UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended: September 30, 2005
------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act of 1934
For the transition period from __________ to __________
Commission File No. 000-29331
IELEMENT CORPORATION
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Nevada 76-0270295
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
17194 Preston Rd.
Suite 102 PMB 341
Dallas, TX 75248
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(Address of Principal Executive Offices)
1-214-254-3440
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(Issuer's Telephone Number, Including Area Code)
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 [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
N.A.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
There were 96,477,065 issued and outstanding shares of the registrant's common
stock, $.001 par value per share, on NOVEMBER 14, 2005.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included or incorporated by reference in this
report, including, without limitation, statements regarding our future financial
position, business strategy, budgets, projected revenues, projected costs and
plans and objectives of management for future operations, are forward-looking
statements. In addition, forward-looking statements generally can be identified
by the use of forward-looking terminology, such as "may," "will," "expects,"
"intends," "plans," "projects," "estimates," "anticipates," or "believes" or the
negative thereof or any variation thereon or similar terminology or expressions.
These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from results proposed in
such statements. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to be correct. Important factors that could cause actual
results to differ materially from our expectations include, but are not limited
to: our ability to fund future growth and implement our business strategy; our
ability to integrate the operations of any businesses we may acquire; our
ability to attract and retain customers; customer acceptance and satisfaction
with our telecommunications solutions; our success in undertaking anticipated
product enhancements and releases; our ability to attract and qualified
personnel; potential legal claims against us, including, but not limited to,
intellectual property infringement claims; our ability to protect our
intellectual property; variation in forecasts of the evolving telecommunications
solutions industry; rapid technological changes in the industry; competition in
our industry and markets; general economic and business conditions, either
nationally or internationally or in the regions in which we are doing business;
the condition of the securities and capital markets; legislative or regulatory
changes that affect our business, related or supplemental industries and our
ability to ability to comply with regulatory bodies; and statements of
assumption underlying any of the foregoing, as well as any other factors set
forth in our 2005 Annual Report on Form 10-KSB, in our consolidated financial
statements contained in this report and the notes thereto, or under the caption
"Plan of Operation" under Item 2 of this report.
All subsequent written and oral forward-looking statements attributable
to us, or persons acting on our behalf, are expressly qualified in their
entirety by the foregoing. Except as otherwise required by law, we assume no
duty to update or revise our forward-looking statements based on changes in
internal estimates or expectations or otherwise subsequent to the date of this
filing.
Unless otherwise indicated or the context otherwise requires, all
references to "IElement," the "Company," "we," "us" or "our" and similar terms
refer to IElement Corporation and its subsidiaries.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
TABLE OF CONTENTS
-----------------
Condensed Consolidated Financial Statements:
PAGE(S)
-------
Condensed Consolidated Balance Sheet as of September 30, 2005 1
Condensed Consolidated Statements of Operations for
the Three Months Ended September 30, 2005 and 2004 and
the Six Months Ended September 30, 2005 and 2004 2
Condensed Consolidated Statements of Cash Flow for
the Six Months Ended September 30, 2005 and 2004 3-4
Notes to Condensed Consolidated Financial Statements 5-18
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
ASSETS
------
September 30,
2005
(UNAUDITED)
-----------
CURRENT ASSETS:
Cash and cash equivalents $ 69,978
Accounts receivable, net 604,653
Other current assets 2,970
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TOTAL CURRENT ASSETS 677,601
---------------
Fixed assets, net of depreciation 774,303
---------------
OTHER ASSETS:
Goodwill 2,079,665
Deposits 52,447
---------------
TOTAL OTHER ASSETS 2,132,112
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TOTAL ASSETS $ 3,584,016
===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,111,618
Customer deposits 151,387
Receivable financing payable 420,087
Commissions payable 157,175
Liability for stock to be issued 649,750
Deferred revenue 737,326
Current portion - notes payable 299,657
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TOTAL CURRENT LIABILITIES 3,527,000
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LONG-TERM LIABILITIES:
Notes payable, net of current portion 357,513
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TOTAL LONG-TERM LIABILITIES 357,513
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TOTAL LIABILITIES 3,884,513
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STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 Par Value, 2,000,000,000 shares authorized;
96,477,065 shares issued and outstanding 96,477
Preferred stock, $.001 par value, 200,000,000 shares authorized;
zero shares issued and outstanding -
Additional paid-in capital 1,133,355
Unearned compensation expense (13,000)
Accumulated deficit (1,517,329)
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TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (300,497)
---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,584,016
===============
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
--------------- --------------- --------------- ---------------
OPERATING REVENUE $ 1,151,749 $ 1,504,256 $ 2,367,228 $ 3,009,197
COST OF SALES 712,776 815,491 1,452,390 1,649,490
--------------- --------------- --------------- ---------------
GROSS PROFIT 438,973 688,765 914,838 1,359,707
--------------- --------------- --------------- ---------------
OPERATING EXPENSES
General and administrative 595,142 571,953 1,018,496 1,081,320
Selling expenses 136,209 162,370 232,537 299,212
Depreciation & amortization 69,387 67,254 138,052 132,427
Interest expense 26 39,290 4,951 69,555
Receivable factoring fees 27,852 32,095 56,826 65,250
--------------- --------------- --------------- ---------------
TOTAL OPERATING EXPENSES 828,616 872,962 1,450,862 1,647,764
--------------- --------------- --------------- ---------------
INCOME (LOSS) BEFORE OTHER (EXPENSE) (389,643) (184,197) (536,024) (288,057)
--------------- --------------- --------------- ---------------
OTHER (EXPENSE)
Loss on sale of investments - - - (38,511)
--------------- --------------- --------------- ---------------
TOTAL OTHER EXPENSES - - - (38,511)
--------------- --------------- --------------- ---------------
NET LOSS BEFORE PROVISION FOR INCOME TAXES (389,643) (184,197) (536,024) (326,568)
PROVISION FOR INCOME TAXES - - - -
--------------- --------------- --------------- ---------------
NET LOSS APPLICABLE TO COMMON SHARES $ (389,643) $ (184,197) $ (536,024) $ (326,568)
=============== =============== =============== ===============
NET LOSS PER BASIC AND DILUTED SHARES $ (0.00) $ (0.04) $ (0.01) $ -
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 95,996,101 4,319,392 93,983,032 4,249,508
=============== =============== =============== ===============
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
SIX MONTHS ENDED
----------------
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
(UNAUDITED) (UNAUDITED)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (536,024) $ (326,568)
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ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
(USED IN) OPERATING ACTIVITIES:
Depreciation and amortization 138,052 132,427
Stock issued for services 54,047 -
CHANGES IN ASSETS AND LIABILITIES
(Increase) in accounts receivable (84,009) (6,613)
(Increase) in other current assets (1,190) (2,767)
(Increase) decrease in deposits 6,546 (14,985)
Increase in accounts payable and accrued expenses 225,204 280,165
Increase in accrued interest 4,872 69,476
(Decrease) in customer deposits (12,725) (6,843)
(Decrease) in receivable financing payable (63,027) (17,968)
Increase (decrease) in commissions payable (18,961) 27,602
(Decrease) in deferred revenue (77,710) (197,183)
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Total adjustments 171,099 263,311
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NET CASH (USED IN) OPERATING ACTIVITIES (364,925) (63,257)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (23,304) (60,409)
Write off of fixed assets - 3,190
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NET CASH (USED IN) INVESTING ACTIVITIES (23,304) (57,219)
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CASH FLOWS FROM FINANCING ACTIVITIES
Payments of notes payable $ (41,364) $ (84,166)
Proceeds from notes payable - 122,004
Common stock issued for cash - 119,300
Cash received for common stock to be issued 159,250 -
Proceeds in exercise of stock options - 75
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 117,886 157,213
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The accompanying notes are an integral part of these condensed consolidated financial statements
3
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
SIX MONTHS ENDED
----------------
SEPTEMBER 30, SEPTEMBER 30,
2005 2004
(UNAUDITED) (UNAUDITED)
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (270,343) 36,737
CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD 340,321 29,267
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CASH AND CASH EQUIVALENTS -
END OF PERIOD $ 69,978 $ 66,004
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
CASH PAID DURING THE QUARTER FOR:
Interest expense $ 114 $ 13,356
============= =============
SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:
Accounts payable converted to equity $ 85,194 $ -
============= =============
Accounts payable converted to debt $ 177,884 $ 59,000
============= =============
Accounts payable converted to liability for stock to be issued $ 251,500 $ -
============= =============
Notes payable converted to liability for stock to be issued $ 239,000 $ 248,000
============= =============
Stock issued for services $ 54,047 $ -
============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements
4
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements
included herein have been prepared by IElement Corporation and
Subsidiary (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC").
