period, a number of shares of our
common stock that does not exceed the greater of 1% of the then outstanding
shares of our common stock, subject to manner of sale provisions, notice
requirements and the availability of current public information about
us.
Future
sales of restricted common stock under Rule 144 could negatively impact the
market price of our common stock. We are unable to estimate the number of shares
that may be sold in the future by our existing stockholders or the effect, if
any, that sales of shares by such stockholders will have on the market price of
our common stock prevailing from time to time. Sales of substantial amounts of
our common stock by existing stockholders could adversely affect prevailing
market prices.
LEGAL
MATTERS
The
validity of the securities offered by this prospectus will be passed upon for us
by Schneider Weinberger & Beilly LLP, 2200 Corporate Boulevard, N.W., Boca
Raton, Florida 33431.
EXPERTS
Our
financial statements as of and for the years ended September 30, 2010 and 2009
included in this prospectus have been audited by Sherb & Co., LLP,
independent registered public accounting firm, as indicated in their report with
respect thereto, and have been so included in reliance upon the report of such
firm given on their authority as experts in accounting
and auditing.
WHERE YOU
CAN FIND ADDITIONAL INFORMATION
We have
filed with the Securities and Exchange Commission the registration statement on
Form S-1 under the Securities Act of 1933 for the common stock offered by this
prospectus. This prospectus, which is a part of the registration statement, does
not contain all of the information in the registration statement and the
exhibits filed with it, portions of which have been omitted as permitted by
Securities and Exchange Commission rules and regulations. For further
information concerning us and the securities offered by this prospectus, we
refer to the registration statement and to the exhibits filed with it.
Statements contained in this prospectus as to the content of any contract or
other document referred to are not necessarily complete. In each instance, we
refer you to the copy of the contracts and/or other documents filed as exhibits
to the registration statement.
47
We file annual and
special reports and other information with the Securities and Exchange
Commission. Certain of our filings are available over the Internet at the
Securities and Exchange Commission's web site at http://www.sec.gov. You may
also read and copy any document we file with the Securities and Exchange
Commission at its public reference facilities:
Public
Reference Room Office
100
F Street, N.E.
Room
1580
Washington,
D.C. 20549
You may
also obtain copies of the documents at prescribed rates by writing to the Public
Reference Section of the Securities and Exchange Commission at 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. Callers in the United States can also
call 1-202-551-8090 for further information on the operations of the public
reference facilities.
48
INDEX TO FINANCIAL
STATEMENTS
PAGE #
|
|||
1.
|
Audited
consolidated financial statements for the years ending September 30, 2010
and 2009.
|
||
Report
of Independent Registered Public Accounting Firm,
|
F-2
|
||
Balance
Sheets;
|
F-3
|
||
Statements
of Operations;
|
F-4
|
||
Statements
of Stockholders' Equity; and
|
F-5
|
||
Statements
of Cash Flows;
|
F-6
|
||
Notes
to Financial Statements
|
F-7
|
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
IceWEB,
Inc.
We have
audited the accompanying consolidated balance sheets of IceWEB, Inc. and
Subsidiaries as of September 30, 2010 and 2009 and the related consolidated
statements of operations, changes in stockholders’ equity (deficit) and cash
flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of our internal control over financial
reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of IceWEB, Inc.
and Subsidiaries, as of September 30, 2010 and September 30, 2009 and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company had net losses of $6,964,233 and
$2,526,602 respectively, for the years ended September 30, 2010 and 2009. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regards to these matters are
also described in Note 2. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
/s/ Sherb
& Co., LLP
Certified
Public Accountants
Boca
Raton, Florida
December
20, 2010
F-2
IceWEB,
Inc. and Subsidiaries
Consolidated
Balance Sheets
September 30,
2010
|
September 30,
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ | 540,156 | $ | 6,310 | ||||
Accounts
receivable, net of allowance for doubtful accounts of $309,000 and $9,000
respectively
|
1,529,852 | 424,919 | ||||||
Inventory,
net
|
62,197 | 151,361 | ||||||
Other
current assets
|
6,875 | 6,390 | ||||||
Prepaid
expenses
|
31,230 | 25,180 | ||||||
2,170,310 | 671,160 | |||||||
OTHER
ASSETS:
|
||||||||
Property
and equipment, net of accumulated depreciation of $2,180,643 and
$1,761,730 respectively
|
418,873 | 752,162 | ||||||
Deposits
|
13,320 | 13,320 | ||||||
Marketable
securities, net
|
524,800 | — | ||||||
Intangible
assets, net of accumulated amortization of $668,498 and $425,408,
respectively
|
546,952 | 790,042 | ||||||
Total
Assets
|
$ | 3,674,255 | $ | 2,226,684 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY
(DEFICIT)
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 1,711,621 | $ | 1,971,376 | ||||
Notes
payable
|
1,649,140 | 1,847,755 | ||||||
Deferred
revenue
|
59,582 | 10,261 | ||||||
3,420,343 | 3,829,392 | |||||||
Long-Term
Liabilities
|
||||||||
Notes
payable
|
— | 934,756 | ||||||
Total
Liabilities
|
3,420,343 | 4,764,148 | ||||||
Stockholders'
Equity (Deficit)
|
||||||||
Preferred
stock ($.001 par value; 10,000,000 shares authorized) Series A convertible
preferred stock ($.001 par value; 0 shares issued and
outstanding)
|
— | — | ||||||
Series
B convertible preferred stock ($.001 par value; 626,667 shares issued and
outstanding)
|
626 | 626 | ||||||
Common
stock ($0.001 par value; 1,000,000,000 shares authorized; 134,443,725 and
68,469,617 shares issued and outstanding, respectively)
|
134,445 | 68,471 | ||||||
Additional
paid in capital
|
29,360,833 | 20,064,998 | ||||||
Accumulated
deficit
|
(29,622,792 | ) | (22,658,560 | ) | ||||
Accumulated
other comprehensive income
|
476,800 | — | ||||||
Subscription
receivable
|
(83,000 | ) | — | |||||
Treasury
stock, at cost, (162,500 shares)
|
(13,000 | ) | (13,000 | ) | ||||
Total
stockholders’ equity (deficit)
|
253,912 | (2,537,464 | ) | |||||
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$ | 3,674,255 | $ | 2,226,684 |
See
accompanying notes to consolidated financial statements
F-3
IceWEB,
Inc. and Subsidiaries
Consolidated
Statements of Operations
|
|
For the Year Ended
September 30,
|
|
|||||
2010
|
2009
|
|||||||
Sales
|
$
|
3,353,286
|
$
|
2,240,363
|
||||
Cost
of sales
|
1,742,110
|
1,326,385
|
||||||
Gross
profit
|
1,611,176
|
913,978
|
||||||
Operating
expenses:
|
||||||||
Sales
and marketing expense
|
1,690,684
|
1,004,970
|
||||||
Depreciation
and amortization expense
|
662,003
|
696,723
|
||||||
Research
and development
|
533,713
|
336,616
|
||||||
General
and administrative
|
5,325,898
|
3,538,086
|
||||||
Total
operating expenses
|
8,212,298
|
5,576,395
|
||||||
Other
income (expenses):
|
||||||||
Gain
on conversion of debt
|
190,136
|
—
|
||||||
Interest
income
|
—
|
1,142
|
||||||
Interest
expense
|
(553,247
|
)
|
(462,031
|
)
|
||||
Total
other expenses:
|
(363,111
|
)
|
(460,889
|
)
|
||||
Loss
From continuing Operations
|
(6, 964,233
|
)
|
(5,123,306
|
)
|
||||
Income
from discontinued operations
|
—
|
136,408
|
||||||
Interest
expense related to discontinued operations
|
—
|
(205,940
|
)
|
|||||
Gain
from sale of subsidiary
|
—
|
2,666,236
|
||||||
Total
gain from discontinued operations
|
—
|
2,596,704
|
||||||
Net
loss
|
$
|
(6,964,233
|
)
|
$
|
(2,526,602
|
)
|
||
Net
loss per common share - basic and diluted:
|
||||||||
Loss
from continuing operations
|
$
|
(0.07
|
)
|
$
|
(0.13
|
)
|
||
Gain
from discontinued operations
|
$
|
—
|
$
|
0.06
|
||||
Net
loss
|
$
|
(0.07
|
)
|
$
|
(0.07
|
)
|
||
Weighted
average common shares outstanding basic and diluted
|
101,379,729
|
40,911,411
|
See
accompanying notes to consolidated financial statements
F-4
IceWEB,
Inc. and Subsidiaries
Consolidated
Statement of Changes in Stockholders' Equity (Deficit)
For
the years ended September 30, 2010 and 2009
Series B
|
|
|||||||||||||||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Additional
Paid-In
|
Accumulated
|
Comprehensive
|
Subscription
|
Treasury
Stock
|
||||||||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
Income
|
Receivable
|
Share
|
Amount
|
Total
|
||||||||||||||||||||||||||||||||||
Balance
at September 30, 2008
|
1,253,334 | $ | 1,253 | 24,688,088 | $ | 24,690 | $ | 15,953,221 | $ | (20,131,957 | ) | $ | — | $ | — | (162,500 | ) | $ | (13,000 | ) | $ | (4,165,793 | ) | |||||||||||||||||||||
Amortization
of deferred compensation
|
— | — | — | — | 1,016,137 | — | — | — | — | — | 1,016,137 | |||||||||||||||||||||||||||||||||
Issuance
of common stock for cash
|
— | — | 3,900,000 | 3,900 | 203,100 | — | — | — | — | — | 207,000 | |||||||||||||||||||||||||||||||||
Cancellation
of common stock
|
— | — | (100,000 | ) | (100 | ) | 100 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||
Common
stock issued for exercise of options
|
— | — | 18,715,000 | 18,715 | 960,585 | — | — | — | — | — | 979,300 | |||||||||||||||||||||||||||||||||
Common
stock issued in connection with notes payable
|
— | — | 1,959,601 | 1,960 | 150,313 | — | — | — | — | — | 152,273 | |||||||||||||||||||||||||||||||||
Conversion
of series B preferred to common stock
|
(626,667 | ) | (627 | ) | 626,667 | 627 | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||
Common
stock issued for services
|
— | — | 1,725,000 | 1,725 | 130,775 | — | — | — | — | — | 132,500 | |||||||||||||||||||||||||||||||||
Common
stock issued to employees
|
— | — | 13,155,261 | 13,154 | 1,154,567 | — | — | — | — | — | 1,167,721 | |||||||||||||||||||||||||||||||||
Common
stock issued in connection with disposition of subsidiary
|
— | — | 1,000,000 | 1,000 | 79,000 | — | — | — | — | — | 80,000 | |||||||||||||||||||||||||||||||||
Common
stock issued in connection with conversion of convertible
debenture
|
— | — | 2,800,000 | 2,800 | 417,200 | — | — | — | — | — | 420,000 | |||||||||||||||||||||||||||||||||
Net
loss for the year
|
— | — | — | — | — | (2,526,602 | ) | — | — | — | — | (2,526,602 | ) | |||||||||||||||||||||||||||||||
Balance
at September 30, 2009
|
626,667 | 626 | 68,469,617 | 68,471 | 20,064,998 | (22,658,560 | ) | — | — | (162,500 | ) | (13,000 | ) | (2,537,464 | ) | |||||||||||||||||||||||||||||
Amortization
of deferred compensation
|
— | — | — | — | 1,627,919 | — | — | — | — | — | 1,627,919 | |||||||||||||||||||||||||||||||||
Issuance
of common stock for cash
|
— | — | 15,580,000 | 15,580 | 2,365,050 | — | — | — | — | — | 2,380,630 | |||||||||||||||||||||||||||||||||
Issuance
of common stock to settle litigation
|
— | — | 2,678,571 | 2,679 | 399,104 | — | — | — | — | — | 401,783 | |||||||||||||||||||||||||||||||||
Common
stock issued for exercise of options
|
— | — | 30,570,600 | 30,571 | 2,561,055 | — | — | — | — | — | 2,591,626 | |||||||||||||||||||||||||||||||||
Common
stock issued in connection with subscription receivable
|
— | — | 2,000,000 | 2,000 | 81,000 | — | — | (83,000 | ) | — | — | — | ||||||||||||||||||||||||||||||||
Common
stock issued for services
|
— | — | 2,800,000 | 2,800 | 506,684 | — | — | — | — | — | 509,484 | |||||||||||||||||||||||||||||||||
Common
stock issued to employees
|
— | — | 9,344,937 | 9,345 | 858,020 | — | — | — | — | — | 867,365 | |||||||||||||||||||||||||||||||||
Common
stock issued in connection with conversion of convertible
debenture
|
— | — | 3,000,000 | 3,000 | 897,000 | — | — | — | — | — | 900,000 | |||||||||||||||||||||||||||||||||
Other
Comprehensive income
|
— | — | — | — | — | — | 476,800 | — | — | — | 476,800 | |||||||||||||||||||||||||||||||||
Net
loss for the year
|
— | — | — | — | — | (6,964,233 | ) | — | — | — | — | (6,964,233 | ) | |||||||||||||||||||||||||||||||
Net
Comprehensive loss
|
— | — | — | — | — | (6,964,233 | ) | 476,800 | — | — | — | (6,487,433 | ) | |||||||||||||||||||||||||||||||
Balance
at September 30, 2010
|
626,667 | $ | 626 | 134,443,725 | $ | 134,445 | $ | 29,360,833 | $ | (29,622,792 | ) | $ | 476,800 | $ | (83,000 | ) | (162,500 | ) | $ | (13,000 | ) | $ | 253,912 |
See
accompanying notes to consolidated financial statements
F-5
IceWEB,
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
For the Year Ended
September 30,
|
||||||||
2010
|
2009
|
|||||||
Net
loss
|
$ | (6,964,233 | ) | $ | (2,526,602 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
||||||||
Depreciation
and amortization
|
662,003 | 742,636 | ||||||
Share-based
compensation
|
867,365 | 1,167,721 | ||||||
Amortization
of deferred compensation
|
1,627,919 | 1,016,134 | ||||||
Gain
on sale of discontinued operations
|
— | (2,666,236 | ) | |||||
Common
stock issued for services rendered
|
509,484 | 132,500 | ||||||
Common
stock issued for settlement
|
401,783 | — | ||||||
Amortization
of deferred finance costs
|
27,015 | 30,248 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
(1,104,934 | ) | 2,669,191 | |||||
Prepaid
expense
|
(33,545 | ) | 29,975 | |||||
Inventory
|
89,164 | 248,951 | ||||||
Deposits
|
— | 33,035 | ||||||
Increase
(decrease) in:
|
||||||||
Accounts
payable and accrued liabilities
|
(259,757 | ) | (3,020,165 | ) | ||||
Deferred
revenue
|
49,321 | (2,902 | ) | |||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(4,128,415 | ) | (2,145,514 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of property and equipment
|
(85,624 | ) | (99,762 | ) | ||||
Investment
in marketable securities
|
(48,000 | ) | ||||||
NET
CASH USED IN INVESTING ACTIVITIES
|
(133,624 | ) | (99,762 | ) | ||||
|
||||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Proceeds
from notes payable
|
1,602,024 | 7,594,455 | ||||||
Payments
on notes payable
|
(1,835,395 | ) | (6,476,949 | ) | ||||
Proceeds
from sale of common stock
|
2,380,630 | 207,000 | ||||||
Proceeds
from exercise of common stock options
|
2,591,626 | 979,300 | ||||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
4,738,885 | 2,303,806 | ||||||
NET
INCREASE IN CASH
|
476,846 | 58,530 | ||||||
CASH
- beginning of period
|
63,310 | 4,780 | ||||||
CASH
- end of period
|
$ | 540,156 | $ | 63,310 | ||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for:
|
||||||||
Interest
|
$ | 526,232 | $ | 552,886 | ||||
Income
taxes
|
$ | — | $ | — | ||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Common
stock issued for debt and interest
|
$ | — | $ | 152,273 | ||||
Common
stock issued in connection with convertible debenture
|
$ | 1,090,136 | $ | 420,000 | ||||
Common
stock issued in connection with acquisition/disposition
|
$ | $ | 80,000 |
See
accompanying notes to consolidated financial statements
F-6
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 1 -
ORGANIZATION
IceWEB,
Inc. (the “Company”) began trading publicly in April 2002. Utilizing resources
gained through acquisitions, we have developed two lines of business, IceWEB
Storage products, and IceMAIL which is a hosted Microsoft Exchange application
service. We currently have two wholly owned operating subsidiaries:
IceWEB Storage Corporation (formerly known as Inline Corporation), and IceWEB
Online, Inc.
