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<P STYLE="margin-top: 0; text-align: center; margin-bottom: 0">&nbsp;</P>

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

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

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

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

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

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<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"><B>FORM S-1</B></P>

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

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(State or other jurisdiction of</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">incorporation or organization)</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">3572</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(Primary Standard Industrial Classification
Code<BR>
Number)</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">13-2640971</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">(I.R.S. Employer Identification No.)</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">22900 Shaw Road, Suite 111</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">area code, of registrant&rsquo;s principal
executive offices)</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">Mark B. Lucky, CFO</P>

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">including area code, of agent for service,)</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"><B>Approximate date of commencement of proposed
sale to the public:</B></P>

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

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

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<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="font-family: Times New Roman, Times, Serif">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:&nbsp;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">x</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="font-family: Times New Roman, Times, Serif">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;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&uml;</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="font-family: Times New Roman, Times, Serif">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;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&uml;</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="font-family: Times New Roman, Times, Serif">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;&nbsp;</FONT><FONT STYLE="font-family: Wingdings">&uml;</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">Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 24%">Large accelerated filer</TD>
    <TD STYLE="width: 25%"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD STYLE="width: 36%">Accelerated filer</TD>
    <TD STYLE="width: 15%"><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Non-accelerated filer</TD>
    <TD><FONT STYLE="font-family: Wingdings">&uml;</FONT></TD>
    <TD>Smaller reporting company&nbsp; &nbsp; &nbsp; &nbsp; &nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings">x</FONT></TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<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; background-color: white"><B>CALCULATION
OF REGISTRATION FEE</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; 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><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: center"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Proposed&nbsp;Maximum</FONT></TD><TD 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 COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Proposed&nbsp;Maximum</FONT></TD><TD 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 COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Amount&nbsp;of</FONT></TD><TD 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 COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Amount&nbsp;to&nbsp;be</FONT></TD><TD 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 COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Offering&nbsp;Price&nbsp;Per</FONT></TD><TD 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 COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Aggregate&nbsp;Offering</FONT></TD><TD 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 COLSPAN="2" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 8pt">Registration</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Title&nbsp;of&nbsp;Each&nbsp;Class&nbsp;of&nbsp;Securities&nbsp;to&nbsp;be&nbsp;Registered</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Registered</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><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 COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Shares</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><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 COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Price</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><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 COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Fee&nbsp;(4)(5)</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%"><FONT STYLE="font-size: 8pt">Common stock, $0.001 par value per share, (1)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">13,455,958</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">0.07</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">941,917</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="width: 10%; text-align: right"><FONT STYLE="font-size: 8pt">108</FONT></TD><TD STYLE="width: 1%; text-align: left"><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 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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Common stock, par value $0.001 per share, issuable upon exercise
    of warrants issued to investors (2)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">21,768,108</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.074</FONT></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">1,610,840</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">185</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">Common stock, par value $0.001 per share, issuable
    upon exercise of warrants issued to investors (3)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">14,801,554</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">0.15</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><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">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">2,220,233</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 8pt">254</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">Total</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">50,025,620</FONT></TD><TD STYLE="text-align: left; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">$</FONT></TD><TD STYLE="text-align: right; border-bottom: Black 2.5pt double"><FONT STYLE="font-size: 8pt">547</FONT></TD><TD STYLE="text-align: left; padding-bottom: 2.5pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>



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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><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"><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 $0.074 per share.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><SUP>3</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"><SUP>4</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"><SUP>5.</SUP>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
filing fee of $528 previously paid in connection with the registration statement on Form S-1, SEC File No. 333-183463 as initially
filed by IceWEB, Inc. on August 21, 2012 is being offset against the total registration fee due hereunder.</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.</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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>EXPLANATORY NOTE</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">Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
included in this registration statement is a combined prospectus relating to this registration statement and the registration statement
on Form S-1, SEC File No. 333-183463, previously filed by the registrant on August 21, 2012 and declared effective by the Securities
and Exchange Commission on September 11, 2012 (the &ldquo;Earlier Registration Statement&rdquo;), which related to the resale of
up to 38,996,445 shares of common stock including 13,455,958 shares which are presently outstanding and 25,540,487 shares issuable
upon the exercise of warrants with an exercise price of $0.15 per share from time to time by the selling security holders named
therein. None of the shares covered by the Earlier Registration Statement have been sold pursuant to the Earlier Registration Statement.
This registration statement, which is a new registration statement, combines 38,996,445 unsold shares from the Earlier Registration
Statement with an additional 11,029,175 shares registered hereby for resale by the selling security holders named in the prospectus.</P>

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

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<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; color: red; text-align: justify">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"><B>PRELIMINARY PROSPECTUS</B> &nbsp; <B>SUBJECT
TO COMPLETION, DATED SEPTEMBER ____, 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; text-align: center"><B>50,025,620&nbsp;Shares</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; text-align: center"><B>IceWEB, Inc.</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: center"><B>Common Stock</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-indent: 0.5in">This prospectus relates to the sale by the
selling security holders identified in this prospectus of up to&nbsp;50,025,620 shares of our common stock, which includes&nbsp;13,455,958
shares which are presently outstanding and 36,569,662 shares issuable upon the exercise of warrants with exercise prices ranging
from $0.074 to $0.15 per share.&nbsp; All of these shares of our common stock are being offered for resale by the selling security
holders.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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 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.</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">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 September 19, 2012, was $0.07 per share.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in"><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 <FONT STYLE="background-color: yellow">3</FONT> of this prospectus before making a
decision to purchase our common stock.</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-indent: 0.5in"><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></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"><B>The date of this prospectus is&nbsp;[&nbsp;
&nbsp; ], 2012</B></P>

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

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<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"><B>ABOUT THIS PROSPECTUS</B></P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>PROSPECTUS SUMMARY</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-indent: 27pt"><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></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">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.</P>

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">The information which appears on our web site at <U>www.iceweb.com</U>&nbsp;is
not part of this prospectus.</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>About Us</I></B></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</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: center"><B>SPECIAL NOTE REGARDING FORWARD LOOKING
STATEMENTS</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-indent: 0.5in">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.</P>

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

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<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; background-color: white"><B>SELECTED CONSOLIDATED
FINANCIAL DATA</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; text-indent: 0.5in; background-color: white; text-align: left">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.</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">SELECTED INCOME STATEMENT DATA:</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>&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">Three&nbsp;months&nbsp;ended&nbsp;June&nbsp;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">Nine&nbsp;months&nbsp;ended&nbsp;June&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">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; background-color: rgb(204,255,204)">
    <TD STYLE="width: 40%; text-align: left">Net Revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; text-align: right">654,996</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; 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">$</TD><TD STYLE="width: 12%; text-align: right">2,546,852</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; 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 STYLE="text-align: left">Total operating expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,070,532</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">932,559</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,830,954</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,482,289</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 from operation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(859,551</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(593,616</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,953,806</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,285,424</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total other expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,140,324</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(104,653</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,569,124</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(302,908</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(3,999,875</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(698,269</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(6,522,930</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(2,588,332</TD><TD STYLE="text-align: left">)</TD></TR>
</TABLE>

<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">SELECTED BALANCE SHEET DATA:</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>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">June&nbsp;30,</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">September&nbsp;30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&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="font-weight: bold; padding-bottom: 1pt">&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="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 70%; text-align: left">Working Capital</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">(5,462,640</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: 12%; text-align: right">(1,713,333</TD><TD STYLE="width: 1%; text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">774,012</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,120</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">Total current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,437,404</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,450,806</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,078,092</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,832,158</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">Total current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,900,044</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,164,139</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">Total liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,900,044</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,164,139</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"><B>THE&nbsp;OFFERING</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-indent: 0.5in">This prospectus covers the resale of a total
of 50,025,620 shares of our common stock by the selling security holders which includes 13,455,958 shares that are presently outstanding
and 36,569,662 shares issuable upon the exercise of warrants with an exercise prices ranging from $0.074 to $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.&nbsp; We will pay all of the fees and expenses associated
with registration of the shares covered by this prospectus.</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&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: 34%">Securities Being Offered:</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 14%">50,025,620&nbsp;</TD>
    <TD STYLE="width: 51%">shares of common stock, par value $0.001</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Number of Shares Outstanding</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD COLSPAN="2">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Before the Offering:</TD>
    <TD>&nbsp;</TD>
    <TD>213,350,373</TD>
    <TD>shares as of September 24, 2012, excluding the conversion of 119,185,801 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, $164,469 of convertible notes outstanding as of September 24, 2012 which at the current market price is convertible into 2,349,557 common shares, and options exercisable into&nbsp;16,353,185 shares of common stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Number of Shares Outstanding After</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>the Offering, Assuming the Exercise of All of the Warrants:</TD>
    <TD>&nbsp;</TD>
    <TD>332,536,174</TD>
    <TD>shares, excluding the conversion of 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, $164,469 of convertible notes which are convertible into 2,349,557 common shares, and options exercisable into&nbsp;16,353,185 shares of common stock.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>OTC Bulletin Board symbol</TD>
    <TD>&nbsp;</TD>
    <TD>IWEB</TD>
    <TD>&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"><B>TERMS OF THE OFFERING WITH THE SELLING
SECURITY HOLDERS</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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">2011 private offering</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 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 initial exercise price of $0.15 per share. These warrants contain a &ldquo;full
ratchet&rdquo; provision which requires an adjustment in the exercise price and number of shares underlying the warrants in certain
instances. As a result of the 2012 private offering described below, the warrants issued in the 2011 private offering are now exercisable
into an aggregate of 21,768,108 shares of our common stock with an exercise price of $0.074 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.</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., 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 1,978,919 shares of our common stock, as adjusted, at an exercise price of
$0.074 per share, as adjusted. 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.</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">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.</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">This prospectus covers the resale of 21,768,108
shares underlying the warrants.</P>

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

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<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">2012 private offering</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 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 per share. The terms of the warrants
are described later in this prospectus under Description of Securities. We received gross proceeds of $1,614,715.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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">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.</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 entered to a Registration Rights Agreement
with the investors in this offering that required 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. The initial registration statement was required to 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:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.5in">&nbsp;</TD>
    <TD STYLE="width: 0.5in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>the initial registration statement is not timely filed with the SEC, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>it is not declared effective by the SEC the effectiveness deadline, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>other than during an allowable grace period, on any day after the effective date of a registration statement sales of all of the registerable securities required to be included on such registration statement cannot be made pursuant to such registration statement, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>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 registerable securities without restriction under Rule 144.</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">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. We met the deadline for the timely filing and effectiveness of this
initial registration statement which has subsequently been combined with the registration statement of which this prospectus forms
a part in accordance with the provisions of Rule 429 of the Securities Act of 1933.</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 agreed to keep the registration statement
effective until all registerable 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.</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">This prospectus covers the resale of 13,455,958
shares which are presently outstanding and 14,801,554 shares underlying the warrants issued in this offering.</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"><B>RISK FACTORS</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-indent: 27pt">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.</P>

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

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<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"><B>RISKS RELATED TO OUR COMPANY</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 HAVE AN ACCUMULATED DEFICIT AND MAY HAVE CONTINUING LOSSES
THAT WOULD RESULT IN SIGNIFICANT LIQUIDITY AND CASH FLOW PROBLEMS ABSENT MATERIAL INCREASES IN REVENUES.</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 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.</P>

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

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

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

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<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">THE LOSS OF KEY SENIOR MANAGEMENT PERSONNEL, INCLUDING THE RECENT
DEATH OF OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER, COULD NEGATIVELY AFFECT OUR BUSINESS.</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 May 2012, our Chairman and Chief Executive
Officer, John R. Signorello, passed away. Hal Compton, Sr., a member of the board of directors, assumed the role as interim Chief
Executive Officer, and Mark Lucky, our Chief Financial Officer, is now serving as interim Chief Operating Officer. In July 2012
Mr. Howe joined our company as Chief Executive 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. Howe 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.</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">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.</P>

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

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

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

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

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

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

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

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

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

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

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

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<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">IF WE ARE UNABLE TO CONTINUE TO DEVELOP AND INTRODUCE NEW PRODUCTS
AND RESPOND TO TECHNOLOGICAL CHANGES, REVENUE COULD BE REDUCED.</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">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.</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">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.</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">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.</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">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.</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-indent: 0.5in">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.</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">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.</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">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.</P>

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

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<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">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.</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-indent: 0.5in">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.</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 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.</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-indent: 0.5in">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.</P>

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

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

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

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<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">ECONOMIC CONDITIONS AND WORLD EVENTS COULD AFFECT OUR COMPANY&rsquo;S
OPERATING RESULTS.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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 CONDITION OF THE U.S. AND GLOBAL FINANCIAL MARKETS HAS BEEN
VOLATILE AND MAY CONTINUE TO BE VOLATILE.</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">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.</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 BUSINESS HAS INHERENT OPERATIONAL RISKS THAT CANNOT BE ADEQUATELY
COVERED BY INSURANCE OR INDEMNITY.</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 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.</P>

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

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<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">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.</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 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.</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 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.</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 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.</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">Our efforts to protect our intellectual
property rights may not:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.2in">&nbsp;</TD>
    <TD STYLE="width: 0.2in">&bull;</TD>
    <TD>prevent challenges to, or the invalidation or circumvention of, existing intellectual property rights;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>prevent competitors from independently developing similar products or duplicating our products;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>provide adequate protection for intellectual property rights;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>prevent disputes with third parties regarding ownership of our intellectual property rights;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>prevent disclosure of trade secrets and know-how to third parties or their release into the public domain; or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>prevent our company from being subject to claims of infringement of the intellectual property rights of third-parties.</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">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.</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 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.</P>

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

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<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">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.</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 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.</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 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.</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 HAVE BEEN ENGAGED IN VARIOUS LEGAL DISPUTES WHICH COULD IMPACT
OUR COMPANY AND OUR SUPPLIER RELATIONSHIPS.</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 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.</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: center"><B>RISKS RELATING TO ICEWEB&rsquo;S COMMON
STOCK</B></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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.</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">At September 24, 2012 we had outstanding:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in">&bull;</TD>
    <TD>213,350,373 shares of common stock,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>626,667 shares of Series B convertible preferred stock which is convertible into 626,667 shares of common stock,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>common stock purchase warrants and options to purchase 135,538,986 shares of common stock with a variety of exercise prices, rights and provisions, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>outstanding notes with a principal balance of $164,469 of convertible notes which at the current market price is convertible into 2,349,557 common shares.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<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">The exercise of the outstanding options
and warrants or the conversion of the outstanding convertible securities will be dilutive to our security holders.</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">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.</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">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.</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 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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT TO ATTRACT
AND RETAIN OFFICERS AND DIRECTORS.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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 STOCK PRICE MAY BE VOLATILE IN RESPONSE TO MARKET AND OTHER
FACTORS.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&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: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in">&bull;</TD>
    <TD>competitive pricing pressures;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>ability to obtain working capital financing;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>additions or departures of key personnel;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>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;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>sales of common stock</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>ability to execute our business plan;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>operating results that fall below expectations;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>loss of any strategic relationship;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>regulatory or legal developments;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&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: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in">&bull;</TD>
    <TD>economic and other external factors; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>period-to-period fluctuations in our financial results.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">OUR COMMON STOCK IS A &ldquo;PENNY STOCK,&rdquo; WHICH WILL
MAKE IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES.</P>