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed
or omitted as allowed by such rules and regulations, and the Company
believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial
statements be read in conjunction with the March 31, 2005 audited
financial statements and the accompanying notes thereto. While
management believes the procedures followed in preparing these
condensed financial statements are reasonable, the accuracy of the
amounts are in some respects dependent upon the facts that will exist,
and procedures that will be accomplished by the Company later in the
year.
The management of the Company believes that the accompanying unaudited
condensed consolidated financial statements contain all adjustments
(including normal recurring adjustments) necessary to present fairly
the operations and cash flows for the periods presented.
IElement Corporation (the "Company" or "IElement") was established as a
messaging security and management company. On March 25, 2004, pursuant
to an Agreement and Plan of Merger, Global Diversified Acquisition
Corp. ("GDAC"), acquired all of the outstanding capital stock of MK
Secure Solutions Ltd ("MKSS"), a holding company incorporated on March
11, 2003, under the laws of the British Virgin Islands. The transaction
was effected by the issuance of shares such that the former MKSS
shareholders owned approximately 90% of the outstanding MailKey
Corporation stock after the transaction. GDAC then changed its name to
MailKey Corporation ("MailKey").
The Company's Chairman and Chief Executive Officer resigned in
September 2004 and the Company's Chief Financial Officer and member of
the Board resigned in November 2004. Both positions have been filled by
the Company's founder and deputy chairman.
5
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In early 2005 the Company was unable to continue funding the
development of its messaging security solutions, and the rights were
transferred to the development team in return for the cancellation of
most of the liabilities which the Company owed to them. The Company
retains an interest of 20% in the messaging security solutions; however
to date there has been no commercialization of the solutions. In the
first quarter 2005 the Company sold its insolvent British Virgin
Islands subsidiary, MK Secure Solutions Limited, for $1 to a UK based
accounting firm, SS Khehar & Company. SS Khehar & Company has agreed to
deal with the winding up of the former subsidiary, for a fee of $1,800.
On November 9, 2004, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among the MailKey Corporation,
MailKey Acquisition Corp., a Delaware corporation and our wholly-owned
subsidiary ("Merger Sub"), Inc., a Nevada Corporation, I-Element, Inc.
("I-Element") and Ivan Zweig, pursuant to which the Company agreed to
acquire all of the issued and outstanding shares of capital stock of
I-Element. This transaction closed in January 2005. At the closing of
the Merger, Merger Sub was merged into I-Element, at which time the
separate corporate existence of Merger Sub ceased and I-Element now
continues as the surviving company. The Share Exchange has been
accounted for as a reverse merger under the purchase method of
accounting. Accordingly, I-Element will be treated as the continuing
entity for accounting purposes and the historical financial statements
presented will be those of I-Element.
Under the terms of the Merger Agreement, MailKey issued its common
stock, $.001 par value per share, in exchange for all of the issued and
outstanding shares of capital stock of I-Element. The exchange ratio
setting forth the number of shares of MailKey common stock issued for
each issued and outstanding share of capital stock of I-Element was
3.52 shares of MailKey common stock for each issued and outstanding
share of capital stock of I-Element.
I-Element, incorporated in Nevada on December 30, 2002, is a
facilities-based nationwide communications service provider that
provides state-of-the-art telecommunications services to small and
medium sized enterprises ("SMEs"). I-Element provides broadband data,
voice and wireless services by offering integrated T-1 lines as well as
Layer 2 Private Network solutions that provide SMEs with dedicated
Internet access services, customizable business solutions for voice,
data, wireless and Internet, and secure communications channels between
the SME offices, partners, vendors, customers and employees without the
use of a firewall or encryption devices. I-Element has a network
presence in 18 major markets in the United States, including facilities
in Los Angeles, Dallas, and Chicago. The Company started business in
2003.
6
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
In connection with the closing of the merger, MailKey entered into a
letter of intent with Ivan Zweig and Kramerica Capital Corporation
("Kramerica"), a corporation wholly-owned by Mr. Zweig, which
contemplates that MailKey and I-Element will enter into a four year
employment agreement with Kramerica and Mr. Zweig pursuant to which Mr.
Zweig will serve as the Chief Executive Officer of MailKey and
I-Element. The letter of intent provides that Mr. Zweig will receive an
annual base salary of $300,000. In addition to his base salary, Mr.
Zweig will be entitled to annual performance bonuses with targets
ranging from $1,000,000 to $3,000,000 during the second, third and
fourth years provided I-Element achieves certain performance goals. If
Mr. Zweig is terminated without cause, MailKey is obligated to pay the
remaining salary owed to Mr. Zweig for the complete term of the
employment agreement, to pay off all notes owed to Mr. Zweig or
Kramerica, all outstanding options shall become fully vested, MailKey
shall pay all earned performance bonuses and all accrued vacation. If
Mr. Zweig is terminated for any reason other than cause, MailKey shall
pay in full the Notes owed to either Mr. Zweig or Kramerica Capital
Corporation and at least 75% of the earned bonus plan set forth by the
directors.
Effective January 24, 2005, Mr. Zweig was also appointed to the Board
of Directors of MailKey.
Ivan Zweig has served as the Chief Executive Officer of I-Element since
March 2003. Mr. Zweig is also the Chief Executive Officer, director and
sole shareholder of Kramerica, a personnel services corporation. Since
December 1998, Mr. Zweig has served as the Chief Executive Officer and
director of Integrated Communications Consultants Corp. ("ICCC"), a
nationwide data carrier specializing in high speed Internet access and
secure data transaction. ICCC provides I-Element with resold telecom
services and I-Element pays ICCC approximately $100,000 on a monthly
basis for such services. On October 1, 2004, ICCC filed for Chapter 11
bankruptcy protection in the United States Bankruptcy Court, Northern
District of Texas, Dallas Division.
