Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
IWEB > SEC Filings for IWEB > Form 10-Q on 14-Feb-2014All Recent SEC Filings

Show all filings for ICEWEB INC

Form 10-Q for ICEWEB INC


14-Feb-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following analysis of our consolidated financial condition and results of operations for the three and six months ended December 31, 2013 and 2012 should be read in conjunction with the consolidated financial statements, including footnotes, appearing elsewhere in this quarterly report.

OVERVIEW

With our acquisition of Computers & Telecom, Inc. and KCNAP, LLC, (collectively "CTC") in October 2013, IceWEB is now headquartered in Kansas City, Missouri, and provides wireless and fiber broadband service, co-location space and related services and operates a Network Access Point ("NAP") where customers directly interconnect with a network ecosystem of partners and customers. This access to Internet routes provides CTC customers improved reliability and streamlined connectivity while significantly reducing costs by reaching a critical mass of networks within a centralized physical location. In addition, through our IceWEB Storage Corporation subsidiary we deliver on-line cloud computing application services, and manufacture and market cloud-attached and network storage.

CTC operates a wireless internet service business, providing WIMAX broadband to small and medium size businesses in the metro Kansas-City, Missouri area. In addition CTC offers the following solutions: (i) premium data center co-location, (ii) interconnection and (iii) exchange and outsourced IT infrastructure services.

We leverage our NAP which allows our customers to increase information and application delivery performance while significantly reducing costs. Our platform enables scalable, reliable and cost-effective co-location, interconnection and traffic exchange thus lowering overall cost and increasing flexibility.

Our customer base includes U.S. government agencies, enterprise companies, and small to medium sized businesses ("SMB").

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 1 to the audited consolidated financial statements included for the year ended September 30, 2013 and notes thereto contained on Form 10-K of the Company as filed with the Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about the company's operating results and financial condition.

Financial Reporting Release No. 60, which was released by the U.S. Securities and Exchange Commission, encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. Our consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.

Use of Estimates - Management's Discussion and Analysis or Plan of Operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable, the carrying value of property and equipment and long-lived assets, and the value of stock-option based compensation. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We account for stock based compensation under ASC Topic 718, "Compensation - Stock Compensation. ASC Topic 718 establishes the financial accounting and reporting standards for stock-based compensation plans. As required by ASC Topic 718, we recognize the cost resulting from all stock-based payment transactions including shares issued under our stock option plans in the financial statements. The adoption of ASC Topic 718 will have a negative impact on our future results of operations.

Revenue Recognition - We follow the guidance of Accounting Standards Codification (ASC) Topic 605, "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.

THREE AND SIX MONTHS ENDED DECEMBER 31, 2013 COMPARED TO THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 2012



The following table provides an overview of certain key factors of our results
of operations for the three and six months ended December 31, 2013 as compared
to the three and six months ended December 31, 2012:


                        Three months ended December 31,          Six months ended December 31,
                            2013               2012                 2013               2012
Net Revenues               $   218,743        $   313,411           $  322,665        $  407,079
Cost of sales                  113,206            174,094              176,954           284,636
Operating Expenses:
Sales and marketing
expense                         78,780            136,134              186,692           611,218
Depreciation and
amortization                   187,444             18,016              281,744            70,711
Research and
development                    104,809            281,617              694,377           619,319
General and
administrative                 680,133          1,002,907            2,099,239         2,393,016
Total operating
expenses                     1,051,165          1,438,674            3,262,053         3,694,264
Loss from operation          (945,628)        (1,299,357)          (3,116,341)       (3,571,821)
Total other income
(expense)                  (1,960,922)            508,232          (2,788,667)         2,818,579
Net income (loss)         $(2,906,551)       $  (791,125)         $(5,905,008)       $ (753,242)

Other Key Indicators:

                                              Three months ended        Six months ended
                                                 December 31,             December 31,
                                               2013         2012        2013         2012
Cost of sales as a percentage of revenues       51.8%        55.5%        54.8%       69.9%
Gross profit margin                             48.2%        44.5%        45.2%       30.1%
General and administrative expenses as a
percentage of revenues                         310.9%       320.0%       650.6%      587.9%
Total operating expenses as a percentage of
revenues                                       480.5%       459.0%      1011.0%      907.5%

Six Month Period ended December 31, 2013

Revenues

For the six months ended December 31, 2013, we reported revenues of $322,665 as compared to revenues of $407,079 for the six months ended December 31, 2012, a decrease of $84,414 or approximately 21%.

