<HTML>
<HEAD>
     <TITLE></TITLE>
</HEAD>
<BODY STYLE="font: 10pt Times New Roman, Times, Serif">

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>As filed with the Securities and Exchange Commission on August
21, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><B>Registration No. 333-__________</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>UNITED
STATES </B></FONT></P>

<P STYLE="font: 18pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>SECURITIES
AND EXCHANGE COMMISSION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Washington,
D.C. 20549</B>&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;&nbsp;</FONT></P>

<!-- Field: Rule-Page --><DIV ALIGN="CENTER" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>FORM
S-1</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>REGISTRATION
STATEMENT&nbsp;UNDER&nbsp;THE SECURITIES ACT OF 1933</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B><U>ICEWEB,
INC.</U></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">(Exact
name of registrant as specified in its charter)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 40%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 100%; border-bottom: Black 1pt solid; font-size: 10pt; text-align: center">Delaware</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 10pt; text-align: center">(State or other jurisdiction of</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 10pt; text-align: center">incorporation or organization)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 50%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 100%; font-size: 10pt; text-align: center">3572</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="border-bottom: Black 1pt solid; font-size: 10pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 10pt; text-align: center">(Primary Standard Industrial Classification Code <BR>
Number)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 50%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="width: 100%; border-bottom: Black 1pt solid; font-size: 10pt; text-align: center">13-2640971</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="font-size: 10pt; text-align: center">(I.R.S. Employer Identification No.)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">22900
Shaw Road, Suite 111</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">Sterling,
VA&nbsp; 20166</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><U>(571)
287-2388</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">(Address,
including zip code, and telephone number, including</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">area
code, of registrant&rsquo;s principal executive offices)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">Mark
B. Lucky, CFO</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">IceWEB,
Inc.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">22900
Shaw Road, Suite 111</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">Sterling,
VA&nbsp; 20166</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><U>(571)
287-2388</U></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">(Name,
address, including zip code, and telephone number,</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">including
area code, of agent for service,)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Approximate
date of commencement of proposed sale to the public:</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">As
soon as practicable after this Registration Statement becomes effective.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;</FONT></P>