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

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

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

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

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

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

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

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<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"><B>MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS</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-indent: 0.5in">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.</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="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="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">High</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">Low</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="font-weight: bold">Fiscal 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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%">First quarter ended December 31, 2009</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.235</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">0.07</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Second quarter ended March 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.23</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.075</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Third quarter ended June 30, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.47</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD 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>Fourth quarter ended September 30, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.30</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.105</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></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Fiscal 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></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>First quarter ended December 31, 2010</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.315</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.155</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Second quarter ended March 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.285</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Third quarter ended June 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.295</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.171</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Fourth quarter ended September, 30, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.26</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.135</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></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold">Fiscal 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></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>First quarter ended December 31, 2011</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.195</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.102</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Second quarter ended March 31, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.1847</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.106</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Third quarter ended June 30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.181</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">0.107</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; text-indent: 0.5in">On September 19, 2012, the last sale price
of our common stock as reported on the OTC Bulletin Board was $0.07.&nbsp; As of September 20, 2012, there were approximately 4,700
record owners of 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-align: center"><B>DIVIDEND POLICY</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-indent: 0.5in">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.</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>Transfer Agent</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-indent: 22.5pt">Our transfer agent is Olde Monmouth Stock
Transfer, 200 Memorial Pkwy, Atlantic Highlands, NJ 07716. Its telephone number is (732) 872-2727.</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: center"><B>PLAN OF DISTRIBUTION</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-indent: 0.5in">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.</P>

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

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<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">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:</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&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: 0.5in">&nbsp;</TD>
    <TD STYLE="width: 0.25in"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>in the over-the-counter market;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>in transactions otherwise than on these exchanges or systems or in the over-the-counter market;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>through the writing or settlement of options, whether such options are listed on an options exchange or otherwise;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>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;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>purchases by a broker-dealer as principal and resale by the broker-dealer for its account;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>an exchange distribution in accordance with the rules of the applicable exchange;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>privately negotiated transactions;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>short sales made after the date the Registration Statement is declared effective by the SEC;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>broker-dealers may agree with a selling security holder to sell a specified number of such shares at a stipulated price per share;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>a combination of any such methods of sale; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD>any other method permitted pursuant to applicable law.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&nbsp;</P>

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

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

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

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

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

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

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<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">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.</P>

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

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

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

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

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

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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"><B>MANAGEMENT&rsquo;S DISCUSSION AND ANALYSIS
OF FINANCIAL</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>CONDITION AND RESULTS OF OPERATIONS</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>BUSINESS OF ICEWEB</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-indent: 0.5in">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.</P>

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

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

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<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">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.</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>Distribution</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-indent: 0.5in">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.</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 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:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.5in">&nbsp;</TD>
    <TD STYLE="width: 0.4in; font-weight: bold"><B>&bull;</B></TD>
    <TD>Increasing the number of channel partners selling our products</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>Continued investment in product development and research efforts</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>Hiring additional qualified, technical employees, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>Increasing the number of new customers added.</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">GOING CONCERN</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 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.</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">CRITICAL ACCOUNTING POLICIES AND ESTIMATES</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: 24.5pt; background-color: white">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.</P>

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

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

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

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

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

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<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 0pt 12.2pt; background-color: white"><B><I>Revenue Recognition,
Reserves and Allowances</I></B></P>

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

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

<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: 1%">&nbsp;</TD>
    <TD STYLE="width: 3%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 95%"><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.</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: 1%">&nbsp;</TD>
    <TD STYLE="width: 3%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 95%"><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.</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: 1%">&nbsp;</TD>
    <TD STYLE="width: 3%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 95%"><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.</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: 1%">&nbsp;</TD>
    <TD STYLE="width: 3%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 95%"><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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24.5pt; background-color: white">&nbsp;</P>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<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: 6%">&nbsp;</TD>
    <TD STYLE="width: 2%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 91%">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.</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: 6%">&nbsp;</TD>
    <TD STYLE="width: 2%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 91%">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.</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: 6%">&nbsp;</TD>
    <TD STYLE="width: 2%">&bull;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 91%">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.</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"><B>Results of Operations</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"><B>THREE AND NINE MONTHS ENDED JUNE 30,
2012 COMPARED TO THE THREE AND NINE MONTHS ENDED JUNE 30, 2011</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-indent: 0.5in">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:</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>&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">Three&nbsp;months&nbsp;ended&nbsp;June&nbsp;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">Nine&nbsp;Months&nbsp;Ended&nbsp;June&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">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; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left">Net Revenues</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>Cost of sales</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">444,015</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">380,784</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,669,704</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,317,299</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">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: 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">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: 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">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: 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">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: 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">438,795</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">495,963</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,331,939</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,617,786</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total operating expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,070,532</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">932,559</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,830,954</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,482,289</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 from operation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(859,551</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(593,616</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,953,806</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,285,424</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total other income (expense)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,140,324</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(104,653</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,569,124</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(302,908</TD><TD STYLE="text-align: left">)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Net income (loss)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(3,999,875</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(698,269</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(6,522,930</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(2,588,332</TD><TD STYLE="text-align: left">)</TD></TR>
</TABLE>

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

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<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">Other Key Indicators:</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>&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">Three&nbsp;months&nbsp;ended<BR> June&nbsp;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">Nine&nbsp;Months&nbsp;Ended<BR> June&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">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; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left">Cost of sales as a percentage of revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; text-align: right">67.8</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: 10%; text-align: right">52.9</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: 10%; text-align: right">65.6</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: 10%; text-align: right">52.4</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Gross profit margin</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32.2</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">47.1</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34.4</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">47.6</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD NOWRAP STYLE="text-align: left">General and administrative expenses as a percentage of revenues</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">67.0</TD><TD NOWRAP STYLE="text-align: left">%</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">68.9</TD><TD NOWRAP STYLE="text-align: left">%</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">52.3</TD><TD NOWRAP STYLE="text-align: left">%</TD><TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">64.3</TD><TD NOWRAP STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total operating expenses as a percentage of revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">163.4</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">129.6</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">111.2</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">138.5</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"><B>Nine Months ended June 30, 2012</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>Revenues</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; text-indent: 24pt">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%.</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>Cost of Sales</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; text-indent: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Total Operating Expenses</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; text-indent: 24pt">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:</P>

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

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

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

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

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

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

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

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

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&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>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Fiscal&nbsp;Q3</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">Fiscal&nbsp;Q3</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="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; background-color: rgb(204,255,204)">
    <TD STYLE="width: 64%">Occupancy</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">28,747</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">24,227</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Consulting</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,480</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">77,874</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">Employee compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">570,691</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">896,012</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Professional fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">133,531</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">57,895</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Internet/Phone</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,988</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">16,744</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Travel/Entertainment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">27,492</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">29,787</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">Investor Relations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">430,271</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">251,568</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Insurance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">11,771</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">31,073</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">Other</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">116,968</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">232,606</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">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,331,939</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">1,617,786</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>

<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: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-weight: bold"><B>&bull;</B></TD>
    <TD STYLE="width: 94%">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.</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 STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</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 STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>
        <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></TD>
    <TD STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-weight: bold"><B>&bull;</B></TD>
    <TD STYLE="width: 94%">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.</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 STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</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 STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</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 STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</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 STYLE="font-weight: bold"><B>&bull;</B></TD>
    <TD>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.</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: 24pt">We anticipate that general and administrative
expenses will remain stable for the balance of fiscal 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"><B><I>LOSS FROM OPERATIONS</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; text-indent: 24pt">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%.</P>

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

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<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><I>OTHER INCOME (EXPENSES)</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; text-indent: 24pt"><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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><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; in the value of the derivative liability
of $2,773,086. We had no derivative liabilities during the nine months ended June 30, 2011.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>NET INCOME/ LOSS</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; text-indent: 24pt">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.</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>Three Month Period ended June 30, 2012</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>Revenues</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; text-indent: 24pt">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%.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Cost of Sales</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; text-indent: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Total Operating Expenses</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; text-indent: 24pt">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:</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: 24pt">&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.</P>

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

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

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

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

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

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



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


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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt">&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">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Three&nbsp;months&nbsp;ended<BR> June&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="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: 64%">Occupancy</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">9,292</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">7,769</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Consulting</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,015</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,950</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">Employee compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">168,857</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">338,649</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Professional fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">28,017</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">25,436</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Internet/Phone</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,578</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,108</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Travel/Entertainment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">10,333</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,667</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">Investor Relations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">169,040</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">45,332</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Insurance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,053</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,610</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">Other</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">42,609</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">49,442</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">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">438,795</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">495,963</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>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%">&nbsp;</TD>
    <TD STYLE="width: 3%; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</font><B></B></TD>
    <TD STYLE="width: 94%">For the three months ended June 30, 2012, occupancy expense increased to $9,292 as compared to $7,769.</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 STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>For the three months ended June 30, 2012, consulting expense increased to $3,015 as compared to $2,950, an increase of $65.</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 STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>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.</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 STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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.</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 STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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.</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 STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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.</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 STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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.</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 STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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.</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 STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</font></TD>
    <TD>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.</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"><B><I>LOSS FROM OPERATIONS</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; text-indent: 24pt">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%.</P>

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

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<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>OTHER INCOME (EXPENSES)</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; text-indent: 24pt"><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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt"><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; in the value of the derivative liability
of $2,156,007.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>NET INCOME/ LOSS</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; text-indent: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>FISCAL YEAR 2011 AS COMPARED TO FISCAL YEAR 2010</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-indent: 0.5in">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:</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">Fiscal&nbsp;Year&nbsp;ended&nbsp;September&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="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">$</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; padding-bottom: 1pt">%</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2010</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left">Net Revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; 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">$</TD><TD STYLE="width: 10%; text-align: right">3,353,286</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(674,940</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: 10%; text-align: right">(20.1</TD><TD STYLE="width: 1%; text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Cost of sales</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,751,640</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,742,110</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">9,530</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.5</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <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: White">
    <TD STYLE="text-align: left">Sales and marketing</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">715,402</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42.3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">116,113</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">17.5</TD><TD STYLE="text-align: left">%</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(242,684</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(44.3</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,706,249</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">50.9</TD><TD STYLE="text-align: left">%</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">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(303,859</TD><TD STYLE="text-align: left">)</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></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total operating expenses</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,221,078</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,212,298</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,991,220</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">36.2</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Loss from operation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,294,372</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,601,122</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2,306,750</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34.9</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Total other expense</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(410,919</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(363,111</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">47,808</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13.2</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Net loss</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(4,705,291</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(6,964,233</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD STYLE="text-align: right">(2,258,942</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32.4</TD><TD STYLE="text-align: left">%</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">Other Key Indicators:</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">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Fiscal</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">Fiscal</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">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">Cost of sales as a percentage of revenues</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">65.40</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">51.95</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Gross profit margin</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34.60</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">48.05</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">General and administrative expenses as a percentage of revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">97.30</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">158.42</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total operating expenses as a percentage of revenues</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">194.94</TD><TD STYLE="text-align: left">%</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">244.90</TD><TD STYLE="text-align: left">%</TD></TR>
</TABLE>

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

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

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

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<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">Cost of Sales and Gross Profit</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">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.</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">Total Operating Expenses</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">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:</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: Wingdings 2">&mdash;</FONT>&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.</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: Wingdings 2">&mdash;</FONT>&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.</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">&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.</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: Wingdings 2">&mdash;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Research and development expense.</I> <I>&nbsp;</I> 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.</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: Wingdings 2">&mdash;</FONT>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Loss on impairment of intangible assets.</I> <I>&nbsp;</I> 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.</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: Wingdings 2">&mdash;</FONT>&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:</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">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">Fiscal</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">Fiscal</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">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%">Occupancy</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">50,208</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">49,085</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Consulting</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">87,238</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">133,784</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">Employee compensation</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,117,737</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,458,814</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Professional fees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">325,105</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">671,548</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Internet/Phone</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">20,479</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">14,834</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Travel/Entertainment</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">34,002</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">49,016</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">Investor Relations</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">676,915</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">358,780</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Insurance</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">35,203</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">46,304</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">Other</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">259,112</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">530,082</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">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">2,605,999</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">5,312,247</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>

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<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 principal changes in fiscal 2011 as
compared to fiscal 2010 include:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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%.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">For fiscal 2011, occupancy expense increased approximately 2% from fiscal 2010.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">For fiscal 2011, internet and telephone expense increased approximately 38%. The increase was attributable to non-recurring costs incurred during the fiscal year 2011.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 97%">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.</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">LOSS FROM OPERATIONS</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">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.</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">TOTAL OTHER INCOME (EXPENSES)</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">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.</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">NET LOSS</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: 24pt">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%.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>LIQUIDITY AND CAPITAL RESOURCES</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; text-indent: 24pt">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:</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="2" NOWRAP STYLE="font-weight: bold; text-align: center">June 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 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">$</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center">%</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2012</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">2011</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Change</TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 48%; text-align: left">Working Capital</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(5,462,640</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(1,713,333</TD><TD STYLE="width: 1%; text-align: left">)</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; text-align: right">(3,749,307</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: 10%; text-align: right">218.8</TD><TD STYLE="width: 1%; 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>Cash</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">774,012</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,120</TD><TD STYLE="text-align: left">&nbsp;</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">18,687.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Accounts receivable, net</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">154,531</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13.1</TD><TD STYLE="text-align: left">%</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">226,621</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">404.8</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total current assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,437,404</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,450,806</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(13,402</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(0.5</TD><TD STYLE="text-align: left">)%</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">101,808</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">40.3</TD><TD STYLE="text-align: left">%</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">48,800</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">42.3</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Deferred financing costs, net</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">107,180</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">107,180</TD><TD STYLE="text-align: left">&nbsp;</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></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total assets</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,078,091</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,832,161</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">245,930</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8.7</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">&nbsp;</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">&nbsp;</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">&nbsp;</TD><TD STYLE="text-align: right">(1,154,456</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(52.8</TD><TD STYLE="text-align: left">)%</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">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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(43,701</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(2.2</TD><TD STYLE="text-align: left">)%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <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><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">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">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><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">0.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Total current liabilities</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,900,044</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">4,164,139</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,735,905</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">89.7</TD><TD STYLE="text-align: left">%</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(6,522,930</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">19.0</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Stockholders&rsquo; deficit</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(4,821,953</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(1,331,978</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">(3,489,973</TD><TD STYLE="text-align: left">)</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">262.0</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-indent: 24pt">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</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: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt">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.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt">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.</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: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 24pt">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B><I>Recent Accounting Pronouncements</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; background-color: white; text-indent: 0.5in">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>

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

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<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; text-indent: 0.5in">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; text-indent: 0.5in">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"><B>&nbsp;</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>OUR BUSINESS</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">OVERVIEW</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: 0.25in">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:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 3%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 91%">Iceweb unified data network storage line of products</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Purpose built network/data appliances</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-family: Symbol">&middot;</TD>
    <TD>Cloud computing products/services</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">IceWEB unified data storage line of products</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: 0.25in">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).</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: 0.25in">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.</P>

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

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<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: 0.25in">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> <B>&nbsp;</B> 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.</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: 0.25in">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;</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: 0.25in">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:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in">-&nbsp;</TD>
    <TD>Quickly and easily deploy large complex data storage infrastructure environments</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD>Reduce administrative costs for managing their storage by making complex technical tasks far more simple to accomplish</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD>Reduce hardware and capital expenditure costs by more effectively using the storage within the system and repurposing older legacy hardware</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD>Protect their business critical data by leveraging our built-in data replication features</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>-&nbsp;</TD>
    <TD>Integrate with emerging server virtualization software (VMWare, Citrix Xen and Microsoft&rsquo;s Hyper V) to better manage those solutions</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: 0.25in">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:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 6%">&nbsp;</TD>
    <TD STYLE="width: 6%"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD STYLE="width: 88%"><I>Performance</I> &nbsp; - which equals or exceeds all competitive products</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</font></TD>
    <TD><I>Management</I> &nbsp; &ndash; which requires less expertise and provides ease of use for overburdened technical staffers</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT><I><FONT STYLE="font-family: Wingdings 2"></FONT><FONT STYLE="font-family: Wingdings 2"></FONT></I></TD>
    <TD><I>Cost</I> &nbsp; &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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; text-indent: -0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Competitive Landscape</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-indent: 0.25in">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.</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: 0.25in">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.</P>