BUSINESS
OF ICEWEB
Since
2005, the Company has been focused on serving the commercial and federal markets
with network security products and proprietary on-line software
solutions. In 2008, the Company narrowed its focus and expanded its
capabilities by acquiring INLINE Corporation, a data storage manufacturing
company.
In March,
2009, the Company sold its wholly owned subsidiary, IceWEB Virginia, Inc. to an
unrelated third party, and in the process exited its low-margin IT re-seller
business products business to further focus on the higher margin data storage
manufacturing business.
At the
close of fiscal year 2010, the Company has three key product
offerings:
•
|
Unified
Network Storage Solutions
|
•
|
Purpose
Built Network/Data Appliances
|
•
|
Cloud
Computing Products/Services
|
NOTE 2 -
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Principles
of Consolidation
The
accompanying consolidated financial statements have been prepared in accordance
with United States generally accepted accounting principles and include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated in
consolidation.
Reclassifications
Certain
reclassifications have been made to previously reported amounts to conform to
2010 amounts. The reclassifications had no impact on previously reported results
of operations or shareholders’ deficit.
Going
Concern
Our
auditors stated in their report on the consolidated financial statements of the
Company for the Years ended September 30, 2010 and 2009 that we have had losses
since inception that raise doubt about our ability to continue as a going
concern. In addition and as discussed further in Note 6, we are not in
compliance with debt covenants under our Financing Agreements with Sand Hill
Finance LLC. For the year ended September 30, 2010 we incurred a net loss of
$6,964,233. The consolidated financial statements do not include any
adjustments related to the recovery and classification of recorded assets, or
the amounts and classification of liabilities that might be necessary in the
event we cannot continue in existence.
Management
has established plans intended to increase the sales of our products and
services. Management intends to seek new capital from new equity securities
offerings to provide funds needed to increase liquidity, fund growth, and
implement its business plan. However, no assurances can be given that we will be
able to raise any additional funds.
Fair
value of financial instruments
The
carrying amounts of financial instruments, including cash, accounts receivable,
prepaid expenses, and other current assets, accounts payable and accrued
liabilities, and deposits approximated fair value as of September 30, 2010 and
2009, because of the relatively short-term maturity of these instruments and
their market interest rates.
F-7
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 2 -
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Marketable
Securities
IceWEB
accounts for the purchase of marketable equity securities in accordance with ASC
320, “Investment – Debt and Equity Securities” with any unrealized gains and
losses included as a net amount as a separate component of stockholders’
equity. However, those securities may not have the trading volume to
support the stock price if the Company were to sell all their shares in the open
market at once, so the Company may have a loss on the sale of marketable
securities even though they record marketable equity securities at the current
market value.
Use of
Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the balance sheets and the reported amounts of sales and expenses during the
reporting periods. Actual results could differ from those estimates. Significant
estimates in 2010 and 2009 include the allowance for doubtful accounts, the
valuation of stock-based compensation, the allowance for inventory obsolescence
and the useful life of property and equipment and intangible assets, and
litigation reserves.
Cash and
Cash Equivalents
We
consider all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.
Accounts
Receivable
Accounts
receivable consists of normal trade receivables. We recorded a bad debt
allowance of $309,000 as of September 30, 2010. Management performs ongoing
evaluations of its accounts receivable. Management believes that all remaining
receivables are fully collectable. Bad debt expense amounted to $336,568 and
$29,324 for the Years ended September 30, 2010 and 2009,
respectively.
Inventory
Inventory
is valued at the lower of cost or market, on an average cost basis.
Property
and Equipment
Property
and equipment is stated at cost, net of accumulated depreciation. Depreciation
is provided by using the straight-line method over the estimated useful lives of
the related assets.
Intangible
Assets
Intangible
assets, net consists of the cost of acquired customer relationships. We
capitalize and amortize the cost of acquired intangible assets over their
estimated useful lives on a straight-line basis. The estimated useful life of
our acquired customer relationships is five years.
Long-lived
Assets
In
accordance with ASC Topic 360, “Property, Plant, and Equipment” (formerly
SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets”), we review the carrying value of intangibles and other long-lived
assets for impairment at least annually or whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount to the undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds its fair market value.
F-8
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 2 -
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Advertising
Advertising
costs are expensed as incurred and amounted to $162,862 in fiscal 2010 and
$77,549 million in fiscal 2009.
Revenue
Recognition
We follow
the guidance of Accounting Standards Codification (ASC) Topic 605, “Revenue
Recognition” (formerly Staff Accounting Bulletin (SAB) No. 104, “Revenue
Recognition”) for revenue recognition. In general, we record revenue when
persuasive evidence of an arrangement exists, services have been rendered or
product delivery has occurred, the sales price to the customer is fixed or
determinable, and collectability is reasonably assured. The following policies
reflect specific criteria for our various revenues streams:
Revenues
from sales of products are generally 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.
Revenue
from services is recorded as it is earned. Commissions earned on third party
sales are recorded in the month in which contracts are awarded. Customers are
generally billed every two weeks based on the units of production for the
project. Each project has an estimated total which is based on the estimated
units of production and agreed upon billing rates. Amounts billed in advance of
services being provided are recorded as deferred revenues and recognized in the
consolidated statement of operations as services are provided.
Earnings
per Share
We
compute earnings per share in accordance with ASC Topic 260, “Earnings Per
Share” (formerly SFAS No. 128, “Earnings per Share”) Under the provisions
of ASC Topic 260, basic earnings per share is computed by dividing the net
income (loss) for the period by the weighted average number of common shares
outstanding during the period. Diluted earnings per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common and potentially dilutive common shares outstanding during the period.
Potentially dilutive common shares consist of the common shares issuable upon
the exercise of stock options and warrants (using the treasury stock method) and
upon the conversion of convertible preferred stock (using the if-converted
method). Potentially dilutive common shares are excluded from the calculation if
their effect is antidilutive. At September 30, 2010, there were
options and warrants to purchase 19,891,504 shares of common stock, 626,667
shares issuable upon conversion of Series B preferred stock, and no shares of
Series C preferred stock outstanding which could potentially dilute future
earnings per share.
Stock-Based
Compensation
As more
fully described in Note 12, we have a stock option plan that provides for
non-qualified and incentive stock options to be issued to directors, officers,
employees and consultants (the 2000 Management and Director Equity Incentive and
Compensation Plan (the “Plan”).
Prior to
October 1, 2005, we accounted for stock options issued under the Plan under the
recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to
Employees , and related interpretations, as permitted by ASC Topic 718,
“Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments. No stock-based compensation cost related to employee
stock options was recognized in the Consolidated Statement of Operations for the
year ended September 30, 2005 as all options granted under the Plan had an
exercise price equal to the market value of the underlying common stock on the
date of grant.
Effective
October 1, 2005, we adopted the fair value recognition provisions of ASC Topic
718, “Compensation – Stock Compensation (Formerly SFAS No. 123 (R),
“Share-Based Payments using the modified-prospective-transition method. Under
that transition method, compensation cost recognized in the year ended September
30, 2006 includes: (a) compensation cost for all share-based payments granted
prior to, but not yet vested as of September 30, 2005, based on the grant date
fair value estimated in accordance with the original provisions of Statement
123, and (b) compensation cost for all share-based payments granted subsequent
to October 1, 2005, based on the grant-date fair value estimated in accordance
with the provisions of Statement 123(R). Financial results for the year ended
September 30, 2005 have not been restated.
F-9
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
Accounting
Pronouncements Recently Adopted
In
January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and
Disclosures” (“ASU 2010-06”) which provides amendments to Subtopic 820-10 that
require new disclosures regarding (1) transfers in and out of Levels 1 and 2
fair value measurements and (2) activity in Level 3 fair value measurements.
Additionally, ASU 2010-06 clarifies existing fair value disclosures about the
level of disaggregation and about inputs and valuation techniques used to
measure fair value. The guidance in ASU 2010-06 became effective for the
Company’s second quarter of fiscal year 2010 and the disclosures required by
this adoption are included in Note 2 “Fair Value Measurements”, except for
disclosures about purchases, sales, issuances, and settlements in the roll
forward activity in Level 3 fair value measurements which are effective for
fiscal years beginning after December 15, 2010, and for interim periods within
those fiscal years. The adoption of this guidance did not have an impact on the
Company’s consolidated financial statements.
In
December 2008, the FASB issued new accounting guidance that requires enhanced
annual disclosures about the plan assets of a Company’s defined benefit pension
and other postretirement plans intended to provide users of financial statements
with a greater understanding of: (1) how investment allocation decisions are
made, including the factors that are pertinent to an understanding of investment
policies and strategies; (2) the major categories of plan assets; (3) the inputs
and valuation techniques used to measure the fair value of plan assets; (4) the
effect of fair value measurements, using significant unobservable inputs (Level
3) on changes in plan assets for the period; and (5) significant concentrations
of risk within plan assets. The new guidance resulted in enhanced disclosures
beginning with the Company’s Form 10-K for the year ended September 30, 2010
included herein.
