**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 March 31, 2007





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)





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 April 24, 2007, there were
      10,268,514  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.” W ith
      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.





1





**ICEWEB,
      INC. AND SUBSIDIARIES**


**FORM
      10-QSB**


**QUARTERLY
      PERIOD ENDED March 31, 2007**





INDEX





PagePART
                I - FINANCIAL INFORMATIONItem
                1 - Consolidated Financial StatementsConsolidated
                Balance Sheet at March 31, 2007 (Unaudited)
            
            3Consolidated
                Statements of Operations (Unaudited)For
                the Three and Six Months Ended March 31, 2007 and 2006
            
            4Consolidated
                Statements of Cash Flows (Unaudited)For
                the Six Months Ended March 31, 2007 and 2006
            
            5Notes
                to Unaudited Consolidated Financial Statements
            
            6-17Item
                2 - Management's Discussion and Analysis or Plan of Operation
            
            18-28Item
                3 - Controls and Procedures
            
            29PART
                II - OTHER INFORMATIONItem
                1 - Legal Proceedings
            
            30Item
                2 - Unregistered Sales of Equity Securities and Use of Proceeds
            
            30Item
                3 - Default upon Senior Securities
            
            30Item
                4 - Submission of Matters to a Vote of Security Holders
            
            30Item
                5 - Other Information
            
            30Item
                6 - Exhibits
            
            30






2


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Consolidated Financial Statements**





**ICEWEB,
      Inc.**


**Consolidated
      Balance Sheet**


**(Unaudited)**





**March
                31, 2007****CURRENT
                ASSETS:**Cash
            
            $
            514,751Accounts
                receivable, net
            
            
            3,200,081Prepaid
                expenses
            
            
            20,1773,735,009**OTHER
                ASSETS:**Property
                and equipment, net
            
            
            305,297Deposits
            
            
            53,956Inventory
            
            
            6,440Intangible
                assets, net of accumulated amortization of $70,000
            
            
            30,000Deferred
                financing costs, net
            
            
            150,000Goodwill
            
            
            421,000Total
                Assets
            
            $
            4,701,702**CURRENT
                LIABILITIES:**Accounts
                payable and accrued liabilities
            
            $
            4,107,166Notes
                payable
            
            
            1,524,871Accrued
                interest payable
            
            
            93,7505,725,787**Long-Term
                Liabilities**Notes
                Payable
            
            
            286,999Total
                Liabilities
            
            
            6,012,786**Stockholders'
                Deficit**Preferred
                Stock ($.001 par value; 10,000,000 shares authorized)Series
                A convertible preferred stock ($.001 par value; 1,256,667 shares
                issued
                and outstanding)
            
            
            1,257Series
                B convertible preferred stock ($.001 par value; 1,833,334 shares
                issued
                and outstanding)
            
            
            1,833Common
                stock ($.001 par value; 1,000,000,000 shares authorized; 10,268,514
                shares
                issued and 10,106,014 shares outstanding)
            
            
            10,120Additional
                paid in capital
            
            
            10,344,411Accumulated
                deficit
            
            
            (11,444,203
            )Deferred
                compensation
            
            
            (211,502
            )Treasury
                stock, at cost, (162,500 shares)
            
            
            (13,000
            )Total
                stockholders' Deficit
            
            
            (1,311,084
            )Total
                Liabilities and Stockholders’ Deficit
            
            $
            4,701,702


See
        accompanying notes to unaudited consolidated financial statements
  3





**ICEWEB,
                Inc.****Consolidated
                Statements of Operations****(Unaudited)**




**Three
                Months Ended**
            
            **Six
                Months Ended****March
                31**
            
            **March
                31****2007**
            
            **2006**
            
            **2007**
            
            **2006****Sales**
            
            $
            5,877,457
            
            $
            642,059
            
            $
            8,459,234
            
            $
            2,134,491**Cost
                of sales**
            
            
            5,181,233
            
            
            548,028
            
            
            7,476,643
            
            
            1,717,767**Gross
                profit**
            
            
            696,224
            
            
            94,031
            
            
            982,591
            
            
            416,724**Operating
                expenses:**Marketing
                and selling
            
            
            111,013
            
            
            52,479
            
            
            171,229
            
            
            100,668Depreciation
                and amortization expense
            
            
            65,595
            
            
            13,750
            
            
            131,136
            
            
            33,121General
                and administrative
            
            
            414,518
            
            
            643,430
            
            
            1,174,883
            
            
            1,229,232**Total
                Operating Expenses**
            
            
            591,126
            
            
            709,659
            
            
            1,477,248
            
            
            1,363,021**Income
                (loss) From Operations**
            
            
            105,098
            
            
            (615,628
            )
            
            (494,656
            )
            
            (946,297
            )**Other
                income (expenses):**Gain/(loss)
                from sale of assets
            
            
            14,733
            
            
            -
            
            
            153,319
            
            
            -Interest
                income
            
            
            952
            
            
            -
            
            
            2,261
            
            
            -Interest
                expense
            
            
            (103,880
            )
            
            (50,498
            )
            
            (234,085
            )
            
            (71,466
            )**Total
                other income (expenses):**
            
            
            (88,195
            )
            
            (50,498
            )
            
            (78,505
            )
            
            (71,466
            )**Net
                income (loss)**
            
            $
            16,903
            
            $
            (666,126
            )
            $
            (573,161
            )
            $
            (1,017,763
            )**Beneficial
                conversion feature - preferred stock**
            
            
            -
            
            
            -
            
            
            -
            
            
            (500,000
            )**Income
                (Loss) Available to Shareholders**
            
            $
            16,903
            
            $
            (666,126
            )
            $
            (573,161
            )
            $
            (1,517,763
            )Basic
                income (loss) per common share
            