Cost of Sales

Our cost of sales consists primarily of products purchased and component parts for the manufacture of our storage products and the costs of providing wireless and fiber bandwidth and colocation services. For the six months ended December 31, 2013 cost of sales was $176,954 or approximately 54.8% of revenues, compared to $284,636, or approximately 69.9% of revenues, for the six months ended December 31, 2012. The decrease in costs of sales as a percentage of revenue and the corresponding increase in our gross profit margin for the six months ended December 31, 2013 as compared to the six months ended December 31, 2012 was primarily the result of the mix of higher margin products and services sold in the six month period ended December 31, 2013 versus the prior year period. We anticipate that our gross profit margins will remain between 45% and 50% through the balance of fiscal 2014.

Total Operating Expenses

Our total operating expenses decreased approximately 12% to $3,262,053 for the six months ended December 31, 2013 as compared to $3,694,264 for the six months ended December 31, 2012. These changes include:

Marketing and selling. For the six months ended December 31, 2013, marketing and selling costs were $186,692 as compared to $611,218 for the six months ended December 31, 2012, a decrease of $424,526 or approximately 69%. The decrease was due to a decrease in sales and marketing related headcount and consulting expense during the six months ended December 31, 2013 versus the prior year.

Depreciation and amortization expense. For the six months ended December 31, 2013, depreciation and amortization expense amounted to $281,744 as compared to $70,111 for the six months ended December 31, 2012. The increase was primarily due to the acquisition of Computers & Tele-com, Inc. and subsidiary in October, 2013.

Research and Development. For the six months ended December 31, 2013 research and development costs were $694,377 as compared to $619,319 for the six months ended December 31, 2012, an increase of $75,058 or approximately 12%.

General and administrative expense. For the six months ended December 31, 2013, general and administrative expenses were $2,099,239 as compared to $2,393,017 for the six months ended December 31, 2012, a decrease of $293,777 or approximately 12%. For the six months ended December 31, 2013 and 2012 general and administrative expenses consisted of the following:

                                        Fiscal Q2        Fiscal Q2
                                           2014            2013
               Occupancy              $      50,154     $     16,877
               Consulting                    771,223         160,383
               Employee compensation         842,688         554,119
               Professional fees              99,850         384,703
               Internet/Phone                 11,629           5,176
               Travel/Entertainment           24,436          33,553
               Investor Relations            123,081       1,067,157
               Insurance                       9,728          12,613
               Other                         166,451         158,435
                                      $    2,099,239   $   2,393,016

For the six months ended December 31, 2013, Occupancy expense increased to $50,154 as compared to $16,877. Occupancy expense is higher due to the acquisition of Computers & Tele-com, Inc. and subsidiary, in October, 2013.

For the six months ended December 31, 2013, Consulting expense increased to $771,223 as compared to $160,383, an increase of $610,840. The increase was due to consulting expense incurred related to business development efforts in the current fiscal year.

For the six months ended December 31, 2013, salaries and related expenses increased to $842,688 as compared to $554,119. Employee compensation is higher primarily due to the acquisition of Computers & Tele-com, Inc. and subsidiary, in October, 2013, and higher stock-based compensation in the prior year.