<!-- Field: Rule-Page --><DIV ALIGN="CENTER" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; background-color: white">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:</FONT>&nbsp;<FONT STYLE="font-family: Wingdings; background-color: white">x</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; background-color: white">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.&nbsp;</FONT>&nbsp;<FONT STYLE="font-family: Wingdings; background-color: white">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; background-color: white">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.&nbsp;</FONT>&nbsp;<FONT STYLE="font-family: Wingdings; background-color: white">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Times New Roman, Times, Serif; background-color: white">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.&nbsp;</FONT>&nbsp;<FONT STYLE="font-family: Wingdings; background-color: white">&uml;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24%">Large accelerated filer&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
    <TD STYLE="width: 25%"><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD>
    <TD STYLE="width: 36%">Accelerated filer</TD>
    <TD STYLE="width: 15%"><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Non-accelerated filer&nbsp; &nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&#163;</FONT></TD>
    <TD>Smaller reporting company&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&#83;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<!-- Field: Rule-Page --><DIV ALIGN="LEFT" STYLE="margin-top: 3pt; margin-bottom: 3pt"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 100%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><B>CALCULATION
OF REGISTRATION FEE</B></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Proposed Maximum</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Proposed Maximum</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Amount of</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Amount to be</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Offering Price Per</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Aggregate Offering</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Registration</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid; font-weight: bold"><FONT STYLE="font-size: 8pt"><B>Title of Each Class of
    Securities to be Registered</B></FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Registered</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Shares</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Price</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt"><B>Fee
    (3)</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 36%"><FONT STYLE="font-size: 8pt">Common stock, $0.001 par value per share, (1)</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt">13,455,958</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 6%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 8pt">0.0575</FONT></TD>
    <TD NOWRAP STYLE="width: 4%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="width: 13%; text-align: right"><FONT STYLE="font-size: 8pt">773,718</FONT></TD>
    <TD NOWRAP STYLE="width: 6%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="width: 8%; text-align: right">89</TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Common stock, par value $0.001 per share, issuable upon exercise
    of warrants issued to investors (2)</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">25,802,312</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">0.15</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">3,870,347</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">444</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Total</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">39,258,270</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">4,644,065</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">553</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><SUP>&nbsp;</SUP></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 2pt"><SUP>1</SUP>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Represents shares of
common stock which are presently outstanding.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 2pt"><SUP>2</SUP>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Represents
shares of common stock issuable upon the exercise of common stock purchase warrants with an exercise price of $0.15 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 2pt"><SUP>3</SUP>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 August 17, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>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.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; color: red">The information in this preliminary prospectus is
not complete and may be changed. The selling security holders 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>PRELIMINARY
PROSPECTUS</B>&nbsp;<B>SUBJECT TO COMPLETION, DATED AUGUST 21, 2012</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>39,258,270&nbsp;Shares</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>IceWEB, Inc.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>Common Stock</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">This prospectus
relates to the sale by the selling security holders identified in this prospectus of up to&nbsp;39,258,270 shares of our common
stock, which includes&nbsp;13,455,958 shares which are presently outstanding and 25,802,312 shares issuable upon the exercise
of warrants with an exercise price of $0.15 per share.&nbsp; All of these shares of our common stock are being offered for resale
by the selling security holders.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The prices at
which the selling security holders 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 security holders. However, we will
receive proceeds from the exercise of the warrants if they are exercised for cash by the selling security holders.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We will bear
all costs relating to the registration of these shares of our common stock, other than any selling security holders&rsquo; legal
or accounting costs or commissions.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our common stock
is quoted on the regulated quotation service of the OTC Bulletin Board under the symbol &ldquo;IWEB&rdquo;. The last reported
sale price of our common stock as reported by the OTC Bulletin Board on August 17, 2012, was $0.07 per share.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">For a description
of the plan of distribution of these shares, please see page 15 of this prospectus.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black"><B>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 &ldquo;Risk Factors&rdquo; beginning on page 3 of this prospectus before making a decision to purchase
our common stock.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black"><B>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.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>The date
of this prospectus is&nbsp;[&nbsp; &nbsp; ], 2012</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<!-- Field: Page; Sequence: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"><FONT STYLE="color: Black"><B>ABOUT THIS PROSPECTUS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white"><FONT STYLE="color: Black">You
should rely only on the information contained in this prospectus, any supplement and the documents we have incorporated by reference.&nbsp;&nbsp;We
have not authorized anyone to provide information that is different from that contained in this prospectus.&nbsp;&nbsp;The information
contained in this prospectus, any supplement and any document incorporated by reference is accurate only as of the date of such
document, regardless of the time of delivery of this prospectus or of any sale of our common stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>PROSPECTUS
SUMMARY</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white"><I>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 &ldquo;Risk Factors&rdquo; and &ldquo;Management&rsquo;s Discussion and Analysis of Financial Condition
and Results of Operations&rdquo; in this prospectus before deciding to invest in our common stock. Some of the statements in this
prospectus constitute forward-looking statements. See &ldquo;Special Note Regarding Forward-Looking Statements.&rdquo;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white"><I>Except
where the context otherwise requires or where otherwise indicated, the terms &ldquo;IceWEB,&rdquo; &ldquo;we,&rdquo; &ldquo;us,&rdquo;
&ldquo;our,&rdquo; &ldquo;our company&rdquo; and &ldquo;our business&rdquo; 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.</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white"><I>The
fiscal year ends on September 30. References to fiscal 2011, for example, refer to the fiscal year ending September 30, 2011.</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white"><I>The
information which appears on our web site at </I></FONT><I><U>www.iceweb.com</U> is not part of this prospectus.</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>About Us</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our principal
executive offices are located at 22900 Shaw Road, Suite 111, Sterling, VA 20166 and our telephone number at that office is (571)
287-2400. Our fiscal year end is September 30.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>SPECIAL NOTE
REGARDING FORWARD LOOKING STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">This prospectus
contains forward-looking statements. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 3; Options: NewSection; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->2<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><FONT STYLE="color: Black; background-color: white"><B>SELECTED
CONSOLIDATED FINANCIAL DATA</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white"><FONT STYLE="color: Black; background-color: white">The
following summary of our financial information for the three and nine months ended June 30, 2012 (unaudited) and 2011 (unaudited)
and the fiscal years ended September 30, 2011 and 2010, which have been derived from, and should be read in conjunction with,
our consolidated financial statements included elsewhere in this prospectus.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black; background-color: white">SELECTED
INCOME STATEMENT DATA:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Three months ended June 30,</TD><TD NOWRAP STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Nine months ended June 30,</TD><TD NOWRAP STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; color: Black; text-align: left">Net Revenues</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">654,996</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">719,727</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">2,546,852</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">2,514,164</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left">Total operating expenses</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">1,070,532</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">932,559</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">2,830,954</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">3,482,289</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left">Loss from operation</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(859,551</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(593,616</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(1,953,806</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(2,285,424</TD><TD STYLE="color: Black; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left">Total other expense</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(3,140,324</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(104,653</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(4,569,124</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">(302,908</TD><TD STYLE="color: Black; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left">Net loss</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">(3,999,875</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">(698,269</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">(6,522,930</TD><TD STYLE="color: Black; text-align: left">)</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">(2,588,332</TD><TD STYLE="color: Black; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black; background-color: white">SELECTED
BALANCE SHEET DATA:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="color: Black">&nbsp;</TD><TD NOWRAP STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: Black; font-weight: bold; text-align: center">June 30,</TD><TD NOWRAP STYLE="color: Black; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: Black; font-weight: bold; text-align: center">September 30,</TD><TD NOWRAP STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 71%; color: Black; text-align: left">Working Capital</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: Black; text-align: right">(5,462,640</TD><TD STYLE="width: 1%; color: Black; text-align: left">)</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: Black; text-align: right">(1,713,333</TD><TD STYLE="width: 1%; color: Black; text-align: left">)</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Cash</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">774,012</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">4,120</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left">Total current assets</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">2,437,404</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">2,450,806</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left">Total assets</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">3,078,092</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">2,832,158</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left">Total current liabilities</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">7,900,044</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">4,164,139</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left">Total liabilities</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">7,900,044</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">4,164,139</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD>
    </TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>THE&nbsp;OFFERING</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">This prospectus
covers the resale of a total of 39,258,270 shares of our common stock by the selling security holders which includes 13,455,958
shares that are presently outstanding and 25,802,312 shares that are issuable upon the exercise of warrants with an exercise price
of $0.15 per share.&nbsp; 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.&nbsp; We will pay all
of the fees and expenses associated with registration of the shares covered by this prospectus.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 4; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Securities Being Offered:</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">39,258,270&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">shares of common stock, par value $0.001</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Number of Shares Outstanding</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 35%"><FONT STYLE="color: Black">Before the Offering:</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 14%"><FONT STYLE="color: Black">187,071,442</FONT></TD>
    <TD STYLE="width: 50%"><FONT STYLE="color: Black">shares as of June 30, 2012, excluding the conversion of 108,923,626 outstanding
    warrants, 626,667 shares of Series B convertible preferred stock held by the estate of former IceWEB CEO and Chairman John
    R. Signorello, which are convertible into 626,667 shares of Common Stock, $818,332 of convertible notes outstanding as of
    June 30, 2012 which at the current market price is convertible into 11,058,534 common shares, and options exercisable into&nbsp;2,269,417
    shares of common stock.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Number of Shares Outstanding After</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">the Offering, Assuming the Exercise of All of the Warrants:</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">295,995,068</FONT></TD>
    <TD><FONT STYLE="color: Black">shares as of June 30, 2012, 626,667 shares of Series B convertible preferred stock held by
    the estate of former IceWEB CEO and Chairman John R. Signorello, which are convertible into 626,667 shares of common stock,
    $818,332 of convertible notes outstanding as of June 30, 2012 which at the current market price is convertible into 11,058,534
    common shares, and options exercisable into&nbsp;2,269,417 shares of common stock.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">OTC Bulletin Board symbol</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">IWEB</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>TERMS OF
THE OFFERING WITH THE SELLING SECURITY HOLDERS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">This prospectus
covers the resale of shares of our common stock underlying warrants issued by us in a private placement in September 2011 as well
as shares of our common stock underlying units issued by us in a private placement in June 2012 and July 2012. Information on
these offerings is set forth below. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">2011 private offering&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">In September
2011 we sold 9,762,667 units of our securities to accredited investors in a private placement exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that act and Regulation D. Each unit consisted of
one share of our common stock and a warrant to purchase one share of common stock at an exercise price of $0.15 per share. The
terms of the warrants are described later in this prospectus under Description of Securities. We received gross proceeds of $1,171,520.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">Anderson and Strudwick, Inc., a
broker-dealer and member of FINRA, acted as the non-exclusive placement agent for us in the offering.&nbsp; Under the terms of
a placement agent agreement with the firm, we paid Anderson and Strudwick, Inc. a cash commission of $128,867 and issued the firm
five-year common stock purchase warrants to purchase an aggregate of 976,267 shares of our common stock at an exercise price of
$0.15 per share.&nbsp; In addition, we paid Anderson and Strudwick, Inc. legal expenses totaling $5,000 incurred in the preparation
of the various transactional documents.&nbsp; We are using the net proceeds of this offering for general working capital.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">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 security holders 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">This prospectus
covers the resale of 9,762,667 shares underlying the warrants and 976,267 shares underlying the issued in this offering.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 5; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->4<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">2012 private offering</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">In June 2012
and July 2012 we sold 13,455,958 units of our securities to accredited investors in a private placement exempt from registration
under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that act and Regulation D. Each unit consisted
of one share of our common stock and a warrant to purchase one share of our common stock with an exercise price of $0.15/share.
The terms of the warrants are described later in this prospectus under Description of Securities. We received gross proceeds of
$1,614,715.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Meyers Associates,
L.P., a broker-dealer and member of FINRA, acted as the non-exclusive placement agent for us in the offering.&nbsp; Under the
terms of a placement agent agreement with the firm, we paid Meyers Associates, L.P. a cash commission of $161,472 and issued the
firm five-year common stock purchase warrants to purchase an aggregate of 1,345,596 shares of our common stock at an exercise
price of $0.15 per share.&nbsp; In addition, we paid Meyers Associates, L.P. legal expenses totaling $13,325 incurred in the preparation
of the various transactional documents.&nbsp; We are using the net proceeds of this offering for general working capital.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We entered to
a Registration Rights Agreement with the investors in this offering that requires we file a registration statement with the SEC
within 45 calendar days from the closing date of the offering to register for resale of 133% of the maximum number of shares of
our common stock sold in the offering, including underlying the warrants and the placement agent warrants. This prospectus is
part of that registration statement. The initial registration statement must be declared effective by the SEC within 90 calendar
days from the closing date, or 120 calendar days if the registration statement is reviewed by the SEC. We will be required to
pay liquidated damages to the investors if:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 48px; font-family: Wingdings"><FONT STYLE="color: Black">&Yuml;</FONT></TD>
    <TD><FONT STYLE="color: Black">the initial registration statement is not timely filed with the SEC, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-family: Wingdings"><FONT STYLE="color: Black">&Yuml;</FONT></TD>
    <TD><FONT STYLE="color: Black">it is not declared effective by the SEC the effectiveness deadline, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-family: Wingdings"><FONT STYLE="color: Black">&Yuml;</FONT></TD>
    <TD><FONT STYLE="color: Black">other than during an allowable grace period, on any day after the effective date of a registration
    statement sales of all of the registrable securities required to be included on such registration statement cannot be made
    pursuant to such registration statement, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-family: Wingdings"><FONT STYLE="color: Black">&Yuml;</FONT></TD>
    <TD><FONT STYLE="color: Black">if a registration statement is not effective for any reason or the prospectus contained therein
    is not available for use for any reason, or we are not in compliance with the current public information requirement of Rule
    144(c) of the Securities Act of 1933, as a result of which any of the investors are unable to sell registrable securities
    without restriction under Rule 144.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Upon the occurrence
of any of these events we are obligated to pay each investor an amount in cash equal to 1% of such investor&rsquo;s purchase price
in the offering on each of these dates and on every 30 day anniversary of each the date until these filing failures are cured.
In the event we fail to make the payments in a timely manner in accordance with the foregoing, the payments shall bear interest
at the rate of 1.5% per month, prorated for partial months, until paid in full.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We agreed to
keep the registration statement effective until all registrable securities have been disposed of. We also agreed to pay all costs
associated with the preparation and filing of this registration statement. The Registration Rights Agreement contains customary
indemnification provisions for all parties.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">This prospectus
covers the resale of 13,455,958 shares underlying the warrants and 1,345,596 shares underlying the issued in this offering.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>RISK FACTORS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 6; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->5<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>RISKS
RELATED TO OUR COMPANY</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">WE HAVE AN ACCUMULATED DEFICIT AND
MAY HAVE CONTINUING LOSSES THAT WOULD RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS ABSENT MATERIAL INCREASES IN REVENUES.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We had an accumulated
deficit of approximately $40.9 million at June 30, 2012. For the years ended September 30, 2011 and 2010, we had a net loss of
approximately $4.71 million and approximately $6.96 million, respectively. For the fiscal nine months ended June 30, 2012, we
had a net loss attributable to common security holders of approximately $6.5 million. In fiscal year 2011, cash used in operations
was approximately $2.29 million. The report of our independent registered public accounting firm on our consolidated financial
statements for the fiscal year ended September 30, 2011 contains a qualification expressing substantial doubt as to our ability
to continue as a going concern as a result of net losses and cash used in operations. We cannot assure prospective investors that
sales will increase in future periods, nor can we assure prospective investors that they will not further decrease. We expect
to potentially make significant expenditures related to the development of the business, potentially 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. As long as cash flow from
operations remains insufficient to fund operations, we will continue depleting cash and other financial resources. Our failure
to achieve profitable operations in future periods will adversely affect its ability to continue as a going concern. In this event,
prospective investors could lose all of their investment in our company.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">WE MAY NEED ADDITIONAL FINANCING
WHICH IT MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS, IF AT ALL. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY
TO EXECUTE OUR GROWTH STRATEGY AND TO FUND OUR ONGOING OPERATIONS MAY BE IN JEOPARDY.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Historically,
our operations have been financed primarily through the issuance of equity and short-term loans. Capital is typically needed not
only to fund ongoing operations and to pay 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. Future capital requirements,
however, depend on a number of factors, including the ability to internally grow revenues, manage the business and control expenses.
At September 30, 2011, we had a working capital deficit of $1,713,336 as compared to a working capital deficit of $1,250,033 at
September 30, 2010. As of June 30, 2012, we had a working capital deficit of $5,462,640. We may need to raise additional capital
to fund ongoing operations, pay existing obligations and fund future growth. There are no assurances that additional working capital
will be available 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 the company, and continue our existing business and operations may be
in jeopardy. In this event, prospective investors could lose all of their investment in our company.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 7; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->6<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">THE LOSS OF KEY SENIOR MANAGEMENT
PERSONNEL, INCLUDING THE RECENT DEATH OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER, COULD NEGATIVELY AFFECT OUR BUSINESS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">In May 2012,
our Chairman and Chief Executive Officer, John R. Signorello, passed away. Hal Compton, Sr., a member of the board of directors,
is now serving as interim Chief Executive Officer, and Mark Lucky, our Chief Financial Officer, is now serving as interim Chief
Operating Officer. Without Mr. Signorello&rsquo;s participation in our company&rsquo;s business and operations, we could experience
negative impacts to our business, future operating profits and results of operations. In addition, we depend upon our senior management
and other key personnel, including Messrs. Compton and Lucky. The loss of these individuals or any of our other current or future
executive officers or key employees could harm our business, future operating prospects and results of operations. Additionally,
we do not currently maintain &ldquo;key person&rdquo; life insurance policies on the lives of any of our executive officers. This
lack of insurance means that we may not receive adequate compensation for the loss of the services of these individuals.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">WE RELY ON VALUE-ADDED RESELLERS
AND OTHER DISTRIBUTION PARTNERS TO SELL SUBSTANTIALLY ALL OF OUR PRODUCTS. FAILURE TO DEVELOP AND MANAGE, OR DISRUPTIONS TO, OUR
DISTRIBUTION CHANNELS WOULD ADVERSELY AFFECT ITS BUSINESS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our ability
to maintain or increase revenue will depend in part on our ability to maintain arrangements with existing resellers and other
distribution partners, which we refer to as &ldquo;channel partners,&rdquo; and to establish and expand arrangements with new
channel partners. If we fail to do so, future revenue could 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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 distribution channels, we must continue to scale and improve the processes and procedures that
support these channels, including investment in systems and training. Those processes and procedures may become increasingly complex
and difficult to manage as we expand our organization.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We have no minimum
purchase commitments from any channel partners, and contracts with these channel partners do not prohibit them from offering products
or services that compete with ours. Competitors may provide incentives to existing and potential channel partners to favor their
products. Channel partners may choose not to offer our products exclusively or at all. Establishing relationships with channel
partners who have a history of selling competitors&rsquo; products may also prove to be difficult. Failure to establish and maintain
successful relationships with channel partners would seriously harm our business and operating results.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">WE RECEIVE A SUBSTANTIAL PORTION
OF REVENUE FROM A LIMITED NUMBER OF CHANNEL PARTNERS, AND THE LOSS OF, OR A SIGNIFICANT REDUCTION IN, ORDERS FROM ONE OR MORE
OF ITS MAJOR CHANNEL PARTNERS WOULD HARM ITS BUSINESS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our future success
is highly dependent upon establishing and successfully maintaining relationships with a large number of channel partners. We market
and sell our IceWEB Unified Data Storage 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 revenue from a limited number of channel partners.
We anticipate that we will continue to receive a significant portion of revenue from a limited number of channel partners for
the foreseeable future and, in some cases, a portion of 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 8; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->7<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">IF WE ARE UNABLE TO CONTINUE TO
DEVELOP AND INTRODUCE NEW PRODUCTS AND RESPOND TO TECHNOLOGICAL CHANGES, REVENUE COULD BE REDUCED.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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, 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, revenue could be reduced.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">IMPROVEMENTS IN ALTERNATIVE MEANS
TO ACCELERATE STORAGE PERFORMANCE OR REDUCE STORAGE COSTS COULD HARM OUR BUSINESS AS THE DEMAND FOR ITS SYSTEMS MAY BE REDUCED.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our products
are designed to improve the performance of many applications, including applications that are based on Microsoft Corporation&rsquo;s
protocols. Accordingly, changes to Microsoft application protocols such as to accelerate storage performance or reduce storage
costs may reduce the need for our products, adversely affecting our business, operating results and financial condition. Changes
in other application protocols or in the Transmission Control Protocol, the set of rules used to send data in the form of message
units between computers over the Internet, could have a similar effect.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">IF WE ARE UNABLE TO CONTINUE TO
CREATE ATTRACTIVE INNOVATIONS IN SOFTWARE AND HARDWARE, WE MAY NOT BE ABLE TO GENERATE HIGH-MARGIN REVENUE THAT WILL ENABLE US
TO MAINTAIN OR INCREASE GROSS PROFITS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our industry
has a history of declining network storage hardware prices as measured on a &ldquo;dollar per gigabyte of storage capacity&rdquo;
basis. To maintain or increase gross profits, we will need to continue to create attractive software that is included with network
storage systems and/or sold separately as licensed software applications. 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 overall gross margin. If we are unable to successfully develop or acquire and then market and sell additional software
and hardware functionality, our business could be adversely affected.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">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
PRODUCT SALES AND REVENUE.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">After our products
are deployed within our customers&rsquo; networks, customers depend on our support services organization to resolve issues relating
to our products and how they perform within the customer&rsquo;s environment. High-quality support services are 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 customers in deploying products, it would adversely
affect our ability to sell products to existing customers and could harm prospects with potential customers. As a result, failure
to maintain high-quality support services could reduce product sales and revenue.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 9; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->8<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">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 CUSTOMERS, HARM TO ICEWEB&rsquo;S REPUTATION AND/OR A REDUCTION OF PRODUCT SALES AND REVENUE.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our network
storage products are highly technical and complex and are often used to store information critical to customers&rsquo; 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 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 the unavailability, loss or corruption of a customer&rsquo;s data, 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 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&rsquo;s
attention and adversely affect the market&rsquo;s perception of our company 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, product sales
and revenue could be reduced.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">THE FACTORING AGREEMENT WITH SAND
HILL FINANCE, LLC CONTAINS CERTAIN TERMS WHICH MAY ADVERSELY AFFECT THE COMPANY&rsquo;S ABILITY TO RAISE CAPITAL IN FUTURE PERIODS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We are a party
to a Finance Agreement with Sand Hill Finance, LLC for an accounts receivable factoring line. As of June 30, 2012, the principal
balance on the factoring line was $2,016,245. Under the terms of the Finance Agreement, we agreed not to take certain actions
including undertaking a transaction which would result in a change of control of IceWEB or the transfer of more than 50% of its
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 in the future.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">OUR PRIMARY ASSETS SERVE AS COLLATERAL
UNDER THE FACTORING LINE. IF WE WERE TO DEFAULT ON THE FINANCE AGREEMENT, THE LENDER COULD FORECLOSE ON OUR ASSETS AND WE WOULD
BE UNABLE TO CONDUCT OUR BUSINESS AS ITS IS PRESENTLY CONDUCTED.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The factoring
line is collateralized by a blanket security interest encumbering our assets. If we should default under the terms of the Finance
Agreement, Sand Hill Finance, LLC could seek to foreclose on our primary assets. If Sand Hill Finance, LLC were successful, we
would be unable to conduct business as it is presently conducted and our ability to generate revenues and fund ongoing operations
would be materially adversely affected.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">MANAGEMENT MAY BE UNABLE TO EFFECTIVELY
INTEGRATE ACQUISITIONS AND TO MANAGE GROWTH AND ICEWEB MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS OF THESE ACQUISITIONS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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&rsquo; 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 the businesses and the business of the acquired companies or assets, and to effectively manage continued
growth. There can be no assurance that efforts to integrate the operations of any acquired assets or companies acquired in the
future will be successful, that we can manage 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 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 integration efforts,
either of which could have a material adverse effect on operating results.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 10; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->9<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">ECONOMIC CONDITIONS AND WORLD EVENTS
COULD AFFECT OUR COMPANY&rsquo;S OPERATING RESULTS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We and our customers
could 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 sales, gross profits 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 company, our customers, and our suppliers 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">THE CONDITION OF THE U.S. AND GLOBAL
FINANCIAL MARKETS HAS BEEN VOLATILE AND MAY CONTINUE TO BE VOLATILE.<B> </B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Prospective
investors should be aware that the U.S. and global financial markets are currently quite volatile and that the condition of the
financial markets has become significantly weakened and destabilized in the past few years. Continued volatility and instability
could adversely affect our ability to finance our business. Further, financial market instability could result in significant
regulatory changes that would have an unpredictable effect on the financial markets in general.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">OUR BUSINESS HAS INHERENT OPERATIONAL
RISKS THAT CANNOT BE ADEQUATELY COVERED BY INSURANCE OR INDEMNITY.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We may face
unanticipated risks of legal liability for damages caused by the actual or alleged failure of technologies and products that it
supplies. We sell products to a variety of large entities, and because of our size, we have limited ability to negotiate favorable
commercial terms in our product purchase/sale documentation. While we have attempted to secure appropriate insurance coverage
at reasonable cost it is not possible to insure against all risks inherent in the markets we serve, nor can we assure investors
that our insurers will pay a particular claim, or that we will be able to maintain coverage at reasonable rates in the future.
Substantial claims resulting from a failure of a product to perform in excess of or not otherwise covered by indemnity or insurance
could harm our financial condition and operating results. Insurance policies also contain deductibles, limitations and exclusions
which increase our costs in the event of a claim.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 11; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->10<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">WE MAY HAVE DIFFICULTY SCALING PRODUCTION
TO LARGE VOLUMES. IF WE ARE UNABLE TO MEET DEMAND OR TO EFFICIENTLY INCREASE PRODUCTION, CUSTOMERS MAY TURN TO PRODUCTS OFFERED
BY COMPETITORS AND OUR OPERATING RESULTS COULD BE ADVERSELY AFFECTED.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We may have
difficulty dealing with rapid growth. If demand for products increases rapidly, we may need to expand internal production capacity
or implement outsourcing. Success in developing, manufacturing and supporting products manufactured in small volumes does not
assure comparable success in operations conducted on a larger scale. It may be necessary to expand capacity beyond existing space,
personnel and equipment and we may be unable to do so. Modifying our facilities and operations to increase production capacity
may delay delivery of products. Manufacturing efficiencies, yields and product quality may decline as production volumes increase.
In addition, component costs, overhead and other production costs may rise. If we are unable to meet the demand of customers and
deliver quality products quickly and cost effectively, customers may turn to our competitors. The costs associated with implementing
new manufacturing technologies, methods and processes, including the purchase of new equipment, and any resulting delays, inefficiencies
and loss of sales could harm results of operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">OUR SUCCESS AND COMPETITIVE POSITION
DEPENDS ON OUR ABILITY TO OBTAIN AND PROTECT INTELLECTUAL PROPERTY. FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS WOULD
IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY AND DEFEND AGAINST THIRD PARTY CLAIMS THAT WE ARE INFRINGING ON THE INTELLECTUAL PROPERTY
RIGHTS OF OTHERS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We maintain
our proprietary technology and know-how as trade secrets as well as through the use of patents. Some of our proprietary technology
may be covered by provisional patents. Our policy is to use confidentiality agreements, licensing agreements and similar arrangements
to establish and protect intellectual property. For example, our policy is to maintain confidentiality agreements with our employees,
consultants, vendors and business partners and this has controlled access to, and distribution of its product design documentation
and other proprietary information. We intend to continue to protect existing and new processes and technologies that are developed
as trade secrets but may not be able to do so. We hold or have filed patents related to several of our products and technology,
however there is no guarantee that we will be able to enforce these patents or that the applications will be issued as patents.
Failure to protect our intellectual property could affect our ability to secure additional contracts or preserve market advantages
as we develops and commercializes our products.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our efforts
to protect our intellectual property rights may not:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 13.5pt"></TD><TD STYLE="width: 13.5pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">prevent challenges to, or the
                                                                    invalidation or circumvention of, existing intellectual property
                                                                    rights;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 13.5pt"></TD><TD STYLE="width: 13.5pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">prevent competitors from independently
                                                                    developing similar products or duplicating our products;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 13.5pt"></TD><TD STYLE="width: 13.5pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">provide adequate protection
                                                                    for intellectual property rights;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 13.5pt"></TD><TD STYLE="width: 13.5pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">prevent disputes with third
                                                                    parties regarding ownership of our intellectual property rights;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 13.5pt"></TD><TD STYLE="width: 13.5pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">prevent disclosure of trade
                                                                    secrets and know-how to third parties or their release into
                                                                    the public domain; or</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 13.5pt"></TD><TD STYLE="width: 13.5pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">prevent our company from being
                                                                    subject to claims of infringement of the intellectual property
                                                                    rights of third-parties.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Others may attempt
to copy or otherwise obtain and use our proprietary technologies without consent. Monitoring the unauthorized use of technologies
is difficult. There is a significant risk that customers or their end-user customers may attempt to copy or otherwise obtain and
use our proprietary technologies without our consent.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We may find
it necessary to litigate against others, including customers, to protect our intellectual property and to challenge the validity
and scope of the proprietary rights asserted by others, and the company could face counterclaims. Legal disputes with customers
could adversely affect relationships and sales. Litigation is inherently uncertain, and an adverse outcome could subject us to
significant liability for damages or invalidate our proprietary rights. The complexity of the technology involved and inherent
uncertainty and cost of intellectual property litigation increases our risks.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 12; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->11<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Third parties
may claim that we are infringing on their intellectual property rights, and we may already be unknowingly infringing. We may face
additional liability if we agree to indemnify customers against third party infringement claims. If a third party establishes
that we are infringing upon our intellectual property rights, we may be forced to modify products or manufacturing processes and
such changes may be expensive or impractical. We may be forced to seek royalty or license agreements. If we are unable to agree
on acceptable terms, we may be required to discontinue products or to halt other aspects of our operations. We may also be liable
for significant damages. Even if intellectual property claims brought against us are without merit, the litigation may be costly
and time consuming, and may divert management and key personnel from normal business operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">OUR EFFORTS TO PROTECT OUR INTELLECTUAL
PROPERTY MAY BE LESS EFFECTIVE IN SOME FOREIGN COUNTRIES WHERE INTELLECTUAL PROPERTY RIGHTS MAY NOT BE AS STRONG AS IN THE UNITED
STATES.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We have not
obtained and may not obtain patent or similar protection for our proprietary technologies or registration for our trademarks in
foreign countries, which may impair our ability to use or protect our technology and brand in foreign jurisdictions. The laws
of some foreign countries, including countries in which we have sold and/or plan to sell products, protect proprietary rights
less broadly than do the laws of the United States. Many U.S. companies have encountered substantial problems in protecting their
proprietary rights in such countries, and there is a risk that we may encounter similar problems. If our competitors in these
countries copy our technology without our permission, our sales and operations may be harmed.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">WE HAVE BEEN ENGAGED IN VARIOUS
LEGAL DISPUTES WHICH COULD IMPACT OUR COMPANY AND OUR SUPPLIER RELATIONSHIPS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We are currently
engaged in three legal proceedings. These legal proceedings relate to non-payment of vendors. A number of these suppliers, if
not all of them, may be paid and satisfied prior to that closing. Claims relating to these proceedings currently total approximately
between $50,000 and $100,000. These and/or the remaining and/or future potential legal proceedings could impact our financial
position and/or our relationships with customers, vendors, suppliers, distributors and/or other parties.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>RISKS RELATING
TO ICEWEB&rsquo;S COMMON STOCK</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">THE EXERCISE OF WARRANTS AND OPTIONS
AND THE CONVERSION OF SHARES OF OUR SERIES B CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE NOTES PAYABLE WILL BE DILUTIVE TO EXISTING
SECURITY HOLDERS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">At June 30,
2012 we had outstanding:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.7pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">187,071,442 shares of common
                                                                  stock,</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.7pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">626,667 shares of Series B convertible
                                                                  preferred stock which is convertible into 626,667 shares of
                                                                  common stock,</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.7pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">common stock purchase warrants
                                                                  and options to purchase 94,797,072 shares of common stock with
                                                                  a variety of exercise prices, rights and provisions, and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 18pt"></TD><TD STYLE="width: 13.7pt"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">outstanding notes with a principal
                                                                  balance of $1,127,888 of convertible notes which at the current
                                                                  market price is convertible into 15,241,730 common shares.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.7pt; text-indent: -13.7pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 13; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->12<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 31.7pt; text-indent: -13.7pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The exercise
of the outstanding options and warrants or the conversion of the outstanding convertible securities will be dilutive to our security
holders.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">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 SECURITY HOLDERS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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 security holders 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, including a provisions stipulating
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&rsquo;s disinterested security holders.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">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 owned by the estate of former CEO and Chairman John R. Signorello. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="text-transform: uppercase; color: Black">Public
company compliance may make it more difficult to attract and retain officers and directors.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The Sarbanes-Oxley
Act of 2002, the Dodd-Frank Act and rules subsequently implemented by the Commission have required changes in corporate governance
practices of public companies. As a public company, we expect these rules and regulations to continue to increase compliance costs
in 2012 and beyond and to make certain activities more time consuming and costly than if we were not a public company. As a public
company, we also expect that these rules and regulations may make it more difficult and expensive to obtain director and officer
liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it may be more difficult to attract and retain qualified persons to
serve on our board of directors or as executive officers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="text-transform: uppercase; color: Black">OUR stock
price may be volatile in response to market and other factors.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The market price
of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of
which are beyond our control, including the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">competitive pricing pressures;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">ability to obtain working capital financing;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">additions or departures of key personnel;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">limited public float in the hands of
                                                          a small number of persons whose sales or lack of sales could result
                                                          in positive or negative pricing pressure on the market price for our
                                                          common stock;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">sales of common stock</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">ability to execute our business plan;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">operating results that fall below expectations;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">loss of any strategic relationship;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">regulatory or legal developments;</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -13.7pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 14; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->13<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -13.7pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">economic and other external factors;
                                                          and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.25in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="color: Black">&bull;</FONT></TD><TD><FONT STYLE="color: Black">period-to-period fluctuations in our
                                                          financial results.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">In addition,
the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price
of our common stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="text-transform: uppercase; color: Black">OUR Common
Stock is a &ldquo;penny stock,&rdquo; which wILL make it more difficult for investors to sell their shares.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Our common stock
is presently subject to the &ldquo;penny stock&rdquo; rules adopted under Section 15(g) of the Securities Exchange Act of 1934.
The penny stock rules apply to companies whose common stock is not listed on a national securities exchange and trades at less
than $5.00 per share or that have tangible net worth of less than $2,500,000, or $2,000,000 if the company has been operating
for three or more years. In certain instances, these rules require, among other things, that brokers who trade penny stock to
persons other than &ldquo;established customers&rdquo; complete certain documentation, make suitability inquiries of investors
and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote
information under certain circumstances. In addition, many brokers and broker-dealers have decided not to trade penny stocks because
of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in
such securities is limited. If we continue to remain subject to the penny stock rules, it could have an adverse effect on the
market, if any, for our common stock, and investors will find it more difficult to dispose of the securities.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="text-transform: uppercase; color: Black">Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">If security
holders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period,
under Rule 144, or expiration of lock-up periods applicable to outstanding shares, or issued upon the exercise of outstanding
options or warrants, it could create a circumstance commonly referred to as an &ldquo;overhang&rdquo; and in anticipation of which
the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring,
also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities
in the future at a time and price that we deem reasonable or appropriate.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="text-transform: uppercase; color: Black">OUR Common
Stock may be subject to further dilution if WE sell additional shares of OUR Common Stock in the future at prices below the prices
in ITS RECENT PRIVATE OFFERINGS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">If it becomes
necessary for us to issue additional shares of common stock in the future at prices below the prices that trigger the anti-dilution
protections in connection with previous private offerings, we will be required to issue such additional shares and lower the warrant
exercise price of the existing warrants, in order to account for the dilutive impact of such future issuances. The anti-dilutive
protections are known as &ldquo;full-ratchet&rdquo; protections, meaning that the additional shares of common stock to be issued,
and the new exercise price of the warrants, will match the lowest price at which we issue additional shares of common stock in
the future. These additional shares of common stock, and warrants to purchase additional shares of common stock, if exercised,
could result in substantial future dilution to the holders of our common stock. We currently have warrants outstanding to purchase
36,088,554 shares of common stock which contain &ldquo;full-ratchet&rdquo; protections.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">IF THE SELLING SECURITY HOLDERS
ALL ELECT TO SELL THEIR SHARES OF OUR COMMON STOCK AT THE SAME TIME, THE MARKET PRICE OF OUR SHARES MAY DECREASE.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 0.5in"><FONT STYLE="color: Black">It
is possible that the selling security holders will offer all of the shares for sale. Further, because it is possible that a significant
number of shares could be sold at the same time hereunder, the sales, or the possibility thereof, may have a depressive effect
on the market price of our common stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 15; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->14<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black; background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Our
common stock is quoted on the OTC Bulletin Board under the symbol &ldquo;IWEB&rdquo;. 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.</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">High</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Low</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; font-weight: bold">Fiscal 2010</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; color: Black">First quarter ended December 31, 2009</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">0.235</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">0.07</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">Second quarter ended March 31, 2010</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.23</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.075</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Third quarter ended June 30, 2010</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.47</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.135</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">Fourth quarter ended September 30, 2010</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.30</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.105</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; font-weight: bold">Fiscal 2011</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">First quarter ended December 31, 2010</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.315</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.155</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">Second quarter ended March 31, 2011</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.285</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.16</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Third quarter ended June 30, 2011</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.295</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.171</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">Fourth quarter ended September, 30, 2011</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.26</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.135</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">&nbsp;</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; font-weight: bold">Fiscal 2012</TD><TD STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: Black; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    <TD STYLE="color: Black; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">First quarter ended December 31, 2011</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.195</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.102</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">Second quarter ended March 31, 2012</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.1847</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.106</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Third quarter ended June 30, 2012</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.181</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">$</TD><TD STYLE="color: Black; text-align: right">0.107</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">On August
17, 2012, the last sale price of our common stock as reported on the OTC Bulletin Board was $0.075.&nbsp; As of August 17, 2012,
there were approximately 4,300 record owners of our common stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>DIVIDEND
POLICY</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;
&nbsp; &nbsp; &nbsp; &nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Transfer
Agent</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 22.5pt"><FONT STYLE="color: Black; background-color: white">Our
transfer agent is Olde Monmouth Stock Transfer, 200 Memorial Pkwy, Atlantic Highlands, NJ 07716. Its telephone number is (732)
872-2727.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>PLAN OF DISTRIBUTION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We are registering
the shares of common stock issuable upon conversion of the notes and exercise of the warrants to permit the resale of these shares
of common stock by the holders of the notes and warrants from time to time after the date of this prospectus. We will not receive
any of the proceeds from the sale by the selling security holders of the shares of common stock. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 16; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->15<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The selling
security holders may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or
broker-dealers, the selling security holders will be responsible for underwriting discounts or commissions or agent&rsquo;s commissions.
The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of
the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions,
which may involve crosses or block transactions, pursuant to one or more of the following methods:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">on
                                                                                                              any national securities
                                                                                                              exchange or quotation
                                                                                                              service on which
                                                                                                              the securities may
                                                                                                              be listed or quoted
                                                                                                              at the time of sale;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">in
                                                                                                              the over-the-counter
                                                                                                              market;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">in
                                                                                                              transactions otherwise
                                                                                                              than on these exchanges
                                                                                                              or systems or in
                                                                                                              the over-the-counter
                                                                                                              market;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">through
                                                                                                                            the
                                                                                                                            writing
                                                                                                                            or
                                                                                                                            settlement
                                                                                                                            of
                                                                                                                            options,
                                                                                                                            whether
                                                                                                                            such
                                                                                                                            options
                                                                                                                            are
                                                                                                                            listed
                                                                                                                            on
                                                                                                                            an
                                                                                                                            options
                                                                                                                            exchange
                                                                                                                            or
                                                                                                                            otherwise;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">ordinary
                                                                                                              brokerage transactions
                                                                                                              and transactions
                                                                                                              in which the broker-dealer
                                                                                                              solicits purchasers;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">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;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">purchases
                                                                                                              by a broker-dealer
                                                                                                              as principal and
                                                                                                              resale by the broker-dealer
                                                                                                              for its account;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">an
                                                                                                              exchange distribution
                                                                                                              in accordance with
                                                                                                              the rules of the
                                                                                                              applicable exchange;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">privately
                                                                                                              negotiated transactions;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">short
                                                                                                              sales made after
                                                                                                              the date the Registration
                                                                                                              Statement is declared
                                                                                                              effective by the
                                                                                                              SEC;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">broker-dealers
                                                                                                              may agree with a
                                                                                                              selling security
                                                                                                              holder to sell a
                                                                                                              specified number
                                                                                                              of such shares at
                                                                                                              a stipulated price
                                                                                                              per share;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">a
                                                                                                              combination of any
                                                                                                              such methods of
                                                                                                              sale; and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol; color: Black">&middot;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif; color: Black">any
                                                                                                              other method permitted
                                                                                                              pursuant to applicable
                                                                                                              law.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The selling
security holders may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended,
if available, rather than under this prospectus. In addition, the selling security holders may transfer the shares of common stock
by other means not described in this prospectus. If the selling security holders effect such transactions by selling shares of
common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions
in the form of discounts, concessions or commissions from the selling security holders or commissions from purchasers of the shares
of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions
as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved).
In connection with sales of the shares of common stock or otherwise, the selling security holders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions
they assume. The selling security holders may also sell shares of common stock short and deliver shares of common stock covered
by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling
security holders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The selling
security holders may pledge or grant a security interest in some or all of the notes, warrants or shares of common stock owned
by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell
the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act of 1933 amending, if necessary, the list of selling security holders to include
the pledgee, transferee or other successors in interest as selling security holders under this prospectus. The selling security
holders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">To the extent
required by the Securities Act of 1933 and the rules and regulations thereunder, the selling security holders and any broker-dealer
participating in the distribution of the shares of common stock may be deemed to be &ldquo;underwriters&rdquo; within the meaning
of the Securities Act of 1933, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may
be deemed to be underwriting commissions or discounts under the Securities Act of 1933. At the time a particular offering of the
shares of common stock is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers
or agents, any discounts, commissions and other terms constituting compensation from the selling security holders and any discounts,
commissions or concessions allowed or re-allowed or paid to broker-dealers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 17; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->16<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Under the securities
laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied with.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">There can be
no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration
statement, of which this prospectus forms a part.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The selling
security holders and any other person participating in such distribution will be subject to applicable provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable,
Regulation M of the Securities Exchange Act of 1934, which may limit the timing of purchases and sales of any of the shares of
common stock by the selling security holders and any other participating person. To the extent applicable, Regulation M may also
restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and
the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We will pay
all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be
approximately $34,000 in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of
compliance with state securities or &ldquo;blue sky&rdquo; laws; provided, however, a selling stockholder will pay all underwriting
discounts and selling commissions, if any. We will indemnify the selling security holders against liabilities, including some
liabilities under the Securities Act of 1933 in accordance with the registration rights agreements or the selling security holders
will be entitled to contribution. We may be indemnified by the selling security holders against civil liabilities, including liabilities
under the Securities Act of 1933 that may arise from any written information furnished to us by the selling stockholder specifically
for use in this prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Once sold under
the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands
of persons other than our affiliates.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>MANAGEMENT&rsquo;S
DISCUSSION AND ANALYSIS OF FINANCIAL</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>CONDITION
AND RESULTS OF OPERATIONS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>BUSINESS
OF ICEWEB</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Our
customer base includes U.S. government agencies, enterprise companies, and small to medium sized businesses (SMB).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>Data Storage</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">A
unified storage system simultaneously enables storage of file data and handles the block-based I/O (input/output) of enterprise
applications. &nbsp;We believe one advantage of unified storage is reduced hardware requirements. Instead of separate storage
platforms, like NAS (network attached storage) 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 18; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->17<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">In
addition to lower capital expenditures for the enterprise, unified storage systems can also be simpler to manage than separate
products. &nbsp;The IceWEB Storage System offers one platform for file and block data of all kinds<B>. </B>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.
&nbsp;Unified storage systems enjoy the same level of reliability as dedicated file or block storage systems.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>Distribution</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">We believe that
Promark is one of the premier value added distributors (VAD) in the United States. Promark&rsquo;s core technology focus is distributing
data storage and electronic document imaging products and solutions through a two-tier distribution channel selling to VARs and
system integrators. Promark leverages its direct relationships with technology partners including LeftHand Networks, Kodak, QLogic,
Data Domain, Panasonic, NEC, Overland Storage and many more to provide solutions that meet the most demanding needs of our customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">We
generate revenues from the manufacture and sale of high-performance unified data storage products, data storage appliances and
servers, the sale of software services, and the distribution of data storage and electronic imaging products and solutions.&nbsp;
We believe that the key factors to our continued growth and profitability include the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 36px; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Increasing the number of channel partners selling our products</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Continued investment in product development and research efforts</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Hiring additional qualified, technical employees, and</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Increasing the number of new customers added.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">GOING CONCERN</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">We
have a history of losses and have incurred net losses of approximately $40.9 million since inception through June 30, 2012. 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, 2011 and 2010&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">CRITICAL
ACCOUNTING POLICIES AND ESTIMATES</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">Our
discussion and analysis of 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 of America. The preparation
of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during
the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates
are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual
future results may vary from our estimates.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">We
believe that the following accounting policies are significantly affected by critical accounting estimates and that they are both
highly important to the portrayal of our financial condition and results and require difficult management judgments and assumptions
about matters that are inherently uncertain. Note&nbsp;2 of the accompanying consolidated financial statements describes the significant
accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting
policies are considered to be critical accounting policies.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">We
believe the accounting policies described below are those that most frequently require us to make estimates and judgments and
therefore are critical to the understanding of our results of operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 19; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->18<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>Revenue
Recognition, Reserves and Allowances</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black"><I>Revenue
Recognition</I>&nbsp;&mdash; We recognize revenue when:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black"><I>Persuasive evidence of an arrangement exists:</I>&nbsp;It is
    our customary practice to have a purchase order&nbsp;and/or&nbsp;contract prior to recognizing revenue on an arrangement from
    our end users, customers, value-added resellers, or distributors.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black"><I>Delivery has occurred:</I>&nbsp;Our product is physically delivered
    to our customers, generally with standard transfer terms such as freight on board, or FOB, origin. We typically do not allow
    for restocking rights with any of our value-added resellers or distributors. Products shipped with acceptance criteria or
    return rights are not recognized as revenue until all criteria are achieved. If undelivered products or services exist that
    are essential to the functionality of the delivered product in an arrangement, delivery is not considered to have occurred.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black"><I>The fee is fixed or determinable:&nbsp;</I>Arrangements with
    payment terms extending beyond our standard terms, conditions and practices are not considered to be fixed or determinable.
    Revenue from such arrangements is recognized at the earlier of customer payment or when the fees become due and payable. We
    typically do not allow for price-protection rights with any of our value-added resellers or distributors.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black"><I>Collection is reasonably assured:&nbsp;</I>If there is considerable
    doubt surrounding the credit worthiness of a customer at the outset of an arrangement, the associated revenue is deferred
    and recognized upon cash receipt.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">We
maintain a separate allowance for doubtful accounts for estimated losses based on our assessment of the collectability of specific
customer accounts and the aging of the accounts receivable. We analyze accounts receivable and historical bad debts, customer
concentrations, customer solvency, current economic and geographic trends, and changes in customer payment terms and practices
when evaluating the adequacy of our current and future allowance. In circumstances where we are aware of a specific customer&rsquo;s
inability to meet its financial obligations to us, a specific allowance for bad debt is estimated and recorded, which reduces
the recognized receivable to the estimated amount we believe will ultimately be collected. We monitor and analyze the accuracy
of our allowance for doubtful accounts estimate by reviewing past collectability and adjusting it for future expectations to determine
the adequacy of our current and future allowance. If the financial condition of our customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be required.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>Inventory
Valuation</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">Inventories
are stated at <FONT STYLE="background-color: white">lower of cost or market, on an average cost basis</FONT>. We perform an excess
and obsolete analysis of our inventory based upon assumptions about future demand and market conditions. We adjust the inventory
value based on estimated excess and obsolete inventories.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>Valuation
of Intangibles</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">We
periodically review the estimated remaining useful lives of our intangible assets. A reduction in the estimate of remaining useful
life could result in accelerated amortization expense or a write-down in future periods. As such, any future write-downs of these
assets would adversely affect our operating results.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>Stock-Based
Compensation</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">We
account for stock-based compensation using the Black-Scholes option pricing model to estimate the fair value of each option grant
on the date of grant. Our option pricing model requires the input of highly subjective assumptions, including the expected stock
price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact
stock-based compensation expense.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<!-- Field: Page; Sequence: 20; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->19<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>&nbsp;</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black"><B><I>Fair
Value Measurements and Impairments</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 12.2pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">All
of our investments and nonmarketable securities are subject to periodic impairment review. Investments are considered to be impaired
when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment. For publicly
traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including factors
such as current economic and market conditions, the credit rating of the security&rsquo;s issuer, the length of time an investment&rsquo;s
fair value has been below our carrying value, and our ability and intent to hold investments to maturity or for a period of time
sufficient to allow for any anticipated recovery in fair value. If an investment&rsquo;s decline in fair value, caused by factors
other than changes in interest rates, is deemed to be other-than-temporary, we reduce its carrying value to its estimated fair
value, as determined based on quoted market prices, liquidation values or other metrics. For investments in publicly held companies,
we recognize an impairment charge when the decline in the fair value of our investment is below its cost basis and is judged to
be other-than-temporary. The ultimate value realized on these investments is subject to market price volatility until they are
sold.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">Pursuant
to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (i.e., the &ldquo;exit price&rdquo;) in an orderly transaction between
market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair
value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable
inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best
information available in the circumstances.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white"><FONT STYLE="color: Black">The
fair value hierarchy is broken down into the three input levels summarized below:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black">Level&nbsp;1&nbsp;&mdash; Valuations are based on quoted prices
    in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets
    and liabilities utilizing Level&nbsp;1 inputs are certain money market funds, U.S.&nbsp;Treasuries and trading securities
    with quoted prices on active markets.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black">Level&nbsp;2&nbsp;&mdash; Valuations based on inputs other than
    the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets
    and liabilities utilizing Level&nbsp;2 inputs are U.S.&nbsp;government agency bonds, corporate bonds, commercial paper, certificates
    of deposit and over-the-counter derivatives.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; background-color: white; border-collapse: collapse">
<TR>
    <TD STYLE="width: 5%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 2%; vertical-align: top"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 1%; vertical-align: top"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="vertical-align: top"><FONT STYLE="color: Black">Level&nbsp;3&nbsp;&mdash; Valuations based on unobservable inputs
    for which there are little or no market data, which require us to develop our own assumptions. Examples of assets and liabilities
    utilizing Level&nbsp;3 inputs are cost method investments, auction rate securities (ARS) and the primary fund.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Results
of Operations</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black"><B>THREE AND
NINE MONTHS ENDED JUNE 30, 2012 COMPARED TO THE THREE AND NINE MONTHS ENDED JUNE 30, 2011</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">The following
table provides an overview of certain key factors of our results of operations for the three and nine months ended June 30, 2012
as compared to the three and nine months ended June 30, 2011:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Three
    months ended June 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Nine
    Months Ended June 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 48%"><FONT STYLE="color: Black">Net Revenues</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">654,996</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">719,727</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">2,546,852</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">2,514,164</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Cost of sales</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">444,015</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">380,784</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,669,704</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,317,299</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Operating Expenses:</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Sales and marketing expense</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">308,698</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">123,955</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">641,255</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">898,299</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Depreciation and amortization</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">33,797</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">124,831</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">149,435</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">418,625</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Research and development</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">289,242</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">187,810</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">708,325</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">547,579</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">General and administrative</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">438,795</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">495,963</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,331,939</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,617,786</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total operating expenses</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,070,532</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">932,559</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,830,954</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">3,482,289</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Loss from operation</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(859,551</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(593,616</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(1,953,806</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(2,285,424</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total other income (expense)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(3,140,324</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(104,653</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(4,569,124</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(302,908</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Net income (loss)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(3,999,875</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(698,269</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(6,522,930</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(2,588,332</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 21; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->20<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">Other Key Indicators:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Three
    months ended<BR> June 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="6" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Nine
    Months Ended<BR> June 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 48%"><FONT STYLE="color: Black">Cost of sales as a percentage of revenues</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">67.8</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">52.9</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">65.6</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">52.4</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Gross profit margin</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">32.2</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">47.1</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">34.4</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">47.6</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">General and administrative expenses as a percentage of revenues</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">67.0</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">68.9</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">52.3</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">64.3</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total operating expenses as a percentage of revenues</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">163.4</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">129.6</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">111.2</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">138.5</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>Nine Months ended June 30, 2012</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Revenues</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">For the Nine
Months Ended June 30, 2012, we reported revenues of $2,546,852 as compared to revenues of $2,514,164 for the Nine Months Ended
June 30, 2011, an increase of $32,688 or approximately 1%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Cost of Sales</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Our cost of sales
consists primarily of component parts for the manufacture of our storage products. For the Nine Months Ended June 30, 2012, cost
of sales was $1,669,704, or approximately 65.6% of revenues, compared to $1,317,299, or approximately 52.4% of revenues for the
Nine Months Ended June 30, 2011. The increase in costs of sales as a percentage of revenue and the corresponding decrease in our
gross profit margin for the Nine Months Ended June 30, 2012 as compared to the Nine Months Ended June 30, 2011 was the result
of pricing pressure to win sales opportunities during the Nine Months Ended June 30, 2012 as a percentage of total revenue, as
well as increased component costs which resulted from the disruption in the world wide supply of hard drives stemming from the
flooding in Thailand in October, 2011. We anticipate that our gross profit margins will remain in the range of 30% to 45% through
the balance of fiscal 2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Total Operating Expenses</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Our total operating
expenses decreased approximately 19% to $2,830,954 for the Nine Months Ended June 30, 2012 as compared to $3,482,289 for the Nine
Months Ended June 30, 2011. These changes include:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Sales
and marketing expense</U>&nbsp;. Sales and marketing expense includes salaries, commission, occupancy, telephone, travel, and
entertainment expenses for direct sales personnel.&nbsp;&nbsp;For the Nine Months Ended June 30, 2012, sales and marketing costs
were $641,255 as compared to $898,299 for the Nine Months Ended June 30, 2011, a decrease of $257,044 or approximately 29%. &nbsp;The
decrease is primarily due to lower sales and marketing headcount.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Depreciation
and amortization expense</U>&nbsp;. For the Nine Months Ended June 30, 2012, depreciation and amortization expense amounted to
$149,435 as compared to $418,625 for the Nine Months Ended June 30, 2011, a decrease of $269,190 or 64%. &nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Research
and development</U>&nbsp;. For the Nine Months Ended June 30, 2012, research and development costs were $708,325 as compared to
$547,579 for the Nine Months Ended June 30, 2011, an increase of $160,745 or approximately 29%. &nbsp;Research and development
expense is higher due to higher headcount and consulting costs to support our efforts in product development.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>General
and administrative expense</U>&nbsp;. For the Nine Months Ended June 30, 2012, general and administrative expenses were $1,331,939
as compared to $1,617,786 for the Nine Months Ended June 30, 2011, a decrease of $285,847 or approximately 18%. For the Nine Months
Ended June 30, 2012 and 2011 general and administrative expenses consisted of the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 22; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->21<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 50%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">Fiscal Q3</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">Fiscal Q3</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 64%"><FONT STYLE="color: Black">Occupancy</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 15%; text-align: right"><FONT STYLE="color: Black">28,747</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 15%; text-align: right"><FONT STYLE="color: Black">24,227</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Consulting</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">7,480</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">77,874</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Employee compensation</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">570,691</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">896,012</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Professional fees</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">133,531</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">57,895</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Internet/Phone</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">4,988</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">16,744</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Travel/Entertainment</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">27,492</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">29,787</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Investor Relations</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">430,271</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">251,568</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Insurance</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">11,771</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">31,073</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Other</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"><FONT STYLE="color: Black">116,968</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"><FONT STYLE="color: Black">232,606</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"><FONT STYLE="color: Black">1,331,939</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"><FONT STYLE="color: Black">1,617,786</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 3%; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 94%"><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, occupancy expense increased to
    $28,747 as compared to $24,227, primarily due to an increased allocation of rent expense to administration.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, consulting expense decreased to $7,480 as compared
    to $77,874. Consulting expense decreased primarily as a result of nonrecurring recruiting costs incurred to hire engineering,
    sale and marketing personnel incurred in the prior year.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, salaries and related expenses decreased to $570,691
    as compared to $896,012, a decrease of $325,321. The decrease is due primarily to lower non-cash compensation expense of $39,302
    as compared to $304,039.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, professional fees expense increased to $133,531 as
    compared to $57,895. Professional fees expense increased due to increased costs related to intellectual property patent applications
    and other legal fees.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 3%; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 94%"><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, internet and telephone expense
    decreased to $4,988 as compared to $16,744. &nbsp;The decrease was primarily due to cost-cutting measures implemented by us.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, travel and entertainment expense decreased to $27,492
    as compared to $29,787. &nbsp;The decrease was primarily due to less travel related to investor relations and analyst meetings.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012 other expense amounted to $116,968 as compared to $232,606
    for the Nine Months Ended June 30, 2011, a decrease of $115,638. &nbsp;The decrease is primarily related to increased bad
    debt expense of $100,000 during the three months ended June 30, 2011, which do not recur in the current year quarter.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012 investor relations expense increased to $430,271 as
    compared to $251,568 for the Nine Months Ended June 30, 2011. The increase is due to increased investor relations activity.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the Nine Months Ended June 30, 2012, insurance expense decreased to $11,771 as compared
    to $31,073. &nbsp;The decrease was primarily due to cost cutting measures.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">We anticipate
that general and administrative expenses will remain stable for the balance of fiscal 2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>LOSS FROM OPERATIONS</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">We reported a
loss from operations of $1,953,806 for the Nine Months Ended June 30, 2012 as compared to a loss from operations of $2,285,424
for the Nine Months Ended June 30, 2011, a decreased loss of $331,618 or approximately 15%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 23; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->22<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>OTHER INCOME (EXPENSES)</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black"><U>Interest Expense</U>&nbsp;.&nbsp;&nbsp;For
the Nine Months Ended June 30, 2012, interest expense amounted to $1,796,060 as compared to $302,908 for the Nine Months Ended
June 30, 2011, an increase of $1,493,152 or 493%. The increase in interest expense is primarily attributable to the amortization
of the discount on our outstanding convertible debentures.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black"><U>Loss on change
of fair value of derivative liability.</U>&nbsp;For the Nine Months Ended June 30, 2012 we incurred an increase&nbsp;<FONT STYLE="background-color: white">in
the value of the derivative liability of $2,773,086. We had no derivative liabilities during the nine months ended June 30, 2011.</FONT></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>NET INCOME/ LOSS</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Our net loss
was $6,522,930 for the Nine Months Ended June 30, 2012 compared to a net loss of $2,588,332 for the Nine Months Ended June 30,
2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>Three Month Period ended June
30, 2012</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Revenues</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">For the three
months ended June 30, 2012, we reported revenues of $654,996 as compared to revenues of $719,727 for the three months ended June
30, 2011, a decrease of $64,731 or approximately 9%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Cost of Sales</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Our cost of sales
consists of component parts for the manufacture of our storage products. For the three months ended June 30, 2012, cost of sales
was $444,045, or approximately 67.8% of revenues, compared to $380,784, or approximately 52.9% of revenues, for the three months
ended June 30, 2011. The increase in costs of sales as a percentage of revenue and the corresponding decrease in our gross profit
margin for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 was the result of lower margins
on competitive opportunities in order to win deals.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Total Operating Expenses</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Our total operating
expenses increased approximately 15% to $1,070,532 for the three months ended June 30, 2012 as compared to $932,559 for the three
months ended June 30, 2011. These changes include:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Sales
and marketing expense</U>&nbsp;. For the three months ended June 30, 2012, sales and marketing expenses were $308,698 as compared
to $123,955 for the three months ended June 30, 2011, an increase of $184,743 or approximately 149%. The increase was due to increased
headcount and the rollout of our inside sales efforts during the three months ended June 30, 2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Depreciation
and amortization expense</U>&nbsp;. For the three months ended June 30, 2012, depreciation and amortization expense amounted to
$33,797 as compared to $124,831 for the three months ended June 30, 2011, a decrease of $91,034 or 73%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>Research
and development</U>&nbsp;. For the three months ended June 30, 2012, research and development costs were $289,242 as compared
to $187,810 for the three months ended June 30, 2011, an increase of $101,432 or approximately 54%. &nbsp;Research and development
expense is higher due to higher headcount and consulting costs as we continue to invest in product development.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&bull; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<U>General
and administrative expense</U>&nbsp;. For the three months ended June 30, 2012, general and administrative expenses were $438,795
as compared to $495,963 for the three months ended June 30, 2011, a decrease of $57,169 approximately 12%. For the three months
ended June 30, 2012 and 2011 general and administrative expenses consisted of the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 24; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->23<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 50%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">Three months ended <BR>
