**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**




**FORM
      10-QSB**




(Mark
      One)




x QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      period ended June 30, 2008




o TRANSITION
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT




For
      the
      transition period from _________ to _________




Commission
      file number: 0-27865




**ICEWEB,
      INC.**


(Exact
      name of small business issuer as specified in its charter)




**Delaware**
            **13-2640971**(State
                or other jurisdiction of
              incorporation
                or organization)
            (I.R.S.
                Employer Identification No.)




**205
      Van Buren Street, Suite 150**


**Herndon,
      VA 20170**


(Address
      of principal executive offices)




**(703)
      964-8000**


(Issuer’s
      telephone number)




**Not
      Applicable**


(Former
      name, former address, and former fiscal year, if changed since last
      report)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes o No x




State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date: At August 13, 2008, there were 22,816,588
      outstanding shares of common stock, $.001 par value per share.




Transitional
      Small Business Disclosure Format (Check one): Yes o No x









**CAUTIONARY
      STATEMENT REGARDING FORWARD LOOKING INFORMATION**




This
      quarterly report contains forward-looking statements. These forward-looking
      statements are subject to risks and uncertainties and other factors that may
      cause our actual results, performance or achievements to be materially different
      from the results, performance or achievements expressed or implied by the
      forward-looking statements. You should not unduly rely on these statements.
      Forward-looking statements can be identified by the fact that they do not relate
      strictly to historical or current facts. They use words such as “anticipate,”
“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “project,”
“contemplate,” “would,” “should,” “could,” or “may.” With respect to any
      forward-looking statement that includes a statement of its underlying
      assumptions or bases, we believe such assumptions or bases to be reasonable
      and
      have formed them in good faith, assumed facts or bases almost always vary from
      actual results, and the differences between assumed facts or bases and actual
      results can be material depending on the circumstances. When, in any
      forward-looking statement, we express an expectation or belief as to future
      results, that expectation or belief is expressed in good faith and is believed
      to have a reasonable basis, but there can be no assurance that the stated
      expectation or belief will result or be achieved or accomplished. All subsequent
      written and oral forward-looking statements attributable to us, or anyone acting
      on our behalf, are expressly qualified in their entirety by the cautionary
      statements.




**OTHER
      PERTINENT INFORMATION**




When
      used
      in this quarterly report, the terms “IceWEB,” the “Company,” “ we,” “our,” and
“us” refers to IceWEB, Inc., a Delaware corporation, and our subsidiaries. The
      information which appears on our web site at www.iceweb.com is not part of
      this
      quarterly report.




-2-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**FORM
      10-QSB**


**QUARTERLY
      PERIOD ENDED JUNE 30, 2008**




INDEX




PagePART
                I - FINANCIAL INFORMATIONItem
                1 - Consolidated Financial Statements
            
            4Consolidated
                Balance Sheet at June 30, 2008 (Unaudited)
            
            4Consolidated
                Statements of Operations (Unaudited)
              For
                the Three and Nine Months Ended June 30, 2008 and 2007
            
            5Consolidated
                Statements of Cash Flows (Unaudited)
              For
                the Nine Months Ended June 30, 2008 and 2007
            
            6Notes
                to Unaudited Consolidated Financial Statements
            
            7-18Item
                2 - Management’s Discussion and Analysis or Plan of
                Operation
            
            19-27Item
                3 - Controls and Procedures
            
            28PART
                II - OTHER INFORMATIONItem
                1 - Legal Proceedings
            
            29Item
                2 - Unregistered Sales of Equity Securities and Use of
                Proceeds
            
            29Item
                3 - Default upon Senior Securities
            
            29Item
                4 - Submission of Matters to a Vote of Security Holders
            
            29Item
                5 - Other Information
            
            29Item
                6 - Exhibits
            
            29




-3-




**PART
      I - FINANCIAL INFORMATION**




**Item
      1. Consolidated Financial Statements**




**ICEWEB,
      Inc.**


**Consolidated
      Balance Sheet**


**June
      30, 2008**


**(Unaudited)**




**CURRENT
                ASSETS:**Cash
            
            $
            48,344Accounts
                receivable, net of allowance of $9,000
            
            
            4,100,548Inventory,
                net of allowance of $73,518
            
            
            694,557Other
                current assets
            
            
            45,504Prepaid
                expenses
            
            
            97,6684,986,621**OTHER
                ASSETS:**Property
                and equipment, net
            
            
            1,141,939Deposits
            
            
            61,418Intangible
                assets, net of accumulated amortization of $369,589
            
            
            1,221,341Total
                Assets
            
            $
            7,411,319**CURRENT
                LIABILITIES:**Accounts
                payable and accrued liabilities
            
            $
            7,522,868Notes
                payable
            
            
            1,931,469Deferred
                revenue
            
            
            15,6259,469,962**Long-Term
                Liabilities**Notes
                payable
            
            
            1,016,558Total
                Liabilities
            
            
            10,486,520**Stockholders’
                Deficit**Preferred
                stock ($.001 par value; 10,000,000 shares authorized)Series
                A convertible preferred stock ($.001 par value; 0 shares issued and
                outstanding)
            
            
            —Series
                B convertible preferred stock ($.001 par value; 1,253,334 shares
                issued
                and outstanding)
            
            
            1,253Common
                stock ($.001 par value; 1,000,000,000 shares authorized; 22,279,088
                shares
                issued and 22,116,588, shares outstanding)
            
            
            22,118Additional
                paid in capital
            
            
            15,092,767Accumulated
                deficit
            
            
            (18,178,339
            )Treasury
                stock, at cost, (162,500 shares)
            
            
            (13,000
            )Total
                stockholders’ deficit
            
            
            (3,075,201
            )Total
                liabilities and stockholders’ deficit
            
            $
            7,411,319




See
      accompanying notes to unaudited consolidated financial statements




-4-




**ICEWEB,
      Inc.**


**Consolidated
      Statements of Operations**


**(Unaudited)**




**Three
                Months Ended**
              **June
                30**
            
            **Nine
                Months Ended**
              **June
                30****2008**
            
            **2007**
            
            **2008**
            
            **2007****Sales**
            
            $
            5,981,083
            
            $
            3,655,019
            
            $
            14,095,946
            
            $
            12,114,253**Cost
                of sales**
            
            
            5,249,906
            
            
            3,176,055
            
            
            12,127,796
            
            
            10,652,698**Gross
                profit**
            
            
            731,177
            
            
            478,964
            
            
            1,968,150
            
            
            1,461,555**Operating
                expenses:**Marketing
                and selling
            
            
            50,208
            
            
            (53,981
            )
            
            138,927
            
            
            117,248Depreciation
                and amortization
            
            
            259,933
            
            
            58,658
            
            
            412,297
            
            
            189,794Research
                and development
            
            
            121,906
            
            
            —
            
            
            207,636
            
            
            —General
                and administrative
            
            
            2,369,286
            
            
            764,064
            
            
            5,187,547
            
            
            1,938,947**Total
                Operating Expenses**
            
            
            2,801,333
            
            
            768,741
            
            
            5,946,407
            
            
            2,245,989**Income
                (loss) From Operations**
            
            
            (2,070,156
            )
            
            (289,777
            )
            
            (3,978,257
            )
            
            (784,434
            )**Other
                income (expenses):**Gain/(loss)
                from sale of assets
            
            
            —
            
            
            —
            
            
            —
            
            
            153,319Interest
                income
            
            
            682
            
            
            952
            
            
            3,266
            
            
            2,446Interest
                expense
            
            
            (196,450
            )
            
            (103,880
            )
            
            (481,457
            )
            
            (447,816
            )**Total
                other (expenses):**
            
            
            (195,768
            )
            
            (88,195
            )
            
            (478,191
            )
            
            (292,050
            )**Net
                income (loss)**
            
            $
            (2,265,924
            )
            $
            16,903
            
            $
            (4,456,448
            )
            $
            (1,076,484
            )Basic
                and diluted loss per common share
            