            $
            0.00
            
            $
            (0.10
            )
            $
            (0.06
            )
            $
            (0.23
            )Diluted
                income (loss) per common share
            
            $
            0.00
            
            $
            (0.10
            )
            $
            (0.06
            )
            $
            (0.23
            )Weighted
                average common shares outstanding basic
            
            
            9,980,389
            
            
            6,507,842
            
            
            9,656,498
            
            
            6,499,979Weighted
                average common shares outstanding diluted
            
            
            13,210,445
            
            
            6,507,842
            
            
            9,656,498
            
            
            6,499,979





See
      accompanying notes to unaudited consolidated financial statements




4





**IceWEB,
                Inc.****Consolidated
                Statements of Cash Flows****(Unaudited)**




**Six
                Months Ended March 31,****2007**
            
            **2006**NET
                CASH USED IN OPERATING ACTIVITIES
            
            $
            (162,352
            )
            $
            (641,594
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Purchase
                of property and equipment
            
            
            (1,873
            )
            
            (143,657
            )Net
                cash received from sale of net assets
            
            
            138,000
            
            
            -Cash
                used in acquisitions, net
            
            
            (247,000
            )
            
            (190,000
            )Capitalized
                Software
            
            
            -
            
            
            -NET
                CASH (USED) IN INVESTING ACTIVITIES
            
            
            (110,873
            )
            
            (333,657
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Repayment
                of equipment financing
            
            
            (37,699
            )
            
            -Proceeds
                from notes payable - related party
            
            
            30,000
            
            
            -Repayment
                of notes payable - related party
            
            
            (26,500
            )
            
            -Net
                proceeds from (payments) to related party advances
            
            
            11,737
            
            
            (86,001
            )Payments
                on bank financing
            
            
            -
            
            
            (61,708
            )Proceeds
                from notes payable
            
            
            254,903
            
            
            -Payments
                on notes payable
            
            
            (200,000
            )
            
            -Proceeds
                from net preferred stock issued for cash
            
            
            -
            
            
            362,438Proceeds
                from common stock issued for cash
            
            
            -
            
            
            270,861Proceeds
                from exercise of common stock options
            
            
            35,650
            
            
            -Proceeds
                from exercise of common stock warrants
            
            
            287,000
            
            
            -NET
                CASH PROVIDED BY/(USED) FINANCING ACTIVITIES
            
            
            355,091
            
            
            485,590NET
                INCREASE/(DECREASE) IN CASH
            
            
            81,866
            
            
            (489,661
            )CASH
                - beginning of period
            
            
            432,885
            
            
            557,175CASH
                - end of period
            
            $
            514,751
            
            $
            67,514Supplemental
                disclosure of cash flow information:Cash
                paid for :Interest
            
            $
            224,710
            
            $
            62,091Income
                taxes
            
            $
            -
            
            $
            -





See
        accompanying notes to unaudited consolidated financial statements
  5


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**NOTE
              1 -**
            **NATURE
                OF BUSINESS**





**The
      Company**





The
      Company's history and acquisition strategy has been 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 have 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 around
      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. 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
      now sales of 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,
      2006 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.




6


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**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, 2006 and 2005 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
      six
      months ended March 31, 2007, the Company incurred a net loss of $573,162 and
      used cash in operations of $162,352. 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 2007 and
      2006 include the allowance for doubtful accounts, the valuation of stock-based
      compensation, the useful life of 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 March 31, 2007. 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 six months ended March 31, 2007 and 2006, respectively.





**Intangible
      Assets**





Intangible
      assets, net consists of the cost of acquired customer relationships. 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 is five years.





7


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**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 March 31,
      2007. For the six months ended March 31, 2007, 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:




8


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**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 March 31, 2007, there were options and
      warrants to purchase 7,665,469 shares of common stock and 2,613,334 shares
      issuable upon conversion of Series A and 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).




9


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**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 six months ended March
      31, 2007 includes: (a) compensation cost for all share-based payments granted
      prior to, but not yet vested as of March 31, 2007, 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
      March
      31, 2007, property and equipment consisted of the following:





Estimated
                LifeOffice
                equipment
            
            
            5
                years
            
            $
            176,840Computer
                software
            
            
            3
                years
            
            
            674,139Furniture
                and fixtures
            
            
            5
                years
            
            
            30,133Leasehold
                improvements
            
            
            3
                years
            
            
            4,553885,665Less:
                accumulated depreciation
            
            
            
            
            
            (580,368
            )$
            305,297





Depreciation
      expense for the six months ended March 31, 2007 and 2006 was $121,136 and
      $33,121 respectively.





**NOTE
              4 -**
            **ACQUISITION
                AND DISPOSITIONS**





On
      March
      22, 2006, the Company acquired certain assets and liabilities of PatriotNet,
      Inc. a professional Internet Service Provider (ISP) servicing over 3,500
      customers with T-1, DSL, dial up lines and email services. In consideration
      for
      the purchase of the net assets and liabilities including accounts receivable,
      equipment and intangibles for customer contracts, the Company paid to PatriotNet
      (a non-related party to the Company) (a) the payment of cash consideration
      of
      $190,000 at closing and (b) the issuance by the Company of 100,000 (restricted
      under Rule 144) shares of its common stock at closing, valued at $1.00 dollar
      per share of $100,000. The Company accounted for this acquisition using the
      purchase method of accounting in accordance with SFAS No. 141. On the date of
      acquisition, the fair value of net assets acquired exceeded the purchase price
      by $390,600 which was applied to goodwill. In fiscal 2006, the Company recorded
      an impairment of goodwill of $180,000 which was charged to operations in fiscal
      2006. In November 2006, the Company sold PatriotNet to a third party for
      $150,000 in cash and the assumption of approximately $60,600 in liabilities
      by
      the purchaser. No gain or loss was recognized on the sale.