For the six months ended December 31, 2013, Professional fee expense decreased to $99,850 as compared to $384,703. Professional fee expense decreased primarily due to lower litigation and lower legal fees incurred in the normal course of business. For the six months ended December 31, 2013, travel and entertainment expense decreased to $24,436 as compared to $33,553. Travel and entertainment expense decreased as a result of decreased travel for merger and acquisition activities, and general corporate purposes.

For the six months ended December 31, 2013, Other expense amounted to $166,451 as compared to $158,435 for the six months ended December 31, 2012, an increase of $8,016, or 5%.

For the six months ended December 31, 2013 Investor relations expense decreased to $123,081 as compared to $1,067,157 for the six months ended December 31, 2012. The decrease is due to substantially lower general investor relations activity.

We anticipate that general and administrative expenses will continue to remain flat during the balance of fiscal 2013.

LOSS FROM OPERATIONS

We reported a loss from operations of $3,116,341 for the six months ended December 31, 2013 as compared to a loss from operations of $3,571,821 for the six months ended December 31, 2012, a decrease of $455,479 or approximately 13%.

OTHER INCOME (EXPENSES)

Interest expense. For the six months ended December 31, 2013, interest expense amounted to $150,653 as compared to $1,220,139 for the six months ended December 31, 2012, a decrease of $1,069,487 or 88%. The decrease in interest expense is primarily attributable to the lower amortization of deferred financing costs, and the decrease in borrowings and certain interest bearing liabilities.

Loss on impairment of intangible assets. For the six months ended December 31, 2013, we incurred a loss on the impairment of intangible assets of $1,941,050, which related to the acquisition of Computers & Telecom, Inc. and subsidiary in October, 2013. We did not incur a similar expense in the six months ended December 31, 2012.

Loss on extinguishment of debt. For the six months ended December 31, 2013, we incurred a loss on the extinguishment of debt of $768,463, which related to the payoff of the convertible note payable due to Sand Hill Finance at a share price below the contractual conversion price, in August, 2013. We did not incur a similar expense in the six months ended December 31, 2012.

Gain on change of fair value of derivative liability. For the six months ended December 31, 2013 we incurred a decrease in the value of the derivative liability of $71,499 as compared to a decrease in the value of the derivative liability of $4,038,718 for the six months ended December 31, 2012.

NET LOSS

Our net loss was $5,905,008 for the six months ended December 31, 2013 compared to a loss of $753,242 for the six months ended December 31, 2012.

Three Month Period ended December 31, 2013

Revenues

For the three months ended December 31, 2013, we reported revenues of $218,743 as compared to revenues of $313,411 for the three months ended December 31, 2012, a decrease of $94,668 or approximately 30.2%.

Cost of Sales

Our cost of sales consists primarily of products purchased and component parts for the manufacture of our storage products and the costs of providing wireless and fiber bandwidth and colocation services. For the three months ended December 31, 2013 cost of sales was $113,206 or approximately 51.8% of revenues, compared to $174,094, or approximately 55.5% of revenues, for the three months ended December 31, 2012. The decrease in costs of sales as a percentage of revenue and the corresponding increase in our gross profit margin for the three months ended December 31, 2013 as compared to the three months ended December 31, 2012 was primarily the result of the mix of higher margin products and services sold in the three month period ended December 31, 2013 versus the prior year period. We anticipate that our gross profit margins will remain between 45% and 50% through the balance of fiscal 2014.

Total Operating Expenses

Our total operating expenses decreased approximately 27% to $1,051,165 for the three months ended December 31, 2013 as compared to $1,438,674 for the three months ended December 31, 2012. These changes include:

Marketing and selling. For the three months ended December 31, 2013, marketing and selling costs were $78,780 as compared to $136,134 for the three months ended December 31, 2012, a decrease of $57,354 or approximately 42.1%. The decrease was due to a decrease in sales and marketing related headcount during the three months ended December 31, 2013 versus the prior year.

Depreciation and amortization expense. For the three months ended December 31, 2013, depreciation and amortization expense amounted to $187,444 as compared to $18,016 for the three months ended December 31, 2012. The increase was primarily due to the acquisition of Computers & Tele-com, Inc. and subsidiary in October, 2013.