In
December 2007, the FASB issued new accounting and disclosure guidance related to
non-controlling interests in subsidiaries (previously referred to as minority
interests), which was effective for the Company on October 1, 2009. Among other
things, the new guidance requires that a non-controlling interest in a
subsidiary be presented as a component of equity separate from the parent’s
equity. It also requires that consolidated net income be reported at amounts
that include the amounts attributable to both the parent and the non-controlling
interests. The new guidance has been applied prospectively, except for the
presentation and disclosure requirements, which have been applied
retrospectively to all periods presented herein.
In June
2008, ASC Topic 260, “Earnings Per Share”, was amended to require that unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) be treated as participating
securities and shall be included in the computation of earnings per share
pursuant to the two-class method. This amendment became effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those years, and requires that all prior period earnings
per share data presented (including interim financial statements, summaries of
earnings and selected financial data) be adjusted retrospectively to conform to
its provisions. This Topic became effective October 1, 2009, and did not have an
impact on the Company’s consolidated financial statements.
In April
2008, ASC Topic 350, “Intangibles – Goodwill and Other”, was amended to include
a list of factors an entity should consider in developing renewal or extension
assumptions used in determining the useful life of recognized intangible assets.
The new guidance applies to (1) intangible assets that are acquired individually
or with a group of other assets and (2) intangible assets acquired in both
business combinations and asset acquisitions. Under this amendment, entities
estimating the useful life of a recognized intangible asset must consider their
historical experience in renewing or extending similar arrangements or, in the
absence of historical experience, must consider assumptions that market
participants would use about renewal or extension. This amendment required
certain additional disclosures beginning October 1, 2009, and prospective
application to useful life estimates prospectively for intangible assets
acquired after September 30, 2009. This Topic became effective October 1, 2009,
and did not have an impact on the Company’s consolidated financial
statements.
In
December 2007, the FASB amended its guidance on accounting for business
combinations. The new accounting guidance was effective for the company on
October 1, 2009, and is being applied prospectively to all business combinations
subsequent to the effective date. Among other things, the new guidance amends
the principles and requirements for how an acquirer recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree and the goodwill
acquired. It also establishes new disclosure requirements to enable the
evaluation of the nature and financial effects of the business combination. The
adoption of this accounting guidance did not have a significant impact on the
Company’s consolidated financial statements, and the impact it will have on the
Company’s consolidated financial statements in future periods will depend on the
nature and size of business combinations completed subsequent to the date of
adoption.
F-10
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
Accounting Pronouncements Recently
Adopted (continued)
In
February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (Topic 855)”
(“ASU 2010-09”) which provides an update to Topic 855, “Subsequent Events”. This
update clarifies that an SEC filer is required to evaluate subsequent events
through the date that the financial statements are issued and removes the
requirement for SEC filers to disclose the date through which subsequent events
have been evaluated. This guidance became effective upon issuance and has been
adopted by the Company.
Recent
Accounting Pronouncements Not Yet Adopted as of September 30, 2010
In April
2010, the FASB issued ASU No. 2010-17, “Revenue Recognition - Milestone Method
(Topic 605)” (“ASU 2010-17”) which provides guidance on defining a milestone and
determining when it may be appropriate to apply the milestone method of revenue
recognition for certain revenue transactions. This guidance is effective on a
prospective basis for milestones achieved in fiscal years, and interim periods
within those years, beginning on or after June 15, 2010 (fiscal year 2011 for
the Company). This accounting guidance is not expected to have a material impact
on the Company’s consolidated financial statements.
In June
2009, ASC Topic 810 was amended to improve financial reporting by enterprises
involved with variable interest entities. This Topic addresses (1) the effects
on certain provisions regarding the consolidation of variable interest entities,
as a result of the elimination of the qualifying special-purpose entity concept
in ASC Topic 860 regarding the accounting for transfers of financial assets, and
(2) concern about the application of certain key provisions of FASB
Interpretation No. 46(R), including those in which the accounting and
disclosures under the Interpretation do not always provide timely and useful
information about an enterprise’s involvement in a variable interest entity.
This guidance is effective as of the beginning of each reporting entity’s first
annual reporting period that begins after November 15, 2009 (fiscal year 2011
for the Company), for interim periods within that first annual reporting period,
and for interim and annual reporting periods thereafter. Earlier application is
prohibited. The adoption of this statement is not expected to have a material
effect on the Company’s consolidated financial statements.
In
October 2009, the FASB issued new accounting guidance for revenue recognition
with multiple deliverables. This guidance impacts the determination of when the
individual deliverables included in a multiple-element arrangement may be
treated as separate units of accounting. Additionally, this new accounting
guidance modifies the manner in which the transaction consideration is allocated
across the separately identified deliverables by no longer permitting the
residual method of allocating arrangement consideration. The new guidance is
effective for the Company prospectively for revenue arrangements entered into or
materially modified beginning in the first quarter of fiscal 2011. Early
adoption is permitted. This accounting guidance is not expected to have a
significant impact on the Company’s consolidated financial
statements.
In July
2010, the FASB issued ASU No. 2010-20, “Receivables (Topic 310) - Disclosures
about the Credit Quality of Financing Receivables and the Allowance for Credit
Losses” (“ASU 2010-20”) which requires additional disclosures about an entity’s
allowance for credit losses and the credit quality of its financing receivables.
These amendments affect all entities with financing receivables, excluding
short-term accounts receivable or receivables measured at fair value or lower of
cost or fair value. The guidance on disclosures as of the end of a reporting
period will be effective for the Company on December 31, 2010. The disclosures
about activity that occurs during a reporting period are effective for the
Company’s second quarter of fiscal year 2011. The Company does not expect the
adoption of this guidance to have a material impact on its financial
statements.
F-11
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 3 -
PROPERTY AND EQUIPMENT
At
September 30, property and equipment consisted of the following:
Estimated
Life
|
2010
|
2009
|
||||||||
Office
equipment
|
5
years
|
$ | 699,282 | $ | 637,920 | |||||
Computer
software
|
3
years
|
612,379 | 607,278 | |||||||
Furniture
and fixtures
|
5
years
|
261,385 | 261,385 | |||||||
Leasehold
improvements
|
5
years
|
1,026,470 | 1,007,250 | |||||||
2,599,516 | 2,513,833 | |||||||||
Less:
accumulated depreciation
|
(2,180,643 | ) | (1,761,671 | ) | ||||||
$ | 418,873 | $ | 752,162 |
Depreciation
expense for the years ended September 30, 2010 and 2009 was $418,913 and
$453,633 respectively.
NOTE 4 -
INTANGIBLE ASSETS
At
September 30, 2010, intangible assets consist of the following:
2010
|
2009
|
|||||||
Manufacturing
GSA Schedule
|
$ | 750,000 | $ | 750,000 | ||||
Customer
relationships intangible
|
465,451 | 465,451 | ||||||
1,215,451 | 1,215,451 | |||||||
Less:
accumulated amortization
|
(668,499 | ) | (425,409 | ) | ||||
$ | 546,952 | $ | 790,042 |
Amortization
expense amounted to $243,090 for both of the Years ended September 30, 2010 and
2009.
Amortization
expense subsequent to the year ended September 30, 2010 is as
follows:
Years
ending September 30:
|
||||
2011
|
$
|
243,090
|
||
2012
|
243,090
|
|||
2013
|
60,772
|
|||
$
|
546,952
|
NOTE 5 -
RELATED PARTY TRANSACTIONS
From time
to time we have borrowed operating funds from Mr. John Signorello, our
Chief Executive Officer, for working capital. The advances were
payable upon demand and were interest free. During fiscal 2009 Mr.
Signorello advanced $66,300 to us, and we repaid $66,300. The highest amount
that we owed Mr. Signorello during fiscal 2009 was $25,000. At each of the last
three fiscal year ends, 2008, 2009, and 2010, the amount owed to Mr. Signorello
was $0. As of December 13, 2010, the amount owed to Mr. Signorello
was $0.
On June
8, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to Jack Bush, a member of our Board of Directors. The fair
market value of our common stock on the date of the transaction was $0.07 per
share. The shares were issued at a discount to the fair market value
of our common stock of approximately 43% due to their restricted status, because
we needed the cash, our access to capital was limited, and it was the price
negotiated and agreed to by the buyer.
F-12
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 5 -
RELATED PARTY TRANSACTIONS (continued)
On August
10, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to Joseph Druzak, a member of our Board of Directors. The fair
market value of our common stock on the date of the transaction was $0.10 per
share. The shares were issued at a discount to the fair market value
of our common stock of approximately 60% due to their restricted status, because
we needed the cash, our access to capital was limited, and it was the price
negotiated and agreed to by the buyer.
During
October, 2009, we sold 2,000,000 shares of common stock at a per share price of
$0.042, valued at $83,000 to Florence Signorello, an accredited investor who is
the mother of John Signorello, our chief executive officer. The fair market
value of our common stock on the date of the transaction was $0.145 per share.
As of June 30, 2010 we had not received the proceeds from the investor and as a
result we recorded the subscription receivable as a contra equity account on our
balance sheet.
During
November, 2009, we sold 1,000,000 shares of common stock, valued at $130,000 to
Hal Compton, a member of our Board of Director for $40,000, and recognized stock
based compensation expense of $90,000. The shares were issued at a
discount to the fair market value of our common stock of approximately 69% due
to their restricted status, because we needed the cash, our access to capital
was limited, and it was the price negotiated and agreed to by the
buyer.
We and
certain of our affiliates have entered into a series of transactions involving
VOIS Inc. (OTCBB: VOIS), a public company which had developed and launched a
social commerce website. On November 3, 2009 we purchased 160,000,000
shares of the common stock of VOIS Inc., which represented approximately 16% of
that company, for $48,000 in a private transaction exempt from registration
under the Securities Act of 1933 in reliance on an exemption provided by Section
4(2) of that act resulting in gross proceeds to us of $48,000. At the time of
our investment, Mr. Mark Lucky, our Chief Financial Officer, was a member of
VOIS’ board of directors, having been elected in October 2009. In exchange
for this strategic interest, VOIS received non-exclusive access to distribute
IceMAIL, IcePORTAL and IceSECURE to their existing and prospective new user
base, and our cloud storage network. Mr. Lucky resigned his positions with
VOIS in September 2010. As of the date hereof, VOIS has not integrated
this access within its business and we have had no subsequent business
relationship with it, other than as set forth herein.
Prior to
our investment in VOIS, both Messrs. John R. Signorello and Robert Druzak had
personal relationships with the founders of VOIS. In an unrelated
transaction in November 2009 Mr. Signorello, a member of our board of directors
and our CEO, purchased 225,000,000 shares of VOIS’ common stock from a former
officer and director of VOIS for nominal consideration in a private transaction.
The shares of common stock purchased by Mr. Signorello represented
approximately 27% of VOIS’ outstanding common stock purchase of the shares by
us. Thereafter, in an unrelated transaction in January 2010 Mr. Druzak
purchased 225,000,000 shares of VOIS’ common stock from a former officer and
director of VOIS for nominal consideration in a private transaction. The
shares of common stock purchased by Mr. Druzak represented approximately 22% of
VOIS’ outstanding common stock. Immediately following the closing of this
transaction Mr. Druzak was appointed to VOIS’ board of directors and named
President and Chief Executive Officer of VOIS. Mr. Druzak, the brother of
Joseph Druzak, a member of our board, was formerly a vice president of our
company from March 2005 to January, 2010, but was not considered an executive
officer of our company. Mr. Robert Druzak resigned his positions with VOIS
in March 2010.
While
five out of the 6 board members qualify as unrelated and independent, as
they are independent from management and free from any interest, function,
business or other relationship that could, or could reasonably be perceived to,
materially interfere with the Director’s ability to act in the our best
interest, we do not have any policies or procedures for the review, approval or
ratification of any related party transactions and no review or ratification of
any of the foregoing related party truncations by our board has
occurred.
NOTE 6 -
NOTES PAYABLE
Sand Hill
Finance, LLC
On
December 19, 2005, we entered into a Financing Agreement with Sand Hill Finance,
LLC pursuant to which, together with related amendments, we may borrow up to 80%
on our accounts receivable balances up to a maximum of $1,800,000. In
conjunction with the acquisition of Inline Corporation in December, 2007, the
lending limit on the credit facility was increased to
$2,750,000.
F-13
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 6 -
NOTES PAYABLE (continued)
In
addition, in November, 2008 we and Sand Hill Finance, LLC entered into a 36
month term convertible debenture agreement in the amount of $1,000,000. On
September 7, 2010, Sand Hill Finance, LLC converted the remaining balance of
$1,090,136 of this convertible debenture in exchange for three million shares of
our common stock. The debenture was converted at a price of $0.36338 per
share. The conversion price was subject to a floor of $0.30 per share
resulting in a gain on conversion of $190,136.