            $
            (0.12
            )
            $
            (0.05
            )
            $
            (0.28
            )
            $
            (0.11
            )Weighted
                average common shares outstanding-basic and diluted
            
            
            19,172,959
            
            
            10,352,305
            
            
            16,162,168
            
            
            9,888,434




See
      accompanying notes to unaudited consolidated financial statements




-5-




**ICEWEB,
      Inc.**


**Consolidated
      Statements of Cash Flows**


**(Unaudited)**




**Nine
                Months Ended**
              **June
                30,****2008**
            
            **2007**NET
                CASH USED IN OPERATING ACTIVITIES
            
            $
            (385,319
            )
            $
            87,556CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property and equipment
            
            
            (65,923
            )
            
            (1,873
            )Net
                cash received from sale of net assets
            
            
            —
            
            
            138,000Gain
                on conversion of note payable to equity
            
            
            —
            
            
            (132,875
            )Cash
                used in acquisitions, net
            
            
            (1,311,318
            )
            
            (247,000
            )NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (1,377,241
            )
            
            (243,749
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Repayment
                of equipment financing
            
            
            (60,068
            )
            
            (57,006
            )Proceeds
                from notes payable - related party
            
            
            —
            
            
            30,000Repayment
                of notes payable - related party
            
            
            (115,767
            )
            
            (26,500
            )Net
                proceeds from related party advances
            
            
            —
            
            
            11,737Proceeds
                from notes payable
            
            
            7,092,685
            
            
            610,037Payments
                on notes payable
            
            
            (6,476,876
            )
            
            (1,048,070
            )Proceeds
                from exercise of common stock options
            
            
            198,450
            
            
            185,650Proceeds
                from sale of common stock
            
            
            80,000
            
            
            —Proceeds
                from exercise of common stock warrants
            
            
            —
            
            
            407,000NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            718,424
            
            
            112,848NET
                INCREASE (DECREASE) IN CASH
            
            
            (1,044,136
            )
            
            (43,345
            )CASH
                - beginning of period
            
            
            1,092,470
            
            
            432,885CASH
                - end of period
            
            $
            48,334
            
            $
            389,540Supplemental
                disclosure of cash flow information:Cash
                paid for :Interest
            
            $
            463,245
            
            $
            435,316Income
                taxes
            
            
            —
            
            
            —Non-cash
                transactions affecting investing and financing activities:Fair
                value of shares issued for services from a retailer and an investor
                relations firm
            
            $
            —
            
            
            (350,000
            )Conversion
                of shares of preferred stock to shares of common stock
            
            
            1,037,000
            
            
            300Fair
                value of shares issued in satisfaction of debt to related
                parties
            
            
            —
            
            
            114,000Acquisition
                details:Goodwill
            
            $
            —
            
            $
            —Liabilities
                assumed
            
            $
            1,616,814
            
            $
            —Common
                stock issued
            
            $
            276,845
            
            
            —Direct
                costs
            
            
            740,000
            
            
            —Fair
                value of assets acquired
            
            $
            3,944,977
            
            $
            —Cash
                paid
            
            $
            1,311,318
            
            $
            250,000




See
      accompanying notes to unaudited consolidated financial statements




-6-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      1 - NATURE OF BUSINESS**




**The
      Company**




The
      Company’s history and acquisition strategy has been a key to our development as
      a company. We began as a full service provider of computer systems and
      professional services to private sector corporations and to the federal
      government under a General Services Administration (GSA) schedule contract
      for
      computer systems and peripherals. Between 2001 and 2004, the Company undertook
      a
      series of strategic acquisitions which resulted in its business and operations
      during fiscal 2006. During fiscal 2006 it also acquired PatriotNet, an Internet
      service provider. As a result of these acquisitions, during fiscal 2006 the
      Company’s business and operations were primarily centered on providing hosted
      web-based collaboration solutions that enabled organizations to establish
      Internet, Intranet, and email/collaboration services immediately and with little
      or no up-front capital investment.




Following
      the end of fiscal 2006, the Company sold three of its subsidiaries, The Seven
      Corporation, PatriotNet and Integrated Power Solutions. On November 15, 2006,
      the Company acquired certain of the assets of True North Solutions related
      to
      its governmental customer business, including the customers, forecast, contract
      renewals, and GSA schedule.




On
      December 22, 2007 the Company acquired Inline Corporation (“Inline”), a leading
      edge provider of data storage solutions to the corporate and government
      markets.




See
      Note
      4 for further description of the Company’s acquisition and
      dispositions.




As
      a
      result of this acquisition and these divestures the Company’s core business is
      primarily now sales of storage area network solutions, software services,
      application development, network integrated technology, and third party hardware
      sales.




**NOTE
      2 - BASIS OF PRESENTATION**  **AND
      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**




Our
      interim consolidated financial statements included herein have been prepared
      by
      us, without audit, pursuant to the rules and regulations of the Securities
      and
      Exchange Commission (the “SEC”). Certain information and footnote disclosures
      normally included in annual financial statements prepared in accordance with
      generally accepted accounting principles in the United States (“GAAP”) have been
      condensed or omitted pursuant to such rules and regulations. In the opinion
      of
      management, the interim consolidated financial statements reflect all
      adjustments (consisting only of normal recurring adjustments) necessary for
      a
      fair presentation of the statement of the results for the interim periods
      presented. These interim consolidated financial statements should be read in
      conjunction with the audited consolidated financial statements and notes
      thereto, as well as the accompanying Management’s Discussion and Analysis of
      Financial Condition and Results of Operations for the year ended September
      30,
      2007 included in our Annual Report on Form 10-KSB. Interim financial results
      are
      not necessarily indicative of the results that may be expected for a full
      year.




**Reclassifications**




Certain
      reclassifications have been made to previously reported amounts to conform
      to
      2007 amounts.




-7-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)**




**Going
      Concern**




The
      Company’s auditors stated in their report on the consolidated financial
      statements of the Company for the years ended September 30, 2007 and 2006 that
      the Company is dependent on outside financing and has had losses since inception
      that raise doubt about its ability to continue as a going concern. For the
      nine
      months ended June 30, 2008, the Company incurred a net loss of $4,456,448 which
      included noncash expenses of $2,284,615. Cash used in operations totaled
      $385,319. 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 the
      Company cannot continue in existence.




Management
      has established plans intended to increase the sales of the Company’s 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 the
      Company will be able to raise any additional funds.




**Use
      of estimates**




The
      preparation of financial statements in conformity with generally accepted
      accounting principles 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 financial statements and
      the reported amounts of revenue and expenses during the reporting period. Actual
      results could differ from those estimates. Significant estimates in 2008 and
      2007 include the allowance for doubtful accounts, the valuation of stock-based
      compensation, the useful life of intangible assets and property and equipment,
      and the valuation of goodwill.




**Cash
      and Cash Equivalents**




The
      Company considers 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. The Company recorded a bad
      debt
      allowance of $9,000 as of June 30, 2008. Management performs ongoing evaluations
      of its accounts receivable. Management believes that all remaining receivables
      are fully collectable. Bad debt expense amounted to $0 and $0 for the nine
      months ended June 30, 2008 and 2007, respectively.




**Intangible
      Assets**




Intangible
      assets, net consists of the cost of acquired customer relationships and the
      value of Federal contracts that the Company acquired in the acquisition of
      certain assets of True North, and from the acquisition of Inline Corporation.
      The Company capitalizes and amortizes the cost of acquired intangible assets
      over their estimated useful lives on a straight-line basis. The estimated useful
      lives of the Company’s acquired customer relationships and Federal government
      contracts are from three to five years.




-8-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)**




**Property
      and Equipment**




Property
      and equipment is stated at cost, net of accumulated depreciation. Depreciation
      is provided by using the straight-line method over the estimated useful lives
      of
      the related assets.