June 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 64%"><FONT STYLE="color: Black">Occupancy</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 15%; text-align: right"><FONT STYLE="color: Black">9,292</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 15%; text-align: right"><FONT STYLE="color: Black">7,769</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Consulting</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">3,015</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,950</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Employee compensation</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">168,857</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">338,649</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Professional fees</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">28,017</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">25,436</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Internet/Phone</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,578</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">4,108</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Travel/Entertainment</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">10,333</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">13,667</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Investor Relations</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">169,040</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">45,332</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Insurance</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">6,053</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">8,610</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Other</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"><FONT STYLE="color: Black">42,609</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right"><FONT STYLE="color: Black">49,442</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"><FONT STYLE="color: Black">438,795</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="border-bottom: black 2.25pt double; text-align: right"><FONT STYLE="color: Black">495,963</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 3%; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD STYLE="width: 94%"><FONT STYLE="color: Black">For the three months ended June 30, 2012, occupancy expense increased to
    $9,292 as compared to $7,769.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012, consulting expense increased to $3,015 as compared
    to $2,950, an increase of $65.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012, salaries and related expenses decreased to $168,857
    as compared to $338,649, a decrease of $169,792, or 50%. &nbsp;The decrease is due primarily to a decrease in non-cash stock
    and option based compensation expense.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012, professional fees expense increased to $28,017 as
    compared to $25,436.&nbsp;&nbsp;Professional fees expense increased primarily as a result of an increase in legal fees incurred
    related to business development activities.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012, internet/phone expense decreased to $1,578 as compared
    to $4,108. Phone expense decreased primarily due to cost-cutting measures implemented by us.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012, travel and entertainment expense decreased to $10,333
    as compared to $13,667. Travel and entertainment expense decreased due to decreased travel for investor relations and general
    corporate travel activity.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012, insurance expense decreased to $6,053 as compared
    to $8,610, as a result of cost-cutting measures.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012 other expense amounted to $42,609 as compared to $49,442
    for the three months ended June 30, 2011.</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For the three months ended June 30, 2012 investor relations expense increased to $169,040 as
    compared to $45,332 for the three months ended June 30, 2011. &nbsp;The increase is due to increased investor relations activity.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>LOSS FROM OPERATIONS</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">We reported a
loss from operations of $859,551 for the three months ended June 30, 2012 as compared to a loss from operations of $593,616 for
the three months ended June 30, 2011, an increase in loss of $265,935 or approximately 45%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 25; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->24<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>OTHER INCOME (EXPENSES)</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black"><U>Interest Expense</U>&nbsp;.
For the three months ended June 30, 2012, interest expense amounted to $984,317 as compared to $104,653 for the three months ended
June 30, 2011, an increase of $672,566 or 643%. The increase in interest expense is primarily attributable to the amortization
of the discount on our outstanding convertible debentures.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black"><U>Loss on change
of fair value of derivative liability.</U>&nbsp;For the three months ended June 30, 2012 we incurred an increase&nbsp;<FONT STYLE="background-color: white">in
the value of the derivative liability of $2,156,007.</FONT></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>NET INCOME/ LOSS</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Our net loss
was $3,999,875 for the three months ended June 30, 2012 compared to a net loss of $698,269 for the three months ended June 30,
2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>FISCAL YEAR 2011 AS COMPARED
TO FISCAL YEAR 2010</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">The
following table provides an overview of certain key factors of our results of operations for fiscal year 2011 as compared to fiscal
year 2010:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Fiscal&nbsp;Year&nbsp;ended&nbsp;September&nbsp;30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt"><FONT STYLE="color: Black">$</FONT></TD>
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt"><FONT STYLE="color: Black">%</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2010</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Change</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Change</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 52%"><FONT STYLE="color: Black">Net Revenues</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="color: Black">2,678,346</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="color: Black">3,353,286</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="color: Black">(674,940</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="color: Black">(20.1</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">)%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Cost of sales</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,751,640</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,742,110</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">9,530</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">0.5</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Operating Expenses:</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Sales and marketing</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">975,282</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,690,684</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">715,402</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">42.3</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Depreciation and amortization</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">545,890</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">662,003</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">116,113</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">17.5</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Research and development</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">790,048</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">547,364</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(242,684</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(44.3</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">General and administrative</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,605,999</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">5,312,247</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,706,249</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">50.9</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Loss on impairment of intangible assets</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">303,859</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">-</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(303,859</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">N/A</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Total operating expenses</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">5,221,078</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">8,212,298</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,991,220</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">36.2</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Loss from operation</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(4,294,372</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(6,601,122</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(2,306,750</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">34.9</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Total other expense</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(410,919</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(363,111</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">47,808</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(13.2</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Net loss</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(4,705,291</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(6,964,233</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(2,258,942</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">32.4</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Other Key
Indicators:</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 80%">
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">Fiscal</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">Fiscal</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2010</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 76%"><FONT STYLE="color: Black">Cost of sales as a percentage of revenues</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="color: Black">65.40</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="color: Black">51.95</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Gross profit margin</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">34.60</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">48.05</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">General and administrative expenses as a percentage of revenues</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">97.30</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">158.42</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total operating expenses as a percentage of revenues</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">194.94</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">244.90</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">%</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Sales</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Our
sales decreased approximately 20.1% in fiscal year 2011 from fiscal year 2010. Of our total net sales for fiscal 2011, approximately
$2,520,535 is attributable to our sale of storage products, and approximately $157,811 is attributable to sales from our online
products and services. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">The
decrease in fiscal 2011 net sales from fiscal 2010 is primarily due to the impact of economic uncertainty on our customers&rsquo;
budgets and IT spending capacity. We anticipate revenues for fiscal 2012 will increase due to the introduction of new products
and services, including sales of our Unified Network Storage Solutions and other data storage products.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 26; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->25<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Cost of
Sales and Gross Profit</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Our
cost of sales consists primarily of products purchased to manufacture our storage products. For fiscal 2011, cost of sales was
approximately 65% of sales, as compared to approximately 52% of sales, for fiscal 2010. The increase in costs of sales as a percentage
of revenue and the corresponding decrease in our gross profit margin for fiscal 2011 as compared to fiscal 2010 was the result
of an increased competition and the increase in the cost of certain components that go into our systems in fiscal 2011. We anticipate
that our cost of sales as a percentage of revenue will return to the 50% to 55% range in fiscal 2012, as we introduce new higher
margin products and solutions to augment our storage business.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Total Operating
Expenses</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Our
total operating expenses decreased approximately 36.4% for fiscal 2011 as compared to fiscal 2010. The decrease is primarily due
to decreased headcount in sales and marketing, and lower costs associated with launching our channel sales distribution model,
offset by increased investment in research and development, and the loss on the impairment of intangible assets. The changes include:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Sales
and Marketing</I>. Sales and marketing expense includes salaries, commission, occupancy, telephone, travel, and entertainment
expenses for direct sales personnel. For the fiscal year ended September 30, 2011, sales and marketing costs were $975,282 as
compared to $1,690,684 for the fiscal year ended September 30, 2010, a decrease of $715,402 or approximately 42%. The decrease
was due primarily to reduced sales and marketing headcount during the fiscal year ended September 30, 2011, as we established
and relied upon a two-tier channel distribution model.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Depreciation
and amortization expense</I>. For fiscal 2011, depreciation and amortization expense decreased approximately 18% from fiscal 2010,
as many of our assets became fully depreciated during the fiscal year.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&nbsp;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 $243,093 for&nbsp;fiscal 2011 and $243,090 for fiscal 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research
and development expense.</I></FONT><I>&nbsp;</I><FONT STYLE="background-color: white">For fiscal 2011, research and development
expenses increased approximately 44% from fiscal 2010. 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 $200,000
per quarter related to developing and enhancing our storage solutions and pursuing intellectual property patents when we believe
it is warranted.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Loss
on impairment of intangible assets.</I></FONT><I>&nbsp;</I><FONT STYLE="background-color: white">In fiscal 2011, management determined
that the value of certain of our intangible assets had been impaired due to changes in our sales and marketing approach, and as
a result we expensed the remaining unamortized balance of these assets, totaling $303,859.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&bull;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>General
and administrative expense</I>. For fiscal 2011, general and administrative expenses decreased approximately 51% from fiscal 2010.
This decrease is primarily attributable to lower stock-based compensation, lower legal and professional fees, and lower bad debt
expense, offset by higher investor relations expense. For fiscal 2011 and 2010, general and administrative expenses consisted
of the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center">Fiscal</TD><TD STYLE="color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center">Fiscal</TD><TD STYLE="color: Black; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="color: Black">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; color: Black">Occupancy</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">50,208</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">$</TD><TD STYLE="width: 10%; color: Black; text-align: right">49,085</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Consulting</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">87,238</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">133,784</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left">Employee compensation</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">1,117,737</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">3,458,814</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left">Professional fees</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">325,105</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">671,548</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black">Internet/Phone</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">20,479</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">14,834</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Travel/Entertainment</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">34,002</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">49,016</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left">Investor Relations</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">676,915</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">358,780</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black">Insurance</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">35,203</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">46,304</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; padding-bottom: 1pt">Other</TD><TD STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: right">259,112</TD><TD STYLE="padding-bottom: 1pt; color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: right">530,082</TD><TD STYLE="padding-bottom: 1pt; color: Black; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="color: Black; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: Black; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: Black; text-align: right">2,605,999</TD><TD STYLE="padding-bottom: 2.5pt; color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; color: Black; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; color: Black; text-align: right">5,312,247</TD><TD STYLE="padding-bottom: 2.5pt; color: Black; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 27; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->26<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">The
principal changes in fiscal 2011 as compared to fiscal 2010 include:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, salaries and related taxes and benefits decreased $2,341,077, or approximately
    68% from fiscal 2010. The decrease was primarily attributable to a decrease in stock based compensation, and expense recorded
    in accordance with ASC Topic 718, &ldquo;Compensation &ndash; Stock Compensation, formerly SFAS No. 123&nbsp;(R), &ldquo;Share-Based
    Payments&rdquo;, for fiscal 2011 of $2,459,103, a decrease of 83%.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, occupancy expense increased approximately 2% from fiscal 2010.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, professional fees decreased $346,443, or approximately 52% from fiscal 2010.
    The decrease was primarily attributable to a decrease in legal fees incurred and the settlement of lawsuits against us in
    fiscal 2010 versus 2011.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, other expense decreased approximately 51% from fiscal 2010. The decrease is
    primarily due to a decrease in bad debt expense of $235,877, and a decrease in hosting fees of $23,022.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, consulting expense decreased by approximately 35% from fiscal 2010. The decrease
    was primarily due to non-recurring consulting fees related to our capital raising activities, and human resources recruiting
    fees incurred in 2010 but not in fiscal 2011.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, investor relations expense increased approximately 89% from fiscal 2010. The
    increase was attributable to an increase in general investor relations activity versus fiscal 2010. We expect that in fiscal
    2012 our investor relations activity and related expense should decrease to fiscal 2010 levels.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, internet and telephone expense increased approximately 38%. The increase was
    attributable to non-recurring costs incurred during the fiscal year 2011.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, travel and entertainment expense decreased approximately 31%. The decrease
    was attributable to a decrease in general business, and travel-related investor relations activity.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">For fiscal 2011, insurance expense decreased approximately 24% from fiscal 2010. The decrease
    was attributable to lower premiums paid for general business and directors and officer&rsquo;s insurance.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">LOSS FROM
OPERATIONS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Our
loss from operations decreased approximately 40% in fiscal year 2011 as compared to fiscal year 2010. This decrease is primarily
the result of reduced headcount, offset by our increased research and development efforts, and our investment in our channel marketing
sales programs.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">TOTAL OTHER
INCOME (EXPENSES)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">For
fiscal 2011, interest expense decreased approximately 25.7%. The decrease in interest expense is primarily attributable to lower
average outstanding note balances during fiscal 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">NET LOSS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black; background-color: white">&#9;Our
net loss was $4,705,291 for fiscal 2011 compared to $6,964,233 for fiscal 2010, a decrease of $2,258,942 or approximately 32%.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 28; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->27<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>LIQUIDITY AND CAPITAL RESOURCES</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">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 June
30, 2012 and September 30, 2011:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">June 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">September 30,</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">$</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="color: Black">%</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2012</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">2011</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Change</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black">Change</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 48%"><FONT STYLE="color: Black">Working Capital</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">(5,462,640</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">(1,713,333</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">(3,749,307</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">)</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">218.8</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Cash</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">774,012</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">4,120</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">769,892</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">18,687.0</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Accounts receivable, net</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,336,591</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,182,060</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">154,531</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">13.1</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Inventory</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">282,602</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">55,981</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">226,621</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">404.8</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total current assets</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,437,404</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,450,806</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(13,402</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(0.5</FONT></TD>
    <TD><FONT STYLE="color: Black">)%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Property and equipment, net</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">354,643</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">252,835</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">101,808</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">40.3</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Marketable Securities</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">164,000</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">115,200</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">48,800</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">42.3</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Deferred financing costs, net</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">107,180</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">-</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">107,180</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">N/A</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total assets</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">3,078,091</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,832,161</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">245,930</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">8.7</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Accounts payable and accrued liabilities</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,032,235</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,186,691</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(1,154,456</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(52.8</FONT></TD>
    <TD><FONT STYLE="color: Black">)%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Notes payable</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">2,016,245</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">1,972,544</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(43,701</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(2.2</FONT></TD>
    <TD><FONT STYLE="color: Black">)%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Convertible notes payable, net of discount</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">328,478</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">-</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">328,478</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">0.0</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Derivative liability</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">4,523,086</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">-</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">4,523,086</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">0.0</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Total current liabilities</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">7,900,044</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">4,164,139</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">3,735,905</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">89.7</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Accumulated deficit</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(40,851,010</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(34,328,080</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(6,522,930</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">19.0</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Stockholders&rsquo; deficit</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(4,821,953</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(1,331,978</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">(3,489,973</FONT></TD>
    <TD><FONT STYLE="color: Black">)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">262.0</FONT></TD>
    <TD><FONT STYLE="color: Black">%</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Net cash used
in operating activities was $4,375,749 for the Nine Months Ended June 30, 2012 as compared to net cash used in operating activities
of $1,827,791 for the Nine Months Ended June 30, 2011, an increase in loss of $2,547,958.&nbsp;&nbsp;For the Nine Months Ended
June 30, 2012, we had a loss of $6,522,930 offset by non-cash items such as depreciation and amortization expense of $115,639,
share-based compensation expense of $56,615, amortization of deferred finance costs of $371,737, and decreases from changes in
assets and liabilities of $1,376,994. During the Nine Months Ended June 30, 2012 we experienced an increase in accounts receivable
of $154,531, and a decrease in accounts payable during the period of $989,192.&nbsp;&nbsp;For the nine months ended June 30, 2011,
we had a loss of $2,588,332 offset by non-cash items such as depreciation and amortization expense of $418,625, share-based compensation
expense of $585,000, and decreases from changes in assets and liabilities of $356,452. During the nine months ended June 30, 2011
we experienced an increase in accounts receivable of $310,677, and a decrease in accounts payable during the period of $61,035</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Net cash used
in investing activities for the Nine Months Ended June 30, 2012 was $250,446 as compared to net cash used in investing activities
of $60,061 for the Nine Months Ended June 30, 2011. During the Nine Months Ended June 30, 2012, we used cash of $217,446 for property
and equipment purchases, and $33,000 for the purchase of 3,300,000 of VOIS Inc. common stock.&nbsp;&nbsp;&nbsp;During the Nine
Months Ended June 30, 2011, we used cash of $60,061 for property and equipment purchases.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Net cash provided
by financing activities for the Nine Months Ended June 30, 2012 was $5,396,087 as compared to net cash provided of $1,351,880
for the Nine Months Ended June 30, 2011.&nbsp;&nbsp;For the Nine Months Ended June 30, 2012, net cash provided by financing activities
related to proceeds received from subscriptions receivable of $1,171,520, proceeds from notes payable of $301,896 which were advances
under our factoring line with Sand Hill Finance LLC, proceeds from the issuance of convertible notes of $1,750,000, proceeds from
the exercise of common stock options of $180,717, proceeds from the conversion of common stock warrants of $102,460, payments
on the convertible debenture with common stock of $884,612, proceeds from the sale of restricted stock of $1,834,347, offset by
repayments on notes payable of $258,195 which were to pay down the balance on the Sand Hill Finance LLC factoring line, and payment
of deferred financing costs of $571,270.&nbsp;&nbsp;&nbsp;For the nine months ended June 30, 2011, net cash provided by financing
activities related to proceeds received from notes payable of $818,481 which were advances under our factoring line with Sand
Hill Finance LLC, proceeds from the exercise of common stock options of $720,148, and proceeds from the sale or restricted stock
of $409,464, offset by repayments on notes payable of $596,213 which were to pay down the balance on the Sand Hill Finance LLC
factoring line.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 29; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->28<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">At June 30, 2012
we had a working capital deficit of $5,462,640 and an accumulated deficit of $40,851,010.&nbsp;&nbsp;The report from our independent
registered public accounting firm on our audited financial statements for the fiscal year ended September 30, 2011 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.
While our sales increased slightly during the Nine Months Ended June 30, 2012, our gross profit margin was approximately 34.4%
and our sales were not sufficient to pay our operating expenses. We reported a net loss of $6,522,930 for the Nine Months Ended
June 30, 2012.&nbsp;&nbsp;There are no assurances that we will report income from operations in any future periods.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">Historically,
our revenues 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 June 30, 2012 we had cash on hand of $774,012.&nbsp;&nbsp;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 $3.0 million.
At June 30, 2012 we owed Sand Hill Finance, LLC $2,016,245 under this accounts receivable line.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">We do not have
any commitments for capital expenditures. We do not presently have any external sources of working capital other than what may
be available under the factoring agreement with Sand Hill Finance, LLC and loans from related parties. Our working capital needs
in future periods are dependent primarily on the rate at which we can increase our revenues 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">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 limit our ability to raise capital in future periods.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">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 continue growth strategy could 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 revenues 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B><I>Recent Accounting Pronouncements</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">In May
2011, the Financial Accounting Standards Board (&ldquo;FASB&rdquo;) issued Accounting Standards Update (&ldquo;ASU&rdquo;) No.&nbsp;2011-04,
&ldquo;Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and International Financial Reporting Standards&rdquo; (&ldquo;IFRS&rdquo;). The amendments in this ASU generally represent
clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or
disclosing information about fair value measurements has changed. This update results in common principles and requirements for
measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments
are effective for interim and annual periods beginning after December&nbsp;15, 2011 and are to be applied prospectively. Early
application is not permitted. We do not expect the adoption of ASU 2011-04 will have a material impact on the Company&rsquo;s
Condensed Consolidated Financial Statements.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">In June
2011, the FASB issued ASU No. 2011-05, &ldquo;Comprehensive Income (Topic 220): Presentation of Comprehensive Income&rdquo; (amended
further under ASU&nbsp;No. 2011-12 in December 2011). This guidance eliminates the current option to report other comprehensive
income and its components in the statement of changes in equity. The guidance allows two presentation alternatives; present items
in net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income,
or in two separate, but consecutive, statements of net income and other comprehensive income. This guidance is effective as of
the beginning of a fiscal year that begins after December&nbsp;15, 2011. Early adoption is permitted, but full retrospective application
is required under both sets of accounting standards. The Company is currently evaluating which presentation alternative it will
utilize.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 30; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->29<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">In September
2011, the FASB issued ASU No. 2011-08, &ldquo;Intangibles&mdash;Goodwill and Other (Topic 350): Testing Goodwill for Impairment&rdquo;,
which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill
for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated
and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying
amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has
the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity
to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality
of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit
is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it
is required to test goodwill for impairment under the two-step process as described in Topic 350 under paragraphs 350-20-35-4
and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December&nbsp;15, 2011 and early adoption is permitted. The Company is currently evaluating whether early
adoption is necessary.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">In December 2011, the FASB issued
Accounting Standards Update (ASU) No, 2011-11,&nbsp;<I>Balance Sheet</I>&nbsp;(Topic 210):&nbsp;<I>Disclosures about Offsetting
Assets and Liabilities</I>. The amendments in this ASU require an entity to disclose information about offsetting and related
arrangements on its financial position. This includes the effect or potential effect of rights of offset associated with an entity&rsquo;s
recognized assets and recognized liabilities and require improved information about financial instruments and derivative instruments
that are either (1)&nbsp;offset in accordance with Section&nbsp;210-20-45 or Section&nbsp;815-10-45 or (2)&nbsp;subject to an
enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section&nbsp;210-20-45
or Section&nbsp;915-10-45. The amendments are effective for annual reporting periods beginning on or after January&nbsp;1, 2013
and retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. Currently, the
Company does not enter into any right of offset arrangements and expects implementation to have little or no impact.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>OUR
BUSINESS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">OVERVIEW</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Headquartered
just outside of Washington, D.C., we manufacture and market 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). We have three key product offerings: </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 49px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Iceweb unified data network storage line of products</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Purpose built network/data appliances</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&bull;&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Cloud computing products/services</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">IceWEB
unified data storage line of products</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Our
high performance unified data storage solutions make it possible to operate and manage files and applications from a single device.
File-based and block-based access data are consolidated in a single storage platform which supports Fibre Channel SAN, IP-based
SAN (iSCSI), and NAS (network attached storage).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Our
unified storage system simultaneously enables storage of file data and handles the block-based I/O (input/output) of enterprise
applications. &nbsp;One advantage of unified storage is reduced hardware requirements. Instead of separate storage platforms,
like NAS for file-based storage and a RAID disk array for block-based storage, unified storage combines both in a single device.
Alternatively, a single device could be deployed for either file or block storage.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 31; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->30<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">In
addition to reduced capital expenditures for the enterprise, unified storage systems can also be simpler to manage than separate
products since our IceWEB Storage System offers one platform for file and block data of all kinds<B>.</B></FONT><B>&nbsp;</B><FONT STYLE="background-color: white">Whether
it id Microsoft Exchange, SQL Server or Oracle databases, virtualized environments, scanned images, files, video, pictures, graphics,
or voice data, we believe our products maximize the efficiency of storage by centralizing all data on one platform secured with
strong data protection capabilities.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">The
all-inclusive IceWEB Storage System 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. &nbsp;Unified
storage systems enjoy the same level of reliability as dedicated file or block storage systems. &nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
believe 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,
managed service providers, oil and gas, and health care. We believe our storage systems delivers levels of performance, scalability,
versatility and simplicity that exceed existing network storage alternatives. Our unified network storage offering is deployed
as storage operating system software on our network attached storage (NAS), and storage area network (SAN) hardware products.
This unified network storage environment empowers companies to:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 23px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">-&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Quickly and easily deploy large complex data storage infrastructure environments</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">-&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Reduce administrative costs for managing their storage by making complex technical tasks far
    more simple to accomplish</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">-&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Reduce hardware and capital expenditure costs by more effectively using the storage within
    the system and repurposing older legacy hardware</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">-&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Protect their business critical data by leveraging our built-in data replication features</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">-&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Integrate with emerging server virtualization software (VMWare, Citrix Xen and Microsoft&rsquo;s
    Hyper V) to better manage those solutions</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Our
file management system replaces complex and performance-limited competitive products with high performance, scalable and easy
to use systems capable of handling the most data-intensive applications and environments. We believe that our solution delivers
three key benefits:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: Black; background-color: white"><I>&bull;</I></FONT></TD><TD><FONT STYLE="color: Black; background-color: white"><I>Performance</I></FONT>&nbsp;<FONT STYLE="background-color: white">-
                                                                                                                      which equals
                                                                                                                      or exceeds
                                                                                                                      all competitive
                                                                                                                      products</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: Black; background-color: white"><I>&bull;</I></FONT></TD><TD><FONT STYLE="color: Black; background-color: white"><I>Management</I></FONT>&nbsp;<FONT STYLE="background-color: white">&ndash;
                                                                                                                      which requires
                                                                                                                      less expertise
                                                                                                                      and provides
                                                                                                                      ease of
                                                                                                                      use for
                                                                                                                      overburdened
                                                                                                                      technical
                                                                                                                      staffers</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="color: Black; background-color: white"><I>&bull;</I></FONT></TD><TD><FONT STYLE="color: Black; background-color: white"><I>Cost</I></FONT>&nbsp;<FONT STYLE="background-color: white">&ndash;
                                                                                                                      our solutions
                                                                                                                      typically
                                                                                                                      can be deployed&nbsp;costing
                                                                                                                      far less
                                                                                                                      than those
                                                                                                                      of ours
                                                                                                                      competitors
                                                                                                                      while delivering
                                                                                                                      feature-rich
                                                                                                                      performance
                                                                                                                      with comprehensive,
                                                                                                                      yet easy-to-use
                                                                                                                      management.
                                                                                                                      </FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Competitive
Landscape</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
compete with other storage vendors such as Compellent Technologies, Inc., Isilon Systems, Inc., and HP LeftHand Networks. In addition,
we find ourselves becoming an alternative in our customers&rsquo; eyes to purchasing additional equipment from large and expensive
legacy storage providers such as EMC Corporation, IBM, Network Appliance and Hitachi Data Systems. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">With
the demand for data storage growing exponentially within all organizations, budgetary and common sense decision making is creating
a second tier storage marketplace where our IceWEB 3000 products are perceived as compelling data storage solutions. Based upon
our review of the market, we believe some customers are searching for alternatives from the high costs and hardware replacement
upgrades often required by the larger Tier 1 storage providers, who push expensive upgrades to satisfy to meet their billion dollar
revenue growth commitments. Instead, some customers are opting to deploy our products with versatile and feature rich capabilities.
</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 32; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->31<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Purpose
Built Network and Data Appliances</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
have been building purpose built network and data appliances for several years. Purpose built network and data appliances are
devices which provide computing resources, including processors and memory, data storage, and specific software for specific applications.
In 2012 we 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. We are aggressively pursuing other purpose built appliance
opportunities and anticipate that this strategy will begin to contribute significantly to our business ramping over the next six
months Our goal is that the appliance business segment grows to contribute approximately 20% of overall business revenue by the
end of fiscal year 2013. We expect to achieve this through our ongoing sales, marketing and research and development efforts,
funded by operations.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Cloud
Computing Products and Services</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><B>Cloud
Computing Services</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">In
December 2005, we launched IceMAIL</FONT>&nbsp;<FONT STYLE="background-color: white"><SUP>TM</SUP></FONT>&nbsp;<FONT STYLE="background-color: white">a
packaged software service that provides network &ndash;hosted groupware, email, 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. &nbsp;Online services were subsequently expanded to include IcePORTAL</FONT>&nbsp;<FONT STYLE="background-color: white"><SUP>TM</SUP></FONT>&nbsp;<FONT STYLE="background-color: white">which
provides customers with a complete Intranet portal and IceSECURE</FONT>&nbsp;<FONT STYLE="background-color: white"><SUP>TM</SUP></FONT>&nbsp;<FONT STYLE="background-color: white">a
hosted email encryption service. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Originally
such hosted services were referred to with the acronym &rsquo;SaaS&rsquo;, which stands for Software-as-a-Service. Such services,
hosted across the internet are today commonly referred to as cloud computing. &nbsp;We believe that 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 &ndash;
cloud computing allows ad-hoc allocation of resources, cost free software upgrades, and freedom from hardware/infrastructure obsolescence.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><B>Cloud
Storage Appliances (CSA)</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
have focused our engineering and research and development efforts on crafting our products to perform as scalable &lsquo;building
blocks&rsquo; for those companies or service providers wishing to rapidly deploy high performance infrastructure to enable delivery
of cloud-based services. In September 2009 we introduced a line of devices called &ldquo;cloud storage appliances&rdquo; or CSAs.
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</FONT>&nbsp;<FONT STYLE="background-color: white">within the enterprise marketplace which revolve around hesitation
to entrust corporate data to third party providers such as Amazon S3, Mozy, Nirvanix, and others. The CSA line also addresses
additional concerns about data access latency and performance. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">By
implementing our CSA devices, we believe companies can gain all of the benefits of cloud computing, while mitigating the impact
of long-term contracts frequently required by vendors, and reducing the potential for security breaches. High performance data
transfers are maintained by back-hauling the data and replicating it from remote branch offices across existing wide area network
links to the corporate IT infrastructure. We believe an additional benefit derived from the deployment of private or hybrid storage
clouds on the CSA products is that companies may not be required to pay per-megabyte or per-gigabyte transfer and storage fees
to third party service companies.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Customers</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Our
products have been sold to customers in the U.S., Canada and Europe across a broad range of industries, including GIS; oil and
gas; state, local and federal government; and healthcare. We believe that our customers have a high level of satisfaction with
our products and services. During the year ended September 30, 2011 one customer accounted for 10% or more of our consolidated
revenue.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 33; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->32<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Sales
and Marketing </B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
sell of all of our products via full &ldquo;channel-based&rdquo; 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. We believe that the value
of a channel-based sales model is twofold. First it allows us to grow total sales volume significantly while keeping sales staff,
and our general and administrative expenses, low. Rather than building a significant worldwide sales force of our own, this model
allows us 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 which compresses the sales cycle and increases the close ratio on new
business, with the goal of generating more sales for our company&rsquo;s products and services.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
continue to aggressively pursue partner agreements to increase our sales and market exposure and footprint. These partner agreements
typically take between three and six months to develop prior to materially increasing sales revenues.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Manufacturing</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Manufacturing
is conducted at our headquarters in Sterling, VA. Utilizing chassis from premium manufacturers such as AIC Corporation, Intel,
SuperMicro, and others, all systems are built, burned-in, and tested at this facility by our in-house engineering and production
staff. We manufacture data appliances, modular lightweight portable enterprise servers (MLP), workgroup servers, data storage
management platforms, as well as an array of database and customized appliances. We use best-of-breed, readily available, commercial
off-the-shelf products sourced from various resellers and suppliers in our manufacturing process.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Competition</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">The
market for our 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.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">In
addition, there is additional competition from smaller companies such as Compellent Technologies and Isilon. 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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Industry credibility</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Product scalability, performance and reliability</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Ease of installation and management</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Software functionality</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Total cost of ownership</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Customer support</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">Market presence</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
believe that we compete effectively across all of these factors. In particular, we believe that our product architecture provides
significant competitive advantages in terms of performance, scalability, ease of management and low total cost of ownership. Historically,
our OEM partners have provided us with a significant number of reference accounts which address credibility and helps in our marketing
efforts to new customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">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 we do, including relationships with potential our customers.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 34; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->33<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Research
and Development&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Research
and development expenses consist primarily of personnel-related expenses, costs of prototype equipment, costs of using contractors,
allocated facility and IT overhead expenses and depreciation of equipment used in research and development activities. We expense
research and development costs as incurred. Our research and development expenses were $790,048 and $547,364, in fiscal 2011 and
fiscal 2010, respectively. Subject to the availability of sufficient capital, we intend to continue to invest significantly in
our research and development efforts, which we believe are essential to maintaining our competitive position. As a result, we
expect research and development expenses to increase in absolute dollars, although we expect these expenses to decrease as a percentage
of revenue.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Intellectual
Property</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Success
in our technological markets depends, in part, upon our ability to obtain and maintain proprietary protection for our 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 proprietary rights.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">We
seek to protect our 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 plan to file related foreign patent applications in jurisdictions
such as the European Union and Japan. We are in the process of preparing filings for two or more provisional patents for our cloud
storage appliance and WISCSI technologies which we anticipate will happen in our fiscal fourth quarter of 2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Pending
patent applications relate to various software development projects and to the rapid ingestion of massive amounts of video and
other data and other network storage concepts. &nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Copyright
law, trademarks and trade secret agreements are also used to protect and maintain proprietary positions. &nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="color: Black; background-color: white">Trademarks
are used on some of the our products and these distinctive marks may be an important factor in marketing the products. Inline&reg;
and Inline logo trademarks have been registered in the United States.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>Our
History</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 35; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->34<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">On
March 21, 2002, we executed an Agreement and Plan of Merger with IceWEB Communications, Inc., a Delaware corporation and its security
holders. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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 security holders 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 security holders 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">On
December 1, 2006 we sold 100% of the capital stock of our wholly-owned subsidiary, Integrated Power Solutions, Inc. to Mr.&nbsp;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.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 36; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->35<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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&rsquo;s
subcontractor until the novation of the GSA Schedule was complete. The novation of the GSA schedule was completed in March, 2008.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">On
December 22, 2007, we acquired 100% of the outstanding stock of Inline Corporation for $2,412,731 in cash, plus 503,356 shares
of our 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. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">EMPLOYEES</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">At August
17, 2012, we had 19 full-time employees, including our executive officers.&nbsp;&nbsp;None of our employees are covered by collective
bargaining agreements, and we believe our relationships with our employees to be good.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">LEGAL PROCEEDINGS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">PROPERTIES</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">In February
2009, we entered into a two year lease for approximately 6,978 square feet of office space in which our principal executive offices
are located for annual base rental of approximately $74,400. We are currently renting our office location on a month-to-month
basis, but anticipate renewing our lease for an additional year.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>MANAGEMENT</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">The
following individuals serve as our executive officers and members of our Board of directors:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 70%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 34%; border-bottom: Black 1pt solid; font-weight: bold"><FONT STYLE="color: Black"><B>Name</B></FONT></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="color: Black"><B>Age</B></FONT></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 57%; border-bottom: Black 1pt solid; font-weight: bold"><FONT STYLE="color: Black"><B>Positions</B></FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Harold F. Compton (1)(2)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">65</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">Chairman</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Robert M. Howe III</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">65</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">Chief Executive Officer</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Mark B. Lucky</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">53</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Chief Financial Officer</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Nicholas Carosi, III</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">65</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Director</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Raymond H. Pirtle (2)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">71</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Director</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Jack Bush(1)</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">77</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Director</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">Harry E. Soyster</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="color: Black">77</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">Director</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(1) Member
of the Compensation Committee</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(2) Member
of the Audit Committee</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 37; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->36<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Harold
F. Compton.</U></FONT>&nbsp;<FONT STYLE="background-color: white">Mr. Compton has been a member of our board of directors since
May 2005, and from May 2012 until July 23 he served as interim Chief Executive Officer following the death of Mr. John Signorello,
the former Chairman and Chief Executive Officer. Mr. Compton has been a retailer for more than 30 years. Mr. Compton joined CompUSA
Inc. in 1994 as Executive Vice President-Operations, becoming Executive Vice President and Chief Operating Officer in 1995, President
of CompUSA Stores in 1996 and Chief Executive Officer of CompUSA Inc. in 2000, a position he held until his retirement in 2004.
Prior to joining CompUSA, Inc., from 1993 until 1994 he served as President and COO of Central Electric Inc., Executive Vice President
Operations and Human Resources, and Director of Stores for HomeBase (1989 to 1993), Senior Vice President Operations and Director
of Stores for Roses Discount Department Stores (1986 to 1989), and held various management positions including Store Manager,
District Manager, Regional Vice President and Zone Vice President for Zayre Corporation from 1965 to 1986. Since 1998 Mr. Compton
was a member of the board of directors of Linens &lsquo;N Things, Inc., is currently a member of the board of directors of Maidenform
Brands, Inc. and is a member of its Compensation Committee and Corporate Governance and Nominating Committee of the board of directors
of that company. Mr. Compton also serves as Chairman of the Board of HASCO Medical, Inc.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Robert
M. Howe III.</U> Robert M. Howe III is a technology industry veteran with over 20 years of experience in various leadership positions.
Mr. Howe was most recently with McCusker &amp; Company, an international warranty services company, where he served as President
and Chief Operating Officer. His prior experience includes working at Dell Computer Corporation from 1992-1994 as a Senior Vice
President where he was instrumental in launching the DellWare business model, as well as creating a virtual logistics model that
subsequently became the industry standard; working at AT&amp;T GIS from 1994-1997 (now known as NCR), where he served as VP and
General Manager for their worldwide PC business; and working at CompUSA where he held the titles of Corporate Senior Vice President
and President, from 1997-2000 where he oversaw the turnaround of CompUSA&rsquo;s in-house PC brand. From September 2000 to May
2006, Mr. Howe served as a consultant to technology firms, both independently and in collaboration with the Sightline Group, in
connection with go- to &ndash; market readiness. From May 2006 to February 2007, Mr. Howe served as President and Chief Operations
Officer of DualCor Technologies, Inc, a technology firm that developed a mobile handheld computer.&nbsp;&nbsp;&nbsp;&nbsp;Mr.
Howe holds a BA in English from Birmingham-Southern College, and a Masters of Arts from Auburn University.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">We believe
that as a result of his years of managerial and operational experience, Mr. Howe brings a demonstrated management ability at senior
levels. These experiences, qualifications and attributes have led to our conclusion that Mr. Howe should be serving Chief Executive
Officer.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Mark
B. Lucky.</U></FONT>&nbsp;<FONT STYLE="background-color: white">Mark B. Lucky has served as our Chief Financial Officer since
March 2007 and as our Chief Operating Officer since May 2012. Since October 30, 2010 he has also served as a member of the board
of directors of VOIS Inc. (OTC Markets: VOIS), an entity in which we purchased an interest as described elsewhere herein. He has
over 20 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 our company,
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, reporting
and human resource responsibilities. During his career Mr. Lucky has also been employed by Axys Pharmaceuticals, Inc., a NASDAQ-listed
South 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 &amp; Analysis, Manager
of Corporate Planning 1991 to 1995), and KPMG. Mr. Lucky is a member of the board of directors of VOIS Inc. and HASCO Medical,
Inc. Mr. Lucky is a CPA and received his B.A., Economics, from the University of California at Los Angeles.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 38; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->37<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Raymond
Pirtle. Jr.</U></FONT>&nbsp;<FONT STYLE="background-color: white">Mr. Pirtle has been a member of our board of directors since
June 2005. 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. From 1966 until 1989 he was employed
by J.C. Bradford &amp; 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. 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 currently serves on the board of Premier Global Services, Inc. (NYSE: PGI), a provider
of business communications services and business process solutions that enable enterprise customers to automate and simplify components
of their critical business processes and to communicate more effectively with their constituents.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Jack
Bush.</U></FONT>&nbsp;<FONT STYLE="background-color: white">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 &amp; Frame
Co. He was a founder, Chief Concept Officer and Director of Artistree Art, Frame &amp; Design Company. During this time he was
also a director of Cyberplay, New York Coffee &amp; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">We
believe that Mr. Bush&rsquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Harry
E. Soyster.</U></FONT><U>&nbsp;</U><FONT STYLE="background-color: white">General Soyster has been a member of our board of directors
since March 2009. 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 Secretary
of the Army for World War II 60<SUP>th</SUP></FONT>&nbsp;<FONT STYLE="background-color: white">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 Masters of Science degree in Chemistry from Pennsylvania State University
in Chemistry and a Masters 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 39; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->38<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><U>Nick
Carosi, III.</U></FONT> Mr. Carosi has been a member of our <FONT STYLE="background-color: white">board of directors</FONT> since
May, 2012. He has served as President and CEO of Arban &amp; Carosi Inc., one of the largest manufacturers of architectural precast
concrete serving the Mid-Atlantic area, since 1990. He currently serves as a board member of INOVA Health Systems, with which
he has been associated for over 20 years. He began his career with the Arban &amp; Carosi Inc. in 1969, and was instrumental in
overseeing its growth into the preeminent manufacturers of architectural precast concrete in North America . Mr. Carosi is a former
board member, and President of the Prince William County Chamber of Commerce, has served on the advisory board of Sovran Bank,
was a member of the board of Piedmont Federal Savings and Loan, and also served on the board of Potomac Hospital. During that
time he has served as a board member, chairman of the finance committee, chairman of the governance committee, chairman of the
investment committee, and is currently the vice chair of the board. He is also currently on the board of Marymount University
of Arlington, Virginia, and Bellarmine University of Louisville, Kentucky, his alma mater. In addition, Mr. Carosi was instrumental
in bringing what is now known as the Potomac Nationals to Prince William County, Virginia, having served as their Treasurer for
four years. He is also a former partner of TSI Windows of Maryland.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">There
are no family relationships between any of the executive officers and directors. Directors are elected at our annual meeting of
security holders and hold office until the next annual meeting of security holders or until his or her resignation, removal, or
death.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Committees
of the Board of directors</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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
security holders, 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 security holders, 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 2009
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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white"><I>Audit
Committee</I></FONT>&nbsp;<FONT STYLE="background-color: white">. 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&rsquo;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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 40; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->39<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">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;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">Resolve any disagreements between management and the auditor regarding financial reporting;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">Pre-approve all auditing and permitted non-audit services performed by our external audit firm;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">Retain independent counsel, accountants, or others to advise the committee or assist in the
    conduct of an investigation;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">Seek any information it requires from employees - all of whom are directed to cooperate with
    the committee&rsquo;s requests - or external parties;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">Meet with our officers, external auditors, or outside counsel, as necessary; and</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">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.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Each
Audit Committee member is required to:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">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</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">meet the definitions of &ldquo;non-employee director&rdquo; for purposes of SEC Rule 16b-3
    and &ldquo;outside director&rdquo; for purposes of Section 162(m) of the Internal Revenue Code.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Each
committee member is required to be financially literate and at least one member is to be designated as the &ldquo;financial expert,&rdquo;
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 &ldquo;audit committee financial expert&rdquo; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">A
copy of the Audit Committee Charter is available on our website at www.iceweb.com under the &ldquo;Investor Relations&rdquo; tab.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"><I>Compensation
Committee</I>. The Compensation Committee was appointed by the board to discharge the board&rsquo;s responsibilities relating
to:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">compensation of our executives,</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">equity-based compensation plans, including, without limitation, stock option and restricted
    stock plans, in which officers or employees may participate, and</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">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.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Each
Compensation Committee member is required to:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">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</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">meet the definitions of &ldquo;non-employee director&rdquo; for purposes of SEC Rule 16b-3
    and &ldquo;outside director&rdquo; for purposes of Section 162(m) of the Internal Revenue Code.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 41; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->40<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Messrs.
Compton 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 &ldquo;Investor Relations&rdquo; tab.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Code of
Ethics</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 23px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">honest and ethical conduct,</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">full, fair, accurate, timely and understandable disclosure in regulatory filings and public
    statements,</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">compliance with applicable laws, rules and regulations,</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">the prompt reporting violation of the code, and</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">accountability for adherence to the Code.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">A
copy of our Code of Business Conduct and Ethics is filed as an exhibit to our annual report for fiscal 2011. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>EXECUTIVE
COMPENSATION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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, 2011. The value attributable to any option awards is computed in accordance with accordance with
ASC Topic 718, &ldquo;Compensation &ndash; Stock Compensation, &ldquo;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 2011 appearing later in this
prospectus.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B><U>SUMMARY
COMPENSATION TABLE</U></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Name
                                                      and</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>principal
        position</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(a)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Year</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(b)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Salary</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(c)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Bonus</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(d)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Stock</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Awards</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(e)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Option</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Awards</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(f)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Non-Equity</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Incentive
        Plan</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(g)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Nonqualified</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Deferred</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Earnings</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(h)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>All</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Other</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(i)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>Total</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 7pt; color: Black"><B>(j)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD NOWRAP STYLE="width: 17%"><FONT STYLE="font-size: 7pt; color: Black">John&nbsp;&nbsp;Signorello (1)</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 5%; text-align: center"><FONT STYLE="font-size: 7pt; color: Black">2011</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">205,889</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 5%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">76,192</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 5%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 8%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">34,038</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 7pt; color: Black">316,119</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt; color: Black">2010</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">239,559</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">430,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">8,914</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">678,476</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">Mark B. Lucky (2)</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt; color: Black">2011</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">156,417</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">76,192</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">10,041</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">242,650</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: center"><FONT STYLE="font-size: 7pt; color: Black">2010</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">201,424</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">197,800</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">8,923</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 7pt; color: Black">408,147</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 7pt; color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mr.
Signorello is our former Chief Executive Officer. All other compensation in fiscal 2011 includes $10,038 which represents the
value of health insurance premiums and includes $24,000 which represents the value of life insurance premiums we paid for Mr.
Signorello. In fiscal 2011, we granted him 468,727 shares of our restricted common stock, valued at $76,192. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 42; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->41<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All
other compensation in fiscal 2011 and 2010 represents the value of health insurance premiums we pay for Mr. Lucky. In fiscal 2011,
we granted him 468,727 shares of our restricted common stock, valued at $76,192. In fiscal 2010, we granted him 2,300,000 shares
of our restricted common stock, valued at $197,800.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">How Mr.
Signorello&rsquo;s compensation was determined</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Mr. Signorello
served as our CEO from March 2000 until his death in May, 2012. He was not a party to an employment agreement with our company.
His compensation was determined by the Compensation Committee of our board of directors. The Compensation Committee considered
a number of factors in determining Mr. Signorello&rsquo;s compensation including the scope of his duties and responsibilities
to our company and the time he devoted to our business. The Compensation Committee did not consult with any experts or other third
parties in fixing the amount of Mr. Signorello&rsquo;s compensation. During fiscal 2011 Mr. Signorello&rsquo;s compensation package
included a base salary of $250,000 and company provided health care benefits. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">How Mr.
Lucky&rsquo;s compensation is determined</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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&rsquo;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&rsquo;s
compensation. During fiscal 2011 Mr. Lucky&rsquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Director
Compensation</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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, 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Name</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Fees</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Earned</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>or
        Paid</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>in
        Cash</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Stock</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Awards</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Option</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Awards</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Non-Equity</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Incentive</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Plan</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Non-Qualified</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Deferred</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Earnings</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>All
                                                                  Other</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Total</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 16%"><FONT STYLE="font-size: 8pt; color: Black">Harold Compton</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 9%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt; color: Black">Jack Bush</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">John R. Signorello</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt; color: Black">Raymond Pirtle</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">Harry E. Soyster</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt; color: Black">Joseph Druzak</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Outstanding
Equity Awards at Fiscal Year-End</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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, 2011:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 43; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->42<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white">OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="16" STYLE="border-bottom: black 1.5pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>OPTION
    AWARDS</B></FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="14" STYLE="border-bottom: black 1.5pt solid; font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>STOCK
    AWARDS</B></FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Name</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(a)</B></FONT></P></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Number
                                                                  of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Securities</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Underlying</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unexercised</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Options</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(#)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Exercisable</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(b)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Number
                                                                  of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Securities</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Underlying</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unexercised</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Options</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(#)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unexercisable</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(c)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Equity</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Incentive</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Plan</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Awards:</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Number
        of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Securities</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Underlying</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unexercised</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unearned</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Options</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(#)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(d)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Option</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Exercise</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Price</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(e)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Option</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Expiration</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Date</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(f)</B></FONT></P></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Number</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Shares</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>or</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Units</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Stock</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>That</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Have</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Not</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Vested</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(#)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(g)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Market</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Value</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Shares</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>or</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Units</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Stock</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>That</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Have</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Not</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Vested</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>($)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(h)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Equity</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Incentive</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Plan</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Awards:</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Number</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unearned</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Shares,</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Units
        or</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Other</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Rights</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>That</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Have
        Not</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Vested</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(#)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(i)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Equity</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Incentive</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Plan</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Awards:</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Market</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>or
        Payout</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Value
        of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Unearned</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Shares,</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Units
        or</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Other</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Rights</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>That</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Have
        Not</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>Vested</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(#)</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt; color: Black"><B>(j)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="width: 10%"><FONT STYLE="font-size: 8pt; color: Black">John R. Signorello</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">100,000</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.70</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">04/29/2012</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">500,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.58</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">05/06/2015</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">250,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.60</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">09/06/2012</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">250,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.10</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">03/09/2014</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">Mark Lucky</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">100,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.58</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">05/06/2012</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">150,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.55</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">06/14/2012</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">150,000</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&mdash;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.60</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">09/06/2012</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">29,167</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">20,833</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">$</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">0.001</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">03/18/2013</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="font-size: 8pt; color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; background-color: white"><FONT STYLE="color: Black; background-color: white"><B>STOCK
OPTION PLAN</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">In
August 2000, our Board of directors adopted our 2000 Management and Director Equity Incentive and Compensation Plan (the &ldquo;Plan&rdquo;).
The Plan was approved by our security holders in August 2001. As amended in May 2006, June, 2007, February, 2010, and October,
2010, we have reserved an aggregate of 60,000,000 shares of common stock for issuance under the Plan. At December 1, 2011 we have
granted options to purchase 4,104,487 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">The
purpose of the plan is to advance our interests and those of our security holders 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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 and shares subject to a vesting schedule based on the recipient&rsquo;s continued employment. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 44; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->43<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">cash, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">delivery of unrestricted shares of our common stock having a fair market value on the date
    of delivery equal to the exercise price, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">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</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">a combination of the foregoing methods.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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&rsquo;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&rsquo;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&rsquo;s death. If
the optionee&rsquo;s employment, membership on the Board of directors or engagement as a consultant terminates by reason of the
optionee&rsquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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 security holders 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">If
the participant&rsquo;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&rsquo;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&rsquo;s employment, Board membership or consulting engagement continued
to the end of the performance period. If the participant&rsquo;s employment, Board membership or consulting engagement terminates
before the end of the performance period for any other reason, all performance shares are forfeited.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">the fair market value of the number of shares subject to the performance shares agreement on
    the date of award, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">part or all of any increase in the fair market value since such date, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">part or all of any dividends paid or payable on the number of shares subject to the performance
    share agreement, or</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 45; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->44<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">any other amounts which in the Board&rsquo;s sole discretion are reasonably related to the
    achievement of the applicable performance goals, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">any combination of the foregoing.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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,</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">cash, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">by delivery of unrestricted shares of our common stock having a fair</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">market value on the date of such delivery equal to the total</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">purchase price, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">a combination of either of these methods.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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 security holders&rsquo; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">The
Board of directors may amend, suspend or terminate our Plan at any time, except that no amendment shall be made which:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">affects outstanding Plan options or any exercise right thereunder, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">extends the term of any Plan option beyond 10 years, or</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">extends the termination date of the Plan.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Unless
the Plan shall be earlier suspended or terminated, the Plan shall terminate 10 years from the date of the Plan&rsquo;s adoption
by our security holders. Any such termination of our Plan shall not affect the validity of any Plan options previously granted
there under.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">LIMITATION
ON LIABILITY</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">Under
our certificate of incorporation, our directors are not liable for monetary damages for breach of fiduciary duty, except in connection
with: </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: 0; padding-left: 0; font-weight: bold; text-align: left; width: 24px"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD STYLE="padding-right: 0; padding-left: 0"><FONT STYLE="color: Black">breach of the director&rsquo;s duty of loyalty
    to us or our security holders;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 5.4pt; padding-left: 5.4pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="padding-right: 0; padding-left: 0; font-weight: bold; text-align: left"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD STYLE="padding-right: 0; padding-left: 0"><FONT STYLE="color: Black">acts or omissions not in good faith or which
    involve intentional misconduct, fraud or a knowing violation of law;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 46; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->45<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">a transaction from which
        our director received an improper benefit; or</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="color: Black"><B>&bull;</B></FONT></TD>
    <TD><FONT STYLE="color: Black">an act or omission for which the liability of a director is expressly provided under Delaware
    law.</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">From time
to time we have borrowed operating funds from Mr. John Signorello, our former Chief Executive Officer, for working capital. The
advances were payable upon demand and were interest free. &nbsp;&nbsp;During fiscal 2010 Mr. Signorello advanced $66,300 to us,
and we repaid $66,300. The highest amount that we owed Mr. Signorello during fiscal 2010 was $25,000. At each of the last four
fiscal year ends, 2008, 2009, 2010, and 2011, the amount owed to Mr. Signorello was $0. As of July 7, 2012, the amount owed to
Mr. Signorello or to his estate was $0.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">While 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>Director Independence</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: Black">Messrs. Carosi,
Pirtle and Bush and General Soyster are considered independent within The NASDAQ Stock Market&rsquo;s director independence standards
pursuant to Marketplace Rule 5605.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>PRINCIPAL
SECURITY HOLDERS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">At August
15, 2012, there were 193,417,389 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 August 15, 2012, information known to us relating to the beneficial
ownership of these shares by: </FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&bull;</B></FONT></P></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">each person who is the beneficial
        owner of more than 5% of the outstanding shares of common stock;</FONT></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&bull;</B></FONT></P></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">each director;</FONT></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&bull;</B></FONT></P></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">each named executive officer;
        and</FONT></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&nbsp;</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black"><B>&bull;</B></FONT></P></TD>
    <TD><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">all named executive officers
        and directors as a group.</FONT></P></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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 August 15, 2012 upon the exercise of options, warrants, convertible securities or other understandings.
We determine a beneficial owner&rsquo;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 August 15, 2012, have been
exercised or converted. Unless otherwise noted, the address of each of these principal security holders is our principal executive
offices.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 47; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->46<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Name&nbsp;of <BR>Beneficial&nbsp;Owner</TD><TD NOWRAP STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Amount and Nature of Beneficial <BR> Ownership</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="color: Black; font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="color: Black; font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Percentage <BR>of&nbsp;Class</TD><TD NOWRAP STYLE="padding-bottom: 1pt; color: Black; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; color: Black; text-align: left; padding-left: 0"><FONT STYLE="color: Black">Hal Compton <SUP>(1)</SUP></FONT></TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: Black; text-align: right">2,241,333</TD><TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: Black">&nbsp;</TD>
    <TD STYLE="width: 1%; color: Black; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; color: Black; text-align: right">1.13</TD><TD STYLE="width: 1%; color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left; padding-left: 0"><FONT STYLE="color: Black">Raymond H. Pirtle <SUP>(2)</SUP></FONT></TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">159,167</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">0.08</TD><TD STYLE="color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left; padding-left: 0"><FONT STYLE="color: Black">Nicholas Carosi III <SUP>(3)</SUP></FONT></TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">9,591,666</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">4.86</TD><TD STYLE="color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left; padding-left: 0"><FONT STYLE="color: Black">Mark B. Lucky <SUP>(4)</SUP></FONT></TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">6,364,567</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">3.22</TD><TD STYLE="color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left; padding-left: 0"><FONT STYLE="color: Black">Ed Soyster <SUP>(5)</SUP></FONT></TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">59,000</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">0.03</TD><TD STYLE="color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left; padding-left: 0"><FONT STYLE="color: Black">Jack Bush <SUP>(6)</SUP></FONT></TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">1,544,167</TD><TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black">&nbsp;</TD>
    <TD STYLE="color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; text-align: right">0.78</TD><TD STYLE="color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="color: Black; text-align: left; padding-bottom: 1pt; padding-left: 0"><FONT STYLE="color: Black">All executive officers and as a group (six persons)<SUP>(1)(2),(3),(4),(5),(6)</SUP></FONT></TD><TD STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: right">19,959,899</TD><TD STYLE="padding-bottom: 1pt; color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: right">10.11</TD><TD STYLE="padding-bottom: 1pt; color: Black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="color: Black; text-align: left; padding-bottom: 1pt; padding-left: 0"><FONT STYLE="color: Black">Estate of John R. Signorello <SUP>(7)</SUP></FONT></TD><TD STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: right">16,534,785</TD><TD STYLE="padding-bottom: 1pt; color: Black; text-align: left">&nbsp;</TD><TD STYLE="color: Black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: Black; text-align: right">8.36</TD><TD STYLE="padding-bottom: 1pt; color: Black; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Compton includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, options to purchase 238,333 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(2) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Pirtle includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, and options to purchase 9,167 shares of our common stock at an exercise price of $0.001 per share.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(3) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Carosi includes warrants to purchase 4,045,833 shares of our common stock at an exercise
price of $0.15 per share.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(4) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Lucky includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, and options to purchase 44,167 shares of our common stock at an exercise price of $0.001 per share.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(5) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Soyster includes options to purchase 25,000 shares of our common stock at an exercise
price of $0.37 per share, and options to purchase 34,000 shares of our common stock at an exercise price of $0.001 per share.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(6) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Bush includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, options to purchase 144,167 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.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">(7) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Signorello&rsquo;s estate includes 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 who are not our affiliates.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">Securities
Authorized For Issuance Under Equity Compensation Plans</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">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 security holders as of September 30, 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>Number
        of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>securities
        to be</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>issued
        upon</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>exercise
        of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>outstanding</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>options,</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>warrants
        and</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>rights
        (a)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>Weighted</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>average</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>exercise</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>price
        of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>outstanding</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>options,</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>warrants
        and</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>rights
        (b</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP COLSPAN="2" STYLE="border-bottom: Black 1pt solid"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>Number
        of</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>securities</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>remaining</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>available
        for</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>future
        issuance</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>under
        equity</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>compensation</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>plans
        (excluding</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>securities</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>reflected
        in</B></FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>column
        (a)) (c)</B></FONT></P></TD>
    <TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD STYLE="font-style: italic"><FONT STYLE="color: Black"><I>Plan category</I></FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">Plans approved by our security holders:</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD STYLE="width: 56%"><FONT STYLE="color: Black">2000 Management and Director Equity Incentive and Compensation Plan</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 12%; text-align: right"><FONT STYLE="color: Black">2,269,417</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">$</FONT></TD>
    <TD STYLE="width: 10%; text-align: right"><FONT STYLE="color: Black">0.375</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 13%; text-align: right"><FONT STYLE="color: Black">-</FONT></TD>
    <TD NOWRAP STYLE="width: 1%"><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: white">
    <TD><FONT STYLE="color: Black">Plans not approved by security holders:</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: #CCFFCC">
    <TD><FONT STYLE="color: Black">None</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">0</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">n/a</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="text-align: right"><FONT STYLE="color: Black">n/a</FONT></TD>
    <TD NOWRAP><FONT STYLE="color: Black">&nbsp;</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"></FONT></P>