Upon the consummation of the acquisition, I-Element has issued
outstanding promissory notes to, among others, Kramerica in the
aggregate amount of $120,000 (the "Notes"). I-Element has also issued
Notes in the aggregate amount to members of Mr. Zweig's immediate
family. The Notes are payable in 36 monthly installments with the first
payment commencing six months after the closing of the merger and will
continue to be secured by substantially all of the assets of I-Element.
7
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
The Company received consent to amend the Articles of Incorporation to
increase the number of shares of common stock authorized to be issued
from 100,000,000 shares to 2,000,000,000 shares, and consented to the
authorization of 200,000,000 shares of Blank Check Preferred Stock.
There are no current plans to designate any Blank Check Preferred
Stock.
On August 1, 2005, the Company filed an Information Statement in
definitive form on schedule 14C with the SEC to change its name from
MailKey Corporation to IElement Corporation. Concurrent with this name
change, the Company received a new stock trading symbol (IELM.OB) on
the NASD Over-the-Counter Electronic Bulletin Board.
On August 8, 2005 Tim Dean-Smith and Susan Walton resigned their
positions on the Board of Directors (the "Board") of the Company. Tim
Dean-Smith also resigned from his position as Chief Financial Officer
of the Company. The resignations of Mr. Dean-Smith and Ms. Walton were
consistent with the expectations of the parties pursuant to the
consummation of the merger between I-Element, and the Company on
January 19, 2005, and do not arise from any disagreement on any matter
relating to the Company's operations, policies or practices, nor
regarding the general direction of the Company. Neither Mr. Dean-Smith
nor Ms. Walton served on any subcommittees of the Board. Ivan Zweig,
the current Chairman of the Board and Chief Executive Officer was
appointed as the Chief Financial Officer of the Company until a new
Chief Financial Officer is found.
The Company's condensed consolidated financial statements are prepared
on the accrual basis of accounting in accordance with accounting
principles generally accepted in the United States of America, and have
been presented on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the normal
course of business.
8
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The condensed consolidated financial statements include the financial
position and results of I-Element. All significant intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United
States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
condensed consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and other
short-term investments with an initial maturity of three months or less
to be cash or cash equivalents.
The Company maintains cash and cash equivalents with a financial
institution which is insured by the Federal Deposit Insurance
Corporation up to $100,000. At various times throughout the year the
Company had amounts on deposit at the financial institution in excess
of federally insured limits.
REVENUE AND COST RECOGNITION
The Company records its transactions under the accrual method of
accounting whereby income is recognized when the services are provided
rather than when billed or the fees are collected, and costs and
expenses are recognized in the period they are incurred rather than
paid for.
ACCOUNTS RECEIVABLE
The Company factors 99% of its billings with an outside agency. The
Company invoices its customers approximately 34 days prior to the month
services are to be rendered with invoice amounts due on the first of
the month in which services are rendered. The Company receives 75% of
the aggregate net face value of the assigned accounts at the time of
placement with the factor.
9
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
DEFERRED REVENUE
Deferred revenue consists of customers billed in advance of revenue
being earned.
PROVISION FOR BAD DEBT
Under SOP 01-6 "Accounting for Certain Entities (including Entities
with Trade Receivables), the Company has intent and belief that all
amounts in accounts receivable are collectible. The Company has
determined that based on their collections an allowance for doubtful
accounts of $9,691 has been recorded at September 30, 2005.
Bad debt expense for the three months ended September 30, 2005 and 2004
was $28,523 and $2,628, respectively and for the six months ending
September 30, 2005 and 2004 was $47,232 and $19,629, respectively.
ADVERTISING COSTS
The Company expenses the costs associated with advertising and
marketing as incurred. Advertising and marketing expenses, included in
the statements of operations for the three months ended September 30,
2005 and 2004 were $2,924 and $2,239, respectively and for the six
months ending September 30, 2005 and 2004 was $2,924 and $11,032,
respectively.
INCOME TAXES
The income tax benefit is computed on the pretax loss based on the
current tax law. Deferred income taxes are recognized for the tax
consequences in future years of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates. No benefit
is reflected for the three months ended September 30, 2005 and 2004,
respectively and for the six months ended September 30, 2005 and 2004,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount reported in the balance sheets for cash
and cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate fair value because of the
immediate or short-term maturity of these financial
instruments. The carrying amount reported for notes payable
approximates fair value because, in general, the interest on
the underlying instruments fluctuates with market rates.
10
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
Furniture and equipment 5 Years
Telecommunications equipment 5 Years
When assets are retired or otherwise disposed of, the costs and related
accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in income for the period. The cost
of maintenance and repairs is charged to income as incurred;
significant renewals and betterments are capitalized. Deduction is made
for retirements resulting from renewals or betterments.
(LOSS) PER SHARE OF COMMON STOCK
Historical net (loss) per common share is computed using the weighted
average number of common shares outstanding. Common stock equivalents
were not included in the computation of diluted earnings per share when
the Company reported a loss because to do so would be antidilutive for
the periods presented.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the FASB issued Statement No. 142 "Goodwill and Other
Intangible Assets". This Statement addresses financial accounting and
reporting for acquired goodwill and other intangible assets and
supersedes APB Opinion No. 17, Intangible Assets. It addresses how
intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should
be accounted for in financial statements upon their acquisition. This
Statement also addresses how goodwill and other intangible assets
should be accounted for after they have been initially recognized in
the financial statements.
11
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
STOCK-BASED COMPENSATION
Employee stock awards under the Company's compensation plans are
accounted for in accordance with Accounting Principles Board Opinion
No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", and
related interpretations. The Company provides the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION" ("SFAS 123"), and related
interpretations. Stock-based awards to non-employees are accounted for
under the provisions of SFAS 123 and has adopted the enhanced
disclosure provisions of SFAS No. 148 "Accounting for Stock-Based
Compensation- Transition and Disclosure, an amendment of SFAS No. 123".
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic-value method. Under the
intrinsic-value method of accounting for stock-based compensation, when
the exercise price of options granted to employees is less than the
estimated fair value of the underlying stock on the date of grant,
deferred compensation is recognized and is amortized to compensation
expense over the applicable vesting period. In each of the periods
presented, the vesting period was the period in which the options were
granted. All options were expensed to compensation in the period
granted rather than the exercise date.
The Company measures compensation expense for its non-employee
stock-based compensation under the Financial Accounting Standards Board
(FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, "ACCOUNTING
FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR
ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES".
The fair value of the option issued is used to measure the transaction,
as this is more reliable than the fair value of the services received.
The fair value is measured at the value of the Company's common stock
on the date that the commitment for performance by the counterparty has
been reached or the counterparty's performance is complete. The fair
value of the equity instrument is charged directly to compensation
expense and additional paid-in capital.
Net stock-based compensation for the three months ended September 30,
2005 and 2004 was $0 and $0, respectively and for the six months ended
September 30, 2005 and 2004 was $54,047 and $0, respectively.
On September 8, 2005, the Company issued 325,000 stock options to its
employees. The options have an exercise price of $0.01 and vest over 3
years.