Property
      and equipment also includes costs incurred in connection with development on
      the
      Company’s software developed for internal use and website costs. The Company
      capitalized certain costs valued in connection with developing or obtaining
      internal use software in accordance with American Institute of Certified Public
      Accountants Statement of Position 98-1, “Accounting for the Costs of Computer
      Software Developed or Obtained for Internal Use”. These costs, which consist of
      direct technology labor costs, are capitalized and amortized using the
      straight-line method over expected useful lives of three years.




**Goodwill**




Goodwill
      is recorded on a business combination to the extent the cost of an acquired
      entity exceeds the fair value of the net assets acquired.




The
      Company does not amortize goodwill but tests goodwill impairment at least on
      an
      annual basis, or earlier when events or changes in circumstances suggest the
      carrying amount may not be fully recoverable. Such evaluation is performed
      by
      comparing the implied fair value of a reporting unit to its carrying value,
      including goodwill. An impairment loss is recognized in the current period
      if
      the carrying amount of an intangible asset is not recoverable and its carrying
      amount exceeds its fair value. The Company performed its latest annual
      impairment test with regard to the carrying value of goodwill as of June 30,
      2008. For the nine months ended June 30, 2008, the Company did not record any
      impairment to goodwill.




**Long-lived
      Assets**




In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
      “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company
      reviews the carrying value of intangibles and other long-lived assets for
      impairment at least annually or whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
      Recoverability of long-lived assets is measured by comparison of its carrying
      amount to the undiscounted cash flows that the asset or asset group is expected
      to generate. If such assets are considered to be impaired, the impairment to
      be
      recognized is measured by the amount by which the carrying amount of the
      property, if any, exceeds its fair market value.




**Revenue
      Recognition**




The
      Company follows the guidance of the Securities and Exchange Commission’s Staff
      Accounting Bulletin 104 for revenue recognition. In general, the Company records
      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 the various revenues streams of the
      Company:




-9-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)**




**Revenue
      Recognition (continued)**




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**




The
      Company computes earnings per share in accordance with Statement of Accounting
      Standards No. 128, “Earnings per Share (“SFAS No. 128”). Under the provisions of
      SFAS No. 128, 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 anti-dilutive. At June 30, 2008, there were options and warrants
      to purchase 8,282,035 shares of common stock and 1,253,334 shares issuable
      upon
      conversion of Series B preferred stock which could potentially dilute future
      earnings per share.




**Stock-Based
      Compensation**




Prior
      to
      January 1, 2006, the Company 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 FASB Statement No. 123, *Accounting
      for Stock-Based*  *Compensation* (“SFAS
      No. 123”).




Effective
      January 1, 2006 we adopted the fair value recognition provisions of FASB
      Statement No. 123 (revised 2004), “ *Share-Based
      Payment”,* (“SFAS
      123(R)”) which requires the measurement and recognition of compensation expense
      for all stock-based payment awards made to employees and directors, including
      employee stock options, based on estimated fair values. We had previously
      applied Accounting Principles Board Opinion No. 25, “Accounting for Stock
      Issued to Employees,” (“APB 25”) and related Interpretations and provided the
      required pro forma disclosures of Statement of Financial Accounting Standards
      No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) which was
      superseded by SFAS 123(R). The Company has also applied the provisions of Staff
      Accounting Bulletin No. 107 (“SAB 107”) in the adoption of SFAS
      123(R).




-10-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (continued)**




**Stock-based
      compensation (continued)**




We
      elected to adopt the modified prospective application transition method as
      provided by SFAS 123(R). In accordance with the modified prospective transition
      method, consolidated financial statements for prior periods have not been
      restated to reflect, and do not include, the impact of SFAS 123(R). Under that
      transition method, compensation cost recognized in the three months ended June
      30, 2008 includes: (a) compensation cost for all share-based payments granted
      prior to, but not yet vested as of June 30, 2008, 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).




**NOTE
      3 - PROPERTY AND EQUIPMENT**




At
      June
      30, 2008, property and equipment consisted of the following:




**Estimated
                Life**Office
                equipment
            
            
            5
                years
            
            $
            526,178Computer
                software
            
            
            3
                years
            
            
            713,876Vehicles
            
            
            3
                years
            
            
            17,330Furniture
                and fixtures
            
            
            5
                years
            
            
            261,385Leasehold
                improvements
            
            
            3
                years
            
            
            999,0502,517,819Less:
                accumulated depreciation
            
            
            
            
            
            (1,375,880
            )$
            1,141,939




Depreciation
      expense for the Nine Months Ended June 30, 2008 and 2007 was $206,882 and
      $189,794 respectively.




**NOTE
      4 - ACQUISITION AND DISPOSITIONS**




In
      November 2006, the Company sold its interest in one of its subsidiaries
      (Integrated Power Solutions, Inc. or IPS) to a then key employee and shareholder
      of the Company for the payment of cash to the third party of $12,000, and
      assumption by the purchaser of approximately $180,000 in accounts payable.
      In
      connection with this sale, the Company recorded a gain of $138,586.




-11-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      4 - ACQUISITIONS AND DISPOSITIONS (continued)**




On
      November 15, 2006, we acquired certain assets of True North Solutions (“True
      North”) related to its governmental customer business for $430,000 of which
      $250,000 was paid in cash at closing 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. Additionally the Company accrued $80,000 in finder’s fees
      payable to a principal shareholder in connection with this acquisition. Under
      the terms of the agreement, we acquired the customers, forecast, contract
      renewals, and GSA schedule of True North Solutions. The novation 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.




On
      December 22, 2007, we acquired 100% of the outstanding stock of Inline for
      $1,311,318 in cash, plus 503,356 shares of IceWEB common stock valued at
      $276,846, the fair market value on the date of acquisition. The acquisition was
      accounted for using the purchase method of accounting. The results of operations
      are included in the financial statements of operations from the date of
      acquisition. Inline is a leading provider of intelligent enterprise data storage
      solutions and services for the geospatial intelligence marketplace. Inline’s
      proprietary products include reliable, high performance Storage Area Network
      Solutions, Network Attached Storage, and Direct Attached Storage and the rapidly
      expanding OEM Storage Centric Appliances. Today, Inline has developed its fifth
      generation of advanced data storage solutions, marketed under the brands *TruEnterprise* and *FileStorm* .
      All
      Inline systems function in a heterogeneous operating system environment,
      including Windows, UNIX and Linux. The purchase of Inline Corporation included
      the acquisition of assets of $2,352,114, and liabilities of
      $1,616,814.





The
      following table summarizes the required disclosures of the pro forma combined
      entity, as if the acquisition of Inline and certain assets of True North
      occurred at October 1, 2006.


**For
                  the Nine Months**
                **Ended
                  June 30,****2008**
              
              **2007**Sales,
                  net
              
              $
              16,300,745
              
              $
              14,033,295Net
                  loss
              
              
              (4,690,933
              )
              
              (1,792,348)
              )Net
                  loss per common share - basic and diluted
              
              
              (0.29
              )
              
              (0.18
              )




The
      above
      unaudited pro forma results have been prepared for comparative purposes only
      and
      do not purport to be indicative of results of operations that actually would
      have resulted had the acquisition occurred at October 1, 2006, nor is it
      necessarily indicative of future operating results.




-12-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      5 - RELATED PARTY TRANSACTIONS**




Note
      Payable - Related Party




During
      the fiscal year ended September 30, 2007, a company that the Company’s chief
      executive officer is a shareholder in lent funds to the Company for working
      capital purposes. As consideration for providing the funding, the Company agreed
      to issue1.54 shares of common stock for each dollar lent under the loan. During
      the nine months ended June 30, 2008, the Company borrowed $4,490 under this
      loan
      agreement and repaid the loan in full in the amount of $115,767. At June 30,
      2008, the Company owed this related party $0.




**NOTE
      6 - 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 December, 2007 the agreement was amended to increase
      the maximum balance up to $3,000,000. Amounts borrowed under the Financing
      Agreement are secured by a first security interest in substantially all of
      the
      Company’s assets. At June 30, 2008, the principal amount due under the Financing
      Agreement amounted to 1,843,671.