<!-- Field: Page; Sequence: 48; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->47<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white"></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">A description
of each of these plans is contained earlier in this prospectus. Executive Compensation &ndash; Stock Option Plan.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black; background-color: white"><B>USE
OF PROCEEDS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">We will
not receive any proceeds from the resale of shares of our common stock by the selling security holders covered by this prospectus;
however, we will receive proceeds from cash payments made in connection with the exercise of warrants held by selling security
holders that are covered by this prospectus.&nbsp;We expect to use the proceeds received from the exercise of the warrants, if
any, for working capital and general corporate purposes.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black; background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="color: Black"><B>SELLING SECURITY
HOLDERS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">We are registering for resale shares
of our common stock. We are registering the shares to permit the selling security holders 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 &ldquo;Plan of Distribution.&rdquo; The information included below is based on information that has been provided
to us by or on behalf of the selling security holders. The information assumes all of the shares covered hereby are sold or otherwise
disposed of by the Selling Security holders pursuant to this prospectus. However, we do not know whether the selling security
holders will in fact sell or otherwise dispose of the shares of common stock listed next to their names below.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">The following table sets forth:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 36px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">the name of the selling security holders,</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 36px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">the number of shares of our common stock that the selling security holders beneficially owned
    prior to the offering for resale of the shares under this prospectus,</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 36px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">the maximum number of shares of our common stock that may be offered for resale for the account
    of the selling security holders under this prospectus, and</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 36px"><FONT STYLE="color: Black">&nbsp;</FONT></TD>
    <TD STYLE="width: 24px"><FONT STYLE="color: Black">&bull;</FONT></TD>
    <TD><FONT STYLE="color: Black">the number and percentage of shares of our common stock to be beneficially owned by the selling
    security holders after the offering of the shares (assuming all of the offered shares are sold by the selling security holders).</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 49; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->48<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: Black">&nbsp;</FONT></P>



<P STYLE="margin: 0"></P>

<P STYLE="margin: 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares&nbsp;of&nbsp;Common&nbsp;Stock&nbsp;Beneficially <BR>Owned&nbsp;After&nbsp;this&nbsp;Offering</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt"><SUP>&nbsp;</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Number&nbsp;of</TD><TD STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Shares&nbsp;Owned</TD><TD STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Number&nbsp;of&nbsp;Shares</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">%&nbsp;of</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Prior&nbsp;to&nbsp;the</TD><TD STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Number&nbsp;of</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Owned&nbsp;After&nbsp;the</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Outstanding</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">Name&nbsp;of&nbsp;Selling&nbsp;Security Holder</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Offering</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><SUP>&nbsp;</SUP></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Shares&nbsp;Offered</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Offering</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Shares&nbsp;<SUP>(1)</SUP></B></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD><SUP>&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left; padding-bottom: 1pt">David Lane</TD><TD STYLE="width: 1%; color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; color: black; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">3,616,667</FONT></TD><TD STYLE="width: 1%; padding-bottom: 1pt; color: black; text-align: left"><SUP>(2)</SUP></TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">3,616,667</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; color: black; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; color: black; text-align: right">0.0</TD><TD STYLE="width: 1%; padding-bottom: 1pt; color: black; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Michael Schmahl</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">2,900,000
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(3)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,900,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Kenneth Ikemiya</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,871,666
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(4)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,666,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">205,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.1</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Lawrence Wert</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,916,666
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(5)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,666,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">250,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.1</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Beth Elman</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">466,666
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(6)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">416,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Jerome Gildner</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">666,666
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(7)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">666,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Lester Boelter</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">2,330,166
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(8)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,083,333</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">246,833</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.1</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">KBA Holdings</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">833,334
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(9)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">833,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">James G Athas</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,350,000
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(10)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,250,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Howard Bialick and Mary Beth Bialick</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">4,730,500
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(11)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,475,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">255,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.1</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Howard Bialick</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">416,667
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(12)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">416,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Dennis Holman</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">2,333,334
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(13)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,333,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">The Knipf Family Trust</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,733,334
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(14)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,733,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Anesthesia Consulting 401K</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,766,666
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(15)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,666,666</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">John Kyees</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,500,001
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(16)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,500,001</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">J.R. McGraw</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">2,970,250
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(17)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,970,250</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Meyers Associates, LP</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">538,239
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(18)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">538,239</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Nicholas Carosi III</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">10,975,000
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(19)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,975,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">George Johnnson</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,115,997
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(20)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,115,997</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Terry Murphy</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">261,825
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(21)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">261,825</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Hayden McMillian</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">195,233
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(22)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">195,233</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Allan Cruikshanks</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">195,233
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(23)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">195,233</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Christopher Wynne</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">232,160
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(24)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">232,160</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Joseph Mahalick</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">45,000
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(25)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Nicholas Carosi Irrevoc. Trust c/o BB&amp;T</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">70,833
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(26)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,833</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">David Dent</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">1,543,333
                                                                                          </FONT></TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left"><SUP>(27)&nbsp;</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">833,333</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">710,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.3</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Michael Geiskopf and Rita Geiskopf</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">333,833
                                                                                          </FONT></TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left"><SUP>(28)&nbsp;</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">333,833</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Dean Suhre</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">621,667
                                                                                          </FONT></TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left"><SUP>(29)&nbsp;</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">416,667</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">205,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.1</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Nova J Page and Richard D Page</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">266,333
                                                                                          </FONT></TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left"><SUP>(30)&nbsp;</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">266,333</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Timothy Alpers</TD><TD STYLE="color: black">&nbsp;</TD>
    <TD STYLE="color: black; text-align: left">&nbsp;</TD><TD STYLE="color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">442,667
                                                          </FONT></TD><TD STYLE="color: black; text-align: left"><SUP>(31)&nbsp;</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">166,667</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">276,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.1</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Kenneth Sutin</TD><TD STYLE="color: black; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; color: black; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; color: black; text-align: right"><FONT STYLE="font-family: Times New Roman, Times, Serif; color: black">416,667
                                                                                          </FONT></TD><TD STYLE="padding-bottom: 1pt; color: black; text-align: left"><SUP>(32)&nbsp;</SUP></TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">416,667</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">48,656,603</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt"><SUP>&nbsp;</SUP></TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: right; border-bottom: Black 2.5pt double">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">39,258,270</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: right; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: right; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 7%; vertical-align: super"><SUP>(1)</SUP></TD>
    <TD STYLE="width: 93%; vertical-align: top">Based on 187,071,442 shares of common stock outstanding as of June 30, 2012.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(2)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 1,950,000 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(3)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 1,450,000 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(4)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(5)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(6)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 208,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(7)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 333,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 50; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->49<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR>
    <TD STYLE="width: 7%; vertical-align: super"><SUP>(8)</SUP></TD>
    <TD STYLE="width: 93%; vertical-align: top">Includes 1,875,000 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(9)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(10)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 625,000 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(11)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 2,237,500 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(12)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(13)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 1,416,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(14)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 866,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(15)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(16)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 958,334 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(17)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 1,485,125 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(18)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 538,239 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(19)</SUP></TD>
    <TD STYLE="vertical-align: top">Mr. Carosi is a member of our board of directors.&nbsp; Includes 3,975,000 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(20)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 1,115,997 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(21)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 261,825 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(21)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 195,233 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(22)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 195,233 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(24)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 232,160 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(25)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 45,000 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(26)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 70,833 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(27)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(28)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 333,833 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(29)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(30)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 266,333 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(31)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 166,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
<TR>
    <TD STYLE="vertical-align: super"><SUP>(32)</SUP></TD>
    <TD STYLE="vertical-align: top">Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">None of the selling security holders are
broker-dealers or affiliates of broker-dealers, other than Meyers Associates, LP which is a broker-dealer and a member of FINRA
and Meyers Associates, LP received placement agent warrants as compensation for services in the ordinary course of its business
as the placement agent for our recent 2012 offering. Meyers Associates LP transferred a portion of the warrants it received from
us as compensation to George Johnson, Joseph Mahalick, and Christopher Wynne as compensation to them in the regular course of their
employment with that firm.&nbsp; At the time of the receipt of the warrants, none had any agreement or understanding, directly
or indirectly, with any person to distribute those securities. None of the selling security holders has, or within the past three
years has had, any position, office or other material relationship with us or any of our predecessors or affiliates, other than
as described previously in this section.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We have agreed to pay full costs and expenses,
incentives to the issuance, offer, sale and delivery of the shares, including all fees and expenses in preparing, filing and printing
the registration statement and prospectus and related exhibits, amendments and supplements thereto and mailing of those items.
We will not pay selling commissions and expenses associated with any sale by the selling security holders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">DESCRIPTION OF SECURITIES</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: black; background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
authorized capital stock consists of 1,000,000,000 shares of common&nbsp;stock, $0.001 par value per share, and 10,000,000 shares
of preferred stock, par&nbsp;value $0.001 per share. As of June 30, 2012 there were&nbsp;</FONT>187,071,442 <FONT STYLE="color: black; background-color: white">shares
of&nbsp;common stock and 626,667 shares of Series B preferred stock issued and outstanding.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">COMMON STOCK</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of common stock are entitled to one vote for each share on all&nbsp;matters submitted to a stockholder vote. Holders of common
stock do not have&nbsp;cumulative voting rights. Holders of common stock are entitled to share in all&nbsp;dividends that the board
of directors, in its discretion, declares from legally&nbsp;available funds. In the event of our liquidation, dissolution or winding
up,&nbsp;subject to the preferences of any shares of preferred stock which may then be&nbsp;authorized and outstanding, each outstanding
share entitles its holder to&nbsp;participate in all assets that remain after payment of liabilities and after&nbsp;providing for
each class of stock, if any, having preference over the common&nbsp;stock.&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders
of common stock have no conversion, preemptive or other&nbsp;subscription rights, and there are no redemption provisions for the
common&nbsp;stock. The rights of the holders of common stock are subject to any rights that&nbsp;may be fixed for holders of preferred
stock, when and if any preferred stock is&nbsp;authorized and issued. All outstanding shares of common stock are duly&nbsp;authorized,
validly issued, fully paid and non-assessable.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 51; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->50<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT>&nbsp;<FONT STYLE="background-color: white">Preferred
Stock</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">Our
authorized capital includes 10,000,000 shares of blank check preferred stock, par value $0.001 per share. 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 convertible 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. Presently, there are 626,667 shares of our Series B convertible
preferred stock issued and outstanding. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">The
designations, rights and preferences of the Series B convertible preferred stock provide:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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,</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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,</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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,</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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,</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24px; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 52; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->51<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">COMMON STOCK PURCHASE
WARRANTS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">We
currently have outstanding common stock purchase warrants to purchase an aggregate of 290,000 shares of our common stock at an
exercise prices $0.50 per share. These warrants expire between December 31, 2012 and February 28, 2012. The exercise price of the
warrants is subject to pro-rata adjustment in the event of stock splits, recapitalizations and similar corporate events.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Warrants issued in
the September 2011 private offering</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="color: black; background-color: white">In
connection with our September 2011 private offering, we issued five year Series N warrants to purchase up to an aggregate of 10,738,939
shares of our common stock with an </FONT>exercise price of $0.15 per share, including 976,267placement agent warrants issued to
Anderson and Strudwick, Inc. The warrants are callable by us at a call price of $0.25 per underlying common share should our common
stock trade at or above $0.25 per share, based on the reported closing bid price of the common stock on the OTC Bulletin Board
for 10 consecutive trading days, following 20 business days&rsquo; prior written notice.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The exercise price and call price of the
warrants are subject to adjustment in the event of stock splits, recapitalizations and similar corporate events.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Warrants issued in November 2011 private offering</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with November 2011 private
offering, we issued Series O, Series P and Series Q warrants to purchase up to an aggregate of 82,092,138 shares of our common
stock, as adjusted. with an initial exercise price of $0.074 per share, as adjusted, and subject to adjustment as described below
and including warrants to purchase 2,092,595 shares as placement agent compensation. The Series O warrants and Series P warrants
are each immediately exercisable. The Series Q warrants become exercisable at any time that any portion of the Series P warrants
are exercised. The term of the Series O warrants is five years from the issue date, the term of the Series P warrants is one year
from the Applicable Date, as that term is defined in the warrant, and the term of the Series Q warrants is five years from the
Applicable Date. Other than the exercise periods, all three series of warrants are identical. The warrants are also exercisable
on a cashless basis during the first six months the warrants are outstanding or at any time the registration statement covering
the shares issuable upon the exercise of the warrants is not effective. The warrants are not exercisable if, after giving effect
to the exercise, the holder or any of its affiliates would be the beneficial owner as determined in accordance with the rules of
the SEC of in excess of 4.9% of our outstanding shares of common stock. If we issue options, convertible securities, warrants or
similar securities to holders of our common stock, the warrant holders shall have the right to acquire the same as if they had
exercised the warrants into common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The exercise price is subject to adjustment
for stock splits, combinations or similar events, and, in such event, the number of shares issuable upon the exercise of the warrants
will also be adjusted such that the aggregate warrant exercise price shall be the same immediately before and immediately after
such adjustment. In addition, the warrant exercise price is also subject to a &ldquo;full ratchet&rdquo; anti-dilution adjustment
which, in the event that we issue or are deemed to have issued, certain securities at a price lower than the then applicable warrant
exercise price, immediately reduces warrant exercise price to equal the price at which we issued or was deemed to have issued,
our common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">If we sell or issue any options or convertible
securities that are convertible into or exchangeable or exercisable for shares of our common stock at a price which varies or may
vary with the market price of the shares of common stock, including by way of one or more reset(s) to a fixed price, but exclusive
of such formulations reflecting customary anti-dilution provisions, the holder of a warrant will have the right to substitute the
variable price for the warrant exercise price upon exercise of all or part the warrant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Warrants issued in the 2012 offering</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In connection with our 2012 private offering,
we issued 14,801,554 Series R five common stock purchase warrants which are exercisable at $0.15 per share, including warrants
to purchase 1,345,596 shares as placement agent compensation. The warrants are also exercisable on a cashless basis at any time
after 12 months that the registration statement covering the shares issuable upon the exercise of the warrants is not effective.
The warrants are not exercisable if, after giving effect to the exercise, the holder or any of its affiliates would be the beneficial
owner as determined in accordance with the rules of the SEC of in excess of 4.9% of our outstanding shares of common stock. This
limitation may be increased by the holder to 9.99% upon 61 days prior notice to us.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 53; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->52<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font: 10pt Times New Roman, Times, Serif">The
exercise price of the warrants is subject to adjustment in the event of stock splits, recapitalizations and similar corporate events.
Generally, whenever the number of shares our common stock underlying the warrant is adjusted, as herein provided, the exercise
price payable upon the exercise of the warrant will be adjusted to that price determined by multiplying the exercise price immediately
prior to the adjustment by a fraction (i) the numerator of which will be the number of shares of our common stock purchasable upon
exercise of the warrant immediately prior to the adjustment, and (ii) the denominator of which will be the number of shares of
our common stock purchasable upon exercise of the warrant immediately after the adjustment.</FONT> <FONT STYLE="font: 10pt Times New Roman, Times, Serif">
</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The Series R warrants are callable by us
in the event the closing price of our common shares on the OTC Bulletin Board closes at or above $0.25 per share for 10 consecutive
trading days, providing that the shares of our common stock underlying the warrants are covered by an effective registration statement.
If we distribute to all holders of our common stock any shares of capital stock, other than common stock, or evidences of our indebtedness
or assets, excluding cash dividends or distributions paid from retained earnings or our current year&rsquo;s or prior year&rsquo;s
earnings, or rights or warrants to subscribe for or purchase any of our securities while the warrant is outstanding, we agreed
to reserve shares or other units of these securities for distribution to the warrant holder upon exercise of the warrant so that,
in addition to the shares of our common stock the holder will receive upon exercise, the holder will also receive upon exercise
the amount and kind of these additional securities which the warrant holder would have received if the warrant holder had, immediately
prior to the record date for the distribution of the securities, exercised the warrant.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">SENIOR CONVERTIBLE NOTES</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="font-family: Times New Roman, Times, Serif">In
connection with November 2011 private offering, we issued $2,012,500</FONT> <FONT STYLE="font-family: Times New Roman, Times, Serif">principal
senior convertible notes. The senior convertible notes are senior unsecured indebtedness of our company, senior to all other indebtedness
other than our obligations to Sand Hill Finance, LLC, with which it is pari passu, and guaranteed by our subsidiaries. The senior
convertible notes do not bear any interest unless there has been an &ldquo;event of default&rdquo; as described below, at which
time interest begins accruing at 18% per annum, compounded quarterly. Monthly installment payments on the principal amount of the
senior convertible notes begin on the earlier of six months from the issuance date of the notes or upon the effectiveness of the
registration statement registering the shares of our common stock into which the senior convertible notes are convertible; the
registration statement was declared effective by the SEC on February 8, 2012. </FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Installment payments under the senior convertible
notes may either be made in shares of our common stock or cash. We are not able to make the installment payments in shares of our
common stock if there has been an &ldquo;equity conditions failure&rdquo; or &ldquo;dollar failure.&rdquo; Generally, under the
terms of the senior convertible notes an &ldquo;equity conditions failure&rdquo; means that the shares of our common stock issuable
for the installment payment are not covered by an effective registration statement or the issuance of the shares would cause the
holder or its affiliates to be the beneficial owners of in excess of 4.9% of our outstanding common stock, together with certain
other &ldquo;equity conditions&rdquo; as described in the senior convertible notes. A &ldquo;dollar failure&rdquo; means that the
average of the aggregate trading volumes of our common stock for the 20 trading days preceding the installment date has not equaled
or exceeded $25,000. If we cannot make installment payment in shares of common stock because one of these conditions is not satisfied,
we must make such payment in cash. Unless previously converted into shares of our common stock, the senior convertible notes mature
on May 23, 2013. Except as described below, we have no right to prepay any amounts due under the senior convertible notes.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The senior convertible notes are convertible
at the option of the holders into shares of our common stock at an initial conversion price of $0.074 per share, as adjusted. The
conversion price is subject to adjustment for stock splits, combinations or similar events. The conversion price is also subject
to a &ldquo;full ratchet&rdquo; anti-dilution adjustment which, in the event that we issue or are deemed to have issued, certain
securities at a price lower than the then applicable conversion price, immediately reduces the conversion price to equal the price
at which we issued or were deemed to have issued our common stock. In addition, if we sell or issue any options or convertible
securities that are convertible into or exchangeable or exercisable for shares of our common stock at a price which varies or may
vary with the market price of the shares of common stock, including by way of one or more reset(s) to a fixed price, but exclusive
of such formulations reflecting customary anti-dilution provisions, the holder of a senior convertible note will have the right
to substitute the variable price for the fixed conversion price upon conversion of all or part of the note. The senior convertible
notes provide that no conversion may be made if, after giving effect to the conversion, the holder or any of its affiliates would
be the beneficial owner as determined in accordance with the rules of the SEC of in excess of 4.9% of our outstanding shares of
common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 54; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->53<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Beginning at any time after the earlier
of the 30th calendar day immediately following the date that the registration statement was declared effective by the SEC or the
210th day from the issuance date of the senior convertible notes, and upon at least 10 days but not more than 30 days prior notice
to the holders, we have the right to redeem all amounts outstanding under the senior convertible notes in cash for an amount equal
to 110% of the greater of the amount to be redeemed and the product of the conversion rate and the closing sale price of our common
stock on the trading day immediately preceding the notice of redemption.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The senior convertible notes contain a variety
of events of default which generally include the following events and which apply to these events by our subsidiaries as well,
where applicable:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 48px"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>failure to pay any amounts due under the senior convertible notes when due;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>an occurrence of default under other of our obligations or our bankruptcy, insolvency, reorganization or liquidation;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>a judgment against us in excess of $25,000 or if we should fail to pay when due any indebtedness due any other creditor in excess of $10,000;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>if the effectiveness of the registration statement lapses for more than five consecutive days or more than 10 days in any 365-day period;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">the occurrence of a &ldquo;material adverse effect&rdquo; as
        described in the Securities Purchase Agreement which means<B> </B>any material adverse effect on:</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Symbol">&middot;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
        our business, properties, assets, liabilities, operations, condition or prospects of our company or any subsidiary, either individually
        or taken as a whole, </FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Symbol">&middot;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
        the transactions contemplated by the private placement documents, or</FONT></P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="font-family: Symbol">&middot;</FONT><FONT STYLE="font-family: Times New Roman, Times, Serif">
        the authority or ability of our company or any of our subsidiaries to perform any of their respective obligations under any of
        the private placement documents;</FONT></P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>the failure to issue shares upon conversion of a senior convertible note or exercise of a warrant for more than five trading days after the relevant conversion date or exercise date;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>notification of our intention not to comply with a request for conversion or exercise; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>the failure to remove any restrictive legend on any certificate or any shares of common stock issued upon conversion or exercise required by the terms of Securities Purchase Agreement, unless otherwise prohibited by applicable federal securities laws, and such failure remains uncured for five days.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">If there is an event of default, upon election
of the holders of at least 20% of the outstanding principal amount of the senior convertible notes, we will be obligated to redeem
all or any portion of the senior convertible notes, including all accrued and unpaid interest, in cash, at a price equal to the
greater of:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 48px"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>110% of the amount being converted, depending on the nature of the default, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>the product of (a) the amount being converted multiplied by the closing bid price of our common stock on the trading date immediately before the date of redemption multiplied by (b) the highest closing sale price of our common stock during the period beginning on the date immediately preceding such event of default and ending on the trading day immediately prior to the trading day that the redemption price is paid by us.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We have agreed not to take certain actions
while the senior convertible notes are outstanding, including:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 48px"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>incur other indebtedness which is due before 91 days from the payment in full of the senior convertible notes, except for certain permitted indebtedness, nor will we incur any liens, except for certain permitted liens,</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 55; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->54<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 48px">&nbsp;</TD>
    <TD STYLE="width: 48px"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>accelerate the payment of any indebtedness,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>pay any dividends or redeem any of our securities,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>making cash expenditures in excess of $400,000 during any measuring period, as specified in the senior convertible notes,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>change the nature of our business, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>issue any shares of our capital stock other than for cash or in connection with options which may be granted to our officers, directors and employees.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">If we issue options, convertible securities,
warrants or similar securities to holders of our common stock, the holders of the senior convertible notes shall have the right
to acquire the same as if they had converted their senior convertible note into common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">SHARES ELIGIBLE FOR FUTURE
SALE</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="color: black; background-color: white">As of June
30, 2012 there were </FONT>187,071,442<FONT STYLE="color: black; background-color: white"> shares of&nbsp;common stock issued and
outstanding of which approximately&nbsp;65,996,518 are &ldquo;restricted&nbsp;securities.&rdquo; In general, under Rule 144, as currently
in effect, a person, or&nbsp;person whose shares are aggregated, who is not our affiliate or has not been an&nbsp;affiliate during
the prior three months and owns shares that were purchased from&nbsp;us, or any affiliate, at least six months previously, is entitled
to make&nbsp;unlimited public resales of such shares provided there is current public&nbsp;information available at the time of
the resales. After a one-year holding&nbsp;period a non-affiliate is entitled to make unlimited public resales of our&nbsp;shares
without the requirement that current public information be available at&nbsp;the time of the resales. A person, or persons whose
shares are aggregated, who&nbsp;are affiliates of our company and own shares that were purchased from us, or any&nbsp;affiliate,
at least six months previously is entitled to sell within any three&nbsp;month period, a number of shares of our common stock that
does not exceed the&nbsp;greater of 1% of the then outstanding shares of our common stock, subject to&nbsp;manner of sale provisions,
notice requirements and the availability of current&nbsp;public information about us.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 security holders or the effect, if any, that sales of shares by such security
holders 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 security holders could adversely affect prevailing market prices.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>LEGAL
MATTERS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The validity of the securities
offered by this prospectus will be passed upon for us by Pearlman Schneider, LLP, 2200 Corporate Boulevard, N.W., Boca Raton, Florida&nbsp;&nbsp;33431.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>EXPERTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
financial statements as of and for the years ended September 30, 2011 and 2010 included in this prospectus have been audited
by Sherb &amp; 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&nbsp;auditing.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>WHERE
YOU CAN FIND ADDITIONAL INFORMATION</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 56; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->55<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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&rsquo;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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Public
Reference Room Office</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;100
F Street, N.E.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Room
1580</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Washington,
D.C. 20549</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 57; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo -->56<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;INDEX
TO FINANCIAL STATEMENTS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 12px">&nbsp;</TD>
    <TD>Unaudited consolidated financial statements for the three and nine months ended June 30, 2012 including:</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 90%">&nbsp;</TD>
    <TD STYLE="width: 10%; text-align: center; border-bottom: Black 1pt solid">PAGE&nbsp;#</TD>
    </TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Balance Sheets;</TD>
    <TD STYLE="text-align: center">F-2</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Statements of Operations;</TD>
    <TD STYLE="text-align: center">F-3</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Statements of Cash Flows;</TD>
    <TD STYLE="text-align: center">F-4</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Notes to Financial Statements</TD>
    <TD STYLE="text-align: center">F-5</TD>
    </TR>
</TABLE>

<P STYLE="margin: 0">&nbsp;</P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 10pt; text-indent: -10pt; width: 12px"></TD>
    <TD STYLE="padding-left: 10pt; text-indent: -10pt">Audited consolidated financial statements for the years ending September
    30, 2011 and 2010.&nbsp; &nbsp;</TD></TR>
</TABLE>