10


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





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





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.





On
      November 15, 2006, we acquired certain assets of True North Solutions 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 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. We have permitted True North Solutions
      to use the purchased assets until the novation of the GSA Schedule is complete
      pursuant to which we are acting as the seller's subcontractor. The novation
      is
      expected to occur by June 30, 2007.





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.





**NOTE
              5 -**
            **RELATED
                PARTY TRANSACTIONS**





Note
      Payable - Related Party





During
      June 2006 to October 2006, a company, of which the Company’s chief executive
      officer is a shareholder in lent funds to the Company for working capital
      purposes. The loan was due no later than 30 days from that date of funding.
      As
      consideration for providing the funding, the Company agreed to issue 1.54 shares
      of common stock for each dollar lent under the loan. During the six months
      ended
      March 31, 2007, the Company borrowed $30,000 under this loan agreement and
      repaid approximately $26,500. At March 31, 2007, the Company owed this related
      party $113,557. Additionally, the related party was issued 339,606 common shares
      under the loan agreement, in payment of interest in the amount of $169,803.
      In
      October 2006, the related party company waived any further common shares on
      funds received subsequent to September 30, 2006.




11


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**NOTE
              5 -**
            **RELATED
                PARTY TRANSACTIONS**(continued)





Note
      Payable - Related Party - Long-term





At March
      31,
      2007 ,
      the
      Company owed $150,000 of principal under a promissory note to a shareholder
      of
      the Company. The note bears 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,
      and is being amortized over the life of the deferral period. For the six months
      ended March 31, 2007and 2006, amortization of deferred financing costs amounted
      to $10,000 and $10,000, respectively, and is included in interest expense on
      the
      accompanying consolidated statements of operations. The
      note
      remains outstanding and at March
      31,
      2007 ,
      the
      Company owed the stockholder the $150,000 principal plus accrued interest of
      approximately $93,750.





Advances
      from Related Party





The
      Company’s Chief Executive Officer provides advances to the Company from
      time-to-time for operating expenses. These advances are short-term in nature
      and
      are non-interest bearing. At March 31, 2007, amounts due to this related party
      amounted to $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. Amounts borrowed under the Financing Agreement are
      secured by a first security interest in substantially all of the Company’s
      assets. At March 31, 2007, the principal amount due under the Financing
      Agreement amounted to $1,323,714.





Interest
      is payable at a rate of 2% per month on the average balance outstanding during
      the year, equal to an annual interest of approximately 24% 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 positive and negative 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.




12


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





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





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.




Note
      Payable - Other





On
      September 29, 2006, the Company borrowed $200,000 from a principal shareholder.
      The note was payable on October 29, 2006 and bears interest at 12% per annum.
      The Company repaid this loan in October 2006.





**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 payment 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 March 31, 2007. 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 March 31, 2007, the principal amount due under this equipment
      financing arrangement amounted to $224,597.





**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 March 31,
      2007, the Company had approximately $336,990 in excess of FDIC insured limits.
      The Company has not experienced any losses in such accounts.





Major
      Customers





Sales
      to
      five customers represented approximately 53% of total sales for the six months
      ended March 31, 2007. As of March 31, 2007, approximately 78% of the Company's
      accounts receivable was due from these five customers.




13


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**NOTE
              9 -**
            **STOCKHOLDERS’
                DEFICIT**





**Common
      stock**





During
      November 2006, in connection with the exercise of 820,000 stock warrants, the
      Company issued 820,000 shares of common stock for cash proceeds of
      $287,000.





During
      November 2006, in connection with the exercise of 100,000 stock options, the
      Company issued 100,000 shares of common stock for cash proceeds of
      $35,000.





During
      March 2007, in connection with the exercise of 1,000 stock options, the Company
      issued 1,000 shares of common stock for cash proceeds of $650.





During
      March 2007, in connection with a related-party note payable, the Company issued
      339,606 shares of common stock as payment for accrued interest of $169,803.
      See
      Note 5 - Related Party Transactions.





**Common
      Stock Warrants**





A
      summary
      of the status of the Company's outstanding common stock warrants as of March
      31,
      2007 and changes during the period ending on that date is as follows:





Number
                of Warrants
            
            Weighted
                Average Exercise PriceCommon
                Stock WarrantsBalance
                at beginning of year
            
            
            7,055,000
            
            $
            4.88Granted
            
            
            -
            
            
            -Exercised
            
            
            (820,000
            )
            
            0.35Forfeited
            
            
            -
            
            
            -Balance
                at end of period
            
            
            6,235,000
            
            $
            5.42Warrants
                exercisable at end of period
            
            
            6,235,000
            
            $
            5.42Weighted
                average fair value of warrants granted or re-priced during the
                period
            
            
            
            
            $
            0.35






14


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





**NOTE
              9 -**
            **STOCKHOLDERS’
                DEFICIT (continued)**





The
      following table summarizes information about common stock warrants outstanding
      at March 31, 2007:





Warrants
                Outstanding
            
            Warrants
                ExercisableRange
              of Exercise Price
            
            Number
                Outstanding at March 31, 2007
            
            Weighted
                Average Remaining Contractual Life
            
            Weighted
                Average Exercise Price
            
            Number
              Exercisable
                at
              December
                31, 2006
            