12
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In January 2003, the FASB issued FASB Interpretation No. 46 ("FIN 46"),
"CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB
NO. 51". FIN 46 requires certain variable interest entities to be
consolidated by the primary beneficiary of the entity if the equity
investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk
for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective
for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired
prior to February 1, 2003, the provisions of FIN 46 must be applied for
the first interim or annual period beginning after June 15, 2003. The
adoption of FIN 46 did not have a significant impact on the Company'
results of operations or financial position.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
published Statement of Financial Accounting Standards No. 123 (Revised
2004), "SHARE-BASED PAYMENT" ("SFAS 123R"). SFAS 123R requires that
compensation cost related to share-based payment transactions be
recognized in the financial statements. Share-based payment
transactions within the scope of SFAS 123R include stock options,
restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans.
The provisions of SFAS 123R are effective for small business issuers as
of the first interim period that begins after December 15, 2005.
Accordingly, the Company will implement the revised standard in the
first quarter of fiscal year 2006. Currently, the Company accounts for
its share-based payment transactions under the provisions of APB 25,
which does not necessarily require the recognition of compensation cost
in the financial statements. Management is assessing the implications
of this revised standard, which may materially impact the Company's
results of operations in the first quarter of fiscal year 2006 and
thereafter.
13
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
On December 16, 2004, FASB issued Statement of Financial Accounting
Standards No. 153, "EXCHANGES OF NON-MONETARY ASSETS, AN AMENDMENT OF
APB OPINION NO. 29, ACCOUNTING FOR NON-MONETARY TRANSACTIONS" (" SFAS
153"). This statement amends APB Opinion 29 to eliminate the exception
for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do
not have commercial substance. Under SFAS 153, if a non-monetary
exchange of similar productive assets meets a commercial-substance
criterion and fair value is determinable, the transaction must be
accounted for at fair value resulting in recognition of any gain or
loss. SFAS 153 is effective for non-monetary transactions in fiscal
periods that begin after June 15, 2005. The Company does not anticipate
that the implementation of this standard will have a material impact on
its financial position, results of operations or cash flow.
NOTE 3 - FIXED ASSETS
Property and equipment as of September 30, 2005 was as follows:
Property and equipment $1,396,572
Less accumulated depreciation 622,269
----------
Net book value $ 774,303
==========
There was $69,387 and $67,254 charged to operations for depreciation
expense for the three months ended September 30, 2005 and 2004,
respectively and $138,052 and $132,427 charged to operations for
depreciation expense for the six months ended September 30, 2005 and
2004, respectively.
NOTE 4 - LIABILITY FOR STOCK TO BE ISSUED
The Company has signed agreements with vendors and former directors to
convert $251,500 of accounts payable and $239,000 of notes payable into
equity. As of September 30, 2005, the shares have not been issued.
14
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 4 - LIABILITY FOR STOCK TO BE ISSUED - (CONTINUED)
In August 2005, the Company has entered into an agreement with Vista
Capital, S.A. ("Vista") whereby Vista will raise capital through the
sale of Company stock and warrants. The Company seeks to raise $560,000
from the sale of 32 units - each containing 500,000 shares of common
stock at $0.035 and warrants to purchase an additional 250,000 shares
of common stock at $0.10. The warrants can called by the Company after
the Company's closing share price is equal to or exceeds $0.12 for ten
consecutive trading days. Each unit is offered at $17,500. As of
September 30, 2005, the Company had received cash totaling $159,250
from the sale of these Units. The Company expects to complete the
capital raising in the next quarter. Once completed, the Company will
register all the shares and issue the common stock.
NOTE 5 - NOTES PAYABLE
The Company has several notes payable at September 30, 2005. Proceeds
from the notes were utilized to finance the general working capital
requirements of the Company, purchase equipment and pay certain
liabilities assumed by the Company in the purchase of the principal
assets of Integrated Communications Consultants Corporation in March of
2003. Prior to the effective merger of I-Element with MailKey, certain
of the notes were converted into shares of common stock. Several notes
have been partially converted into equity with the remaining balances
restated at zero percent interest. All outstanding notes at September
30, 2005 have zero percent interest rate. Accrued interest on the notes
was $0 at September 30, 2005.
The notes payable balances at September 30, 2005 were as follows:
Total notes payable $657,170
Less current maturities 299,657
--------
Long term notes payable $357,513
========
The amount principal maturities of the notes payable for the next 4
years ending September 30, and in the aggregate is as follows:
2006 $299,657
2007 186,684
2008 165,743
2009 5,086
--------
$657,170
$31,186 of the payments on notes due in August and September 2005 were
not made as of September 30, 2005.
15
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 6 - OPERATING LEASES
The Company leases office space on a month-to-month basis. The monthly
payment under the current lease is $3,284. The Company also leased
additional office space in Texas and California. The Company ceased
leasing this additional space during the year ended December 31, 2004.
Rental payments charged to expense for the three months ended September
30, 2005 and 2004 was $10,468 and $22,709, respectively and for the six
months ended September 30, 2005 and 2004 was $22,168 and $45,347,
respectively.
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
As of September 30, 2005, the Company has 2,000,000,000 shares of
common stock authorized at a par value of $0.001, and 96,477,065 shares
issued and outstanding. The company also has 200,000,000 shares of
Blank Check Preferred Stock authorized. There are no current plans to
designate any Blank Check Preferred Stock.
The following details the stock transactions for the six months ended
September 30, 2005:
The Company received 1,498,195 shares of common stock valued at $37,455
which were issued in the previous quarter for services. Upon receipt,
the common shares were canceled.
The Company issued 1,500,000 shares of common stock against the $75,000
Liability for Stock to be issued.
The Company issued 340,000 shares of common stock valued at $8,500 to a
sales agent as payment on the outstanding balance owed.
The Company issued 175,000 shares of common stock valued at $3,500 to a
consultant as payment on the outstanding balance owed.
The Company issued 300,000 shares of common stock valued at $6,000 to a
consultant for services received.
16
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 7 - STOCKHOLDERS' EQUITY (DEFICIT) - (CONTINUED)
COMMON STOCK (CONTINUED)
The Company issued 250,000 shares of common stock valued at $5,500 to a
consultant for services received.
The Company issued 1,000,000 shares of common stock valued at $40,000
to an employee as a bonus.
The Company issued 1,000,000 shares of common stock valued at $40,000
to a consultant for services received.
The Company issued 1,626,530 shares of common stock valued at $73,194
to a sales agent as payment on the outstanding balance owed and as
payment for current services.
NOTE 8 - PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability method for
the temporary differences between the financial reporting basis and
income tax basis of the Company's assets and liabilities. Deferred
income taxes will be measured based on the tax rates expected to be in
effect when the temporary differences are included in the Company's tax
return. Deferred tax assets and liabilities are recognized based on
anticipated future tax consequences attributable to differences between
financial statement carrying amounts of assets and liabilities and
their respective tax bases.
At September 30, 2005, deferred tax assets consist of the following:
Net deferred tax assets $455,199
Less: valuation allowance (455,199)
--------
$ -0-
At September 30, 2005, the Company had deficits accumulated in the
approximate amount of $1,517,329, available to offset future taxable
income through 2023. The Company established valuation allowances equal
to the full amount of the deferred tax assets due to the uncertainty of
the utilization of the operating losses in future periods.
17
IELEMENT CORPORATION AND SUBSIDIARY
(FORMERLY KNOWN AS MAILKEY CORPORATION)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 AND
THE SIX MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
NOTE 9 - GOING CONCERN
As shown in the accompanying condensed consolidated financial
statements, the Company has sustained net operating losses for the
three months ended September 30, 2005 and 2004 and for the six months
ended September 30, 2005 and 2004. There is no guarantee that the
Company will be able to raise enough capital or generate revenues to
sustain its operations. This raises substantial doubt about the
Company's ability to continue as a going concern.