Amounts
borrowed under the Financing Agreement are secured by a first security interest
in substantially all of our assets. At September 30, 2010, the
principal amount due under the Financing Agreement amounted to
$1,649,140. This amount is included in the note payable balance of
$1,649,140 on the balance sheet at September 30, 2010.
Interest
is payable under the Financing Agreement at a rate of 1.75% per month on the
average loan balance outstanding during the year, equal to an annual interest of
approximately 21% per year. We also agreed to pay an upfront commitment fee of
1% of the credit line upon signing the Financing Agreement, half of which
was due and paid upon signing (amounting to $9,000) and half of which is due on
the first anniversary of the Financing Agreement. In addition, we are obligated
to pay a commitment fee of 1% of the credit limit annually, such amounts are
payable on the anniversary of the agreement.
In
connection with the Financing Agreement, we issued Sand Hill Finance, LLC, a
seven-year common stock purchase warrant to purchase 25,000 shares of our common
stock at an exercise price of $1.00 per share. The warrant contains a cashless
exercise provision which means that at the option of the holder, the warrant is
convertible into a number of shares of our common stock as determined by
dividing the aggregate fair market value of our common stock minus the aggregate
exercise price of the warrant by the fair market value of one share of common
stock. The number of shares issuable upon the exercise of the warrant and the
exercise price are subject to adjustment in the event of stock dividends, stock
splits and reclassifications. The fair value of the warrant of $16,250 has been
recorded as an addition to paid-in capital and interest expense during the year
ended September 30, 2007.
In
connection with the term loan, we issued Sand Hill Finance, LLC a seven-year
common stock purchase warrant to purchase 120,000 shares of our common stock at
an exercise prices $1.00 per share. The warrant contains a cashless
exercise provision which means that at the option of the holder, the warrant is
convertible into a number of shares of our common stock as determined by
dividing the aggregate fair market value of our common stock minus the aggregate
exercise price of the warrant by the fair market value of one share of common
stock. The number of shares issuable upon the exercise of the warrant and the
exercise price are subject to adjustment in the event of stock dividends, stock
splits and reclassifications. The fair value of the warrant of $13,587 has been
recorded as an addition to paid-in capital and deferred finance costs during the
year ended September 30, 2009.
The
Financing Agreement has a term of one year, subject to mutual extension by both
parties. As a result, the balance due to Sand Hill Finance, LLC is classified as
a current liability on the accompanying consolidated balance sheet.
The terms
of the Financing Agreement also restricts us from undertaking certain
transactions without the written consent of the creditor including (i) permit or
suffer a change in control involving 20% of its securities, (ii) acquire assets,
except in the ordinary course of business, involving payment of $100,000 or
more, (iii) sell, lease, or transfer any of its property except for sales of
inventory and equipment in the ordinary course of business, (iv) transfer, sell
or license any intellectual property, (v) declare or pay a dividend on stock,
except payable in the form of stock dividends (vi) incur any indebtedness other
than trade credit in the ordinary course of business and (vii) permit any lien
or security interest to attach to any collateral. Sand Hill Finance
provided a waiver with respect to our disposition of IceWEB, Virginia, Inc. in
March, 2010, as discussed herein.
F-14
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 7 -
INVENTORY
Inventory
consisted of the following:
September 30,
2010
|
September 30,
2009
|
|||||||
Raw
materials
|
$ | 49,757 | $ | 78,966 | ||||
Work
in progress
|
9,330 | 14,862 | ||||||
Finished
goods
|
3,110 | 57,533 | ||||||
62,197 | 151,361 | |||||||
Less:
reserve for obsolescence
|
— | — | ||||||
$ | 62,197 | $ | 151,361 |
NOTE 8 -
COMMITMENTS
We lease
office space in Sterling, Virginia under a two-year operating lease that expires
on March 31, 2011. The office lease agreement has certain escalation
clauses and renewal options. Additionally, we have lease agreements for computer
equipment and an office copier/fax machine. Future minimum rental payments
required under these operating leases are as follows:
Years
ending September 30:
|
||||
2011
|
$
|
37,611
|
||
2012
|
—
|
|||
2013
|
—
|
|||
2014
|
—
|
|||
2015
and thereafter
|
—
|
|||
$
|
37,611
|
Rent
expense was $78,076 and $71,399 for the years ended September 30, 2010 and
2009.
NOTE 9 -
INCOME TAXES
We
account for income taxes under the provisions of ASC 740-10-25. ASC
740-10-25 prescribes a recognition threshold and a measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Benefits from tax positions
should be recognized in the financial statements only when it is more likely
than not that the tax position will be sustained upon examination by the
appropriate taxing authority that would have full knowledge of all the relevant
information. A tax position that meets the more-likely-than-not
recognition threshold is measured at the largest amount of benefit that is
greater than fifty percent likely of being realized upon ultimate
settlement. Tax positions that previously failed to meet the
more-likely-than not recognition threshold should be recognized in the first
subsequent financial reporting period in which that threshold is
met. Previously recognized tax positions that no longer meet the
more-likely-than-not recognition threshold should be derecognized in the first
subsequent financial reporting period in which that threshold is no longer
met. ASC 740-10-25 also provides guidance on the accounting for and
disclosure of unrecognized tax benefits, interest, and penalties. ASC 740-10-25
requires the recognition of deferred tax assets and liabilities for both the
expected impact of differences between the financial statements and the tax
basis of assets and liabilities, and for the expected future tax benefit to be
derived from tax losses and tax credit carryforwards. ASC 740-10-25 additionally
requires the establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. At September 30, 2010 and 2009 the
Company has no unrecognized tax benefits, interest, or
penalties.
F-15
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 9 -
INCOME TAXES (continued)
A summary
of our deferred tax is as follows:
2010
|
2009
|
|||||||
Deferred
Tax Assets:
|
||||||||
Tax
benefit of net operating loss carry forward
|
$ | 5,360,000 | $ | 4,146,000 | ||||
Grant
of stock options/restricted stock to employees
|
— | 1,768,000 | ||||||
Unpaid
accrued salaries
|
17,000 | 31,000 | ||||||
Allowance
for doubtful accounts
|
113,000 | — | ||||||
Reserve
for legal settlement
|
353,000 | 451,000 | ||||||
Amortization
of leasehold improvements
|
182,000 | 115,000 | ||||||
Amortization
of intangibles
|
302,000 | 175,000 | ||||||
6,327,000 | 6,686,000 | |||||||
Less:
valuation allowance
|
(6,327,000 | ) | (6,686,000 | ) | ||||
Net
deferred tax assets
|
$ | — | $ | — |
As of
September 30, 2010 we had unused net operating loss carry forwards of
approximately $14,200,000 available to reduce our future federal taxable income.
Net operating loss carryforwards expire through fiscal years ending 2030.
Internal Revenue Code Section 382 places a limitation on the amount of taxable
income that can be offset by carryforwards after a change in control (generally
a greater than 50% change in ownership).
The
valuation allowance at September 30, 2010 was $6,327,000. The decrease during
fiscal 2010 was approximately $359,000.
Net
operating loss carryforwards and the associated deferred tax asset were reduced
during fiscal September 30, 2009 to reflect the impact of the disposition of
IceWEB Virginia, Inc. in a stock sale transaction in the second
quarter.
The table
below summarizes the differences between our effective tax rate and the
statutory federal rate as follows for fiscal 2010 and 2009. The effective tax
rate is 34% Federal and 3.6% State after Federal tax benefit:
2010
|
2009
|
|||||||
Computed
“expected” tax benefit
|
(34.0
|
)%
|
(34.0
|
)%
|
||||
State
income taxes
|
(3.6
|
)%
|
(3.6
|
)%
|
||||
Other
permanent differences
|
1.0
|
%
|
42.0
|
%
|
||||
Change
in valuation allowance
|
36.6
|
%
|
(4.4
|
)%
|
||||
Effective
tax rate
|
0.0
|
%
|
0.0
|
%
|
NOTE 10 -
CONCENTRATION OF CREDIT RISK
Bank
Balances
We
maintain our cash bank deposits at various financial institutions which, at
times, may exceed federally insured limits. Accounts are guaranteed by the
Federal Deposit Insurance Corporation (FDIC). During October 2009,
the FDIC increased the insured amounts at participating financial institutions
from $100,000 to $250,000 and provided unlimited coverage for non-interest
bearing transaction accounts. At September 30, 2010 we had no amounts
in excess of FDIC insured limits. We have not experienced any losses in such
accounts.
Major
Customers
Sales to
eight customers represented approximately 89% of total sales for the year ended
September 30, 2010. As of September 30, 2010 approximately 83% of our accounts
receivable was due from one customer. Sales to ten customers represented
approximately 63% in 2009.
F-16
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 11 -
STOCKHOLDERS’ EQUITY (DEFICIT)
Preferred
Stock
Our
authorized capital includes 10,000,000 shares of blank check preferred stock,
par value $0.001 per share, of which 1,666,667 shares have previously been
designated as Series A Convertible Preferred Stock. Our Board of Directors,
without further stockholder approval, may issue our preferred stock in one or
more series from time to time and fix or alter the designations, relative
rights, priorities, preferences, qualifications, limitations and restrictions of
the shares of each series. In September 2005, Our Board of Directors authorized
a series of 833,334 shares of blank check preferred stock be designated as
Series B Convertible Preferred Stock and on September 28, 2005, we filed a
Certificate of Designations of Preferences, Rights and Limitations of Series B
Preferred with the Secretary of State of Delaware. On December 29, 2005, we
filed an Amended and Restated Certificate of Designations of Preferences, Rights
and Limitations of Series B Convertible Preferred Stock increasing the number of
shares authorized under this series to 1,833,334 shares.
A) Series
A Convertible Preferred Stock
On March
30, 2005, we entered into a Preferred Stock Purchase Agreement and related
agreements with Barron Partners LP. Under the terms of this agreement, we sold
Barron Partners LP, an accredited investor, 1,666,667 shares of our Series A
Convertible Preferred Stock and issued the purchaser the Common Stock Purchase
Warrants “A”, “B” and “C” to purchase an aggregate of 4,500,000 shares of our
common stock at exercise prices ranging from $2.00 to $9.60 per share for an
aggregate purchase price of $1,000,000. We received net proceeds of $900,000
after payment of expenses of $35,000 and a finder’s fee to Liberty Company LLC
of $65,000. We also issued Liberty Company LLC, a broker-dealer, a Common Stock
Purchase Warrant “A” exercisable into 175,000 shares of our common stock with an
exercise price of $0.70 per share as additional compensation for its services.
We used these proceeds for general working capital and acquisitions. The
transaction was exempt from registration under the Securities Act in reliance on
an exemption provided by Section 4(2) of that act.
All
shares of Series A Convertible Preferred Stock were converted into shares of our
common stock in fiscal 2008. As of September 30, 2010 there are no
Series A Convertible Preferred shares outstanding. The warrants issued in
conjunction with the Series A Convertible Preferred Stock transaction were fully
converted into shares of our common stock in fiscal 2008. There are
no outstanding warrants related to the Series A Convertible Preferred Stock
transaction at September 30, 2010.
B) Series
B Convertible Preferred Stock
The
designations, rights and preferences of the Series B Convertible Preferred Stock
provide:
•
|
no
dividends are payable on the Series B Convertible Preferred Stock. So long
as these shares are outstanding, we cannot pay dividends on our common
stock nor can it redeem any shares of its common stock, the shares of
Series B Convertible Preferred Stock do not have any voting rights, except
as may be provided under Delaware
law,
|
•
|
so
long as the shares are outstanding, we cannot change the designations of
the Series B Convertible Preferred Stock, create a class of securities
that in the instance of payment of dividends or distribution of assets
upon our liquidation ranks senior to or pari passu with the Series B
Convertible Preferred Stock or increase the number of authorized shares of
Series B Convertible Preferred Stock, the shares carry a liquidation
preference of $0.2727 per share,
|
•
|
each
share of Series B Convertible Preferred Stock is convertible at the option
of the holder into one share of our common stock based upon an initial
conversion value of $0.2727 per share. The conversation ratio is subject
to adjustment in the event of stock dividends, stock splits or
reclassification of our common stock. The conversion ratio is also subject
to adjustment in the event we should sell any shares of its common stock
or securities convertible into common stock at an effective price less
than the conversion ratio then in effect, in which case the conversion
ratio would be reduced to the lesser price. No conversion of the Series B
Convertible Preferred Stock may occur if a conversion would result in the
holder, and any of its affiliates beneficially owning more than 4.9% of
our outstanding common shares following such conversion. This provision
may be waived or amended only with the consent of the holders of all of
the Series B Convertible Preferred Stock and the consent of the holders of
a majority of our outstanding shares of common stock who are not
affiliates,
|
F-17
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 11 -
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
•
|
so
long as the Series B Convertible Preferred Stock is outstanding, we have
agreed not to issue any rights, options or warrants to holders of its
common stock entitling the holders to purchase shares of its common stock
at less than the conversion ratio without the consent of the holders of a
majority of the outstanding shares of Series B Convertible Preferred
Stock. If we should elect to undertake such an issuance and the Series B
holders consent, the conversion ratio would be reduced. Further, if we
should make a distribution of any evidence of indebtedness or assets or
rights or warrants to subscribe for any security to our common
stockholders, the conversion value would be
readjusted,
|
•
|
the
shares of Series B Convertible Preferred Stock automatically convert into
shares of our common stock in the event of change of control of the
Company, and
|
•
|
so
long as the shares of Series B Convertible Preferred Stock are
outstanding, we cannot sell or issue any common stock, rights to subscribe
for shares of common stock or securities which are convertible or
exercisable into shares of common stock at an effective purchase price of
less than the then conversion value of the Series B Convertible Preferred
Stock.
|
During
fiscal 2008, Series B Preferred stockholders’ converted 580,000 shares of Series
B Preferred Stock into 580,000 shares of common stock.