            Weighted
                Average Exercise Price$0.70
            
            
            175,000
            
            
            3.00
                Years
            
            $
            0.70
            
            
            175,000
            
            $
            0.701.00
            
            
            50,000
            
            
            4.75
                Years
            
            
            1.00
            
            
            50,000
            
            
            1.002.00
            
            
            1,785,000
            
            
            3.42
                Years
            
            
            2.00
            
            
            1,785,000
            
            
            2.004.00
            
            
            187,500
            
            
            0.75
                Years
            
            
            4.00
            
            
            187,500
            
            
            4.004.80
            
            
            1,875,000
            
            
            3.25
                Years
            
            
            4.80
            
            
            1,875,000
            
            
            4.808.00
            
            
            287,500
            
            
            2.76
                Years
            
            
            8.00
            
            
            287,500
            
            
            8.009.60
            
            
            1,875,000
            
            
            3.25
                Years
            
            
            9.60
            
            
            1,875,000
            
            
            9.606,235,000
            
            
            
            
            $
            5.42
            
            
            6,235,000
            
            $
            5.42





**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.




15


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





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





As
      amended in fiscal 2006, the Plan permits the grant of options and shares for
      up
      to 2,500,000 shares of the Company’s common stock. The Plan terminates 10 years
      from the date of the Plan’s adoption by the Company’s stockholders.





The
      term
      of each Plan option and the manner in which it may be exercised is determined
      by
      the Board of Directors, provided that no Plan option may be exercisable more
      than three years after the date of its grant and, in the case of an incentive
      option granted to an eligible employee owning more than 10% of the Company’s
      common stock, no more than five years after the date of the grant. The exercise
      price of the stock options may be paid in either cash, or delivery of
      unrestricted shares of common stock having a fair market value on the date
      of
      delivery equal to the exercise price, or surrender of shares of common stock
      subject to the stock option which has a fair market value equal to the total
      exercise price at the time of exercise, or a combination of the foregoing
      methods.





The
      fair
      value of stock options granted was estimated at the date of grant using the
      Black-Scholes options pricing model. The Company used the following assumptions
      for determining the fair value of options granted under the Black-Scholes option
      pricing model:





March
                31,2007
            
            2006Expected
                volatility
            
            
            116%
                - 135
            %
            
            100%
                - 110
            %Expected
                term
            
            
            3
                Years
            
            
            5
                yearsRisk-free
                interest rate
            
            
            4.39%
                - 4.56
            %
            
            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
      six months ended March 31, 2007, total stock-based compensation credited to
      operations for option-based arrangements amounted to ($295,777). At March 31,
      2007, there was approximately $232,828 of total unrecognized compensation
      expense related to non-vested option-based compensation arrangements under
      the
      Plan.




16


**ICEWEB,
      INC. AND SUBSIDIARIES**


**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007**





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





A
      summary
      of the status of the Company's outstanding stock options as of March 31, 2007
      and changes during the period ending on that date is as follows:





Number
                of Options
            
            Weighted
                Average Exercise PriceStock
                optionsBalance
                at beginning of year
            
            
            1,493,806
            
            $
            1.00Granted
            
            
            365,000
            
            
            0.49Exercised
            
            
            (101,000
            )
            
            0.35Forfeited
            
            
            (327,337
            )
            
            1.57Balance
                at end of period
            
            
            1,430,469
            
            $
            0.77Options
                exercisable at end of period
            
            
            688,477
            
            $
            1.01Weighted
                average fair value of options granted during the year
            
            
            
            
            $
            0.49





The
      following table summarizes information about employee stock options outstanding
      at March 31, 2007:





Options
                Outstanding
            
            Options
                ExercisableRange
              of Exercise Price
            
            Number
                Outstanding at March 31, 2007
            
            Weighted
                Average Remaining Contractual Life
            
            Weighted
                Average Exercise Price
            
            Number
              Exercisable
                at
              March
                31, 2007
            
            Weighted
                Average Exercise Price$0.43-0.54
            
            
            590,000
            
            
            4.14
                Years
            
            $
            0.48
            
            
            77,750
            
            $
            0.480.64-0.88
            
            
            730,625
            
            
            2.80
                Years
            
            
            0.73
            
            
            508,483
            
            
            0.751.20-1.60
            
            
            34,344
            
            
            1.38
                Years
            
            
            1.36
            
            
            26,744
            
            
            1.383.20-3.80
            
            
            75,500
            
            
            1.50
                Years
            
            
            3.20
            
            
            75,500
            
            
            3.201,430,469
            
            
            
            
            $
            0.77
            
            
            688,477
            
            $
            1.01





**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 six months ended March
      31, 2007 and 2006 all material assets and revenues of IceWEB were in the United
      States.




17




**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 six months ended March 31, 2007 and 2006, should be read
      in
      conjunction with the consolidated financial statements, including footnotes,
      appearing elsewhere in this quarterly report.





**OVERVIEW**





Our
      history and acquisition strategy has been 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, we undertook a series of strategic
      acquisitions which have resulted in our business and operations during fiscal
      2006. During fiscal 2006 we also acquired PatriotNet, an Internet service
      provider. As a result of these acquisitions, during fiscal 2006 our business
      and
      operations were primarily centered around 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, we sold three of our subsidiaries, The Seven
      Corporation, PatriotNet and Integrated Power Solutions. We had acquired The
      Seven Corporation in June 2003 and its sales for fiscal 2006 were approximately
      $1,074,000, or approximately 22.5%, of our total sales. We had acquired
      PatriotNet in March 2006 and sales from the date of acquisition through
      September 30, 2006 were approximately $316,000 and represented approximately
      6.6% of our total sales in fiscal 2006. Additionally, Integrated Power solutions
      had sales of approximately $535,000 and represented 11.3% of our total sales
      in
      fiscal 2006. Through an analysis of operations, our Board of Directors
      determined that these subsidiaries were unprofitable and not aligned with the
      focus of our core competencies.