The Company's future success is dependent upon its ability to achieve
profitable operations and generate cash from operating activities, and
upon additional financing. There is no guarantee that the Company will
be able to raise enough capital or generate revenues to sustain its
operations. Management believes they can raise the appropriate funds
needed to support their business plan and acquire an operating cash
flow positive company.
The condensed consolidated financial statements do not include any
adjustments relating to the recoverability or classification of
recorded assets and liabilities that might result should the Company be
unable to continue as a going concern.
NOTE 10 - CONTINGENCIES
On April 19, 2005 KK Solutions, Inc., a California corporation d/b/a/
Three 18, Inc. ("KK"), filed a complaint against the Company and its
CEO, Ivan Zweig, individually, in the Superior Court of the State of
California, County of Los Angeles, alleging breach of contract pursuant
to a dispute regarding sales commissions due to KK. KK seeks damages in
the amount of $78,000, plus interest. The Company is vigorously
defending against this action, which is currently in the discovery
phase of the proceeding.
On April 26, 2005 Communications Plus, Inc., a California company d/b/a
Global Communications, ("Global"), filed a complaint against the
Company and its CEO, Ivan Zweig, individually, in the Superior Court of
the State of California, County of Los Angeles, alleging breach of
contract pursuant to a dispute regarding sales commissions due to
Global. Global seeks damages in the amount of $50,000, plus interest.
The Company is vigorously defending against this action, which is
currently in the discovery phase of the proceeding.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This "Plan of Operation" and other parts of this report contain
forward-looking statements that involve risks and uncertainties. All
forward-looking statements included in this report are based on information
available to us on the date hereof and, except as required by law we assume no
obligation to update any such forward-looking statements. Our actual results may
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors, including those set forth under the caption
"Disclosure Regarding Forward-Looking Statements" and elsewhere in this report.
The following should be read in conjunction with our unaudited financial
statements and the related notes thereto contained elsewhere in this report.
The statements contained in this quarterly report that are not
historical facts are forward-looking statements that involve a number of risks
and uncertainties. Historical results should not be relied on as indicative of
trends in operating results for any future period. The actual results of the
future events described in such forward-looking statements in this quarterly
report could differ materially from those stated in such forward-looking
statements.
OUR PLAN OF OPERATION
In January of 2005, the Company closed its merger agreement with
iElement, Inc., a facilities-based nationwide telecommunications communications
service provider to small and medium sized enterprises. iElement, Inc., seeks to
provide broadband data, voice and wireless services using integrated T-1 lines
with a Layer 2 Private Network/Wide Area Network (WAN) solution to provide
dedicated Internet access services, customizable business solutions for voice,
data and Internet, and secure communications channels between our customers'
offices, partners, vendors, customers and employees without the use of a
firewall or encryption devices.
In the first quarter 2005 the Company was unable to continue funding the
development of its messaging security solutions and the rights to development
and commercialization of the messaging security solutions were transferred to
Tehshi Inc., in return for 20% of the common stock (2,640,000 shares of common
stock) of Tehshi, Inc., issued to the Company, and for the cancellation of
$76,107 in total debt that the Company owed to the development team of the
messaging security solutions, Charles Ashley and Isaac de la Pena, who hold a
combined 80% of the common stock of Tehshi, Inc.
In the first quarter 2005, the Company sold its insolvent British Virgin
Islands subsidiary, MK Secure Solutions Limited, for $1 to a UK based accounting
firm, SS Khehar & Company. SS Khehar & Company have agreed to deal with the
winding up of the former subsidiary, for a fee of $1,800.
19
On July 21, 2005 and August 1, 2005, the Company filed an Information
Statement on Schedule 14C in preliminary form and in definitive form,
respectively, disclosing that, among other items, it had obtained the requisite
shareholder approval to change the Company's name to IElement Corporation. As of
August 21, 2005, Mailkey Corporation formally changed its name to IElement
Corporation ("IElement"). Subsequently, IElement has undertaken steps to inform
present itself as IElement to its customer base and target market and will
continue to take steps to notify, inform and/or promote the name of IElement. We
now aim to grow the business of IElement and establish it as a leading regional
added-value carrier.
IElement's focus is to become the leading regional Communication Service
Provider (CSP) from California to Florida. IElement's added value, managed
service strategy includes the potential development of additional subscription
model services such as Managed Microsoft Exchange(tm), prepaid and postpaid
cellular services, email and network security, residential/ business based
wireless, and Managed Blackberry(tm) services. The development of these services
would allow IElement to offer Small and Medium-sized Enterprises ("SMEs") the
access to large enterprise type applications with little or no software
purchase, hardware investment, upgrade concerns, or full-time administration of
these services. These sell-through services should increase the Average Revenue
Per Customer ("ARPC"), as well as help improve customer retention.
The Company intends to:
o Initially concentrate its resources on adding customers in the Dallas,
Los Angeles and Chicago markets, while extending its sales reach into the next
target markets.
o Build out the necessary infrastructure to sell IElement broadband
services (wireless or wireline), as well as reselling voice services over the
same T1 or wireless equivalent.
o Upsell added value managed services to our current and future customer
base to raise our ARPC. We believe that existing infrastructure can serve
multiple new markets as they are brought online in advance of the need for
additional capital expenditures or additional software licenses.
o Seek acquisitions of wireless ISPs (WISPs) and other suitable telephony
and/or data carriers in secondary and tertiary markets that can be layered onto
the Company's national backbone. We believe that such acquisitions would enable
greater economies of scale and operating efficiencies.
We anticipate that the number of people who we employ may increase
substantially over the next 12 months as we continue to execute on our business
plan.
RESULTS OF OPERATIONS
The revenue for the three months ended September 30, 2005 has decreased
$352,507 from the same period ended September 30, 2004 for two reasons. First,
the Company has cut back on its sales force in anticipation of redirecting it to
another market which has allowed the customer base to decrease as customer
contracts expire. Secondly, the prior year income statement had $128,334 and
$256,667 of non-recurring consulting revenue for the three and six month periods
ended September 30, 2004, respectively. Comparable revenue for telecommunication
services would be $1,151,749 and $1,375,922 for the three months ended September
30, 2005 and 2004 respectively and $2,367,228 and $2,752,530 for the six months
ended September 30, 2005 and 2004 respectively.
The general and administrative expenses for the three months ended
September 30, 2005 have increased $23,189 over the same period ended September
30, 2004. Most of the expenses have decreased with the exception of the one time
addition of $141,823 of consulting expense incurred when a settlement was
reached with a consultant who provided services for the Mailkey/iElement merger.
The consultant agreed to accept 2,500,000 shares of common stock valued at
$100,000 and a note payable for $41,823. When this one time item is excluded,
the recurring general and administrative expenses decreased $118,634 for the
three months ended September 30, 2005 when compared the same period ended
September 30, 2004.
Selling expenses have decreased $24,161 for the three months ended
September 30, 2005 due to a decrease in sales headcount, as described above,
from the same period ended September 30, 2004.