During
fiscal 2009, Series B Preferred stockholders’ converted 626,667 shares of Series
B Preferred Stock into 580,000 shares of common stock.
During
fiscal 2009, the remaining 626,667 shares of Series B Preferred Stock were
acquired from the original holders by John Signorello, the Company’s CEO, for
total consideration of $75,000.
On
December 28, 2005, the Company consummated a Preferred Stock Purchase Agreement
and related agreements with Barron Partners LP. Under the terms of these
agreements, the Company issued Barron Partners LP, an accredited investor,
1,833,334 shares of its Series B Convertible Preferred Stock and Common Stock
Purchase Warrants “D”, “E” and “F” to purchase an aggregate of 2,250,000 shares
of its common stock at exercise prices ranging from $2.00 to $9.60 per share,
for an aggregate purchase price of $500,000. The Company received net proceeds
of $475,000 after payment of commissions of $25,000 (before placement expenses).
The Company used these proceeds for general working capital. The transaction was
exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
On the
date of issuance of the Series B Preferred Stock, the effective conversion price
was at a discount to the price of the common stock into which it was
convertible. In fiscal 2006, the Company recorded a $500,000 preferred stock
dividend related to the beneficial conversion feature and the fair value of the
warrants granted in connection with the preferred stock.
Under the
terms of the Preferred Stock Purchase Agreement, the Company
agreed:
•
|
to
maintain a majority of independent directors on its Board of Directors,
and that these independent directors will make up a majority of the audit
and compensation committees of its Board. If at any time the Company
should fail to maintain these independent majority requirements, the
Company is required to pay Barron Partners LP liquidated damages of 24% of
the purchase price of the securities ($120,000) per annum, payable monthly
in kind,
|
•
|
that
if within 24 months from the closing date the Company consummates the sale
of debt or equity securities with a conversion price less than the then
effective conversion price of the Series B Convertible Preferred Stock,
the Company will make a post-closing adjustment in the conversion price of
the Series B Convertible Preferred Stock to such lower conversion
price,
|
•
|
that
for a period of three years all employment and consulting agreements must
have the unanimous consent of the compensation committee of its Board, and
any awards other than salary are usual and appropriate for other officers,
directors, employees or consultants holding similar positions in similar
publicly held-companies,
|
•
|
that
for a period of two years from the closing the Company will not enter into
any new borrowings of more than twice as much as the sum of EBITDA from
recurring operations over the past four quarters, subject to certain
exceptions,
|
F-18
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 11 -
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
•
|
that
for long as Barron Partners LP holds any of the securities, the Company
will not enter into any subsequent financing in which we issue or sell any
debt or equity securities with a floating conversion price or containing a
reset feature, and
|
•
|
that
the Company will submit a proposal at its next annual meeting of
stockholders to amend our Certificate of Incorporation to require the
consent of the holders of a designated percentage of a designated class of
its securities to waive or amend the terms of any rights, options and
warrants approved by its Board.
|
Mr. John
R. Signorello, the Company’s CEO, agreed not to sell any shares of the Company’s
common stock that he may own in excess of 1% per quarter or at a price of less
than $1.50 per share for a period ending August 30, 2007, and that the earliest
any other insiders could sell their shares would be beginning two years from the
closing date.
The
Company granted Barron Partners LP a right of first refusal to participate in
any subsequent funding the Company may undertake on a pro rata basis at 94% of
the offering price.
Warrants
Issued In the Series B Convertible Preferred Stock Transaction
In
connection with the sale of shares of our Series B Convertible Preferred Stock,
we issued the purchaser the following common stock purchase
warrants:
•
|
Common
Stock Purchase Warrants “D” to purchase an aggregate of 1,000,000 shares
of our common stock at an exercise price of $2.00 per
share,
|
•
|
Common
Stock Purchase Warrants “E” to purchase an aggregate of 625,000 shares of
our common stock at an exercise price of $4.80 per share,
and
|
•
|
Common
Stock Purchase Warrants “F” to purchase an aggregate of 625,000 shares of
our common stock at an exercise price of $9.60 per
share.
|
We also
issued Liberty Company LLC, a broker dealer which served as finder for us in the
transaction, a Common Stock Purchase Warrant “G” to purchase 25,000 shares of
its common stock at an exercise price of $1.00 per share. Other than the
exercise price, all other terms of the warrant issued to Liberty Company LLC are
identical to the Common Stock Purchase Warrants “E” and “F” issued to the
purchaser.
The
expiration date of the warrants is five years, or 18 months after effectiveness
of a registration statement subsequent to the issuance hereof with such 18
months to be extended by one month for each month or portion of a month during
which such registration statement’s effectiveness has lapsed or been suspended,
whichever is longer. The warrants contain a cashless exercise provision which
permits the holder, rather than paying the exercise price in cash, to surrender
a number of warrants equal to the exercise price of the warrants being
exercised. The holder cannot utilize the cashless exercise feature during the
first six months of the term or so long as there is an effective registration
statement covering the shares of common stock underlying the warrants. The
exercise price of the warrants and the number of shares issuable upon the
exercise of the warrants is subject to adjustment in the event of stock splits,
stock dividends and reorganizations, as well as if we issue common stock or
securities convertible into common stock at an effective price less than the
then current exercise price of the warrant.
The
warrants issued in conjunction with the Series B Convertible Preferred Stock
transaction were fully converted into shares of our common stock in fiscal
2009. There are no outstanding warrants related to the Series B
Convertible Preferred Stock transaction.
Common
Stock
Fiscal
2009 Transactions
On
October 28, 2008 we issued 3,431,680 shares of restricted common stock at a per
share price of $0.07, valued at $240,218, in lieu of pay to our
employees. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
F-19
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 11 -
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
On
February 18, 2009 we issued 480,000 shares of restricted common stock at a per
share price of $0.14, valued at $67,200, in lieu of pay to our
employees. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
On March
26, 2009 we issued 6,243,581shares of restricted common stock at a per share
price of $0.09, valued at $560,305, in lieu of pay to our
employees. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
On August
19, 2009 we issued 3,000,000 shares of restricted common stock at a per share
price of $0.10 valued at $300,000, in lieu of pay to our
employees. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
On June
3, 2009 we sold 1,400,000 shares of common stock at a per share price of $0.03,
valued at $42,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
8, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
11, 2009 we sold 500,000 shares of common stock at a per share price of $0.03,
valued at $15,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On August
10, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.08,
valued at $80,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On March
10, 2009, we issued 25,000 shares of our common stock valued at $2,500 in
satisfaction of debt in the amount of $2,500, which related to services rendered
to the Company. The recipient was an accredited investor and the issuance was
exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
On March
11, 2009, we issued 100,000 shares of our common stock valued at $4,000 in
satisfaction of debt in the amount of $4,000, which related to services rendered
to the Company. The recipient was an accredited investor and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.
On June
25, 2009, we issued 100,000 shares of our common stock valued at $6,000 in
satisfaction of debt in the amount of $6,000, which related to services rendered
to the Company. The recipient was an accredited investor and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.
On
September 2, 2009, we issued 1,500,000 shares of our common stock valued at
$120,000 in satisfaction of debt in the amount of $120,000, which related to
services rendered to the Company. The recipient was an accredited
investor and the issuance was exempt from registration under the Securities Act
of 1933 in reliance on an exemption provided by Section 4(2) of that
act.
In March,
2009, in conjunction with the sale of its subsidiary IceWEB Virginia, Inc., the
Company issued 1,000,000 shares of our common stock to the purchaser, valued at
$80,000. The recipient was an accredited investor and the issuance
was exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
During
fiscal 2009, we issued 18,715,000 of our common stock in connection with the
exercise of options under our stock option plan.
In the
fiscal first quarter of 2009, we issued 1,959,601 shares of common stock in
connection with payments on a short term note payable, valued at
$152,273.
F-20
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 11 -
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
Fiscal
2010 Transactions
During
November, 2009, we sold 1,000,000 shares of common stock, valued at $130,000 to
a Director for $40,000, and recognized stock based compensation expense of
$90,000. The purchaser was an accredited investor and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
During
November, 2009, we sold 1,500,000 shares of common stock at a per share price of
$0.10, valued at $150,000 to an accredited investor, and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
During
March, 2010, we sold 3,000,000 shares of common stock at a per share price of
$0.10, valued at $300,000 to four accredited investors. The issuances
were exempt from registration under the Securities Act of 1933 in reliance on
exemptions provided by Section 4(2) of that act.
During
March, 2010, we issued 1,000,000 shares of common stock at a per share price of
$0.17, valued at $170,000 to an accredited investor for services
rendered. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
During
February, 2010 we issued 8,800,000 shares of restricted common stock at a per
share price of $0.086, valued at $756,800, in lieu of pay to five of our
employees, including two executive officers. The recipients were
accredited investors and the issuances were exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of
that act.
During
April and May, 2010 we sold 10,080,000 units of our securities to 35
accredited investors in a private placement exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act and Regulation D, with each unit consisting of one share of our common
stock and one 12 month common stock purchase warrants. We received
gross proceeds of $2,316,000 in this offering. Jesup & Lamont
Securities Incorporated, a broker-dealer and member of FINRA, acted as finder
for us in the offering and we paid Jesup & Lamont Securities Incorporated a
fee of $162,120 and issued them one-year common stock purchase warrants to
purchase an aggregate of 877,100 shares of our common stock at an exercise price
of $0.40 per share. In addition, we paid Jesup & Lamont Securities
Incorporated legal expenses totaling $25,000 incurred in the preparation of the
various transactional documents. We are using the net proceeds of this
offering for general working capital.
In July
2010, we issued 2,678,571 shares of common stock valued at $401,786 to Optimus
Capital Partners, LLC as consideration in the settlement of certain
litigation. The recipient was an accredited investor and the issuance
was exempt from registration under the Section Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
In
September 2010, we issued 3,000,000 shares of our common stock in full
satisfaction of $1,090,136 of principal and interest due under a convertible
debenture. The recipient was an accredited investor and the issuance was exempt
from registration under the Section Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
During
fiscal 2010, in conjunction with certain employment agreements, we issued
494,937 shares of restricted common stock valued at $97,065, in lieu of pay to
non-executive employees. The recipients were accredited investors and
the issuances were exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) of that act.
During
May, 2010, we issued 200,000 shares of common stock at a per share price of
$0.30, valued at $60,000 to an accredited investor for services
rendered. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
During
fiscal 2010, in conjunction with a consulting agreement, we issued 250,000
shares of restricted common stock valued at $56,234, in lieu of pay to
non-executive employees. The recipients were accredited investors and
the issuances were exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) of that act.