Research and Development. For the three months ended December 31, 2013, research and development costs were $104,809 as compared to $281,617 for the three months ended December 31, 2012, a decrease of 176,809 or approximately 62.8%.

General and administrative expense. For the three months ended December 31, 2013, general and administrative expenses were $680,133 as compared to $1,002,907 for the three months ended December 31, 2012, a decrease of $322,774 or approximately 32.4%. For the three months ended December 31, 2013 and 2012 general and administrative expenses consisted of the following:

                                        Fiscal Q1       Fiscal Q1
                                           2014           2013
                Occupancy              $     43,652     $     8,313
                Consulting                  100,399          91,133
                Employee compensation       408,559         250,091
                Professional fees            39,645          65,330
                Internet/Phone                8,643           2,248
                Travel/Entertainment         17,251          14,552
                Investor Relations           30,565         519,096
                Insurance                     2,849           5,656
                Other                        28,570          46,488
                                        $   680,133   $   1,002,907

For the three months ended December 31, 2013, Occupancy expense increased to $43,652 as compared to $8,313. Occupancy expense is higher due to the acquisition of Computers & Tele-com, Inc. and subsidiary, in October, 2013.

For the three months ended December 31, 2013, Consulting expense increased to $100,399 as compared to $91,133, an increase of $9,266. The increase was due to consulting expense incurred related to business development efforts in the current fiscal year.

For the three months ended December 31, 2013, salaries and related expenses increased to $408,559 as compared to $250,091. Employee compensation is higher primarily due to the acquisition of Computers & Tele-com, Inc. and subsidiary, in October, 2013.

For the three months ended December 31, 2013, Professional fee expense decreased to $39,645 as compared to $65,330. Professional fee expense decreased primarily due to lower legal fees incurred in the normal course of business.

For the three months ended December 31, 2013, travel and entertainment expense increased to $17,251 as compared to $14,552. Travel and entertainment expense increased as a result of increased travel for merger and acquisition activities, and general corporate purposes.

For the three months ended December 31, 2013, Other expense amounted to $28,570 as compared to $46,488 for the three months ended December 31, 2012, a decrease of $17,918, or 38.5%.

For the three months ended December 31, 2013 Investor relations expense decreased to $30,565 as compared to $519,096 for the three months ended December 31, 2012. The decrease is due to substantially lower general investor relations activity.

We anticipate that general and administrative expenses will continue to remain flat during the balance of fiscal 2014.

LOSS FROM OPERATIONS

We reported a loss from operations of $945,628 for the three months ended December 31, 2013 as compared to a loss from operations of $1,299,358 for the three months ended December 31, 2012, a decrease of $356,304 or approximately 27.4%.

OTHER INCOME (EXPENSES)

Interest expense. For the three months ended December 31, 2013, interest expense amounted to $91,920 as compared to $111,899 for the three months ended December 31, 2012, a decrease of $19,978 or 18%. The decrease in interest expense is primarily attributable to the lower amortization of deferred financing costs, and the decrease in borrowings and certain interest bearing liabilities.

Loss on impairment of intangible assets. For the three months ended December 31, 2013, we incurred a loss on the impairment of intangible assets of $1,941,050, which related to the acquisition of Computers & Telecom, Inc. and subsidiary in October, 2013. We did not incur a similar expense in the three months ended December 31, 2012.

Gain (loss) on change of fair value of derivative liability. For the three months ended December 31, 2013 we incurred a decrease in the value of the derivative liability of $72,048 as compared to a decrease in the value of the derivative liability of $620,131 for the three months ended December 31, 2012.

NET LOSS

Our net loss was $2,906,551 for the three months ended December 31, 2013 compared to a loss of $791,125 for the three months ended December 31, 2012.