<P STYLE="margin: 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="width: 90%">Report of Independent Registered Public Accounting Firm</TD>
    <TD STYLE="width: 10%; text-align: center">F-20</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Balance Sheets;</TD>
    <TD STYLE="text-align: center">F-21</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Statements of Operations;</TD>
    <TD STYLE="text-align: center">F-22</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Statements of Stockholders&rsquo; Equity (Deficit); and</TD>
    <TD STYLE="text-align: center">F-23</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Statements of Cash Flows;</TD>
    <TD STYLE="text-align: center">F-24</TD>
    </TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Notes to Financial Statements</TD>
    <TD STYLE="text-align: center">F-25</TD>
    </TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<!-- Field: Page; Sequence: 58; Options: NewSection; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->1<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>ICEWEB, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Balance Sheets&nbsp;</B></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30, <BR> 2012 <BR>
    (Unaudited)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>September <BR> 30,
    2011<SUP>(1)</SUP></B></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">CURRENT ASSETS:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">774,012</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">4,120</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,171,520</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accounts receivable, net of allowance of $409,000</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,336,591</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,182,060</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">282,602</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">55,981</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,750</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,877</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Prepaid expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">30,449</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">30,248</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,437,404</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,450,806</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">OTHER ASSETS:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Property and equipment, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">354,643</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">252,835</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Deposits</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,320</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,320</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Other assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,544</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Marketable Securities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">164,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115,200</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred financing costs, net</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">107,180</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,078,091</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,832,161</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">CURRENT LIABILITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounts payable and accrued liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,032,235</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,186,691</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,016,245</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,972,544</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Convertible notes payable, net of discount</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">328,478</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Derivative liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,523,086</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,904</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Liabilities</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">7,900,044</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,164,139</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">STOCK HOLDERS&rsquo; DEFICIT</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Preferred Stock ($.001 par value; 10,000,000 shares authorized)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Series B convertible preferred stock ($.001 par value; 626,667 shares issued and outstanding)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">626</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">626</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock ($.001 par value; 1,000,000,000 shares authorized; 187,233,942 shares issued and 203,172,274 shares outstanding and 158,121,066 shares issued and 157,959,066 shares outstanding, respectively)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">187,073</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157,961</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Additional paid in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">35,854,358</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,866,315</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accumulated deficit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(40,851,010</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(34,328,080</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accumulated other comprehensive income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">83,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">67,200</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(83,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(83,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Treasury stock, at cost, (162,500 shares)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(13,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(13,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total stockholders&rsquo; Deficit</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,821,953</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(1,331,978</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Liabilities and stockholders&rsquo; Deficit</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,078,091</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,832,161</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(1) Derived from audited financial statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to unaudited consolidated
financial statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 59; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->2<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>ICEWEB, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Operations</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Three&nbsp;Months&nbsp;Ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Nine&nbsp;Months&nbsp;Ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June&nbsp;30</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June&nbsp;30</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%">Sales</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">654,996</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">719,727</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,546,852</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">2,514,164</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Cost of sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">444,015</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">380,784</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,669,704</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,317,299</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Gross profit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">210,981</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">338,943</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">877,148</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,196,865</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Operating expenses:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Sales and marketing</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">308,698</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">123,955</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">641,255</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">898,299</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Depreciation and amortization expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">33,797</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">124,831</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">149,435</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">418,625</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Research and development expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">289,242</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">187,810</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">708,325</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">547,579</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">General and administrative</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">438,795</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">495,963</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,331,939</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,617,786</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total Operating Expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,070,532</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">932,559</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,830,954</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,482,289</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss from operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(859,551</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(593,616</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,953,806</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,285,424</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Other income (expenses):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Gain/(loss) on change in fair value of derivative liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,156,007</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,773,086</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Interest income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">22</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Interest expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(984,317</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(104,653</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,796,060</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(302,908</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total other income (expenses):</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,140,324</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(104,653</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,569,124</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(302,908</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(3,999,875</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(698,269</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,522,930</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,588,332</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Loss per common share basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.01</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.00</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.04</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.02</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Weighted average common shares outstanding basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">170,774,234</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">143,553,735</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">162,922,093</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">140,673,273</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to unaudited consolidated
financial statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 60; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>ICEWEB, Inc.</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statements of Cash Flows</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>(Unaudited)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Nine Months Ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left; padding-bottom: 1pt">NET CASH USED IN OPERATING ACTIVITIES</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(4,375,749</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(1,827,791</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">CASH FLOWS FROM INVESTING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Investment in marketable securities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(33,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Purchase of property and equipment</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(217,446</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(60,061</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">NET CASH USED IN INVESTING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(250,446</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(60,061</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">CASH FLOWS FROM FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from convertible note payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,750,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proceeds from subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,171,520</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from conversion of warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">102,460</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Payment of financing costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(571,270</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from the sale of restricted common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,834,347</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">409,464</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proceeds from notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">301,896</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">818,481</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from exercise of common stock options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">180,717</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">720,148</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Proceeds from payments on convertible debenture</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">884,612</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Payments on notes payable</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(258,195</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(596,213</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">NET CASH PROVIDED BY FINANCING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,396,087</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,351,880</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">NET INCREASE (DECREASE) IN CASH</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">769,892</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(535,972</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">CASH - beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,120</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">540,156</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">CASH - end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">774,012</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,184</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Supplemental disclosure of cash flow information:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Cash paid for :</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Interest</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">214,686</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">198,225</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Income taxes</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">See accompanying notes to unaudited consolidated
financial statements</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 61; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->4<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"><B>&nbsp;&nbsp;ICEWEB, INC. AND SUBSIDIARIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>June 30, 2012</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 1 - NATURE OF BUSINESS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Headquartered just outside of Washington, D.C., we manufacture
high performance unified data storage appliances with enterprise storage management capabilities.&nbsp; Through thin provisioning,
target deduplication and inline compression managed through IceWEB&rsquo;s proprietary IceSTORM&trade; Operating System, IceWEB&rsquo;s
unified storage appliances enable standardization, consolidation and optimized storage utilization for virtual and cloud environments,
saving up to 90% of storage costs, while reducing space, power and cooling requirements and simplifying storage management.&nbsp;
Our customer base includes mid-sized businesses, large enterprises, and government organizations.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Major shifts in data center environments toward virtual and
cloud based infrastructures have significantly increased the need for storage resources that can handle the complex and mixed systems
that combine both file and block data.&nbsp; Unified Data Storage from IceWEB reduces this complexity by providing a simplified
environment to enable virtualization and cloud computing deployments, protection, and cost savings.&nbsp; Unified Data Storage
also provides cost savings through optimized storage utilization, made possible through IceWEB&rsquo;s thin provisioning, storage
pooling, compression and deduplication.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We generate revenue from the manufacture and sale of high-performance
unified data storage appliances with IceWEB&rsquo;s proprietary IceSTORM<SUP>TM</SUP> (STorage Optimization and Resource Management)
Operating System.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><B>NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Principles
of Consolidation</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Reclassifications</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">Certain
reclassifications have been made to previously reported amounts to conform to 2012 amounts. The reclassifications had no impact
on previously reported results of operations or shareholders&rsquo; deficit.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Going
Concern</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">Our
auditors stated in their report on the consolidated financial statements of the Company for the years ended September 30, 2011
and 2010 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, 2011 we incurred a net loss of $4,705,291 and for the Nine Months Ended June 30,
2012 we incurred a net loss of $6,522,930. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Marketable
Securities</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">IceWEB
accounts for the purchase of marketable equity securities in accordance with ASC 320, &ldquo;Investment &ndash; Debt and Equity
Securities&rdquo; with any unrealized gains and losses included as a net amount as a separate component of stockholders&rsquo;
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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 62 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->5<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Use
of Estimates</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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 2012 and 2011 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, derivative liabilities, and litigation reserves.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Cash
and Cash Equivalents</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">We
consider all highly liquid debt instruments with original maturities of three months or less to be cash equivalents.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Accounts
Receivable</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">Accounts
receivable consists of normal trade receivables. We recorded a bad debt allowance of $409,000 as of June 30, 2012. Management performs
ongoing evaluations of its accounts receivable. Management believes that all remaining receivables are fully collectable. Bad debt
expense amounted to $0 for the three and nine months ended June 30, 2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><I>Derivative Liability</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The Company issued warrants to purchase
the Company&rsquo;s common stock in connection with the issuance of convertible debt, which contain certain ratchet provisions
that reduce the exercise price of the warrants or the conversion price in certain circumstances.&nbsp;&nbsp;Upon the Company&rsquo;s
adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification (&ldquo;ASC 815&rdquo;) on January&nbsp;1,
2009, the Company determined that the warrants and/or the conversion features with provisions that reduce the exercise price of
the warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company&rsquo;s
stock as prescribed by ASC 815.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Derivatives are required to be recorded
on the balance sheet at fair value (see Note 7).&nbsp;&nbsp;These derivatives, including embedded derivatives in the Company&rsquo;s
structured borrowings, are separately valued and accounted for on the Company&rsquo;s balance sheet.&nbsp;&nbsp;Fair values for
exchange traded securities and derivatives are based on quoted market prices.&nbsp;&nbsp;Where market prices are not readily available,
fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment
and estimates. In addition, additional disclosures is required about (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items
affect an entity&rsquo;s financial position, financial performance, and cash flows.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><I>Fair Value Measurements</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.&nbsp;&nbsp;The
established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.&nbsp;&nbsp;The standard describes three levels of inputs that may be used to measure fair value:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Level 1:&nbsp;&nbsp;Observable inputs
such as quoted prices (unadjusted) in active markets for identical assets or liabilities.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Level 2:&nbsp;&nbsp;Inputs other than
quoted prices that are observable for the asset or liability, either directly or indirectly.&nbsp;&nbsp;These include quoted prices
for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not
active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.&nbsp;&nbsp;Valuations
may be obtained from, or corroborated by, third-party pricing services.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 63 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->6<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Level 3:&nbsp;&nbsp;Unobservable inputs
to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using
reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without
undue cost and effort.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><I>Fair Value of Financial Instruments</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The Company&rsquo;s financial instruments,
including cash and cash equivalents, receivables, accounts payable and accrued liabilities and notes payable are carried at cost,
which approximates their fair value, due to the relatively short maturity of these instruments.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Our derivative financial instruments,
consisting of embedded conversion features in our convertible debt, which are required to be measured at fair value on a recurring
basis under FASB ASC 815-15-25 or FASB ASC 815 as of June 30, 2012 are measured at fair value, using a Black-Scholes valuation
model which approximates a binomial lattice valuation methodology utilizing Level 3 inputs. Level 3 inputs are unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (see
Note 7).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Inventory</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">Inventory
is valued at the lower of cost or market, on an average cost basis.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Property
and Equipment</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">Property
and equipment is stated at cost, net of accumulated depreciation. Depreciation expense is recorded by using the straight-line method
over the estimated useful lives of the related assets.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Software Development Costs</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The costs for the development of new
software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility
has been established, at which time any additional costs would be capitalized in accordance with the accounting guidance for software.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Because our current process for developing
software is essentially completed concurrently with the establishment of technological feasibility, which occurs upon the completion
of a working model, no costs have been capitalized for any of the periods presented.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Intangible
Assets</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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 Company periodically reevaluates the carrying value of its
intangible assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part
of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the
expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying
value of the intangible asset to the estimated fair value of the asset.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Long-lived
Assets</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">In
accordance with ASC Topic 360, &ldquo;Property, Plant, and Equipment&rdquo; (formerly SFAS&nbsp;144, &ldquo;Accounting for the
Impairment or Disposal of Long-Lived Assets&rdquo;), 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Advertising</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">Advertising
costs are expensed as incurred and amounted to $93,975 in fiscal 2012 and $215,428&nbsp;in fiscal 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 64 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->7<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Revenue
Recognition</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">We
follow the guidance of Accounting Standards Codification (ASC) Topic 605, &ldquo;Revenue Recognition&rdquo; (formerly Staff Accounting
Bulletin (SAB) No. 104, &ldquo;Revenue Recognition&rdquo;) 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:</FONT>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Earnings
per Share</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">We
compute earnings per share in accordance with ASC Topic 260, &ldquo;Earnings Per Share&rdquo; 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 June 30, 20112, there were options and warrants to purchase 96,961,072
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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><I>Stock-Based
Compensation</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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 &ldquo;Plan&rdquo;).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white">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, <I>Accounting for Stock Issued to Employees</I>, and related interpretations, as permitted by ASC Topic 718, &ldquo;Compensation
&ndash; Stock Compensation, &ldquo;Share-Based Payments&rdquo;. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Effective October 1, 2005,
we adopted the fair value recognition provisions of ASC Topic 718, &ldquo;Compensation &ndash; Stock Compensation, &ldquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>Recently Issued Accounting Standards</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">In May 2011, the Financial Accounting
Standards Board (&ldquo;FASB&rdquo;) issued Accounting Standards Update (&ldquo;ASU&rdquo;) No.&nbsp;2011-04, &ldquo;Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International
Financial Reporting Standards&rdquo; (&ldquo;IFRS&rdquo;). The amendments in this ASU generally represent clarification of Topic
820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information
about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and
for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments are effective for interim
and annual periods beginning after December&nbsp;15, 2011 and are to be applied prospectively. Early application is not permitted.
We do not expect the adoption of ASU 2011-04 will have a material impact on the Company&rsquo;s Condensed Consolidated Financial
Statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 65 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->8<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><FONT STYLE="background-color: white"><B>NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B></FONT> <B>(continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>&nbsp;</b></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">In June 2011, the FASB issued ASU No.
2011-05, &ldquo;Comprehensive Income (Topic 220): Presentation of Comprehensive Income&rdquo; (amended further under ASU&nbsp;No.
2011-12 in December 2011). This guidance eliminates the current option to report other comprehensive income and its components
in the statement of changes in equity. The guidance allows two presentation alternatives; present items in net income and other
comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive, statements of net income and other comprehensive income. This guidance is effective as of the beginning of a fiscal
year that begins after December&nbsp;15, 2011. Early adoption is permitted, but full retrospective application is required under
both sets of accounting standards. The Company is currently evaluating which presentation alternative it will utilize.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">In September 2011, the FASB issued
ASU No. 2011-08, &ldquo;Intangibles&mdash;Goodwill and Other (Topic 350): Testing Goodwill for Impairment&rdquo;, which simplifies
how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment
using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to
its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount
of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first
assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it
is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances,
an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount,
then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment
under the two-step process as described in Topic 350 under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments
are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December&nbsp;15, 2011
and early adoption is permitted. The Company is currently evaluating whether early adoption is necessary.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In December 2011, the FASB issued Accounting Standards Update
(ASU) No, 2011-11,&nbsp;<I>Balance Sheet</I>&nbsp;(Topic 210):&nbsp;<I>Disclosures about Offsetting Assets and Liabilities</I>.
The amendments in this ASU require an entity to disclose information about offsetting and related arrangements on its financial
position. This includes the effect or potential effect of rights of offset associated with an entity&rsquo;s recognized assets
and recognized liabilities and require improved information about financial instruments and derivative instruments that are either
(1)&nbsp;offset in accordance with Section&nbsp;210-20-45 or Section&nbsp;815-10-45 or (2)&nbsp;subject to an enforceable master
netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section&nbsp;210-20-45 or
Section&nbsp;915-10-45. The amendments are effective for annual reporting periods beginning on or after January&nbsp;1, 2013 and
retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. Currently, the Company
does not enter into any right of offset arrangements and expects implementation to have little or no impact.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 3 - PROPERTY AND EQUIPMENT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Property and equipment, net, consists of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Estimated Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30, 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September 30, <BR> 2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: left">Office equipment</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: center">5 years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">448,831</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">836,041</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Computer software</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">3 years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,523</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">612,379</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Furniture and fixtures</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">5 years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">261,385</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Leasehold improvements</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: center">2 - 5 years</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,030,845</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,026,470</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,509,199</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,736,275</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Less: accumulated depreciation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,154,556</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,483,440</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right"></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">354,643</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">252,835</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Depreciation expense for the Nine Months Ended June 30, 2012
and 2011 was $149,435 and $236,306 respectively.&nbsp;</P>

<!-- Field: Page; Sequence: 66 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->9<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 4 - INVENTORY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Inventory consisted of the following:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 50%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30, 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September, 30,<BR> 2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left">Raw materials</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">226,082</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">44,785</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Work in progress</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42,390</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,397</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Finished goods</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">14,130</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,799</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">282,602</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">55,981</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 5 - NOTES PAYABLE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>Sand Hill Finance, LLC</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">On December 19, 2005, the Company entered into a Financing Agreement
with Sand Hill Finance, LLC pursuant to which, together with related amendments, the Company may borrow up to 80% on the Company&rsquo;s
accounts receivable balances up to a maximum of $1,800,000. In conjunction with the acquisition of Inline Corporation in December,
2008, the lending limit on the credit facility was increased to $2,750,000. In addition, the Company and Sand Hill Finance, LLC
entered into a 36 month term note agreement in the amount of $1,000,000. Amounts borrowed under the Financing Agreement are secured
by a first security interest in substantially all of the Company&rsquo;s assets. At June 30, 2012, the principal amount due under
the Financing Agreement amounted to $2,016,245.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Interest on the accounts receivable-based borrowings is payable
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. The Company also agreed to pay an upfront commitment fee of 1% of the credit line upon signing&nbsp;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, the Company is obligated to pay a commitment fee of 1% of the credit limit annually, such
amounts are payable on the anniversary of the agreement.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In connection with the Financing Agreement, the Company 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 exercise price was subsequently reduced to $0.50 per share pursuant to Warrant Amendment Agreement
which was executed in conjunction with the convertible debenture. 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 the Company&rsquo;s 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, 2008.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In connection with the term note, the Company issued Sand Hill
Finance, LLC a seven-year common stock purchase warrant to purchase 120,000 shares of our common stock at an exercise price of
$1.00 per share. The exercise price was subsequently reduced to $0.50 per share pursuant to Warrant Amendment Agreement which was
executed in conjunction with the convertible debenture. 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 the Company&rsquo;s 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 $13,589 has
been recorded as an addition to paid-in capital and deferred finance costs during the year ended September 30, 2009.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 67 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->10<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 5 - NOTES PAYABLE</B> <B>(continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The terms of the Financing Agreement also restrict the Company
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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In November, 2011, in connection with the Company&rsquo;s private
placement of convertible notes and Securities Purchase Agreement (see Note 9), Sand Hill Finance, LLC executed an amendment to
the Financing Agreement in which Sand Hill Finance LLC agreed that they would not pursue any remedies of default under the Financing
Agreement until at least the ninety-first day after the obligations under the convertible notes have been fully satisfied.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 6 - CONCENTRATION OF CREDIT RISK</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>Bank Balances</U></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The Company maintains
cash in financial institutions insured by the Federal Deposit Insurance Corporation (&ldquo;FDIC&rdquo;), including non-interest
bearing transaction account deposits protected in full in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the &ldquo;Dodd-Frank Act&rdquo;). At June 30, 2012 all of the Company&rsquo;s cash balances were fully insured. The Company
has not experienced any losses in such accounts.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 7 - INVESTMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>(a) Summary of Investments</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><U>Marketable Equity Securities</U>:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">As of June 30, 2012, &nbsp;the Company&rsquo;s investments in
marketable equity securities are based on the June 30, 2012 &nbsp;stock price as reflected on the OTCBB stock exchange , reduced
by a discount factor if those shares have selling restrictions.&nbsp;&nbsp;These marketable equity securities are summarized as
follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">June 30, 2012</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cost</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross <BR> Unrealized <BR> Gains</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross <BR> Unrealized <BR> Losses</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair <BR> Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left; padding-bottom: 1pt">Publicly traded equity securities</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">81,000</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">83,000</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">164,000</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">81,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">83,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">164,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 68 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->11<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;<B>NOTE 7 - INVESTMENTS (continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">September 30,&nbsp;2011</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cost</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross <BR> Unrealized <BR> Gains</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross <BR> Unrealized <BR> Losses</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair <BR> Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left; padding-bottom: 1pt">Publicly traded equity securities</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">48,000</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">67,200</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">115,200</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">48,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">67,200</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">115,200</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The unrealized gains are presented in comprehensive income in
the consolidated statement of operations and comprehensive income.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>(b) Unrealized Gains and Losses on Investments</I></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table summarizes the unrealized net gains (losses)
associated with the Company&rsquo;s investments:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Three Months Ended</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Nine months Ended</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left; padding-bottom: 1pt">Net gains/(loss) on investments in publicly traded equity securities</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">(164,000</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">(32,000</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">15,800</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left; border-bottom: Black 1pt solid">$</TD><TD STYLE="width: 10%; text-align: right; border-bottom: Black 1pt solid">(384,000</TD><TD STYLE="width: 1%; text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net gains/(loss) on investments</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(164,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(32,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">15,800</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(384,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Level 1.</I>&nbsp;Observable inputs such as quoted prices
in active markets for identical assets or liabilities;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Level 2.</I>&nbsp;Inputs, other than the quoted prices in
active markets, that are observable either directly or indirectly; and</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Level 3.</I>&nbsp;Unobservable inputs in which there is little
or no market data, which require the reporting entity to develop its own assumptions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 69 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->12<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 7 - INVESTMENTS (continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Investment Measured at Fair Value on a Recurring Basis:</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair Value Measurements&nbsp;Using:</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Quoted <BR> Prices <BR> in&nbsp;Active <BR> Markets <BR> (Level&nbsp;1)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Significant <BR> Other <BR> Observable <BR> Inputs <BR> (Level&nbsp;2)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Significant <BR> Unobservable <BR> Inputs <BR> (Level&nbsp;3)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline">June 30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 61%; text-align: left">Marketable Equity Securities, net of discount for effect of restriction</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">164,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">Liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivative liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,523,086</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline">&nbsp;September 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Marketable Equity Securities, net of discount for effect of restriction</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">115,200</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold">Liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Derivative liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We categorize the securities as investments in marketable securities
available for sale.&nbsp;&nbsp;These securities are quoted either on an exchange or inter-dealer quotation (pink sheet) system.
Unrealized gains or losses on marketable securities available for sale are recognized&nbsp;as an element of comprehensive income
based on changes in the fair value of the security. &nbsp;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Under the guidance of ASC 320, &ldquo;Investments&rdquo;, we
periodically evaluate other-than-temporary impairment (OTTI) of securities to determine whether a decline in their value is other
than temporary.&nbsp;&nbsp;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 &ldquo;other-than-temporary&rdquo;
is not intended to indicate that the decline is permanent.&nbsp;&nbsp;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.&nbsp;&nbsp;In the assessment of OTTI for various securities
at September 30, 2010 the guidance in ASC 320, &ldquo;the Investment-Debt and Equity Securities,&rdquo; is carefully followed.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">There were no impairment charges on investments in publicly
traded equity securities for the Nine Months Ended June 30, 2012 or 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Company has evaluated its publicly traded equity securities
as of June 30, 2012, 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&rsquo;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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 8 - COMPREHENSIVE INCOME (LOSS)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Comprehensive income is comprised of net income (loss) 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&rsquo; equity.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Our accumulated other comprehensive income consists of unrealized
gains on marketable securities available for sale of $83,000 at June 30, 2012, and $67,200 at September 30, 2011.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>NOTE 9 &ndash; CONVERTIBLE NOTES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">On November 23, 2011, IceWEB, Inc.
(the &ldquo;Company&rdquo;) entered into a Securities Purchase Agreement (the &ldquo;Purchase Agreement&rdquo;) with three accredited
investors pursuant to which the Company sold $2,012,500 in principal amount of Senior Convertible Notes (the &ldquo;Notes&rdquo;)
and issued the investors Series O, Series P and Series Q Warrants (collectively, the &ldquo;Warrants&rdquo;) to purchase up to
an aggregate of 81,588,029 shares, as adjusted, of the Company&rsquo;s common stock for an aggregate purchase price of $1,750,000
in a private transaction exempt from registration under the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;)
in reliance on an exemption from registration pursuant to Section 4(2) and Regulation D of the Securities Act.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
Company issued the Notes at an original issue discount of 13%.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 70 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->13<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;<B>NOTE 9 &ndash;
CONVERTIBLE NOTES (continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">June&nbsp;30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September&nbsp;30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: right">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Principal balance of convertible notes</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,127,887</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Original issue discount, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(104,270</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Debt discount</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(695,139</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Convertible notes, net of discount</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">328,478</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The convertible notes have a remaining principal balance of
$1,127,887, and are carried on the balance sheet at $328,478 net of the remaining unamortized discount, which is being amortized
as interest expense over the remaining life of the notes. The convertible notes are convertible into our common stock at a conversion
price of $0.074 per share. We can elect to settle any conversion in stock, cash or a combination of stock and cash.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">At June 30, 2012, conversion of the outstanding principal amount
of the convertible notes would result in the issuance of 15,241,730 shares of common stock.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>NOTE 10 - DERIVATIVE LIABILITIES</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><I>Derivative warrant liability</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The Company has warrants issued in
connection with our convertible notes payable outstanding with price protection provisions that allow for the reduction in the
exercise price of the warrants in the event the Company subsequently issues stock or securities convertible into stock at a price
lower than the exercise price of the warrants.&nbsp;&nbsp;Simultaneously with any reduction to the exercise price, the number of
shares of common stock that may be purchased upon exercise of each of these warrants shall be increased or decreased proportionately,
so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the
aggregate exercise price in effect immediately prior to such adjustment.&nbsp;&nbsp;The Company accounted for its warrants with
price protection in accordance with FASB ASC Topic 815.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>Accounting for Derivative Warrant
Liability</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The Company&rsquo;s derivative warrant
instruments have been measured at fair value at June 30, 2012 using the Black-Scholes model.&nbsp;&nbsp;The Company recognizes
all of its warrants with price protection in its consolidated balance sheet as liabilities.&nbsp;&nbsp;The liability is revalued
at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations.&nbsp;&nbsp;The
initial recognition and subsequent changes in fair value of the derivative warrant liability have no effect on the Company&rsquo;s
cash flows.&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The derivative warrants outstanding
at June 30, 2012 are all currently exercisable with a weighted-average remaining life of 4.40 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The revaluation of the warrants at
each reporting period, as well as the charges associated with issuing additional warrants due to the price protection features,
resulted in the recognition of expense of $2,773,086 and $0 within the Company&rsquo;s consolidated statements of operations for
the Nine Months Ended June 30, 2012 and 2011, respectively, under the caption &ldquo;Change in fair value of derivative warrant
liability&rdquo;.&nbsp;&nbsp;The fair value of the warrants at June 30, 2012 is $4,523,086 which is reported on the consolidated
balance sheet under the caption &ldquo;Derivative Liability&rdquo;.&nbsp;&nbsp;The following summarizes the changes in the value
of the derivative warrant liability from the date of the Company&rsquo;s issuance of derivative warrant instruments on November
23, 2011 until June 30, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 71 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->14<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;<B>NOTE 10 - DERIVATIVE
LIABILITIES (continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">No.&nbsp;of&nbsp;Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 74%; text-align: left">Warrants Issued on November 23, 2011&ndash; Derivative warrant liability</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">1,750,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">81,588,029</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Increase in fair value of derivative warrant liability</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,773,086</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">n/a</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Additional warrants from price protection features of existing warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Balance at June 30, 2012 &ndash; Derivative warrant liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">4,523,086</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">81,588,029</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>Fair Value Assumptions Used in Accounting
for Derivative Warrant Liability</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The Company has determined its derivative
warrant liability to be a Level 3 fair value measurement and has used the Black-Scholes pricing model to calculate the fair value
as of June 30, 2012.&nbsp;&nbsp;The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration,
the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend
rate.&nbsp;&nbsp;Because the warrants contain the price protection feature, the probability that the exercise price of the warrants
would decrease as the stock price decreased was incorporated into the valuation calculations.&nbsp;&nbsp;The key inputs used in
the June 30, 2012 fair value calculations were as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 60%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">2012</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 87%">Exercise price</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD NOWRAP STYLE="width: 1%; text-align: left">$</TD><TD NOWRAP STYLE="width: 10%; text-align: right">0.074</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Time to expiration</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0.4 &ndash; 4.40 years</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Risk-free interest rate</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0.21% &ndash; 0.67</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Estimated volatility</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">274</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Dividend</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">-0-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Stock price on June 30, 2012</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">$</TD><TD NOWRAP STYLE="text-align: right">0.135</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected forfeiture rate</TD><TD>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">50</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 11 - COMMITMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">We are on a month to month tenancy in our office space in Sterling,
Virginia, as our two-year operating lease expired on March 31, 2011.&nbsp;&nbsp;The office lease agreement had certain escalation
clauses and renewal options. &nbsp;We currently have no future minimum rental payments under operating leases.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 72 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->15<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>NOTE 12 &ndash; STOCKHOLDERS&rsquo; DEFICIT</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>Common Stock Warrants</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The outstanding warrants at June 30,
2012 have a weighted average exercise price of $0.084 per share and have a weighted average remaining life of 3.59 years.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Certain of these warrants contain provisions
which cause them to be classified as derivative liabilities pursuant to Accounting Standards Codification subtopic 815-40,&nbsp;<I>&ldquo;Derivatives
and hedging&mdash;Contracts in Entity&rsquo;s Own Equity&rdquo;</I>&nbsp;(ASC 815-40). Accordingly, upon issuance the warrants
were recorded as a derivative liability and valued at a fair market value of $1,750,000 which also reduced the carrying value of
the convertible notes payable. As a result of the sale of restricted stock units in June, 2012, the price protection provisions
of these certain warrants were triggered and resulted in an adjustment to the conversion price of the warrants from $0.17/share
to $0.074/share, and simultaneously a commensurate adjustment to the number of shares covered by the warrants was made. A total
of 46,679,584 additional shares were issued as a result of the ratchet provisions. The fair value of these warrants was increased
to $4,523,086 as of June 30, 2012. The non-cash expense adjustment recorded in the Statement of Operations for the Nine Months
Ended June 30, 2012 was approximately $2,773,086. We are required to continue to adjust the warrants to fair value through current
period operations for each reporting period.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">The Company&rsquo;s issuance of the
following securities will not trigger the price protection provisions of the warrants described above that were issued in connection
with the November 2011 private placement:&nbsp;&nbsp;(a) shares of common stock or standard options to the Company&rsquo;s directors,
officers, employees or consultants pursuant to a board-approved equity compensation program or other contract or arrangement; (b)
shares of common stock issued upon the conversion or exercise of any security, right or other instrument convertible or exchangeable
into common stock (or securities exchangeable into common stock) issued prior to November 23, 2011; and (c) shares of common stock
and warrants in connection with strategic alliances, acquisitions, mergers, and strategic partnerships, the primary purpose of
which is not to raise capital, and which are approved in good faith by the Company&rsquo;s board of directors.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">A summary of the status of the Company&rsquo;s
outstanding common stock warrants as of June 30, 2012 and changes during the period ending on that date is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number&nbsp;of</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted&nbsp;Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Exercise&nbsp;Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline; text-align: left">Common Stock Warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left">Balance at beginning of year</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">11,528,934</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.170</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">84,106,138</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.074</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(838,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.122</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Balance at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">94,797,072</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.84</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Warrants exercisable at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">94,797,072</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.084</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Weighted average fair value of warrants granted or re-priced during the period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">.074</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<!-- Field: Page; Sequence: 73 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->16<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 12 &ndash; STOCKHOLDERS&rsquo; DEFICIT</B> <B>(continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table summarizes information about common stock
warrants outstanding at June 30, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid"><B>Warrants&nbsp;Outstanding</B>&nbsp;&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Warrants&nbsp;Exercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Range&nbsp;of&nbsp;<BR>
    Exercise&nbsp;<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;<BR> Outstanding&nbsp;<BR>
    at&nbsp;<BR> June&nbsp;30,&nbsp;<BR> 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;<BR> Average&nbsp;<BR>
    Remaining&nbsp;<BR> Contractual&nbsp;<BR> Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;<BR> Average&nbsp;<BR>
    Exercise&nbsp;<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;<BR> Exercisable&nbsp;at&nbsp;<BR>
    June&nbsp;30,&nbsp;<BR> 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;<BR> Average&nbsp;<BR>
    Exercise&nbsp;<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.074</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">83,768,138</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">3.19 Years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.074</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">83,768,138</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">0.074</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.15</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,738,934</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4.25 Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.150</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,738,934</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.150</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt; text-align: left">$</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">290,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">1.28 Years</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">290,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">94,797,072</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.084</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">94,797,072</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.084</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>NOTE 13 - STOCK OPTION PLAN </B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">In August 2000, the Board of directors
adopted the 2000 Management and Director Equity Incentive and Compensation Plan (the &ldquo;Plan&rdquo;) 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 the Company at exercise prices determined by the Company&rsquo;s Board of directors. The Plan was approved by the Company&rsquo;s
stockholders in August 2001.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The purpose of the Plan is to advance the
Company&rsquo;s 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, the Company believes 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 the Company&rsquo;s officers, directors,
other key employees and consultants who have responsibilities affecting our management, development or financial success.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 74 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->17<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 13 - STOCK OPTION PLAN (continued)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">Awards may be made under the Plan in the
form of Plan options, shares of the Company&rsquo;s common stock subject to a vesting schedule based upon certain performance objectives
(&ldquo;Performance Shares&rdquo;) and shares subject to a vesting schedule based on the recipient&rsquo;s continued employment
(&ldquo;restricted shares&rdquo;). 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">As amended in October, 2010, the Plan permits
the grant of options and shares for up to 60,000,000 shares of the Company&rsquo;s common stock. The Plan terminates 10 years from
the date of the Plan&rsquo;s adoption by the Company&rsquo;s stockholders.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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 the Company&rsquo;s 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The fair value of stock options granted
was estimated at the date of grant using the Black-Scholes options pricing model. The Company used the following assumptions for
determining the fair value of options granted under the Black-Scholes option pricing model:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June&nbsp;30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected volatility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">323% - 325</TD><TD STYLE="text-align: left">%</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Expected term</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">1 - 5 Years</TD><TD STYLE="text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 61%; text-align: left">Risk-free interest rate</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">N/A</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD NOWRAP STYLE="width: 10%; text-align: right">0.03</TD><TD STYLE="width: 1%; text-align: left">%</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Forfeiture Rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0% - 45</TD><TD STYLE="text-align: left">%&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected dividend yield</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">N/A</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">0</TD><TD STYLE="text-align: left">%</TD>
    </TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">The expected volatility was determined
with reference to the historical volatility of the Company&rsquo;s stock. The Company uses historical data to estimate option exercise
and employee termination 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">For the Nine Months Ended June 30, 2012,
total stock-based compensation charged to operations for option-based arrangements amounted to $29,615. At June 30, 2012, there
was approximately $23,138 of total unrecognized compensation expense related to non-vested option-based compensation arrangements
under the Plan.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 75 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->18<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">ICEWEB, INC. AND SUBSIDIARIES<br>NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<br>June 30, 2012</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><B>NOTE 13 - STOCK OPTION PLAN (continued)</B></B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">A summary of the status of the Company&rsquo;s
outstanding stock options as of June 30, 2012 and changes during the period ending on that date is as follows:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number&nbsp;of<BR> Options</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted&nbsp;Average<BR> Exercise&nbsp;Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline; text-align: left">Stock&nbsp;options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%; text-align: left">Balance at beginning of year</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">4,104,487</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.37</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(532,325</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.34</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,448,162</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.53</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Balance at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,124,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.38</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Options exercisable at end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,086,500</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.29</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Weighted average fair value of options granted during the year</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The following table summarizes information about employee stock
options outstanding at June 30, 2012:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Outstanding</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Exercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Range&nbsp;of<BR> Exercise<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number<BR> Outstanding<BR> at<BR> June&nbsp;30,<BR> 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average<BR> Remaining<BR> Contractual<BR> Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average<BR> Exercise<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number<BR> Exercisable&nbsp;at<BR> June&nbsp;30,<BR> 2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted<BR> Average<BR> Exercise<BR> Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right"> 0.001-0.15</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">1,249,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">1.34 Years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.06</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">1,211,500</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">0.06</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.17-0.41</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.72 Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.27</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.37</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.55-0.70</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">850,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.19 Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.61</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">850,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.60</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,124,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.38</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,086,500</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.29</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify"><B>NOTE 14 - SEGMENT REPORTING</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: justify">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,
&ldquo;Segment Reporting&rdquo; (formerly Statement of Financial Accounting Standards (SFAS) No.&nbsp;131, &ldquo;Disclosures About
Segments of an Enterprise and Related Information&rdquo;).</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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 June 30, 2012 and 2011 all material assets and revenues
of the Company were in the United States.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 15 - SUBSEQUENT EVENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">During the month of July, 2012 our convertible note holders
converted $609, 606 of their notes balance into 8,560,944 of our common stock. In addition we sold 2,860,125 common stock units
as part of a PIPE transaction that closed in July, 2012, and we had warrants exercised into 675,000 of our common stock in July,
2012. Other than the disclosures shown, management did not identify any events or transactions that should be recognized or disclosed
in the accompanying financial statements.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 76; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->19<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B>&nbsp;</B>&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B>To the Board of directors</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B>IceWEB, Inc.</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">We have audited the accompanying
consolidated balance sheets of IceWEB, Inc. and Subsidiaries as of September 30, 2011 and 2010 and the related consolidated statements
of operations, changes in stockholders&rsquo; equity (deficit) and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company&rsquo;s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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, 2011 and September 30, 2010 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 $4,705,291 and $6,964,233 respectively, for the years ended September
30, 2011 and 2010. These matters raise substantial doubt about the Company&rsquo;s ability to continue as a going concern. Management&rsquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 60%">&nbsp;</TD>
    <TD STYLE="width: 40%">/s/ Sherb &amp; Co., LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>Certified Public Accountants</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Boca Raton, Florida</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">December 22, 2011</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<!-- Field: Page; Sequence: 77; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->20<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>IceWEB,
Inc. and Subsidiaries</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Consolidated
Balance Sheets</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September&nbsp;30, <BR>2011</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September&nbsp;30, <BR>2010</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">CURRENT ASSETS:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 74%">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">4,120</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">540,156</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,171,520</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accounts receivable, net of allowance for doubtful accounts of $409,000</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,182,060</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,466,483</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Inventory, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">55,981</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62,197</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Other current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,877</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,875</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Prepaid expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">30,248</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">31,230</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,450,806</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,106,941</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">OTHER ASSETS:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Property and equipment, net of accumulated depreciation of $2,483,440 and $2,180,643, respectively</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">252,835</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">418,873</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Deposits</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,320</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,320</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Marketable Securities, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">115,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">524,800</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Intangible assets, net of accumulated amortization of $911,591 and $668,498, respectively</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">546,952</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,832,161</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,610,886</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">CURRENT LIABILITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accounts payable and accrued liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">2,186,691</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">1,648,252</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,972,544</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,649,140</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,904</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">59,582</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total Current Liabilities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,164,139</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,356,974</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Stockholders&rsquo; Equity (Deficit)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Series B convertible preferred stock ($.001 par value; 626,667 shares issued and outstanding)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">626</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">626</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock ($.001 par value; 1,000,000,000 shares authorized; 157,959,066 shares issued and 134,443,725 shares outstanding, respectively)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">157,961</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">134,445</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Additional paid in capital</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,866,315</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,360,833</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accumulated deficit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(34,328,080</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(29,622,792</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accumulated other comprehensive income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">67,200</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">476,800</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(83,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(83,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Treasury stock, at cost, (162,500 shares)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13,000</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Total stockholders&rsquo; equity (deficit)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,331,978</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">253,912</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Total Liabilities and stockholders&rsquo; Equity (Deficit)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">2,832,161</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double">$</TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double">3,610,886</TD><TD STYLE="text-align: left; padding-bottom: 2.5pt">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">See
accompanying notes to consolidated financial statements</FONT>&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 78; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->21<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>IceWEB,
Inc. and Subsidiaries</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Consolidated
Statements of Operations</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">For&nbsp;the&nbsp;Year&nbsp;Ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September&nbsp;30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; font-weight: bold">Sales</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">2,678,346</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">3,353,286</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; padding-bottom: 1pt">Cost of sales</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,751,640</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,742,110</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">Gross profit</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">926,706</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,611,176</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold; text-align: left">Operating expenses:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Sales and marketing expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">975,282</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,690,684</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Depreciation and amortization expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">545,890</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">662,003</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Research and development</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">790,048</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">547,364</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,605,999</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,312,247</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Loss on impairment of intangible assets</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">303,859</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">-</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">Total operating expenses</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">5,221,078</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">8,212,298</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">Loss From Operations</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,294,372</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,601,122</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left">Other income (expenses):</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Gain on extinguishment of debt</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">190,136</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Interest expense</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(410,919</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(553,247</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 1pt">Total other income (expenses):</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(410,919</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(363,111</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="font-weight: bold; text-align: left; padding-bottom: 2.5pt">Net loss</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(4,705,291</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">(6,964,233</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Net loss per common share - basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.03</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(0.07</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Weighted average common shares outstanding - basic and diluted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">142,344,070</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,379,729</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">See
accompanying notes to consolidated financial statements</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 79; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->22<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>IceWEB,
Inc. and Subsidiaries</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Consolidated
Statement of Changes in Stockholders&rsquo; Equity (Deficit)</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>For
the years ended September 30, 2011 and 2009</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 6pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Series&nbsp;B</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold">Additional</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold"></TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Preferred&nbsp;Stock</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Common&nbsp;Stock</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold">Paid-In</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold">Accumulated</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold">Comprehensive</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold">Subscription</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Treasury&nbsp;Stock</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Amount</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Shares</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Amount</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Capital</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Deficit</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Income</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Receivable</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Share</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Amount</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: Black 1pt solid">Total</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: right">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 12%; font-weight: bold">Balance at September 30, 2009</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">626,667</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">626</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">68,469,617</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">68,471</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">20,065,001</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">(22,658,556</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">&mdash;</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">(162,500</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">(13,000</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD><TD STYLE="width: 1%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="width: 5%; font-weight: bold; text-align: right">(2,537,458</TD><TD STYLE="width: 1%; font-weight: bold; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Amortization of deferred compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,627,919</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,627,919</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of common stock for cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,580,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">15,580</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,365,050</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,380,630</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of common stock to settle litigation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,678,571</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,679</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">399,104</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">401,783</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued for exercise of options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30,570,600</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">30,571</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,561,055</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,591,626</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued in connection with subscription receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">81,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(83,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,800,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">506,684</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">509,484</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued to employees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,344,937</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,345</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">858,020</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">867,365</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued in connection with conversion of convertible debenture</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,000,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">897,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">900,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Other Comprehensive income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">476,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">476,800</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net loss for the year</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,964,233</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,964,233</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net Comprehensive loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,964,233</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">476,800</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,487,433</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Balance at September 30, 2010</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">626,667</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">626</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">134,443,725</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">134,445</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">29,360,833</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(29,622,789</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">476,800</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(83,000</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(162,500</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(13,000</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">253,912</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Amortization of deferred compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">131,680</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">131,680</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Issuance of common stock for cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,053,334</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,054</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,445,578</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,459,632</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued for services</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,032,544</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,033</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">228,937</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">229,970</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued to employees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,113,101</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,113</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">430,502</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">432,615</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued for exercise of options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,791,361</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,791</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,268,310</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,275,101</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Cancellation of shares</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(475,000</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(475</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">475</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Other Comprehensive income</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(409,600</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(409,600</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net loss for the year</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,705,291</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,705,291</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Net Comprehensive loss</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,705,291</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(409,600</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(5,114,891</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Balance at September 30, 2011</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">626,667</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">626</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">157,959,066</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">157,960</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">32,866,315</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(34,328,080</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">67,200</TD><TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(83,000</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">&nbsp;</TD><TD STYLE="font-weight: bold; text-align: right">(162,500</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(13,000</TD><TD STYLE="font-weight: bold; text-align: left">)</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left">$</TD><TD STYLE="font-weight: bold; text-align: right">(1,331,978</TD><TD STYLE="font-weight: bold; text-align: left">)</TD></TR>
</TABLE>





<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">See
accompanying notes to consolidated financial statements</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 80; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->23<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>IceWEB,
Inc. and Subsidiaries</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Consolidated
Statements of Cash Flows</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">For&nbsp;the&nbsp;Year&nbsp;Ended <BR>September&nbsp;30,</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Net loss</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(4,705,291</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">(6,964,233</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Adjustments to reconcile net loss to net cash provided by (used in) operating activities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Depreciation and amortization</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">545,890</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">662,003</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Loss on impairment of intangible assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">303,859</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Share-based compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">369,385</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">867,365</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Amortization of deferred compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">131,680</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,627,919</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Gain on sale of discontinued operations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Common stock issued for services rendered</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">293,199</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">509,484</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Common stock issued for settlement</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">401,783</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Amortization of deferred finance costs</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,500</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,015</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Changes in operating assets and liabilities:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">(Increase) decrease in:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounts receivable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">284,423</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,104,934</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Prepaid expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">982</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(33,545</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Other</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(27,499</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Inventory</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,216</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">89,164</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Deposits</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Increase (decrease) in:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounts payable and accrued liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">538,441</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(259,757</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Deferred revenue</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(54,678</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">49,321</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">NET CASH USED IN OPERATING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,285,893</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,128,415</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">CASH FLOWS FROM INVESTING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Purchase of property and equipment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(136,759</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(85,624</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Investment in marketable securities</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">&mdash;</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">(48,000</TD><TD STYLE="text-align: left; padding-bottom: 1pt">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">NET CASH USED IN INVESTING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(136,759</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(133,624</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">CASH FLOWS FROM FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">836,024</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,602,024</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Payments on notes payable</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(512,621</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,835,395</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Proceeds from sale of common stock</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">288,111</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,380,630</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Proceeds from exercise of common stock options</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">1,275,102</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">2,591,626</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">NET CASH PROVIDED BY FINANCING ACTIVITIES</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,886,616</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,738,885</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">NET INCREASE (DECREASE) IN CASH</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(536,036</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">476,846</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">CASH - beginning of period</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">540,156</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="text-align: left; border-bottom: Black 1pt solid">&nbsp;</TD><TD STYLE="text-align: right; border-bottom: Black 1pt solid">63,310</TD><TD STYLE="text-align: left; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">CASH - end of period</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,120</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">540,156</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Supplemental disclosure of cash flow information:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Cash paid for:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">Interest</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">383,419</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">526,232</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Income taxes</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">NON-CASH INVESTING AND FINANCING ACTIVITIES:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Common stock issued for debt and interest</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Common stock issued in connection with convertible debenture</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,090,136</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Common stock issued in connection with acquisition/disposition</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right"></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">See
accompanying notes to consolidated financial statements</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<!-- Field: Page; Sequence: 81; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->24<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>IceWEB,
Inc. and Subsidiaries</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>Years
ended September 30, 2011 and 2010</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 1 - ORGANIZATION</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">IceWEB, Inc. (the &ldquo;Company&rdquo;)
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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">BUSINESS OF ICEWEB</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">At the close of fiscal
year 2011, the Company has three key product offerings:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="background-color: white">&bull;</FONT></TD><TD><FONT STYLE="background-color: white">Unified Network Storage Solutions</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="background-color: white">&bull;</FONT></TD><TD><FONT STYLE="background-color: white">Purpose Built Network/Data Appliances</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><FONT STYLE="background-color: white">&bull;</FONT></TD><TD><FONT STYLE="background-color: white">Cloud Computing Products/Services</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 2 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Principles of Consolidation</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Reclassifications</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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&rsquo; deficit.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Going Concern</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Our auditors stated in
their report on the consolidated financial statements of the Company for the Years ended September 30, 2011 and 2010 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, 2011 we incurred a net loss of $4,705,291. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 82 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->25<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 2 - BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Marketable Securities</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">IceWEB accounts for the
purchase of marketable equity securities in accordance with ASC 320, &ldquo;Investment &ndash; Debt and Equity Securities&rdquo;
with any unrealized gains and losses included as a net amount as a separate component of stockholders&rsquo; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Use of Estimates</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 2011 and 2010 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Cash and Cash Equivalents</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">We consider all highly
liquid debt instruments with original maturities of three months or less to be cash equivalents.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Accounts Receivable</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Accounts receivable consists
of normal trade receivables. We recorded a bad debt allowance of $409,000 as of September 30, 2011. Management performs ongoing
evaluations of its accounts receivable. Management believes that all remaining receivables are fully collectable. Bad debt expense
amounted to $102,076 and $336,568 for the Years ended September 30, 2011 and 2010, respectively.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Inventory</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Inventory is valued at
the lower of cost or market, on an average cost basis.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Property and Equipment</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Property and equipment
is stated at cost, net of accumulated depreciation. Depreciation expense is recorded by using the straight-line method over the
estimated useful lives of the related assets.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Intangible Assets</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 Company periodically reevaluates the carrying value of its intangible
assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part of this reevaluation,
the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the intangible
asset to the estimated fair value of the asset.</FONT></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Long-lived Assets</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">In accordance with ASC
Topic 360, &ldquo;Property, Plant, and Equipment&rdquo; (formerly SFAS&nbsp;144, &ldquo;Accounting for the Impairment or Disposal
of Long-Lived Assets&rdquo;), 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 83 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->26<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 2 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Advertising</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Advertising costs are
expensed as incurred and amounted to $238,482 in fiscal 2011 and $162,862&nbsp;in fiscal 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Revenue Recognition</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">We follow the guidance
of Accounting Standards Codification (ASC) Topic 605, &ldquo;Revenue Recognition&rdquo; (formerly Staff Accounting Bulletin (SAB)
No. 104, &ldquo;Revenue Recognition&rdquo;) 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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Earnings per Share</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">We compute earnings per
share in accordance with ASC Topic 260, &ldquo;Earnings Per Share&rdquo; (formerly SFAS No. 128, &ldquo;Earnings per Share&rdquo;)
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, 2011, there
were options and warrants to purchase 15,633,425 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Stock-Based Compensation</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 &ldquo;Plan&rdquo;).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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,<I>Accounting
for Stock Issued to Employees</I>, and related interpretations, as permitted by ASC Topic 718, &ldquo;Compensation &ndash; Stock
Compensation (Formerly SFAS No. 123&nbsp;(R), &ldquo;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.</FONT></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Effective October 1, 2005,
we adopted the fair value recognition provisions of ASC Topic 718, &ldquo;Compensation &ndash; Stock Compensation (Formerly SFAS
No. 123&nbsp;(R), &ldquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 84 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->27<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 3 - PROPERTY AND
EQUIPMENT</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">At September 30, property
and equipment consisted of the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Estimated <BR>Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left">Office equipment</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: center">5 years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">836,041</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">699,282</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Computer software</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">3 years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">612,379</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">612,379</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Furniture and fixtures</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">5 years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">261,385</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">261,385</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Leasehold improvements</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: center">5 years</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,026,470</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,026,470</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: center"></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,736,275</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,599,516</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: accumulated depreciation</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: center"></TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,483,440</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(2,180,643</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center"></TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: center"></TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">252,835</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">418,873</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Depreciation expense for
the years ended September 30, 2011 and 2010 was $302,797 and $418,913 respectively.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 4 - INTANGIBLE ASSETS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">At September 30, intangible
assets consist of the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Manufacturing GSA Schedule</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">-</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">750,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Customer relationships&nbsp;&nbsp;intangible</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">465,452</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,215,452</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: accumulated amortization</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(668,500</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">546,952</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Amortization expense amounted
to $243,093 for the year ended September 30, 2011, and $243,090 for the year ended September 30, 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Amortization expense subsequent
to the year ended September 30, 2011 is $0.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The Company periodically
reevaluates the carrying value of its intangible assets for events or changes in circumstances that indicate that the carrying
value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from
the use of the asset. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment
loss is recognized to reduce the carrying value of the intangible asset to the estimated fair value of the asset.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">At September 30, 2011,
the Company determined that its sales model in future periods would not substantially benefit from the customer relations or manufacturing
GSA schedules that we own.&nbsp;&nbsp;Accordingly, management deemed these intangible assets to be fully impaired at September
30, 2011 and reduced their carrying values to zero.&nbsp;&nbsp;A loss on impairment of $303,859 has been included in operating
expenses.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 85 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->28<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 5 - RELATED PARTY
TRANSACTIONS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 September 30, 2011 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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. &nbsp;On November 3, 2009 we purchased 800,000 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&rsquo; board of directors, having been
elected in October 2009. &nbsp;Mr. Lucky resigned his positions with VOIS in September 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Prior to our investment
in VOIS, both Mr. John R. Signorello had a personal relationship with the founders of VOIS. &nbsp;In an unrelated transaction in
November 2009 Mr. Signorello, a member of our board of directors and our CEO, purchased 1,125,000 shares of VOIS&rsquo; common
stock from a former officer and director of VOIS for nominal consideration in a private transaction. &nbsp;The shares of common
stock purchased by Mr. Signorello represented approximately 27% of VOIS&rsquo; outstanding common stock at the time of the purchase
of the shares by us.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">While five&nbsp;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&rsquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 6 - NOTES PAYABLE</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Sand Hill Finance, LLC</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 86 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->29<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 6 - NOTES PAYABLE
(continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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. &nbsp;The debenture was converted at a price of $0.36338 per share. &nbsp;The conversion
price was subject to a floor of $0.30 per share resulting in a gain on conversion of $190,136.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Amounts borrowed under
the Financing Agreement are secured by a first security interest in substantially all of our assets. At September 30, 2011, the
principal amount due under the Financing Agreement amounted to $1,972,544. This amount is included in the note payable balance
of $1,972,544 on the balance sheet at September 30, 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 $0.50 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 $0.50 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, 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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. </FONT>In addition, we have been in default
under the terms of the Financing Agreement, however Sand Hill Finance has provided a waiver and forbearance agreement that provides
that no obligations under the financing agreement shall become due and payable until the 91st day after the obligations under the
convertible notes (as discussed in Note 17 - Subsequent Events) have been satisfied. Sand Hill Finance agreed that no remedies
available to them under the Financing Agreement (including foreclosure) will be pursued until after such date.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 87 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->30<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 7 - INVENTORY</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Inventory consisted of
the following:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September&nbsp;30, <BR>2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September&nbsp;30, <BR>2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Raw materials</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">44,785</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">49,757</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Work in progress</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,397</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,330</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Finished goods</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,799</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">3,110</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">55,981</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">62,197</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: reserve for obsolescence</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">55,981</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">62,197</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 8 - COMMITMENTS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">We lease office space
in Sterling, Virginia under a two-year operating lease that expired on March 31, 2011. We are currently leasing our space on a
month-to-month basis but plan to renew the lease for another year.&nbsp;&nbsp;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. We
have no future minimum rental payments required.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Rent expense was $76,397
and $78,076 for the years ended September 30, 2011 and 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 9 - INCOME TAXES</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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. &nbsp;At September 30, 2011 and 2009 the Company has no unrecognized tax benefits, interest, or penalties.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 88 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->31<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 9 - INCOME TAXES
(continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">A summary of our deferred
tax is as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred Tax Assets:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 76%; text-align: left">Tax benefit of net operating loss carry forward</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">4,324,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">5,360,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Unpaid accrued salaries</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">24,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Allowance for doubtful accounts</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">113,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">113,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Reserve for legal settlement</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">353,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Amortization of leasehold improvements</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">271,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">182,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Amortization of intangibles</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">-</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">302,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,732,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,327,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Less: valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(4,732,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(6,327,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Net deferred tax assets</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">As of September 30, 2011
we had unused net operating loss carry forwards of approximately $11,500,000 available to reduce our future federal taxable income.
Net operating loss carryforwards expire through fiscal years ending 2031. 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).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The valuation allowance
at September 30, 2011 was $4,732,000. The decrease during fiscal 2011 was approximately $1,595,000.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Net operating loss carryforwards
and the associated deferred tax asset were reduced during fiscal September 30, 2011 to reflect reversals of certain temporary differences
and management&rsquo;s re-assessment of its net operating loss carryforwards for tax purposes.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The table below summarizes
the differences between our effective tax rate and the statutory federal rate as follows for fiscal 2011 and 2010. The effective
tax rate is 34% Federal and 3.6% State after Federal tax benefit:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 85%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left">Computed &ldquo;expected&rdquo; tax benefit</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">(34.0</TD><TD STYLE="width: 1%; text-align: left">)%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">(34.0</TD><TD STYLE="width: 1%; text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">State income taxes</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3.6</TD><TD STYLE="text-align: left">)%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3.6</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Other permanent differences</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10.8</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Change in valuation allowance</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">26.8</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">36.6</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Effective tax rate</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.0</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 10 - CONCENTRATION
OF CREDIT RISK</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Bank Balances</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The Company is subject to concentrations of credit risk primarily
from cash.&nbsp;&nbsp;At September 30, 2011, the FDIC insured deposits up to $250,000.&nbsp; At September 30, 2011, the Company&rsquo;s
bank balances did not exceed the FDIC insurance limit.&nbsp;While the Company periodically evaluates the credit quality of the
financial institutions in which it holds deposits, it cannot reasonably alleviate the risk associated with the sudden possible
failure of such financial institutions.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Major Customers</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Sales to 5 customers represented
approximately 90% of total sales for the year ended September 30, 2011. As of September 30, 2011 approximately 84% of our accounts
receivable was due from one customer. Sales to eight customers represented approximately 89% in 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 89 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->32<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 11 - STOCKHOLDERS&rsquo;
EQUITY (DEFICIT)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Preferred Stock</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">A) Series A Convertible
Preferred Stock</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">All shares of Series A
Convertible Preferred Stock were converted into shares of our common stock in fiscal 2008. As of September 30, 2011 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, 2011.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 &ldquo;A&rdquo;, &ldquo;B&rdquo; and &ldquo;C&rdquo; 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&rsquo;s fee to Liberty Company LLC of $65,000.
We also issued Liberty Company LLC, a broker-dealer, a Common Stock Purchase Warrant &ldquo;A&rdquo; 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 of 1933 in
reliance on an exemption provided by Section 4(2) of that act.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">B) Series B Convertible
Preferred Stock</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The designations, rights
and preferences of the Series B Convertible Preferred Stock provide:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>&bull;</B></TD><TD>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,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>&bull;</B></TD><TD>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,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>