F-21
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 11 -
STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
In June
2010, we issued 1,300,000 shares of common stock valued at $210,000 as partial
consideration in the settlement of certain litigation. The recipients
were an accredited investor and the issuance was exempt from registration under
the Section Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
Common
Stock Warrants
A summary
of the status of our outstanding common stock warrants as of September 30, 2010
and 2009 and changes during the period ending on that date is as
follows:
Year Ended September 30,
2010
|
Year Ended September 30,
2009
|
|||||||||||||||
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
|||||||||||||
Common Stock Warrants
|
||||||||||||||||
Balance
at beginning of year
|
225,000
|
$
|
1.78
|
300,000
|
$
|
1.25
|
||||||||||
Granted
|
8,137,100
|
0.40
|
—
|
—
|
||||||||||||
Exercised
|
—
|
—
|
—
|
—
|
||||||||||||
Forfeited
|
(75,000
|
)
|
6.00
|
(75,000
|
)
|
0.65
|
||||||||||
Balance
at end of year
|
8,287,100
|
$
|
0.40
|
225,000
|
$
|
1.78
|
||||||||||
Warrants
exercisable at end of year
|
8,287,100
|
$
|
0.40
|
|||||||||||||
Weighted
average fair value of warrants granted or re-priced during the
year
|
$
|
—
|
The
following table summarizes information about common stock warrants outstanding
at September 30, 2010:
Warrants Outstanding
|
Warrants Exercisable
|
||||||||||||||||||
Weighted
|
|||||||||||||||||||
Number
|
Average
|
Weighted
|
Number
|
Weighted
|
|||||||||||||||
Range of
|
Outstanding at
|
Remaining
|
Average
|
Exercisable at
|
Average
|
||||||||||||||
Exercise
|
September 30,
|
Contractual
|
Exercise
|
September 30,
|
Exercise
|
||||||||||||||
Price
|
2010
|
Life
|
Price
|
2010
|
Price
|
||||||||||||||
$ | 0.20 | 200,000 |
0.57 Years
|
$ | 0.20 | 200,000 | $ | 0.20 | |||||||||||
$ | 0.40 | 7,792,100 |
0.65 Years
|
$ | 0.40 | 7,792,100 | $ | 0.40 | |||||||||||
$ | 0.50 | 290,000 |
3.03 Years
|
$ | 0.50 | 290,000 | $ | 0.50 | |||||||||||
$ | 2.00 | 5,000 |
0.81 Years
|
$ | 2.00 | 5,000 | $ | 2.00 | |||||||||||
8,287,100 | $ | 0.40 | 8,287,100 | $ | 0.40 |
NOTE 12 -
STOCK OPTION PLAN
In August
2000, the Board of Directors adopted the 2000 Management and Director Equity
Incentive and Compensation Plan (the “Plan”) for directors, officers and
employees that provides for non-qualified and incentive stock options to be
issued enabling holders thereof to purchase common shares of our stock at
exercise prices determined by our Board of Directors. The Plan was approved by
our stockholders in August 2001.
F-22
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 12 -
STOCK OPTION PLAN (continued)
The
purpose of the Plan is to advance our interests and those of its stockholders by
providing a means of attracting and retaining key employees, directors and
consultants. In order to serve this purpose, we believe the Plan encourages and
enables key employees, directors and consultants to participate in its future
prosperity and growth by providing them with incentives and compensation based
on its performance, development and financial success. Participants in the Plan
may include our officers, directors, other key employees and consultants who
have responsibilities affecting our management, development or financial
success.
Awards
may be made under the Plan in the form of Plan options, shares of our common
stock subject to a vesting schedule based upon certain performance objectives
(“Performance Shares”) and shares subject to a vesting schedule based on the
recipient’s continued employment (“restricted shares”). Plan options may either
be options qualifying as incentive stock options under Section 422 of the
Internal Revenue Code of 1986, as amended or options that do not so qualify. Any
incentive stock option granted under the Plan must provide for an exercise price
of not less than 100% of the fair market value of the underlying shares on the
date of such grant, but the exercise price of any incentive option granted to an
eligible employee owning more than 10% of our common stock must be at least 110%
of such fair market value as determined on the date of the grant. Only persons
who are officers or other key employees are eligible to receive incentive stock
options and performance share grants. Any non-qualified stock option granted
under the Plan must provide for an exercise price of not less than 50% of the
fair market value of the underlying shares on the date of such
grant.
As
amended in fiscal 2010, the Plan permits the grant of options and shares for up
to 60,000,000 shares of our common stock. The Plan terminates 10 years from the
date of the Plan’s adoption by our stockholders.
The term
of each Plan option and the manner in which it may be exercised is determined by
the Board of Directors, provided that no Plan option may be exercisable more
than three years after the date of its grant and, in the case of an incentive
option granted to an eligible employee owning more than 10% of our common stock,
no more than five years after the date of the grant. The exercise price of the
stock options may be paid in either cash, or delivery of unrestricted shares of
common stock having a fair market value on the date of delivery equal to the
exercise price, or surrender of shares of common stock subject to the stock
option which has a fair market value equal to the total exercise price at the
time of exercise, or a combination of the foregoing methods.
The fair
value of stock options granted was estimated at the date of grant using the
Black-Scholes options pricing model. We used the following assumptions for
determining the fair value of options granted under the Black-Scholes option
pricing model:
Year Ended September 30,
|
||||||
2010
|
2009
|
|||||
Expected
volatility
|
129%
- 325%
|
149%
- 183%
|
||||
Expected
term
|
1 -
5 Years
|
1 -
5 Years
|
||||
Risk-free
interest rate
|
0.03%
- 0.48%
|
2.53%
- 4.76%
|
||||
Forfeiture
Rate
|
0%
- 45%
|
0%
- 45%
|
||||
Expected
dividend yield
|
0%
|
0%
|
The
expected volatility was determined with reference to the historical volatility
of our stock. We use historical data to estimate option exercise, employee
termination, and forfeiture rate within the valuation model. The expected term
of options granted represents the period of time that options granted are
expected to be outstanding. The risk-free interest rate for periods within the
contractual life of the option is based on the U.S. Treasury rate in effect at
the time of grant.
For the
year ended September 30, 2010, total stock-based compensation charged to
operations for option-based arrangements amounted to $1,627,920. At September
30, 2010, there was approximately $447,076 of total unrecognized compensation
expense related to non-vested option-based compensation arrangements under the
Plan.
F-23
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 12 -
STOCK OPTION PLAN (continued)
A summary
of the status of our outstanding stock options as of September 30, 2010 and
changes during the period ending on that date is as follows:
Year Ended September 30,
2010
|
Year Ended September 30,
2009
|
|||||||||||||||||||||||
Number of
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
|||||||||||||||||||
Stock
options
|
||||||||||||||||||||||||
Balance
at beginning of year
|
10,944,483
|
$
|
0.27
|
6,583,827
|
$
|
0.61
|
$
|
|||||||||||||||||
Granted
|
32,410,000
|
0.09
|
24,395,000
|
0.06
|
||||||||||||||||||||
Exercised
|
(30,570,600
|
)
|
0.09
|
(18,715,000
|
)
|
0.05
|
||||||||||||||||||
Forfeited
|
(1,179,479
|
)
|
0.16
|
(1,319,344
|
)
|
0.28
|
||||||||||||||||||
Balance
at end of year
|
11,604,404
|
$
|
0.27
|
$
|
1,351,502
|
10,944,483
|
$
|
0.27
|
$
|
147,150
|
||||||||||||||
Options
exercisable at end of year
|
9,691,237
|
$
|
0.30
|
$
|
1,037,335
|
4,123,134
|
$
|
0.47
|
$
|
109,006
|
||||||||||||||
Weighted
average fair value of options granted during the year
|
$
|
0.078
|
$
|
0.04
|
The
following table summarizes information about employee stock options outstanding
at September 30, 2010:
Options Outstanding
|
Options Exercisable
|
||||||||||||||
Range of
Exercise Price |
Number
Outstanding at
September 30,
2010
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable at
September 30,
2010
|
Weighted
Average
Exercise
Price
|
||||||||||
$
|
0.001-0.25
|
7,649,400
|
2.13
Years
|
$
|
0.11
|
5,880,033
|
$
|
0.11
|
|||||||
0.30-0.48
|
695,000
|
2.25
Years
|
0.41
|
556,750
|
0.45
|
||||||||||
0.54-0.60
|
2,475,004
|
1.87
Years
|
0.58
|
2,469,454
|
0.59
|
||||||||||
0.61-0.80
|
785,000
|
1.13
Years
|
0.70
|
785,000
|
0.69
|
||||||||||
11,604,404
|
$
|
0.27
|
9,691,237
|
$
|
0.30
|
NOTE 13 -
DISCONTINUED OPERATIONS
On March
30, 2009, we completed the sale of IceWEB Virginia, Inc., a wholly owned
subsidiary, to ABC Networks, Inc., a privately held U.S. company. Pursuant to
the terms of the transaction, ABC Networks, Inc. acquired 100% of the
outstanding common stock of IceWEB, Virginia, Inc.
The
aggregate sales price consisted of the following:
Common
stock issued to purchaser
|
$
|
80,000
|
||
Net
book value of disposed subsidiary
|
(2,746,236
|
)
|
||
$
|
(2,666,236
|
)
|
F-24
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 13 -
DISCONTINUED OPERATIONS (continued)
The
following table summarizes the estimated fair values of IceWeb Virginia’s assets
and liabilities disposed of at the date of the sale:
Intangible
assets, net
|
$
|
(53,565
|
)
|
|
IceWEB,
Inc. common stock
|
(80,000
|
)
|
||
Accounts
payable and accrued liabilities
|
2,799,801
|
|||
Estimated
gain on the sale
|
$
|
2,666,236
|
IceWEB
Virginia, Inc. operated as a value-added reseller of primarily IT security
products to the Federal government. The results of operations of
discontinued operations were as follows:
Results
from discontinued operations were as follows:
Fiscal Year Ended
September 30,
|
||||||||
2010
|
2009
|
|||||||
Sales
|
$
|
—
|
$
|
1,694,322
|
||||
Cost
of sales
|
—
|
1,348,307
|
||||||
Operating
Expenses:
|
||||||||
Sales
and marketing
|
—
|
163,694
|
||||||
Depreciation
and amortization
|
—
|
45,913
|
||||||
Subtotal
|
—
|
209,607
|
||||||
Income
from discontinued operations
|
—
|
136,408
|
||||||
Interest
expense related to discontinued operations
|
(205,940
|
)
|
||||||
Gain
from sale of discontinued operations
|
—
|
2,666,236
|
||||||
Total
Gain from discontinued operations
|
$
|
—
|
$
|
2,596,704
|
During
the fiscal second quarter of 2009 we sold our wholly owned subsidiary, Iceweb
Virginia, Inc. to an unrelated third party.
For 2009
we earned revenues in discontinued operations of $1,694,322. We had no
comparable discontinued operations in fiscal 2010.
Total
operating expenses of discontinued operations in fiscal 2009 amounted to
$209,607, and consisted of primarily sales and marketing expenses associated
with IceWEB Virginia, Inc. and the amortization of the GSA schedule through the
date of sale of the subsidiary.
Gain from sale of assets.
During the fiscal year 2009 we recorded a gain of $2,666,236 on the sale of our
IceWEB Virginia, Inc. subsidiary. We did not have a comparable transaction in
fiscal 2010.
NOTE 14 -
INVESTMENTS
(a)
Summary of Investments
Marketable Equity
Securities:
In
November, 2009 we acquired 800,000 shares of VOIS Inc. common stock for
$48,000. The Company was able to negotiate a purchase price less than
the then trading price of VOIS’ common stock based upon the illiquid nature of
the investment and the lack of any other willing purchasers for VOIS
securities. Due to the illiquid nature of the VOIS Inc. common stock
we applied a discount factor of 20% to the fair value of the marketable
security.
As of
September 30, 2010, the Company’s investments in marketable equity
securities are based on the September 30, 2010 stock price as reflected on
the OTCBB stock exchange , reduced by a discount factor if those shares have
selling restrictions. These marketable equity securities are
summarized as follows:
F-25
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 14 -
INVESTMENTS (continued)
SEPTEMBER 30, 2010
|
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Fair
Value
|
||||||||||||
Publicly
traded equity securities
|
$ | 48,000 | $ | 476,800 | $ | — | $ | 524,800 | ||||||||
Total
|
$ | 48,000 | $ | 476,800 | $ | — | $ | 524,800 |
The
unrealized gains are presented in comprehensive income in the consolidated
statement of operations and comprehensive income.
(b)
Gains and Losses on Investments
The
following table summarizes the realized net gains (losses) associated with the
Company’s investments:
Fiscal Year Ended
|
||||||||
September30
|
||||||||
2010
|
2009
|
|||||||
Net
gains/(loss) on investments in publicly traded equity
securities
|
$
|
476,800
|
$
|
—
|
||||
Net
gains on investments
|
$
|
476,800
|
$
|
—
|
On
January 1, 2008, the Company adopted ASC 820, which, among other things,
defines fair value, establishes a consistent framework for measuring fair value
and expands disclosure for each major asset and liability category measured at
fair value on either a recurring or nonrecurring basis. The Company did not
adopt the ASC 820 fair value framework for nonfinancial assets and liabilities,
except for items that are recognized or disclosed at fair value in the financial
statements at least annually. ASC 820 clarifies that fair value is an exit
price, representing the amount that would either be received to sell an asset or
be paid to transfer a liability in an orderly transaction between market
participants. As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would use in pricing an
asset or liability. As a basis for considering such assumptions, ASC 820
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value as follows:
Level 1. Observable inputs
such as quoted prices in active markets for identical assets or
liabilities;
Level 2. Inputs, other than
the quoted prices in active markets, that are observable either directly or
indirectly; and
Level 3. Unobservable inputs
in which there is little or no market data, which require the reporting entity
to develop its own assumptions.