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

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<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>Purpose Built Network and Data Appliances</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-indent: 0.25in">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.</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>Cloud Computing Products and Services</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-indent: 0.5in"><B>Cloud Computing Services</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-indent: 0.25in">In December 2005, we launched IceMAIL &nbsp;
<SUP>TM</SUP> &nbsp; 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 &nbsp; <SUP>TM</SUP>
&nbsp; which provides customers with a complete Intranet portal and IceSECURE &nbsp; <SUP>TM</SUP> &nbsp; a hosted email encryption
service.</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: 0.25in">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.</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"><B>Cloud Storage Appliances (CSA)</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-indent: 0.25in">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 &nbsp; 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.</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: 0.25in">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.</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>Customers</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-indent: 0.25in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>Sales and Marketing</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-indent: 0.25in">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.</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: 0.25in">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.</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>Manufacturing</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-indent: 0.25in">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.</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>Competition</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-indent: 0.25in">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;</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: 0.25in">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:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Industry credibility</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Product scalability, performance and reliability</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Ease of installation and management</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Software functionality</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Total cost of ownership</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Customer support</TD></TR>
<TR STYLE="vertical-align: top">
    <TD><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>Market presence</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: 0.25in">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.</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: 0.25in">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.</P>

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

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<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>Research and Development&nbsp;</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-indent: 0.25in">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.</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>Intellectual Property</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-indent: 0.25in">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.</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: 0.25in">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.</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: 0.25in">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.</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: 0.25in">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.</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: 0.25in">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;</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>Our History</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-indent: 0.5in">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.</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 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.</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 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.</P>

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

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

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

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

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<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 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.</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 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.</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 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.</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 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.</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">EMPLOYEES</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">At September 21, 2012, we had 16 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.</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">LEGAL PROCEEDINGS</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">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.</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">PROPERTIES</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 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.</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"><B>MANAGEMENT</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-indent: 0.5in">The following individuals serve as our executive
officers and members of our Board of directors:</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: 70%; border-collapse: collapse; margin-left: 1in">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 33%; font-weight: bold; border-bottom: Black 1pt solid"><B>Name</B></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 7%; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><B>Age</B></TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 58%; font-weight: bold; border-bottom: Black 1pt solid"><B>Positions</B></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Harold F. Compton (1)(2)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">65</TD>
    <TD>&nbsp;</TD>
    <TD>Chairman of the Board</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Robert M. Howe III</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">65</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Executive Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Mark B. Lucky</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">53</TD>
    <TD>&nbsp;</TD>
    <TD>Chief Financial Officer</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Nicholas Carosi, III</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">65</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Raymond H. Pirtle (2)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">71</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Jack Bush(1)</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">77</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Harry E. Soyster</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">77</TD>
    <TD>&nbsp;</TD>
    <TD>Director</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>Dr. Mark Stavish</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">57</TD>
    <TD>&nbsp;</TD>
    <TD>Director</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">(1) Member of the Compensation Committee</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">(2) Member of the Audit Committee</P>

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

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<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"><U>Harold F. Compton.</U> &nbsp; Mr. Compton
has been a member of our board of directors since May 2005, and from May 2012 until July 2012 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.</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 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.</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"><U>Robert M. Howe III.</U> Mr. Howe has
served as our Chief Executive Officer since July 2012. Mr. Howe 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.</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 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.</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"><U>Mark B. Lucky.</U> &nbsp; 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.</P>

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

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<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"><U>Raymond Pirtle. Jr.</U> &nbsp; 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.</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">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.</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"><U>Jack Bush.</U> &nbsp; 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.</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 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.</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"><U>Harry E. Soyster.</U> <U>&nbsp;</U> 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> 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.</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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"><U>Nick Carosi, III.</U> Mr. Carosi has
been a member of our board of directors 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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">We believe that Mr. Carosi&rsquo;s extensive
senior management, operational, and board experience brings valuable knowledge to our board of directors and that these experiences,
qualifications and attributes have led to our conclusion that Mr. Carosi should be serving as a member of our board of directors.</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"><U>Dr. Mark Stavish</U>. Dr. Stavish has
been a member of our board of directors since September 2012. He currently <FONT STYLE="color: black; background-color: white">serves
as President and General Manager of Evergreen Partners, a consulting and venture capital entity. He is also an adjunct professor
of clinical management and leadership at George Washington University. Prior to creating Evergreen Partners, Dr. Stavish served
as an Executive Vice President of Human Resources of America Online (AOL) from February 1995 to December 2002. He was previously
the director of Human Resources at Pepsi Beverages Company. Dr. Stavish also currently serves as a Director of DigitalSports Inc.,
Lowers &amp; Associates Inc., Copyboy Publications Inc., HumanR Inc., INOVA Loudoun Healthcare Inc., Crossways International Inc.,
Every Orphan&rsquo;s Hope, Loudoun Community Health Center and the Virginia High School League Foundation. He serves as Trustee
of INOVA Health Systems Inc. He also previously served as the Chairman of the Loudoun County Chamber of Commerce. </FONT>Dr. Stavish
holds an Ed. D. in Human Resources Development and Organizational Learning from The George Washington University and a B.S. in
Psychology from Iowa State University.<FONT STYLE="color: black; background-color: white"> </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">We believe that Dr. Stavish&rsquo;s extensive
senior management, operational, and board experience brings valuable knowledge to our board of directors and that these experiences,
qualifications and attributes have led to our conclusion that Dr. Stavish should be serving as a member of our board of directors.</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">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.</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">Committees of the Board of directors</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">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.</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"><I>Audit Committee</I> &nbsp; . 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:</P>

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

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>Resolve any disagreements between management and the auditor regarding financial reporting;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2"><B>&mdash;</B></FONT></TD>
    <TD>Pre-approve all auditing and permitted non-audit services performed by our external audit firm;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>Retain independent counsel, accountants, or others to advise the committee or assist in the conduct of an investigation;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>Seek any information it requires from employees &ndash; all of whom are directed to cooperate with the committee&rsquo;s requests &ndash; or external parties;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>Meet with our officers, external auditors, or outside counsel, as necessary; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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.</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">Each Audit Committee member is required
to:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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.</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">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.</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">A copy of the Audit Committee Charter is
available on our website at www.iceweb.com under the &ldquo;Investor Relations&rdquo; tab.</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>Compensation Committee</I> . The Compensation Committee was
appointed by the board to discharge the board&rsquo;s responsibilities relating to:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>compensation of our executives,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>equity-based compensation plans, including, without limitation, stock option and restricted stock plans, in which officers or employees may participate, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2"><B>&mdash;</B></FONT></TD>
    <TD>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.</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">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.</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">Each Compensation Committee member is required
to:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>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.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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<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">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.</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">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.</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">Code of Ethics</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 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:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>honest and ethical conduct,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>full, fair, accurate, timely and understandable disclosure in regulatory filings and public statements,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>compliance with applicable laws, rules and regulations,</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>the prompt reporting violation of the code, and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></B></TD>
    <TD>accountability for adherence to the Code.</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">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.</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"><B>EXECUTIVE COMPENSATION</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-indent: 0.5in">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.</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"><B><U>SUMMARY COMPENSATION TABLE</U></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; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Name&nbsp;and
    <BR>principal&nbsp;position <BR>(a)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Year
    <BR>(b)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Salary
    <BR>($) <BR>(c)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Bonus
    <BR>($) <BR>(d)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Stock
    <BR>Awards <BR>($) <BR>(e)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Option
    <BR>Awards <BR>($) <BR>(f)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Non-Equity
    <BR>Incentive&nbsp;Plan <BR>Compensation <BR>($) <BR>(g)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Nonqualified
    <BR>Deferred <BR>Compensation <BR>Earnings <BR>($) <BR>(h)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">All
    <BR>Other <BR>Compensation <BR>($) <BR>(i)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Total
    <BR>($) <BR>(j)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; 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><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 20%; text-align: left"><FONT STYLE="font-size: 8pt">John&nbsp;&nbsp;Signorello (1)</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 0%; text-align: left"></TD><TD STYLE="width: 6%; text-align: center"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">205,889</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">76,192</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">34,038</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 6%; text-align: right"><FONT STYLE="font-size: 8pt">316,119</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 8pt">2010</FONT></TD><TD STYLE="text-align: left"><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">239,559</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">430,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">8,914</FONT></TD><TD STYLE="text-align: left"><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">678,476</FONT></TD><TD STYLE="text-align: left"><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 STYLE="text-align: left"></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><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 STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Mark B. Lucky (2)</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 8pt">2011</FONT></TD><TD STYLE="text-align: left"><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">156,417</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">76,192</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">10,041</FONT></TD><TD STYLE="text-align: left"><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">242,650</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"></TD><TD STYLE="text-align: center"><FONT STYLE="font-size: 8pt">2010</FONT></TD><TD STYLE="text-align: left"><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">201,424</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">197,800</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">8,923</FONT></TD><TD STYLE="text-align: left"><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">408,147</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</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">(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.</P>

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

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<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">(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.</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">How Mr. Signorello&rsquo;s compensation was determined</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">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.</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">How Mr. Lucky&rsquo;s compensation is determined</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">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.</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">Director Compensation</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 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.</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; background-color: White">
    <TD NOWRAP STYLE="width: 23%; font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Name</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><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"><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"><B>or&nbsp;Paid</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>in&nbsp;Cash</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Stock</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Awards</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><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"><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"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Non-Equity</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Incentive</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Plan</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Compensation</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><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"><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"><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"><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"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>All&nbsp;Other</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>Compensation</B></FONT></P> <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 1%; font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center; width: 1%; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="width: 8%; border-bottom: Black 1pt solid; font-weight: bold; text-align: right"><P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><FONT STYLE="font-size: 8pt"><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"><B>($)</B></FONT></P></TD><TD NOWRAP STYLE="width: 1%; padding-bottom: 1pt; font-weight: bold; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Harold Compton</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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Jack Bush</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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">John R. Signorello</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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Raymond Pirtle</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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Harry E. Soyster</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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Joseph Druzak</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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
</TABLE>

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

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    <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: 0pt 0"></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">Outstanding Equity Awards at Fiscal Year-End</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 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:</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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">OUTSTANDING EQUITY AWARDS AT FISCAL YEAR
END</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><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 COLSPAN="17" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">OPTION&nbsp;AWARDS</FONT></TD><TD STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="14" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">STOCK&nbsp;AWARDS</FONT></TD><TD STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Name
    <BR>(a)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Number&nbsp;of
    <BR>Securities <BR>Underlying <BR>Unexercised <BR>Options <BR>(#) <BR>Exercisable <BR>(b)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Number&nbsp;of
    <BR>Securities <BR>Underlying <BR>Unexercised <BR>Options <BR>(#) <BR>Unexercisable <BR>(c)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Equity
    <BR>Incentive <BR>Plan <BR>Awards: <BR>Number&nbsp;of <BR>Securities <BR>Underlying <BR>Unexercised <BR>Unearned <BR>Options
    <BR>(#) <BR>(d)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Option
    <BR>Exercise <BR>Price <BR>($) <BR>(e)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Option
    <BR>Expiration <BR>Date <BR>(f)</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Number
    <BR>of <BR>Shares <BR>or <BR>Units <BR>of <BR>Stock <BR>That <BR>Have <BR>Not <BR>Vested <BR>(#) <BR>(g)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Market
    <BR>Value <BR>of <BR>Shares <BR>or <BR>Units <BR>of <BR>Stock <BR>That <BR>Have <BR>Not <BR>Vested <BR>($) <BR>(h)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Equity
    <BR>Incentive <BR>Plan <BR>Awards: <BR>Number <BR>of <BR>Unearned <BR>Shares, <BR>Units&nbsp;or <BR>Other <BR>Rights <BR>That
    <BR>Have&nbsp;Not <BR>Vested <BR>(#) <BR>(i)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; font-weight: bold"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD NOWRAP STYLE="font-weight: bold; padding-bottom: 1pt"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 8pt">Equity
    <BR>Incentive <BR>Plan <BR>Awards: <BR>Market <BR>or&nbsp;Payout <BR>Value&nbsp;of <BR>Unearned <BR>Shares, <BR>Units&nbsp;or
    <BR>Other <BR>Rights <BR>That <BR>Have&nbsp;Not <BR>Vested <BR>(#) <BR>(j)</FONT></TD><TD NOWRAP STYLE="padding-bottom: 1pt; 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><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><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 COLSPAN="2"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 12%; text-align: left"><FONT STYLE="font-size: 8pt">John R. Signorello</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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">100,000</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">&mdash;</FONT></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left"><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: 7%; text-align: right"><FONT STYLE="font-size: 8pt">0.70</FONT></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD><TD STYLE="width: 1%"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD>
    <TD STYLE="width: 7%; text-align: right"><FONT STYLE="font-size: 8pt">04/29/2012</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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left"><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">&nbsp;</FONT></TD><TD STYLE="width: 7%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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">500,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.58</FONT></TD><TD STYLE="text-align: left"><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">05/06/2015</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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">250,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.60</FONT></TD><TD STYLE="text-align: left"><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">09/06/2012</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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">250,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.10</FONT></TD><TD STYLE="text-align: left"><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">03/09/2014</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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 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 STYLE="text-align: left"><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 STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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 STYLE="text-align: left"><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><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">Mark Lucky</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">100,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.58</FONT></TD><TD STYLE="text-align: left"><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">05/06/2012</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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">150,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.55</FONT></TD><TD STYLE="text-align: left"><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">06/14/2012</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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">150,000</FONT></TD><TD STYLE="text-align: left"><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">&mdash;</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.60</FONT></TD><TD STYLE="text-align: left"><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">09/06/2012</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><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">29,167</FONT></TD><TD STYLE="text-align: left"><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">20,833</FONT></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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">$</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 8pt">0.001</FONT></TD><TD STYLE="text-align: left"><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">03/18/2013</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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><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"></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 8pt">&nbsp;</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; text-align: center; background-color: white"><B>STOCK OPTION
PLANS</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"><B>2000 Management and Director Equity
Incentive and Compensation Plan</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; text-indent: 0.5in; 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 September 24, 2012 we
have granted options to purchase 1,274,000 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.</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 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.</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">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.</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 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:</P>