On
      November 15, 2006, we acquired certain of the assets of True North Solutions
      related to its governmental customer business, including the customers,
      forecast, contract renewals, and GSA schedule. We
      have
      permitted True North Solutions to use the purchased assets until the novation
      of
      the GSA Schedule is complete pursuant to which we are acting as the seller's
      subcontractor. This is expected to occur by June 30, 2007.





As
      a
      result of this acquisition and these divestures our core business is now
      predominantly sales of software services, application development, network
      integrated technology, and third party hardware sales. The significant increase
      in our sales for the six months ended March 31, 2007 from the comparable period
      in fiscal 2006 reflects this change in our core business. We also continue
      to
      provide hosted web-based collaboration solutions, although revenues from this
      business only represented approximately 10% of our total sales for the six
      months ended March 31, 2007.





We
      generate revenues selling
      IT security products and solutions primarily to U.S. Federal, state and local
      governments and to prime contractors who are working directly on government
      contracts. In
      addition, we generate revenue through software licenses and the provision of
      software application services, application development and network management
      services and integrated technology, infrastructure solutions and third party
      hardware sales. We anticipate that both revenues
      and expenses will increase in future periods.





We
      believe that the key factors to our further growth and profitability include
      the
      following:


· continuing
        growth in the sale of security products and solutions through our IceWEB
        Solutions Group.





· increasing
      subscriptions for our IceWEB Vista portal software which was released to general
      availability during June 2005. IceWEB Vista is a powerful tool for efficient
      website management, built upon open source architecture (.Net) that allows
      users
      to quickly, easily and affordably update their Web content and site
      structure,




18




**MANAGEMENT'S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**
  **OVERVIEW
          (continued)**


·increasing
      subscriptions for IceMAIL, a
      packaged service that provides a network-hosted groupware, email, calendaring,
      and collaboration solution utilizing Microsoft Exchange 2003, the most widely
      used enterprise system available, which was released in December 2005. Customers
      are able to leverage the full capabilities of Microsoft Exchange 2003 and
      Outlook without the initial implementation and maintenance costs associated
      with
      such an advanced system,





· Continued
      focus on developing strategic partnerships with key retail and small business
      solution providers such as CompUSA, Simply Wireless, and Intelligent Office-all
      of which entered into sales and marketing agreements with IceWEB during fiscal
      2006 to sell IceMAIL, IcePORTAL, and IceVISTA.





· raising
      approximately $4 million of additional working capital to expand our marketing,
      support our growth and for an acquisition of an additional company in the
      software services group,





· hiring
      additional qualified, technical employees, and





· improving
      our internal financial reporting systems and processes.





The
      Company’s business operations include revenues realized from each of two core
      operating groups, IceWEB Solutions Group, and IceWEB Online Services. IceWEB
      Solutions Group focuses on the sales of mission critical network security
      hardware and software to Federal and other government agencies. IceWEB Online
      Services group provides IceMAIL and IcePORTAL (hosted Microsoft Exchange and
      Sharepoint) services on a web based subscription model,.





While
      we
      launched the first of our new software offerings during June 2005 and our second
      in December 2005, and the sale of these products are the focus of our business,
      we face a number of challenges in other areas which we believe are key to the
      growth of our online services business, many of which are beyond our
      control **.** We
      have
      not identified any potential acquisition candidates and do not have any firm
      commitments for additional working capital as of the date of this prospectus,
      and we cannot assure you that we will be successful in either undertaking.





We
      face
      continuing difficulties in locating sufficient qualified technical personnel.
      Our company is located in the "Tech Corridor" of Northern Virginia and we
      compete with a number of companies for employees, many of which have been in
      business longer than we have and which are more attractive to prospective
      employees. Our inability to accomplish one or more of these
      key goals may limit our growth in future periods.




**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


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**
  **CRITICAL
            ACCOUNTING POLICIES (continued)**


A
      summary
      of significant accounting policies is included in Note 1 to the audited
      consolidated financial statements included for
      the
      year ended September 30, 2006 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 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


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**


**SIX
      MONTHS ENDED MARCH 31, 2007 COMPARED TO THE SIX MONTHS ENDED MARCH 31,
      2006**





The
      following table provides an overview of certain key factors of our results
      of
      operations for the six months ended March 31, 2007 as compared to the six months
      ended March 31, 2006:





**Six
                Months Ended****March
                31,****2007**
            
            **2006**
            
            **$
                of Change**
            
            **%
                Change**Net
                Revenues
            
            
            8,459,234
            
            
            2,134,491
            
            
            6,324,743
            
            
            296.3
            %Cost
                of sales
            
            
            7,476,642
            
            
            1,717,767
            
            
            5,758,875
            
            
            335.3
            %Operating
                Expenses:Marketing
                and selling
            
            
            171,229
            
            
            100,668
            
            
            70,561
            
            
            70.1
            %Depreciation
                and amortization
            
            
            131,136
            
            
            33,121
            
            
            98,015
            
            
            295.9
            %General
                and administrative
            
            
            1,174,883
            
            
            1,229,232
            
            
            (54,349
            )
            
            (4.4
            %)Total
                operating expenses
            
            
            1,477,248
            
            
            1,363,021
            
            
            114,227
            
            
            8.4
            %Loss
                from operation
            
            
            (494,656
            )
            
            (946,297
            )
            
            451,641
            
            
            47.7
            %Total
                other income (expense)
            
            
            (78,505
            )
            
            (71,466
            )
            
            (7,039
            )
            
            9.8
            %Net
                loss
            
            
            (573,161
            )
            
            (1,017,763
            )
            
            444,601
            
            
            43.7
            %Beneficial
                conversion feature-Preferred
                Stock
            
            
            -
            
            
            (500,000
            )
            
            500,000
            
            
            100.0
            %Net
                loss attributable to commonShareholders
            
            
            (573,162
            )
            
            (1,517,763
            )
            