<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>&bull;</B></TD><TD>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,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 90 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->33<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 11 - STOCKHOLDERS&rsquo;
EQUITY (DEFICIT) (continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>&bull;</B></TD><TD>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,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>&bull;</B></TD><TD>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</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.25in; text-indent: -0.25in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.25in"><B>&bull;</B></TD><TD>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.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Common Stock</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Fiscal 2011 Transactions</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On September 30, 2011 we sold approximately
9,762,671 restricted stock units at $0.12/unit.&nbsp;&nbsp;Each unit consists of one share of common stock and a warrant exercisable
for one share of common stock.&nbsp;&nbsp;The warrants have a five year life, an exercise price of $0.15/share, and are callable
if the Company&rsquo;s common stock trades over $0.25/share for ten consecutive trading days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Anderson and Strudwick, Inc. acted as the
placement agent in connection with the sale of the securities and as compensation received a cash fee of approximately $114,127,
and warrants to purchase approximately 976,267 shares of the Company&rsquo;s common stock at a price per share of $0.15.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">The sale of the Shares and the Warrants
was made pursuant to Section 4(2) of the Securities Act for transactions not involving a public offering and/or Regulation D, as
promulgated by the SEC under the Securities Act of 1933, and in reliance upon exemptions from registration under applicable state
securities laws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
February, 2011 we sold 2,000,000 shares of common stock, valued at $200,000 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
March, 2011 we sold 250,000 shares of common stock, valued at $25,000 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
May, 2011 we sold 1,609,600 shares of common stock, valued at $184,464 to two accredited investors, 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
July, 2011 we sold 416,667 shares of common stock, valued at $91,541 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>&nbsp;</I></P>

<!-- Field: Page; Sequence: 91 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->34<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 11 - STOCKHOLDERS&rsquo;
EQUITY (DEFICIT) (continued)&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Fiscal 2010 Transactions</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">During fiscal 2010, we
issued 18,715,000 of our common stock in connection with the exercise of options under our stock option plan.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">During April and May,
2010 we sold 10,080,000 units of our securities&nbsp;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 &amp; Lamont Securities Incorporated, a broker-dealer and member of FINRA, acted as finder for us in the
offering and we paid Jesup &amp; 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 &amp; Lamont&nbsp; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.&nbsp;</FONT></P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<!-- Field: Page; Sequence: 92 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->35<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 11 - STOCKHOLDERS&rsquo;
EQUITY (DEFICIT) (continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Common Stock Warrants</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">A summary of the status
of our outstanding common stock warrants as of September 30, 2011 and 2010 and changes during the period ending on that date is
as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;September&nbsp;30, <BR>2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;September&nbsp;30, <BR>2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of <BR>Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of <BR>Warrants</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Weighted <BR>Average <BR>Exercise <BR>Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline; text-align: left">Common Stock Warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 52%; text-align: left">Balance at beginning of year</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">8,287,100</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">0.40</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">225,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">1.78</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,238,938</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,137,100</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&mdash;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(7,997,100</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.40</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(75,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">6.00</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Balance at end of year</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,528,938</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.17</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">8,287,100</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.40</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Warrants exercisable at end of year</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,528,938</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.17</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">8,287,100</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Weighted average fair value of warrants granted or re-priced during the year</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The following table summarizes
information about common stock warrants outstanding at September 30, 2011:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Warrants&nbsp;Outstanding</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Warrants&nbsp;Exercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Range&nbsp;of</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Outstanding&nbsp;at</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Remaining</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercisable&nbsp;at</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September&nbsp;30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Contractual</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September&nbsp;30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.15</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">10,738,938</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">5.00&nbsp;Years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.15</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">10,738,938</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">0.15</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.53&nbsp;Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">500,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.40</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">290,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2.03&nbsp;Years</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">290,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,528,938</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.17</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">11,528,938</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.17</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 12 - STOCK OPTION
PLAN</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">In August 2000, the Board
of directors adopted the 2000 Management and Director Equity Incentive and Compensation Plan (the &ldquo;Plan&rdquo;) 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 93 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->36<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 12 - STOCK OPTION
PLAN (continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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
(&ldquo;Performance Shares&rdquo;) and shares subject to a vesting schedule based on the recipient&rsquo;s continued employment
(&ldquo;restricted shares&rdquo;). 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">As amended in fiscal 2011,
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&rsquo;s adoption by our stockholders.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 80%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Year&nbsp;Ended&nbsp;September&nbsp;30,</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Expected volatility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">129% - 325</TD><TD STYLE="text-align: left">%&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">129% - 325</TD><TD STYLE="text-align: left">%&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Expected term</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1 - 5 Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1 - 5 Years</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Risk-free interest rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.03%&nbsp;-&nbsp;0.48</TD><TD STYLE="text-align: left">%&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.03%&nbsp;-&nbsp;0.48</TD><TD STYLE="text-align: left">%&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Forfeiture Rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0% - 45</TD><TD STYLE="text-align: left">%&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0% - 45</TD><TD STYLE="text-align: left">%&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left">Expected dividend yield</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">0</TD><TD STYLE="width: 1%; text-align: left">%</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">0</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 94 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->37<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; text-align: center; margin-bottom: 0pt"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">NOTE 12 - STOCK OPTION
PLAN (continued)&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left"><FONT STYLE="background-color: white"><B>&nbsp;</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">For the year ended September
30, 2011, total stock-based compensation charged to operations for option-based arrangements amounted to $131,680. At September
30, 2011, there was approximately $42,608 of total unrecognized compensation expense related to non-vested option-based compensation
arrangements under the Plan.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">A summary of the status
of our outstanding stock options as of September 30, 2011 and changes during the period ending on that date is as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center">Year&nbsp;Ended&nbsp;September&nbsp;30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center">Year&nbsp;Ended&nbsp;September&nbsp;30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Aggregate</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Aggregate</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Intrinsic</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Intrinsic</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center; border-bottom: Black 1pt solid">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-decoration: underline; text-align: left">Stock options</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="width: 28%; text-align: left">Balance at beginning of year</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">11,604,404</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">0.27</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 9%; text-align: right">10,944,483</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">0.27</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,410,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.09</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Exercised</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,791,361</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.19</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(30,570,600</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.09</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 1pt">Forfeited</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(708,556</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,179,479</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.16</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Balance at end of year</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">4,104,487</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.37</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">184,493</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">11,604,404</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.27</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,351,502</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Options exercisable at end of year</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,647,720</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.40</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">155,252</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">9,691,237</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.30</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,037,335</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Weighted average fair value of options granted during the year</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">-</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.078</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The following table summarizes
information about employee stock options outstanding at September 30, 2011:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 100%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="padding-bottom: 1pt">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Outstanding</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Exercisable</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP>&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Number</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Weighted</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Range&nbsp;of</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Outstanding&nbsp;at</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Remaining</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercisable&nbsp;at</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Average</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September 30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Contractual</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">September 30,</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Exercise</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Life</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 1%; text-align: left">&nbsp;$</TD><TD STYLE="width: 14%; text-align: right"> 0.001-0.25</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">1,739,367</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: center">2.59 Years</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.06</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">1,358,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 13%; text-align: right">0.06</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.30-0.48</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">100,400</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">4.83 Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.28</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.37</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.54-0.60</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,764,720</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: center">1.1 Years</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.59</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,764,720</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.59</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: right">0.61-0.80</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">500,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: center">0.65 Years</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.70</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">500,000</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.70</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">4,104,487</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.37</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">3,647,720</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">0.40</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 13 - INVESTMENTS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B><I>(a) Summary of Investments</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><U>Marketable Equity Securities</U>:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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&rsquo; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">As of September 30, 2011,
&nbsp;the Company&rsquo;s investments in marketable equity securities are based on the September 30, 2011 &nbsp;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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 95 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->38<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 13 - INVESTMENTS
(continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; border-bottom: Black 1pt solid">SEPTEMBER&nbsp;30,&nbsp;2011</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Cost</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross <BR>Unrealized <BR>Gains</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Gross <BR>Unrealized <BR>Losses</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair <BR>Value</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 52%; text-align: left; padding-bottom: 1pt">Publicly traded equity securities</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 9%; border-bottom: Black 1pt solid; text-align: right">48,000</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 9%; border-bottom: Black 1pt solid; text-align: right">67,200</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 9%; border-bottom: Black 1pt solid; text-align: right">&mdash;</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 9%; border-bottom: Black 1pt solid; text-align: right">115,200</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">Total</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">48,000</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">67,200</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&mdash;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">115,200</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The unrealized gains are
presented in comprehensive income&nbsp;&nbsp;in the consolidated statement of operations and comprehensive income.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><B><I>(b) Gains and Losses
on Investments</I></B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The following table summarizes
the realized net gains (losses) associated with the Company&rsquo;s investments:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Fiscal&nbsp;Year&nbsp;Ended</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">September30</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 76%; text-align: left; padding-bottom: 1pt">Net gains/(loss) on investments in publicly traded equity securities</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 9%; border-bottom: Black 1pt solid; text-align: right">67,200</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 9%; border-bottom: Black 1pt solid; text-align: right">476,800</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 2.5pt">Net gains on investments</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">67,200</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">476,800</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Level 1.</I>Observable
inputs such as quoted prices in active markets for identical assets or liabilities;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Level 2.</I>Inputs,
other than the quoted prices in active markets, that are observable either directly or indirectly; and</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Level 3.</I>Unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>


<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Investment Measured
at Fair Value on a Recurring Basis:</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="border-collapse: collapse; width: 90%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair&nbsp;Value&nbsp;Measurements&nbsp;Using:</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Quoted&nbsp;Prices <BR>in&nbsp;Active <BR>Markets <BR>(Level&nbsp;1)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Significant <BR>Other <BR>Observable <BR>Inputs <BR>(Level&nbsp;2)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Significant <BR>Unobservable <BR>Inputs <BR>(Level&nbsp;3)</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center">&nbsp;</TD><TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%; text-align: left">Marketable Equity Securities, net of discount for effect of restriction</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">&mdash;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">115,200</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
</TABLE>



<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<!-- Field: Page; Sequence: 96 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->39<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 13 - INVESTMENTS
(continued)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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 &ldquo;Securities Act&rdquo;) 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Under the guidance of
ASC 320, &ldquo;Investments&rdquo;, 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 &ldquo;other-than-temporary&rdquo; 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, 2011 the guidance in ASC 320, &ldquo;the Investment-Debt and Equity Securities,&rdquo; is carefully
followed.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">There were no impairment
charges on investments in publicly traded equity securities for the year ended September 30, 2011 or for the year ended September
30, 2010.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The Company has evaluated
its publicly traded equity securities as of September 30, 2011, 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&rsquo;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 14 - COMPREHENSIVE
INCOME (LOSS)</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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&rsquo; equity.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">Our other comprehensive
income consists of unrealized gains on marketable securities available for sale of $67,200.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 15 - SEGMENT REPORTING</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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, &ldquo;Segment Reporting&rdquo; (formerly Statement of Financial Accounting Standards (SFAS) No. 131, &ldquo;Disclosures
About Segments of an Enterprise and Related Information&rdquo;).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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,
2011 and 2010 all material assets and revenues of the Company were in the United States.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 97 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font-size: 10pt"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->40<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: bold 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">IceWEB, Inc. and Subsidiaries<br>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<br>Years ended September 30, 2011 and 2010</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 16 - COMMITMENTS
AND CONTINGENCIES</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">NOTE 17 - SUBSEQUENT EVENTS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt">On November 23, 2011, IceWEB, Inc. (the &ldquo;Company&rdquo;)
entered into a Securities Purchase Agreement (the &ldquo;Purchase Agreement&rdquo;) with three accredited investors pursuant to
which the Company sold $2,012,500 in principal amount of Senior Convertible Notes (the &ldquo;Notes&rdquo;) and issued the investors
Series O, Series P and Series Q Warrants (collectively, the &ldquo;Warrants&rdquo;) to purchase up to an aggregate of 35,514,708
shares of the Company&rsquo;s common stock for an aggregate purchase price of $1,750,000 in a private transaction exempt from registration
under the Securities Act of 1933, as amended (the &ldquo;Securities Act&rdquo;) in reliance on an exemption from registration pursuant
to Section 4(2) and Regulation D of the Securities Act.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company issued the Notes at an original
issue discount of 13%.&nbsp;&nbsp;We also entered into a Registration Rights Agreement with investors in which we agreed to register
the shares underlying the Notes and the Warrants.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt">We paid Rodman &amp; Renshaw, LLC, a broker-dealer
and member of FINRA who acted as the exclusive placement agent for us in the offering, a cash commission of $155,000, issued it
warrants to purchase an aggregate of 911,765 shares of our common stock with an exercise price of $0.17 per share which are identical
to the Series O Warrants, and reimbursed it for legal expenses of $20,000. We reimbursed Iroquois Master Fund Ltd., an investor
in the offering, $60,000 for its non-accountable expenses related to the investment.&nbsp;&nbsp;We are using the net proceeds from
this offering for general working capital.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 27pt">The Purchase Agreement contains customary
covenants on our part that are typical for transactions of this type, as well as the following additional covenants:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Wingdings">&Yuml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">we agreed not to file any registration statement, other than the registration
statement we are required to file under the Registration Rights Agreement described below or a registration statement on Form S-4
or S-8, until the first date on which the resale by the investors of all shares of common stock underlying the securities sold
in the offering is either covered by one or more effective registration statements or may be resold pursuant to Rule 144 under
the Securities Act without the need for current public information required by Rule 144 (the &ldquo;Applicable Date&rdquo;);</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Wingdings">&Yuml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">we agreed not conduct any other securities offerings until 30th trading
day after the Applicable Date, except for certain excluded securities, and while the Notes and Warrants are outstanding, we agreed
not to enter into any variable rate transactions;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Wingdings">&Yuml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">we agreed to offer to the investors, until the first anniversary of
the closing date, the opportunity to participate in any subsequent securities offerings by our company;</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Wingdings">&Yuml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">so long as the Notes or Warrants are outstanding, we agreed not to
issue any securities other than for cash or in connection with options which may be granted to our officers, directors and employees;
and</FONT></TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0.5in"></TD><TD STYLE="width: 0.5in"><FONT STYLE="font-family: Wingdings">&Yuml;</FONT></TD><TD><FONT STYLE="font-family: Times New Roman, Times, Serif">we are required to enter into an amendment with Sand Hill Finance,
LLC for our factoring agreement to extend the maturity date of the agreement to at least 91 days after all obligations under the
Notes have been satisfied, among other modifications.</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The Company has evaluated
subsequent events through the filing date of this Form&nbsp;10-K, and determined that no subsequent events have occurred that would
require recognition in the financial statements or disclosure in the notes thereto other than as discussed in the accompanying
notes.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 98; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->41<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">TABLE
OF CONTENTS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 90%">&nbsp;</TD>
    <TD STYLE="width: 10%">Page</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>About this Prospectus</TD>
    <TD>2</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Prospectus Summary</TD>
    <TD>2</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Summary of the Offering</TD>
    <TD>3</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Terms of the Offering with the Selling Security holders</TD>
    <TD>4</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Special Note Regarding Forward-Looking Statements</TD>
    <TD>2</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Selected Consolidated Financial Data</TD>
    <TD>3</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Risk Factors</TD>
    <TD>5</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Market for Common Equity and Related Stockholder Matters</TD>
    <TD>15</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Plan of Distribution</TD>
    <TD>15</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations</TD>
    <TD>17</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Our Business</TD>
    <TD>30</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Management</TD>
    <TD>36</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Executive Compensation</TD>
    <TD>41</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Certain Relationships and Related Transactions</TD>
    <TD>46</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Principal Stockholders</TD>
    <TD>46</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Use of Proceeds</TD>
    <TD>48</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Selling Stockholders</TD>
    <TD>48</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Description of Securities</TD>
    <TD>50</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Legal Matters</TD>
    <TD>55</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Experts</TD>
    <TD>55</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Where You Can Find Additional Information</TD>
    <TD>55</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Index to Financial Statements</TD>
    <TD>F-1</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">IceWEB,
Inc.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">PROSPECTUS</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">39,258,270 <FONT STYLE="background-color: white">Shares
of Common Stock</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">[&nbsp;&nbsp;
], 2012</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 99; Options: NewSection; Value: 2 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">F-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->2<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>PART
II</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>INFORMATION
NOT REQUIRED IN PROSPECTUS</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ITEM 13. OTHER EXPENSES
OF ISSUANCE AND DISTRIBUTION</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">The estimated expenses
payable by us in connection with the distribution of the securities being registered are as follows:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" ALIGN="CENTER" STYLE="border-collapse: collapse; width: 40%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 75%; text-align: left">SEC Registration and Filing Fee*</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 25%; text-align: right">553</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Legal Fees and Expenses*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,000</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounting Fees and Expenses*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Financial Printing*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Transfer Agent Fees*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,620</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Miscellaneous*</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">235</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">TOTAL</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">35,308</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD></TR>
</TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in"><FONT STYLE="background-color: white">*</FONT></TD><TD><FONT STYLE="background-color: white">Estimated</FONT></TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INDEMNIFICATION
OF DIRECTORS AND OFFICERS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">Our Certificate of Incorporation
and By-laws provide for the&nbsp;indemnification of our directors and officers to the fullest extent permitted by&nbsp;the Delaware
General Corporation Law (&ldquo;DGCL&rdquo;).</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">Section 145 of the DGCL
permits a corporation, under specified&nbsp;circumstances, to indemnify its directors, officers, employees or agents against&nbsp;expenses
(including attorney&rsquo;s fees), judgments, fines and amounts paid in&nbsp;settlement actually and reasonably incurred by them in connection
with any&nbsp;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&nbsp;such directors, officers, employees or agents acted in good faith and in a&nbsp;manner
they reasonably believed to be in or not opposed to the best interests of&nbsp;the corporation and, with respect to any criminal
action or proceeding, had no&nbsp;reason to believe their conduct was unlawful. In a derivative action, i.e., one&nbsp;by or in
the right of the corporation, indemnification may be made only for&nbsp;expenses actually and reasonably incurred by directors,
officers, employees or&nbsp;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&nbsp;and in a manner they reasonably believed to be in or not opposed
to the best&nbsp;interests of the corporation, except that no indemnification shall be made if&nbsp;such person shall have been
adjudged liable to the corporation, unless and only&nbsp;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&nbsp;agents are fairly and reasonably entitled
to indemnity for such expenses despite&nbsp;such adjudication of liability.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">Our Certificate of Incorporation
contains a provision which eliminates,&nbsp;to the fullest extent permitted by the DGCL, director liability for monetary&nbsp;damages
for breaches of the fiduciary duty of care or any other duty as a&nbsp;director.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">Insofar as indemnification
for liabilities arising under the Securities&nbsp;Act of 1933 may be permitted to directors, officers or persons controlling our&nbsp;company
pursuant to the foregoing provisions, we have been informed that in the&nbsp;opinion of the Securities and Exchange Commission,
such indemnification is&nbsp;against public policy as expressed in the act and is therefore unenforceable.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RECENT
SALES OF UNREGISTERED SECURITIES.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">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.&nbsp;&nbsp;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.&nbsp;&nbsp;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</FONT>&nbsp;<FONT STYLE="background-color: white"><B>&nbsp;</B>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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 100; Options: NewSection; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->1<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Fiscal 2012 Transactions</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">In May, 2012 we executed a Finders&rsquo; 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 $2.5
million in aggregate principal amount of Equity or Equity-related securities.&nbsp; &nbsp;We sold 13,455,958 units in exchange
for gross proceeds of $1,614,715.&nbsp; 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">On November 23, 2011, we entered into a
Securities Purchase Agreement with three accredited investors pursuant to which we sold $2,012,500 in principal amount of senior
convertible notes and issued the investors Series O, Series P and Series Q warrants to purchase up to an aggregate of 35,514,789
shares of our common stock for an aggregate purchase price of $1,750,000 in a private transaction exempt from registration under
the Securities Act. We issued the senior convertible notes at an original issue discount of 13%. We also entered into a Registration
Rights Agreement with investors in which we agreed to register the shares underlying the senior convertible notes and the warrants.
We paid Rodman &amp; Renshaw, LLC, a broker-dealer and member of FINRA who acted as the exclusive placement agent for us in the
offering, a cash commission of $155,000, issued it warrants to purchase an aggregate of 911,765 shares of our common stock with
an exercise price of $0.17 per share which are identical to the Series O warrants, and reimbursed it for legal expenses of $20,000.
We reimbursed Iroquois Master Fund Ltd., an investor in the offering, $60,000 for its non-accountable expenses related to the investment.
We are using the net proceeds from this offering for general working capital.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>&nbsp;</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Fiscal 2011 Transactions</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white">On September 30,
2011 we sold approximately 9,762,671 restricted stock units at $0.12/unit.&nbsp;&nbsp;Each unit consists of one share of common
stock and a warrant exercisable for one share of common stock.&nbsp;&nbsp;The warrants have a five year life, an exercise price
of $0.15/share, and are callable if our company&rsquo;s common stock trades over $0.25/share for ten consecutive trading days.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white">Anderson and Strudwick,
Inc. acted as the placement agent in connection with the sale of the securities and as compensation received a cash fee of approximately
$114,127, and warrants to purchase approximately 976,267 shares of our company&rsquo;s common stock at a price per share of $0.15.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in; background-color: white">The sale of the
Shares and the Warrants was made pursuant to Section 4(2) of the Securities Act for transactions not involving a public offering
and/or Regulation D, as promulgated by the SEC under the Securities Act, and in reliance upon exemptions from registration under
applicable state securities laws.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
February, 2011 we sold 2,000,000 shares of common stock, valued at $200,000 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
March, 2011 we sold 250,000 shares of common stock, valued at $25,000 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
May, 2011 we sold 1,609,600 shares of common stock, valued at $184,464 to two accredited investors, 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
July, 2011 we sold 416,667 shares of common stock, valued at $91,541 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 101; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->2<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Fiscal 2010 Transactions</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
fiscal 2010, we issued 18,715,000 of our common stock in connection with the exercise of options under our stock option plan.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">During
April and May, 2010 we sold 10,080,000 units of our securities&nbsp;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 &amp; Lamont Securities Incorporated, a broker-dealer and member of FINRA, acted as finder
for us in the offering and we paid Jesup &amp; 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 &amp; Lamont&nbsp; 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 102; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->3<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white"><I>Fiscal 2009 Transactions</I></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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 us. 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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 us.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 103; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->4<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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 us.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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 us.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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
we 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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ITEM 16. EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in"><FONT STYLE="background-color: white">The following documents
are filed as a part of this registration statement or are incorporated by reference to previous filings, if so indicated:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 8%">2.1</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 90%">Agreement and Plan of Reorganization and Stock Purchase Agreement with Disease S.I. Inc.(4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>2.2</TD>
    <TD>&nbsp;</TD>
    <TD>Agreement and Plan of Merger with IceWEB Communications, Inc. (8)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>2.3</TD>
    <TD>&nbsp;</TD>
    <TD>Agreement and Plan of Merger with Seven Corporation (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.1</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.2</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.3</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.4</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.5</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.6</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.7</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (11)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.8</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Designations of Series A Convertible Preferred Stock (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.9</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Amendment to Certificate of Incorporation (13)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.10</TD>
    <TD>&nbsp;</TD>
    <TD>Bylaws (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>3.11</TD>
    <TD>&nbsp;</TD>
    <TD>Certificate of Designations of Series B Convertible Preferred Stock (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.1</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;A&rdquo; (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.2</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;B&rdquo; (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.3</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;C&rdquo; (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.4</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series H Common Stock Purchase Warrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.5</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series I Common Stock Purchase Warrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.6</TD>
    <TD>&nbsp;</TD>
    <TD>Form of $0.70 Common Stock Purchase Warrant &ldquo;A&rdquo; (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.7</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Comerica Bank warrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.8</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;D&rdquo; (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.9</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;E&rdquo; (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.10</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;F&rdquo; (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.11</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant &ldquo;G&rdquo; (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.12</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Common Stock Purchase Warrant for Sand Hill Finance LLC (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.13</TD>
    <TD>&nbsp;</TD>
    <TD>Secured Convertible Debenture for Sand Hill Finance LLC (25)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.14</TD>
    <TD>&nbsp;</TD>
    <TD>Warrant Amendment Agreement with Sand Hill Finance LLC (25)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.15</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series Common Stock Purchase Warrant &ldquo;N&rdquo; (26)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 104; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->5<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 8%">4.16</TD>
    <TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 90%">Form of Senior Convertible Note (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.17</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series Common Stock Purchase Warrant &ldquo;O&rdquo; (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.18</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series Common Stock Purchase Warrant &ldquo;P&rdquo; (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.19</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series Common Stock Purchase Warrant &ldquo;Q&rdquo; (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>4.20</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series Common Stock Purchase Warrant &ldquo;R&rdquo; *</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>5.1</TD>
    <TD>&nbsp;</TD>
    <TD>Opinion of Pearlman Schneider LLP<FONT STYLE="color: black; background-color: white"> *</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.1</TD>
    <TD>&nbsp;</TD>
    <TD>Acquisition Agreement with North Orlando Sports Promotions, Inc. (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.2</TD>
    <TD>&nbsp;</TD>
    <TD>Asset Purchase Agreement with Raymond J. Hotaling (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.3</TD>
    <TD>&nbsp;</TD>
    <TD>2000 Management and Director Equity Incentive and Compensation Plan (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.4</TD>
    <TD>&nbsp;</TD>
    <TD>Stock Purchase Agreement with Health Span Sciences, Inc. (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.4</TD>
    <TD>&nbsp;</TD>
    <TD>Stock Purchase Agreement with Health Span Sciences, Inc. (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.5</TD>
    <TD>&nbsp;</TD>
    <TD>Stock Purchase and Exchange Agreement with Interlan Communications (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.6</TD>
    <TD>&nbsp;</TD>
    <TD>Preferred Stock Purchase Agreement dated March 30, 2005 (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.7</TD>
    <TD>&nbsp;</TD>
    <TD>Registration Rights Agreement with Barron Partners LP (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.8</TD>
    <TD>&nbsp;</TD>
    <TD>Asset and Stock Purchase Agreement for iPlicity, Inc.(16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.9</TD>
    <TD>&nbsp;</TD>
    <TD>Asset and Stock Purchase Agreement for DevElements, Inc. of Virginia (15)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.10</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Loan and Security Agreement with Comerica Bank (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.11</TD>
    <TD>&nbsp;</TD>
    <TD>Forbearance Agreement (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.12</TD>
    <TD>&nbsp;</TD>
    <TD>Sublease Agreement for principal executive offices (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.13</TD>
    <TD>&nbsp;</TD>
    <TD>Preferred Stock Purchase Agreement dated September 8, 2005 (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.14</TD>
    <TD>&nbsp;</TD>
    <TD>Registration Rights Agreement with Barron Partners LP (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.15</TD>
    <TD>&nbsp;</TD>
    <TD>Financing Agreement with Sand Hill Finance LLC (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.16</TD>
    <TD>&nbsp;</TD>
    <TD>Lease Agreement for principal executive offices (19)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.17</TD>
    <TD>&nbsp;</TD>
    <TD>Retailer Marketing Agreement with CompUSA (20)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.18</TD>
    <TD>&nbsp;</TD>
    <TD>Stock Purchase Agreement with Inline Corporation (21)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.19</TD>
    <TD>&nbsp;</TD>
    <TD>First Amendment to Stock Purchase Agreement with Inline Corporation (21)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.20</TD>
    <TD>&nbsp;</TD>
    <TD>Convertible Debenture with Sand Hill Finance LLC (22)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.21</TD>
    <TD>&nbsp;</TD>
    <TD>Stock Purchase Agreement for Sale of IceWEB Virginia, Inc. (23)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.22</TD>
    <TD>&nbsp;</TD>
    <TD>Series C Preferred Stock Purchase Agreement (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.23</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Securities Purchase Agreement for senior note offering (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.24</TD>
    <TD>&nbsp;</TD>
    <TD>Form of subsidiary guarantee (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.25</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Registration Rights Agreement for senior note offering (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.26</TD>
    <TD>&nbsp;</TD>
    <TD>Letter agreement dated August 16, 2011 by and between IceWEB, Inc. and Rodman &amp; Renshaw LLC, as amended (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.27</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Subscription Agreement *</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>10.28</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Registration Rights Agreement *</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>14.1</TD>
    <TD>&nbsp;</TD>
    <TD>Code of Business Conduct and Ethics (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>21.1</TD>
    <TD>&nbsp;</TD>
    <TD>Subsidiaries of the registrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.1</TD>
    <TD>&nbsp;</TD>
    <TD>Consent of Sherb &amp; Co., LLP&nbsp;*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>23.2</TD>
    <TD>&nbsp;</TD>
    <TD>Opinion of Pearlman Schneider LLP (included in Exhibit 5.1 hereto)*</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<!-- Field: Rule-Page --><DIV ALIGN="LEFT"><DIV STYLE="font-size: 1pt; border-top: Black 1pt solid; width: 25%">&nbsp;</DIV></DIV><!-- Field: /Rule-Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"></P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">*</TD><TD>filed herewith</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(1)</TD><TD>Incorporated by reference to the Form 10-SB, file number 000-27865, filed with on October 28, 1999, as amended.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(2)</TD><TD>Incorporated by reference to the definitive Information Statement on&nbsp;&nbsp;&nbsp;Schedule 14C as filed on June 18, 2001.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(3)</TD><TD>Incorporated by reference to the definitive Information Statement on&nbsp;&nbsp;&nbsp;Schedule 14C as filed on June 26, 2001.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(4)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on June 6, 2001.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(5)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on July 26, 2001.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(6)</TD><TD>Incorporated by reference to the definitive Information Statement on Schedule 14C as filed on July 23, 2001.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(7)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on December 4, 2001.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(8)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on April 4, 2002.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<!-- Field: Page; Sequence: 105; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->6<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.5in">&nbsp;</P>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(9)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on August 1, 2003.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(10)</TD><TD>Incorporated by reference to the Report on Form 8-K/A as filed on February 20, 2004.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(11)</TD><TD>Incorporated by reference to the definitive Information Statement on Schedule 14C as filed on August 20, 2004.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(12)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on April 5, 2005.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(13)</TD><TD>Incorporated by reference to the definitive Information Statement on Schedule14C as filed on April 4, 2005.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(14)</TD><TD>Incorporated by reference to Amendment No. 1 to the Report on Form 8-K/A as filed on February 20, 2004.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(15)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on July 23, 2004.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(16)</TD><TD>Incorporated by reference to the registration statement on Form SB-2, SEC file number 333-126898, as amended.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(17)</TD><TD>Incorporated by reference to our Annual Report on Form 10-KSB as filed on January 18, 2006.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(18)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on January 30, 2006.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(19)</TD><TD>Incorporated by reference to the registration statement on Form SB-2/A, SEC file number 333-126898 filed on January 30. 2006.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(20)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on June 22, 2006.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(21)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on January 3, 2009.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(22)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on December 1, 2009.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(23)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on April 15, 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(24)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on July 31, 2010.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(25)</TD><TD>Incorporated by reference to the registration statement on Form S-1, SEC file number 333-167501, as amended.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(26)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on November 16, 2011.</TD></TR></TABLE>

<TABLE CELLPADDING="0" CELLSPACING="0" WIDTH="100%" STYLE="font: 10pt Times New Roman, Times, Serif; margin-top: 0pt; margin-bottom: 0pt"><TR STYLE="vertical-align: top">
<TD STYLE="width: 0"></TD><TD STYLE="width: 0.5in">(27)</TD><TD>Incorporated by reference to the Report on Form 8-K as filed on November 23, 2011.</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ITEM 17. UNDERTAKINGS.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">1.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">i.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ii.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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 &ldquo;Calculation of Registration Fee&rdquo; table in the effective registration statement.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">iii.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">2.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">3.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">4.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser:</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 106; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->7<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">ii.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white"><B>SIGNATURES</B></FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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&nbsp;17<SUP>th</SUP> day of August,
2012.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">ICEWEB, INC.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%">&nbsp;</TD>
    <TD STYLE="width: 5%">&nbsp;</TD>
    <TD STYLE="width: 45%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>By:</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid">/s/ Robert M. Howe III</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">Robert M. Howe III. Chief Executive Officer</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: right"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>POWER OF ATTORNEY</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">Each person whose signature appears below
hereby constitutes and appoints Hal Compton, Sr. his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><FONT STYLE="background-color: white">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.</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 31%; border-bottom: Black 1pt solid">Signature</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 44%; border-bottom: Black 1pt solid">Title</TD>
    <TD STYLE="width: 2%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 21%; border-bottom: Black 1pt solid">Date</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>/s/ Robert M. Howe III</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD>August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">Robert M. Howe III</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Hal Compton, Sr.</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">Chairman</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Hal Compton, Sr.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Mark B. Lucky</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">Chief Financial Officer, principal financial and</TD>
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt">August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Mark B. Lucky</TD>
    <TD>&nbsp;</TD>
    <TD>accounting officer</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<!-- Field: Page; Sequence: 107; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->8<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%">
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid; width: 31%">/s/ Nick Carosi, III</TD>
    <TD STYLE="width: 2%; padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="width: 44%; padding-bottom: 1.25pt">Director</TD>
    <TD STYLE="width: 2%; padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="width: 21%; padding-bottom: 1.25pt">August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Nick Carosi, III</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Raymond H. Pirtle, Jr.</TD>
    <TD STYLE="padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.25pt">Director</TD>
    <TD STYLE="padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.25pt">August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Raymond H. Pirtle, Jr.</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Jack Bush</TD>
    <TD STYLE="padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.25pt">Director</TD>
    <TD STYLE="padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.25pt">August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Jack Bush</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: Black 1pt solid">/s/ Harry E. Soyster</TD>
    <TD STYLE="padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.25pt">Director</TD>
    <TD STYLE="padding-bottom: 1.25pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1.25pt">August 17, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Harry E. Soyster</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<!-- Field: Page; Sequence: 108; Value: 1 -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%">II-<!-- Field: Sequence; Type: Arabic; Name: PageNo -->9<!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <DIV STYLE="page-break-before: always; margin-top: 6pt; margin-bottom: 12pt"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: left; width: 100%">&nbsp;</TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="background-color: white">&nbsp;</FONT></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXHIBIT INDEX</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>&nbsp;</B></P>

<TABLE ALIGN="CENTER" CELLSPACING="0" CELLPADDING="0" STYLE="font: 10pt Times New Roman, Times, Serif; width: 100%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 9%; border-bottom: windowtext 1pt solid; font-weight: bold; text-align: center">No.</TD>
    <TD STYLE="width: 2%; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 89%; border-bottom: windowtext 1pt solid; font-weight: bold">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">4.20</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Series Common Stock Purchase Warrant &ldquo;R&rdquo;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.27</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Subscription Agreement</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">10.28</TD>
    <TD>&nbsp;</TD>
    <TD>Form of Registration Rights Agreement</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">5.1</TD>
    <TD>&nbsp;</TD>
    <TD>Opinion of Schneider Weinberger LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">23.1</TD>
    <TD>&nbsp;</TD>
    <TD>Consent of Sherb &amp; Co., LP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="text-align: right">23.2</TD>
    <TD>&nbsp;</TD>
    <TD>Consent of Schneider Weinberger LLP (included in Exhibit&nbsp;5.1)</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: center; text-indent: -0.5in">&nbsp;</P>

<!-- Field: Page; Sequence: 109; Options: Last -->
    <DIV STYLE="margin-top: 12pt; margin-bottom: 6pt; border-bottom: Black 1pt solid"><TABLE CELLPADDING="0" CELLSPACING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif"><TR><TD STYLE="text-align: center; width: 100%"><!-- Field: Sequence; Type: Arabic; Name: PageNo --><!-- Field: /Sequence --></TD></TR></TABLE></DIV>
    <!-- Field: /Page -->

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-align: center; text-indent: -0.5in"></P>