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

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    <!-- Field: /Page -->

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>cash, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>delivery of unrestricted shares of our common stock having a fair market value on the date of delivery equal to the exercise price, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>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</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B></B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></TD>
    <TD>a combination of the foregoing methods.</TD></TR>
</TABLE>
<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">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.</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">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.</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">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.</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">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.</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">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:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</font><B></B></TD>
    <TD>the fair market value of the number of shares subject to the performance shares agreement on the date of award, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>part or all of any increase in the fair market value since such date, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>part or all of any dividends paid or payable on the number of shares subject to the performance share agreement, or</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>any other amounts which in the Board&rsquo;s sole discretion are reasonably related to the achievement of the applicable performance goals, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>any combination of the foregoing.</TD></TR>
</TABLE>
<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 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,</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>cash, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>by delivery of unrestricted shares of our common stock having a fair</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>market value on the date of such delivery equal to the total</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>purchase price, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>a combination of either of these methods.</TD></TR>
</TABLE>
<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 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.</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">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.</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">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.</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 Board of directors
may amend, suspend or terminate our Plan at any time, except that no amendment shall be made which:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</font><B></B></TD>
    <TD>affects outstanding Plan options or any exercise right thereunder, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</font><B></B></TD>
    <TD>extends the term of any Plan option beyond 10 years, or</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>extends the termination date of the Plan.</TD></TR>
</TABLE>
<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">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.</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>2012 Equity Compensation Plan</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-indent: 0.5in">On August 28, 2012, our board of directors
authorized our 2012 Equity Compensation Plan (&ldquo;2012 Plan&rdquo;) covering 25,000,000 shares of common stock. The purpose
of the 2012 Plan is to enable us to offer to our employees, officers, directors and consultants, whose past, present and/or potential
contributions to our company have been, are or will be important to our success, an opportunity to acquire a proprietary interest
in our company. The 2012 Plan is administered by our board of directors. Plan options may either be:</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 2">&mdash;</FONT></TD><TD>incentive stock options (ISOs),</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 2">&mdash;</FONT></TD><TD>non-qualified options (NSOs),</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 2">&mdash;</FONT></TD><TD>awards of our common stock, or</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 2">&mdash;</FONT></TD><TD>rights to make direct purchases of our common stock which may be subject to certain restrictions.</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">Any option granted under the 2012 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 grant, but
the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be
less than 110% of fair market value on the date of the grant. The plan further provides that with respect to ISOs the aggregate
fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year
cannot exceed $100,000. The term of each plan option and the manner in which it may be exercised is determined by the board of
directors or the compensation committee, provided that no option may be exercisable more than 10 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 common stock, no more than
five years after the date of the grant. In the event of any stock split of our outstanding common stock, the board of directors
in its discretion may elect to maintain the stated amount of shares reserved under the plan without giving effect to such stock
split. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number
of shares as to which a stock grant or plan option may be granted to any person. As of September 24, 2012 we have granted options
to purchase 15,079,185 shares of our common stock under the 2012 Plan.</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">LIMITATION ON LIABILITY</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">Under our certificate of incorporation,
our directors are not liable for monetary damages for breach of fiduciary duty, except in connection with:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in; padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</font><B></B></TD>
    <TD>breach of the director&rsquo;s duty of loyalty to us or our security holders;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-left: 5.4pt">&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>acts or omissions not in good faith or which involve intentional misconduct, fraud or a knowing violation of law;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">a transaction from which our director received an improper benefit;
        or</P>
        <P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P></TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>an act or omission for which the liability of a director is expressly provided under Delaware law.</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">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.</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">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.</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"><B>CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS</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-indent: 0.5in">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;</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">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.</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>Director Independence</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-indent: 0.5in">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.</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"><B>PRINCIPAL SECURITY HOLDERS [UPDATE]</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-indent: 0.5in">At September 24, 2012, there were 213,350,373
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 September 24, 2012, information known to us relating to the beneficial ownership of these shares
by:</P>

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

<TABLE CELLSPACING="0" CELLPADDING="0" STYLE="width: 100%; font: 10pt Times New Roman, Times, Serif; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0.25in">&nbsp;</TD>
    <TD STYLE="width: 0.25in; font-weight: bold; text-align: left"><FONT STYLE="font-family: Wingdings 2">&mdash;</FONT></TD>
    <TD>&nbsp;each person who is the beneficial owner of more than 5% of the outstanding shares of common stock;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>&nbsp;each director;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>each named executive officer; and</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: left"><B><FONT STYLE="font-family: Wingdings 2">&mdash;</font></B></TD>
    <TD>all named executive officers and directors as a group.</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">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.</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 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 September
24, 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 September 24, 2012, have been exercised or converted. Unless otherwise
noted, the address of each of these principal security holders is our principal executive offices.&nbsp;</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</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" 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; text-align: center; border-bottom: Black 1pt solid">Name&nbsp;of<BR> Beneficial&nbsp;Owner</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">Amount and<BR> Nature of<BR> Beneficial<BR> Ownership</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">Percentage<BR> of&nbsp;Class</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">Hal Compton <SUP>(1)</SUP></TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">2,541,009</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: 15%; text-align: right">1.19</TD><TD STYLE="width: 1%; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Raymond H. Pirtle <SUP>(2)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">158,333</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</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 STYLE="text-align: left">Nicholas Carosi III <SUP>(3)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,746,845</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6.44</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Mark B. Lucky <SUP>(4)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">6,500,736</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3.04</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Ed Soyster <SUP>(5)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">59,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.03</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Jack Bush <SUP>(6)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,508,333</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.71</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Robert M. Howe III</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,325,971</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.62</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Dr. Mark Stavish</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">0.00</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">All executive officers and as a group (seven persons) <SUP>(1)(2),(3),(4),(5),(6)</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">25,840,227</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">12.10</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">Estate of John R. Signorello <SUP>(7)</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">16,284,785</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">7.62</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">(1)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
number of shares beneficially owned by Mr. Compton includes options to purchase 266,667 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.</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">(2)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number
of shares beneficially owned by Mr. Pirtle includes options to purchase 23,333 shares of our common stock at an exercise price
of $0.001 per share.</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">(3)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number
of shares beneficially owned by Mr. Carosi includes warrants to purchase 8,201,012 shares of our common stock at an exercise price
of $0.074 per share.</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">(4)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number
of shares beneficially owned by Mr. Lucky includes options to purchase 166,667 shares of our common stock at an exercise price
of $0.0847 per share, and options to purchase 58,333 shares of our common stock at an exercise price of $0.001 per share.</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">(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.</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">(6)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number
of shares beneficially owned by Mr. Bush includes options to purchase 158,333 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.</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">(7)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The number
of shares beneficially owned by Mr. Howe includes options to purchase 277,778 shares of our common stock at an exercise price of
$0.0847 per share.&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">(8)&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.</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>Securities Authorized For Issuance Under Equity Compensation
Plans</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-indent: 0.5in">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.</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="2" NOWRAP STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Number of <BR>securities to be <BR>issued upon <BR>exercise of <BR>outstanding <BR>options, <BR>warrants and <BR>rights (a)</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 of <BR>outstanding <BR>options, <BR>warrants and <BR>rights (b</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>securities <BR>remaining <BR>available for <BR>future issuance <BR>under equity <BR>compensation <BR>plans (excluding <BR>securities <BR>reflected in <BR>column (a)) (c)</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-style: italic; text-align: left">Plan category</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">Plans approved by our security holders:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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: 55%; text-align: left">2000 Management and Director Equity Incentive and Compensation Plan</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 12%; text-align: right">2,269,417</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: 12%; text-align: right">0.375</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: 12%; 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>&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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">Plans not approved by security holders:</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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>None</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">n/a</TD><TD STYLE="text-align: left">&nbsp;</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></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;</P>

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    <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>
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<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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">A description of each of these plans is
contained earlier in this prospectus. Executive Compensation &ndash; Stock Option Plan.</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"><B>USE OF PROCEEDS</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-indent: 0.5in">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.</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"><B>SELLING SECURITY HOLDERS</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-indent: 0.5in">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.</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 sets forth:</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: 0.25in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>the name of the selling security holders,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>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,</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>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</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; 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: 0.25in"></TD><TD STYLE="width: 0.25in">&bull;</TD><TD>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).</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 0.5in; text-indent: -0.25in">&nbsp;</P>

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<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;[MARK, PLEASE CHECK THE PERCENTAGES &ndash; SOME SEEM
TO BE MISSING DECIMAL POINTS. YOU DON&rsquo;T NEED TO TAKE OUT MORE THAN ONE PLACE TO THE RIGHT, ROUNDING UP/DOWN]</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">&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 STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center"></TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center"></TD><TD>&nbsp;</TD><TD>&nbsp;</TD>
    <TD COLSPAN="2" STYLE="text-align: center"></TD><TD>&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">Shares&nbsp;Owned</TD><TD NOWRAP STYLE="font-weight: bold"><SUP>&nbsp;</SUP></TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="text-align: center"></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&nbsp;of&nbsp;Shares</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">%&nbsp;of</TD><TD NOWRAP 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" NOWRAP 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: 45%; text-align: left; padding-bottom: 1pt">David Lane</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 11%; padding-bottom: 1pt; text-align: right">4,190,991</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left"><SUP>(2)</SUP></TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 11%; padding-bottom: 1pt; text-align: right">3,907,658</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%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 11%; padding-bottom: 1pt; text-align: right">283,333</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%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 10%; padding-bottom: 1pt; text-align: right">0.133</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Michael Schmahl</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"><SUP>(3)</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</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,666,666</TD><TD STYLE="text-align: left"><SUP>(4)</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">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">Lawrence Wert</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"><SUP>(5)</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">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: rgb(204,255,204)">
    <TD STYLE="text-align: left">Beth Elman</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">466,666</TD><TD STYLE="text-align: left"><SUP>(6)</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">0.02</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">666,666</TD><TD STYLE="text-align: left"><SUP>(7)</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</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,461,712</TD><TD STYLE="text-align: left"><SUP>(8)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,795,045</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,666,667</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">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">KBA Holdings</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">833,334</TD><TD STYLE="text-align: left"><SUP>(9)</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</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,250,000</TD><TD STYLE="text-align: left"><SUP>(10)</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">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">Howard Bialick and Mary Beth Bialick</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"><SUP>(11)</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">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: rgb(204,255,204)">
    <TD STYLE="text-align: left">Howard Bialick</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,261,262</TD><TD STYLE="text-align: left"><SUP>(12)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">844,595</TD><TD STYLE="text-align: left">&nbsp;</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">0.195</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">3,346,848</TD><TD STYLE="text-align: left"><SUP>-13</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,846,848</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">0.23</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,733,334</TD><TD STYLE="text-align: left"><SUP>(14)</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</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,666,666</TD><TD STYLE="text-align: left"><SUP>(15)</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">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: rgb(204,255,204)">
    <TD STYLE="text-align: left">John Kyees</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,344,596</TD><TD STYLE="text-align: left"><SUP>(16)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,927,929</TD><TD STYLE="text-align: left">&nbsp;</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">0.195</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,970,250</TD><TD STYLE="text-align: left"><SUP>(17)</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</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">538,239</TD><TD STYLE="text-align: left"><SUP>(18)</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</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">13,746,845</TD><TD STYLE="text-align: left"><SUP>(19)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">8,057,432</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">5,689,413</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2.67</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>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,576,762</TD><TD STYLE="text-align: left"><SUP>(20)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,576,762</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">Hayden McMillian</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">395,743</TD><TD STYLE="text-align: left"><SUP>(22)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">395,743</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: rgb(204,255,204)">
    <TD STYLE="text-align: left">Allan Cruikshanks</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">395,743</TD><TD STYLE="text-align: left"><SUP>(23)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">395,743</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">Christopher Wynne</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">347,351</TD><TD STYLE="text-align: left"><SUP>(24)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">347,351</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: rgb(204,255,204)">
    <TD STYLE="text-align: left">Joseph Mahalick</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,676</TD><TD STYLE="text-align: left"><SUP>(25)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">70,676</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">Nicholas Carosi Irrevoc. Trust c/o BB&amp;T</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">143,580</TD><TD STYLE="text-align: left"><SUP>(26)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">143,580</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: rgb(204,255,204)">
    <TD STYLE="text-align: left">David Dent</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">2,522,522</TD><TD STYLE="text-align: left"><SUP>(27)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,689,189</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">833,333</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">039</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Michael Geiskopf and Rita Geiskopf</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,010,522</TD><TD STYLE="text-align: left"><SUP>(28)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">676,689</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">333,833</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.16</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Dean Suhre</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,261,262</TD><TD STYLE="text-align: left"><SUP>(29)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">844,595</TD><TD STYLE="text-align: left">&nbsp;</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">0195</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Nova J Page and Richard D Page</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">806,197</TD><TD STYLE="text-align: left"><SUP>(30)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">539,864</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">266,333</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.125</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Timothy Alpers</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">504,506</TD><TD STYLE="text-align: left"><SUP>(31)</SUP></TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">337,839</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">337,839</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">008</TD><TD STYLE="text-align: left">%</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Kenneth Sutin</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">1,261,262</TD><TD STYLE="padding-bottom: 1pt; text-align: left"><SUP>(32)</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">844,595</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">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">0.195</TD><TD STYLE="padding-bottom: 1pt; text-align: left">%</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="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"><SUP>&nbsp;</SUP></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">50,025,620</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>

<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"><SUP>(1)</SUP></TD><TD>Based on 213,350,373 shares of common stock outstanding as of September 24, 2012.</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"><SUP>(2)</SUP></TD><TD>Includes 2,240,991 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(3)</SUP></TD><TD>Includes 1,450,000 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(4)</SUP></TD><TD>Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(5)</SUP></TD><TD>Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(6)</SUP></TD><TD>Includes 208,333 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(7)</SUP></TD><TD>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>

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<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: 0.5in"><SUP>(8)</SUP></TD><TD>Includes 3,586,712 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(9)</SUP></TD><TD>Includes 416,667 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(10)</SUP></TD><TD>Includes 625,000 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(11)</SUP></TD><TD>Includes 2,237,500 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(12)</SUP></TD><TD>Includes 844,595 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(13)</SUP></TD><TD>Includes 1,930,181 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(14)</SUP></TD><TD>Includes 866,667 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(15)</SUP></TD><TD>Includes 833,333 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(16)</SUP></TD><TD>Includes 1,386,262 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(17)</SUP></TD><TD>Includes 1,485,125 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(18)</SUP></TD><TD>Includes 538,239 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(19)</SUP></TD><TD>Mr. Carosi is a member of our board of directors.&nbsp; Includes 8,057,432 shares of common stock issuable upon the exercise
of outstanding warrants.</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"><SUP>(20)</SUP></TD><TD>Includes 1,576,762 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(21)</SUP></TD><TD>(Intentionally omitted)</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"><SUP>(22)</SUP></TD><TD>Includes 395,743 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(23)</SUP></TD><TD>Includes 395,743 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(24)</SUP></TD><TD>Includes 347,531 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(25)</SUP></TD><TD>Includes 70,676 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(26)</SUP></TD><TD>Includes 143,580 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(27)</SUP></TD><TD>Includes 1,689,189 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(28)</SUP></TD><TD>Includes 676,689 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(29)</SUP></TD><TD>Includes 844,595 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(30)</SUP></TD><TD>Includes 539,864 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(31)</SUP></TD><TD>Includes 337,839 shares of common stock issuable upon the exercise of outstanding warrants.</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"><SUP>(32)</SUP></TD><TD>Includes 844,595 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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&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 September 24, 2012 there were&nbsp;213,350,373 shares of&nbsp;common stock and 626,667
shares of Series B preferred stock issued and outstanding.</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">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">&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;</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">&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.</P>

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

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<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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp; &nbsp; Preferred 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">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.</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 designations, rights and preferences
of the Series B convertible preferred stock provide:</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 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 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 our 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>

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<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">COMMON STOCK PURCHASE 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: 0.25in">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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.25in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Warrants issued in the September 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 our September 2011 private
offering, we issued five year Series N warrants to purchase up to an aggregate of 21,768,108 shares of our common stock with an
exercise price of $0.074 per share, as adjusted, including 1,978,918 placement agent warrants, as adjusted, issued to Anderson
and Strudwick, Inc. The warrants are callable by us at a call price of $0.12333 per underlying common share should our common stock
trade at or above $0.12333 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. 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. 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"><B>&nbsp;</B></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>