Interest
      is payable on this note was reduced in January, 2008 from a rate of 2% per
      month
      on the average balance outstanding during the year, to 1.75%, which is equal
      to
      an annual interest of approximately 18% per year. The Company also agreed to
      pay
      an upfront commitment fee of 1% of the credit line upon signing of 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 amount payable on the anniversary of the
      agreement.




The
      Financing Agreement contains a number of covenants, including a requirement
      for
      the Company to provide monthly unaudited financial statements within 20 days
      of
      each month-end and audited financial statements together with an accountant’s
      opinion within 90 days of the end of each fiscal year.




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
      less, (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
      addition to the note secured by accounts receivable, the Company entered into
      a
      Financing Agreement with Sand Hill Finance, LLC to borrow $1,000,000 at an
      annual interest rate of 24%. At June 30, 2008, the principal amount due under
      this Financing Agreement amounted to 979,379.




-13-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      6 - NOTES PAYABLE (continued)**




Note
      Payable - Other




At
      June
      30, 2007, the Company retired a promissory note to a stockholder in the amount
      of $150,000, plus accrued interest of $96,875, in exchange for 200,000 shares
      of
      the Company’s common stock. The note bore interest at the rate of 12.5% per
      annum and was due on demand.




In
      May
      2005, the Company issued to this stockholder 125,000 shares of common stock
      as
      consideration for the extension of the maturity date of the note by 10 years
      to
      September 30, 2014 which had been orally agreed to in fiscal 2004. The shares
      were valued at $200,000, the fair value at the date of issuance. The cost
      associated with these shares has been accounted for as deferred finance charges
      to be amortized over the life of the deferral period. The unamortized deferred
      finance cost of $145,000 was taken as a charge to interest expense in June,
      2007. For the Nine Months Ended June 30, 2008 and 2007, amortization of deferred
      financing costs amounted to $0 and $5,000 respectively, and is included in
      interest expense on the accompanying consolidated statements of
      operations.




**NOTE
      7 - EQUIPMENT FINANCING PAYABLE**




On
      July
      6, 2006, the Company entered into what is in essence a sale and leaseback
      agreement with respect to certain computer and office equipment. The Company
      received gross proceeds of $300,000 from the sale of the equipment to a third
      party. As part of the same transaction, the Company entered into an agreement
      to
      lease the equipment back from the third party for 36 monthly rent payments
      of
      $10,398 until August 2009. The Company accounted for this equipment financing
      arrangement as a capital lease. In connection with the agreement, the Company
      made an initial security deposit of $30,000 and is included in deposits in
      the
      balance sheet at June 30, 2008. The equipment had a net book value of $37,846
      on
      the date of the transaction. In connection with the financing, the Company
      did
      not record any gain or loss. Imputed interest on this financing is 20% per
      annum. At June 30, 2008, the principal amount due under this equipment financing
      arrangement amounted to $124,977. From time to time we have failed to make
      the
      monthly payments due under this agreement on a timely basis. Should the lessor
      declare us in default, it would be entitled to accelerate all amounts due under
      the agreement which is approximately $145,000 at June 30, 2008. If we were
      unable to satisfy such amount, the lessor could retake the equipment thereby
      depriving us of its use which could materially affect our business and
      operations.




**NOTE
      8 - CONCENTRATION OF CREDIT RISK**




Bank
      Balances




The
      Company maintains its cash bank deposits at various financial institutions
      which, at times, may exceed federally insured limits. Accounts are guaranteed
      by
      the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At June 30,
      2008, the Company had no amounts in excess of FDIC insured limits. The Company
      has not experienced any losses in such accounts.




-14-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      9 - STOCKHOLDERS’ DEFICIT**




**Common
      Stock Warrants**




A
      summary
      of the status of the Company’s outstanding common stock warrants as of June 30,
      2008 and changes during the period ending on that date is as follows:




**Number
                of**
              **Warrants**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Common
                Stock WarrantsBalance
                at beginning of year
            
            
            5,955,000
            
            $
            1.25Granted
            
            
            120,000
            
            
            1.00Exercised
            
            
            (2,825,000
            )
            
            0.28Forfeited
            
            
            (2,950,000
            )
            
            0.95Balance
                at end of period
            
            
            300,000
            
            $
            2.18Warrants
                exercisable at end of period
            
            
            300,000
            
            $
            2.18Weighted
                average fair value of warrants granted or re-priced during the
                period
            
            
            
            
            $
            —




The
      following table summarizes information about common stock warrants outstanding
      at June 30, 2008:




**Warrants
                Outstanding**
            
            **Warrants
                Exercisable****Range
                of**
              **Exercise**
              **Price**
            
            **Number**
              **Outstanding
                at**
              **June
                30, 2008**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **Exercisable
                at**
              **June
                30, 2008**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$
            0.65
            
            
            75,000
            
            
            1.17
                Years
            
            $
            0.65
            
            
            75,000
            
            $
            0.651.00
            
            
            145,000
            
            
            4.50
                Years
            
            
            1.00
            
            
            145,000
            
            
            1.002.00
            
            
            5,000
            
            
            3.06
                Years
            
            
            2.00
            
            
            5,000
            
            
            2.004.00
            
            
            37,500
            
            
            1.50
                Years
            
            
            1.00
            
            
            37,500
            
            
            4.008.00
            
            
            37,500
            
            
            1.50
                Years
            
            
            8.00
            
            
            37,500
            
            
            8.00300,000
            
            
            
            
            $
            2.18
            
            
            300,000
            
            $
            1.25




In
      March
      2008 500,000 of the outstanding common stock warrants were converted on a
      cashless basis into 200,000 shares of common stock. On April 4, 2008, 4,650,000
      of the outstanding common stock warrants were converted on a cashless basis
      into
      2,325,000 shares of common stock.




-15-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      10 - 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.




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 April, 2007, the Plan permits the grant of options and shares for
      up
      to 10,000,000 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.




-16-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      10 - STOCK OPTION PLAN (continued)**




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,****2008**
            
            **2007**Expected
                volatility
            
            
            56%
                - 65%
            
            
            100%
                - 110%Expected
                term
            
            
            3
                Years
            
            
            5
                yearsRisk-free
                interest rate
            
            
            4.39%
                - 4.57%
            
            
            4%Expected
                dividend yield
            
            
            0%
            
            
            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, 2008, total stock-based compensation charged to
      operations for option-based arrangements amounted to $497,280. At June 30,
      2008,
      there was approximately $581,642 of total unrecognized compensation expense
      related to non-vested option-based compensation arrangements under the
      Plan.




A
      summary
      of the status of the Company’s outstanding stock options as of June 30, 2008 and
      changes during the period ending on that date is as follows:




**Number
                of**
              **Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**Stock
                optionsBalance
                at beginning of year
            
            
            5,212,219
            
            $
            0.61Granted
            
            
            5,160,000
            
            
            0.33Exercised
            
            
            (825,000
            )
            
            0.18Forfeited
            
            
            (1,565,184
            )
            
            0.46Balance
                at end of period
            
            
            7,982,035
            
            $
            0.50Options
                exercisable at end of period
            
            
            4,624,129
            
            $
            0.55Weighted
                average fair value of options granted during the year
            
            
            
            
            $
            0.55




-17-




**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**JUNE
      30, 2008**




**NOTE
      10 - STOCK OPTION PLAN (continued)**




The
      following table summarizes information about employee stock options outstanding
      at June 30, 2008:




**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of**
              **Exercise**
              **Price**
            
            **Number**
              **Outstanding
                at**
              **June
                30, 2008**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Life**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Number**
              **Exercisable
                at**
              **June
                30, 2008**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**$
            0.001
                - 0.55
            
            
            4,549,816
            
            
            1.21
                Years
            
            $
            0.35
            
            
            2,665,493
            
            $
            0.400.56
                - 0.80
            
            
            3,337,500
            
            
            1.36
                Years
            
            
            0.63
            
            
            1,863,917
            
            
            0.651.44
                - 3.80
            
            
            94,719
            
            
            0.56
                Years
            
            
            2.84
            
            
            94,719
            
            
            2.847,982,035
            
            
            
            
            $
            0.50
            
            
            4,624,129
            
            $
            0.55




**NOTE
      11 - SEGMENT REPORTING**




SFAS
      No.
      131, Disclosure about Segments of an Enterprise and Related Information,
      establishes standards for the reporting by business enterprises of information
      about operating segments, products and services, geographic areas, and major
      customers. The method for determining what information to report is based on
      the
      way that management organizes the operating segments with IceWEB for making
      operational decisions and assessments of financial performance.