            944,601
            
            
            62.2
            %







Other
                Key Indicators:
            
            **Six
                Months Ended****March
                31,**
            
            **%
                Change****2007**
            
            **2006**Cost
                of sales as a percentage of revenues
            
            
            88.4
            %
            
            80.5
            %
            
            7.9
            %Gross
                profit margin
            
            
            11.6
            %
            
            19.5
            %
            
            (7.9
            %)General
                and administrative expenses as a percentage of revenues
            
            
            13.9
            %
            
            57.6
            %
            
            (43.7
            %)Total
                operating expenses as a percentage of revenues
            
            
            17.5
            %
            
            63.9
            %
            
            (46.4
            %)





***Revenues***





For
      the
      six months ended March 31, 2007, we reported revenues of $8,459,234 as compared
      to revenues of $2,134,491 for the six months ended March 31, 2006, an increase
      of $6,324,743 or approximately 296%. The increase is primarily due to an
      increase in our third party product sales through our IceWEB Solutions Group
      which accounted for approximately 88% of our revenue.




21


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**


***Cost
      of Sales***





Our
      cost
      of sales consists of products purchased for resale, salaries of technical
      personnel, and third party contractors. For the six months ended March 31,
      2007,
      cost of sales was $7,476,642, or approximately 88% of revenues, compared to
      $1,717,767, or approximately 80.5% of revenues, for the six months ended March
      31, 2006. The increase in costs of sales as a percentage of revenue and the
      corresponding decrease in our gross profit margin for the six months ended
      March
      31, 2007 as compared to the six months ended March 31, 2006 was the result
      of an
      increase during the six months ended March 31, 2007 in infrastructure and
      hardware revenues as a percentage of total revenue, which generally have lower
      gross profit margins, compared to infrastructure and hardware revenue in the
      previous period. We anticipate that our gross profit margins will remain
      relatively constant through the balance of fiscal 2007.




22


**MANAGEMENT'S
        DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
        (continued)**


***Total
      Operating Expenses***





Our
      total
      operating expenses increased approximately 8.4% to $ 1,477,248  for
      the
      six months ended March 31, 2007 as compared to $1,363,021 for the six months
      ended March 31, 2006. These increases include:





·Marketing
      and
      Selling .
      For the
      six months ended March 31, 2007, marketing and selling costs were $171,229
      as
      compared to $100,668 for the six months ended March 31, 2006, an increase of
      $70,561 or approximately 70%. The increases were the result of an increase
      in
      online web marketing, advertising and print advertising during the six months
      ended March 31, 2007.





·Depreciation
      and amortization
      expense .
      For the
      six months ended March 31, 2007, depreciation and amortization expense amounted
      to $131,136 as compared to $33,121 for the six months ended March 31, 2006,
      an
      increase of $98,015 or 296%. The increase in depreciation was primarily
      attributable to the amortization of capitalized software development costs
      related to our IceMail and IceVista products which were launched in the second
      quarter of fiscal year 2006. Amortization
      expense is related to a software library which is an intangible asset that
      we
      acquired through our previous acquisitions.





·General
      and administrative
      expense .
      For the
      six months ended March 31, 2007, general and administrative expenses were
      $1,174,883 as compared to $1,229,232 for the six months ended March 31, 2006,
      a
      decrease of $54,349 or approximately 4%. For the six months ended March 31,
      2007
      and 2006, general and administrative expenses consisted of the
      following:





**2007**
            
            **2006**
            
            **$
                Change**Occupancy
            
            $
            125,633
            
            $
            124,529
            
            $
            1,104Consulting
            
            
            108,076
            
            
            56,749
            
            $
            51,327Salaries,
                benefits and related taxes
            
            
            561,213
            
            
            842,501
            
            
            ($281,288
            )Legal
            
            
            70,689
            
            
            30,346
            
            $
            40,343Internet
                and phone
            
            
            30,471
            
            
            32,430
            
            
            ($1,959
            )Travel
                and entertainment
            
            
            51,102
            
            
            17,923
            
            $
            33,179Investor
                relations
            
            
            66,020
            
            
            3,779
            
            $
            62,241Other
            
            
            139,364
            
            
            119,159
            
            $
            20,205Leased
                equipment
            
            
            22,316
            
            
            1,817
            
            $
            20,499Total
            
            $
            1,174,884
            
            $
            1,229,233
            
            
            ($54,349
            )





·
            For
                the six months ended March 31, 2007, occupancy expense amounted to
                $125,633 as compared to $124,529 for the six months ended March 31,
                2006,
                an increase of $1,104 or 1%.


·
            For
                the six months ended March 31, 2007, consulting fees amounted to
                $108,076
                as compared to $56,749 for the six months ended March 31, 2006, an
                increase of $51,328 or 90%. The increase was primarily attributable
                to an
                increase in fees incurred of $108,076 related to outside accounting
                services before our engagement of a full-time Chief Financial
                Officer.


·
            For
                the six months ended March, 2007, salaries, benefits, and related
                taxes
                decreased to $561,213 as compared to $842,501 for the six months
                ended
                March 31, 2006, a decrease of $281,288 or 33%. The decrease was
                attributable to a modest increase in executive and office salaries,
                offset
                by the net reduction of compensation expense associated with the
                granting
                and forfeiture of employee stock options to duringthe six months ended March 31,2007 which were valued using FASB 123R and resulted in stock-based
                compensation of $295,777.


·
            For
                the six months ended March 31, 2007, legal expense amounted to $70,689
                as
                compared to $30,346 for the six months ended March 31, 2006, an increase
                of $40,343. The increase was attributable to the settlement of litigation
                and increased legal fees associated with various filings with the
                SEC
                during the six months ended March 31, 2007, including a post-effective
                amendment to an earlier registration
                statement.