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<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 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.</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">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 &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.</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>

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<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 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">&bull;</TD><TD>failure to pay any amounts due under the senior convertible notes when due;</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"></TD><TD>&nbsp;</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">&bull;</TD><TD>an occurrence of default under other of our obligations or our bankruptcy, insolvency, reorganization or liquidation;</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">&bull;</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></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">&bull;</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></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">&bull;</TD><TD>the occurrence of a &ldquo;material adverse effect&rdquo; as described in the Securities Purchase Agreement which means any
material adverse effect on:</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in"><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 0pt 1in"><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 0pt 1in"><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>

<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">&bull;</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></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">&bull;</TD><TD>notification of our intention not to comply with a request for conversion or exercise; and</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">&bull;</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 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">&bull;</TD><TD>110% of the amount being converted, depending on the nature of the default, and</TD></TR></TABLE>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in; 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: 0.5in"></TD><TD STYLE="width: 0.5in">&bull;</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 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">&bull;</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>

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<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">&bull;</TD><TD>accelerate the payment of any indebtedness,</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">&bull;</TD><TD>pay any dividends or redeem any of our securities,</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">&bull;</TD><TD>making cash expenditures in excess of $400,000 during any measuring period, as specified in the senior convertible notes,</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">&bull;</TD><TD>change the nature of our business, or</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">&bull;</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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">SHARES ELIGIBLE FOR FUTURE SALE</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">As of September 24, 2012 there were 213,350,373shares
of&nbsp;common stock issued and outstanding of which approximately&nbsp;64,546,039 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.</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">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.</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"><B>LEGAL MATTERS</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-indent: 0.5in">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.</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"><B>EXPERTS</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">&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.</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"><B>WHERE YOU CAN FIND ADDITIONAL INFORMATION</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-indent: 0.5in">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.</P>

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

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<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 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 <U>http://www</U>.sec.gov. You may also read and copy any document we file with the
Securities and Exchange Commission at its public reference facilities:</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 0pt 1in">Public Reference Room Office</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">100 F Street, N.E.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Room 1580</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0 0pt 1in">Washington, D.C. 20549</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">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.</P>

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

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<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">&nbsp;INDEX TO FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&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: 92%">&nbsp;</TD>
    <TD STYLE="width: 8%; border-bottom: black 1pt solid; text-align: center">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 STYLE="text-align: center">Unaudited consolidated financial statements for the three and
nine months ended June 30, 2012 including:&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <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>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-left: 0.24in">Audited consolidated financial statements for the years ending
September 30, 2011 and 2010.&nbsp; &nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Report of Independent Registered Public Accounting Firm</TD>
    <TD STYLE="text-align: center">F-20</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD>Balance Sheets;</TD>
    <TD STYLE="text-align: center">F-21</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD>Statements of Operations;</TD>
    <TD STYLE="text-align: center">F-22</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <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: White">
    <TD>Statements of Cash Flows;</TD>
    <TD STYLE="text-align: center">F-24</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <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">&nbsp;</P>

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<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"><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>

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<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"><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 STYLE="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&nbsp;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&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">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 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>

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<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"><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>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP 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></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></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 &ndash; 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 &ndash; 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>

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<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"><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 &ndash; 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"><B>NOTE 2 &ndash; BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</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>Principles of Consolidation</I></P>

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

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

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

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

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

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<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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
June 30, 2012</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>Use of Estimates</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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.</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>Cash and Cash Equivalents</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">We consider all highly liquid debt
instruments with original maturities of three months or less to be cash equivalents.</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>Accounts Receivable</I></P>

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

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

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
June 30, 2012</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 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"><I>&nbsp;</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Inventory is valued at the lower of
cost or market, on an average cost basis.</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>Property and Equipment</I></P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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.</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>Long-lived Assets</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; background-color: white">Advertising costs are expensed as incurred
and amounted to $93,975 in fiscal 2012 and $215,428&nbsp;in fiscal 2011.</P>

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

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<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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
June 30, 2012</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>Revenue Recognition</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; 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.</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>Stock-Based Compensation</I></P>

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

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
June 30, 2012</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; background-color: white"><B>NOTE 2 &ndash; BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES</B> <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 &ndash; 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 CELLSPACING="0" CELLPADDING="0" ALIGN="CENTER" STYLE="font: 10pt Times New Roman, Times, Serif; width: 90%; border-collapse: collapse">
<TR STYLE="vertical-align: bottom">
    <TD NOWRAP>&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><B>Estimated Life</B></TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><B>June 30, 2012</B></TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" NOWRAP STYLE="border-bottom: black 1pt solid; font-weight: bold; text-align: center"><B>September 30,<BR>
2011</B></TD>
    <TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 58%">Office equipment</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 11%; text-align: center">5 years</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 11%; text-align: right">448,831</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%">$</TD>
    <TD STYLE="width: 11%; text-align: right">836,041</TD>
    <TD STYLE="width: 1%">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Computer software</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">3 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">29,523</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">612,379</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Furniture and fixtures</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">5 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">-</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">261,385</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Leasehold improvements</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: center">2 &ndash; 5 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">1,030,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid">&nbsp;</TD>
    <TD STYLE="border-bottom: black 1pt solid; text-align: right">1,026,470</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">1,509,199</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">2,736,275</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Less: accumulated depreciation</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">(1,154,556</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">(2,483,440</TD>
    <TD>)</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="text-align: right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 7.5pt double">$</TD>
    <TD STYLE="border-bottom: black 7.5pt double; text-align: right">354,643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD STYLE="border-bottom: black 7.5pt double">$</TD>
    <TD STYLE="border-bottom: black 7.5pt double; text-align: right">252,835</TD>
    <TD>&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>

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

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
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"><B>NOTE 4 &ndash; 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: 60%; 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="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">June 30,<BR> 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">September,<BR> 30,<BR> 2011</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: 58%; text-align: left">Raw materials</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 18%; text-align: right">226,082</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 18%; 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"></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 5 &ndash; 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>

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
June 30, 2012</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>NOTE 5 &ndash; 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 &ndash; 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">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.</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 &ndash; 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 , 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: 94%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">June 30, 2012</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">Cost</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">Gross<BR> Unrealized<BR> Gains</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">Gross<BR> Unrealized<BR> Losses</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">Fair<BR> Value</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">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;&nbsp;</P>

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<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; text-align: center">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
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"><B>NOTE 7 &ndash; 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 STYLE="font-weight: bold; border-bottom: Black 1pt solid">September 30,&nbsp;2011</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">Cost</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">Gross<BR> Unrealized<BR> Gains</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">Gross<BR> Unrealized<BR> Losses</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">Fair<BR> Value</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">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 NOWRAP STYLE="text-align: center">&nbsp;</TD><TD NOWRAP STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" NOWRAP STYLE="font-weight: bold; text-align: center">Three Months 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 months Ended</TD><TD NOWRAP 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%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(164,000</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(32,000</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">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">15,800</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">(384,000</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><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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>

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<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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS<BR>
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"><B>NOTE 7 &ndash; 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>&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair Value Measurements&nbsp;Using:</TD><TD 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 &ndash; 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>

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


<P STYLE="margin: 0"></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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">June 30, 2012</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>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" 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">&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 STYLE="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; 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="width: 64%; text-align: left">Principal balance of convertible notes</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; text-align: right">1,127,887</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 15%; 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 &ndash; 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>

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">June 30, 2012</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">&nbsp; <B>NOTE 10 &ndash; 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" 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="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: 64%; 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">$</TD><TD STYLE="width: 15%; text-align: right">1,750,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">81,588,029</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left; padding-bottom: 1pt">Increase in fair value of derivative warrant liability</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">2,773,086</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">n/a</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Additional warrants from price protection features of existing warrants</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Balance at June 30, 2012 &ndash; Derivative warrant liability</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</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: 50%; font: 10pt Times New Roman, Times, Serif; margin-left: 0; margin-right: 1in">
<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>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">2012</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 67%">Exercise price</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 30%; text-align: right">0.074</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Time to expiration</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD NOWRAP STYLE="text-align: right">&nbsp;&nbsp;0.4 &ndash; 4.40 years</TD><TD STYLE="text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Risk-free interest rate</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0.21% &ndash; 0.67</TD><TD STYLE="text-align: left">%</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Estimated volatility</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">274</TD><TD STYLE="text-align: left">%</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Dividend</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-0-</TD><TD STYLE="text-align: left">&nbsp;</TD>
    </TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD>Stock price on June 30, 2012</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</TD><TD 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 STYLE="text-align: left">&nbsp;</TD><TD 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 &ndash; 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">&nbsp;</P>

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">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; 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>&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">Warrants</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">Exercise&nbsp;Price</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-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: 64%; 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: 15%; 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: 15%; 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>

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">June 30, 2012</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>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 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" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Range&nbsp;of&nbsp;<BR> Exercise&nbsp;<BR> Price</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">Number&nbsp;<BR> Outstanding&nbsp;<BR> at&nbsp;<BR> June&nbsp;30,&nbsp;<BR> 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">Weighted&nbsp;<BR> Average&nbsp;<BR> Remaining&nbsp;<BR> Contractual&nbsp;<BR> Life</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">Weighted&nbsp;<BR> Average&nbsp;<BR> Exercise&nbsp;<BR> Price</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">Number&nbsp;<BR> Exercisable&nbsp;at&nbsp;<BR> June&nbsp;30,&nbsp;<BR> 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">Weighted&nbsp;<BR> Average&nbsp;<BR> Exercise&nbsp;<BR> Price</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: 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 &ndash; 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>

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<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">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">June 30, 2012</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>NOTE 13 &ndash; 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: 60%; font: 10pt Times New Roman, Times, Serif; margin-left: 0; margin-right: 0">
<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>&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; 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 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 STYLE="text-align: right">1 &ndash; 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: 54%; 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: 20%; 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 STYLE="width: 20%; 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 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 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>

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    <!-- 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-align: center">ICEWEB, INC. AND SUBSIDIARIES<BR>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">June 30, 2012</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>NOTE 13 &ndash; STOCK OPTION PLAN (continued)</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: 64%; 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: 15%; 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: 15%; 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>

<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" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Range&nbsp;of<BR> Exercise<BR> Price</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">Number<BR> Outstanding<BR> at<BR> June&nbsp;30,<BR> 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">Weighted<BR> Average<BR> Remaining<BR> Contractual<BR> Life</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">Weighted<BR> Average<BR> Exercise<BR> Price</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">Number<BR> Exercisable&nbsp;at<BR> June&nbsp;30,<BR> 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">Weighted<BR> Average<BR> Exercise<BR> Price</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: 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 &ndash; 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 &ndash; 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>

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<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"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM</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>To the Board of directors</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><B>IceWEB, Inc.</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 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.</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 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.</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 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.</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 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.</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%; border-collapse: collapse">
<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">Boca Raton, Florida</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">December 22, 2011</P>

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

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<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"><B>IceWEB, Inc. and Subsidiaries</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Balance Sheets</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="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>CURRENT ASSETS:</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: White">
    <TD STYLE="width: 76%">Cash</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; text-align: right">4,120</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 9%; 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="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>
</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">See accompanying notes to consolidated financial
statements</P>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>IceWEB, Inc. and Subsidiaries</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">&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>&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">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%; 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="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,751,640</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">1,742,110</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">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><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="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">303,859</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: 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="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">(553,247</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: 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 &ndash; 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 &ndash; 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">See accompanying notes to consolidated financial
statements</P>

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

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    <!-- Field: /Page -->

<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: center"><B>IceWEB, Inc. and Subsidiaries</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Consolidated Statement of Changes in
Stockholders&rsquo; Equity (Deficit)</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>For the years ended September 30, 2011
and 2009</B></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"></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: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center"><FONT STYLE="font-size: 6">Series&nbsp;B</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">Additional</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Preferred&nbsp;Stock</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Common&nbsp;Stock</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">Paid-In</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">Accumulated</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">Comprehensive</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">Subscription</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Treasury&nbsp;Stock</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Shares</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Amount</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Shares</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Amount</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Capital</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Deficit</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Income</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Receivable</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Share</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Amount</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD COLSPAN="2" STYLE="text-align: left; border-bottom: Black 1pt solid"><FONT STYLE="font-size: 6">Total</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 12%; font-weight: bold"><FONT STYLE="font-size: 6">Balance at September 30, 2009</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">626,667</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">626</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">68,469,617</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">68,471</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">20,065,001</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(22,658,556</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(162,500</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(13,000</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="width: 1%; font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="width: 5%; font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(2,537,458</FONT></TD><TD STYLE="width: 1%; font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Amortization of deferred compensation</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,627,919</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,627,919</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Issuance of common stock for cash</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">15,580,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">15,580</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,365,050</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,380,630</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Issuance of common stock to settle litigation</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,678,571</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,679</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">399,104</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">401,783</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued for exercise of options</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">30,570,600</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">30,571</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,561,055</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,591,626</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued in connection with subscription receivable</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,000,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">81,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(83,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued for services</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,800,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,800</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">506,684</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">509,484</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued to employees</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">9,344,937</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">9,345</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">858,020</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">867,365</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued in connection with conversion of convertible debenture</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">3,000,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">3,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">897,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">900,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Other Comprehensive income</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">476,800</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">476,800</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 6">Net loss for the year</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(6,964,233</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(6,964,233</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 6">Net Comprehensive loss</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(6,964,233</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">476,800</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(6,487,433</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">Balance at September 30, 2010</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">626,667</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">626</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">134,443,725</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">134,445</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">29,360,833</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(29,622,789</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">476,800</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(83,000</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(162,500</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(13,000</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">253,912</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Amortization of deferred compensation</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">131,680</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">131,680</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Issuance of common stock for cash</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">14,053,334</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">14,054</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,445,578</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,459,632</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued for services</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,032,544</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,033</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">228,937</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">229,970</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued to employees</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,113,101</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">2,113</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">430,502</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">432,615</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Common stock issued for exercise of options</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">6,791,361</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">6,791</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,268,310</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">1,275,101</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD><FONT STYLE="font-size: 6">Cancellation of shares</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(475,000</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(475</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">475</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Other Comprehensive income</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(409,600</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(409,600</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">Net loss for the year</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(4,705,291</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">(4,705,291</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left; padding-bottom: 1pt"><FONT STYLE="font-size: 6">Net Comprehensive loss</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(4,705,291</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(409,600</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">&mdash;</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="padding-bottom: 1pt"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right"><FONT STYLE="font-size: 6">(5,114,891</FONT></TD><TD STYLE="padding-bottom: 1pt; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: right"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">Balance at September 30, 2011</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">626,667</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">626</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">157,959,066</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">157,960</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">32,866,315</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(34,328,080</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">67,200</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(83,000</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(162,500</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(13,000</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></TD><TD STYLE="font-weight: bold"><FONT STYLE="font-size: 6">&nbsp;</FONT></TD>
    <TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">$</FONT></TD><TD STYLE="font-weight: bold; text-align: right"><FONT STYLE="font-size: 6">(1,331,978</FONT></TD><TD STYLE="font-weight: bold; text-align: left"><FONT STYLE="font-size: 6">)</FONT></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;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;See accompanying notes to consolidated
financial statements</P>

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

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<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"><B>IceWEB, Inc. and Subsidiaries</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">&nbsp;&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: 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">For&nbsp;the&nbsp;Year&nbsp;Ended<BR> September&nbsp;30,</TD><TD NOWRAP 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="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(54,678</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">49,321</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: 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="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">(48,000</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: 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="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">1,275,102</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">2,591,626</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: 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 &ndash; 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">540,156</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">63,310</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 &ndash; 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">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">&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; 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">&nbsp;See accompanying notes to consolidated
financial statements</P>