IceWEB’s
      chief operating decision-maker is considered to be the 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,
      IceWEB has determined that it operates in a single operating segment,
      specifically, reselling hardware and software. For the Nine Months Ended June
      30, 2008 and 2007 all material assets and revenues of IceWEB were in the United
      States.




-18-




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




The
      following analysis of our consolidated financial condition and results of
      operations for the nine months ended June 30, 2008 and 2007 should be read
      in
      conjunction with the consolidated financial statements, including footnotes,
      appearing elsewhere in this quarterly report.




**OVERVIEW**




In
      December, 2007 we acquired Inline Corporation, a manufacturer of storage area
      network applications and solutions. This acquisition repositions the Company
      to
      manufacture and sell its own branded storage area network products and solutions
      to Federal, state, local governments, and commercial customers. For the nine
      months ended June 30, 2008, revenue from Inline included in the operating
      results for IceWEB, Inc. amounted to 744,198. Going forward it is anticipated
      that Inline storage products will make a significant contribution to IceWEB’s
      results of operations. Inline’s facility is located in Sterling, Virginia,
      approximately five miles from IceWEB’s headquarters location.




Also,
      IceWEB, Inc., through our Solutions Group, is a provider of computer network
      security products and solutions, such as access control, content filtering,
      email security, intrusion detection, and the latest layer 7 firewall technology,
      primarily to Federal, state and local governments. We continue to execute on
      our
      strategy to significantly increase our presence in the Federal IT marketplace
      and we believe that our acquisition of True North Federal Solutions Group in
      2006 has laid a strong foundation for our future success.




In
      addition to our governmental customer business, we provide hosted web-based
      collaboration solutions through our online product offerings in our IceWEB
      Online group. Our subscription-based Hosted Microsoft Exchange services,
      enterprise software and network security infrastructure products and services
      are targeted towards small- and medium-sized business. The Internet-based
      a-la-carte suite of robust, hosted software application services are used in
      both public and private sectors. Currently IceWEB Online products include
      IceMAIL (messaging), IceVISTA (web hosting), IcePORTAL (Intranet service),
      and
      IceSECURE (secured email). Its goal is to bring enterprise-class technology,
      normally affordable by only large corporations, to small business customers
      via
      a low-priced, recurring monthly subscription model. This model, coupled with
      minimal or no startup costs, makes implementing IceWEB more cost-effective
      and
      efficient for small businesses.




**CRITICAL
      ACCOUNTING POLICIES**




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




-19-




A
      summary
      of significant accounting policies is included in Note 1 to the audited
      consolidated financial statements included for the year ended September 30,
      2007
      and notes thereto contained on Form 10-KSB of the Company as filed with the
      Securities and Exchange Commission. Management believes that the application
      of
      these policies on a consistent basis enables us to provide useful and reliable
      financial information about the Company’s operating results and financial
      condition.




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




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




Accounting
      for Stock Based Compensation - Effective October 1, 2005, we adopted
      Statement of Financial Accounting Standards No. 123 (revised 2004), *Share
      Based Payment* (“SFAS
      No. 123R”). SFAS No. 123R establishes the financial accounting and
      reporting standards for stock-based compensation plans. As required by SFAS
      No. 123R, we recognize the cost resulting from all stock-based payment
      transactions including shares issued under our stock option plans in the
      financial statements. The adoption of SFAS No. 123R will have a negative impact
      on our future results of operations.




Revenue
      Recognition - The Company follows the guidance of the Securities and Exchange
      Commission’s Staff Accounting Bulletin 104 for revenue recognition. In general,
      the Company records 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 the various revenues
      streams of the Company:




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.




-20-




**NINE
      MONTHS ENDED JUNE 30, 2008 COMPARED TO THE NINE MONTHS ENDED JUNE 30,
      2007**




The
      following table provides an overview of certain key factors of our results
      of
      operations for the Nine Months Ended June 30, 2008 as compared to the Nine
      Months Ended June 30, 2007:




**Nine
                months ended****June
                30,****2008**
            
            **2007**
            
            **$
                of Change**
            
            **%
                Change****Net
                Revenues**
            
            
            14,095,946
            
            
            12,114,253
            
            
            1,981,693
            
            
            16.4
            %**Cost
                of sales**
            
            
            12,127,796
            
            
            10,652,698
            
            
            1,475,099
            
            
            13.8
            %**Operating
                Expenses:****Marketing
                and selling**
            
            
            138,927
            
            
            117,248
            
            
            21,679
            
            
            18.5
            %**Depreciation
                and amortization**
            
            
            412,297
            
            
            189,794
            
            
            222,503
            
            
            117.2
            %**Research
                and development**
            
            
            207,636
            
            
            —
            
            
            207,636
            
            
            N/A**General
                and administrative**
            
            
            5,187,547
            
            
            1,938,947
            
            
            3,248,600
            
            
            167.5
            %**Total
                operating expenses**
            
            
            5,946,407
            
            
            2,245,989
            
            
            3,700,418
            
            
            164.8
            %**Loss
                from operation**
            
            
            (3,978,257
            )
            
            (784,434
            )
            
            (3,193,823
            )
            
            407.2
            %**Total
                other income (expense)**
            
            
            (478,191
            )
            
            (292,050
            )
            
            (186,141
            )
            
            63.7
            %**Net
                loss**
            
            
            (4,456,448
            )
            
            (1,076,484
            )
            
            (3,379,964
            )
            
            314.0
            %





Other
      Key
      Indicators:




**Nine
                months ended****June
                30,****2008**
            
            **2007**
            
            **%
                Change****Cost
                of sales as a percentage of revenues**
            
            
            86.0
            %
            
            87.9
            %
            
            (1.9
            %)**Gross
                profit margin**
            
            
            14.0
            %
            
            12.1
            %
            
            1.9
            %**General
                and administrative expenses as a percentage of
                revenues**
            
            
            36.8
            %
            
            16.0
            %
            
            20.8
            %**Total
                operating expenses as a percentage of revenues**
            
            
            42.2
            %
            
            18.5
            %
            
            23.6
            %




***Revenues***




For
      the
      nine months ended June 30, 2008, we reported revenues of $14,095,946 as compared
      to revenues of $12,114,253 for the nine months ended June 30, 2007, an increase
      of $1,981,693 or approximately 16.4%. The increase is primarily due to an
      increase in our third party product sales through our IceWEB Solutions Group
      which accounted for approximately 95% of our revenue. Revenues from Inline
      from
      the date of acquisition totaled $744,198. We anticipate that IceWEB proprietary
      product revenue will continue to increase for fiscal 2008, and will make up
      a
      larger percentage of total revenue, primarily through sales of Inline storage
      products.




-21-




***Cost
      of Sales***




Our
      cost
      of sales consists primarilyof products purchased for resale, and third party
      contractors. For the nine months ended June 30, 2008, cost of sales was
      $12,127,796, or approximately 86.0% of revenues, compared to $10,652,698, or
      approximately 87.9% of revenues, for the nine months ended June 30, 2007. The
      increase in costs of sales as a percentage of revenue and the corresponding
      increase in our gross profit margin for the nine months ended June 30, 2008
      as
      compared to the nine months ended June 30, 2007 was the result of improved
      mix
      of higher margin products, primarily our IceWEB branded and storage products,
      during the three months ended June 30, 2008 as a percentage of total revenue.
      We
      anticipate that our gross profit margins will continue to improve through the
      balance of fiscal 2008, as IceWEB proprietary product revenue will make up
      a
      larger percentage of total revenue, primarily through sales of Inline storage
      products.