Investment
Measured at Fair Value on a Recurring Basis:
Fair Value Measurements Using:
|
||||||||||||
|
Quoted
Prices
in Active
Markets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
|||||||||
|
||||||||||||
Marketable
Equity Securities, net of discount for restriction
|
$
|
-
|
$
|
—
|
$
|
524,800
|
F-26
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 14 -
INVESTMENTS (continued)
We
categorize the securities as investments in marketable securities available for
sale. These securities are quoted either on an exchange or
inter-dealer quotation (pink sheet) system. The securities are restricted and
cannot be readily resold by us absent a registration of those securities under
the Securities Act of 1933 (the “Securities Act”) or the availabilities of an
exemption from the registration requirements under the Securities
Act. As these securities are often restricted, we are unable to
liquidate them until the restriction is removed. Unrealized gains or
losses on marketable securities available for sale are recognized as an
element of comprehensive income based on changes in the fair value of the
security. Once liquidated, realized gains or losses on the sale of
marketable securities available for sale are reflected in our net income for the
period in which the security was liquidated.
Under the
guidance of ASC 320, “Investments”, we periodically evaluate
other-than-temporary impairment (OTTI) of securities to determine whether a
decline in their value is other than temporary. Management utilizes
criteria such as the magnitude and duration of the decline, in addition to the
reasons underlying the decline, to determine whether the loss in value is other
than temporary. The term “other-than-temporary” is not intended to indicate that
the decline is permanent. It indicates that the prospects for a near
term recovery of value are not necessarily favorable, or that there is a lack of
evidence to support fair values equal to, or greater than, the carrying value of
the investment. Once a decline in value is determined to be other than
temporary, the value of the security is reduced and a corresponding impairment
charge to earnings is recognized. In the assessment of OTTI for
various securities at September 30, 2010 the guidance in ASC 320, “the
Investment-Debt and Equity Securities,” is carefully
followed.
There
were no impairment charges on investments in publicly traded equity securities
for the year ended September 30, 2010 or for the year ended September 30,
2009.
The
Company has evaluated its publicly traded equity securities as of September 30,
2010, and has determined that there were no unrealized losses that indicate an
other-than-temporary impairment. This determination was based on several
factors, which include the length of time and extent to which fair value has
been less than the cost basis and the financial condition and near-term
prospects of the issuer, and the Company’s intent and ability to hold the
publicly traded equity securities for a period of time sufficient to allow for
any anticipated recovery in market value.
NOTE 15 -
COMPREHENSIVE INCOME (LOSS)
Comprehensive
income is comprised of net income and other comprehensive income or loss. Other
comprehensive income or loss refers to revenue, expenses, gains and losses that
under accounting principles generally accepted in the United States are included
in comprehensive income but excluded from net income as these amounts are
recorded directly as an adjustment to stockholders’ equity.
Our other
comprehensive income consists of unrealized gains on marketable securities
available for sale of $476,800.
NOTE 16 -
SEGMENT REPORTING
Although
the Company has a number of operating divisions, separate segment data has not
been presented as they meet the criteria for aggregation as permitted by ASC
Topic 280, “Segment Reporting” (formerly Statement of Financial Accounting
Standards (SFAS) No. 131, “Disclosures About Segments of an Enterprise and
Related Information”).
Our chief
operating decision-maker is considered to be our Chief Executive Officer (CEO).
The CEO reviews financial information presented on a consolidated basis for
purposes of making operating decisions and assessing financial performance. The
financial information reviewed by the CEO is identical to the information
presented in the accompanying consolidated statements of operations. Therefore,
the Company has determined that it operates in a single operating segment,
specifically, web communications services. For the periods ended September 30,
2010 and 2009 all material assets and revenues of the Company were in the United
States.
F-27
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2010 and 2009
NOTE 17 -
SUBSEQUENT EVENTS
Subsequent
to September 30, 2010 we have issued 265,475 shares of our common stock valued
at $60,000 to our employees in conjunction with their compensation. In
addition, subsequent to September 30, 2010 we issued 100,000 shares of our
common stock to a consultant for services rendered, valued at
$21,692.
We have
evaluated events and transactions that occurred subsequent to September 30, 2010
through the date the financial instruments were issued, for potential
recognition or disclosure in the accompanying financial
statements. Other than the disclosures shown, we did not identify any
events or transactions that should be recognized or disclosed in the
accompanying financial statements.
NOTE 18 -
COMMITMENTS AND CONTINGENCIES
We are a
party to litigation which arises primarily in the ordinary course of business.
In the opinion of management, the ultimate disposition of such litigation should
not have a material adverse effect on our financial position or results of
operations.
F-28
TABLE OF
CONTENTS
Page
|
||
About
this Prospectus
|
2
|
|
Prospectus
Summary
|
2
|
|
Cautionary
Statements Regarding Forward-Looking Information
|
3
|
|
Selected
Consolidated Financial Data
|
3
|
|
The
Offering
|
4
|
|
Risk
Factors
|
5
|
|
Cautionary
Statements Regarding Forward-Looking Information
|
3
|
|
Market
for Common Equity and Related Stockholder Matters
|
10
|
|
Dilution
|
||
Plan
of Distribution
|
11
|
|
Management's
Discussion and Analysis or Plan of Operation
|
13
|
|
Our
Business
|
22
|
|
Management
|
29
|
|
Certain
Relationships and Related Transactions
|
39
|
|
Use
of Proceeds
|
42
|
|
Selling
Shareholders
|
42
|
|
Description
of Securities
|
45
|
|
Legal
Matters
|
47
|
|
Experts
|
47
|
|
Where
You Can Find Additional Information
|
47
|
|
Financial
Statements
|
F-1
|
IceWEB,
Inc.
PROSPECTUS
26,011,488 Shares
[
], 2011
Part
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
estimated expenses payable by us in connection with the distribution of the
securities being registered are as follows:
SEC
Registration and Filing Fee*
|
$
|
478
|
||
Legal
Fees and Expenses*
|
25,000
|
|||
Accounting
Fees and Expenses*
|
5,500
|
|||
Financial
Printing*
|
400
|
|||
Transfer
Agent Fees*
|
1,620
|
|||
Blue
Sky Fees and Expenses*
|
1,350
|
|||
Miscellaneous*
|
500
|
|||
TOTAL
|
$
|
34,848
|
* Estimated
ITEM
14. INDEMNIFICATION OF DIRECTORS AND
OFFICERS.
Our
Certificate of Incorporation and By-laws provide for the indemnification of
our directors and officers to the fullest extent permitted by the Delaware
General Corporation Law ("DGCL").
Section
145 of the DGCL permits a corporation, under specified circumstances, to
indemnify its directors, officers, employees or agents against expenses
(including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with
any action, suit or proceeding brought by third parties by reason of the
fact that they were or are directors, officers, employees or agents of the
corporation, if such directors, officers, employees or agents acted in good
faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation and, with respect to any criminal
action or proceeding, had no reason to believe their conduct was unlawful.
In a derivative action, i.e., one by or in the right of the corporation,
indemnification may be made only for expenses actually and reasonably
incurred by directors, officers, employees or agents in connection with the
defense or settlement of any action or suit, and only with respect to a matter
as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person
shall have been adjudged liable to the corporation, unless and only to the
extent that the court in which the action or suit was brought shall determine
upon application that the defendant directors, officers, employees
or agents are fairly and reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Our
Certificate of Incorporation contains a provision which eliminates, to the
fullest extent permitted by the DGCL, director liability for
monetary damages for breaches of the fiduciary duty of care or any other
duty as a director.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may be permitted to directors, officers or persons controlling our company
pursuant to the foregoing provisions, we have been informed that in
the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as expressed in the act and is therefore
unenforceable.
II-1
ITEM
15. RECENT SALES OF UNREGISTERED
SECURITIES.
Following are all issuances of securities by the registrant during the past
three years which were not registered under the Securities Act of 1933, as
amended. In each of these issuances the recipient represented that he
was acquiring the shares for investment purposes only, and not with a view
towards distribution or resale except in compliance with applicable securities
laws. No general solicitation or advertising was used in connection
with any transaction, and the certificate evidencing the securities that were
issued contained a legend restricting their transferability absent registration
under the Securities Act of 1933 or the availability of an applicable exemption
therefrom. Unless specifically set forth below, no underwriter participated in
the transaction and no commissions were paid in connection with the transactions
and the issuances
were exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
On June
5, 2007 we issued 25,000 shares of common stock valued at $15,500, the fair
market value on that day to Harold Compton, a member of our Board of Directors,
as additional compensation for his having the role as lead director. The
recipient was an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
29, 2007, we issued 200,000 shares of our common stock in satisfaction of a
promissory note in the amount of $150,000, plus accrued interest of $96,875. The
recipient was an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 3(a)(9) of that act. The fair market value of the shares on
the date of the transaction was $114,000, and this transaction resulted in a
gain on the extinguishment of debt of $132,875, which is included in general and
administrative expense in the statement of operations.
On July
5, 2007, we issued 500,000 shares of our common stock in satisfaction a debt in
the amount of $200,000. The recipient was an accredited investor and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 3(a)(9) of that act. The fair
market value of the shares on the date of the transaction was $335,000, and this
transaction resulted in a loss on the extinguishment of debt of $115,000, which
is included in general and administrative expense in the statement of
operations.
On August
28, 2007 we sold 350,000 shares of common stock at a per share price of $0.50,
valued at $175,000 to Harold Compton, a member of our Board of Directors. The
purchaser was an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
II-2
During
fiscal 2008, in connection with the payment on a note payable we issued 266,500
shares of common stock to an accredited investor. The shares were
valued at $41,126, the fair market value in the date of issuance. The
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.
During
fiscal 2008, in connection with the payment for consulting services rendered, we
issued 2,086,250 shares of common stock to six individuals, all of whom were
accredited investors. The services were valued at $1,096,663, the
fair market value on the date of issuance. The issuances were exempt
from registration under the Securities Act of 1933 in reliance on exemptions
provided by Section 4(2) of that act.
On
October 28, 2008 we issued 3,431,680 shares of restricted common stock at a per
share price of $0.07, valued at $240,218, in lieu of pay to five of our
employees, including two of our executive officers. The recipients
were accredited investors and the issuances were exempt from registration under
the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of
that act.
On
February 18, 2009 we issued 480,000 shares of restricted common stock at a per
share price of $0.14, valued at $67,200, in lieu of pay to an employee The
recipient was an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On March
26, 2009 we issued 6,243,581 shares of restricted common stock at a per share
price of $0.09, valued at $560,305, in lieu of pay to four of our employees,
including two of our executive officers. The recipients were
accredited investors and the issuances were exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of
that act.
On August
19, 2009 we issued 3,000,000 shares of restricted common stock at a per share
price of $0.10 valued at $300,000, in lieu of pay to three of our employees,
including two of our executive officers. The recipients were
accredited investors and the issuances were exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of
that act.
On June
3, 2009 we sold 1,400,000 shares of common stock at a per share price of $0.03,
valued at $42,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
8, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On June
11, 2009 we sold 500,000 shares of common stock at a per share price of $0.03,
valued at $15,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
On August
10, 2009 we sold 1,000,000 shares of common stock at a per share price of $0.04,
valued at $40,000 to an accredited investor and the issuance was exempt from
registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
II-3
On March
10, 2009, we issued 25,000 shares of our common stock valued at $2,500 in
satisfaction of debt in the amount of $2,500, which related to services rendered
to the Company. The recipient was an accredited investor and the issuance was
exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
On March
11, 2009, we issued 100,000 shares of our common stock valued at $4,000 in
satisfaction of debt in the amount of $4,000, which related to services rendered
to the Company. The recipient was an accredited investor and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.
On June
25, 2009, we issued 100,000 shares of our common stock valued at $6,000 in
satisfaction of debt in the amount of $6,000, which related to services rendered
to the Company. The recipient was an accredited investor and the
issuance was exempt from registration under the Securities Act of 1933 in
reliance on an exemption provided by Section 4(2) of that act.
On
September 2, 2009, we issued 1,500,000 shares of our common stock valued at
$120,000 in satisfaction of debt in the amount of $120,000, which related to
services rendered to the Company. The recipient was an accredited
investor and the issuance was exempt from registration under the Securities Act
of 1933 in reliance on an exemption provided by Section 4(2) of that
act.
In March,
2009, in conjunction with the sale of its subsidiary IceWEB Virginia, Inc., the
Company issued 1,000,000 shares of our common stock to the purchaser, valued at
$80,000. The recipient was an accredited investor and the issuance
was exempt from registration under the Securities Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
During
March, 2009, we sold 2,000,000 shares of common stock at a per share price of
$0.042, valued at $83,000 to an accredited investor who is a related party to an
executive officer. As of March 31, 2010 the Company had not yet received the
proceeds from the investor and as a result the Company recorded the subscription
receivable as a contra equity account on its balance sheet. The recipient was an
accredited investor and the issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
During
November, 2009, we sold 1,000,000 shares of common stock, valued at $130,000 to
a Director for $40,000, and recognized stock based compensation expense of
$90,000. The purchaser was an accredited investor and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
During
November, 2009, we sold 1,500,000 shares of common stock at a per share price of
$0.10, valued at $150,000 to an accredited investor, and the issuance was exempt
from registration under the Securities Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
During
March, 2010, we sold 3,000,000 shares of common stock at a per share price of
$0.10, valued at $300,000 to four accredited investors. The issuances
were exempt from registration under the Securities Act of 1933 in reliance on
exemptions provided by Section 4(2) of that act.