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

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<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"><B>IceWEB, Inc. and Subsidiaries</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>Years ended September 30, 2011 and 2010</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">NOTE 1 &ndash; ORGANIZATION</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">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.</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">BUSINESS OF ICEWEB</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">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.</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 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.</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 the close of fiscal year 2011, the Company has three key
product offerings:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 3%">&bull;</TD>
    <TD STYLE="width: 96%">Unified Network Storage Solutions</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>Purpose Built Network/Data Appliances</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD>&bull;</TD>
    <TD>Cloud Computing Products/Services</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">NOTE 2 &ndash; BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES</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">Principles of Consolidation</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 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.</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">Reclassifications</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">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.</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">Going Concern</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 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.</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">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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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 2 &ndash; BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)</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>Marketable Securities</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">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.</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">Use of Estimates</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 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.</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">Cash and Cash Equivalents</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 consider all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.</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">Accounts Receivable</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">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.</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</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 is valued at the lower of cost or market, on an average
cost basis.</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</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 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.</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">Intangible Assets</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">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.</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">Long-lived Assets</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 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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">NOTE 2 &ndash; BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)</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>Advertising</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">Advertising costs are expensed as incurred and amounted to $238,482
in fiscal 2011 and $162,862&nbsp;in fiscal 2010.</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">Revenue Recognition</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 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:</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">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.</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">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.</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">Earnings per Share</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 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.</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">Stock-Based Compensation</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 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;).</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">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.</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">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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">NOTE 3 &ndash; PROPERTY AND EQUIPMENT</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 September 30, property and equipment 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: 70%; font: 10pt Times New Roman, Times, Serif; margin-left: 0">
<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: 62%; text-align: left">Office equipment</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 0%; text-align: left"></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">$</TD><TD STYLE="width: 10%; text-align: right">836,041</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 10%; 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"></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"></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"></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"></TD><TD STYLE="padding-bottom: 1pt; 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">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"></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: 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"></TD><TD STYLE="padding-bottom: 1pt; 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">(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"></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: 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"></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">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">252,835</TD><TD STYLE="padding-bottom: 2.5pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</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">Depreciation expense for the years ended September 30, 2011
and 2010 was $302,797 and $418,913 respectively.</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 4 &ndash; INTANGIBLE ASSETS</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 September 30, intangible assets consist of the following:</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">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: 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">Amortization expense amounted to $243,093 for the year ended
September 30, 2011, and $243,090 for the year ended September 30, 2010.</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">Amortization expense subsequent to the year ended September
30, 2011 is $0.</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 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.</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 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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 5 &ndash; RELATED PARTY TRANSACTIONS</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 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.</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 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.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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.</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">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.</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 6 &ndash; NOTES PAYABLE</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">Sand Hill Finance, LLC</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, 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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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 6 &ndash; NOTES PAYABLE (continued)</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 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.</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">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.</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 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.</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, 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.</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 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.</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 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 &ndash; 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>

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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 7 &ndash; INVENTORY</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" 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">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">NOTE 8 &ndash; COMMITMENTS</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 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.</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">Rent expense was $76,397 and $78,076 for the years ended September
30, 2011 and 2010.</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 9 &ndash; INCOME TAXES</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 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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">NOTE 9 &ndash; INCOME TAXES (continued)</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">A summary of our deferred tax is as follows:</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">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>Deferred Tax Assets:</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: White">
    <TD STYLE="width: 70%; 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">$</TD><TD STYLE="width: 12%; text-align: right">4,324,000</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 12%; 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">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).</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 valuation allowance at September 30, 2011 was $4,732,000.
The decrease during fiscal 2011 was approximately $1,595,000.</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">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.</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 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:</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: 65%; 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">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: 62%; 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: 15%; text-align: right">(34.0</TD><TD STYLE="width: 1%; text-align: left">)%</TD><TD STYLE="width: 2%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 15%; text-align: right">(34.0</TD><TD STYLE="width: 2%; 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">NOTE 10 &ndash; CONCENTRATION OF CREDIT RISK</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">Bank Balances</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">Major Customers</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">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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 11 &ndash; STOCKHOLDERS&rsquo; EQUITY (DEFICIT)</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">Preferred 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">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.</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">A) Series A Convertible Preferred 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">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.</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 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.</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) Series B Convertible Preferred 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">The designations, rights and preferences of the Series B Convertible
Preferred Stock provide:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0%"></TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><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 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: 0%"></TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><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 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: 0%"></TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><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>

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">NOTE 11 &ndash; STOCKHOLDERS&rsquo; EQUITY (DEFICIT) (continued)</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 0%"></TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><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 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: 0%"></TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><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 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: 0%"></TD>
    <TD STYLE="width: 0.25in; font-weight: bold"><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">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"><I>Fiscal 2011 Transactions</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">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">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.</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">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.</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">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.</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">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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 11 &ndash; STOCKHOLDERS&rsquo; EQUITY (DEFICIT) (continued)</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>Fiscal 2010 Transactions</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">During fiscal 2010, we issued 18,715,000 of our common stock
in connection with the exercise of options under our stock option plan.</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 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.</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 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.</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 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.</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 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.</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 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.</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 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.</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 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.</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 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.</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 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.</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 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.</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 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.</P>

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

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<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">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">Years ended September 30, 2011 and 2010</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">NOTE 11 &ndash; STOCKHOLDERS&rsquo; EQUITY (DEFICIT) (continued)</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 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.</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">Common Stock 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">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:</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>&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">Number of<BR> Warrants</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">Weighted<BR> Average<BR> Exercise<BR> Price</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">Number of<BR> Warrants</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">Weighted<BR> Average<BR> Exercise<BR> Price</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-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">The following table summarizes information about common stock
warrants outstanding at September 30, 2011:</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" 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 STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&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">
    <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</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">Average</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">Weighted</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">Number</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">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Range&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">Outstanding&nbsp;at</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">Remaining</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">Average</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">Exercisable&nbsp;at</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">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</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">September&nbsp;30,</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">Contractual</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">Exercise</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">September&nbsp;30,</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">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</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">Life</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">Price</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">Price</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: 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">NOTE 12 &ndash; STOCK OPTION PLAN</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 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.</P>

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

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<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 0.8pt 0pt 0; text-align: center">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
Years ended September 30, 2011 and 2010</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 12 &ndash; STOCK OPTION PLAN (continued)</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 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.</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">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.</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 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.</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 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.</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 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:</P>

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

<TABLE CELLPADDING="0" CELLSPACING="0" STYLE="margin-left: 0.5in; border-collapse: collapse; width: 80%; 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">Year&nbsp;Ended&nbsp;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; 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">% </TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">129% - 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">1 &ndash; 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 &ndash; 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">% </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">% </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">% </TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">0% - 45</TD><TD STYLE="text-align: left">% </TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 54%; 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: 20%; 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: 20%; 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">&nbsp;</P>

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

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

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<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 0.8pt 0pt 0; text-align: center">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
Years ended September 30, 2011 and 2010</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 12 &ndash; STOCK OPTION PLAN (continued)</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">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.</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">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:</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>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center">Year&nbsp;Ended&nbsp;September&nbsp;30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center">Year&nbsp;Ended&nbsp;September&nbsp;30,</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="10" 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="10" 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 STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&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 STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</TD><TD STYLE="font-weight: bold">&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>&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">Average</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">Aggregate</TD><TD STYLE="font-weight: bold">&nbsp;</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">Average</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">Aggregate</TD><TD STYLE="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 STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</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">Intrinsic</TD><TD STYLE="font-weight: bold">&nbsp;</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">Exercise</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">Intrinsic</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD>&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="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</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">Value</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&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="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</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">Value</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-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: 34%; 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: 8%; 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">$</TD><TD STYLE="width: 8%; text-align: right">0.27</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">&nbsp;</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 8%; text-align: right">10,944,483</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 8%; 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">$</TD><TD STYLE="width: 8%; text-align: right"></TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD>Granted</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">-</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">&nbsp;</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">32,410,000</TD><TD STYLE="text-align: left">&nbsp;</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">$</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="padding-bottom: 1pt; 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">$</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">0.50</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">&nbsp;</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">(1,179,479</TD><TD STYLE="padding-bottom: 1pt; text-align: left">)</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">$</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="padding-bottom: 1pt; 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="padding-bottom: 1pt; 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">The following table summarizes information about employee stock
options outstanding at September 30, 2011:</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" STYLE="text-align: center">&nbsp;</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="8" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Options&nbsp;Outstanding</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">Options&nbsp;Exercisable</TD><TD STYLE="padding-bottom: 1pt; font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <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 STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Weighted</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 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</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Weighted</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">Number</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">Weighted</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Range&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">Outstanding&nbsp;at</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Remaining</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Average</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">Exercisable&nbsp;at</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">Average</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</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">September 30,</TD><TD STYLE="font-weight: bold">&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD STYLE="font-weight: bold; text-align: center">Contractual</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">Exercise</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">September 30,</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">Exercise</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Price</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 STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Life</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">Price</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">Price</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: 1%; text-align: left">$</TD><TD STYLE="width: 14%; text-align: right">0.001-0.25</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 14%; text-align: right">1,739,367</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 16%; text-align: center">2.59 Years</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</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: center">4.83 Years</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: center">1.1 Years</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="text-align: center; padding-bottom: 1pt">0.65 Years</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="text-align: center; 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">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">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 13 &ndash; INVESTMENTS</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">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.</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 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:</P>

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

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
Years ended September 30, 2011 and 2010</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 13 &ndash; INVESTMENTS (continued)</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: 93%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="font-weight: bold; border-bottom: Black 1pt solid">SEPTEMBER&nbsp;30,&nbsp;2011</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">Cost</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">Gross<BR> Unrealized<BR> Gains</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">Gross<BR> Unrealized<BR> Losses</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">Fair<BR> Value</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><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">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&nbsp;&nbsp;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) 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 realized 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="font: 10pt Times New Roman, Times, Serif; border-collapse: collapse; width: 93%; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD>&nbsp;</TD><TD STYLE="font-weight: bold">&nbsp;</TD>
    <TD COLSPAN="6" STYLE="font-weight: bold; text-align: center">Fiscal&nbsp;Year&nbsp;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">September 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: 74%; 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">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">67,200</TD><TD STYLE="width: 1%; padding-bottom: 1pt; text-align: left">&nbsp;</TD><TD STYLE="width: 1%; padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="width: 1%; border-bottom: Black 1pt solid; text-align: left">$</TD><TD STYLE="width: 10%; border-bottom: Black 1pt solid; text-align: right">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">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> 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> 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> 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>

<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: 93%; font: 10pt Times New Roman, Times, Serif; margin-left: 0.5in">
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&nbsp;</TD><TD STYLE="font-weight: bold; padding-bottom: 1pt">&nbsp;</TD>
    <TD COLSPAN="10" STYLE="font-weight: bold; text-align: center; border-bottom: Black 1pt solid">Fair&nbsp;Value&nbsp;Measurements&nbsp;Using:</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom">
    <TD STYLE="padding-bottom: 1pt">&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">Quoted&nbsp;Prices<BR> in&nbsp;Active<BR> Markets<BR> (Level&nbsp;1)</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">Significant<BR> Other<BR> Observable<BR> Inputs<BR> (Level&nbsp;2)</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">Significant<BR> Unobservable<BR> Inputs<BR> (Level&nbsp;3)</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">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="font-weight: bold; text-align: center">&nbsp;</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;</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;</TD><TD STYLE="font-weight: bold">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <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>
</TABLE>



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

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<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 0.8pt 0pt 0; text-align: center">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
Years ended September 30, 2011 and 2010</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0.8pt 0pt 0; text-align: center">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">NOTE 13 &ndash; INVESTMENTS (continued)</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 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.</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. 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.</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 year ended September 30, 2011 or for the year ended September 30, 2010.</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 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.</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 14 &ndash; COMPREHENSIVE INCOME (LOSS)</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 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 other comprehensive income consists of unrealized gains
on marketable securities available for sale of $67,200.</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 15 &ndash; SEGMENT REPORTING</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">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;).</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 September 30, 2011 and 2010 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; text-align: center">&nbsp;</P>

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<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 0.8pt 0pt 0; text-align: center">IceWEB, Inc. and Subsidiaries<BR>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<BR>
Years ended September 30, 2011 and 2010</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">NOTE 16 &ndash; COMMITMENTS AND CONTINGENCIES</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 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.</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 17 &ndash; SUBSEQUENT EVENTS</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 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: 0.6in">&nbsp;</TD>
    <TD STYLE="width: 0.5in; padding-right: 0.8pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD STYLE="width: 88%; padding-right: 0.8pt">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;);</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD STYLE="padding-right: 0.8pt">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;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD STYLE="padding-right: 0.8pt">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;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD STYLE="padding-right: 0.8pt">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</TD></TR>
<TR STYLE="vertical-align: top">
    <TD>&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt"><FONT STYLE="font-family: Symbol">&middot;</FONT></TD>
    <TD STYLE="padding-right: 0.8pt">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.</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 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.</P>

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

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<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">TABLE OF CONTENTS</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 90%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 10%; padding-right: 0.8pt">Page</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">About this Prospectus</TD>
    <TD STYLE="padding-right: 0.8pt">2</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Prospectus Summary</TD>
    <TD STYLE="padding-right: 0.8pt">2</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Summary of the Offering</TD>
    <TD STYLE="padding-right: 0.8pt"></TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Terms of the Offering with the Selling Security holders</TD>
    <TD STYLE="padding-right: 0.8pt">4</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Special Note Regarding Forward-Looking Statements</TD>
    <TD STYLE="padding-right: 0.8pt">2</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Selected Consolidated Financial Data</TD>
    <TD STYLE="padding-right: 0.8pt">3</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Risk Factors</TD>
    <TD STYLE="padding-right: 0.8pt">5</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Market for Common Equity and Related Stockholder Matters</TD>
    <TD STYLE="padding-right: 0.8pt">15</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Plan of Distribution</TD>
    <TD STYLE="padding-right: 0.8pt">15</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Management&rsquo;s Discussion and Analysis of Financial Condition and Results of Operations</TD>
    <TD STYLE="padding-right: 0.8pt">17</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Our Business</TD>
    <TD STYLE="padding-right: 0.8pt">30</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Management</TD>
    <TD STYLE="padding-right: 0.8pt">36</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Executive Compensation</TD>
    <TD STYLE="padding-right: 0.8pt">41</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Certain Relationships and Related Transactions</TD>
    <TD STYLE="padding-right: 0.8pt">46</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Principal Stockholders</TD>
    <TD STYLE="padding-right: 0.8pt">46</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Use of Proceeds</TD>
    <TD STYLE="padding-right: 0.8pt">48</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Selling Stockholders</TD>
    <TD STYLE="padding-right: 0.8pt">48</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Description of Securities</TD>
    <TD STYLE="padding-right: 0.8pt">50</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Legal Matters</TD>
    <TD STYLE="padding-right: 0.8pt">55</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Experts</TD>
    <TD STYLE="padding-right: 0.8pt">55</TD></TR>
<TR STYLE="vertical-align: top; background-color: rgb(204,255,204)">
    <TD STYLE="padding-right: 0.8pt">Where You Can Find Additional Information</TD>
    <TD STYLE="padding-right: 0.8pt">55</TD></TR>
<TR STYLE="vertical-align: top; background-color: White">
    <TD STYLE="padding-right: 0.8pt">Index to Financial Statements</TD>
    <TD STYLE="padding-right: 0.8pt">F-1</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">IceWEB, Inc.</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">PROSPECTUS</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">50,025,620 Shares of Common Stock</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">[&nbsp;&nbsp; ], 2012</P>