Interest expense for the three months ended September 30, 2005 has
decreased $39,264 from the same period ended September 30, 2004 reflecting that
notes payable have been re-negotiated with zero percent interest.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have funded our operations primarily through
private sales of equity securities and the utilization of short-term convertible
debt. As of September 30, 2005 we had a cash balance of $69,978.
20
In order to facilitate working cash flow, the Company factors
approximately 99% of accounts receivables for its customer billing with an
outside agency, thereby receiving 75% of the aggregate net face value of the
assigned accounts at the time of placement with the factor. We do not otherwise
maintain a line of credit or term loan with any commercial bank or other
financial institution. To date, our capital needs have been principally met
through the receipt of proceeds from factoring customer receivables and the sale
of equity and debt securities.
We believe that our current cash resources will not be sufficient to
sustain our current operations for the next twelve (12) months. The Company
anticipates, based on currently proposed plans and assumptions relating to its
operations, that it will be essential to secure additional working capital and
we intend to pursue additional cash resources through sales of debt or equity
securities in order to execute our business plan. While we believe that Company
will be successful in obtaining additional funds, the Company currently has not
finalized plans for additional financing and there can be no assurance that
additional financing will be available to the Company if required. Additionally,
in the event that the Company's plans change, that its assumptions prove to be
inaccurate or its cash flow proves to be insufficient (due to unanticipated
expenses, inadequate revenues, difficulties, problems or otherwise), the Company
may be required to either seek further additional financing or curtail its
activities.
OFF-BALANCE SHEET ARRANGEMENTS
As of September 30, 2005, we did not have any relationships with
unconsolidated entities or financial partners, such as entities often referred
to as structured finance or special purpose entities, that had been established
for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes. As such, we are not materially exposed
to any financing, liquidity, market or credit risk that could arise if we were
engaged in such relationships.
RECENT DEVELOPMENTS
On January 19, 2005 we completed the acquisition of iElement Inc.
("iElement"). iElement is now a wholly owned subsidiary of the Company. Under
the terms of the Merger Agreement, the Company authorized the issuance of an
aggregate of approximately 47,850,000 shares of its common stock, $.001 par vale
per share, to the former shareholders of iElement in exchange for all of the
issued and outstanding shares of capital stock of iElement. A majority of
iElement shareholders as of the record date of December 30, 2004, consented to
the transaction as approved by the board of directors of iElement.
The exchange ratio setting forth the number of shares of Company common
stock issued for each issued and outstanding share of capital stock of iElement
was 3.52 shares of Company common stock for each issued and outstanding share of
capital stock of iElement.
On January 24, 2005 we appointed Mr. Zweig, the founder and Chief
Executive Officer of iElement, to the board of the Company, replacing Mr.
Dean-Smith as Chairman and Chief Executive Officer.
On August 1, 2005 the Company filed an Information Statement on Schedule
14C in definitive form disclosing that, among other items, it had obtained the
requisite shareholder
21
approval to change the Company's name to IElement Corporation. As of August 21,
2005, Mailkey Corporation formally changed its name to IElement Corporation
("IElement").
On August 3, 2005 the Company accepted the resignations of Tim
Dean-Smith and Susan Walton from their positions on the Board of Directors. Tim
Dean-Smith also resigned from his position as Chief Financial Officer of the
Company. The resignations of Mr. Dean-Smith and Ms. Walton are consistent with
the expectations of the parties pursuant to the consummation of the merger
between iElement, Inc. and Mailkey Corporation (the merged entity currently
known as IElement Corporation) on January 19, 2005.
The Company has begun searching for individuals to fill the vacant
positions on the Board and who will serve until the next elections are held for
these positions. Additionally, Ivan Zweig, the current Chairman of the Board and
Chief Executive Officer of the Company, has accepted the Company's appointment
as the Chief Financial Officer of the Company, until a new Chief Financial
Officer is appointed.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Generally: The Voice over Internet Protocol (VoIP) and internet based
communications solutions industry is highly competitive and requires constant
investment in research and development in order to keep pace with technology and
competitors' products. The success of the Company depends upon its ability to
enter markets and establish a base level of customers sufficient to cover costs
of opening and maintaining a market while seeking to expand both the customer
base and products base. If the Company is unable to compete effectively or to
obtain additional financing to fund future research and development and
deployment expenditures, it would have a materially adverse effect on the
company's business operations and would negatively affect the Company's ability
to effectively market and develop existing and future products. The Company has
been building its business through revenues generated from operations,
supplemented by the sale of its common stock. The ability of the Company to
continue its growth and to effectively market and develop existing and future
products is dependent Company's ability to raise additional funds through
external financing either through the issuance of additional stock or the
incurrence of debt, or a combination thereof.
RISK FACTORS
This report contains forward-looking statements that involve risks and
uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements. The following risk factors should
be considered carefully in addition to the other information presented in this
report. Factors that might cause such differences include, but are not limited
to, the following:
RISKS ASSOCIATED WITH OUR BUSINESS
IF WE ACQUIRE ANY COMPANIES OR TECHNOLOGIES IN THE FUTURE, SUCH COMPANIES AND
TECHNOLOGIES COULD PROVE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS.
22
We intend to acquire or make investments in complementary companies,
businesses, assets and/or technologies in the future. We have not made any
acquisitions or investments to date, and therefore, our ability to make
acquisitions or investments is unproven. Acquisitions and investments involve
numerous risks, including:
o inability to generate sufficient revenue or growth in revenue or
to offset acquisition or investment costs;
o difficulties in integrating operations, technologies, service
and personnel;
o diversion of financial and management resources from existing
operations;
o risk of entering new markets; and
o potential loss of key employees;
Acquisitions could also require us to record substantial amounts of
goodwill and other intangible assets. Any future impairment of such goodwill
along with the amortization of other intangible assets, would adversely affect
our operating results. In addition, if we finance acquisitions by issuing
convertible debt or equity securities our existing stockholders may be diluted,
which could affect the market price of our stock. If we finance such
acquisitions with bank debt or high yield debt, these arrangements would likely
impose substantial operating covenants on us and result in interest expense that
could adversely affect our business and operating results. As a result, if we
fail to properly evaluate and execute any future acquisitions or investments,
our business and operating results may be materially harmed.
OUR GROWTH COULD STRAIN OUR PERSONNEL AND INFRASTRUCTURE RESOURCES. IF WE ARE
UNABLE TO IMPLEMENT APPROPRIATE CONTROLS AND PROCEDURES TO MANAGE OUR GROWTH, WE
MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.
As we implement our business plan we may experience a period of rapid
growth in our headcount and operations, which may place a significant strain on
our management, administrative, operational and financial infrastructure.
Our success will depend in part upon the ability of our senior
management to manage this growth effectively. To do so, we must continue to
hire, train and manage new employees as needed. If our new hires perform poorly,
if we are unsuccessful in hiring, training, managing and integrating these new
employees, or if we are not successful in retaining our existing employees, our
business may be harmed. To manage the expected growth of our operations and
personnel, we will need to continually improve our operational, financial and
management controls and our reporting systems and procedures. The additional
headcount and capital investments we are adding will increase our cost base,
which will make it more difficult for us to offset any future revenue shortfalls
by offsetting expense reductions in the short term. If we fail to successfully
manage our growth we will be unable to execute our business plan.
23
THE MARKET IN WHICH WE PARTICIPATE IS INTENSELY COMPETITIVE AND, IF WE DO NOT
COMPETE EFFECTIVELY, OUR OPERATING RESULTS COULD BE HARMED.