LIQUIDITY AND CAPITAL RESOURCES



Liquidity is the ability of a company to generate funds to support its current
and future operations, satisfy its obligations and otherwise operate on an
ongoing basis. The following table provides an overview of certain selected
balance sheet comparisons between December 31, 2013 and September 30, 2013:

                                  December 31,    September 30,         $            %
                                      2013            2013           Change       Change

Working Capital                    (2,243,917)        (690,312)    (1,553,605)     225.1%

Cash                                    70,810            9,652         61,158     633.6%
Other receivables                        1,461               28          1,433    5117.9%
Accounts receivable, net                63,829           58,140          5,689       9.8%
Marketable Securities, current               6              820          (814)    (99.3%)
Inventory                              172,130          163,168          8,962       5.5%
Other current assets                    65,219          175,551      (110,332)    (62.8%)
Prepaid expenses                       146,554           36,925        109,629     296.9%
Total current assets                   520,008          444,284         75,724      17.0%
Property and equipment, net            915,905          307,868        608,037     197.5%
Deposits                                 5,922           13,320        (7,397)    (55.5%)
Total assets                         1,443,381          767,017        676,364      88.2%
Accounts payable and accrued
liabilities                            857,932          649,294        208,638      32.1%
Notes payable                          505,007                -        505,007       0.0%
Convertible notes payable, net
of discount                            585,573          181,878        403,695     222.0%
Notes payable, related party           186,000          186,000              -       0.0%
Derivative liability- warrants          88,019          117,424       (29,405)    (25.0%)
Derivative liability-
convertible debt                       479,002                -        479,002       0.0%
Deferred revenue                        62,392                -         62,392       0.0%
Total current liabilities            2,763,925        1,134,596      1,629,329     143.6%
Accumulated deficit               (50,828,498)     (47,921,944)    (2,906,554)       6.1%
Stockholders' deficit              (2,506,067)        (370,574)    (2,135,493)     576.3%

Net cash used by operating activities was $1,261,853 for the six months ended December 31, 2013 as compared to net cash used in operating activities of $1,759,555 for the six months ended December 31, 2012, a decrease of $497,703.
For the six months ended December 31, 2013, we had a net loss of $5,905,008, along with non-cash expense of $4,631,950, including a decrease in derivative liability of $71,499, offset by changes in assets and liabilities of $11,206.
During the six months ended December 31, 2013 we experienced an increase in accounts receivable of $9,470, and a decrease in accounts payable and accrued liabilities during the period of $206,614. For the six months ended December 31, 2012, we had a net loss of $753,242, along with non-cash expense of $2,504,184, and a decrease in derivative liability of $4,038,718, offset by changes in assets and liabilities of $513,102. During the six months ended December 31, 2012 we experienced a decrease in accounts receivable of $731,997, and a decrease in accounts payable and accrued liabilities during the period of $247,260.

Net cash used in investing activities for the six months ended December 31, 2013 and 2012 was $23,319 and 2012 was $197,838, respectively.

Net cash provided by financing activities for the six months ended December 31, 2013 was $1,277,439 as compared to net cash provided of $1,264,911 for the six months ended December 31, 2012. For the six months ended December 31, 2013, net cash provided by financing activities related to proceeds from convertible notes payable of $372,750 and proceeds from the exercise of common stock options of $718,415, offset by repayments on notes payable of $12,206. For the six months ended December 31, 2012, net cash provided by financing activities related to proceeds from notes payable of $184,086 which were advances under our factoring line with Sand Hill Finance LLC, proceeds from the exercise of common stock options of $469,772, proceeds from the sale of restricted stock of $452,513, and proceeds from a note payable with related parties of $111,000 offset by repayments on notes payable of $125,000 which were to pay down the balance on the Sand Hill Finance LLC factoring line.

At December 31, 2013 we had a working capital deficit of $2,243,917 and an accumulated deficit of $50,828,498. The report from our independent registered . . .

  Add IWEB to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for IWEB - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.