</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "v321938_s1.htm", "description": "FORM S-1", "secsgml_size_bytes": 1423722}]
{"company-data": {"conformed-name": "ICEWEB INC", "cik": "0001097718", "assigned-sic": "3572", "irs-number": "132640971", "state-of-incorporation": "DE", "fiscal-year-end": "0930"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-183463", "film-number": "121048042"}, "business-address": {"street1": "22900 SHAW ROAD", "street2": "SUITE 111", "city": "STERLING", "state": "VA", "zip": "20166", "phone": "571-287-2400"}, "mail-address": {"street1": "22900 SHAW ROAD", "street2": "SUITE 111", "city": "STERLING", "state": "VA", "zip": "20166"}, "former-company": [{"former-conformed-name": "ICEWEB COMMUNICATIONS INC", "date-changed": "20020918"}, {"former-conformed-name": "DISEASE SCIENCES INC", "date-changed": "20020409"}, {"former-conformed-name": "AUCTION ANYTHING COM INC", "date-changed": "19991026"}]}
As filed with the Securities and Exchange Commission on August
21, 2012
Registration No. 333-__________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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)
Mark
B. Lucky, CFO
IceWEB,
Inc.
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
S
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
    (3)
Common stock, $0.001 par value per share, (1)
13,455,958
$
0.0575
$
773,718
$
89
Common stock, par value $0.001 per share, issuable upon exercise
    of warrants issued to investors (2)
25,802,312
$
0.15
$
3,870,347
$
444
Total
39,258,270
$
4,644,065
$
553
1
Represents shares of
common stock which are presently outstanding.
2
Represents
shares of common stock issuable upon the exercise of common stock purchase warrants with an exercise price of $0.15 per share.
3
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 August 17, 2012.
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 security holders 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 AUGUST 21, 2012
39,258,270 Shares
IceWEB, Inc.
Common Stock
This prospectus
relates to the sale by the selling security holders identified in this prospectus of up to 39,258,270 shares of our common
stock, which includes 13,455,958 shares which are presently outstanding and 25,802,312 shares issuable upon the exercise
of warrants with an exercise price of $0.15 per share.  All of these shares of our common stock are being offered for resale
by the selling security holders.
The prices at
which the selling security holders 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 security holders. However, we will
receive proceeds from the exercise of the warrants if they are exercised for cash by the selling security holders.
We will bear
all costs relating to the registration of these shares of our common stock, other than any selling security holders' 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 August 17, 2012, was $0.07 per share.
For a description
of the plan of distribution of these shares, please see page 15 of this prospectus.
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 3 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 [    ], 2012
ABOUT THIS PROSPECTUS
You
should rely only on the information contained in this prospectus, any supplement and the documents we have incorporated by reference.  We
have not authorized anyone to provide information that is different from that contained in this prospectus.  The information
contained in this prospectus, any supplement and any document incorporated by reference is accurate only as of the date of such
document, regardless of the time of delivery of this prospectus or of any sale of our common stock.
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 "Special Note Regarding 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 2011, for example, refer to the fiscal year ending September 30, 2011.
The
information which appears on our web site at
www.iceweb.com
is not part of this prospectus.
About Us
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).
Our principal
executive offices are located at 22900 Shaw Road, Suite 111, Sterling, VA 20166 and our telephone number at that office is (571)
287-2400. Our fiscal year end is September 30.
SPECIAL NOTE
REGARDING FORWARD LOOKING STATEMENTS
This prospectus
contains forward-looking statements. 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.
2
SELECTED
CONSOLIDATED FINANCIAL DATA
The
following summary of our financial information for the three and nine months ended June 30, 2012 (unaudited) and 2011 (unaudited)
and the fiscal years ended September 30, 2011 and 2010, 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:
Three months ended June 30,
Nine months ended June 30,
2012
2011
2012
2011
Net Revenues
$
654,996
$
719,727
$
2,546,852
$
2,514,164
Total operating expenses
1,070,532
932,559
2,830,954
3,482,289
Loss from operation
(859,551
)
(593,616
)
(1,953,806
)
(2,285,424
)
Total other expense
(3,140,324
)
(104,653
)
(4,569,124
)
(302,908
)
Net loss
$
(3,999,875
)
$
(698,269
)
$
(6,522,930
)
$
(2,588,332
)
SELECTED
BALANCE SHEET DATA:
June 30,
September 30,
2012
2011
Working Capital
(5,462,640
)
(1,713,333
)
Cash
774,012
4,120
Total current assets
2,437,404
2,450,806
Total assets
3,078,092
2,832,158
Total current liabilities
7,900,044
4,164,139
Total liabilities
7,900,044
4,164,139
THE OFFERING
This prospectus
covers the resale of a total of 39,258,270 shares of our common stock by the selling security holders which includes 13,455,958
shares that are presently outstanding and 25,802,312 shares that are issuable upon the exercise of warrants with an exercise price
of $0.15 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.
3
Securities Being Offered:
39,258,270
shares of common stock, par value $0.001
Number of Shares Outstanding
Before the Offering:
187,071,442
shares as of June 30, 2012, excluding the conversion of 108,923,626 outstanding
    warrants, 626,667 shares of Series B convertible preferred stock held by the estate of former IceWEB CEO and Chairman John
    R. Signorello, which are convertible into 626,667 shares of Common Stock, $818,332 of convertible notes outstanding as of
    June 30, 2012 which at the current market price is convertible into 11,058,534 common shares, and options exercisable into 2,269,417
    shares of common stock.
Number of Shares Outstanding After
the Offering, Assuming the Exercise of All of the Warrants:
295,995,068
shares as of June 30, 2012, 626,667 shares of Series B convertible preferred stock held by
    the estate of former IceWEB CEO and Chairman John R. Signorello, which are convertible into 626,667 shares of common stock,
    $818,332 of convertible notes outstanding as of June 30, 2012 which at the current market price is convertible into 11,058,534
    common shares, and options exercisable into 2,269,417 shares of common stock.
OTC Bulletin Board symbol
IWEB
TERMS OF
THE OFFERING WITH THE SELLING SECURITY HOLDERS
This prospectus
covers the resale of shares of our common stock underlying warrants issued by us in a private placement in September 2011 as well
as shares of our common stock underlying units issued by us in a private placement in June 2012 and July 2012. Information on
these offerings is set forth below. 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.
2011 private offering
In September
2011 we sold 9,762,667 units of our securities to accredited investors in a private placement exempt from registration under the
Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that act and Regulation D. Each unit consisted of
one share of our common stock and a warrant to purchase one share of common stock at an exercise price of $0.15 per share. The
terms of the warrants are described later in this prospectus under Description of Securities. We received gross proceeds of $1,171,520.
Anderson and Strudwick, Inc., a
broker-dealer and member of FINRA, acted as the non-exclusive placement agent for us in the offering.  Under the terms of
a placement agent agreement with the firm, we paid Anderson and Strudwick, Inc. a cash commission of $128,867 and issued the firm
five-year common stock purchase warrants to purchase an aggregate of 976,267 shares of our common stock at an exercise price of
$0.15 per share.  In addition, we paid Anderson and Strudwick, Inc. legal expenses totaling $5,000 incurred in the preparation
of the various transactional documents.  We are using the net proceeds of this offering for general working capital.
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 security holders 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.
This prospectus
covers the resale of 9,762,667 shares underlying the warrants and 976,267 shares underlying the issued in this offering.
4
2012 private offering
In June 2012
and July 2012 we sold 13,455,958 units of our securities to accredited investors in a private placement exempt from registration
under the Securities Act of 1933 in reliance on exemptions provided by Section 4(2) of that act and Regulation D. Each unit consisted
of one share of our common stock and a warrant to purchase one share of our common stock with an exercise price of $0.15/share.
The terms of the warrants are described later in this prospectus under Description of Securities. We received gross proceeds of
$1,614,715.
Meyers Associates,
L.P., a broker-dealer and member of FINRA, acted as the non-exclusive placement agent for us in the offering.  Under the
terms of a placement agent agreement with the firm, we paid Meyers Associates, L.P. a cash commission of $161,472 and issued the
firm five-year common stock purchase warrants to purchase an aggregate of 1,345,596 shares of our common stock at an exercise
price of $0.15 per share.  In addition, we paid Meyers Associates, L.P. legal expenses totaling $13,325 incurred in the preparation
of the various transactional documents.  We are using the net proceeds of this offering for general working capital.
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.
We entered to
a Registration Rights Agreement with the investors in this offering that requires we file a registration statement with the SEC
within 45 calendar days from the closing date of the offering to register for resale of 133% of the maximum number of shares of
our common stock sold in the offering, including underlying the warrants and the placement agent warrants. This prospectus is
part of that registration statement. The initial registration statement must be declared effective by the SEC within 90 calendar
days from the closing date, or 120 calendar days if the registration statement is reviewed by the SEC. We will be required to
pay liquidated damages to the investors if:
Ÿ
the initial registration statement is not timely filed with the SEC, or
Ÿ
it is not declared effective by the SEC the effectiveness deadline, or
Ÿ
other than during an allowable grace period, on any day after the effective date of a registration
    statement sales of all of the registrable securities required to be included on such registration statement cannot be made
    pursuant to such registration statement, or
Ÿ
if a registration statement is not effective for any reason or the prospectus contained therein
    is not available for use for any reason, or we are not in compliance with the current public information requirement of Rule
    144(c) of the Securities Act of 1933, as a result of which any of the investors are unable to sell registrable securities
    without restriction under Rule 144.
Upon the occurrence
of any of these events we are obligated to pay each investor an amount in cash equal to 1% of such investor's purchase price
in the offering on each of these dates and on every 30 day anniversary of each the date until these filing failures are cured.
In the event we fail to make the payments in a timely manner in accordance with the foregoing, the payments shall bear interest
at the rate of 1.5% per month, prorated for partial months, until paid in full.
We agreed to
keep the registration statement effective until all registrable securities have been disposed of. We also agreed to pay all costs
associated with the preparation and filing of this registration statement. The Registration Rights Agreement contains customary
indemnification provisions for all parties.
This prospectus
covers the resale of 13,455,958 shares underlying the warrants and 1,345,596 shares underlying the issued in this offering.
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.
5
RISKS
RELATED TO OUR COMPANY
WE HAVE AN ACCUMULATED DEFICIT AND
MAY HAVE CONTINUING LOSSES THAT WOULD RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS ABSENT MATERIAL INCREASES IN REVENUES.
We had an accumulated
deficit of approximately $40.9 million at June 30, 2012. For the years ended September 30, 2011 and 2010, we had a net loss of
approximately $4.71 million and approximately $6.96 million, respectively. For the fiscal nine months ended June 30, 2012, we
had a net loss attributable to common security holders of approximately $6.5 million. In fiscal year 2011, cash used in operations
was approximately $2.29 million. The report of our independent registered public accounting firm on our consolidated financial
statements for the fiscal year ended September 30, 2011 contains a qualification expressing substantial doubt as to our ability
to continue as a going concern as a result of net losses and cash used in operations. We cannot assure prospective investors that
sales will increase in future periods, nor can we assure prospective investors that they will not further decrease. We expect
to potentially make significant expenditures related to the development of the business, potentially 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. As long as cash flow from
operations remains insufficient to fund operations, we will continue depleting cash and other financial resources. Our failure
to achieve profitable operations in future periods will adversely affect its ability to continue as a going concern. In this event,
prospective investors could lose all of their investment in our company.
WE MAY NEED ADDITIONAL FINANCING
WHICH IT MAY NOT BE ABLE TO OBTAIN ON ACCEPTABLE TERMS, IF AT ALL. IF WE CANNOT RAISE ADDITIONAL CAPITAL AS NEEDED, OUR ABILITY
TO EXECUTE OUR GROWTH STRATEGY AND TO FUND OUR ONGOING OPERATIONS MAY 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 ongoing operations and to pay 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. Future capital requirements,
however, depend on a number of factors, including the ability to internally grow revenues, manage the business and control expenses.
At September 30, 2011, we had a working capital deficit of $1,713,336 as compared to a working capital deficit of $1,250,033 at
September 30, 2010. As of June 30, 2012, we had a working capital deficit of $5,462,640. We may need to raise additional capital
to fund ongoing operations, pay existing obligations and fund future growth. There are no assurances that additional working capital
will be available 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 the company, and continue our existing business and operations may be
in jeopardy. In this event, prospective investors could lose all of their investment in our company.
6
THE LOSS OF KEY SENIOR MANAGEMENT
PERSONNEL, INCLUDING THE RECENT DEATH OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER, COULD NEGATIVELY AFFECT OUR BUSINESS.
In May 2012,
our Chairman and Chief Executive Officer, John R. Signorello, passed away. Hal Compton, Sr., a member of the board of directors,
is now serving as interim Chief Executive Officer, and Mark Lucky, our Chief Financial Officer, is now serving as interim Chief
Operating Officer. Without Mr. Signorello's participation in our company's business and operations, we could experience
negative impacts to our business, future operating profits and results of operations. In addition, we depend upon our senior management
and other key personnel, including Messrs. Compton and Lucky. The loss of these individuals or any of our other current or future
executive officers or key employees could harm our business, future operating prospects and results of operations. Additionally,
we do not currently maintain "key person" life insurance policies on the lives of any of our executive officers. This
lack of insurance means that we may not receive adequate compensation for the loss of the services of these individuals.
WE RELY ON VALUE-ADDED RESELLERS
AND OTHER DISTRIBUTION PARTNERS TO SELL SUBSTANTIALLY ALL OF OUR PRODUCTS. FAILURE TO DEVELOP AND MANAGE, OR DISRUPTIONS TO, OUR
DISTRIBUTION CHANNELS WOULD ADVERSELY AFFECT ITS BUSINESS.
Our ability
to maintain or increase revenue will depend in part on our ability to maintain arrangements with existing resellers and other
distribution partners, which we refer to as "channel partners," and to establish and expand arrangements with new
channel partners. If we fail to do so, future revenue could 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 distribution channels, we must continue to scale and improve the processes and procedures that
support these channels, 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 channel partners, and contracts with these channel partners do not prohibit them from offering products
or services that compete with ours. Competitors may provide incentives to existing and potential channel partners to favor their
products. Channel partners may choose not to offer our products exclusively or at all. Establishing relationships with channel
partners who have a history of selling competitors' products may also prove to be difficult. Failure to establish and maintain
successful relationships with channel partners would seriously harm our business and operating results.
WE RECEIVE A SUBSTANTIAL PORTION
OF REVENUE FROM A LIMITED NUMBER OF CHANNEL PARTNERS, AND THE LOSS OF, OR A SIGNIFICANT REDUCTION IN, ORDERS FROM ONE OR MORE
OF ITS MAJOR CHANNEL PARTNERS WOULD HARM ITS BUSINESS.
Our future success
is highly dependent upon establishing and successfully maintaining relationships with a large number of channel partners. We market
and sell our IceWEB Unified Data Storage 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 revenue from a limited number of channel partners.
We anticipate that we will continue to receive a significant portion of revenue from a limited number of channel partners for
the foreseeable future and, in some cases, a portion of 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.
7
IF WE ARE UNABLE TO CONTINUE TO
DEVELOP AND INTRODUCE NEW PRODUCTS AND RESPOND TO TECHNOLOGICAL CHANGES, REVENUE COULD BE REDUCED.
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, 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, revenue could be reduced.
IMPROVEMENTS IN ALTERNATIVE MEANS
TO ACCELERATE STORAGE PERFORMANCE OR REDUCE STORAGE COSTS COULD HARM OUR BUSINESS AS THE DEMAND FOR ITS SYSTEMS MAY BE REDUCED.
Our products
are designed to improve the performance of many applications, including applications that are based on Microsoft Corporation's
protocols. Accordingly, changes to Microsoft application protocols such as to accelerate storage performance or reduce storage
costs may reduce the need for our products, adversely affecting our business, operating results and financial condition. Changes
in other application protocols or in the Transmission Control Protocol, the set of rules used to send data in the form of message
units between computers over the Internet, could have a similar effect.
IF WE ARE UNABLE TO CONTINUE TO
CREATE ATTRACTIVE INNOVATIONS IN SOFTWARE AND HARDWARE, WE MAY NOT BE ABLE TO GENERATE HIGH-MARGIN REVENUE THAT WILL ENABLE US
TO MAINTAIN OR INCREASE GROSS PROFITS, WHICH COULD ADVERSELY AFFECT OUR BUSINESS.
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 gross profits, we will need to continue to create attractive software that is included with network
storage systems and/or sold separately as licensed software applications. 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 overall gross margin. If we are unable to successfully develop or acquire and then market and sell additional software
and hardware functionality, our business could be adversely affected.
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
PRODUCT SALES AND REVENUE.
After our products
are deployed within our customers' networks, customers depend on our support services organization to resolve issues relating
to our products and how they perform within the customer's environment. High-quality support services are 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 customers in deploying products, it would adversely
affect our ability to sell products to existing customers and could harm prospects with potential customers. As a result, failure
to maintain high-quality support services could reduce product sales and revenue.
8
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 CUSTOMERS, HARM TO ICEWEB'S REPUTATION AND/OR 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 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 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 the unavailability, loss or corruption of a customer's data, 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 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 our company 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, product sales
and revenue could be reduced.
THE FACTORING AGREEMENT WITH SAND
HILL FINANCE, LLC CONTAINS CERTAIN TERMS WHICH MAY ADVERSELY AFFECT THE COMPANY'S ABILITY TO RAISE CAPITAL IN FUTURE PERIODS.
We are a party
to a Finance Agreement with Sand Hill Finance, LLC for an accounts receivable factoring line. As of June 30, 2012, the principal
balance on the factoring line was $2,016,245. Under the terms of the Finance Agreement, we agreed not to take certain actions
including undertaking a transaction which would result in a change of control of IceWEB or the transfer of more than 50% of its
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 in the future.
OUR PRIMARY ASSETS SERVE AS COLLATERAL
UNDER THE FACTORING LINE. IF WE WERE TO DEFAULT ON THE FINANCE AGREEMENT, THE LENDER COULD FORECLOSE ON OUR ASSETS AND WE WOULD
BE UNABLE TO CONDUCT OUR BUSINESS AS ITS IS PRESENTLY CONDUCTED.
The factoring
line is collateralized by a blanket security interest encumbering our assets. If we should default under the terms of the Finance
Agreement, Sand Hill Finance, LLC could seek to foreclose on our primary assets. If Sand Hill Finance, LLC were successful, we
would be unable to conduct business as it is presently conducted and our ability to generate revenues and fund ongoing operations
would be materially adversely affected.
MANAGEMENT MAY BE UNABLE TO EFFECTIVELY
INTEGRATE ACQUISITIONS AND TO MANAGE GROWTH AND ICEWEB MAY BE UNABLE TO FULLY REALIZE ANY ANTICIPATED BENEFITS OF THESE ACQUISITIONS.
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 the businesses and the business of the acquired companies or assets, and to effectively manage continued
growth. There can be no assurance that efforts to integrate the operations of any acquired assets or companies acquired in the
future will be successful, that we can manage 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 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 integration efforts,
either of which could have a material adverse effect on operating results.
9
ECONOMIC CONDITIONS AND WORLD EVENTS
COULD AFFECT OUR COMPANY'S OPERATING RESULTS.
We and our customers
could 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 sales, gross profits 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 company, our customers, and our suppliers 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.
THE CONDITION OF THE U.S. AND GLOBAL
FINANCIAL MARKETS HAS BEEN VOLATILE AND MAY CONTINUE TO BE VOLATILE.
Prospective
investors should be aware that the U.S. and global financial markets are currently quite volatile and that the condition of the
financial markets has become significantly weakened and destabilized in the past few years. Continued volatility and instability
could adversely affect our ability to finance our business. Further, financial market instability could result in significant
regulatory changes that would have an unpredictable effect on the financial markets in general.
OUR BUSINESS HAS INHERENT OPERATIONAL
RISKS THAT CANNOT BE ADEQUATELY COVERED BY INSURANCE OR INDEMNITY.
We may face
unanticipated risks of legal liability for damages caused by the actual or alleged failure of technologies and products that it
supplies. We sell products to a variety of large entities, and because of our size, we have limited ability to negotiate favorable
commercial terms in our product purchase/sale documentation. While we have attempted to secure appropriate insurance coverage
at reasonable cost it is not possible to insure against all risks inherent in the markets we serve, nor can we assure investors
that our insurers will pay a particular claim, or that we will be able to maintain coverage at reasonable rates in the future.
Substantial claims resulting from a failure of a product to perform in excess of or not otherwise covered by indemnity or insurance
could harm our financial condition and operating results. Insurance policies also contain deductibles, limitations and exclusions
which increase our costs in the event of a claim.
10
WE MAY HAVE DIFFICULTY SCALING PRODUCTION
TO LARGE VOLUMES. IF WE ARE UNABLE TO MEET DEMAND OR TO EFFICIENTLY INCREASE PRODUCTION, CUSTOMERS MAY TURN TO PRODUCTS OFFERED
BY COMPETITORS AND OUR OPERATING RESULTS COULD BE ADVERSELY AFFECTED.
We may have
difficulty dealing with rapid growth. If demand for products increases rapidly, we may need to expand internal production capacity
or implement outsourcing. Success in developing, manufacturing and supporting products manufactured in small volumes does not
assure comparable success in operations conducted on a larger scale. It may be necessary to expand capacity beyond existing space,
personnel and equipment and we may be unable to do so. Modifying our facilities and operations to increase production capacity
may delay delivery of products. Manufacturing efficiencies, yields and product quality may decline as production volumes increase.
In addition, component costs, overhead and other production costs may rise. If we are unable to meet the demand of customers and
deliver quality products quickly and cost effectively, customers may turn to our competitors. The costs associated with implementing
new manufacturing technologies, methods and processes, including the purchase of new equipment, and any resulting delays, inefficiencies
and loss of sales could harm results of operations.
OUR SUCCESS AND COMPETITIVE POSITION
DEPENDS ON OUR ABILITY TO OBTAIN AND PROTECT INTELLECTUAL PROPERTY. FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS WOULD
IMPAIR OUR ABILITY TO COMPETE EFFECTIVELY AND DEFEND AGAINST THIRD PARTY CLAIMS THAT WE ARE INFRINGING ON THE INTELLECTUAL PROPERTY
RIGHTS OF OTHERS.
We maintain
our proprietary technology and know-how as trade secrets as well as through the use of patents. Some of our proprietary technology
may be covered by provisional patents. Our policy is to use confidentiality agreements, licensing agreements and similar arrangements
to establish and protect intellectual property. For example, our policy is to maintain confidentiality agreements with our employees,
consultants, vendors and business partners and this has controlled access to, and distribution of its product design documentation
and other proprietary information. We intend to continue to protect existing and new processes and technologies that are developed
as trade secrets but may not be able to do so. We hold or have filed patents related to several of our products and technology,
however there is no guarantee that we will be able to enforce these patents or that the applications will be issued as patents.
Failure to protect our intellectual property could affect our ability to secure additional contracts or preserve market advantages
as we develops and commercializes our products.
Our efforts
to protect our intellectual property rights may not:
•
prevent challenges to, or the
                                                                    invalidation or circumvention of, existing intellectual property
                                                                    rights;
•
prevent competitors from independently
                                                                    developing similar products or duplicating our products;
•
provide adequate protection
                                                                    for intellectual property rights;
•
prevent disputes with third
                                                                    parties regarding ownership of our intellectual property rights;
•
prevent disclosure of trade
                                                                    secrets and know-how to third parties or their release into
                                                                    the public domain; or
•
prevent our company from being
                                                                    subject to claims of infringement of the intellectual property
                                                                    rights of third-parties.
Others may attempt
to copy or otherwise obtain and use our proprietary technologies without consent. Monitoring the unauthorized use of technologies
is difficult. There is a significant risk that customers or their end-user customers may attempt to copy or otherwise obtain and
use our proprietary technologies without our consent.
We may find
it necessary to litigate against others, including customers, to protect our intellectual property and to challenge the validity
and scope of the proprietary rights asserted by others, and the company could face counterclaims. Legal disputes with customers
could adversely affect relationships and sales. Litigation is inherently uncertain, and an adverse outcome could subject us to
significant liability for damages or invalidate our proprietary rights. The complexity of the technology involved and inherent
uncertainty and cost of intellectual property litigation increases our risks.
11
Third parties
may claim that we are infringing on their intellectual property rights, and we may already be unknowingly infringing. We may face
additional liability if we agree to indemnify customers against third party infringement claims. If a third party establishes
that we are infringing upon our intellectual property rights, we may be forced to modify products or manufacturing processes and
such changes may be expensive or impractical. We may be forced to seek royalty or license agreements. If we are unable to agree
on acceptable terms, we may be required to discontinue products or to halt other aspects of our operations. We may also be liable
for significant damages. Even if intellectual property claims brought against us are without merit, the litigation may be costly
and time consuming, and may divert management and key personnel from normal business operations.
OUR EFFORTS TO PROTECT OUR INTELLECTUAL
PROPERTY MAY BE LESS EFFECTIVE IN SOME FOREIGN COUNTRIES WHERE INTELLECTUAL PROPERTY RIGHTS MAY NOT BE AS STRONG AS IN THE UNITED
STATES.
We have not
obtained and may not obtain patent or similar protection for our proprietary technologies or registration for our trademarks in
foreign countries, which may impair our ability to use or protect our technology and brand in foreign jurisdictions. The laws
of some foreign countries, including countries in which we have sold and/or plan to sell products, protect proprietary rights
less broadly than do the laws of the United States. Many U.S. companies have encountered substantial problems in protecting their
proprietary rights in such countries, and there is a risk that we may encounter similar problems. If our competitors in these
countries copy our technology without our permission, our sales and operations may be harmed.
WE HAVE BEEN ENGAGED IN VARIOUS
LEGAL DISPUTES WHICH COULD IMPACT OUR COMPANY AND OUR SUPPLIER RELATIONSHIPS.
We are currently
engaged in three legal proceedings. These legal proceedings relate to non-payment of vendors. A number of these suppliers, if
not all of them, may be paid and satisfied prior to that closing. Claims relating to these proceedings currently total approximately
between $50,000 and $100,000. These and/or the remaining and/or future potential legal proceedings could impact our financial
position and/or our relationships with customers, vendors, suppliers, distributors and/or other parties.
RISKS RELATING
TO ICEWEB'S COMMON STOCK
THE EXERCISE OF WARRANTS AND OPTIONS
AND THE CONVERSION OF SHARES OF OUR SERIES B CONVERTIBLE PREFERRED STOCK AND CONVERTIBLE NOTES PAYABLE WILL BE DILUTIVE TO EXISTING
SECURITY HOLDERS.
At June 30,
2012 we had outstanding:
•
187,071,442 shares of common
                                                                  stock,
•
626,667 shares of Series B convertible
                                                                  preferred stock which is convertible into 626,667 shares of
                                                                  common stock,
•
common stock purchase warrants
                                                                  and options to purchase 94,797,072 shares of common stock with
                                                                  a variety of exercise prices, rights and provisions, and
•
outstanding notes with a principal
                                                                  balance of $1,127,888 of convertible notes which at the current
                                                                  market price is convertible into 15,241,730 common shares.
12
The exercise
of the outstanding options and warrants or the conversion of the outstanding convertible securities will be dilutive to our security
holders.
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 SECURITY HOLDERS.
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 security holders 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, including a provisions stipulating
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 security holders.
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 owned by the estate of former CEO and Chairman John R. Signorello. 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.
Public
company compliance may make it more difficult to attract and retain officers and directors.
The Sarbanes-Oxley
Act of 2002, the Dodd-Frank Act and rules subsequently implemented by the Commission have required changes in corporate governance
practices of public companies. As a public company, we expect these rules and regulations to continue to increase compliance costs
in 2012 and beyond and to make certain activities more time consuming and costly than if we were not a public company. As a public
company, we also expect that these rules and regulations may make it more difficult and expensive to obtain director and officer
liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher
costs to obtain the same or similar coverage. As a result, it may be more difficult to attract and retain qualified persons to
serve on our board of directors or as executive officers.
OUR stock
price may be volatile in response to market and other factors.
The market price
of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of
which are beyond our control, including the following:
•
competitive pricing pressures;
•
ability to obtain working capital financing;
•
additions or departures of key personnel;
•
limited public float in the hands of
                                                          a small number of persons whose sales or lack of sales could result
                                                          in positive or negative pricing pressure on the market price for our
                                                          common stock;
•
sales of common stock
•
ability to execute our business plan;
•
operating results that fall below expectations;
•
loss of any strategic relationship;
•
regulatory or legal developments;
13
•
economic and other external factors;
                                                          and
•
period-to-period fluctuations in our
                                                          financial results.
In addition,
the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price
of our common stock.
OUR Common
Stock is a "penny stock," which wILL make it more difficult for investors to sell their shares.
Our common stock
is presently subject to the "penny stock" rules adopted under Section 15(g) of the Securities Exchange Act of 1934.
The penny stock rules apply to companies whose common stock is not listed on a national securities exchange and trades at less
than $5.00 per share or that have tangible net worth of less than $2,500,000, or $2,000,000 if the company has been operating
for three or more years. In certain instances, these rules require, among other things, that brokers who trade penny stock to
persons other than "established customers" complete certain documentation, make suitability inquiries of investors
and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote
information under certain circumstances. In addition, many brokers and broker-dealers have decided not to trade penny stocks because
of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in
such securities is limited. If we continue to remain subject to the penny stock rules, it could have an adverse effect on the
market, if any, for our common stock, and investors will find it more difficult to dispose of the securities.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If security
holders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period,
under Rule 144, or expiration of lock-up periods applicable to outstanding shares, or issued upon the exercise of outstanding
options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which
the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring,
also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities
in the future at a time and price that we deem reasonable or appropriate.
OUR Common
Stock may be subject to further dilution if WE sell additional shares of OUR Common Stock in the future at prices below the prices
in ITS RECENT PRIVATE OFFERINGS.
If it becomes
necessary for us to issue additional shares of common stock in the future at prices below the prices that trigger the anti-dilution
protections in connection with previous private offerings, we will be required to issue such additional shares and lower the warrant
exercise price of the existing warrants, in order to account for the dilutive impact of such future issuances. The anti-dilutive
protections are known as "full-ratchet" protections, meaning that the additional shares of common stock to be issued,
and the new exercise price of the warrants, will match the lowest price at which we issue additional shares of common stock in
the future. These additional shares of common stock, and warrants to purchase additional shares of common stock, if exercised,
could result in substantial future dilution to the holders of our common stock. We currently have warrants outstanding to purchase
36,088,554 shares of common stock which contain "full-ratchet" protections.
IF THE SELLING SECURITY HOLDERS
ALL ELECT TO SELL THEIR SHARES OF OUR COMMON STOCK AT THE SAME TIME, THE MARKET PRICE OF OUR SHARES MAY DECREASE.
It
is possible that the selling security holders will offer all of the shares for sale. Further, because it is possible that a significant
number of shares could be sold at the same time hereunder, the sales, or the possibility thereof, may have a depressive effect
on the market price of our common stock.
14
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.
High
Low
Fiscal 2010
First quarter ended December 31, 2009
$
0.235
$
0.07
Second quarter ended March 31, 2010
$
0.23
$
0.075
Third quarter ended June 30, 2010
$
0.47
$
0.135
Fourth quarter ended September 30, 2010
$
0.30
$
0.105
Fiscal 2011
First quarter ended December 31, 2010
$
0.315
$
0.155
Second quarter ended March 31, 2011
$
0.285
$
0.16
Third quarter ended June 30, 2011
$
0.295
$
0.171
Fourth quarter ended September, 30, 2011
$
0.26
$
0.135
Fiscal 2012
First quarter ended December 31, 2011
$
0.195
$
0.102
Second quarter ended March 31, 2012
$
0.1847
$
0.106
Third quarter ended June 30, 2012
$
0.181
$
0.107
On August
17, 2012, the last sale price of our common stock as reported on the OTC Bulletin Board was $0.075.  As of August 17, 2012,
there were approximately 4,300 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.
Transfer
Agent
Our
transfer agent is Olde Monmouth Stock Transfer, 200 Memorial Pkwy, Atlantic Highlands, NJ 07716. Its telephone number is (732)
872-2727.
PLAN OF DISTRIBUTION
We are registering
the shares of common stock issuable upon conversion of the notes and exercise of the warrants to permit the resale of these shares
of common stock by the holders of the notes and warrants from time to time after the date of this prospectus. We will not receive
any of the proceeds from the sale by the selling security holders of the shares of common stock. We will bear all fees and expenses
incident to our obligation to register the shares of common stock.
15
The selling
security holders may sell all or a portion of the shares of common stock held by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of common stock are sold through underwriters or
broker-dealers, the selling security holders will be responsible for underwriting discounts or commissions or agent's commissions.
The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of
the sale, at varying prices determined at the time of sale or at negotiated prices. These sales may be effected in transactions,
which may involve crosses or block transactions, pursuant to one or more of the following methods:
·
on
                                                                                                              any national securities
                                                                                                              exchange or quotation
                                                                                                              service on which
                                                                                                              the securities may
                                                                                                              be listed or quoted
                                                                                                              at the time of sale;
·
in
                                                                                                              the over-the-counter
                                                                                                              market;
·
in
                                                                                                              transactions otherwise
                                                                                                              than on these exchanges
                                                                                                              or systems or in
                                                                                                              the over-the-counter
                                                                                                              market;
·
through
                                                                                                                            the
                                                                                                                            writing
                                                                                                                            or
                                                                                                                            settlement
                                                                                                                            of
                                                                                                                            options,
                                                                                                                            whether
                                                                                                                            such
                                                                                                                            options
                                                                                                                            are
                                                                                                                            listed
                                                                                                                            on
                                                                                                                            an
                                                                                                                            options
                                                                                                                            exchange
                                                                                                                            or
                                                                                                                            otherwise;
·
ordinary
                                                                                                              brokerage transactions
                                                                                                              and transactions
                                                                                                              in which the broker-dealer
                                                                                                              solicits purchasers;
·
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;
·
purchases
                                                                                                              by a broker-dealer
                                                                                                              as principal and
                                                                                                              resale by the broker-dealer
                                                                                                              for its account;
·
an
                                                                                                              exchange distribution
                                                                                                              in accordance with
                                                                                                              the rules of the
                                                                                                              applicable exchange;
·
privately
                                                                                                              negotiated transactions;
·
short
                                                                                                              sales made after
                                                                                                              the date the Registration
                                                                                                              Statement is declared
                                                                                                              effective by the
                                                                                                              SEC;
·
broker-dealers
                                                                                                              may agree with a
                                                                                                              selling security
                                                                                                              holder to sell a
                                                                                                              specified number
                                                                                                              of such shares at
                                                                                                              a stipulated price
                                                                                                              per share;
·
a
                                                                                                              combination of any
                                                                                                              such methods of
                                                                                                              sale; and
·
any
                                                                                                              other method permitted
                                                                                                              pursuant to applicable
                                                                                                              law.
The selling
security holders may also sell shares of common stock under Rule 144 promulgated under the Securities Act of 1933, as amended,
if available, rather than under this prospectus. In addition, the selling security holders may transfer the shares of common stock
by other means not described in this prospectus. If the selling security holders effect such transactions by selling shares of
common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions
in the form of discounts, concessions or commissions from the selling security holders or commissions from purchasers of the shares
of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions
as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved).
In connection with sales of the shares of common stock or otherwise, the selling security holders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course of hedging in positions
they assume. The selling security holders may also sell shares of common stock short and deliver shares of common stock covered
by this prospectus to close out short positions and to return borrowed shares in connection with such short sales. The selling
security holders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.
The selling
security holders may pledge or grant a security interest in some or all of the notes, warrants or shares of common stock owned
by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell
the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act of 1933 amending, if necessary, the list of selling security holders to include
the pledgee, transferee or other successors in interest as selling security holders under this prospectus. The selling security
holders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.
To the extent
required by the Securities Act of 1933 and the rules and regulations thereunder, the selling security holders and any broker-dealer
participating in the distribution of the shares of common stock may be deemed to be "underwriters" within the meaning
of the Securities Act of 1933, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may
be deemed to be underwriting commissions or discounts under the Securities Act of 1933. At the time a particular offering of the
shares of common stock is made, a prospectus supplement, if required, will be distributed, which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers
or agents, any discounts, commissions and other terms constituting compensation from the selling security holders and any discounts,
commissions or concessions allowed or re-allowed or paid to broker-dealers.
16
Under the securities
laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers.
In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for
sale in such state or an exemption from registration or qualification is available and is complied with.
There can be
no assurance that any selling stockholder will sell any or all of the shares of common stock registered pursuant to the registration
statement, of which this prospectus forms a part.
The selling
security holders and any other person participating in such distribution will be subject to applicable provisions of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, to the extent applicable,
Regulation M of the Securities Exchange Act of 1934, which may limit the timing of purchases and sales of any of the shares of
common stock by the selling security holders and any other participating person. To the extent applicable, Regulation M may also
restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities
with respect to the shares of common stock. All of the foregoing may affect the marketability of the shares of common stock and
the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.
We will pay
all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be
approximately $34,000 in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, a selling stockholder will pay all underwriting
discounts and selling commissions, if any. We will indemnify the selling security holders against liabilities, including some
liabilities under the Securities Act of 1933 in accordance with the registration rights agreements or the selling security holders
will be entitled to contribution. We may be indemnified by the selling security holders against civil liabilities, including liabilities
under the Securities Act of 1933 that may arise from any written information furnished to us by the selling stockholder specifically
for use in this prospectus, in accordance with the related registration rights agreements or we may be entitled to contribution.
Once sold under
the registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands
of persons other than our affiliates.
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).
Data Storage
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 (network attached storage) 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.
17
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.
Distribution
We believe that
Promark is one of the premier value added distributors (VAD) in the United States. Promark's core technology focus is distributing
data storage and electronic document imaging products and solutions through a two-tier distribution channel selling to VARs and
system integrators. Promark leverages its direct relationships with technology partners including LeftHand Networks, Kodak, QLogic,
Data Domain, Panasonic, NEC, Overland Storage and many more to provide solutions that meet the most demanding needs of our customers.
We
generate revenues from the manufacture and sale of high-performance unified data storage products, data storage appliances and
servers, the sale of software services, and the distribution of data storage and electronic imaging products and solutions. 
We believe that the key factors to our continued growth and profitability include the following:
•
Increasing the number of channel partners selling our products
•
Continued investment in product development and research efforts
•
Hiring additional qualified, technical employees, and
•
Increasing the number of new customers added.
GOING CONCERN
We
have a history of losses and have incurred net losses of approximately $40.9 million since inception through June 30, 2012. 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, 2011 and 2010 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
Our
discussion and analysis of 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 of America. The preparation
of such statements requires us to make estimates and assumptions that affect the reported amounts of revenues and expenses during
the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. Our estimates
are based on historical experience and other assumptions that we consider to be appropriate in the circumstances. However, actual
future results may vary from our estimates.
We
believe that the following accounting policies are significantly affected by critical accounting estimates and that they are both
highly important to the portrayal of our financial condition and results and require difficult management judgments and assumptions
about matters that are inherently uncertain. Note 2 of the accompanying consolidated financial statements describes the significant
accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting
policies are considered to be critical accounting policies.
We
believe the accounting policies described below are those that most frequently require us to make estimates and judgments and
therefore are critical to the understanding of our results of operations.
18
Revenue
Recognition, Reserves and Allowances
Revenue
Recognition
— We recognize revenue when:
•
Persuasive evidence of an arrangement exists:
It is
    our customary practice to have a purchase order and/or contract prior to recognizing revenue on an arrangement from
    our end users, customers, value-added resellers, or distributors.
•
Delivery has occurred:
Our product is physically delivered
    to our customers, generally with standard transfer terms such as freight on board, or FOB, origin. We typically do not allow
    for restocking rights with any of our value-added resellers or distributors. Products shipped with acceptance criteria or
    return rights are not recognized as revenue until all criteria are achieved. If undelivered products or services exist that
    are essential to the functionality of the delivered product in an arrangement, delivery is not considered to have occurred.
•
The fee is fixed or determinable:
Arrangements with
    payment terms extending beyond our standard terms, conditions and practices are not considered to be fixed or determinable.
    Revenue from such arrangements is recognized at the earlier of customer payment or when the fees become due and payable. We
    typically do not allow for price-protection rights with any of our value-added resellers or distributors.
•
Collection is reasonably assured:
If there is considerable
    doubt surrounding the credit worthiness of a customer at the outset of an arrangement, the associated revenue is deferred
    and recognized upon cash receipt.
We
maintain a separate allowance for doubtful accounts for estimated losses based on our assessment of the collectability of specific
customer accounts and the aging of the accounts receivable. We analyze accounts receivable and historical bad debts, customer
concentrations, customer solvency, current economic and geographic trends, and changes in customer payment terms and practices
when evaluating the adequacy of our current and future allowance. In circumstances where we are aware of a specific customer's
inability to meet its financial obligations to us, a specific allowance for bad debt is estimated and recorded, which reduces
the recognized receivable to the estimated amount we believe will ultimately be collected. We monitor and analyze the accuracy
of our allowance for doubtful accounts estimate by reviewing past collectability and adjusting it for future expectations to determine
the adequacy of our current and future allowance. If the financial condition of our customers were to deteriorate, resulting in
an impairment of their ability to make payments, additional allowances may be required.
Inventory
Valuation
Inventories
are stated at
lower of cost or market, on an average cost basis
. We perform an excess
and obsolete analysis of our inventory based upon assumptions about future demand and market conditions. We adjust the inventory
value based on estimated excess and obsolete inventories.
Valuation
of Intangibles
We
periodically review the estimated remaining useful lives of our intangible assets. A reduction in the estimate of remaining useful
life could result in accelerated amortization expense or a write-down in future periods. As such, any future write-downs of these
assets would adversely affect our operating results.
Stock-Based
Compensation
We
account for stock-based compensation using the Black-Scholes option pricing model to estimate the fair value of each option grant
on the date of grant. Our option pricing model requires the input of highly subjective assumptions, including the expected stock
price volatility, expected term, and forfeiture rate. Any changes in these highly subjective assumptions significantly impact
stock-based compensation expense.
19
Fair
Value Measurements and Impairments
All
of our investments and nonmarketable securities are subject to periodic impairment review. Investments are considered to be impaired
when a decline in fair value is judged to be other-than-temporary. This determination requires significant judgment. For publicly
traded investments, impairment is determined based upon the specific facts and circumstances present at the time, including factors
such as current economic and market conditions, the credit rating of the security's issuer, the length of time an investment's
fair value has been below our carrying value, and our ability and intent to hold investments to maturity or for a period of time
sufficient to allow for any anticipated recovery in fair value. If an investment's decline in fair value, caused by factors
other than changes in interest rates, is deemed to be other-than-temporary, we reduce its carrying value to its estimated fair
value, as determined based on quoted market prices, liquidation values or other metrics. For investments in publicly held companies,
we recognize an impairment charge when the decline in the fair value of our investment is below its cost basis and is judged to
be other-than-temporary. The ultimate value realized on these investments is subject to market price volatility until they are
sold.
Pursuant
to the accounting guidance for fair value measurement and its subsequent updates, fair value is defined as the price that would
be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between
market participants at the measurement date. The accounting guidance establishes a hierarchy for inputs used in measuring fair
value that minimizes the use of unobservable inputs by requiring the use of observable market data when available. Observable
inputs are inputs that market participants would use in pricing the asset or liability based on active market data. Unobservable
inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on the best
information available in the circumstances.
The
fair value hierarchy is broken down into the three input levels summarized below:
•
Level 1 — Valuations are based on quoted prices
    in active markets for identical assets or liabilities and readily accessible by us at the reporting date. Examples of assets
    and liabilities utilizing Level 1 inputs are certain money market funds, U.S. Treasuries and trading securities
    with quoted prices on active markets.
•
Level 2 — Valuations based on inputs other than
    the quoted prices in active markets that are observable either directly or indirectly in active markets. Examples of assets
    and liabilities utilizing Level 2 inputs are U.S. government agency bonds, corporate bonds, commercial paper, certificates
    of deposit and over-the-counter derivatives.
•
Level 3 — Valuations based on unobservable inputs
    for which there are little or no market data, which require us to develop our own assumptions. Examples of assets and liabilities
    utilizing Level 3 inputs are cost method investments, auction rate securities (ARS) and the primary fund.
Results
of Operations
THREE AND
NINE MONTHS ENDED JUNE 30, 2012 COMPARED TO THE THREE AND NINE MONTHS ENDED JUNE 30, 2011
The following
table provides an overview of certain key factors of our results of operations for the three and nine months ended June 30, 2012
as compared to the three and nine months ended June 30, 2011:
Three
    months ended June 30,
Nine
    Months Ended June 30,
2012
2011
2012
2011
Net Revenues
$
654,996
$
719,727
$
2,546,852
$
2,514,164
Cost of sales
444,015
380,784
1,669,704
1,317,299
Operating Expenses:
Sales and marketing expense
308,698
123,955
641,255
898,299
Depreciation and amortization
33,797
124,831
149,435
418,625
Research and development
289,242
187,810
708,325
547,579
General and administrative
438,795
495,963
1,331,939
1,617,786
Total operating expenses
1,070,532
932,559
2,830,954
3,482,289
Loss from operation
(859,551
)
(593,616
)
(1,953,806
)
(2,285,424
)
Total other income (expense)
(3,140,324
)
(104,653
)
(4,569,124
)
(302,908
)
Net income (loss)
$
(3,999,875
)
$
(698,269
)
$
(6,522,930
)
$
(2,588,332
)
20
Other Key Indicators:
Three
    months ended
June 30,
Nine
    Months Ended
June 30,
2012
2011
2012
2011
Cost of sales as a percentage of revenues
67.8
%
52.9
%
65.6
%
52.4
%
Gross profit margin
32.2
%
47.1
%
34.4
%
47.6
%
General and administrative expenses as a percentage of revenues
67.0
%
68.9
%
52.3
%
64.3
%
Total operating expenses as a percentage of revenues
163.4
%
129.6
%
111.2
%
138.5
%
Nine Months ended June 30, 2012
Revenues
For the Nine
Months Ended June 30, 2012, we reported revenues of $2,546,852 as compared to revenues of $2,514,164 for the Nine Months Ended
June 30, 2011, an increase of $32,688 or approximately 1%.
Cost of Sales
Our cost of sales
consists primarily of component parts for the manufacture of our storage products. For the Nine Months Ended June 30, 2012, cost
of sales was $1,669,704, or approximately 65.6% of revenues, compared to $1,317,299, or approximately 52.4% of revenues for the
Nine Months Ended June 30, 2011. The increase in costs of sales as a percentage of revenue and the corresponding decrease in our
gross profit margin for the Nine Months Ended June 30, 2012 as compared to the Nine Months Ended June 30, 2011 was the result
of pricing pressure to win sales opportunities during the Nine Months Ended June 30, 2012 as a percentage of total revenue, as
well as increased component costs which resulted from the disruption in the world wide supply of hard drives stemming from the
flooding in Thailand in October, 2011. We anticipate that our gross profit margins will remain in the range of 30% to 45% through
the balance of fiscal 2012.
Total Operating Expenses
Our total operating
expenses decreased approximately 19% to $2,830,954 for the Nine Months Ended June 30, 2012 as compared to $3,482,289 for the Nine
Months Ended June 30, 2011. These changes include:
•
Sales
and marketing expense
. Sales and marketing expense includes salaries, commission, occupancy, telephone, travel, and
entertainment expenses for direct sales personnel.  For the Nine Months Ended June 30, 2012, sales and marketing costs
were $641,255 as compared to $898,299 for the Nine Months Ended June 30, 2011, a decrease of $257,044 or approximately 29%.  The
decrease is primarily due to lower sales and marketing headcount.
•
Depreciation
and amortization expense
. For the Nine Months Ended June 30, 2012, depreciation and amortization expense amounted to
$149,435 as compared to $418,625 for the Nine Months Ended June 30, 2011, a decrease of $269,190 or 64%.
•
Research
and development
. For the Nine Months Ended June 30, 2012, research and development costs were $708,325 as compared to
$547,579 for the Nine Months Ended June 30, 2011, an increase of $160,745 or approximately 29%.  Research and development
expense is higher due to higher headcount and consulting costs to support our efforts in product development.
•
General
and administrative expense
. For the Nine Months Ended June 30, 2012, general and administrative expenses were $1,331,939
as compared to $1,617,786 for the Nine Months Ended June 30, 2011, a decrease of $285,847 or approximately 18%. For the Nine Months
Ended June 30, 2012 and 2011 general and administrative expenses consisted of the following:
21
Fiscal Q3
Fiscal Q3
2012
2011
Occupancy
$
28,747
$
24,227
Consulting
7,480
77,874
Employee compensation
570,691
896,012
Professional fees
133,531
57,895
Internet/Phone
4,988
16,744
Travel/Entertainment
27,492
29,787
Investor Relations
430,271
251,568
Insurance
11,771
31,073
Other
116,968
232,606
$
1,331,939
$
1,617,786
•
For the Nine Months Ended June 30, 2012, occupancy expense increased to
    $28,747 as compared to $24,227, primarily due to an increased allocation of rent expense to administration.
•
For the Nine Months Ended June 30, 2012, consulting expense decreased to $7,480 as compared
    to $77,874. Consulting expense decreased primarily as a result of nonrecurring recruiting costs incurred to hire engineering,
    sale and marketing personnel incurred in the prior year.
•
For the Nine Months Ended June 30, 2012, salaries and related expenses decreased to $570,691
    as compared to $896,012, a decrease of $325,321. The decrease is due primarily to lower non-cash compensation expense of $39,302
    as compared to $304,039.
•
For the Nine Months Ended June 30, 2012, professional fees expense increased to $133,531 as
    compared to $57,895. Professional fees expense increased due to increased costs related to intellectual property patent applications
    and other legal fees.
•
For the Nine Months Ended June 30, 2012, internet and telephone expense
    decreased to $4,988 as compared to $16,744.  The decrease was primarily due to cost-cutting measures implemented by us.
•
For the Nine Months Ended June 30, 2012, travel and entertainment expense decreased to $27,492
    as compared to $29,787.  The decrease was primarily due to less travel related to investor relations and analyst meetings.
•
For the Nine Months Ended June 30, 2012 other expense amounted to $116,968 as compared to $232,606
    for the Nine Months Ended June 30, 2011, a decrease of $115,638.  The decrease is primarily related to increased bad
    debt expense of $100,000 during the three months ended June 30, 2011, which do not recur in the current year quarter.
•
For the Nine Months Ended June 30, 2012 investor relations expense increased to $430,271 as
    compared to $251,568 for the Nine Months Ended June 30, 2011. The increase is due to increased investor relations activity.
•
For the Nine Months Ended June 30, 2012, insurance expense decreased to $11,771 as compared
    to $31,073.  The decrease was primarily due to cost cutting measures.
We anticipate
that general and administrative expenses will remain stable for the balance of fiscal 2012.
LOSS FROM OPERATIONS
We reported a
loss from operations of $1,953,806 for the Nine Months Ended June 30, 2012 as compared to a loss from operations of $2,285,424
for the Nine Months Ended June 30, 2011, a decreased loss of $331,618 or approximately 15%.
22
OTHER INCOME (EXPENSES)
Interest Expense
.  For
the Nine Months Ended June 30, 2012, interest expense amounted to $1,796,060 as compared to $302,908 for the Nine Months Ended
June 30, 2011, an increase of $1,493,152 or 493%. The increase in interest expense is primarily attributable to the amortization
of the discount on our outstanding convertible debentures.
Loss on change
of fair value of derivative liability.
For the Nine Months Ended June 30, 2012 we incurred an increase
in
the value of the derivative liability of $2,773,086. We had no derivative liabilities during the nine months ended June 30, 2011.
NET INCOME/ LOSS
Our net loss
was $6,522,930 for the Nine Months Ended June 30, 2012 compared to a net loss of $2,588,332 for the Nine Months Ended June 30,
2011.
Three Month Period ended June
30, 2012
Revenues
For the three
months ended June 30, 2012, we reported revenues of $654,996 as compared to revenues of $719,727 for the three months ended June
30, 2011, a decrease of $64,731 or approximately 9%.
Cost of Sales
Our cost of sales
consists of component parts for the manufacture of our storage products. For the three months ended June 30, 2012, cost of sales
was $444,045, or approximately 67.8% of revenues, compared to $380,784, or approximately 52.9% of revenues, for the three months
ended June 30, 2011. The increase in costs of sales as a percentage of revenue and the corresponding decrease in our gross profit
margin for the three months ended June 30, 2012 as compared to the three months ended June 30, 2011 was the result of lower margins
on competitive opportunities in order to win deals.
Total Operating Expenses
Our total operating
expenses increased approximately 15% to $1,070,532 for the three months ended June 30, 2012 as compared to $932,559 for the three
months ended June 30, 2011. These changes include:
•
Sales
and marketing expense
. For the three months ended June 30, 2012, sales and marketing expenses were $308,698 as compared
to $123,955 for the three months ended June 30, 2011, an increase of $184,743 or approximately 149%. The increase was due to increased
headcount and the rollout of our inside sales efforts during the three months ended June 30, 2012.
•
Depreciation
and amortization expense
. For the three months ended June 30, 2012, depreciation and amortization expense amounted to
$33,797 as compared to $124,831 for the three months ended June 30, 2011, a decrease of $91,034 or 73%.
•
Research
and development
. For the three months ended June 30, 2012, research and development costs were $289,242 as compared
to $187,810 for the three months ended June 30, 2011, an increase of $101,432 or approximately 54%.  Research and development
expense is higher due to higher headcount and consulting costs as we continue to invest in product development.
•
General
and administrative expense
. For the three months ended June 30, 2012, general and administrative expenses were $438,795
as compared to $495,963 for the three months ended June 30, 2011, a decrease of $57,169 approximately 12%. For the three months
ended June 30, 2012 and 2011 general and administrative expenses consisted of the following:
23
Three months ended
June 30,
2012
2011
Occupancy
$
9,292
$
7,769
Consulting
3,015
2,950
Employee compensation
168,857
338,649
Professional fees
28,017
25,436
Internet/Phone
1,578
4,108
Travel/Entertainment
10,333
13,667
Investor Relations
169,040
45,332
Insurance
6,053
8,610
Other
42,609
49,442
$
438,795
$
495,963
•
For the three months ended June 30, 2012, occupancy expense increased to
    $9,292 as compared to $7,769.
•
For the three months ended June 30, 2012, consulting expense increased to $3,015 as compared
    to $2,950, an increase of $65.
•
For the three months ended June 30, 2012, salaries and related expenses decreased to $168,857
    as compared to $338,649, a decrease of $169,792, or 50%.  The decrease is due primarily to a decrease in non-cash stock
    and option based compensation expense.
•
For the three months ended June 30, 2012, professional fees expense increased to $28,017 as
    compared to $25,436.  Professional fees expense increased primarily as a result of an increase in legal fees incurred
    related to business development activities.
•
For the three months ended June 30, 2012, internet/phone expense decreased to $1,578 as compared
    to $4,108. Phone expense decreased primarily due to cost-cutting measures implemented by us.
•
For the three months ended June 30, 2012, travel and entertainment expense decreased to $10,333
    as compared to $13,667. Travel and entertainment expense decreased due to decreased travel for investor relations and general
    corporate travel activity.
•
For the three months ended June 30, 2012, insurance expense decreased to $6,053 as compared
    to $8,610, as a result of cost-cutting measures.
•
For the three months ended June 30, 2012 other expense amounted to $42,609 as compared to $49,442
    for the three months ended June 30, 2011.
•
For the three months ended June 30, 2012 investor relations expense increased to $169,040 as
    compared to $45,332 for the three months ended June 30, 2011.  The increase is due to increased investor relations activity.
LOSS FROM OPERATIONS
We reported a
loss from operations of $859,551 for the three months ended June 30, 2012 as compared to a loss from operations of $593,616 for
the three months ended June 30, 2011, an increase in loss of $265,935 or approximately 45%.
24
OTHER INCOME (EXPENSES)
Interest Expense
.
For the three months ended June 30, 2012, interest expense amounted to $984,317 as compared to $104,653 for the three months ended
June 30, 2011, an increase of $672,566 or 643%. The increase in interest expense is primarily attributable to the amortization
of the discount on our outstanding convertible debentures.
Loss on change
of fair value of derivative liability.
For the three months ended June 30, 2012 we incurred an increase
in
the value of the derivative liability of $2,156,007.
NET INCOME/ LOSS
Our net loss
was $3,999,875 for the three months ended June 30, 2012 compared to a net loss of $698,269 for the three months ended June 30,
2011.
FISCAL YEAR 2011 AS COMPARED
TO FISCAL YEAR 2010
The
following table provides an overview of certain key factors of our results of operations for fiscal year 2011 as compared to fiscal
year 2010:
Fiscal Year ended September 30,
$
%
2011
2010
Change
Change
Net Revenues
$
2,678,346
$
3,353,286
$
(674,940
)
(20.1
)%
Cost of sales
1,751,640
1,742,110
9,530
0.5
%
Operating Expenses:
Sales and marketing
975,282
1,690,684
715,402
42.3
%
Depreciation and amortization
545,890
662,003
116,113
17.5
%
Research and development
790,048
547,364
(242,684
)
(44.3
)%
General and administrative
2,605,999
5,312,247
2,706,249
50.9
%
Loss on impairment of intangible assets
303,859
-
(303,859
)
N/A
Total operating expenses
5,221,078
8,212,298
2,991,220
36.2
%
Loss from operation
(4,294,372
)
(6,601,122
)
(2,306,750
)
34.9
%
Total other expense
(410,919
)
(363,111
)
47,808
(13.2
)%
Net loss
$
(4,705,291
)
$
(6,964,233
)
$
(2,258,942
)
32.4
%
Other Key
Indicators:
Fiscal
Fiscal
2011
2010
Cost of sales as a percentage of revenues
65.40
%
51.95
%
Gross profit margin
34.60
%
48.05
%
General and administrative expenses as a percentage of revenues
97.30
%
158.42
%
Total operating expenses as a percentage of revenues
194.94
%
244.90
%
Sales
Our
sales decreased approximately 20.1% in fiscal year 2011 from fiscal year 2010. Of our total net sales for fiscal 2011, approximately
$2,520,535 is attributable to our sale of storage products, and approximately $157,811 is attributable to sales from our online
products and services. 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.
The
decrease in fiscal 2011 net sales from fiscal 2010 is primarily due to the impact of economic uncertainty on our customers'
budgets and IT spending capacity. We anticipate revenues for fiscal 2012 will increase due to the introduction of new products
and services, including sales of our Unified Network Storage Solutions and other data storage products.
25
Cost of
Sales and Gross Profit
Our
cost of sales consists primarily of products purchased to manufacture our storage products. For fiscal 2011, cost of sales was
approximately 65% of sales, as compared to approximately 52% of sales, for fiscal 2010. The increase in costs of sales as a percentage
of revenue and the corresponding decrease in our gross profit margin for fiscal 2011 as compared to fiscal 2010 was the result
of an increased competition and the increase in the cost of certain components that go into our systems in fiscal 2011. We anticipate
that our cost of sales as a percentage of revenue will return to the 50% to 55% range in fiscal 2012, as we introduce new higher
margin products and solutions to augment our storage business.
Total Operating
Expenses
Our
total operating expenses decreased approximately 36.4% for fiscal 2011 as compared to fiscal 2010. The decrease is primarily due
to decreased headcount in sales and marketing, and lower costs associated with launching our channel sales distribution model,
offset by increased investment in research and development, and the loss on the impairment of intangible assets. The changes include:
•
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, 2011, sales and marketing costs were $975,282 as
compared to $1,690,684 for the fiscal year ended September 30, 2010, a decrease of $715,402 or approximately 42%. The decrease
was due primarily to reduced sales and marketing headcount during the fiscal year ended September 30, 2011, as we established
and relied upon a two-tier channel distribution model.
•
Depreciation
and amortization expense
. For fiscal 2011, depreciation and amortization expense decreased approximately 18% from fiscal 2010,
as many of our assets became fully depreciated during the fiscal year.
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 $243,093 for fiscal 2011 and $243,090 for fiscal 2010.
•
Research
and development expense.
For fiscal 2011, research and development
expenses increased approximately 44% from fiscal 2010. 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 $200,000
per quarter related to developing and enhancing our storage solutions and pursuing intellectual property patents when we believe
it is warranted.
•
Loss
on impairment of intangible assets.
In fiscal 2011, management determined
that the value of certain of our intangible assets had been impaired due to changes in our sales and marketing approach, and as
a result we expensed the remaining unamortized balance of these assets, totaling $303,859.
•
General
and administrative expense
. For fiscal 2011, general and administrative expenses decreased approximately 51% from fiscal 2010.
This decrease is primarily attributable to lower stock-based compensation, lower legal and professional fees, and lower bad debt
expense, offset by higher investor relations expense. For fiscal 2011 and 2010, general and administrative expenses consisted
of the following:
Fiscal
Fiscal
2011
2010
Occupancy
$
50,208
$
49,085
Consulting
87,238
133,784
Employee compensation
1,117,737
3,458,814
Professional fees
325,105
671,548
Internet/Phone
20,479
14,834
Travel/Entertainment
34,002
49,016
Investor Relations
676,915
358,780
Insurance
35,203
46,304
Other
259,112
530,082
$
2,605,999
$
5,312,247
26
The
principal changes in fiscal 2011 as compared to fiscal 2010 include:
•
For fiscal 2011, salaries and related taxes and benefits decreased $2,341,077, or approximately
    68% from fiscal 2010. The decrease was primarily attributable to a decrease 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 2011 of $2,459,103, a decrease of 83%.
•
For fiscal 2011, occupancy expense increased approximately 2% from fiscal 2010.
•
For fiscal 2011, professional fees decreased $346,443, or approximately 52% from fiscal 2010.
    The decrease was primarily attributable to a decrease in legal fees incurred and the settlement of lawsuits against us in
    fiscal 2010 versus 2011.
•
For fiscal 2011, other expense decreased approximately 51% from fiscal 2010. The decrease is
    primarily due to a decrease in bad debt expense of $235,877, and a decrease in hosting fees of $23,022.
•
For fiscal 2011, consulting expense decreased by approximately 35% from fiscal 2010. The decrease
    was primarily due to non-recurring consulting fees related to our capital raising activities, and human resources recruiting
    fees incurred in 2010 but not in fiscal 2011.
•
For fiscal 2011, investor relations expense increased approximately 89% from fiscal 2010. The
    increase was attributable to an increase in general investor relations activity versus fiscal 2010. We expect that in fiscal
    2012 our investor relations activity and related expense should decrease to fiscal 2010 levels.
•
For fiscal 2011, internet and telephone expense increased approximately 38%. The increase was
    attributable to non-recurring costs incurred during the fiscal year 2011.
•
For fiscal 2011, travel and entertainment expense decreased approximately 31%. The decrease
    was attributable to a decrease in general business, and travel-related investor relations activity.
•
For fiscal 2011, insurance expense decreased approximately 24% from fiscal 2010. The decrease
    was attributable to lower premiums paid for general business and directors and officer's insurance.
LOSS FROM
OPERATIONS
Our
loss from operations decreased approximately 40% in fiscal year 2011 as compared to fiscal year 2010. This decrease is primarily
the result of reduced headcount, offset by our increased research and development efforts, and our investment in our channel marketing
sales programs.
TOTAL OTHER
INCOME (EXPENSES)
For
fiscal 2011, interest expense decreased approximately 25.7%. The decrease in interest expense is primarily attributable to lower
average outstanding note balances during fiscal 2011.
NET LOSS
Our
net loss was $4,705,291 for fiscal 2011 compared to $6,964,233 for fiscal 2010, a decrease of $2,258,942 or approximately 32%.
27
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 June
30, 2012 and September 30, 2011:
June 30,
September 30,
$
%
2012
2011
Change
Change
Working Capital
$
(5,462,640
)
$
(1,713,333
)
$
(3,749,307
)
218.8
%
Cash
774,012
4,120
769,892
18,687.0
%
Accounts receivable, net
1,336,591
1,182,060
154,531
13.1
%
Inventory
282,602
55,981
226,621
404.8
%
Total current assets
2,437,404
2,450,806
(13,402
)
(0.5
)%
Property and equipment, net
354,643
252,835
101,808
40.3
%
Marketable Securities
164,000
115,200
48,800
42.3
%
Deferred financing costs, net
107,180
-
107,180
N/A
Total assets
3,078,091
2,832,161
245,930
8.7
%
Accounts payable and accrued liabilities
1,032,235
2,186,691
(1,154,456
)
(52.8
)%
Notes payable
2,016,245
1,972,544
(43,701
)
(2.2
)%
Convertible notes payable, net of discount
328,478
-
328,478
0.0
%
Derivative liability
4,523,086
-
4,523,086
0.0
%
Total current liabilities
7,900,044
4,164,139
3,735,905
89.7
%
Accumulated deficit
(40,851,010
)
(34,328,080
)
(6,522,930
)
19.0
%
Stockholders' deficit
(4,821,953
)
(1,331,978
)
(3,489,973
)
262.0
%
Net cash used
in operating activities was $4,375,749 for the Nine Months Ended June 30, 2012 as compared to net cash used in operating activities
of $1,827,791 for the Nine Months Ended June 30, 2011, an increase in loss of $2,547,958.  For the Nine Months Ended
June 30, 2012, we had a loss of $6,522,930 offset by non-cash items such as depreciation and amortization expense of $115,639,
share-based compensation expense of $56,615, amortization of deferred finance costs of $371,737, and decreases from changes in
assets and liabilities of $1,376,994. During the Nine Months Ended June 30, 2012 we experienced an increase in accounts receivable
of $154,531, and a decrease in accounts payable during the period of $989,192.  For the nine months ended June 30, 2011,
we had a loss of $2,588,332 offset by non-cash items such as depreciation and amortization expense of $418,625, share-based compensation
expense of $585,000, and decreases from changes in assets and liabilities of $356,452. During the nine months ended June 30, 2011
we experienced an increase in accounts receivable of $310,677, and a decrease in accounts payable during the period of $61,035
Net cash used
in investing activities for the Nine Months Ended June 30, 2012 was $250,446 as compared to net cash used in investing activities
of $60,061 for the Nine Months Ended June 30, 2011. During the Nine Months Ended June 30, 2012, we used cash of $217,446 for property
and equipment purchases, and $33,000 for the purchase of 3,300,000 of VOIS Inc. common stock.   During the Nine
Months Ended June 30, 2011, we used cash of $60,061 for property and equipment purchases.
Net cash provided
by financing activities for the Nine Months Ended June 30, 2012 was $5,396,087 as compared to net cash provided of $1,351,880
for the Nine Months Ended June 30, 2011.  For the Nine Months Ended June 30, 2012, net cash provided by financing activities
related to proceeds received from subscriptions receivable of $1,171,520, proceeds from notes payable of $301,896 which were advances
under our factoring line with Sand Hill Finance LLC, proceeds from the issuance of convertible notes of $1,750,000, proceeds from
the exercise of common stock options of $180,717, proceeds from the conversion of common stock warrants of $102,460, payments
on the convertible debenture with common stock of $884,612, proceeds from the sale of restricted stock of $1,834,347, offset by
repayments on notes payable of $258,195 which were to pay down the balance on the Sand Hill Finance LLC factoring line, and payment
of deferred financing costs of $571,270.   For the nine months ended June 30, 2011, net cash provided by financing
activities related to proceeds received from notes payable of $818,481 which were advances under our factoring line with Sand
Hill Finance LLC, proceeds from the exercise of common stock options of $720,148, and proceeds from the sale or restricted stock
of $409,464, offset by repayments on notes payable of $596,213 which were to pay down the balance on the Sand Hill Finance LLC
factoring line.
28
At June 30, 2012
we had a working capital deficit of $5,462,640 and an accumulated deficit of $40,851,010.  The report from our independent
registered public accounting firm on our audited financial statements for the fiscal year ended September 30, 2011 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.
While our sales increased slightly during the Nine Months Ended June 30, 2012, our gross profit margin was approximately 34.4%
and our sales were not sufficient to pay our operating expenses. We reported a net loss of $6,522,930 for the Nine Months Ended
June 30, 2012.  There are no assurances that we will report income from operations in any future periods.
Historically,
our revenues 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 June 30, 2012 we had cash on hand of $774,012.  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 $3.0 million.
At June 30, 2012 we owed Sand Hill Finance, LLC $2,016,245 under this accounts receivable line.
We do not have
any commitments for capital expenditures. We do not presently have any external sources of working capital other than what may
be available under the factoring agreement with Sand Hill Finance, LLC and loans from related parties. Our working capital needs
in future periods are dependent primarily on the rate at which we can increase our revenues 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 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 continue growth strategy could 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 revenues 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.
Recent Accounting Pronouncements
In May
2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04,
"Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in
U.S. GAAP and International Financial Reporting Standards" ("IFRS"). The amendments in this ASU generally represent
clarification of Topic 820, but also include instances where a particular principle or requirement for measuring fair value or
disclosing information about fair value measurements has changed. This update results in common principles and requirements for
measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments
are effective for interim and annual periods beginning after December 15, 2011 and are to be applied prospectively. Early
application is not permitted. We do not expect the adoption of ASU 2011-04 will have a material impact on the Company's
Condensed Consolidated Financial Statements.
In June
2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" (amended
further under ASU No. 2011-12 in December 2011). This guidance eliminates the current option to report other comprehensive
income and its components in the statement of changes in equity. The guidance allows two presentation alternatives; present items
in net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income,
or in two separate, but consecutive, statements of net income and other comprehensive income. This guidance is effective as of
the beginning of a fiscal year that begins after December 15, 2011. Early adoption is permitted, but full retrospective application
is required under both sets of accounting standards. The Company is currently evaluating which presentation alternative it will
utilize.
29
In September
2011, the FASB issued ASU No. 2011-08, "Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment",
which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill
for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated
and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying
amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has
the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity
to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality
of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit
is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it
is required to test goodwill for impairment under the two-step process as described in Topic 350 under paragraphs 350-20-35-4
and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011 and early adoption is permitted. The Company is currently evaluating whether early
adoption is necessary.
In December 2011, the FASB issued
Accounting Standards Update (ASU) No, 2011-11,
Balance Sheet
(Topic 210):
Disclosures about Offsetting
Assets and Liabilities
. The amendments in this ASU require an entity to disclose information about offsetting and related
arrangements on its financial position. This includes the effect or potential effect of rights of offset associated with an entity's
recognized assets and recognized liabilities and require improved information about financial instruments and derivative instruments
that are either (1) offset in accordance with Section 210-20-45 or Section 815-10-45 or (2) subject to an
enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45
or Section 915-10-45. The amendments are effective for annual reporting periods beginning on or after January 1, 2013
and retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. Currently, the
Company does not enter into any right of offset arrangements and expects implementation to have little or no impact.
OUR
BUSINESS
OVERVIEW
Headquartered
just outside of Washington, D.C., we manufacture and market 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). We have three key product offerings:
•
Iceweb unified data network storage line of products
•
Purpose built network/data appliances
•
Cloud computing products/services
IceWEB
unified data storage line of products
Our
high performance unified data storage solutions make it possible to operate and manage files and applications from a single device.
File-based and block-based access data are consolidated in a single storage platform which supports Fibre Channel SAN, IP-based
SAN (iSCSI), and NAS (network attached storage).
Our
unified storage system simultaneously enables storage of file data and handles the block-based I/O (input/output) of enterprise
applications.  One advantage of unified storage is reduced hardware requirements. Instead of separate storage platforms,
like NAS for file-based storage and a RAID disk array for block-based storage, unified storage combines both in a single device.
Alternatively, a single device could be deployed for either file or block storage.
30
In
addition to reduced capital expenditures for the enterprise, unified storage systems can also be simpler to manage than separate
products since our IceWEB Storage System offers one platform for file and block data of all kinds
.
Whether
it id Microsoft Exchange, SQL Server or Oracle databases, virtualized environments, scanned images, files, video, pictures, graphics,
or voice data, we believe our products maximize the efficiency of storage by centralizing all data on one platform secured with
strong data protection capabilities.
The
all-inclusive IceWEB Storage System 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
believe 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,
managed service providers, oil and gas, and health care. We believe our storage systems delivers levels of performance, scalability,
versatility and simplicity that exceed existing network storage alternatives. Our unified network storage offering is deployed
as storage operating system software on our network attached storage (NAS), and storage area network (SAN) hardware products.
This unified network storage environment empowers companies to:
-
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 our built-in data replication features
-
Integrate with emerging server virtualization software (VMWare, Citrix Xen and Microsoft's
    Hyper V) to better manage those solutions
Our
file management system replaces complex and performance-limited competitive products with high performance, scalable and easy
to use systems capable of handling the most data-intensive applications and environments. We believe that our solution delivers
three key benefits:
•
Performance
-
                                                                                                                      which equals
                                                                                                                      or exceeds
                                                                                                                      all competitive
                                                                                                                      products
•
Management
–
                                                                                                                      which requires
                                                                                                                      less expertise
                                                                                                                      and provides
                                                                                                                      ease of
                                                                                                                      use for
                                                                                                                      overburdened
                                                                                                                      technical
                                                                                                                      staffers
•
Cost
–
                                                                                                                      our solutions
                                                                                                                      typically
                                                                                                                      can be deployed costing
                                                                                                                      far less
                                                                                                                      than those
                                                                                                                      of ours
                                                                                                                      competitors
                                                                                                                      while delivering
                                                                                                                      feature-rich
                                                                                                                      performance
                                                                                                                      with comprehensive,
                                                                                                                      yet easy-to-use
                                                                                                                      management.
Competitive
Landscape
We
compete with other storage vendors such as Compellent Technologies, Inc., Isilon Systems, Inc., and HP LeftHand Networks. In addition,
we find ourselves becoming an alternative in our customers' eyes to purchasing additional equipment from large and expensive
legacy storage providers such as EMC Corporation, IBM, Network Appliance and Hitachi Data Systems.
With
the demand for data storage growing exponentially within all organizations, budgetary and common sense decision making is creating
a second tier storage marketplace where our IceWEB 3000 products are perceived as compelling data storage solutions. Based upon
our review of the market, we believe some customers are searching for alternatives from the high costs and hardware replacement
upgrades often required by the larger Tier 1 storage providers, who push expensive upgrades to satisfy to meet their billion dollar
revenue growth commitments. Instead, some customers are opting to deploy our products with versatile and feature rich capabilities.
31
Purpose
Built Network and Data Appliances
We
have been building purpose built network and data appliances for several years. Purpose built network and data appliances are
devices which provide computing resources, including processors and memory, data storage, and specific software for specific applications.
In 2012 we 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. We are aggressively pursuing other purpose built appliance
opportunities and anticipate that this strategy will begin to contribute significantly to our business ramping over the next six
months Our goal is that the appliance business segment grows to contribute approximately 20% of overall business revenue by the
end of fiscal year 2013. We expect to achieve this through our ongoing sales, marketing and research and development efforts,
funded by operations.
Cloud
Computing Products and Services
Cloud
Computing Services
In
December 2005, we launched IceMAIL
TM
a
packaged software service that provides network –hosted groupware, email, 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.  We believe that 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)
We
have 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 we introduced a line of devices called "cloud storage appliances" or CSAs.
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. The CSA line also addresses
additional concerns about data access latency and performance.
By
implementing our CSA devices, we believe companies can gain all of the benefits of cloud computing, while mitigating the impact
of long-term contracts frequently required by vendors, and reducing the potential for security breaches. High performance data
transfers are maintained by back-hauling the data and replicating it from remote branch offices across existing wide area network
links to the corporate IT infrastructure. We believe an additional benefit derived from the deployment of private or hybrid storage
clouds on the CSA products is that companies may not be required to pay per-megabyte or per-gigabyte transfer and storage fees
to third party service companies.
Customers
Our
products have been sold to customers in the U.S., Canada and Europe across a broad range of industries, including GIS; oil and
gas; state, local and federal government; and healthcare. We believe that our customers have a high level of satisfaction with
our products and services. During the year ended September 30, 2011 one customer accounted for 10% or more of our consolidated
revenue.
32
Sales
and Marketing
We
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. We believe that the value
of a channel-based sales model is twofold. First it allows us to grow total sales volume significantly while keeping sales staff,
and our general and administrative expenses, low. Rather than building a significant worldwide sales force of our own, this model
allows us 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 which compresses the sales cycle and increases the close ratio on new
business, with the goal of generating more sales for our company's products and services.
We
continue to aggressively pursue partner agreements to increase our sales and market exposure and footprint. These partner agreements
typically take between three and six months to develop prior to materially increasing sales revenues.
Manufacturing
Manufacturing
is conducted at our headquarters in Sterling, VA. Utilizing chassis from premium manufacturers such as AIC Corporation, Intel,
SuperMicro, and others, all systems are built, burned-in, and tested at this facility by our in-house engineering and production
staff. We manufacture data appliances, modular lightweight portable enterprise servers (MLP), workgroup servers, data storage
management platforms, as well as an array of database and customized appliances. We use best-of-breed, readily available, commercial
off-the-shelf products sourced from various resellers and suppliers in our manufacturing process.
Competition
The
market for our 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 Isilon. 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
We
believe that we compete effectively across all of these factors. In particular, we believe that our product architecture provides
significant competitive advantages in terms of performance, scalability, ease of management and low total cost of ownership. Historically,
our OEM partners have provided us with a significant number of reference accounts which address credibility and helps in our marketing
efforts 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 we do, including relationships with potential our customers.
33
Research
and Development
Research
and development expenses consist primarily of personnel-related expenses, costs of prototype equipment, costs of using contractors,
allocated facility and IT overhead expenses and depreciation of equipment used in research and development activities. We expense
research and development costs as incurred. Our research and development expenses were $790,048 and $547,364, in fiscal 2011 and
fiscal 2010, respectively. Subject to the availability of sufficient capital, we intend to continue to invest significantly in
our research and development efforts, which we believe are essential to maintaining our competitive position. As a result, we
expect research and development expenses to increase in absolute dollars, although we expect these expenses to decrease as a percentage
of revenue.
Intellectual
Property
Success
in our technological markets depends, in part, upon our ability to obtain and maintain proprietary protection for our 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 proprietary rights.
We
seek to protect our 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 plan to file related foreign patent applications in jurisdictions
such as the European Union and Japan. We are in the process of preparing filings for two or more provisional patents for our cloud
storage appliance and WISCSI technologies which we anticipate will happen in our fiscal fourth quarter of 2012.
Pending
patent applications relate to various software development projects and 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.
Copyright
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 our 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.
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.
34
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.
On
March 21, 2002, we executed an Agreement and Plan of Merger with IceWEB Communications, Inc., a Delaware corporation and its security
holders. 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 security holders 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 security holders 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.
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.
35
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 Corporation for $2,412,731 in cash, plus 503,356 shares
of our 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.
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.
EMPLOYEES
At August
17, 2012, we had 19 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
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
In February
2009, we entered into a two year lease for approximately 6,978 square feet of office space in which our principal executive offices
are located for annual base rental of approximately $74,400. We are currently renting our office location on a month-to-month
basis, but anticipate renewing our lease for an additional year.
MANAGEMENT
The
following individuals serve as our executive officers and members of our Board of directors:
Name
Age
Positions
Harold F. Compton (1)(2)
65
Chairman
Robert M. Howe III
65
Chief Executive Officer
Mark B. Lucky
53
Chief Financial Officer
Nicholas Carosi, III
65
Director
Raymond H. Pirtle (2)
71
Director
Jack Bush(1)
77
Director
Harry E. Soyster
77
Director
(1) Member
of the Compensation Committee
(2) Member
of the Audit Committee
36
Harold
F. Compton.
Mr. Compton has been a member of our board of directors since