During
March, 2010, we issued 1,000,000 shares of common stock at a per share price of
$0.17, valued at $170,000 to an accredited investor for services
rendered. The issuance was exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act.
During
February, 2010 we issued 8,800,000 shares of restricted common stock at a per
share price of $0.086, valued at $756,800, in lieu of pay to five of our
employees, including two executive officers. The recipients were
accredited investors and the issuances were exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of
that act.
During
April and May, 2010 we sold 10,080,000 units of our securities to 35
accredited investors in a private placement exempt from registration under the
Securities Act of 1933 in reliance on an exemption provided by Section 4(2) of
that act and Regulation D, with each unit consisting of one share of our common
stock and one 12 month common stock purchase warrants. We received
gross proceeds of $2,316,000 in this offering. Jesup & Lamont
Securities Incorporated, a broker-dealer and member of FINRA, acted as finder
for us in the offering and we paid Jesup & Lamont Securities Incorporated a
fee of $162,120 and issued them one-year common stock purchase warrants to
purchase an aggregate of 877,100 shares of our common stock at an exercise price
of $0.40 per share. In addition, we paid Jesup & Lamont Securities
Incorporated legal expenses totaling $25,000 incurred in the preparation of the
various transactional documents. We are using the net proceeds of this
offering for general working capital.
In July
2010, we issued 2,678,571 shares of common stock valued at $250,000 to Optimus
Capital Partners, LLC as consideration in the settlement of certain
litigation. The recipient was an accredited investor and the issuance
was exempt from registration under the Section Act of 1933 in reliance on an
exemption provided by Section 4(2) of that act.
In
September 2010, we issued 3,000,000 shares of our common stock in full
satisfaction of $1,090,136 of principal and interest due under a convertible
debenture. The recipient was an accredited investor and the issuance was exempt
from registration under the Section Act of 1933 in reliance on an exemption
provided by Section 4(2) of that act.
During
December, 2010 we issued 700,000 shares of restricted common stock at a per
share price of $0.17, valued at $119,000 to three of our
employees. The recipients were accredited investors and the issuances
were exempt from registration under the Securities Act of 1933 in reliance on
exemptions provided by Section 4(2) of that act.
During
October, November, and December, 2010 we issued 265,475 shares of restricted
common stock at an average per share price of $0.226, valued at $60,000 to four
consultants. The recipients were accredited investors and the
issuances were exempt from registration under the Securities Act of 1933 in
reliance on exemptions provided by Section 4(2) of that act.
During
October, November, and December, 2010 we issued 150,000 shares of restricted
common stock to a consultant at an average per share price of $0.23, valued at
$34,448. The recipient was an accredited investor and the issuance
was exempt from registration under the Securities Act of 1933 in reliance on
exemptions provided by Section 4(2) of that act.
II-4
ITEM 16.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The
following documents are filed as a part of this registration statement or are
incorporated by reference to previous filings, if so indicated:
2.1
|
Agreement
and Plan of Reorganization and Stock Purchase Agreement with Disease S.I.
Inc.(4)
|
|
2.2
|
Agreement
and Plan of Merger with IceWEB Communications, Inc. (8)
|
|
2.3
|
Agreement
and Plan of Merger with Seven Corporation (9)
|
|
3.1
|
Certificate
of Incorporation (1)
|
|
3.2
|
Certificate
of Amendment to Certificate of Incorporation (1)
|
|
3.3
|
Certificate
of Amendment to Certificate of Incorporation (1)
|
|
3.4
|
Certificate
of Amendment to Certificate of Incorporation (1)
|
|
3.5
|
Certificate
of Amendment to Certificate of Incorporation (2)
|
|
3.6
|
Certificate
of Amendment to Certificate of Incorporation (3)
|
|
3.7
|
Certificate
of Amendment to Certificate of Incorporation (11)
|
|
3.8
|
Certificate
of Designations of Series A Convertible Preferred Stock
(12)
|
|
3.9
|
Certificate
of Amendment to Certificate of Incorporation (13)
|
|
3.10
|
Bylaws
(1)
|
|
3.11
|
Certificate
of Designations of Series B Convertible Preferred Stock
(17)
|
|
4.1
|
Form
of Common Stock Purchase Warrant “A” (12)
|
|
4.2
|
Form
of Common Stock Purchase Warrant “B” (12)
|
|
4.3
|
Form
of Common Stock Purchase Warrant “C” (12)
|
|
4.4
|
Form
of Series H Common Stock Purchase Warrant (16)
|
|
4.5
|
Form
of Series I Common Stock Purchase Warrant (16)
|
|
4.6
|
Form
of $0.70 Common Stock Purchase Warrant “A” (16)
|
|
4.7
|
Form
of Comerica Bank warrant (16)
|
|
4.8
|
Form
of Common Stock Purchase Warrant “D” (17)
|
|
4.9
|
Form
of Common Stock Purchase Warrant “E” (17)
|
|
4.10
|
Form
of Common Stock Purchase Warrant “F” (17)
|
|
4.11
|
Form
of Common Stock Purchase Warrant “G” (18)
|
|
4.12
|
Form
of Common Stock Purchase Warrant for Sand Hill Finance LLC
(18)
|
|
4.13
|
Secured
Convertible Debenture for Sand Hill Finance LLC
(22)
|
II-5
4.14
|
Warrant
Amendment Agreement with Sand Hill Finance LLC *
|
|
4.15
|
Jesup
& Lamont, Inc. Private Placement Finders’ Fee Agreement
**
|
|
4.16
|
Restricted
Stock Unit Purchase Agreement **
|
|
5.1
|
Opinion
of Schneider Weinberger & Beilly LLP *
|
|
10.1
|
Acquisition
Agreement with North Orlando Sports Promotions, Inc.
(1)
|
|
10.2
|
Asset
Purchase Agreement with Raymond J. Hotaling (5)
|
|
10.3
|
2000
Management and Director Equity Incentive and Compensation Plan
(6)
|
|
10.4
|
Stock
Purchase Agreement with Health Span Sciences, Inc. (7)
|
|
10.5
|
Stock
Purchase Agreement with Health Span Sciences, Inc. (7)
|
|
10.6
|
Stock
Purchase and Exchange Agreement with Interlan Communications
(9)
|
|
10.7
|
Preferred
Stock Purchase Agreement dated March 30, 2005 (12)
|
|
10.8
|
Registration
Rights Agreement with Barron Partners LP (12)
|
|
10.9
|
Asset
and Stock Purchase Agreement for iPlicity, Inc.(16)
|
|
10.10
|
Asset
and Stock Purchase Agreement for DevElements, Inc. of Virginia
(15)
|
|
10.11
|
Form
of Loan and Security Agreement with Comerica Bank (16)
|
|
10.12
|
Forbearance
Agreement (16)
|
|
10.13
|
Sublease
Agreement for principal executive offices (16)
|
|
10.14
|
Preferred
Stock Purchase Agreement dated September 8, 2005 (18)
|
|
10.15
|
Registration
Rights Agreement with Barron Partners LP (18)
|
|
10.16
|
Financing
Agreement with Sand Hill Finance LLC (18)
|
|
10.17
|
Lease
Agreement for principal executive offices (19)
|
|
10.18
|
Retailer
Marketing Agreement with CompUSA (20)
|
|
10.19
|
Stock
Purchase Agreement with Inline Corporation (21)
|
|
10.20
|
First
Amendment to Stock Purchase Agreement with Inline Corporation
(21)
|
|
10.22
|
Convertible
Debenture with Sand Hill Finance LLC (22)
|
|
10.22
|
Stock
Purchase Agreement for Sale of IceWEB Virginia, Inc.
(23)
|
|
10.23
|
Series
C Preferred Stock Purchase Agreement (24)
|
|
10.24
|
Distribution
Agreement dated March 24, 2010 between Promark Technology, Inc. and IceWEB
Storage Corporation (10)
|
|
10.25
|
Amendment
to Google Enterprise Reseller Agreement dated April 22, 2010
(14)
|
|
14.1
|
Code
of Business Conduct and Ethics (16)
|
|
21.1
|
Subsidiaries
of the registrant (16)
|
|
23.1
|
Consent
of Sherb & Co.,LLP *
|
|
23.2
|
Consent
of Schneider Weinberger & Beilly LLP (included in Exhibit 5.1)
*
|
|
24.1
|
Power
of Attorney (included in Registration Statement on Form S-1, SEC File No.
333-167,501, as filed on June 14,
2010)**
|
*
|
filed
herewith
|
**
|
previously
filed
|
II-6
(1)
|
Incorporated
by reference to the Form 10-SB, file number 000-27865, filed with on
October 28, 1999, as amended.
|
(2)
|
Incorporated
by reference to the definitive Information Statement on Schedule 14C
as filed on June 18, 2001.
|
(3)
|
Incorporated
by reference to the definitive Information Statement on Schedule 14C
as filed on June 26, 2001.
|
(4)
|
Incorporated
by reference to the Report on Form 8-K as filed on June 6,
2001.
|
(5)
|
Incorporated
by reference to the Report on Form 8-K as filed on July 26,
2001.
|
(6)
|
Incorporated
by reference to the definitive Information Statement on Schedule 14C as
filed on July 23, 2001.
|
(7)
|
Incorporated
by reference to the Report on Form 8-K as filed on December 4,
2001.
|
(8)
|
Incorporated
by reference to the Report on Form 8-K as filed on April 4,
2002.
|
(9)
|
Incorporated
by reference to the Report on Form 8-K as filed on August 1,
2003.
|
(10)
|
Incorporated
by reference to the Report on Form 8-K/A as filed on July 20,
2010.
|
(11)
|
Incorporated
by reference to the definitive Information Statement on Schedule 14C as
filed on August 20, 2004.
|
(12)
|
Incorporated
by reference to the Report on Form 8-K as filed on April 5,
2005.
|
(13)
|
Incorporated
by reference to the definitive Information Statement on Schedule14C as
filed on April 4, 2005.
|
(14)
|
Incorporated
by reference to Report on Form 8-K/A as filed on July 20,
2010.
|
(15)
|
Incorporated
by reference to the Report on Form 8-K as filed on July 23,
2004.
|
(16)
|
Incorporated
by reference to the registration statement on Form SB-2, SEC file number
333-126898, as amended.
|
(17)
|
Incorporated
by reference to our Annual Report on Form 10-KSB as filed on January 18,
2006.
|
(18)
|
Incorporated
by reference to the Report on Form 8-K as filed on January 30,
2006.
|
(19)
|
Incorporated
by reference to the registration statement on Form SB-2/A, SEC file number
333-126898 filed on January 30. 2006.
|
(20)
|
Incorporated
by reference to the Report on Form 8-K as filed on June 22,
2006.
|
(21)
|
Incorporated
by reference to the Report on Form 8-K as filed on January 3,
2008.
|
(22)
|
Incorporated
by reference to the Report on Form 8-K as filed on December 1,
2008.
|
(23)
|
Incorporated
by reference to the Report on Form 8-K as filed on April 15,
2009.
|
(24)
|
Incorporated
by reference to the Report on Form 8-K as filed on July 31,
2009.
|
ITEM 17.
UNDERTAKINGS.
a. The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i.
To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
II-7
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement.
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4. That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser:
ii. If
the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such
issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sterling, Virginia on
the 10th day of February, 2011.
ICEWEB,
INC.
|
||
By:
|
/s/ John R. Signorello
|
|
John
R. Signorello, Director, and Chief
|
||
Executive
Officer
|
II-8
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities and on the
dates indicated.
Signature
|
Title
|
Date
|
||
/s/
John R. Signorello
|
CEO
and director, principal executive officer
|
February
10, 2011
|
||
John
R. Signorello
|
||||
/s/
Mark B. Lucky
|
Chief
Financial Officer, principal financial and
|
February
10, 2011
|
||
Mark
B. Lucky
|
accounting
officer
|
|||
*
|
Director
|
February
10, 2011
|
||
Hal
Compton
|
||||
*
|
Director
|
February
10, 2011
|
||
Raymond
H. Pirtle, Jr.
|
||||
*
|
Director
|
February
10, 2011
|
||
Joseph
Druzak
|
||||
*
|
Director
|
February
10, 2011
|
||
Jack
Bush
|
||||
*
|
Director
|
February
10, 2011
|
||
Harry
E. Soyster
|
*
|
By
John R. Signorello,
Attorney-in-fact
|
II-9