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

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<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"><B>PART II</B></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center"><B>INFORMATION NOT REQUIRED IN PROSPECTUS</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">ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION</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 estimated expenses payable by us in
connection with the distribution of the securities being registered are 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: 50%; font: 10pt Times New Roman, Times, Serif">
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="width: 77%; text-align: left">SEC Registration and Filing Fee</TD><TD STYLE="width: 1%">&nbsp;</TD>
    <TD STYLE="width: 1%; text-align: left">$</TD><TD STYLE="width: 20%; text-align: right">19</TD><TD STYLE="width: 1%; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Legal Fees and Expenses*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Accounting Fees and Expenses*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">7,500</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="text-align: left">Financial Printing*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">400</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="text-align: left">Transfer Agent Fees*</TD><TD>&nbsp;</TD>
    <TD STYLE="text-align: left">&nbsp;</TD><TD STYLE="text-align: right">1,620</TD><TD STYLE="text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: White">
    <TD STYLE="padding-bottom: 1pt">Miscellaneous*</TD><TD STYLE="padding-bottom: 1pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 1pt solid; text-align: left">&nbsp;</TD><TD STYLE="border-bottom: Black 1pt solid; text-align: right">235</TD><TD STYLE="padding-bottom: 1pt; text-align: left">&nbsp;</TD></TR>
<TR STYLE="vertical-align: bottom; background-color: rgb(204,255,204)">
    <TD STYLE="padding-bottom: 2.5pt">TOTAL</TD><TD STYLE="padding-bottom: 2.5pt">&nbsp;</TD>
    <TD STYLE="border-bottom: Black 2.5pt double; text-align: left">$</TD><TD STYLE="border-bottom: Black 2.5pt double; text-align: right">17,274</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>

<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: 0%">&nbsp;</TD>
    <TD STYLE="width: 0.5in; padding-right: 0.8pt">*</TD>
    <TD STYLE="padding-right: 0.8pt">Estimated</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">ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;INDEMNIFICATION OF DIRECTORS
AND OFFICERS.</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: 0.25in">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;).</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: 0.25in">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.</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: 0.25in">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.</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: 0.25in">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.</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">ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;RECENT SALES OF UNREGISTERED
SECURITIES.</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: 0.25in">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 &nbsp; <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.</P>

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

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<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"><I>Fiscal 2012 Transactions</I></P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">In July and August, 2012 we issued 2,434,871
shares of restricted common stock at an average per share price of $0.094, valued at $228,250, in lieu of pay to five of our employees,
including three 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.</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 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">&nbsp;</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"><I>&nbsp;</I></P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0"><I>Fiscal 2011 Transactions</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; 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">&nbsp;</P>

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

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

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<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"><I>Fiscal 2010 Transactions</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">During fiscal 2010, we issued 18,715,000
of our common stock in connection with the exercise of options under our stock option plan.</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">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.</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">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.</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">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.</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">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.</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">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.</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">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.</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 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.</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 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.</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">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.</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">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.</P>

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

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<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">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.</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 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.</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>Fiscal 2009 Transactions</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">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.</P>

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

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

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

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

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

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

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

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<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">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.</P>

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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 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.</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">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.</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">ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.</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: 0.25in">The following documents are filed as a
part of this registration statement or are incorporated by reference to previous filings, if so indicated:</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 8%; padding-right: 0.8pt">2.1</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 90%; padding-right: 0.8pt">Agreement and Plan of Reorganization and Stock Purchase Agreement with Disease S.I. Inc.(4)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">2.2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Agreement and Plan of Merger with IceWEB Communications, Inc. (8)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">2.3</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Agreement and Plan of Merger with Seven Corporation (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.3</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.4</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.5</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (2)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.6</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (3)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.7</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (11)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.8</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Designations of Series A Convertible Preferred Stock (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.9</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Amendment to Certificate of Incorporation (13)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.10</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Bylaws (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">3.11</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Certificate of Designations of Series B Convertible Preferred Stock (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;A&rdquo; (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;B&rdquo; (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.3</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;C&rdquo; (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.4</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Series H Common Stock Purchase Warrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.5</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Series I Common Stock Purchase Warrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.6</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of $0.70 Common Stock Purchase Warrant &ldquo;A&rdquo; (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.7</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Comerica Bank warrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.8</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;D&rdquo; (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.9</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;E&rdquo; (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.10</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;F&rdquo; (17)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.11</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant &ldquo;G&rdquo; (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.12</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Common Stock Purchase Warrant for Sand Hill Finance LLC (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.13</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Secured Convertible Debenture for Sand Hill Finance LLC (25)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.14</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Warrant Amendment Agreement with Sand Hill Finance LLC (25)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.15</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">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; text-align: center">&nbsp;</P>

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<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&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%; padding-right: 0.8pt">4.16</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 90%; padding-right: 0.8pt">Form of Senior Convertible Note (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.17</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Series Common Stock Purchase Warrant &ldquo;O&rdquo; (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.18</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Series Common Stock Purchase Warrant &ldquo;P&rdquo; (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.19</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Series Common Stock Purchase Warrant &ldquo;Q&rdquo; (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">4.20</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Series Common Stock Purchase Warrant &ldquo;R&rdquo; (30)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">5.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Opinion of Pearlman Schneider LLP *</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Acquisition Agreement with North Orlando Sports Promotions, Inc. (1)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Asset Purchase Agreement with Raymond J. Hotaling (5)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.3</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">2000 Management and Director Equity Incentive and Compensation Plan (6)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.4</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Stock Purchase Agreement with Health Span Sciences, Inc. (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.4</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Stock Purchase Agreement with Health Span Sciences, Inc. (7)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.5</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Stock Purchase and Exchange Agreement with Interlan Communications (9)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.6</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Preferred Stock Purchase Agreement dated March 30, 2005 (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.7</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Registration Rights Agreement with Barron Partners LP (12)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.8</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Asset and Stock Purchase Agreement for iPlicity, Inc.(16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.9</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Asset and Stock Purchase Agreement for DevElements, Inc. of Virginia (15)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.10</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Loan and Security Agreement with Comerica Bank (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.11</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Forbearance Agreement (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.12</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Sublease Agreement for principal executive offices (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.13</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Preferred Stock Purchase Agreement dated September 8, 2005 (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.14</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Registration Rights Agreement with Barron Partners LP (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.15</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Financing Agreement with Sand Hill Finance LLC (18)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.16</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Lease Agreement for principal executive offices (19)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.17</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Retailer Marketing Agreement with CompUSA (20)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.18</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Stock Purchase Agreement with Inline Corporation (21)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.19</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">First Amendment to Stock Purchase Agreement with Inline Corporation (21)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.20</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Convertible Debenture with Sand Hill Finance LLC (22)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.21</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Stock Purchase Agreement for Sale of IceWEB Virginia, Inc. (23)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.22</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Series C Preferred Stock Purchase Agreement (24)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.23</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Securities Purchase Agreement for senior note offering (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.24</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of subsidiary guarantee (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.25</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Registration Rights Agreement for senior note offering (27)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.26</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">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 STYLE="padding-right: 0.8pt">10.27</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Subscription Agreement (30)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.28</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Form of Registration Rights Agreement (30)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.29</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">IceWEB, Inc. 2012 Equity Compensation Plan (28)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">10.30</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Ninth Amendment to Financing Agreement and Waiver with Sand Hill Finance, LLC (29)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">14.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Code of Business Conduct and Ethics (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">21.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Subsidiaries of the registrant (16)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">23.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Consent of Sherb &amp; Co., LLP&nbsp;*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">23.2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Opinion of Pearlman Schneider LLP (included in Exhibit 5.1 hereto)*</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">99.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Power of Attorney (included on the signature page of the Registration Statement)</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">101</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Attached as Exhibits 101 to this registration statement are the following financial statements from our Annual Report on Form 10-K for the year ended September 30, 2012 and our Quarterly Report on Form 10-Q for the period ended June 30, 2012, formatted in XBRL: (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of stockholders&rsquo; equity (deficit), (iv) consolidated statements of cash flows, and (vi) related notes to these consolidated financial statements. In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this registration statement shall be deemed furnished and not filed.</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">&nbsp;</P>

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

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<TR STYLE="vertical-align: top">
    <TD STYLE="width: 2%">*</TD>
    <TD STYLE="width: 5%; padding-right: 0.8pt"></TD>
    <TD STYLE="width: 93%; padding-right: 0.8pt">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 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: 0%"></TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt">(1)</TD>
    <TD STYLE="width: 94%; padding-right: 0.8pt">Incorporated by reference to the Form 10-SB, file number 000-27865, filed with on October 28, 1999, as amended.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(2)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the definitive Information Statement on&nbsp;&nbsp;&nbsp;Schedule 14C as filed on June 18, 2001.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(3)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the definitive Information Statement on&nbsp;&nbsp;&nbsp;Schedule 14C as filed on June 26, 2001.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(4)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on June 6, 2001.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(5)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on July 26, 2001.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(6)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the definitive Information Statement on Schedule 14C as filed on July 23, 2001.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(7)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on December 4, 2001.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(8)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on April 4, 2002.</TD></TR>
</TABLE>
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<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: 0%"></TD>
    <TD STYLE="width: 6%; padding-right: 0.8pt">(9)</TD>
    <TD STYLE="width: 94%; padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on August 1, 2003.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(10)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K/A as filed on February 20, 2004.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(11)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the definitive Information Statement on Schedule 14C as filed on August 20, 2004.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(12)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on April 5, 2005.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(13)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the definitive Information Statement on Schedule14C as filed on April 4, 2005.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(14)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to Amendment No. 1 to the Report on Form 8-K/A as filed on February 20, 2004.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(15)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on July 23, 2004.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(16)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the registration statement on Form SB-2, SEC file number 333-126898, as amended.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(17)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to our Annual Report on Form 10-KSB as filed on January 18, 2006.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(18)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on January 30, 2006.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(19)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the registration statement on Form SB-2/A, SEC file number 333-126898 filed on January 30. 2006.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(20)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on June 22, 2006.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(21)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on January 3, 2009.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(22)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on December 1, 2009.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(23)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on April 15, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(24)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on July 31, 2010.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(25)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the registration statement on Form S-1, SEC file number 333-167501, as amended.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(26)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on November 16, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(27)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Report on Form 8-K as filed on November 23, 2011.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(28)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Current Report on Form 8-K filed on August 28, 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(29)</TD>
    <TD STYLE="padding-right: 0.8pt">Incorporated by reference to the Current Report on Form 8-K filed on September 10, 2012.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD></TD>
    <TD STYLE="padding-right: 0.8pt">(30)</TD>
    <TD STYLE="padding-right: 0.8pt">Filed as an exhibit to the registration statement on Form S-1, SEC File No. 333-183463.</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">ITEM 17. UNDERTAKINGS.</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">a.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
undersigned registrant hereby undertakes:</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">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:</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.&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;</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">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.</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">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;</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">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.</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">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.</P>

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

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<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>

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

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

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0">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.</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">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.</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"><B>SIGNATURES</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-indent: 0.5in">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;24<SUP>th</SUP> day of September, 2012.</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">&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="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">ICEWEB, INC.</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 50%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 4%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 46%; padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">By:</TD>
    <TD STYLE="border-bottom: windowtext 1pt solid; padding-right: 0.8pt">/s/ Robert M. Howe III</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD COLSPAN="2" STYLE="padding-right: 1.8pt">Robert M. Howe III. Chief Executive Officer</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: left">&nbsp;</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">&nbsp;</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 Robert M. Howe III 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; text-indent: 0.5in">&nbsp;</P>

<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-indent: 0.5in">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.</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%; border-collapse: collapse">
<TR STYLE="vertical-align: top">
    <TD STYLE="width: 28%; border-bottom: black 1pt solid; padding-right: 0.8pt">Signature</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 46%; border-bottom: black 1pt solid; padding-right: 0.8pt">Title</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 22%; border-bottom: black 1pt solid; padding-right: 0.8pt">Date</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">/s/ Robert M. Howe III</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Chief Executive Officer, principal executive officer</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">Robert M. Howe III</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Hal Compton, Sr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Chairman of the Board</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Hal Compton, Sr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Mark B. Lucky</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Chief Financial Officer, principal financial and</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Mark B. Lucky</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">accounting officer</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
</TABLE>
<P STYLE="font: 10pt Times New Roman, Times, Serif; margin: 0pt 0; text-align: center">&nbsp;</P>