***Total
      Operating Expenses***




Our
      total
      operating expenses increased to $5,946,407 for the nine months ended June 30,
      2008 as compared to $2,245,989 for the nine months ended June 30, 2007. These
      changes include:





· Marketing
      and Selling .
      For the
      nine months ended June 30, 2008, marketing and selling costs were $138,927
      as
      compared to $117,248 for the nine months ended June 30, 2007, an increase of
      $21,679 or approximately 18.5%. The increase was due to an increase in IceWEB
      Online web marketing, and advertising and print advertising during the nine
      months ended June 30, 2008.




· Depreciation
      and amortization expense .
      For the
      nine months ended June 30, 2008, depreciation and amortization expense amounted
      to $412,297 as compared to $189,794 for the nine months ended June 30, 2007,
      an
      increase of $222,503 or 117.2%. The increase in amortization was primarily
      attributable to the amortization of the GSA schedule costs which were acquired
      as part of the True North transaction in November, 2006, the amortization of
      the
      manufacturing GSA schedule acquired in the acquisition of Inline Corporation,
      and to the depreciation of assets related to the acquisition of Inline
      Corporation in December, 2007.




· Research
      and development expense .
      For the
      nine months ended June 30, 2008, research and development expense amounted
      to
      $207,636 as compared to $0 for the nine months ended June 30, 2007. The increase
      is due to the research and development activities related to our storage
      products that were part of the acquisition of Inline Corporation in December,
      2007.




· General
      and administrative expense .
      For the
      nine months ended June 30, 2008, general and administrative expenses were
      $5,187,547 as compared to $1,938,947 for the nine months ended June 30, 2007,
      an
      increase of $3,248,600. For the nine months ended June 30, 2008 and 2007 general
      and administrative expenses consisted of the following:




**June
                30,**
            
            **June
                30,****2008**
            
            **2007**Occupancy
            
            $
            236,990
            
            
            167,115Consulting
            
            
            127,325
            
            
            139,607Salaries,
                benefits and taxes
            
            
            3,360,317
            
            
            1,159,207Professional
                fees
            
            
            62,792
            
            
            105,491Internet/Phone
            
            
            70,890
            
            
            52,372Travel/Entertainment
            
            
            103,436
            
            
            73,223Investor
                Relations
            
            
            862,177
            
            
            115,019Other
            
            
            313,685
            
            
            91,416Leased
                Equipment
            
            
            49,935
            
            
            35,497$
            5,187,547
            
            
            1,938,947




-22-




**•**
            For
                the nine months ended June 30, 2008, occupancy expense amounted to
                $236,990 as compared to $167,115 for the nine months ended June 30,
                2007,
                an increase of $69,875. The increase was due to the rent expense
                associated with the manufacturing facility obtained in the acquisition
                of
                Inline.




**•**
            For
                the nine months ended June 30, 2008, salaries, benefits and taxes
                increased to $3,360,317 as compared to $1,159,207 for the nine months
                ended June 30, 2007. Salary expense is higher primarily due to non-cash
                incentive compensation of $1,234,480 for the nine months ended June
                30,
                2008, versus a credit for non-cash incentive stock option expense
                of
                $261,436 for the year-ago period, a net increase of $1,495,916 in
                non-cash
                expense. Non-cash incentive compensation paid to officers totaled
                $640,681. In addition, sales commission expense for the nine months
                ended
                June 30, 2008 totaled $267,634, as compared to $195,621 in the year
                ago period, an increase of $72,013. The difference in expense is
                due
                primarily to the timing of cash received from customers. Base salary
                expense for the nine month period ended June 30, 2008 totaled $1,804,976
                as compared to $1,082,796 for the year-ago period, an increase of
                $722,180. Of this increase in salaries, $512,838 is related to the
                acquisition of Inline, and includes one-time bonuses to Inline employees
                of $88,490.**•**
            For
                the nine months ended June 30, 2008, other expense amounted to $313,685
                as
                compared to $91,416 for the nine months ended June 30, 2007, an increase
                of $222,269. The increase was due to a one-time charge for credit
                card
                fees of $20,049, web site development costs of $38,035 and $33,838
                of
                miscellaneous tax and auto expense related to the acquisition of
                Inline,
                in 2008, a credit to other expense for the gain on the conversion
                of a
                note payable to equity in 2007 of $132,850, and an increase in insurance
                expense of $35,025.**•**
            For
                the nine months ended June 30, 2008 investor relations expense increased
                to $862,177 as compared to $115,019 for the nine months ended June
                30,
                2007. The increase is due to an increased number of road shows and
                a
                general increase in investor relations activity. $493,850 of this
                increase
                was non-cash.




We
      anticipate that, excluding FAS123 related incentive stock option expense,
      general and administrative expenses will continue to remain flat during the
      balance of fiscal 2008, after factoring in the additional operating costs
      associated with the acquisition of Inline.




***LOSS
      FROM OPERATIONS***




We
      reported a loss from operations of $3,978,257 for the nine months ended June
      30,
      2008 as compared to a loss from operations of $784,434 for the nine months
      ended
      June 30, 2007, an increase of $3,193,824.




***OTHER
      INCOME (EXPENSES)***




Gain
      from sales of net assets .
      Gain on
      sale of assets for the nine months ended June 30, 2007 of $153,319 represents
      the gains from the sales of our Integrated Power Solutions and The Seven
      Corporation subsidiaries as described in Note 4 of the Notes to Unaudited
      Consolidated Financial Statements appearing elsewhere herein. We did not have
      comparable transactions during the nine months ended June 30, 2008.




Interest
      Income .
      Interest income for the nine months ended June 30, 2008 amounted to $3,266
      and
      represented interest earned on interest bearing cash accounts. This compares
      to
      $2,446 in interest income in the comparable period in fiscal 2007.




Interest
      Expense .
      For the
      nine months ended June 30, 2008, interest expense amounted to $481,457 as
      compared to $447,816 for the nine months ended June 30, 2007, an increase of
      $33,641 or 7.5%. The increase in interest expense is primarily attributable
      to
      higher balances of interest bearing liabilities as a result of the acquisition
      of Inline Corporation. Also, during the nine months ended June 30, 2007, we
      amortized deferred financing costs of $159,999, as compared to $3,020 during
      the
      nine months ended June 30, 2008.




-23-




***NET
      LOSS***




Our
      net
      loss was $4,456,448 for the nine months ended June 30, 2008 compared to
      $1,076,484 for the nine months ended June 30, 2007.