23


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**
  ***Total
            Operating Expenses (continued)***


·
            For
                the six months ended March 31, 2007, internet/phone expense amounted
                to
                $30,471 as compared to $32,430 for the six months ended March 31,
                2006, a
                decrease of $1,959.


·
            For
                the six months ended March 31, 2007, travel and entertainment expense
                amounted to $51,102 as compared to $17,923 for the six months ended
                March
                31, 2006, an increase of $33,179. The increase was due to increased
                sales
                and marketing activities.


·
            For
                the six months ended March 31, 2007, investor relations expense amounted
                to $66,020 as compared to $3,779 for the six months ended March 31,
                2006,
                an increase of $62,241. The increase primarily relates to our engagement
                of Allen and Caron as an investor relations firm in February,
                2006.


·
            For
                the six months ended March 31, 2007, other operating expenses amounted
                to
                $139,364 as compared to $119,159 for the six months ended March 31,
                2006,
                an increase of $20,205 or 17%. Other operating expenses includes
                temporary
                help, bank processing fees, licenses, The increase was primarily
                attributable to an increase in
                operations.


·
            For
                the six months ended March 31, 2007, leased equipment expense amounted
                to
                $22,316 as compared to $1,817 for the six months ended March 31,
                2006, an
                increase of $20,499. The increase was attributable to the capital
                lease
                transaction entered into in July
                2006.





***LOSS
      FROM OPERATIONS***





We
      reported a loss from operations of $494,657 for the six months ended March
      31,
      2007 as compared to a loss from operations of $946,297 for the six months ended
      March 31, 2006, an improvement of $451,640 or approximately 48%.





***OTHER
      INCOME (EXPENSES)***





Gain
      from sales of net assets . Gain on
      sale of assets for the six months ended March 31, 2007 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 six months ended March 31, 2006.





Interest
      Income .
      Interest income for the six months ended March 31, 2007 amounted to $2,261
      and
      represented interest earned on interest bearing cash accounts. We did not have
      similar income in the comparable period in fiscal 2006.





Interest
      Expense .
      For the
      six months ended March 31, 2007, interest expense amounted to $234,085 as
      compared to $71,466 for the six months ended March 31, 2006, an increase of
      $162,619 or 228%. The increase in interest expense is attributable to the
      following: (i) In December 2005, we entered a financing agreement with Sand
      Hill
      Finance LLC for the financing of our accounts receivable balances with an annual
      interest rate of 24% and incurred interest expense for the six months ended
      March 31, 2007 of approximately $185,696 as compared to interest expense of
      $60,118 for the six months ended March 31, 2006; (ii) In July 2006, we entered
      into an sale-leaseback equipment financing arrangement whereby we borrowed
      $300,000, resulting in interest incurred of $24,689 for the six months ended
      March 31, 2007 and (iii) During the six months ended March 31, 2007, we
      amortized deferred financing costs of $9,999 as compared to $0 during the six
      months ended March 31, 2006.




24


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**


***NET
      LOSS***





Our
      net
      loss was $573,162 for the six months ended March 31, 2007 compared to $1,017,763
      for the six months ended March 31, 2006.





***DEEMED
      PREFERRED STOCK DIVIDEND***





During
      the six months ended March 31, 2007 and 2006, we recorded a deemed preferred
      stock dividend of $0 and $500,000, respectively, which relates to our Series
      A
      and B Convertible Preferred Stock. This non-cash expense related to the
      beneficial conversion features of those securities and is recorded with a
      corresponding credit to paid-in capital.





***NET
      LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS***





We
      reported a net loss attributable to common shareholders of $573,162 for the
      six
      months ended March 31, 2007 as compared to a net loss attributable to common
      shareholders of $1,517,763 during the six months ended March 31, 2006. This
      translates to an overall per-share loss available to shareholders of $.06 for
      the six months ended March 31, 2007 compared to per-share loss of $.23 for
      the
      six months ended March 31, 2006.




25


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**


***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
      March 31, 2007 and September 30, 2006:





**March
                31,**
            
            **September
                30,**
            
            $
            
            %**2007**
            
            **2006**
            
            **Change**
            
            **Change**Working
                Capital
            
            
            (1,990,777
            )
            
            (1,625,966
            )
            
            (364,811
            )
            
            (22.4
            %)Cash
            
            
            514,751
            
            
            432,885
            
            
            81,866
            
            
            18.9
            %Accounts
                receivable, net
            
            
            3,200,081
            
            
            1,264,065
            
            
            1,936,016
            
            
            153.2
            %Total
                current assets
            
            
            3,735,008
            
            
            1,706,621
            
            
            2,028,387
            
            
            118.9
            %Property
                and equipment, net
            
            
            305,297
            
            
            424,559
            
            
            (119,262
            )
            
            (28.1
            %)Goodwill
            
            
            421,000
            
            
            211,600
            
            
            209,400
            
            
            99.0
            %Intangibles,
                net
            
            
            30,000
            
            
            40,000
            
            
            (10,000
            )
            
            (25.0
            %)Deferred
                financing cost
            
            
            150,000
            
            
            159,999
            
            
            (9,999
            )
            
            (6.2
            %)Total
                assets
            
            
            4,701,701
            
            
            2,595,875
            
            
            2,105,826
            
            
            81.1
            %Notes
                payable - current
            
            
            1,524,871
            
            
            1,458,196
            
            
            66,675
            
            
            4.6
            %Accounts
                payable and accrued liabilities
            
            
            4,107,165
            
            
            1,572,933
            
            
            2,534,232
            
            
            161.1
            %Accrued
                interest payable
            
            
            93,750
            
            
            254,178
            
            
            (160,428
            )
            
            (63.1
            %)Advances
                from related party
            
            
            -
            
            
            8,123
            
            
            (8,123
            )
            