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<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: 28%; border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Nick Carosi, III</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt; width: 46%">Director</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="width: 22%; padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Nick Carosi, III</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Raymond H. Pirtle, Jr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Raymond H. Pirtle, Jr.</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Jack Bush</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Jack Bush</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Harry E. Soyster</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Harry E. Soyster</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="border-bottom: black 1pt solid; padding-right: 0.8pt">/s/ Mark Stavish</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Director</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">September 24, 2012</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt">Mark Stavish</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
</TABLE>
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<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 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; padding-right: 0.8pt; font-weight: bold; text-align: center">No.</TD>
    <TD STYLE="width: 2%; padding-right: 0.8pt; font-weight: bold">&nbsp;</TD>
    <TD STYLE="width: 89%; border-bottom: windowtext 1pt solid; padding-right: 0.8pt; font-weight: bold">Description</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: right">5.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Opinion of Pearlman Schneider LLP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: right">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: right; padding-left: 0.12in">23.1</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Consent of Sherb &amp; Co., LP</TD></TR>
<TR STYLE="vertical-align: top">
    <TD STYLE="padding-right: 0.8pt; text-align: right">23.2</TD>
    <TD STYLE="padding-right: 0.8pt">&nbsp;</TD>
    <TD STYLE="padding-right: 0.8pt">Consent of Pearlman Schneider LLP (included in Exhibit 5.1 hereto)</TD></TR>
</TABLE>
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{"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": "333-184064", "film-number": "121107178"}, "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 September
__________, 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
x
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 (4)(5)
Common stock, $0.001 par value per share, (1)
13,455,958
$
0.07
$
941,917
$
108
Common stock, par value $0.001 per share, issuable upon exercise
    of warrants issued to investors (2)
21,768,108
$
0.074
$
1,610,840
$
185
Common stock, par value $0.001 per share, issuable
    upon exercise of warrants issued to investors (3)
14,801,554
$
0.15
$
2,220,233
$
254
Total
50,025,620
$
$
547
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 $0.074 per share.
3
Represents
shares of common stock issuable upon the exercise of common stock purchase warrants with an exercise price of $0.15 per share.
4
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.
5.
The
filing fee of $528 previously paid in connection with the registration statement on Form S-1, SEC File No. 333-183463 as initially
filed by IceWEB, Inc. on August 21, 2012 is being offset against the total registration fee due hereunder.
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.
EXPLANATORY NOTE
Pursuant to Rule 429 under the Securities Act of 1933, the prospectus
included in this registration statement is a combined prospectus relating to this registration statement and the registration statement
on Form S-1, SEC File No. 333-183463, previously filed by the registrant on August 21, 2012 and declared effective by the Securities
and Exchange Commission on September 11, 2012 (the "Earlier Registration Statement"), which related to the resale of
up to 38,996,445 shares of common stock including 13,455,958 shares which are presently outstanding and 25,540,487 shares issuable
upon the exercise of warrants with an exercise price of $0.15 per share from time to time by the selling security holders named
therein. None of the shares covered by the Earlier Registration Statement have been sold pursuant to the Earlier Registration Statement.
This registration statement, which is a new registration statement, combines 38,996,445 unsold shares from the Earlier Registration
Statement with an additional 11,029,175 shares registered hereby for resale by the selling security holders named in the prospectus.
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 SEPTEMBER ____, 2012
50,025,620 Shares
IceWEB, Inc.
Common Stock
This prospectus relates to the sale by the
selling security holders identified in this prospectus of up to 50,025,620 shares of our common stock, which includes 13,455,958
shares which are presently outstanding and 36,569,662 shares issuable upon the exercise of warrants with exercise prices ranging
from $0.074 to $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 September 19, 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 50,025,620 shares of our common stock by the selling security holders which includes 13,455,958 shares that are presently outstanding
and 36,569,662 shares issuable upon the exercise of warrants with an exercise prices ranging from $0.074 to $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:
50,025,620
shares of common stock, par value $0.001
Number of Shares Outstanding
Before the Offering:
213,350,373
shares as of September 24, 2012, excluding the conversion of 119,185,801 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, $164,469 of convertible notes outstanding as of September 24, 2012 which at the current market price is convertible into 2,349,557 common shares, and options exercisable into 16,353,185 shares of common stock.
Number of Shares Outstanding After
the Offering, Assuming the Exercise of All of the Warrants:
332,536,174
shares, excluding the conversion of 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, $164,469 of convertible notes which are convertible into 2,349,557 common shares, and options exercisable into 16,353,185 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 initial exercise price of $0.15 per share. These warrants contain a "full
ratchet" provision which requires an adjustment in the exercise price and number of shares underlying the warrants in certain
instances. As a result of the 2012 private offering described below, the warrants issued in the 2011 private offering are now exercisable
into an aggregate of 21,768,108 shares of our common stock with an exercise price of $0.074 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 1,978,919 shares of our common stock, as adjusted, at an exercise price of
$0.074 per share, as adjusted. 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 21,768,108
shares underlying the warrants.
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 per 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 required 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. The initial registration statement was required to 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:
·
the initial registration statement is not timely filed with the SEC, or
·
it is not declared effective by the SEC the effectiveness deadline, or
·
other than during an allowable grace period, on any day after the effective date of a registration statement sales of all of the registerable securities required to be included on such registration statement cannot be made pursuant to such registration statement, or
·
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 registerable 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 met the deadline for the timely filing and effectiveness of this
initial registration statement which has subsequently been combined with the registration statement of which this prospectus forms
a part in accordance with the provisions of Rule 429 of the Securities Act of 1933.
We agreed to keep the registration statement
effective until all registerable 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 which are presently outstanding and 14,801,554 shares underlying the warrants 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, assumed the role as interim Chief
Executive Officer, and Mark Lucky, our Chief Financial Officer, is now serving as interim Chief Operating Officer. In July 2012
Mr. Howe joined our company as Chief Executive 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. Howe 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 September 24, 2012 we had outstanding:
•
213,350,373 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 135,538,986 shares of common stock with a variety of exercise prices, rights and provisions, and
•
outstanding notes with a principal balance of $164,469 of convertible notes which at the current market price is convertible into 2,349,557 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 September 19, 2012, the last sale price
of our common stock as reported on the OTC Bulletin Board was $0.07.  As of September 20, 2012, there were approximately 4,700
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.
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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.
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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.
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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.
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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 September 21, 2012, we had 16 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 of the Board
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
Dr. Mark Stavish
57
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 2012 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.
Mr. Howe has
served as our Chief Executive Officer since July 2012. Mr. Howe 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.
We believe that Mr. Carosi's extensive
senior management, operational, and board experience brings valuable knowledge to our board of directors and that these experiences,
qualifications and attributes have led to our conclusion that Mr. Carosi should be serving as a member of our board of directors.
Dr. Mark Stavish
. Dr. Stavish has
been a member of our board of directors since September 2012. He currently
serves
as President and General Manager of Evergreen Partners, a consulting and venture capital entity. He is also an adjunct professor
of clinical management and leadership at George Washington University. Prior to creating Evergreen Partners, Dr. Stavish served
as an Executive Vice President of Human Resources of America Online (AOL) from February 1995 to December 2002. He was previously
the director of Human Resources at Pepsi Beverages Company. Dr. Stavish also currently serves as a Director of DigitalSports Inc.,
Lowers & Associates Inc., Copyboy Publications Inc., HumanR Inc., INOVA Loudoun Healthcare Inc., Crossways International Inc.,
Every Orphan's Hope, Loudoun Community Health Center and the Virginia High School League Foundation. He serves as Trustee
of INOVA Health Systems Inc. He also previously served as the Chairman of the Loudoun County Chamber of Commerce.
Dr. Stavish
holds an Ed. D. in Human Resources Development and Organizational Learning from The George Washington University and a B.S. in
Psychology from Iowa State University.
We believe that Dr. Stavish's extensive
senior management, operational, and board experience brings valuable knowledge to our board of directors and that these experiences,
qualifications and attributes have led to our conclusion that Dr. Stavish should be serving as a member of our board of directors.
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
—
—
—
—
—
—
—
42
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:
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
PLANS
2000 Management and Director Equity
Incentive and Compensation 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 September 24, 2012 we
have granted options to purchase 1,274,000 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.
2012 Equity Compensation Plan
On August 28, 2012, our board of directors
authorized our 2012 Equity Compensation Plan ("2012 Plan") covering 25,000,000 shares of common stock. The purpose
of the 2012 Plan is to enable us to offer to our employees, officers, directors and consultants, whose past, present and/or potential
contributions to our company have been, are or will be important to our success, an opportunity to acquire a proprietary interest
in our company. The 2012 Plan is administered by our board of directors. Plan options may either be:
—
incentive stock options (ISOs),
—
non-qualified options (NSOs),
—
awards of our common stock, or
—
rights to make direct purchases of our common stock which may be subject to certain restrictions.
Any option granted under the 2012 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 grant, but
the exercise price of any ISO granted to an eligible employee owning more than 10% of our outstanding common stock must not be
less than 110% of fair market value on the date of the grant. The plan further provides that with respect to ISOs the aggregate
fair market value of the common stock underlying the options which are exercisable by any option holder during any calendar year
cannot exceed $100,000. The term of each plan option and the manner in which it may be exercised is determined by the board of
directors or the compensation committee, provided that no option may be exercisable more than 10 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 common stock, no more than
five years after the date of the grant. In the event of any stock split of our outstanding common stock, the board of directors
in its discretion may elect to maintain the stated amount of shares reserved under the plan without giving effect to such stock
split. Subject to the limitation on the aggregate number of shares issuable under the plan, there is no maximum or minimum number
of shares as to which a stock grant or plan option may be granted to any person. As of September 24, 2012 we have granted options
to purchase 15,079,185 shares of our common stock under the 2012 Plan.
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 [UPDATE]
At September 24, 2012, there were 213,350,373
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 September 24, 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 September
24, 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 September 24, 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)
2,541,009
1.19
%
Raymond H. Pirtle
(2)
158,333
0.07
%
Nicholas Carosi III
(3)
13,746,845
6.44
%
Mark B. Lucky
(4)
6,500,736
3.04
%
Ed Soyster
(5)
59,000
0.03
%
Jack Bush
(6)
1,508,333
0.71
%
Robert M. Howe III
1,325,971
0.62
%
Dr. Mark Stavish
-
0.00
%
All executive officers and as a group (seven persons)
(1)(2),(3),(4),(5),(6)
25,840,227
12.10
%
Estate of John R. Signorello
(7)
16,284,785
7.62
%
(1)        The
number of shares beneficially owned by Mr. Compton includes options to purchase 266,667 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 23,333 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 8,201,012 shares of our common stock at an exercise price
of $0.074 per share.
(4)        The number
of shares beneficially owned by Mr. Lucky includes options to purchase 166,667 shares of our common stock at an exercise price
of $0.0847 per share, and options to purchase 58,333 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 158,333 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.
(7)        The number
of shares beneficially owned by Mr. Howe includes options to purchase 277,778 shares of our common stock at an exercise price of
$0.0847 per share.
(8)        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
[MARK, PLEASE CHECK THE PERCENTAGES – SOME SEEM
TO BE MISSING DECIMAL POINTS. YOU DON'T NEED TO TAKE OUT MORE THAN ONE PLACE TO THE RIGHT, ROUNDING UP/DOWN]
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
4,190,991
(2)
3,907,658
283,333
0.133
%
Michael Schmahl
2,900,000
(3)
2,900,000
0
0
%
Kenneth Ikemiya
1,666,666
(4)
1,666,666
0
0
%
Lawrence Wert
1,666,666
(5)
1,666,666
0
0
%
Beth Elman
466,666
(6)
416,666
50,000
0.02
%
Jerome Gildner
666,666
(7)
666,666
0
0
%
Lester Boelter
5,461,712
(8)
3,795,045
1,666,667
0
%
KBA Holdings
833,334
(9)
833,334
0
0
%
James G Athas
1,250,000
(10)
1,250,000
0
0
%
Howard Bialick and Mary Beth Bialick
4,475,000
(11)
4,475,000
0
0
%
Howard Bialick
1,261,262
(12)
844,595
416,667
0.195
%
Dennis Holman
3,346,848
-13
2,846,848
500,000
0.23
%
The Knipf Family Trust
1,733,334
(14)
1,733,334
0
0
%
Anesthesia Consulting 401K
1,666,666
(15)
1,666,666
0
0
%
John Kyees
2,344,596
(16)
1,927,929
416,667
0.195
%
J.R. McGraw
2,970,250
(17)
2,970,250
0
0
%
Meyers Associates, LP
538,239
(18)
538,239
0
0
%
Nicholas Carosi III
13,746,845
(19)
8,057,432
5,689,413
2.67
%
George Johnnson
1,576,762
(20)
1,576,762
0
0
%
Hayden McMillian
395,743
(22)
395,743
0
0
%
Allan Cruikshanks
395,743
(23)
395,743
0
0
%
Christopher Wynne
347,351
(24)
347,351
0
0
%
Joseph Mahalick
70,676
(25)
70,676
0
0
%
Nicholas Carosi Irrevoc. Trust c/o BB&T
143,580
(26)
143,580
0
0
%
David Dent
2,522,522
(27)
1,689,189
833,333
039
%
Michael Geiskopf and Rita Geiskopf
1,010,522
(28)
676,689
333,833
0.16
%
Dean Suhre
1,261,262
(29)
844,595
416,667
0195
%
Nova J Page and Richard D Page
806,197
(30)
539,864
266,333
0.125
%
Timothy Alpers
504,506
(31)
337,839
337,839
008
%
Kenneth Sutin
1,261,262
(32)
844,595
416,667
0.195
%
50,025,620
(1)
Based on 213,350,373 shares of common stock outstanding as of September 24, 2012.
(2)
Includes 2,240,991 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 3,586,712 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 844,595 shares of common stock issuable upon the exercise of outstanding warrants.
(13)
Includes 1,930,181 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 1,386,262 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 8,057,432 shares of common stock issuable upon the exercise
of outstanding warrants.
(20)
Includes 1,576,762 shares of common stock issuable upon the exercise of outstanding warrants.
(21)
(Intentionally omitted)
(22)
Includes 395,743 shares of common stock issuable upon the exercise of outstanding warrants.
(23)
Includes 395,743 shares of common stock issuable upon the exercise of outstanding warrants.
(24)
Includes 347,531 shares of common stock issuable upon the exercise of outstanding warrants.
(25)
Includes 70,676 shares of common stock issuable upon the exercise of outstanding warrants.
(26)
Includes 143,580 shares of common stock issuable upon the exercise of outstanding warrants.
(27)
Includes 1,689,189 shares of common stock issuable upon the exercise of outstanding warrants.
(28)
Includes 676,689 shares of common stock issuable upon the exercise of outstanding warrants.
(29)
Includes 844,595 shares of common stock issuable upon the exercise of outstanding warrants.
(30)
Includes 539,864 shares of common stock issuable upon the exercise of outstanding warrants.
(31)
Includes 337,839 shares of common stock issuable upon the exercise of outstanding warrants.
(32)
Includes 844,595 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 September 24, 2012 there were 213,350,373 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 21,768,108 shares of our common stock with an
exercise price of $0.074 per share, as adjusted, including 1,978,918 placement agent warrants, as adjusted, issued to Anderson
and Strudwick, Inc. The warrants are callable by us at a call price of $0.12333 per underlying common share should our common stock
trade at or above $0.12333 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. 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 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 September 24, 2012 there were 213,350,373shares
of common stock issued and outstanding of which approximately 64,546,039 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
PAGE #
Unaudited consolidated financial statements for the three and
nine months ended June 30, 2012 including:
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 , 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.
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:
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
September 30
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
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.
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:
·
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");
·
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;
·
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;
·
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
·
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.
TABLE OF CONTENTS
Page
About this Prospectus
2
Prospectus Summary
2
Summary of the Offering
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
50,025,620 Shares of Common Stock
[   ], 2012
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
$
19
Legal Fees and Expenses*
7,500
Accounting Fees and Expenses*
7,500
Financial Printing*
400
Transfer Agent Fees*
1,620
Miscellaneous*
235
TOTAL
$
17,274
*
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.
Fiscal 2012 Transactions
In July and August, 2012 we issued 2,434,871
shares of restricted common stock at an average per share price of $0.094, valued at $228,250, in lieu of pay to five of our employees,
including three 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.
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.
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.
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.
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)
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" (30)
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 (30)
10.28
Form of Registration Rights Agreement (30)
10.29
IceWEB, Inc. 2012 Equity Compensation Plan (28)
10.30
Ninth Amendment to Financing Agreement and Waiver with Sand Hill Finance, LLC (29)
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)*
99.1
Power of Attorney (included on the signature page of the Registration Statement)
101
Attached as Exhibits 101 to this registration statement are the following financial statements from our Annual Report on Form 10-K for the year ended September 30, 2012 and our Quarterly Report on Form 10-Q for the period ended June 30, 2012, formatted in XBRL: (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of stockholders' equity (deficit), (iv) consolidated statements of cash flows, and (vi) related notes to these consolidated financial statements. In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this registration statement shall be deemed furnished and not filed.
*
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.
(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.
(28)
Incorporated by reference to the Current Report on Form 8-K filed on August 28, 2012.
(29)
Incorporated by reference to the Current Report on Form 8-K filed on September 10, 2012.
(30)
Filed as an exhibit to the registration statement on Form S-1, SEC File No. 333-183463.
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.          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 24
th
day of September, 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 Robert M. Howe III 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, principal executive officer
September 24, 2012
Robert M. Howe III
/s/ Hal Compton, Sr.
Chairman of the Board
September 24, 2012
Hal Compton, Sr.
/s/ Mark B. Lucky
Chief Financial Officer, principal financial and
September 24, 2012
Mark B. Lucky
accounting officer
/s/ Nick Carosi, III
Director
September 24, 2012
Nick Carosi, III
/s/ Raymond H. Pirtle, Jr.
Director
September 24, 2012
Raymond H. Pirtle, Jr.
/s/ Jack Bush
Director
September 24, 2012
Jack Bush
/s/ Harry E. Soyster
Director
September 24, 2012
Harry E. Soyster
/s/ Mark Stavish
Director
September 24, 2012
Mark Stavish
EXHIBIT INDEX
No.
Description
5.1
Opinion of Pearlman Schneider LLP
23.1
Consent of Sherb & Co., LP
23.2
Consent of Pearlman Schneider LLP (included in Exhibit 5.1 hereto)