-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SmOtDveOJam6Vi7Q4RuMlq+zUcKZU5LnPi7UX/jfC16qkEUqEUkxI3XxA3wI2lTD Xr2Nq62gYg0HOAKBQc6Tlg== 0001188112-06-000720.txt : 20060316 0001188112-06-000720.hdr.sgml : 20060316 20060316161837 ACCESSION NUMBER: 0001188112-06-000720 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050930 FILED AS OF DATE: 20060316 DATE AS OF CHANGE: 20060316 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IElement CORP CENTRAL INDEX KEY: 0001043105 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-BUSINESS SERVICES, NEC [7389] IRS NUMBER: 760270295 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-29331 FILM NUMBER: 06692220 BUSINESS ADDRESS: STREET 1: 17194 PRESTON ROAD STREET 2: SUITE 102 PMB 341 CITY: DALLAS STATE: TX ZIP: 75248 BUSINESS PHONE: 214-254-3440 MAIL ADDRESS: STREET 1: 17194 PRESTON ROAD STREET 2: SUITE 102 PMB 341 CITY: DALLAS STATE: TX ZIP: 75248 FORMER COMPANY: FORMER CONFORMED NAME: MAILKEY CORP DATE OF NAME CHANGE: 20040607 FORMER COMPANY: FORMER CONFORMED NAME: GLOBAL DIVERSIFIED ACQUISITION CORP DATE OF NAME CHANGE: 20030625 FORMER COMPANY: FORMER CONFORMED NAME: SUTTON TRADING SOLUTIONS INC DATE OF NAME CHANGE: 20020925 10QSB/A 1 t10qsba-9388b.txt 10QSB/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB/A (AMENDMENT NO. 1) (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 ------------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Nevada 76-0270295 ---------------------------------- ---------------------------------- (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 17194 Preston Rd. Suite 102 PMB 341 Dallas, TX 75248 -------------------------------------------------------------- (Address of Principal Executive Offices) 1-214-254-3440 -------------------------------------------------------------- (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 --------------- 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 --------------- 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 --------------- TOTAL CURRENT LIABILITIES 3,527,000 --------------- LONG-TERM LIABILITIES: Notes payable, net of current portion 357,513 --------------- TOTAL LONG-TERM LIABILITIES 357,513 --------------- TOTAL LIABILITIES 3,884,513 --------------- 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) --------------- 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.
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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.
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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) ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) $ (536,024) $ (326,568) ------------- ------------- 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) ------------- ------------- Total adjustments 171,099 263,311 ------------- ------------- NET CASH (USED IN) OPERATING ACTIVITIES (364,925) (63,257) ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of fixed assets (23,304) (60,409) Write off of fixed assets - 3,190 ------------- ------------- NET CASH (USED IN) INVESTING ACTIVITIES (23,304) (57,219) ------------- ------------- 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 ------------- ------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 117,886 157,213 ------------- ------------- 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) ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (270,343) 36,737 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 340,321 29,267 ------------- ------------- 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: MARCH 16, 2006 /s/ IVAN ZWEIG -------------------------------- Ivan Zweig Chief Executive Officer 31 EX-31.1 2 tex31_1-9388b.txt EX-31.1 31.1 Certification of the Chief Executive Officer and Chief Financial Officer of IElement Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Ivan Zweig, certify that: 1. I have reviewed this amended quarterly report on Form 10-QSB of IElement Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 16, 2006 /s/ Ivan Zweig - ----------------- Ivan Zweig Chief Executive Officer /s/ Ivan Zweig - ----------------- Ivan Zweig Chief Financial Officer EX-32.1 3 tex32_1-9388b.txt EX-32.1 EXHIBIT 32.1 CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) In connection with the Quarterly Report of IElement Corporation, a Nevada corporation (the "Company"), on Form 10-QSB for the period ended September 30, 2005 as filed with the Securities and Exchange Commission (the "Report"), Ivan Zweig, Chief Executive Officer and Chief Financial Officer of the Company, do hereby certify, pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. ss. 1350), that to their knowledge: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ IVAN ZWEIG - ----------------------------------------- By: Ivan Zweig Its: Chief Executive Officer, Director March 16, 2006 /s/ IVAN ZWEIG - ----------------------------------------- By: Ivan Zweig Its: Chief Financial Officer, Director March 16, 2006 [A signed original of this written statement required by Section 906 has been provided to IElement Corporation and will be retained by IElement Corporation and furnished to the Securities and Exchange Commission or its staff upon request.] -----END PRIVACY-ENHANCED MESSAGE-----