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IceWEB: Fiscal 1Q13 Financial Results

Revenue down 49% Y/Y and huge loss

(in US$ thousands)  1Q12   1Q13
 Revenue 758.9  313.4
 Growth    -59%
 Net income (loss) (1,029 (791.1)

IceWEB, Inc. announced financial results for the fiscal 2012 first quarter period ended December 31, 2012.

For the three months ended December 31, 2012, it reported revenues of $313,411 as compared to revenues of $758,898 for the three months ended December 31, 2011, a decrease of $445,487 or approximately 58.7%.

Cost of Sales
Our cost of sales consists primarily of products purchased and component parts for the manufacture of our storage products. For the three months ended December 31, 2012 cost of sales was $174,094, or approximately 55.5% of revenues, compared to $472,612, or approximately 62.3% of revenues, for the three months ended December 31, 2011. The decrease in costs of sales as a percentage of revenue and the corresponding increase in our gross profit margin for the three months ended December 31, 2012 as compared to the three months ended December 31, 2011 was the result of higher costs for certain components of cost of goods in the prior year, primarily hard drives, resulting from the disruption of supply due to the flooding in Thailand in October, 2011. Our cost of goods has returned to what we believe are normalized levels. We anticipate that our gross profit margins will remain between 45% and 50% through the balance of fiscal 2013, as our short-term sales strategy is to aggressively compete to win business and increase brand awareness. We may see some improvement in margins once the world-wide supply of hard drives normalizes.

Total Operating Expenses
Our total operating expenses increased approximately 94.5% to $1,438,674 for the three months ended December 31, 2012 as compared to $741,254 for the three months ended December 31, 2011.

These changes include:

  • Marketing and selling. For the three months ended December 31, 2012, marketing and selling costs were $136,134 as compared to $112,370 for the three months ended December 31, 2011, an increase of $23,764 or approximately 21.1%. The increase was due to an increase in sales and marketing related headcount during the three months ended December 31, 2012 versus the prior year.
  • Depreciation and amortization expense. For the three months ended December 31, 2012, depreciation and amortization expense amounted to $18,016 as compared to $68,867 for the three months ended December 31, 2011. The decrease was primarily due to certain assets being fully depreciated in the prior year.
  • R&D. For the three months ended December 31, 2012, research and development costs were $281,617 as compared to $208,773 for the three months ended December 31, 2011, an increase of 72,844 or approximately 34.9%.
  • General and administrative expense. For the three months ended December 31, 2012, general and administrative expenses were $1,002,907 as compared to $351,244 for the three months ended December 31, 2011, an increase of $654,690 or approximately 186.4%.

Comments of Rob Howe, CEO:

"We reported our 10Q for Q-1 of our 2013 fiscal year (Oct-Dec of 2012) today. It reflects many improvements over Q-4 of 2012, and much progress was made, but let me get to the highest area of interest first-revenue. Although our October sales were progressing at a record clip, immediately after the Presidential election, because of the high percentage of our company’s historical customer focus in the government and education sectors, our November and early December revenues were severely curtailed by the uncertainty surrounding the outcome of the fiscal cliff and the sequester. That dynamic in those sectors is still in play. As reported in the Wall Street Journal on 01/30/2013 "WASHINGTON-U.S. economic momentum screeched to a halt in the final months of 2012, as businesses pared back inventories and government spending fell sharply, while lawmakers struggled to reach a deal on tax increases and budget cuts."

"Many committed purchase orders were put on hold, or pulled back indefinitely. Many customers, because they did not know what was going to happen to their budgets, went into immediate pause mode and suspended purchase activity. The net of all this is that our revenue performance for Q-1 was far below what we hoped. And, with all due respect to pigs, there is little value in attempting to perfume a pig-our revenue performance in Q-1 was disappointing.

"As we have indicated previously, given the continuing concerns about the sequester in the government and education sectors, I pivoted the company’s sales efforts to a new direction-1. to a more corporate focus, and 2. to our cloud services offerings, which include a strong hardware component, featuring our IceBOXTM private cloud products. I have reorganized and refocused our sales organization on these principles, and early Q-2 sales thus far show that our pivot is working in that important and fast-growing customer sector.

Finally, I am optimistic concerning our outlook for Q-2, despite the relentless shorting pressure that has recently battered our stock price. Our pivot has begun to generate new sales faster, and we expect to report better results than we did last quarter. As we continue to improve our products and expand our offerings in the Cloud Services sector, we expect our sales and our results will to continue to improve as well."

Comments of Mark Lucky, CFO:

"Icebox is a new service offered by IceWEB that allows business, education and government organizations to utilize a private cloud to securely backup and share files within their organization. Icebox provides organizations with an enterprise-grade cloud collaboration solution that addresses the concerns that organizations have in using consumer-oriented technologies for business, by providing control over confidential or critical information, and providing for compliance and governance of proprietary information. It is the alternative to consumer-oriented products such as Dropbox that require data to be stored on 3rd party servers. There are many companies out there that are looking to follow IBM’s lead in banning unsecure cloud collaboration tools in favor of offerings just like IceBOX.

"The Icebox product offering has created a paradigm shift in the way that IceWEB does business. The Icebox product uses a subscription model that creates a recurring revenue stream. This model complements our existing hardware business, as many of our Icebox customers also have data storage needs which require IceWEB data storage hardware appliances as a component of their data storage solution.

"Not all revenue is created equal. The more predictable and steady that revenue is, the more valuable it becomes. As we add new customers we are creating an annuity of cash flow. This will allow us to allocate more of our limited resources to growing our business rather than on trying to acquire enough new or repeat business just to hit the same revenue level that we did in prior periods. This predictability of revenue lowers our risk profile, and we expect that this recurring revenue will become an increasing share of our overall revenue."

"In addition, this subscription-based model provides a way for us to reach out to our customers more frequently and build a more loyal customer base. Icebox is built to scale as we grow out our customer base, and has created a more collaborative environment for us, enabling us to create an ecosystem of partners and additional revenue opportunities."

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