The market for telecommunications solutions, including local, long
distance, data and Internet products and services, is intensely competitive and
rapidly changing. Barriers to entry into this market have increased due to
regulatory changes and increased costs of doing business with the Incumbent
Local Exchange Carriers (ILECs), but these barriers have been offset by
reductions in costs for bandwidth and the subsequent development of Voice over
Internet Protocol (VoIP), which has allowed new competition to arise in the
telephone services arena.
Many of our competitors are larger and have more resources than we do.
With the introduction of new technologies and market entrants, we expect
competition to intensify in the future. Many of our current and potential
competitors enjoy substantial competitive advantages, such as greater name
recognition, longer operating histories, larger research and development budgets
and marketing budgets as well as substantially greater financial, technical and
other resources. In addition, many of our current and potential competitors have
access to larger customer bases and have more extensive marketing and
distribution arrangements with resellers, distributors and OEMs than we do. As a
result, our competitors may be able to respond more effectively than we can to
new or changing opportunities, technologies, standards or customer requirements.
Furthermore, because of these advantages, even if we develop products that are
more effective than the products that our competitors offer, potential customers
might accept competitors' products in lieu of purchasing our products or
services.
We face competition from businesses that develop their own VoIP and
other Internet based telecommunications services, as well as from ILECs who have
achieved regulatory relief from the Telecommunications Act of 1996, and who have
begun to charge the Company more for wholesale prices and in some cases
eliminated the wholesale opportunity based on the size of the market. Our
current and potential principal competitors include:
o Other Competitive Local Exchange (CLECs) providers who provide
many of the same telecommunications products and services that
we do. Some examples of CLECs are: XO Communications, Xspedius,
Logix Communications and McLeod Telecom; ILECs such as SBC
Communications,Verizon, Qwest and Bell South who are the largest
provider of local, long distance and Internet services to
businesses;
o VoIP providers such as Vonage, Covad and mPower who can deliver
local and long distance services over an Internet connection.
WE ARE DEPENDENT ON OUR MANAGEMENT TEAM SUCH THAT THE LOSS OF ANY KEY MEMBER OF
THIS TEAM MAY PREVENT US FROM IMPLEMENTING OUR BUSINESS PLAN IN A TIMELY MANNER.
Our success depends largely upon the continued services of our executive
officers and other key personnel. We have entered into employment agreements
with many of our employees. These agreements provide that the employees may
discontinue their employment with us after providing us with little notice of
their decision (typically one month). As a result, our employees could terminate
their employment with us at any time without penalty and go to work for one of
24
our competitors. We believe that we have offset this risk to some degree by
maintaining a key person life insurance policy on Ivan Zweig, the CEO of the
Company. Nonetheless, the loss of one or more of our key employees could
seriously harm our business.
OUR MANAGEMENT TEAM WAS ONLY RECENTLY FORMED, AND OUR SUCCESS DEPENDS ON ITS
ABILITY TO WORK TOGETHER EFFECTIVELY.
We appointed Ivan Zweig, our Chairman and Chief Executive Officer, in
January 2005. Furthermore, the majority of our senior management team has joined
us as recently as within the last 12 months. Our future success depends on the
integration of this management team and its ability to work together
effectively. If our management team fails to work together effectively, our
business could be harmed.
BECAUSE COMPETITION FOR OUR TARGET EMPLOYEES IS INTENSE, WE MAY NOT BE ABLE TO
ATTRACT AND RETAIN THE HIGHLY SKILLED EMPLOYEES WE NEED TO SUPPORT OUR PLANNED
GROWTH.
To execute our growth plan, we must attract and retain highly qualified
personnel. We may need to hire additional personnel in virtually all operations
areas, including selling and marketing, operations and technical support,
customer service and administration. We may not be successful in attracting and
retaining qualified personnel. We have from time to time in the past
experienced, and we expect to continue to experience in the future, difficulty
in hiring and retaining highly skilled employees with appropriate
qualifications. Many of the companies with which we compete for experienced
personnel have greater resources than we have. If we fail to attract new
personnel or fail to retain and motivate our current personnel, our business and
future growth prospects could be severely harmed.
WE MAY BECOME INVOLVED IN LITIGATION, WHICH COULD BE COSTLY AND TIME CONSUMING
TO DEFEND.
We may become involved in litigation such as securities class actions,
intellectual property, employment (unfair hiring or terminations) and/ or issues
pertaining to delivering E911 services, among others. For example, we may be
subject to lawsuits by parties claiming that we did not offer E911 services that
are required by law at increasingly higher standards. Parties trying to call 911
from locations that we service may not be able to complete the call based on the
fact that a T1 is a digital service and that emergencies such as fires, power
outages, or simple equipment failure could disable the ability of a person to
dial out over our local lines. Any of these parties could potentially claim that
we are interfering with the lawful conduct of their business. Although we
believe we have properly informed our customers, given them information on
backup E911 procedures, as well as paying for backup lines to be installed, risk
of litigation cannot be entirely eliminated. Litigation involves costs in
defending the action and the risk of an adverse judgment. Any resulting
litigation, with or without merit, could result in substantial costs and divert
management's attention and resources, which could seriously harm our business
and operating results.
25
RISKS ASSOCIATED WITH OUR STOCK
WE INTEND TO ATTEMPT TO RAISE ADDITIONAL FUNDS IN THE FUTURE, AND SUCH
ADDITIONAL FUNDING MAY BE DILUTIVE TO STOCKHOLDERS OR IMPOSE OPERATIONAL
RESTRICTIONS.
We intend to attempt to raise additional capital in the future to help
fund our operations either through sales of shares of our common stock or
securities convertible into shares of our common stock, through the issuances of
debt, or some combination thereof. Such additional financing may be dilutive to
our stockholders, and debt financing, if available, may involve restrictive
covenants that may limit our operating flexibility. If additional capital is
raised through the issuances of shares of our common stock or securities
convertible into shares of our common stock, the percentage ownership of our
stockholders will be reduced. Pre-equity financing stockholders may experience
additional dilution in net book value per share and any additional equity
securities may additionally have rights, preferences and privileges senior to
those of the holders of our common stock.
THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT
TO WIDE FLUCTUATIONS.
The market price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations in response to a number of factors that
are beyond our control, including:
o announcements of new products or services by our competitors;
o fluctuations in revenue from our indirect sales channels.
In addition, the market price of our common stock could be subject to
wide fluctuations in response to:
o quarterly variations in our revenues and operating expenses;
o announcements of technological innovations or new products or
services by us; and
o our technological capabilities to accommodate the future growth
in our operations or those of our customers.
In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the market price of the
stock of many Internet-related companies, and that often have been unrelated or
disproportionate to the operating performance of these companies. Market
fluctuations such as these may adversely effect the market price of our common
stock. Further, securities class action suits have been filed against companies
following periods of market volatility in the price of their securities. If such
an action is instituted against us, we may incur substantial costs and a
diversion of management attention and resources, which would seriously harm our
business, financial condition and results of operations.
IF WE EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR OPERATING RESULTS OR FAIL TO
MEET REVENUE AND EARNINGS EXPECTATIONS, OUR STOCK PRICE MAY FALL.