***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, 2008 and September 30, 2007:


**June
                  30,**
              
              **September
                  30,**
              
              $
              
              %**2008**
              
              **2007**
              
              **Change**
              
              **Change**Working
                  Capital
              
              
              (4,483,341
              )
              
              (1,981,325
              )
              
              (2,502,016
              )
              
              126.3
              %Cash
              
              
              48,344
              
              
              1,092,470
              
              
              (1,044,126
              )
              
              (95.6
              %)Accounts
                  receivable, net
              
              
              4,100,548
              
              
              5,115,428
              
              
              (1,014,880
              )
              
              (19.8
              %)Total
                  current assets
              
              
              4,986,621
              
              
              6,243,714
              
              
              (1,257,093
              )
              
              (20.1
              %)Property
                  and equipment, net
              
              
              1,141,939
              
              
              344,728
              
              
              797,211
              
              
              231.3
              %Intangibles,
                  net
              
              
              1,221,341
              
              
              211,305
              
              
              1,010,036
              
              
              478.0
              %Inventory
              
              
              694,557
              
              
              8,097
              
              
              686,460
              
              
              8,478.4
              %Total
                  assets
              
              
              7,411,319
              
              
              6,853,703
              
              
              557,616
              
              
              8.1
              %Accounts
                  payable and accrued liabilities
              
              
              7,522,868
              
              
              5,805,256
              
              
              1,717,612
              
              
              29.6
              %Notes
                  payable-current
              
              
              1,931,469
              
              
              2,293,560
              
              
              (362,091
              )
              
              (15.8
              %)Note
                  payable - related party
              
              
              -
              
              
              115,767
              
              
              (115,767
              )
              
              (100.0
              %)Deferred
                  revenue
              
              
              15,625
              
              
              10,456
              
              
              5,169
              
              
              49.4
              %Total
                  current liabilities
              
              
              9,469,962
              
              
              8,225,039
              
              
              (1,244,923
              )
              
              15.1
              %Notes
                  payable-long term
              
              
              1,016,558
              
              
              98,716
              
              
              917,842
              
              
              929.8
              %Total
                  liabilities
              
              
              10,846,520
              
              
              8,323,755
              
              
              2,162,765
              
              
              26.0
              %Accumulated
                  deficit
              
              
              (18,178,339
              )
              
              (13,721,164
              )
              
              (4,457,175
              )
              
              32.5
              %Stockholders’
                  deficit
              
              
              (3,075,201
              )
              
              (1,470,053
              )
              
              (1,605,148
              )
              
              109.2
              %




Net
      cash
      used in operating activities was $385,319 for the nine months ended June 30,
      2008 as compared to net cash provided from operating activities of $87,556
      for
      the nine months ended June 30, 2007, a decrease of $472,875. For the nine months
      ended June 30, 2008, we used cash to fund our net loss of $4,540,382 offset
      by
      non-cash items such as depreciation and amortization expense of $409,261,
      share-based compensation expense of $1,873,089, and offset by changes in assets
      and liabilities of $806,470. Also during the nine months ended June 30, 2008
      we
      experienced decreases in collections of accounts receivable of $1,014,880,
      and
      an increase in accounts payable and accrued expenses during the period of
      $1,717,612.





For
      the
      nine months ended June 30, 2007, we used cash to fund our net loss of
      $1,076,484, offset by non-cash items such as depreciation expense of $189,794,
      amortization of deferred financing cost of $159,999, and a gain on sale of
      net
      assets of $153,319, as well as changes in assets and liabilities of $1,148,093.
      We also used cash during the nine months ended June 30, 2007 to fund increases
      in accounts receivable of $1,020,640, due to higher sales activity in the
      quarter, which was offset by an increase in accounts payable during the period,
      also related to increased sales.




-24-




Net
      cash
      used in investing activities for the nine months ended June 30, 2008 was
      $1,377,241 as compared to net cash used in investing activities of $243,749
      for
      the nine months ended June 30, 2007. During the nine months ended June 30,
      2008,
      we used net cash of $1,311,318 **** as
      partial consideration in our acquisition of Inline. Additionally, we used cash
      of $65,923 for property and equipment purchases. During the nine months ended
      June 30, 2007, we used net cash of $247,000 as partial consideration in our
      acquisition of the assets of True North **.** Additionally,
      we used cash of $1,873 for property and equipment purchases and received net
      cash from the sale of net assets of one of our subsidiaries of $138,000 during
      the nine months ended June 30, 2007.




Net
      cash
      provided by financing activities for the nine months ended June 30, 2008 was
      $718,434 as compared to net cash provided of $112,848 for the nine months ended
      June 30, 2007. For the nine months ended June 30, 2008, net cash provided by
      financing activities related to proceeds received from notes payable of
      $7,092,685 which were advances under our factoring line with Sand Hill Finance
      LLC, offset by repayments on notes payable of $6,476,876 which were to pay
      down
      the balance on the Sand Hill Finance LLC factoring line, payments on related
      party advances of $115,767 and repayments of equipment financing of $44,136.
      For
      the nine months ended June
      30,
      2007, net cash provided by financing activities related to proceeds received
      from the exercise of stock options
      and warrants of $592,650, proceeds received from notes payable of $610,037,
      proceeds received from related
      party notes and advances of $41,737 offset by repayments on notes payable of
      $1,048,070, payments on related
      party advances of $26,500 and repayments of equipment financing of
      $57,006.




At
      June
      30, 2008 we had a working capital deficit of $4,483,341 and an accumulated
      deficit of $18,178,339. The report from our independent registered public
      accounting firm on our audited financial statements for the fiscal year ended
      September 30, 2007 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 by 16.4% during the nine months ended
      June
      30, 2008, our gross profit margin increased 1.9% to approximately 14%. Our
      sales
      were not sufficient to pay our operating expenses. We reported a net loss of
      $4,456,448 for the nine months ended June 30, 2008. Our core business
      historically has not generated high margins and 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, 2008 we had cash on
      hand of $48,344. 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, 2008 we owed
      Sand
      Hill Finance, LLC $1,843,671 under this accounts receivable line.




We
      do not
      have any commitments for capital expenditures. In addition, in connection with
      our annual report for our fiscal year ending September 30, 2008 our management
      will be required to provide an assessment of the effectiveness of our internal
      control over financial reporting, including a statement as to whether or not
      internal control over financial reporting is effective. In order to comply
      with
      this requirement we will need to engage a consulting firm to undertake an
      analysis of our internal controls. We have yet to engage such a consulting
      firm
      and are unable at this time to predict the costs associated with our compliance
      with Section 404 of Sarbanes-Oxley Act of 2002. 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 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.




-25-




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. In December 2005 we
      sold shares of our Series B Convertible Preferred Stock. The designations of
      these shares included a restriction that so long as the shares 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 which is presently $0.2727 for the Series B Convertible Preferred Stock.
      Under the terms of the Series B Convertible Preferred Stock transaction, we
      also
      agreed not to issue any convertible debt or preferred stock. Finally, 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***




The
      Financial Accounting Standards Board has recently issued several new accounting
      pronouncements:




In
      February 2006, the FASB issued SFAS 155, which applies to certain “hybrid
      financial instruments,” which are instruments that contain embedded derivatives.
      The new standard establishes a requirement to evaluate beneficial interests
      in
      securitized financial assets to determine if the interests represent
      freestanding derivatives or are hybrid financial instruments containing embedded
      derivatives requiring bifurcation. This new standard also permits an election
      for fair value re-measurement of any hybrid financial instrument containing
      an
      embedded derivative that otherwise would require bifurcation under SFAS 133.
      The
      fair value election can be applied on an instrument-by-instrument basis to
      existing instruments at the date of adoption and can be applied to new
      instruments on a prospective basis. The adoption of SFAS No.155 did not have
      a
      material impact on the Company’s financial position and results of
      operations.




In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets, an amendment of FASB Statement No. 140, Accounting for Transfers and
      Servicing of Financial Assets and Extinguishments of Liabilities”. This
      statement requires all separately recognized servicing assets and servicing
      liabilities be initially measured at fair value, if practicable, and permits
      for
      subsequent measurement using either fair value measurement with changes in
      fair
      value reflected in earnings or the amortization and impairment requirements
      of
      Statement No. 140. The subsequent measurement of separately recognized servicing
      assets and servicing liabilities at fair value eliminates the necessity for
      entities that manage the risks inherent in servicing assets and servicing
      liabilities with derivatives to qualify for hedge accounting treatment and
      eliminates the characterization of declines in fair value as impairments or
      direct write-downs. SFAS No. 156 is effective for an entity’s first fiscal year
      beginning after September 15, 2006. The adoption of this statement is not
      expected to have a significant effect on the Company’s future reported financial
      position or results of operations.