            (100.0
            %)Deferred
                revenue
            
            
            -
            
            
            39,156
            
            
            (39,156
            )
            
            (100.0
            %)Total
                current liabilities
            
            
            5,725,785
            
            
            3,332,587
            
            
            2,393,198
            
            
            71.8
            %Notes
                payable - long term
            
            
            286,999
            
            
            182,969
            
            
            104,030
            
            
            56.9
            %Total
                liabilities
            
            
            6,012,784
            
            
            3,666,556
            
            
            2,346,228
            
            
            64.0
            %Accumulated
                deficit
            
            
            (11,444,203
            )
            
            (10,871,042
            )
            
            573,161
            
            
            5.3
            %Stockholder’s
                deficit
            
            
            (1,311,083
            )
            
            (1,070,681
            )
            
            240,402
            
            
            22.5
            %




Net
      cash
      used in operating activities was $162,352 for the six months ended March 31,
      2007 as compared to net cash used in operating activities of $641,594 for the
      six months ended March 31, 2006, a decrease of $479,242. For
      the
      six months ended March 31, 2007, we used cash to fund our net loss of $573,162,
      offset by non-cash items such as depreciation expense of $131,136, amortization
      of deferred financing cost of $9,999, and a gain on sale of net assets of
      $153,319, as well as changes in assets and liabilities of $582,688. We also
      used
      cash during the six months ended March 31, 2007 to fund increases in accounts
      receivable 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.
      For the six months ended March 31, 2006, we used cash to fund our net loss
      of
      $1,017,763 offset by non-cash items such as depreciation expenses of $33,121,
      amortization of deferred financing cost of $10,000 and as well as add back
      of
      other non-cash items such as changes in assets and liabilities of
      $1,244,795.





Net
      cash
      used in investing activities for the six months ended March 31, 2007 was
      $110,873 as compared to net cash used in investing activities of $333,657 for
      the six months ended March 31, 2006. During the six months ended March 31,
      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 six months ended March 31, 2007. During the six months
      ended
      March 31, 2006, we purchased equipment and software amounting to $143,657.
      Also,
      we acquired PatriotNet in March, 2006 which used $190,000 in cash during the
      quarter.




26


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**
  ***LIQUIDITY
            AND CAPITAL RESOURCES (continued)***


Net
      cash
      provided by financing activities for the six months ended March 31, 2007 was
      $355,091 as compared to $485,590 for the six months ended March 31, 2006. For
      the six months ended March 31, 2007, net
      cash
      provided by financing activities related to proceeds received from the exercise
      of stock options and warrants of $322,650, proceeds received from notes payable
      of $254,903, proceeds received from related party notes and advances of $41,737
      offset by repayments on notes payable of $200,000, payments on related party
      advances of $26,500 and repayments of equipment financing of $37,699. For the
      six months ended March 31, 2006, net cash provided by financing activities
      related to proceeds from net preferred common stock and common stock issued
      for
      cash of $633,299 offset by payment to bank financing of $61,708, and net
      proceeds paid to related party advances of $86,001.





At
      March
      31, 2007 we had a working capital deficit of $1,990,778 and an accumulated
      deficit of $11,444,203. The report from our independent registered public
      accounting firm on our audited financial statements for the fiscal year ended
      September 30, 2006 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 significantly during the three and six
      months ended March 31, 2007 following our acquisition of the True North assets
      in October 2006, our gross profit margin was approximately 12% and our sales
      were not sufficient to pay our operating expenses. We reported a net loss of
      $573,162 for the six months ended March 31, 2007. Our core business does not
      generate 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 March 31, 2007 we had cash
      on
      hand of $514,751. 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 $1.8 million. At March 31, 2007 we owe
      Sand
      Hill Finance, LLC approximately $1,323,000 under this accounts receivable line.





While
      we
      do not have any commitments for capital expenditures, we owe a related party
      approximately $114,000 at March 31, 2007 and at such time as the novation of
      the
      GSA contract is received we will owe $100,000 to the seller of the True North
      Assets. 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.





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 March 2005 we sold
      shares of our Series A Convertible Preferred Stock and in December 2005 we
      sold
      shares of our Series B Convertible Preferred Stock to the same purchaser. 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 $0.60 per share for the Series A Convertible
      Preferred Stock and $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 and 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.




27


**MANAGEMENT'S
          DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (continued)**
  ***LIQUIDITY
              AND CAPITAL RESOURCES (continued)***


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
      a ll
      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.





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.


28





**ITEM
      3. CONTROLS AND PROCEDURES**





As
      required by Rule 13a-15 under the Securities Exchange Act of 1934, as of
      September 30, 2006, 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.




29




**Part
      II - OTHER INFORMATION**





Item
      1.  Legal
      Proceedings





None.





Item
      2. Unregistered
      Sales of Equity Securities and Use of Proceeds.





None.





Item
      3.  Defaults
      Upon Senior Securities





None





Item
      4.  Submission
      of Matters to a Vote of Security Holders





None





Item
      5.  Other
      Information








Item
      6.  Exhibits





ExhibitNumber
            
            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 Certification pursuant to Section 906
                of the
                Sarbanes-Oxley Act of 2002 *32.2
            
            Certification
                of Chief Financial Officer Certification pursuant to Section 906
                of the
                Sarbanes-Oxley Act of 2002 *




*
      Filed
      herein




30





**SIGNATURES**





In
      accorance 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.**May 02, 2007
            By:
            /s/ John
              R.
              SignorelloJohn
              R. Signorello,Chief
              Executive Officer, principal executive
              officer




May 02, 2007
            By:
            /s/
              Mark
              B. LuckyChief
              Financial Officer, principal financial and accounting
              officer




31