26
Due to our limited operating history and the unpredictability of the
telecommunications industry we may not be able to accurately forecast our future
operating results. In addition, while our expenses are to a large extent fixed
in the short term, we expect that these expenses will increase in the future.
Should we incur more rapid increases in expenses than expected we may not be
able to adjust our spending quickly enough. Factors that could cause our
quarterly financial results to fluctuate include:
o significant increases in expenses dedicated to drive the growth
of our Company, which may not yield corresponding increases in
revenue;
o changes in customer demands and needs for T1 based services;
o the introduction of competitive services and competitive pricing
of these services;
o reduced demand for our T1 based services;
o the effectiveness of future legislation in further increasing
the cost of leasing lines from the ILEC or decreasing the
ability to buy wholesale services from the ILEC;
As a result, we may not concurrently generate significantly increased
revenues and therefore our earnings may be harmed. You should not rely on
period-to-period comparisons of our historical operating results as an
indication of future performance, stability or volatility.
WE DO NOT INTEND TO PAY DIVIDENDS.
We have never declared or paid any cash dividends on our common stock.
We currently intend to retain any future profits from operations to fund growth
and do not expect to pay any dividends in the foreseeable future.
APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMITS THE TRADING
AND LIQUIDITY OF OUR COMMON STOCK WHICH MAY AFFECT THE TRADING PRICE OF OUR
COMMON STOCK.
Our common stock currently trades on the OTC Bulletin Board. Since our
common stock trades at a price below $5.00 per share, our common stock is
considered a "penny stock" and is subject to the rules and regulations of the
Securities and Exchange Commission that impose limitations upon the manner in
which our shares can be publicly traded. These regulations require the delivery,
prior to any transaction involving our stock, of a disclosure schedule
explaining the penny stock market and the associated risks. Under these
regulations, certain brokers who recommend our securities to persons other than
established customers or certain accredited investors must make a special
written suitability determination regarding such a purchaser and receive such
purchaser's written agreement to the transaction prior to sale. These
regulations may have the effect of limiting the trading activity of our common
stock and reducing the liquidity of an investment in our common stock.
27
Cautionary Statement:
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. These statements include statements regarding
intent, belief or current expectations of the Company and its management. These
forward-looking statements are not guarantees of future performance and involve
a number of risks and uncertainties that may cause the Company's actual results
to differ materially from the results discussed in these statements. Factors
that might cause such differences include, but are not limited to, those
described under the heading, "Critical Accounting Policies and Estimates"
herein, or and other factors described in the Company's future filings with the
Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICY AND ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and
Results of Operations section discusses our condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America as promulgated by the Public
Company Accounting Oversight Board. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. On an ongoing basis, management evaluates its estimates and judgments,
including those related to revenue recognition, accrued expenses, financing
operations, and contingencies and litigation. Management bases its estimates and
judgments on historical experience and on various other factors that are
believed to be reasonable under the circumstances, the results of which form the
basis for 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 and conditions. The most significant
accounting estimates inherent in the preparation of our financial statements
include estimates as to the appropriate carrying value of certain assets and
liabilities which are not readily apparent from other sources. These accounting
policies are described at relevant sections in this discussion and analysis and
in the condensed consolidated financial statements included in this quarterly
report.
ITEM 3. CONTROLS AND PROCEDURES
The term "disclosure controls and procedures" is defined in Rules
13(a)-15e and 15(d) - 15(e) of the Securities Exchange Act of 1934, as amended
(the Exchange Act). Our Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of our disclosure controls and procedures as of
September 30, 2005. They have concluded that, as of September 30, 2005 that our
disclosures were effective to ensure that:
1) That information required to be disclosed by the Company in
reports that it files or submits under the act is recorded,
processed, summarized and reported, within the time periods
specified in the Commissions' rules and forms, and
2) Controls and procedures are designed by the Company to ensure
that information
28
required to be disclosed by IElement Corporation and its
subsidiary, iElement Inc., in the reports it files or submits
under the Act is accumulated and communicated to the issuer's
management including the Chief Executive Officer and the Chief
Financial Officer or persons performing similar functions, as
appropriate to allow timely decisions regarding financial
disclosure.
This term refers to the controls and procedures of a Company that are designed
to ensure that information required to be disclosed by a Company in the reports
that it files under the Exchange Act is recorded, processed, summarized and
reported within the required time periods. Our Chief Executive Officer and Chief
Financial Officer have evaluated the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this quarterly report.
They have concluded that, as of September 30, 2005 our disclosure and procedures
were effective in ensuring that required information will be disclosed on a
timely basis in our reports filed under the exchange act.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On July 28, 2005 the Company issued 1,596,311 shares of its common stock
at a price of $.045 per share to Quality Sound Communications, Inc. ("QSC"),
pursuant to Regulation D, Rule 506 and 4(2) of the Securities Act of 1933 as
payment against an Accounts Payable balance $71,834 in arising from sales
commissions owed to QSC.
On August 8, 2005 the Company issued 30,219 shares of its common stock
at a price of $.045 per share to QSC pursuant to Regulation D, Rule 506 and 4(2)
of the Securities Act of 1933 as payment against an Accounts Payable balance
$1,360 in arising from sales commissions owed to QSC.
On September 8, 2005 the Company issued options for the right to
purchase 325,000 shares of its common stock to employees of the Company,
pursuant to Regulation D, Rule 506 and 4(2) of the Securities Act of 1933, as
compensation. The options have an exercise price of $.01 and vest regularly over
a period of three years.
ITEM 3. DEFAULTS ON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
29
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as exhibits to this report.
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
3.1.1 Articles of Incorporation of the Company (incorporated by
reference to the Company's Registration Statement on Form 10-SB
12G/A filed on February 3, 2000).
3.1.2 Certificate of Amendment to Articles of Incorporation of the
Company (incorporated by reference to the Company's Schedule 14A
filed on October 9, 2001).
3.1.3 Certificate of Amendment to Articles of Incorporation of the
Company (incorporated by reference to the Company's Schedule 14C
filed on March 26, 2003).
3.1.4 Certificate of Amendment to Articles of Incorporation of the
Company (incorporated by reference to the Company's Schedule 14C
filed on Aug 1, 2005).
3.2.1 Bylaws of the Company (incorporated by reference to the
Company's Registration Statement on Form 10-SB 12G/A filed on
February 3, 2000).
3.2.2 Amendment to Bylaws of the Company (incorporated by reference to
the Company's Schedule 14A filed on February 1, 2001).
3.2.3 Amendment to Bylaws of the Company (incorporated by reference to
the Company's Schedule 14C filed on Aug 1, 2005).
31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF THE COMPANY REQUIRED
BY RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER OF THE COMPANY REQUIRED
BY RULE 13A-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER OF THE COMPANY REQUIRED BY RULE 13A-14(B) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
30
(b) Reports on Form 8-K.
During the period ended September 30, 2005, the Company filed the following
reports on Form 8-K:
- ---------------------------- ---------------------------------------------------
DATE REPORT FILED ITEMS REPORTED
- ---------------------------- ---------------------------------------------------
August 8, 2005 Item 5.02, Departure of Directors or Principal
Officers; Election of Directors; Appointment of
Principal Officers
- ---------------------------- ---------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IELEMENT CORPORATION
DATE: NOVEMBER 14, 2005 /s/ IVAN ZWEIG
--------------------------------
Ivan Zweig
Chief Executive Officer
31