In
      July
      2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation
      (FIN) No. 48, “Accounting for Uncertainty in Income Taxes-an interpretation of
      FASB Statement No. 109.” This interpretation provides guidance for recognizing
      and measuring uncertain tax positions, as defined in SFAS No. 109, “Accounting
      for Income Taxes.” FIN No. 48 prescribes a threshold condition that a tax
      position must meet for any of the benefit of an uncertain tax position to be
      recognized in the financial statements. Guidance is also provided regarding
      de-recognition, classification, and disclosure of uncertain tax positions.
      FIN
      No. 48 is effective for fiscal years beginning after December 15, 2006. The
      Company does not expect that this interpretation will have a material impact on
      its financial position, results of operations, or cash flows.




-26-




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurements” (“FAS 157”). This Statement defines fair value as
      used in numerous accounting pronouncements, establishes a framework for
      measuring fair value in generally accepted accounting principles and expands
      disclosure related to the use of fair value measures in financial statements.
      The Statement is to be effective for the Company’s financial statements issued
      in 2008; however, earlier application is encouraged. The Company is currently
      evaluating the timing of adoption and the impact that adoption might have on
      its
      financial position or results of operations




Other
      accounting standards that have been issued or proposed by the FASB or other
      standards-setting bodies that do not require adoption until a future date are
      not expected to have a material impact on the consolidated financial statements
      upon adoption.




*FAS
      141(R) Evaluation*




On
      December 4, 2007, the FASB issued Statement of Financial Accounting Standards
      No. 141(R), *Business
      Combinations* (“FAS
      141(R)”). The new standard will significantly change the accounting for and
      reporting of business combination transactions. FAS 141(R) requires companies
      to
      recognize, with certain exception, 100 percent of the fair value of the assets
      acquired, liabilities assumed and non-controlling interest in acquisitions
      of
      less than a 100 percent controlling interest when the acquisition constitutes
      a
      change in control; measure acquirer shares issued as consideration for a
      business combination at fair value on the date of the acquisition; recognize
      contingent consideration arrangements at their acquisition date fair value,
      with
      subsequent change in fair value generally reflected in earnings; recognition
      of
      reacquisition loss and gain contingencies at their acquisition date fair value;
      capitalize in process research and development assets acquired; expense as
      incurred, acquisition related transaction costs; capitalize acquisition-related
      restructuring costs only if the criteria in Financial Accounting Standards
      Board
      No. 146, *Accounting
      for Costs associated with Exit or Disposal Activities* are met
      as of the date of the acquisition; and recognizing changes that result from
      a
      business combination transaction in an acquirer’s existing income tax valuation
      allowance and tax uncertainty accruals as adjustment to income tax expense.
      FAS
      141(R) is effective for fiscal years beginning after December 15, 2008 and
      early
      adoption is prohibited. We intend to adopt the standard on January 1, 2009.
      We
      are currently evaluating the impact, if any, that FAS 141(R) will have on our
      financial statements.




In
      December 2007, the FASB issued SFAS No. 160, “Accounting for Non-controlling
      Interests.” SFAS 160 clarifies the classification of non-controlling interests
      in consolidated balance sheets and reporting transactions between the reporting
      entity and holders of non-controlling interests. Under this statement,
      non-controlling interests are considered equity and reported as an element
      of
      consolidated equity. Further, net income encompasses all consolidated
      subsidiaries with disclosure of the attribution of net income between
      controlling and non-controlling interests. SFAS No. 160 is effective
      prospectively for fiscal years beginning after December 15, 2008.


Currently,
      there are no non-controlling interests in any of the Company’s
      subsidiaries.




In
      March
      2008, the FASB issued SFAS No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities - an amendment of FASB
      Statement No. 133* (“SFAS
      161”). SFAS 161 requires enhanced disclosure related to derivatives and hedging
      activities and thereby seeks to improve the transparency of financial reporting.
      Under SFAS 161, entities are required to provide enhanced disclosures relating
      to: (a) how and why an entity uses derivative instruments; (b) how derivative
      instruments and related hedge items are accounted for under SFAS 133, *Accounting
      for Derivative Instruments and Hedging Activities* (“SFAS
      133”), and its related interpretations; and (c) how derivative instruments and
      related hedged items affect an entity’s financial position, financial
      performance and cash flows. SFAS 161 must be applied prospectively to all
      derivative instruments and non-derivative instruments that are designated and
      qualify as hedging instruments and related hedged items accounted for under
      SFAS
      133 and will be effective for all financial statements January 1, 2009. We
      are
      currently evaluating the impact on the disclosures for our derivative
      instruments and hedging activities.




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**ITEM
      3. CONTROLS AND PROCEDURES**




As
      required by Rule 13a-15 under the Securities Exchange Act of 1934, as of June
      30, 2008, the end of the period covered by this report, our management concluded
      its evaluation of the effectiveness of the design and operation of our
      disclosure controls and procedures. Disclosure controls and procedures are
      controls and procedures designed to reasonably assure that information required
      to be disclosed in our reports filed under the Securities Exchange Act of 1934,
      such as this report, is recorded, processed, summarized and reported within
      the
      time periods prescribed by SEC rules and regulations, and to reasonably assure
      that such information is accumulated and communicated to our management,
      including our Chief Executive Officer and Chief Financial Officer, to allow
      timely decisions regarding required disclosure.




Our
      management does not expect that our disclosure controls and procedures will
      prevent all error and all fraud. A control system, no matter how well designed
      and operated, can provide only reasonable, not absolute, assurance that the
      control system’s objectives will be met. Further, the design of a control system
      must reflect the fact that there are resource constraints, and the benefits
      of
      controls must be considered relative to their costs. Because of the inherent
      limitations in all control systems, no evaluation of controls can provide
      absolute assurance that all control issues and instances of fraud, if any,
      have
      been detected. These inherent limitations include the realities that judgments
      in decision-making can be faulty, and that breakdowns can occur because of
      simple error or mistake. The design of any system of controls is based in part
      upon certain assumptions about the likelihood of future events, and there can
      be
      no assurance that any design will succeed in achieving its stated goals under
      all potential future conditions.




As
      of the
      evaluation date, our Chief Executive Officer and Chief Financial Officer
      concluded that we maintain disclosure controls and procedures that are effective
      in providing reasonable assurance that information required to be disclosed
      in
      our reports under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods prescribed by SEC rules and
      regulations, and that such information is accumulated and communicated to our
      management, including our Chief Executive Officer and Chief Financial Officer,
      to allow timely decisions regarding required disclosure.




There
      have been no changes in our internal control over financial reporting during
      the
      period covered by this report that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




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**PART
      II - OTHER INFORMATION**


Item
        1.  Legal
        Proceedings
  None
  Item
        2.  Unregistered
        Sales of Equity Securities and Use of Proceeds
  On
        April
        10, 2008 we issued 700,000 shares of common stock valued at $322,000 for
        services rendered, to an accredited investor. 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
        April
        16, 2008 we issued 100,000 shares of common stock valued at $46,000 for services
        rendered, to an accredited investor. 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
        May 7,
        2008 we issued 6,250 shares of common stock valued at $46,000 as part of
        a
        settlement of a lawsuit, to an accredited investor. 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
        5, 2008 we sold 400,000 shares of common stock valued at $80,000 to an
        accredited investor. 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
        3.  Defaults
        Upon Senior Securities
  None
  Item
        4.  Submission
        of Matters to a Vote of Security Holders
  None
  Item
        5.  Other
        Information
  None
  Item
        6.  Exhibits




Exhibit
              Number
            
            Description31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 *31.2
            
            Certification
                of the Chief Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002 *32.1
            
            Certification
                of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 *32.2
            
            Certification
                of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act of 2002 *




*
      Filed
      herein




-29-




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant has caused
      this report to be signed on its behalf by the undersigned thereunto duly
      authorized.


**ICEWEB,
              INC.**August
              14, 2008
            By:
            /s/
              John
              R. SignorelloJohn R. Signorello,
              Chief Executive Officer, principal executive
                officer


August
                14, 2008
              By:
              /s/
                Mark
                B. LuckyMark B. Lucky
                Chief Financial Officer, principal financial
                  and
                  accounting officer


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