May 2005, and from May 2012 until July 23 he served as interim Chief Executive Officer following the death of Mr. John Signorello,
the former Chairman and Chief Executive Officer. Mr. Compton has been a retailer for more than 30 years. Mr. Compton joined CompUSA
Inc. in 1994 as Executive Vice President-Operations, becoming Executive Vice President and Chief Operating Officer in 1995, President
of CompUSA Stores in 1996 and Chief Executive Officer of CompUSA Inc. in 2000, a position he held until his retirement in 2004.
Prior to joining CompUSA, Inc., from 1993 until 1994 he served as President and COO of Central Electric Inc., Executive Vice President
Operations and Human Resources, and Director of Stores for HomeBase (1989 to 1993), Senior Vice President Operations and Director
of Stores for Roses Discount Department Stores (1986 to 1989), and held various management positions including Store Manager,
District Manager, Regional Vice President and Zone Vice President for Zayre Corporation from 1965 to 1986. Since 1998 Mr. Compton
was a member of the board of directors of Linens 'N Things, Inc., is currently a member of the board of directors of Maidenform
Brands, Inc. and is a member of its Compensation Committee and Corporate Governance and Nominating Committee of the board of directors
of that company. Mr. Compton also serves as Chairman of the Board of HASCO Medical, Inc.
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.
Robert
M. Howe III.
Robert M. Howe III is a technology industry veteran with over 20 years of experience in various leadership positions.
Mr. Howe was most recently with McCusker & Company, an international warranty services company, where he served as President
and Chief Operating Officer. His prior experience includes working at Dell Computer Corporation from 1992-1994 as a Senior Vice
President where he was instrumental in launching the DellWare business model, as well as creating a virtual logistics model that
subsequently became the industry standard; working at AT&T GIS from 1994-1997 (now known as NCR), where he served as VP and
General Manager for their worldwide PC business; and working at CompUSA where he held the titles of Corporate Senior Vice President
and President, from 1997-2000 where he oversaw the turnaround of CompUSA's in-house PC brand. From September 2000 to May
2006, Mr. Howe served as a consultant to technology firms, both independently and in collaboration with the Sightline Group, in
connection with go- to – market readiness. From May 2006 to February 2007, Mr. Howe served as President and Chief Operations
Officer of DualCor Technologies, Inc, a technology firm that developed a mobile handheld computer.    Mr.
Howe holds a BA in English from Birmingham-Southern College, and a Masters of Arts from Auburn University.
We believe
that as a result of his years of managerial and operational experience, Mr. Howe brings a demonstrated management ability at senior
levels. These experiences, qualifications and attributes have led to our conclusion that Mr. Howe should be serving Chief Executive
Officer.
Mark
B. Lucky.
Mark B. Lucky has served as our Chief Financial Officer since
March 2007 and as our Chief Operating Officer since May 2012. Since October 30, 2010 he has also served as a member of the board
of directors of VOIS Inc. (OTC Markets: VOIS), an entity in which we purchased an interest as described elsewhere herein. He has
over 20 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 our company,
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, reporting
and human resource responsibilities. During his career Mr. Lucky has also been employed by Axys Pharmaceuticals, Inc., a NASDAQ-listed
South 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 member of the board of directors of VOIS Inc. and HASCO Medical,
Inc. Mr. Lucky is a CPA and received his B.A., Economics, from the University of California at Los Angeles.
37
Raymond
Pirtle. Jr.
Mr. Pirtle has been a member of our board of directors since
June 2005. 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. 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. 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 currently serves on the board of Premier Global Services, Inc. (NYSE: PGI), a provider
of business communications services and business process solutions that enable enterprise customers to automate and simplify components
of their critical business processes and to communicate more effectively with their constituents.
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.
Jack
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 2009. 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 Secretary
of the Army for World War II 60
th
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 Masters of Science degree in Chemistry from Pennsylvania State University
in Chemistry and a Masters 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.
38
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.
Nick
Carosi, III.
Mr. Carosi has been a member of our
board of directors
since
May, 2012. He has served as President and CEO of Arban & Carosi Inc., one of the largest manufacturers of architectural precast
concrete serving the Mid-Atlantic area, since 1990. He currently serves as a board member of INOVA Health Systems, with which
he has been associated for over 20 years. He began his career with the Arban & Carosi Inc. in 1969, and was instrumental in
overseeing its growth into the preeminent manufacturers of architectural precast concrete in North America . Mr. Carosi is a former
board member, and President of the Prince William County Chamber of Commerce, has served on the advisory board of Sovran Bank,
was a member of the board of Piedmont Federal Savings and Loan, and also served on the board of Potomac Hospital. During that
time he has served as a board member, chairman of the finance committee, chairman of the governance committee, chairman of the
investment committee, and is currently the vice chair of the board. He is also currently on the board of Marymount University
of Arlington, Virginia, and Bellarmine University of Louisville, Kentucky, his alma mater. In addition, Mr. Carosi was instrumental
in bringing what is now known as the Potomac Nationals to Prince William County, Virginia, having served as their Treasurer for
four years. He is also a former partner of TSI Windows of Maryland.
There
are no family relationships between any of the executive officers and directors. Directors are elected at our annual meeting of
security holders and hold office until the next annual meeting of security holders or until his or her resignation, removal, or
death.
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
security holders, 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 security holders, 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 2009
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:
39
•
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.
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.
40
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 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,
•
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 our annual report for fiscal 2011. 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
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 $100,000 and up to two additional individuals
for whom disclosure would have been made in this table but for the fact that the individual was not serving as an executive officer
of our company at September 30, 2011. The value attributable to any option awards is computed in accordance with accordance with
ASC Topic 718, "Compensation – Stock Compensation, "Share-Based Payments. The assumptions made in the valuations
of the option awards are included in Note 12 of the Notes to our Financial Statements for fiscal 2011 appearing later in this
prospectus.
SUMMARY
COMPENSATION TABLE
Name
                                                      and
principal
        position
(a)
Year
(b)
Salary
($)
(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)
2011
205,889
—
76,192
—
—
—
34,038
316,119
2010
239,559
—
430,000
—
—
—
8,914
678,476
Mark B. Lucky (2)
2011
156,417
—
76,192
—
—
—
10,041
242,650
2010
201,424
—
197,800
—
—
—
8,923
408,147
(1)        Mr.
Signorello is our former Chief Executive Officer. All other compensation in fiscal 2011 includes $10,038 which represents the
value of health insurance premiums and includes $24,000 which represents the value of life insurance premiums we paid for Mr.
Signorello. In fiscal 2011, we granted him 468,727 shares of our restricted common stock, valued at $76,192. 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.
41
(2)        All
other compensation in fiscal 2011 and 2010 represents the value of health insurance premiums we pay for Mr. Lucky. In fiscal 2011,
we granted him 468,727 shares of our restricted common stock, valued at $76,192. In fiscal 2010, we granted him 2,300,000 shares
of our restricted common stock, valued at $197,800.
How Mr.
Signorello's compensation was determined
Mr. Signorello
served as our CEO from March 2000 until his death in May, 2012. He was not a party to an employment agreement with our company.
His compensation was 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 devoted 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 2011 Mr. Signorello's compensation package
included a base salary of $250,000 and company provided health care benefits.
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 2011 Mr. Lucky's compensation package included a base salary of $200,000 and company provided
health care benefits. Mr. Lucky did not receive any stock option grants during this fiscal year. The amount of compensation payable
to Mr. Lucky can be increased at any time upon the determination of the Compensation Committee of our board of directors.
Director
Compensation
We have
not established standard compensation arrangements for our directors and the compensation payable to each individual for their
service on our Board is determined from time to time by our board of directors based upon the amount of time expended by each
of the directors on our behalf. The following table provides information concerning the compensation of our directors for their
services as members of our board of directors for the fiscal year ended September 30, 2011.
Name
Fees
Earned
or
        Paid
in
        Cash
($)
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, 2011:
42
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
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 security holders in August 2001. As amended in May 2006, June, 2007, February, 2010, and October,
2010, we have reserved an aggregate of 60,000,000 shares of common stock for issuance under the Plan. At December 1, 2011 we have
granted options to purchase 4,104,487 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 security holders 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 and shares subject to a vesting schedule based on the recipient's continued employment. 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.
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:
43
•
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 security holders 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.
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
44
•
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 security holders' 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.
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 security holders. 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:
•
breach of the director's duty of loyalty
    to us or our security holders;
•
acts or omissions not in good faith or which
    involve intentional misconduct, fraud or a knowing violation of law;
45
•
a transaction from which
        our director received an improper benefit; or
•
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 Mr. John Signorello, our former Chief Executive Officer, for working capital. The
advances were payable upon demand and were interest free.   During fiscal 2010 Mr. Signorello advanced $66,300 to us,
and we repaid $66,300. The highest amount that we owed Mr. Signorello during fiscal 2010 was $25,000. At each of the last four
fiscal year ends, 2008, 2009, 2010, and 2011, the amount owed to Mr. Signorello was $0. As of July 7, 2012, the amount owed to
Mr. Signorello or to his estate was $0.
While 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.
Director Independence
Messrs. Carosi,
Pirtle and Bush and General Soyster are considered independent within The NASDAQ Stock Market's director independence standards
pursuant to Marketplace Rule 5605.
PRINCIPAL
SECURITY HOLDERS
At August
15, 2012, there were 193,417,389 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 August 15, 2012, 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 August 15, 2012 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 August 15, 2012, have been
exercised or converted. Unless otherwise noted, the address of each of these principal security holders is our principal executive
offices.
46
Name of
Beneficial Owner
Amount and Nature of Beneficial
Ownership
Percentage
of Class
Hal Compton
(1)
2,241,333
1.13
%
Raymond H. Pirtle
(2)
159,167
0.08
%
Nicholas Carosi III
(3)
9,591,666
4.86
%
Mark B. Lucky
(4)
6,364,567
3.22
%
Ed Soyster
(5)
59,000
0.03
%
Jack Bush
(6)
1,544,167
0.78
%
All executive officers and as a group (six persons)
(1)(2),(3),(4),(5),(6)
19,959,899
10.11
%
Estate of John R. Signorello
(7)
16,534,785
8.36
%
(1)         The
number of shares beneficially owned by Mr. Compton includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, options to purchase 238,333 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.
(2)         The
number of shares beneficially owned by Mr. Pirtle includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, and options to purchase 9,167 shares of our common stock at an exercise price of $0.001 per share.
(3)         The
number of shares beneficially owned by Mr. Carosi includes warrants to purchase 4,045,833 shares of our common stock at an exercise
price of $0.15 per share.
(4)         The
number of shares beneficially owned by Mr. Lucky includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, and options to purchase 44,167 shares of our common stock at an exercise price of $0.001 per share.
(5)         The
number of shares beneficially owned by Mr. Soyster includes options to purchase 25,000 shares of our common stock at an exercise
price of $0.37 per share, and options to purchase 34,000 shares of our common stock at an exercise price of $0.001 per share.
(6)         The
number of shares beneficially owned by Mr. Bush includes options to purchase 150,000 shares of our common stock at an exercise
price of $0.60 per share, options to purchase 144,167 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.
(7)         The
number of shares beneficially owned by Mr. Signorello's estate includes 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 who are not our affiliates.
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 security holders as of September 30, 2011.
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 security holders:
2000 Management and Director Equity Incentive and Compensation Plan
2,269,417
$
0.375
-
Plans not approved by security holders:
None
0
n/a
n/a
47
A description
of each of these plans is contained earlier in this prospectus. Executive Compensation – Stock Option Plan.
USE
OF PROCEEDS
We will
not receive any proceeds from the resale of shares of our common stock by the selling security holders covered by this prospectus;
however, we will receive proceeds from cash payments made in connection with the exercise of warrants held by selling security
holders 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 SECURITY
HOLDERS
We are registering for resale shares
of our common stock. We are registering the shares to permit the selling security holders 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 security holders. The information assumes all of the shares covered hereby are sold or otherwise
disposed of by the Selling Security holders pursuant to this prospectus. However, we do not know whether the selling security
holders will in fact sell or otherwise dispose of the shares of common stock listed next to their names below.
The following table sets forth:
•
the name of the selling security holders,
•
the number of shares of our common stock that the selling security holders 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 security holders under this prospectus, and
•
the number and percentage of shares of our common stock to be beneficially owned by the selling
    security holders after the offering of the shares (assuming all of the offered shares are sold by the selling security holders).
48
Shares of Common Stock Beneficially
Owned After this Offering
Number of
Shares Owned
Number of Shares
% of
Prior to the
Number of
Owned After the
Outstanding
Name of Selling Security Holder
Offering
Shares Offered
Offering
Shares
(1)
David Lane
3,616,667
(2)
3,616,667
0
0.0
%
Michael Schmahl
2,900,000
(3)
2,900,000
0
0.0
%
Kenneth Ikemiya
1,871,666
(4)
1,666,666
205,000
0.1
%
Lawrence Wert
1,916,666
(5)
1,666,666
250,000
0.1
%
Beth Elman
466,666
(6)
416,666
50,000
0.0
%
Jerome Gildner
666,666
(7)
666,666
0
0.0
%
Lester Boelter
2,330,166
(8)
2,083,333
246,833
0.1
%
KBA Holdings
833,334
(9)
833,334
0
0.0
%
James G Athas
1,350,000
(10)
1,250,000
100,000
0.0
%
Howard Bialick and Mary Beth Bialick
4,730,500
(11)
4,475,000
255,500
0.1
%
Howard Bialick
416,667
(12)
416,667
0
0.0
%
Dennis Holman
2,333,334
(13)
2,333,334
0
0.0
%
The Knipf Family Trust
1,733,334
(14)
1,733,334
0
0.0
%
Anesthesia Consulting 401K
1,766,666
(15)
1,666,666
100,000
0.0
%
John Kyees
1,500,001
(16)
1,500,001
0
0.0
%
J.R. McGraw
2,970,250
(17)
2,970,250
0
0.0
%
Meyers Associates, LP
538,239
(18)
538,239
0
0.0
%
Nicholas Carosi III
10,975,000
(19)
3,975,000
7,000,000
3.3
%
George Johnnson
1,115,997
(20)
1,115,997
0
0
%
Terry Murphy
261,825
(21)
261,825
0
0.0
%
Hayden McMillian
195,233
(22)
195,233
0
0.0
%
Allan Cruikshanks
195,233
(23)
195,233
0
0.0
%
Christopher Wynne
232,160
(24)
232,160
0
0.0
%
Joseph Mahalick
45,000
(25)
45,000
0
0.0
%
Nicholas Carosi Irrevoc. Trust c/o BB&T
70,833
(26)
70,833
0
0.0
%
David Dent
1,543,333
(27)
833,333
710,000
0.3
%
Michael Geiskopf and Rita Geiskopf
333,833
(28)
333,833
0
0.0
%
Dean Suhre
621,667
(29)
416,667
205,000
0.1
%
Nova J Page and Richard D Page
266,333
(30)
266,333
0
0.0
%
Timothy Alpers
442,667
(31)
166,667
276,000
0.1
%
Kenneth Sutin
416,667
(32)
416,667
0
0.0
%
48,656,603
39,258,270
(1)
Based on 187,071,442 shares of common stock outstanding as of June 30, 2012.
(2)
Includes 1,950,000 shares of common stock issuable upon the exercise of outstanding warrants.
(3)
Includes 1,450,000 shares of common stock issuable upon the exercise of outstanding warrants.
(4)
Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.
(5)
Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.
(6)
Includes 208,333 shares of common stock issuable upon the exercise of outstanding warrants.
(7)
Includes 333,333 shares of common stock issuable upon the exercise of outstanding warrants.
49
(8)
Includes 1,875,000 shares of common stock issuable upon the exercise of outstanding warrants.
(9)
Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.
(10)
Includes 625,000 shares of common stock issuable upon the exercise of outstanding warrants.
(11)
Includes 2,237,500 shares of common stock issuable upon the exercise of outstanding warrants.
(12)
Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.
(13)
Includes 1,416,667 shares of common stock issuable upon the exercise of outstanding warrants.
(14)
Includes 866,667 shares of common stock issuable upon the exercise of outstanding warrants.
(15)
Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.
(16)
Includes 958,334 shares of common stock issuable upon the exercise of outstanding warrants.
(17)
Includes 1,485,125 shares of common stock issuable upon the exercise of outstanding warrants.
(18)
Includes 538,239 shares of common stock issuable upon the exercise of outstanding warrants.
(19)
Mr. Carosi is a member of our board of directors.  Includes 3,975,000 shares of common stock issuable upon the exercise of outstanding warrants.
(20)
Includes 1,115,997 shares of common stock issuable upon the exercise of outstanding warrants.
(21)
Includes 261,825 shares of common stock issuable upon the exercise of outstanding warrants.
(21)
Includes 195,233 shares of common stock issuable upon the exercise of outstanding warrants.
(22)
Includes 195,233 shares of common stock issuable upon the exercise of outstanding warrants.
(24)
Includes 232,160 shares of common stock issuable upon the exercise of outstanding warrants.
(25)
Includes 45,000 shares of common stock issuable upon the exercise of outstanding warrants.
(26)
Includes 70,833 shares of common stock issuable upon the exercise of outstanding warrants.
(27)
Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.
(28)
Includes 333,833 shares of common stock issuable upon the exercise of outstanding warrants.
(29)
Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.
(30)
Includes 266,333 shares of common stock issuable upon the exercise of outstanding warrants.
(31)
Includes 166,667 shares of common stock issuable upon the exercise of outstanding warrants.
(32)
Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.
None of the selling security holders are
broker-dealers or affiliates of broker-dealers, other than Meyers Associates, LP which is a broker-dealer and a member of FINRA
and Meyers Associates, LP received placement agent warrants as compensation for services in the ordinary course of its business
as the placement agent for our recent 2012 offering. Meyers Associates LP transferred a portion of the warrants it received from
us as compensation to George Johnson, Joseph Mahalick, and Christopher Wynne as compensation to them in the regular course of their
employment with that firm.  At the time of the receipt of the warrants, none had any agreement or understanding, directly
or indirectly, with any person to distribute those securities. None of the selling security holders has, or within the past three
years has had, any position, office or other material relationship with us or any of our predecessors or affiliates, other than
as described previously in this section.
We have agreed to pay full costs and expenses,
incentives to the issuance, offer, sale and delivery of the shares, including all fees and expenses in preparing, filing and printing
the registration statement and prospectus and related exhibits, amendments and supplements thereto and mailing of those items.
We will not pay selling commissions and expenses associated with any sale by the selling security holders.
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 June 30, 2012 there were
187,071,442
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.
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.
50
Preferred
Stock
Our
authorized capital includes 10,000,000 shares of blank check preferred stock, par value $0.001 per share. 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 convertible 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. Presently, there are 626,667 shares of our Series B convertible
preferred stock issued and outstanding.
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.
51
COMMON STOCK PURCHASE
WARRANTS
We
currently have outstanding common stock purchase warrants to purchase an aggregate of 290,000 shares of our common stock at an
exercise prices $0.50 per share. These warrants expire between December 31, 2012 and February 28, 2012. The exercise price of the
warrants is subject to pro-rata adjustment in the event of stock splits, recapitalizations and similar corporate events.
Warrants issued in
the September 2011 private offering
In
connection with our September 2011 private offering, we issued five year Series N warrants to purchase up to an aggregate of 10,738,939
shares of our common stock with an
exercise price of $0.15 per share, including 976,267placement agent warrants issued to
Anderson and Strudwick, Inc. The warrants are callable by us at a call price of $0.25 per underlying common share should our common
stock trade at or above $0.25 per share, based on the reported closing bid price of the common stock on the OTC Bulletin Board
for 10 consecutive trading days, following 20 business days' prior written notice.
The exercise price and call price of the
warrants are subject to adjustment in the event of stock splits, recapitalizations and similar corporate events.
Warrants issued in November 2011 private offering
In connection with November 2011 private
offering, we issued Series O, Series P and Series Q warrants to purchase up to an aggregate of 82,092,138 shares of our common
stock, as adjusted. with an initial exercise price of $0.074 per share, as adjusted, and subject to adjustment as described below
and including warrants to purchase 2,092,595 shares as placement agent compensation. The Series O warrants and Series P warrants
are each immediately exercisable. The Series Q warrants become exercisable at any time that any portion of the Series P warrants
are exercised. The term of the Series O warrants is five years from the issue date, the term of the Series P warrants is one year
from the Applicable Date, as that term is defined in the warrant, and the term of the Series Q warrants is five years from the
Applicable Date. Other than the exercise periods, all three series of warrants are identical. The warrants are also exercisable
on a cashless basis during the first six months the warrants are outstanding or at any time the registration statement covering
the shares issuable upon the exercise of the warrants is not effective. The warrants are not exercisable if, after giving effect
to the exercise, the holder or any of its affiliates would be the beneficial owner as determined in accordance with the rules of
the SEC of in excess of 4.9% of our outstanding shares of common stock. If we issue options, convertible securities, warrants or
similar securities to holders of our common stock, the warrant holders shall have the right to acquire the same as if they had
exercised the warrants into common stock.
The exercise price is subject to adjustment
for stock splits, combinations or similar events, and, in such event, the number of shares issuable upon the exercise of the warrants
will also be adjusted such that the aggregate warrant exercise price shall be the same immediately before and immediately after
such adjustment. In addition, the warrant exercise price is also subject to a "full ratchet" anti-dilution adjustment
which, in the event that we issue or are deemed to have issued, certain securities at a price lower than the then applicable warrant
exercise price, immediately reduces warrant exercise price to equal the price at which we issued or was deemed to have issued,
our common stock.
If we sell or issue any options or convertible
securities that are convertible into or exchangeable or exercisable for shares of our common stock at a price which varies or may
vary with the market price of the shares of common stock, including by way of one or more reset(s) to a fixed price, but exclusive
of such formulations reflecting customary anti-dilution provisions, the holder of a warrant will have the right to substitute the
variable price for the warrant exercise price upon exercise of all or part the warrant.
Warrants issued in the 2012 offering
In connection with our 2012 private offering,
we issued 14,801,554 Series R five common stock purchase warrants which are exercisable at $0.15 per share, including warrants
to purchase 1,345,596 shares as placement agent compensation. The warrants are also exercisable on a cashless basis at any time
after 12 months that the registration statement covering the shares issuable upon the exercise of the warrants is not effective.
The warrants are not exercisable if, after giving effect to the exercise, the holder or any of its affiliates would be the beneficial
owner as determined in accordance with the rules of the SEC of in excess of 4.9% of our outstanding shares of common stock. This
limitation may be increased by the holder to 9.99% upon 61 days prior notice to us.
52
The
exercise price of the warrants is subject to adjustment in the event of stock splits, recapitalizations and similar corporate events.
Generally, whenever the number of shares our common stock underlying the warrant is adjusted, as herein provided, the exercise
price payable upon the exercise of the warrant will be adjusted to that price determined by multiplying the exercise price immediately
prior to the adjustment by a fraction (i) the numerator of which will be the number of shares of our common stock purchasable upon
exercise of the warrant immediately prior to the adjustment, and (ii) the denominator of which will be the number of shares of
our common stock purchasable upon exercise of the warrant immediately after the adjustment.
The Series R warrants are callable by us
in the event the closing price of our common shares on the OTC Bulletin Board closes at or above $0.25 per share for 10 consecutive
trading days, providing that the shares of our common stock underlying the warrants are covered by an effective registration statement.
If we distribute to all holders of our common stock any shares of capital stock, other than common stock, or evidences of our indebtedness
or assets, excluding cash dividends or distributions paid from retained earnings or our current year's or prior year's
earnings, or rights or warrants to subscribe for or purchase any of our securities while the warrant is outstanding, we agreed
to reserve shares or other units of these securities for distribution to the warrant holder upon exercise of the warrant so that,
in addition to the shares of our common stock the holder will receive upon exercise, the holder will also receive upon exercise
the amount and kind of these additional securities which the warrant holder would have received if the warrant holder had, immediately
prior to the record date for the distribution of the securities, exercised the warrant.
SENIOR CONVERTIBLE NOTES
In
connection with November 2011 private offering, we issued $2,012,500
principal
senior convertible notes. The senior convertible notes are senior unsecured indebtedness of our company, senior to all other indebtedness
other than our obligations to Sand Hill Finance, LLC, with which it is pari passu, and guaranteed by our subsidiaries. The senior
convertible notes do not bear any interest unless there has been an "event of default" as described below, at which
time interest begins accruing at 18% per annum, compounded quarterly. Monthly installment payments on the principal amount of the
senior convertible notes begin on the earlier of six months from the issuance date of the notes or upon the effectiveness of the
registration statement registering the shares of our common stock into which the senior convertible notes are convertible; the
registration statement was declared effective by the SEC on February 8, 2012.
Installment payments under the senior convertible
notes may either be made in shares of our common stock or cash. We are not able to make the installment payments in shares of our
common stock if there has been an "equity conditions failure" or "dollar failure." Generally, under the
terms of the senior convertible notes an "equity conditions failure" means that the shares of our common stock issuable
for the installment payment are not covered by an effective registration statement or the issuance of the shares would cause the
holder or its affiliates to be the beneficial owners of in excess of 4.9% of our outstanding common stock, together with certain
other "equity conditions" as described in the senior convertible notes. A "dollar failure" means that the
average of the aggregate trading volumes of our common stock for the 20 trading days preceding the installment date has not equaled
or exceeded $25,000. If we cannot make installment payment in shares of common stock because one of these conditions is not satisfied,
we must make such payment in cash. Unless previously converted into shares of our common stock, the senior convertible notes mature
on May 23, 2013. Except as described below, we have no right to prepay any amounts due under the senior convertible notes.
The senior convertible notes are convertible
at the option of the holders into shares of our common stock at an initial conversion price of $0.074 per share, as adjusted. The
conversion price is subject to adjustment for stock splits, combinations or similar events. The conversion price is also subject
to a "full ratchet" anti-dilution adjustment which, in the event that we issue or are deemed to have issued, certain
securities at a price lower than the then applicable conversion price, immediately reduces the conversion price to equal the price
at which we issued or were deemed to have issued our common stock. In addition, if we sell or issue any options or convertible
securities that are convertible into or exchangeable or exercisable for shares of our common stock at a price which varies or may
vary with the market price of the shares of common stock, including by way of one or more reset(s) to a fixed price, but exclusive
of such formulations reflecting customary anti-dilution provisions, the holder of a senior convertible note will have the right
to substitute the variable price for the fixed conversion price upon conversion of all or part of the note. The senior convertible
notes provide that no conversion may be made if, after giving effect to the conversion, the holder or any of its affiliates would
be the beneficial owner as determined in accordance with the rules of the SEC of in excess of 4.9% of our outstanding shares of
common stock.
53
Beginning at any time after the earlier
of the 30th calendar day immediately following the date that the registration statement was declared effective by the SEC or the
210th day from the issuance date of the senior convertible notes, and upon at least 10 days but not more than 30 days prior notice
to the holders, we have the right to redeem all amounts outstanding under the senior convertible notes in cash for an amount equal
to 110% of the greater of the amount to be redeemed and the product of the conversion rate and the closing sale price of our common
stock on the trading day immediately preceding the notice of redemption.
The senior convertible notes contain a variety
of events of default which generally include the following events and which apply to these events by our subsidiaries as well,
where applicable:
—
failure to pay any amounts due under the senior convertible notes when due;
—
an occurrence of default under other of our obligations or our bankruptcy, insolvency, reorganization or liquidation;
—
a judgment against us in excess of $25,000 or if we should fail to pay when due any indebtedness due any other creditor in excess of $10,000;
—
if the effectiveness of the registration statement lapses for more than five consecutive days or more than 10 days in any 365-day period;
—
the occurrence of a "material adverse effect" as
        described in the Securities Purchase Agreement which means
any material adverse effect on:
·
our business, properties, assets, liabilities, operations, condition or prospects of our company or any subsidiary, either individually
        or taken as a whole,
·
the transactions contemplated by the private placement documents, or
·
the authority or ability of our company or any of our subsidiaries to perform any of their respective obligations under any of
        the private placement documents;
—
the failure to issue shares upon conversion of a senior convertible note or exercise of a warrant for more than five trading days after the relevant conversion date or exercise date;
—
notification of our intention not to comply with a request for conversion or exercise; and
—
the failure to remove any restrictive legend on any certificate or any shares of common stock issued upon conversion or exercise required by the terms of Securities Purchase Agreement, unless otherwise prohibited by applicable federal securities laws, and such failure remains uncured for five days.
If there is an event of default, upon election
of the holders of at least 20% of the outstanding principal amount of the senior convertible notes, we will be obligated to redeem
all or any portion of the senior convertible notes, including all accrued and unpaid interest, in cash, at a price equal to the
greater of:
—
110% of the amount being converted, depending on the nature of the default, and
—
the product of (a) the amount being converted multiplied by the closing bid price of our common stock on the trading date immediately before the date of redemption multiplied by (b) the highest closing sale price of our common stock during the period beginning on the date immediately preceding such event of default and ending on the trading day immediately prior to the trading day that the redemption price is paid by us.
We have agreed not to take certain actions
while the senior convertible notes are outstanding, including:
—
incur other indebtedness which is due before 91 days from the payment in full of the senior convertible notes, except for certain permitted indebtedness, nor will we incur any liens, except for certain permitted liens,
54
—
accelerate the payment of any indebtedness,
—
pay any dividends or redeem any of our securities,
—
making cash expenditures in excess of $400,000 during any measuring period, as specified in the senior convertible notes,
—
change the nature of our business, or
—
issue any shares of our capital stock other than for cash or in connection with options which may be granted to our officers, directors and employees.
If we issue options, convertible securities,
warrants or similar securities to holders of our common stock, the holders of the senior convertible notes shall have the right
to acquire the same as if they had converted their senior convertible note into common stock.
SHARES ELIGIBLE FOR FUTURE
SALE
As of June
30, 2012 there were
187,071,442
shares of common stock issued and
outstanding of which approximately 65,996,518 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 security holders or the effect, if any, that sales of shares by such security
holders 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 security holders could adversely affect prevailing market prices.
LEGAL
MATTERS
The validity of the securities
offered by this prospectus will be passed upon for us by Pearlman Schneider, LLP, 2200 Corporate Boulevard, N.W., Boca Raton, Florida  33431.
EXPERTS
Our
financial statements as of and for the years ended September 30, 2011 and 2010 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.
55
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.
56
INDEX
TO FINANCIAL STATEMENTS
Unaudited consolidated financial statements for the three and nine months ended June 30, 2012 including:
PAGE #
Balance Sheets;
F-2
Statements of Operations;
F-3
Statements of Cash Flows;
F-4
Notes to Financial Statements
F-5
Audited consolidated financial statements for the years ending September
    30, 2011 and 2010.
Report of Independent Registered Public Accounting Firm
F-20
Balance Sheets;
F-21
Statements of Operations;
F-22
Statements of Stockholders' Equity (Deficit); and
F-23
Statements of Cash Flows;
F-24
Notes to Financial Statements
F-25
F-
1
ICEWEB, Inc.
Consolidated Balance Sheets
June 30,
2012
(Unaudited)
September
30,
    2011
(1)
CURRENT ASSETS:
Cash
$
774,012
$
4,120
Subscription receivable
-
1,171,520
Accounts receivable, net of allowance of $409,000
1,336,591
1,182,060
Inventory
282,602
55,981
Other current assets
13,750
6,877
Prepaid expenses
30,449
30,248
2,437,404
2,450,806
OTHER ASSETS:
Property and equipment, net
354,643
252,835
Deposits
13,320
13,320
Other assets
1,544
-
Marketable Securities
164,000
115,200
Deferred financing costs, net
107,180
-
Total Assets
$
3,078,091
$
2,832,161
CURRENT LIABILITIES:
Accounts payable and accrued liabilities
$
1,032,235
$
2,186,691
Notes payable
2,016,245
1,972,544
Convertible notes payable, net of discount
328,478
-
Derivative liability
4,523,086
-
Deferred revenue
-
4,904
Total Liabilities
7,900,044
4,164,139
STOCK HOLDERS' DEFICIT
Preferred Stock ($.001 par value; 10,000,000 shares authorized)
Series B convertible preferred stock ($.001 par value; 626,667 shares issued and outstanding)
626
626
Common stock ($.001 par value; 1,000,000,000 shares authorized; 187,233,942 shares issued and 203,172,274 shares outstanding and 158,121,066 shares issued and 157,959,066 shares outstanding, respectively)
187,073
157,961
Additional paid in capital
35,854,358
32,866,315
Accumulated deficit
(40,851,010
)
(34,328,080
)
Accumulated other comprehensive income
83,000
67,200
Subscription receivable
(83,000
)
(83,000
)
Treasury stock, at cost, (162,500 shares)
(13,000
)
(13,000
)
Total stockholders' Deficit
(4,821,953
)
(1,331,978
)
Total Liabilities and stockholders' Deficit
$
3,078,091
$
2,832,161
(1) Derived from audited financial statements
See accompanying notes to unaudited consolidated
financial statements
F-
2
ICEWEB, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
Nine Months Ended
June 30
June 30
2012
2011
2012
2011
Sales
$
654,996
$
719,727
$
2,546,852
$
2,514,164
Cost of sales
444,015
380,784
1,669,704
1,317,299
Gross profit
210,981
338,943
877,148
1,196,865
Operating expenses:
Sales and marketing
308,698
123,955
641,255
898,299
Depreciation and amortization expense
33,797
124,831
149,435
418,625
Research and development expense
289,242
187,810
708,325
547,579
General and administrative
438,795
495,963
1,331,939
1,617,786
Total Operating Expenses
1,070,532
932,559
2,830,954
3,482,289
Loss from operations
(859,551
)
(593,616
)
(1,953,806
)
(2,285,424
)
Other income (expenses):
Gain/(loss) on change in fair value of derivative liability
(2,156,007
)
-
(2,773,086
)
-
Interest income
-
-
22
-
Interest expense
(984,317
)
(104,653
)
(1,796,060
)
(302,908
)
Total other income (expenses):
(3,140,324
)
(104,653
)
(4,569,124
)
(302,908
)
Net loss
$
(3,999,875
)
$
(698,269
)
$
(6,522,930
)
$
(2,588,332
)
Loss per common share basic and diluted
$
(0.01
)
$
(0.00
)
$
(0.04
)
$
(0.02
)
Weighted average common shares outstanding basic and diluted
170,774,234
143,553,735
162,922,093
140,673,273
See accompanying notes to unaudited consolidated
financial statements
F-
3
ICEWEB, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
June 30,
2012
2011
NET CASH USED IN OPERATING ACTIVITIES
$
(4,375,749
)
$
(1,827,791
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in marketable securities
(33,000
)
-
Purchase of property and equipment
(217,446
)
(60,061
)
NET CASH USED IN INVESTING ACTIVITIES
(250,446
)
(60,061
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible note payable
1,750,000
-
Proceeds from subscription receivable
1,171,520
-
Proceeds from conversion of warrants
102,460
-
Payment of financing costs
(571,270
)
-
Proceeds from the sale of restricted common stock
1,834,347
409,464
Proceeds from notes payable
301,896
818,481
Proceeds from exercise of common stock options
180,717
720,148
Proceeds from payments on convertible debenture
884,612
-
Payments on notes payable
(258,195
)
(596,213
)
NET CASH PROVIDED BY FINANCING ACTIVITIES
5,396,087
1,351,880
NET INCREASE (DECREASE) IN CASH
769,892
(535,972
)
CASH - beginning of period
4,120
540,156
CASH - end of period
$
774,012
$
4,184
Supplemental disclosure of cash flow information:
Cash paid for :
Interest
$
214,686
$
198,225
Income taxes
—
—
See accompanying notes to unaudited consolidated
financial statements
F-
4
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 2012
NOTE 1 - NATURE OF BUSINESS
Headquartered just outside of Washington, D.C., we manufacture
high performance unified data storage appliances with enterprise storage management capabilities.  Through thin provisioning,
target deduplication and inline compression managed through IceWEB's proprietary IceSTORM™ Operating System, IceWEB's
unified storage appliances enable standardization, consolidation and optimized storage utilization for virtual and cloud environments,
saving up to 90% of storage costs, while reducing space, power and cooling requirements and simplifying storage management. 
Our customer base includes mid-sized businesses, large enterprises, and government organizations.
Major shifts in data center environments toward virtual and
cloud based infrastructures have significantly increased the need for storage resources that can handle the complex and mixed systems
that combine both file and block data.  Unified Data Storage from IceWEB reduces this complexity by providing a simplified
environment to enable virtualization and cloud computing deployments, protection, and cost savings.  Unified Data Storage
also provides cost savings through optimized storage utilization, made possible through IceWEB's thin provisioning, storage
pooling, compression and deduplication.
We generate revenue from the manufacture and sale of high-performance
unified data storage appliances with IceWEB's proprietary IceSTORM
TM
(STorage Optimization and Resource Management)
Operating System.
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 2012 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, 2011
and 2010 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, 2011 we incurred a net loss of $4,705,291 and for the Nine Months Ended June 30,
2012 we incurred a net loss of $6,522,930. 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.
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.
F-
5
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
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 2012 and 2011 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, derivative liabilities, 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 $409,000 as of June 30, 2012. Management performs
ongoing evaluations of its accounts receivable. Management believes that all remaining receivables are fully collectable. Bad debt
expense amounted to $0 for the three and nine months ended June 30, 2012.
Derivative Liability
The Company issued warrants to purchase
the Company's common stock in connection with the issuance of convertible debt, which contain certain ratchet provisions
that reduce the exercise price of the warrants or the conversion price in certain circumstances.  Upon the Company's
adoption of the Derivative and Hedging Topic of the FASB Accounting Standards Codification ("ASC 815") on January 1,
2009, the Company determined that the warrants and/or the conversion features with provisions that reduce the exercise price of
the warrants did not qualify for a scope exception under ASC 815 as they were determined not to be indexed to the Company's
stock as prescribed by ASC 815.
Derivatives are required to be recorded
on the balance sheet at fair value (see Note 7).  These derivatives, including embedded derivatives in the Company's
structured borrowings, are separately valued and accounted for on the Company's balance sheet.  Fair values for
exchange traded securities and derivatives are based on quoted market prices.  Where market prices are not readily available,
fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment
and estimates. In addition, additional disclosures is required about (a) how and why an entity uses derivative instruments, (b)
how derivative instruments and related hedged items are accounted for and (c) how derivative instruments and related hedged items
affect an entity's financial position, financial performance, and cash flows.
Fair Value Measurements
Fair value is defined as the exchange
price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.  The
established fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value.  The standard describes three levels of inputs that may be used to measure fair value:
Level 1:  Observable inputs
such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:  Inputs other than
quoted prices that are observable for the asset or liability, either directly or indirectly.  These include quoted prices
for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not
active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable.  Valuations
may be obtained from, or corroborated by, third-party pricing services.
F-
6
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
Level 3:  Unobservable inputs
to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using
reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without
undue cost and effort.
Fair Value of Financial Instruments
The Company's financial instruments,
including cash and cash equivalents, receivables, accounts payable and accrued liabilities and notes payable are carried at cost,
which approximates their fair value, due to the relatively short maturity of these instruments.
Our derivative financial instruments,
consisting of embedded conversion features in our convertible debt, which are required to be measured at fair value on a recurring
basis under FASB ASC 815-15-25 or FASB ASC 815 as of June 30, 2012 are measured at fair value, using a Black-Scholes valuation
model which approximates a binomial lattice valuation methodology utilizing Level 3 inputs. Level 3 inputs are unobservable inputs
that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities (see
Note 7).
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 expense is recorded by using the straight-line method
over the estimated useful lives of the related assets.
Software Development Costs
The costs for the development of new
software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility
has been established, at which time any additional costs would be capitalized in accordance with the accounting guidance for software.
Because our current process for developing
software is essentially completed concurrently with the establishment of technological feasibility, which occurs upon the completion
of a working model, no costs have been capitalized for any of the periods presented.
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 Company periodically reevaluates the carrying value of its
intangible assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part
of this reevaluation, the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the
expected future cash flows is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying
value of the intangible asset to the estimated fair value of the asset.
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.
Advertising
Advertising
costs are expensed as incurred and amounted to $93,975 in fiscal 2012 and $215,428 in fiscal 2011.
F-
7
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
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. 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" 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 June 30, 20112, there were options and warrants to purchase 96,961,072
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, "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, "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 Standards
In May 2011, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-04, "Fair Value
Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International
Financial Reporting Standards" ("IFRS"). The amendments in this ASU generally represent clarification of Topic
820, but also include instances where a particular principle or requirement for measuring fair value or disclosing information
about fair value measurements has changed. This update results in common principles and requirements for measuring fair value and
for disclosing information about fair value measurements in accordance with GAAP and IFRS. The amendments are effective for interim
and annual periods beginning after December 15, 2011 and are to be applied prospectively. Early application is not permitted.
We do not expect the adoption of ASU 2011-04 will have a material impact on the Company's Condensed Consolidated Financial
Statements.
F-
8
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE
2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
In June 2011, the FASB issued ASU No.
2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" (amended further under ASU No.
2011-12 in December 2011). This guidance eliminates the current option to report other comprehensive income and its components
in the statement of changes in equity. The guidance allows two presentation alternatives; present items in net income and other
comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but
consecutive, statements of net income and other comprehensive income. This guidance is effective as of the beginning of a fiscal
year that begins after December 15, 2011. Early adoption is permitted, but full retrospective application is required under
both sets of accounting standards. The Company is currently evaluating which presentation alternative it will utilize.
In September 2011, the FASB issued
ASU No. 2011-08, "Intangibles—Goodwill and Other (Topic 350): Testing Goodwill for Impairment", which simplifies
how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment
using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to
its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount
of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first
assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it
is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances,
an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount,
then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment
under the two-step process as described in Topic 350 under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments
are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011
and early adoption is permitted. The Company is currently evaluating whether early adoption is necessary.
In December 2011, the FASB issued Accounting Standards Update
(ASU) No, 2011-11,
Balance Sheet
(Topic 210):
Disclosures about Offsetting Assets and Liabilities
.
The amendments in this ASU require an entity to disclose information about offsetting and related arrangements on its financial
position. This includes the effect or potential effect of rights of offset associated with an entity's recognized assets
and recognized liabilities and require improved information about financial instruments and derivative instruments that are either
(1) offset in accordance with Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master
netting arrangement or similar agreement, irrespective of whether they are offset in accordance with Section 210-20-45 or
Section 915-10-45. The amendments are effective for annual reporting periods beginning on or after January 1, 2013 and
retrospective disclosure is required for all comparative periods presented. No early adoption is permitted. Currently, the Company
does not enter into any right of offset arrangements and expects implementation to have little or no impact.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment, net, consists of the following:
Estimated Life
June 30, 2012
September 30,
2011
Office equipment
5 years
$
448,831
$
836,041
Computer software
3 years
29,523
612,379
Furniture and fixtures
5 years
-
261,385
Leasehold improvements
2 - 5 years
1,030,845
1,026,470
1,509,199
2,736,275
Less: accumulated depreciation
(1,154,556
)
(2,483,440
)
$
354,643
$
252,835
Depreciation expense for the Nine Months Ended June 30, 2012
and 2011 was $149,435 and $236,306 respectively.
F-
9
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 4 - INVENTORY
Inventory consisted of the following:
June 30, 2012
September, 30,
2011
Raw materials
$
226,082
$
44,785
Work in progress
42,390
8,397
Finished goods
14,130
2,799
$
282,602
$
55,981
NOTE 5 - NOTES PAYABLE
Sand Hill Finance, LLC
On December 19, 2005, the Company entered into a Financing Agreement
with Sand Hill Finance, LLC pursuant to which, together with related amendments, the Company may borrow up to 80% on the Company's
accounts receivable balances up to a maximum of $1,800,000. In conjunction with the acquisition of Inline Corporation in December,
2008, the lending limit on the credit facility was increased to $2,750,000. In addition, the Company and Sand Hill Finance, LLC
entered into a 36 month term note agreement in the amount of $1,000,000. Amounts borrowed under the Financing Agreement are secured
by a first security interest in substantially all of the Company's assets. At June 30, 2012, the principal amount due under
the Financing Agreement amounted to $2,016,245.
Interest on the accounts receivable-based borrowings is payable
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. The Company 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, the Company is 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, the Company 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 exercise price was subsequently reduced to $0.50 per share pursuant to Warrant Amendment Agreement
which was executed in conjunction with the convertible debenture. 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 the Company's 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, 2008.
In connection with the term note, the Company issued Sand Hill
Finance, LLC a seven-year common stock purchase warrant to purchase 120,000 shares of our common stock at an exercise price of
$1.00 per share. The exercise price was subsequently reduced to $0.50 per share pursuant to Warrant Amendment Agreement which was
executed in conjunction with the convertible debenture. 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 the Company's 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 $13,589 has
been recorded as an addition to paid-in capital and deferred finance costs during the year ended September 30, 2009.
F-
10
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 5 - NOTES PAYABLE
(continued)
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 restrict the Company
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.
In November, 2011, in connection with the Company's private
placement of convertible notes and Securities Purchase Agreement (see Note 9), Sand Hill Finance, LLC executed an amendment to
the Financing Agreement in which Sand Hill Finance LLC agreed that they would not pursue any remedies of default under the Financing
Agreement until at least the ninety-first day after the obligations under the convertible notes have been fully satisfied.
NOTE 6 - CONCENTRATION OF CREDIT RISK
Bank Balances
The Company maintains
cash in financial institutions insured by the Federal Deposit Insurance Corporation ("FDIC"), including non-interest
bearing transaction account deposits protected in full in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection
Act (the "Dodd-Frank Act"). At June 30, 2012 all of the Company's cash balances were fully insured. The Company
has not experienced any losses in such accounts.
NOTE 7 - INVESTMENTS
(a) Summary of Investments
Marketable Equity Securities
:
As of June 30, 2012,  the Company's investments in
marketable equity securities are based on the June 30, 2012  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:
June 30, 2012
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Publicly traded equity securities
$
81,000
$
83,000
$
—
$
164,000
Total
$
81,000
$
83,000
$
—
$
164,000
F-
11
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 7 - INVESTMENTS (continued)
September 30, 2011
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Publicly traded equity securities
$
48,000
$
67,200
$
—
$
115,200
Total
$
48,000
$
67,200
$
—
$
115,200
The unrealized gains are presented in comprehensive income in
the consolidated statement of operations and comprehensive income.
(b) Unrealized Gains and Losses on Investments
The following table summarizes the unrealized net gains (losses)
associated with the Company's investments:
Three Months Ended
Nine months Ended
June 30
June 30
2012
2011
2012
2011
Net gains/(loss) on investments in publicly traded equity securities
$
(164,000
)
$
(32,000
)
$
15,800
$
(384,000
)
Net gains/(loss) on investments
$
(164,000
)
$
(32,000
)
$
15,800
$
(384,000
)
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.
F-
12
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 7 - INVESTMENTS (continued)
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)
June 30, 2012
Marketable Equity Securities, net of discount for effect of restriction
$
—
$
—
$
164,000
Liabilities:
Derivative liabilities
$
—
$
—
$
4,523,086
September 30, 2011
Marketable Equity Securities, net of discount for effect of restriction
$
—
$
—
$
115,200
Liabilities:
Derivative liabilities
$
—
$
—
$
—
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.
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 Nine Months Ended June 30, 2012 or 2011.
The Company has evaluated its publicly traded equity securities
as of June 30, 2012, 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 8 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income is comprised of net income (loss) 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 accumulated other comprehensive income consists of unrealized
gains on marketable securities available for sale of $83,000 at June 30, 2012, and $67,200 at September 30, 2011.
NOTE 9 – CONVERTIBLE NOTES
On November 23, 2011, IceWEB, Inc.
(the "Company") entered into a Securities Purchase Agreement (the "Purchase Agreement") with three accredited
investors pursuant to which the Company sold $2,012,500 in principal amount of Senior Convertible Notes (the "Notes")
and issued the investors Series O, Series P and Series Q Warrants (collectively, the "Warrants") to purchase up to
an aggregate of 81,588,029 shares, as adjusted, of the Company's common stock for an aggregate purchase price of $1,750,000
in a private transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act")
in reliance on an exemption from registration pursuant to Section 4(2) and Regulation D of the Securities Act.     The
Company issued the Notes at an original issue discount of 13%.
F-
13
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 9 –
CONVERTIBLE NOTES (continued)
June 30,
September 30,
2012
2011
Principal balance of convertible notes
$
1,127,887
$
-
Original issue discount, net
(104,270
)
-
Debt discount
(695,139
)
-
Convertible notes, net of discount
$
328,478
$
-
The convertible notes have a remaining principal balance of
$1,127,887, and are carried on the balance sheet at $328,478 net of the remaining unamortized discount, which is being amortized
as interest expense over the remaining life of the notes. The convertible notes are convertible into our common stock at a conversion
price of $0.074 per share. We can elect to settle any conversion in stock, cash or a combination of stock and cash.
At June 30, 2012, conversion of the outstanding principal amount
of the convertible notes would result in the issuance of 15,241,730 shares of common stock.
NOTE 10 - DERIVATIVE LIABILITIES
Derivative warrant liability
The Company has warrants issued in
connection with our convertible notes payable outstanding with price protection provisions that allow for the reduction in the
exercise price of the warrants in the event the Company subsequently issues stock or securities convertible into stock at a price
lower than the exercise price of the warrants.  Simultaneously with any reduction to the exercise price, the number of
shares of common stock that may be purchased upon exercise of each of these warrants shall be increased or decreased proportionately,
so that after such adjustment the aggregate exercise price payable for the adjusted number of warrants shall be the same as the
aggregate exercise price in effect immediately prior to such adjustment.  The Company accounted for its warrants with
price protection in accordance with FASB ASC Topic 815.
Accounting for Derivative Warrant
Liability
The Company's derivative warrant
instruments have been measured at fair value at June 30, 2012 using the Black-Scholes model.  The Company recognizes
all of its warrants with price protection in its consolidated balance sheet as liabilities.  The liability is revalued
at each reporting period and changes in fair value are recognized currently in the consolidated statements of operations.  The
initial recognition and subsequent changes in fair value of the derivative warrant liability have no effect on the Company's
cash flows.
The derivative warrants outstanding
at June 30, 2012 are all currently exercisable with a weighted-average remaining life of 4.40 years.
The revaluation of the warrants at
each reporting period, as well as the charges associated with issuing additional warrants due to the price protection features,
resulted in the recognition of expense of $2,773,086 and $0 within the Company's consolidated statements of operations for
the Nine Months Ended June 30, 2012 and 2011, respectively, under the caption "Change in fair value of derivative warrant
liability".  The fair value of the warrants at June 30, 2012 is $4,523,086 which is reported on the consolidated
balance sheet under the caption "Derivative Liability".  The following summarizes the changes in the value
of the derivative warrant liability from the date of the Company's issuance of derivative warrant instruments on November
23, 2011 until June 30, 2012:
F-
14
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 10 - DERIVATIVE
LIABILITIES (continued)
Value
No. of Warrants
Warrants Issued on November 23, 2011– Derivative warrant liability
$
1,750,000
81,588,029
Increase in fair value of derivative warrant liability
2,773,086
n/a
Additional warrants from price protection features of existing warrants
Balance at June 30, 2012 – Derivative warrant liability
$
4,523,086
81,588,029
Fair Value Assumptions Used in Accounting
for Derivative Warrant Liability
The Company has determined its derivative
warrant liability to be a Level 3 fair value measurement and has used the Black-Scholes pricing model to calculate the fair value
as of June 30, 2012.  The Black-Scholes model requires six basic data inputs: the exercise or strike price, time to expiration,
the risk free interest rate, the current stock price, the estimated volatility of the stock price in the future, and the dividend
rate.  Because the warrants contain the price protection feature, the probability that the exercise price of the warrants
would decrease as the stock price decreased was incorporated into the valuation calculations.  The key inputs used in
the June 30, 2012 fair value calculations were as follows:
June 30,
2012
Exercise price
$
0.074
Time to expiration
0.4 – 4.40 years
Risk-free interest rate
0.21% – 0.67
%
Estimated volatility
274
%
Dividend
-0-
Stock price on June 30, 2012
$
0.135
Expected forfeiture rate
50
%
NOTE 11 - COMMITMENTS
We are on a month to month tenancy in our office space in Sterling,
Virginia, as our two-year operating lease expired on March 31, 2011.  The office lease agreement had certain escalation
clauses and renewal options.  We currently have no future minimum rental payments under operating leases.
F-
15
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 12 – STOCKHOLDERS' DEFICIT
Common Stock Warrants
The outstanding warrants at June 30,
2012 have a weighted average exercise price of $0.084 per share and have a weighted average remaining life of 3.59 years.
Certain of these warrants contain provisions
which cause them to be classified as derivative liabilities pursuant to Accounting Standards Codification subtopic 815-40,
"Derivatives
and hedging—Contracts in Entity's Own Equity"
(ASC 815-40). Accordingly, upon issuance the warrants
were recorded as a derivative liability and valued at a fair market value of $1,750,000 which also reduced the carrying value of
the convertible notes payable. As a result of the sale of restricted stock units in June, 2012, the price protection provisions
of these certain warrants were triggered and resulted in an adjustment to the conversion price of the warrants from $0.17/share
to $0.074/share, and simultaneously a commensurate adjustment to the number of shares covered by the warrants was made. A total
of 46,679,584 additional shares were issued as a result of the ratchet provisions. The fair value of these warrants was increased
to $4,523,086 as of June 30, 2012. The non-cash expense adjustment recorded in the Statement of Operations for the Nine Months
Ended June 30, 2012 was approximately $2,773,086. We are required to continue to adjust the warrants to fair value through current
period operations for each reporting period.
The Company's issuance of the
following securities will not trigger the price protection provisions of the warrants described above that were issued in connection
with the November 2011 private placement:  (a) shares of common stock or standard options to the Company's directors,
officers, employees or consultants pursuant to a board-approved equity compensation program or other contract or arrangement; (b)
shares of common stock issued upon the conversion or exercise of any security, right or other instrument convertible or exchangeable
into common stock (or securities exchangeable into common stock) issued prior to November 23, 2011; and (c) shares of common stock
and warrants in connection with strategic alliances, acquisitions, mergers, and strategic partnerships, the primary purpose of
which is not to raise capital, and which are approved in good faith by the Company's board of directors.
A summary of the status of the Company's
outstanding common stock warrants as of June 30, 2012 and changes during the period ending on that date is as follows:
Number of
Weighted Average
Warrants
Exercise Price
Common Stock Warrants
Balance at beginning of year
11,528,934
$
0.170
Granted
84,106,138
0.074
Exercised
(838,000
)
0.122
Forfeited
0
—
Balance at end of period
94,797,072
0.84
Warrants exercisable at end of period
94,797,072
$
0.084
Weighted average fair value of warrants granted or re-priced during the period
$
.074
F-
16
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 12 – STOCKHOLDERS' DEFICIT
(continued)
The following table summarizes information about common stock
warrants outstanding at June 30, 2012:
Warrants Outstanding
Warrants Exercisable
Range of
Exercise
Price
Number
Outstanding
at
June 30,
2012
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
Exercisable at
June 30,
2012
Weighted
Average
Exercise
Price
$
0.074
83,768,138
3.19 Years
$
0.074
83,768,138
$
0.074
$
0.15
10,738,934
4.25 Years
$
0.150
10,738,934
$
0.150
$
0.50
290,000
1.28 Years
$
0.500
290,000
$
0.500
94,797,072
$
0.084
94,797,072
$
0.084
NOTE 13 - 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 the Company at exercise prices determined by the Company's Board of directors. The Plan was approved by the Company's
stockholders in August 2001.
The purpose of the Plan is to advance the
Company's 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, the Company believes 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 the Company's officers, directors,
other key employees and consultants who have responsibilities affecting our management, development or financial success.
F-
17
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 13 - STOCK OPTION PLAN (continued)
Awards may be made under the Plan in the
form of Plan options, shares of the Company's 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 October, 2010, the Plan permits
the grant of options and shares for up to 60,000,000 shares of the Company's common stock. The Plan terminates 10 years from
the date of the Plan's adoption by the Company's 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 the Company's 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. The Company used the following assumptions for
determining the fair value of options granted under the Black-Scholes option pricing model:
June 30,
2012
2011
Expected volatility
N/A
323% - 325
%
Expected term
N/A
1 - 5 Years
Risk-free interest rate
N/A
0.03
%
Forfeiture Rate
N/A
0% - 45
%
Expected dividend yield
N/A
0
%
The expected volatility was determined
with reference to the historical volatility of the Company's stock. The Company uses historical data to estimate option exercise
and employee termination 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 Nine Months Ended June 30, 2012,
total stock-based compensation charged to operations for option-based arrangements amounted to $29,615. At June 30, 2012, there
was approximately $23,138 of total unrecognized compensation expense related to non-vested option-based compensation arrangements
under the Plan.
F-
18
ICEWEB, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012
NOTE 13 - STOCK OPTION PLAN (continued)
A summary of the status of the Company's
outstanding stock options as of June 30, 2012 and changes during the period ending on that date is as follows:
Number of
Options
Weighted Average
Exercise Price
Stock options
Balance at beginning of year
4,104,487
$
0.37
Granted
—
—
Exercised
(532,325
)
0.34
Forfeited
(1,448,162
)
0.53
Balance at end of period
2,124,000
$
0.38
Options exercisable at end of period
2,086,500
$
0.29
Weighted average fair value of options granted during the year
$
—
The following table summarizes information about employee stock
options outstanding at June 30, 2012:
Options Outstanding
Options Exercisable
Range of
Exercise
Price
Number
Outstanding
at
June 30,
2012
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
Number
Exercisable at
June 30,
2012
Weighted
Average
Exercise
Price
$
0.001-0.15
1,249,000
1.34 Years
$
0.06
1,211,500
$
0.06
0.17-0.41
25,000
0.72 Years
0.27
25,000
0.37
0.55-0.70
850,000
0.19 Years
0.61
850,000
0.60
2,124,000
$
0.38
2,086,500
$
0.29
NOTE 14 - 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 June 30, 2012 and 2011 all material assets and revenues
of the Company were in the United States.
NOTE 15 - SUBSEQUENT EVENTS
During the month of July, 2012 our convertible note holders
converted $609, 606 of their notes balance into 8,560,944 of our common stock. In addition we sold 2,860,125 common stock units
as part of a PIPE transaction that closed in July, 2012, and we had warrants exercised into 675,000 of our common stock in July,
2012. Other than the disclosures shown, management did not identify any events or transactions that should be recognized or disclosed
in the accompanying financial statements.
F-
19
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, 2011 and 2010 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, 2011 and September 30, 2010 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 $4,705,291 and $6,964,233 respectively, for the years ended September
30, 2011 and 2010. 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 22, 2011
F-
20
IceWEB,
Inc. and Subsidiaries
Consolidated
Balance Sheets
September 30,
2011
September 30,
2010
CURRENT ASSETS:
Cash
$
4,120
$
540,156
Subscription receivable
1,171,520
-
Accounts receivable, net of allowance for doubtful accounts of $409,000
1,182,060
1,466,483
Inventory, net
55,981
62,197
Other current assets
6,877
6,875
Prepaid expenses
30,248
31,230
2,450,806
2,106,941
OTHER ASSETS:
Property and equipment, net of accumulated depreciation of $2,483,440 and $2,180,643, respectively
252,835
418,873
Deposits
13,320
13,320
Marketable Securities, net
115,200
524,800
Intangible assets, net of accumulated amortization of $911,591 and $668,498, respectively
-
546,952
Total Assets
$
2,832,161
$
3,610,886
CURRENT LIABILITIES:
Accounts payable and accrued liabilities
$
2,186,691
$
1,648,252
Notes payable
1,972,544
1,649,140
Deferred revenue
4,904
59,582
Total Current Liabilities
4,164,139
3,356,974
Stockholders' Equity (Deficit)
Series B convertible preferred stock ($.001 par value; 626,667 shares issued and outstanding)
626
626
Common stock ($.001 par value; 1,000,000,000 shares authorized; 157,959,066 shares issued and 134,443,725 shares outstanding, respectively)
157,961
134,445
Additional paid in capital
32,866,315
29,360,833
Accumulated deficit
(34,328,080
)
(29,622,792
)
Accumulated other comprehensive income
67,200
476,800
Subscription receivable
(83,000
)
(83,000
)
Treasury stock, at cost, (162,500 shares)
(13,000
)
(13,000
)
Total stockholders' equity (deficit)
(1,331,978
)
253,912
Total Liabilities and stockholders' Equity (Deficit)
$
2,832,161
$
3,610,886
See
accompanying notes to consolidated financial statements
F-
21
IceWEB,
Inc. and Subsidiaries
Consolidated
Statements of Operations
For the Year Ended
September 30,
2011
2010
Sales
$
2,678,346
$
3,353,286
Cost of sales
1,751,640
1,742,110
Gross profit
926,706
1,611,176
Operating expenses:
Sales and marketing expense
975,282
1,690,684
Depreciation and amortization expense
545,890
662,003
Research and development
790,048
547,364
General and administrative
2,605,999
5,312,247
Loss on impairment of intangible assets
303,859
-
Total operating expenses
5,221,078
8,212,298
Loss From Operations
(4,294,372
)
(6,601,122
)
Other income (expenses):
Gain on extinguishment of debt
-
190,136
Interest expense
(410,919
)
(553,247
)
Total other income (expenses):
(410,919
)
(363,111
)
Net loss
$
(4,705,291
)
$
(6,964,233
)
Net loss per common share - basic and diluted
$
(0.03
)
$
(0.07
)
Weighted average common shares outstanding - basic and diluted
142,344,070
101,379,729
See
accompanying notes to consolidated financial statements
F-
22
IceWEB,
Inc. and Subsidiaries
Consolidated
Statement of Changes in Stockholders' Equity (Deficit)
For
the years ended September 30, 2011 and 2009
Series B
Additional
Preferred Stock
Common Stock
Paid-In
Accumulated
Comprehensive
Subscription
Treasury Stock
Shares
Amount
Shares
Amount
Capital
Deficit
Income
Receivable
Share
Amount
Total
Balance at September 30, 2009
626,667
626
68,469,617
68,471
20,065,001
(22,658,556
)
—
—
(162,500
)
(13,000
)
(2,537,458
)
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
$
(29,622,789
)
$
476,800
$
(83,000
)
(162,500
)
$
(13,000
)
$
253,912
Amortization of deferred compensation
—
—
—
—
131,680
—
—
—
—
—
131,680
Issuance of common stock for cash
—
—
14,053,334
14,054
1,445,578
—
—
—
—
—
1,459,632
Common stock issued for services
—
—
1,032,544
1,033
228,937
—
—
—
—
—
229,970
Common stock issued to employees
—
—
2,113,101
2,113
430,502
—
—
—
—
—
432,615
Common stock issued for exercise of options
—
—
6,791,361
6,791
1,268,310
—
—
—
—
—
1,275,101
Cancellation of shares
(475,000
)
(475
)
475
—
Other Comprehensive income
—
—
—
—
—
—
(409,600
)
—
—
—
(409,600
)
Net loss for the year
—
—
—
—
—
(4,705,291
)
—
—
—
—
(4,705,291
)
Net Comprehensive loss
—
—
—
—
—
(4,705,291
)
(409,600
)
—
—
—
(5,114,891
)
Balance at September 30, 2011
626,667
$
626
157,959,066
$
157,960
$
32,866,315
$
(34,328,080
)
$
67,200
$
(83,000
)
(162,500
)
$
(13,000
)
$
(1,331,978
)
See
accompanying notes to consolidated financial statements
F-
23
IceWEB,
Inc. and Subsidiaries
Consolidated
Statements of Cash Flows
For the Year Ended
September 30,
2011
2010
Net loss
$
(4,705,291
)
$
(6,964,233
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
545,890
662,003
Loss on impairment of intangible assets
303,859
—
Share-based compensation
369,385
867,365
Amortization of deferred compensation
131,680
1,627,919
Gain on sale of discontinued operations
—
—
Common stock issued for services rendered
293,199
509,484
Common stock issued for settlement
—
401,783
Amortization of deferred finance costs
27,500
27,015
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable
284,423
(1,104,934
)
Prepaid expense
982
(33,545
)
Other
(27,499
)
Inventory
6,216
89,164
Deposits
—
—
Increase (decrease) in:
Accounts payable and accrued liabilities
538,441
(259,757
)
Deferred revenue
(54,678
)
49,321
NET CASH USED IN OPERATING ACTIVITIES
(2,285,893
)
(4,128,415
)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
(136,759
)
(85,624
)
Investment in marketable securities
—
(48,000
)
NET CASH USED IN INVESTING ACTIVITIES
(136,759
)
(133,624
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable
836,024
1,602,024
Payments on notes payable
(512,621
)
(1,835,395
)
Proceeds from sale of common stock
288,111
2,380,630
Proceeds from exercise of common stock options
1,275,102
2,591,626
NET CASH PROVIDED BY FINANCING ACTIVITIES
1,886,616
4,738,885
NET INCREASE (DECREASE) IN CASH
(536,036
)
476,846
CASH - beginning of period
540,156
63,310
CASH - end of period
$
4,120
$
540,156
Supplemental disclosure of cash flow information:
Cash paid for:
Interest
$
383,419
$
526,232
Income taxes
$
—
$
—
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for debt and interest
$
—
$
—
Common stock issued in connection with convertible debenture
$
—
$
1,090,136
Common stock issued in connection with acquisition/disposition
$
$
See
accompanying notes to consolidated financial statements
F-
24
IceWEB,
Inc. and Subsidiaries
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Years
ended September 30, 2011 and 2010
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 2011, 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, 2011 and 2010 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, 2011 we incurred a net loss of $4,705,291. 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.
F-
25
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
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 2011 and 2010 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 $409,000 as of September 30, 2011. Management performs ongoing
evaluations of its accounts receivable. Management believes that all remaining receivables are fully collectable. Bad debt expense
amounted to $102,076 and $336,568 for the Years ended September 30, 2011 and 2010, 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 expense is recorded 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 Company periodically reevaluates the carrying value of its intangible
assets for events or changes in circumstances that indicate that the carrying value may not be recoverable. As part of this reevaluation,
the Company estimates the future cash flows expected to result from the use of the asset. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss is recognized to reduce the carrying value of the intangible
asset to the estimated fair value of the asset.
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-
26
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 2 - BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising
Advertising costs are
expensed as incurred and amounted to $238,482 in fiscal 2011 and $162,862 in fiscal 2010.
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, 2011, there
were options and warrants to purchase 15,633,425 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-
27
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 3 - PROPERTY AND
EQUIPMENT
At September 30, property
and equipment consisted of the following:
Estimated
Life
2011
2010
Office equipment
5 years
$
836,041
$
699,282
Computer software
3 years
612,379
612,379
Furniture and fixtures
5 years
261,385
261,385
Leasehold improvements
5 years
1,026,470
1,026,470
2,736,275
2,599,516
Less: accumulated depreciation
(2,483,440
)
(2,180,643
)
$
252,835
$
418,873
Depreciation expense for
the years ended September 30, 2011 and 2010 was $302,797 and $418,913 respectively.
NOTE 4 - INTANGIBLE ASSETS
At September 30, intangible
assets consist of the following:
2011
2010
Manufacturing GSA Schedule
$
-
$
750,000
Customer relationships  intangible
-
465,452
-
1,215,452
Less: accumulated amortization
-
(668,500
)
$
-
$
546,952
Amortization expense amounted
to $243,093 for the year ended September 30, 2011, and $243,090 for the year ended September 30, 2010.
Amortization expense subsequent
to the year ended September 30, 2011 is $0.
The Company periodically
reevaluates the carrying value of its intangible assets for events or changes in circumstances that indicate that the carrying
value may not be recoverable. As part of this reevaluation, the Company estimates the future cash flows expected to result from
the use of the asset. If the sum of the expected future cash flows is less than the carrying amount of the asset, an impairment
loss is recognized to reduce the carrying value of the intangible asset to the estimated fair value of the asset.
At September 30, 2011,
the Company determined that its sales model in future periods would not substantially benefit from the customer relations or manufacturing
GSA schedules that we own.  Accordingly, management deemed these intangible assets to be fully impaired at September
30, 2011 and reduced their carrying values to zero.  A loss on impairment of $303,859 has been included in operating
expenses.
F-
28
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 5 - RELATED PARTY
TRANSACTIONS
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 September 30, 2011 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.
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 800,000 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.  Mr. Lucky resigned his positions with VOIS in September 2010.
Prior to our investment
in VOIS, both Mr. John R. Signorello had a personal relationship 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 1,125,000 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 at the time of the purchase
of the shares by us.
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-
29
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
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, 2011, the
principal amount due under the Financing Agreement amounted to $1,972,544. This amount is included in the note payable balance
of $1,972,544 on the balance sheet at September 30, 2011.
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 $0.50 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 $0.50 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, 2010.
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.
In addition, we have been in default
under the terms of the Financing Agreement, however Sand Hill Finance has provided a waiver and forbearance agreement that provides
that no obligations under the financing agreement shall become due and payable until the 91st day after the obligations under the
convertible notes (as discussed in Note 17 - Subsequent Events) have been satisfied. Sand Hill Finance agreed that no remedies
available to them under the Financing Agreement (including foreclosure) will be pursued until after such date.
F-
30
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 7 - INVENTORY
Inventory consisted of
the following:
September 30,
2011
September 30,
2010
Raw materials
$
44,785
$
49,757
Work in progress
8,397
9,330
Finished goods
2,799
3,110
55,981
62,197
Less: reserve for obsolescence
—
—
$
55,981
$
62,197
NOTE 8 - COMMITMENTS
We lease office space
in Sterling, Virginia under a two-year operating lease that expired on March 31, 2011. We are currently leasing our space on a
month-to-month basis but plan to renew the lease for another year.  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. We
have no future minimum rental payments required.
Rent expense was $76,397
and $78,076 for the years ended September 30, 2011 and 2010.
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, 2011 and 2009 the Company has no unrecognized tax benefits, interest, or penalties.
F-
31
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 9 - INCOME TAXES
(continued)
A summary of our deferred
tax is as follows:
2011
2010
Deferred Tax Assets:
Tax benefit of net operating loss carry forward
$
4,324,000
$
5,360,000
Unpaid accrued salaries
24,000
17,000
Allowance for doubtful accounts
113,000
113,000
Reserve for legal settlement
-
353,000
Amortization of leasehold improvements
271,000
182,000
Amortization of intangibles
-
302,000
4,732,000
6,327,000
Less: valuation allowance
(4,732,000
)
(6,327,000
)
Net deferred tax assets
$
—
$
—
As of September 30, 2011
we had unused net operating loss carry forwards of approximately $11,500,000 available to reduce our future federal taxable income.
Net operating loss carryforwards expire through fiscal years ending 2031. 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, 2011 was $4,732,000. The decrease during fiscal 2011 was approximately $1,595,000.
Net operating loss carryforwards
and the associated deferred tax asset were reduced during fiscal September 30, 2011 to reflect reversals of certain temporary differences
and management's re-assessment of its net operating loss carryforwards for tax purposes.
The table below summarizes
the differences between our effective tax rate and the statutory federal rate as follows for fiscal 2011 and 2010. The effective
tax rate is 34% Federal and 3.6% State after Federal tax benefit:
2011
2010
Computed "expected" tax benefit
(34.0
)%
(34.0
)%
State income taxes
(3.6
)%
(3.6
)%
Other permanent differences
10.8
%
1.0
%
Change in valuation allowance
26.8
%
36.6
%
Effective tax rate
0.0
%
0.0
%
NOTE 10 - CONCENTRATION
OF CREDIT RISK
Bank Balances
The Company is subject to concentrations of credit risk primarily
from cash.  At September 30, 2011, the FDIC insured deposits up to $250,000.  At September 30, 2011, the Company's
bank balances did not exceed the FDIC insurance limit. While the Company periodically evaluates the credit quality of the
financial institutions in which it holds deposits, it cannot reasonably alleviate the risk associated with the sudden possible
failure of such financial institutions.
Major Customers
Sales to 5 customers represented
approximately 90% of total sales for the year ended September 30, 2011. As of September 30, 2011 approximately 84% of our accounts
receivable was due from one customer. Sales to eight customers represented approximately 89% in 2010.
F-
32
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
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
All shares of Series A
Convertible Preferred Stock were converted into shares of our common stock in fiscal 2008. As of September 30, 2011 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, 2011.
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 of 1933 in
reliance on an exemption provided by Section 4(2) of that act.
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-
33
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
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.
Common Stock
Fiscal 2011 Transactions
On September 30, 2011 we sold approximately
9,762,671 restricted stock units at $0.12/unit.  Each unit consists of one share of common stock and a warrant exercisable
for one share of common stock.  The warrants have a five year life, an exercise price of $0.15/share, and are callable
if the Company's common stock trades over $0.25/share for ten consecutive trading days.
Anderson and Strudwick, Inc. acted as the
placement agent in connection with the sale of the securities and as compensation received a cash fee of approximately $114,127,
and warrants to purchase approximately 976,267 shares of the Company's common stock at a price per share of $0.15.
The sale of the Shares and the Warrants
was made pursuant to Section 4(2) of the Securities Act for transactions not involving a public offering and/or Regulation D, as
promulgated by the SEC under the Securities Act of 1933, and in reliance upon exemptions from registration under applicable state
securities laws.
During
February, 2011 we sold 2,000,000 shares of common stock, valued at $200,000 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, 2011 we sold 250,000 shares of common stock, valued at $25,000 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
May, 2011 we sold 1,609,600 shares of common stock, valued at $184,464 to two accredited investors, 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
July, 2011 we sold 416,667 shares of common stock, valued at $91,541 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.
F-
34
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 11 - STOCKHOLDERS'
EQUITY (DEFICIT) (continued)
Fiscal 2010 Transactions
During fiscal 2010, we
issued 18,715,000 of our common stock in connection with the exercise of options under our stock option plan.
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-
35
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
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, 2011 and 2010 and changes during the period ending on that date is
as follows:
Year Ended September 30,
2011
Year Ended September 30,
2010
Number of
Warrants
Weighted
Average
Exercise
Price
Number of
Warrants
Weighted
Average
Exercise
Price
Common Stock Warrants
Balance at beginning of year
8,287,100
$
0.40
225,000
$
1.78
Granted
11,238,938
0.16
8,137,100
0.40
Exercised
—
—
—
—
Forfeited
(7,997,100
)
0.40
(75,000
)
6.00
Balance at end of year
11,528,938
$
0.17
8,287,100
$
0.40
Warrants exercisable at end of year
11,528,938
$
0.17
8,287,100
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, 2011:
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
2011
Life
Price
2011
Price
$
0.15
10,738,938
5.00 Years
$
0.15
10,738,938
$
0.15
$
0.40
500,000
0.53 Years
$
0.40
500,000
$
0.40
$
0.50
290,000
2.03 Years
$
0.50
290,000
$
0.50
11,528,938
$
0.17
11,528,938
$
0.17
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-
36
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
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 2011,
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,
2011
2010
Expected volatility
129% - 325
%
129% - 325
%
Expected term
1 - 5 Years
1 - 5 Years
Risk-free interest rate
0.03% - 0.48
%
0.03% - 0.48
%
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.
F-
37
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 12 - STOCK OPTION
PLAN (continued)
For the year ended September
30, 2011, total stock-based compensation charged to operations for option-based arrangements amounted to $131,680. At September
30, 2011, there was approximately $42,608 of total unrecognized compensation expense related to non-vested option-based compensation
arrangements under the Plan.
A summary of the status
of our outstanding stock options as of September 30, 2011 and changes during the period ending on that date is as follows:
Year Ended September 30,
Year Ended September 30,
2011
2010
Weighted
Weighted
Average
Aggregate
Average
Aggregate
Exercise
Intrinsic
Exercise
Intrinsic
Price
Value
Price
Value
Stock options
Balance at beginning of year
11,604,404
$
0.27
10,944,483
$
0.27
$
Granted
-
-
32,410,000
$
0.09
-
Exercised
(6,791,361
)
$
0.19
(30,570,600
)
$
0.09
-
Forfeited
(708,556
)
$
0.50
(1,179,479
)
$
0.16
Balance at end of year
4,104,487
$
0.37
$
184,493
11,604,404
$
0.27
$
1,351,502
Options exercisable at end of year
3,647,720
$
0.40
$
155,252
9,691,237
$
0.30
$
1,037,335
Weighted average fair value of options granted during the year
$
-
$
0.078
The following table summarizes
information about employee stock options outstanding at September 30, 2011:
Options Outstanding
Options 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
2011
Life
Price
2011
Price
$
0.001-0.25
1,739,367
2.59 Years
$
0.06
1,358,000
$
0.06
0.30-0.48
100,400
4.83 Years
0.28
25,000
0.37
0.54-0.60
1,764,720
1.1 Years
0.59
1,764,720
0.59
0.61-0.80
500,000
0.65 Years
0.70
500,000
0.70
4,104,487
$
0.37
3,647,720
$
0.40
NOTE 13 - 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, 2011,
 the Company's investments in marketable equity securities are based on the September 30, 2011  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-
38
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 13 - INVESTMENTS
(continued)
SEPTEMBER 30, 2011
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Publicly traded equity securities
$
48,000
$
67,200
$
—
$
115,200
Total
$
48,000
$
67,200
$
—
$
115,200
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
2011
2010
Net gains/(loss) on investments in publicly traded equity securities
$
67,200
$
476,800
Net gains on investments
$
67,200
$
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 effect of restriction
$
—
$
—
$
115,200
F-
39
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 13 - 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, 2011 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, 2011 or for the year ended September
30, 2010.
The Company has evaluated
its publicly traded equity securities as of September 30, 2011, 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 14 - 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 $67,200.
NOTE 15 - 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,
2011 and 2010 all material assets and revenues of the Company were in the United States.
F-
40
IceWEB, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended September 30, 2011 and 2010
NOTE 16 - 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.
NOTE 17 - SUBSEQUENT EVENTS
On November 23, 2011, IceWEB, Inc. (the "Company")
entered into a Securities Purchase Agreement (the "Purchase Agreement") with three accredited investors pursuant to
which the Company sold $2,012,500 in principal amount of Senior Convertible Notes (the "Notes") and issued the investors
Series O, Series P and Series Q Warrants (collectively, the "Warrants") to purchase up to an aggregate of 35,514,708
shares of the Company's common stock for an aggregate purchase price of $1,750,000 in a private transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act") in reliance on an exemption from registration pursuant
to Section 4(2) and Regulation D of the Securities Act.     The Company issued the Notes at an original
issue discount of 13%.  We also entered into a Registration Rights Agreement with investors in which we agreed to register
the shares underlying the Notes and the Warrants.
We paid Rodman & Renshaw, LLC, a broker-dealer
and member of FINRA who acted as the exclusive placement agent for us in the offering, a cash commission of $155,000, issued it
warrants to purchase an aggregate of 911,765 shares of our common stock with an exercise price of $0.17 per share which are identical
to the Series O Warrants, and reimbursed it for legal expenses of $20,000. We reimbursed Iroquois Master Fund Ltd., an investor
in the offering, $60,000 for its non-accountable expenses related to the investment.  We are using the net proceeds from
this offering for general working capital.
The Purchase Agreement contains customary
covenants on our part that are typical for transactions of this type, as well as the following additional covenants:
Ÿ
we agreed not to file any registration statement, other than the registration
statement we are required to file under the Registration Rights Agreement described below or a registration statement on Form S-4
or S-8, until the first date on which the resale by the investors of all shares of common stock underlying the securities sold
in the offering is either covered by one or more effective registration statements or may be resold pursuant to Rule 144 under
the Securities Act without the need for current public information required by Rule 144 (the "Applicable Date");
Ÿ
we agreed not conduct any other securities offerings until 30th trading
day after the Applicable Date, except for certain excluded securities, and while the Notes and Warrants are outstanding, we agreed
not to enter into any variable rate transactions;
Ÿ
we agreed to offer to the investors, until the first anniversary of
the closing date, the opportunity to participate in any subsequent securities offerings by our company;
Ÿ
so long as the Notes or Warrants are outstanding, we agreed not to
issue any securities other than for cash or in connection with options which may be granted to our officers, directors and employees;
and
Ÿ
we are required to enter into an amendment with Sand Hill Finance,
LLC for our factoring agreement to extend the maturity date of the agreement to at least 91 days after all obligations under the
Notes have been satisfied, among other modifications.
The Company has evaluated
subsequent events through the filing date of this Form 10-K, and determined that no subsequent events have occurred that would
require recognition in the financial statements or disclosure in the notes thereto other than as discussed in the accompanying
notes.
F-
41
TABLE
OF CONTENTS
Page
About this Prospectus
2
Prospectus Summary
2
Summary of the Offering
3
Terms of the Offering with the Selling Security holders
4
Special Note Regarding Forward-Looking Statements
2
Selected Consolidated Financial Data
3
Risk Factors
5
Market for Common Equity and Related Stockholder Matters
15
Plan of Distribution
15
Management's Discussion and Analysis of Financial Condition and Results of Operations
17
Our Business
30
Management
36
Executive Compensation
41
Certain Relationships and Related Transactions
46
Principal Stockholders
46
Use of Proceeds
48
Selling Stockholders
48
Description of Securities
50
Legal Matters
55
Experts
55
Where You Can Find Additional Information
55
Index to Financial Statements
F-1
IceWEB,
Inc.
PROSPECTUS
39,258,270
Shares
of Common Stock
[  
], 2012
F-
2
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*
$
553
Legal Fees and Expenses*
25,000
Accounting Fees and Expenses*
7,500
Financial Printing*
400
Transfer Agent Fees*
1,620
Miscellaneous*
235
TOTAL
$
35,308
*
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.
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.
II-
1
Fiscal 2012 Transactions
In May, 2012 we executed a 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 $2.5
million in aggregate principal amount of Equity or Equity-related securities.   We sold 13,455,958 units in exchange
for gross proceeds of $1,614,715.  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.
On November 23, 2011, we entered into a
Securities Purchase Agreement with three accredited investors pursuant to which we sold $2,012,500 in principal amount of senior
convertible notes and issued the investors Series O, Series P and Series Q warrants to purchase up to an aggregate of 35,514,789
shares of our common stock for an aggregate purchase price of $1,750,000 in a private transaction exempt from registration under
the Securities Act. We issued the senior convertible notes at an original issue discount of 13%. We also entered into a Registration
Rights Agreement with investors in which we agreed to register the shares underlying the senior convertible notes and the warrants.
We paid Rodman & Renshaw, LLC, a broker-dealer and member of FINRA who acted as the exclusive placement agent for us in the
offering, a cash commission of $155,000, issued it warrants to purchase an aggregate of 911,765 shares of our common stock with
an exercise price of $0.17 per share which are identical to the Series O warrants, and reimbursed it for legal expenses of $20,000.
We reimbursed Iroquois Master Fund Ltd., an investor in the offering, $60,000 for its non-accountable expenses related to the investment.
We are using the net proceeds from this offering for general working capital.
Fiscal 2011 Transactions
On September 30,
2011 we sold approximately 9,762,671 restricted stock units at $0.12/unit.  Each unit consists of one share of common
stock and a warrant exercisable for one share of common stock.  The warrants have a five year life, an exercise price
of $0.15/share, and are callable if our company's common stock trades over $0.25/share for ten consecutive trading days.
Anderson and Strudwick,
Inc. acted as the placement agent in connection with the sale of the securities and as compensation received a cash fee of approximately
$114,127, and warrants to purchase approximately 976,267 shares of our company's common stock at a price per share of $0.15.
The sale of the
Shares and the Warrants was made pursuant to Section 4(2) of the Securities Act for transactions not involving a public offering
and/or Regulation D, as promulgated by the SEC under the Securities Act, and in reliance upon exemptions from registration under
applicable state securities laws.
During
February, 2011 we sold 2,000,000 shares of common stock, valued at $200,000 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, 2011 we sold 250,000 shares of common stock, valued at $25,000 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
May, 2011 we sold 1,609,600 shares of common stock, valued at $184,464 to two accredited investors, 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
July, 2011 we sold 416,667 shares of common stock, valued at $91,541 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-
2
Fiscal 2010 Transactions
During
fiscal 2010, we issued 18,715,000 of our common stock in connection with the exercise of options under our stock option plan.
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.
II-
3
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.
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.
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 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.
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 us. 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 us.  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.
II-
4
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 us.  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 us.  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
we 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.
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 (25)
4.14
Warrant Amendment Agreement with Sand Hill Finance LLC (25)
4.15
Form of Series Common Stock Purchase Warrant "N" (26)
II-
5
4.16
Form of Senior Convertible Note (27)
4.17
Form of Series Common Stock Purchase Warrant "O" (27)
4.18
Form of Series Common Stock Purchase Warrant "P" (27)
4.19
Form of Series Common Stock Purchase Warrant "Q" (27)
4.20
Form of Series Common Stock Purchase Warrant "R" *
5.1
Opinion of Pearlman Schneider 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)
10.4
Stock Purchase Agreement with Health Span Sciences, Inc. (7)
10.5
Stock Purchase and Exchange Agreement with Interlan Communications (9)
10.6
Preferred Stock Purchase Agreement dated March 30, 2005 (12)
10.7
Registration Rights Agreement with Barron Partners LP (12)
10.8
Asset and Stock Purchase Agreement for iPlicity, Inc.(16)
10.9
Asset and Stock Purchase Agreement for DevElements, Inc. of Virginia (15)
10.10
Form of Loan and Security Agreement with Comerica Bank (16)
10.11
Forbearance Agreement (16)
10.12
Sublease Agreement for principal executive offices (16)
10.13
Preferred Stock Purchase Agreement dated September 8, 2005 (18)
10.14
Registration Rights Agreement with Barron Partners LP (18)
10.15
Financing Agreement with Sand Hill Finance LLC (18)
10.16
Lease Agreement for principal executive offices (19)
10.17
Retailer Marketing Agreement with CompUSA (20)
10.18
Stock Purchase Agreement with Inline Corporation (21)
10.19
First Amendment to Stock Purchase Agreement with Inline Corporation (21)
10.20
Convertible Debenture with Sand Hill Finance LLC (22)
10.21
Stock Purchase Agreement for Sale of IceWEB Virginia, Inc. (23)
10.22
Series C Preferred Stock Purchase Agreement (24)
10.23
Form of Securities Purchase Agreement for senior note offering (27)
10.24
Form of subsidiary guarantee (27)
10.25
Form of Registration Rights Agreement for senior note offering (27)
10.26
Letter agreement dated August 16, 2011 by and between IceWEB, Inc. and Rodman & Renshaw LLC, as amended (27)
10.27
Form of Subscription Agreement *
10.28
Form of Registration Rights Agreement *
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
Opinion of Pearlman Schneider LLP (included in Exhibit 5.1 hereto)*
*
filed herewith
(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.
II-
6
(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 February 20, 2004.
(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 Amendment No. 1 to the Report on Form 8-K/A as filed on February 20, 2004.
(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, 2009.
(22)
Incorporated by reference to the Report on Form 8-K as filed on December 1, 2009.
(23)
Incorporated by reference to the Report on Form 8-K as filed on April 15, 2010.
(24)
Incorporated by reference to the Report on Form 8-K as filed on July 31, 2010.
(25)
Incorporated by reference to the registration statement on Form S-1, SEC file number 333-167501, as amended.
(26)
Incorporated by reference to the Report on Form 8-K as filed on November 16, 2011.
(27)
Incorporated by reference to the Report on Form 8-K as filed on November 23, 2011.
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.          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-
7
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 17
th
day of August,
2012.
ICEWEB, INC.
By:
/s/ Robert M. Howe III
Robert M. Howe III. Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below
hereby constitutes and appoints Hal Compton, Sr. his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such attorney-in-fact
and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully
to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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/ Robert M. Howe III
Chief Executive Officer
August 17, 2012
Robert M. Howe III
/s/ Hal Compton, Sr.
Chairman
August 17, 2012
Hal Compton, Sr.
/s/ Mark B. Lucky
Chief Financial Officer, principal financial and
August 17, 2012
Mark B. Lucky
accounting officer
II-
8
/s/ Nick Carosi, III
Director
August 17, 2012
Nick Carosi, III
/s/ Raymond H. Pirtle, Jr.
Director
August 17, 2012
Raymond H. Pirtle, Jr.
/s/ Jack Bush
Director
August 17, 2012
Jack Bush
/s/ Harry E. Soyster
Director
August 17, 2012
Harry E. Soyster
II-
9
EXHIBIT INDEX
No.
Description
4.20
Form of Series Common Stock Purchase Warrant "R"
10.27
Form of Subscription Agreement
10.28
Form of Registration Rights Agreement
5.1
Opinion of Schneider Weinberger LLP
23.1
Consent of Sherb & Co., LP
23.2
Consent of Schneider Weinberger LLP (included in Exhibit 5.1)