U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
NeWave, Inc.
(Exact name of small business issuer as specified in its charter)
Utah 87-0520575
---------- --------------
(state of ((IRS Employer
incorporation) I.D. Number)
404 EAST 1ST STREET, #1345
LONG BEACH, CA 90802
(Address and telephone number of principal executive offices)
(562) 983-5331
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No ___
As of March 31, 2004, the Issuer had 10,844,566 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NEWAVE, INC. AND SUBSIDIARY
TABLE OF CONTENTS
PAGE
UNAUDITED CONSOLIDATED BALANCE SHEETS 1
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS 2
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS 3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 4-5
ASSETS
March 31, December 31,
2004 2004
------------ -------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 174,124 0
Accounts receivable, net of allowance for doubtful accounts
of $0 at March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . 407,769 366,236
Loans receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,645 0
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,067 37,101
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 537,625 0
------------ -------------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 1,206,230 403,337
------------ -------------
NET PROPERTY & EQUIPMENT. . . . . . . . . . . . . . . . . . . . . . . . 199,092 205,941
------------ -------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,405,322 609,278
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
BankOverdraft. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24,913
-------------
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 268,853 329,790
Loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,726 0
Loans payable - related parties . . . . . . . . . . . . . . . . . . . . 25,000 0
------------ -------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 417,579 354703
------------ -------------
LONG TERM LIABILITIES
Notes Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 611,000 583,221
------------ -------------
Convertible debts . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,443,766 0
-------------
Debt discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (140,000) 0
------------ -------------
TOTAL LONG TERM LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 1,914,766 583221
------------ -------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,332,345 937,924
------------ -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 10,779,207 shares as of March 31, 2004. 10,779 145,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 1,788,209 0
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (1,726,011) (473,646)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT). . . . . . . . . . . . . . . . . . 72,977 -328,646
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,405,322 609,278
============ =============
Three Months Ended March 31,
2004
------------------------------
NET REVENUE . . . . . . . . . . $ 1,046,388
COST OF REVENUE . . . . . . . . 101,486
------------------------------
GROSS PROFIT. . . . . . . . . 944,902
OPERATING EXPENSES. . . . . . . 2,164,344
------------------------------
Loss from operations. . . . . . (1,219,442)
------------------------------
OTHER INCOME (EXPENSES)
Other income (expenses) . . . . (112)
------------------------------
Interest expense. . . . . . . . (12,812)
------------------------------
TOTAL OTHER INCOME
(EXPENSES). . . . . . . . . . (22,924)
------------------------------
NET LOSS. . . . . . . . . . . . 1,242,366
------------------------------
BASIC AND DILUTED LOSS
PER SHARE . . . . . . . . . . $ (0.14)
==============================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING. 8,818,846
==============================
Three
months ended
March 31, 2004
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . $ (1,242,366)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization . . . . . . . . 65,281
Issuance of stocks for directors fees. . . . . . 750,000
(Increase) / decrease in current assets:
Accounts receivable. . . . . . . . . . . . . . . (72,178)
Inventory. . . . . . . . . . . . . . . . . . . . (18,966)
Deposit and other current assets . . . . . . . . 7,875
Increase in current liabilities:
Accrued expenses and accounts payable. . . . . 214,024
----------------
NET CASH USED IN OPERATING ACTIVITIES. . . . . . (296,330)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . (8,432)
----------------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . (8,432)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft . . . . . . . . . . . . . . . . . (24,913)
Proceeds from issuance of convertible debentures 915,935
Payments on long term borrowings . . . . . . . . (462,136)
Proceeds from related party debts. . . . . . . . 25,000
Proceeds from borrowings . . . . . . . . . . . . 25,000
----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . 478,886
----------------
NET INCREASE IN CASH. . . . . . . . . . . . . . 174,124
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . -
----------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . $ 174,124
================
NEWAVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Basis of Presentation
- --------------------------------------
NeWave, Inc., formerly known as Utah Clay Technology, Inc. (together with its
subsidiary, the "Company") offers a comprehensive line of products and services
at wholesale prices through an online club membership. Additionally, the
Company creates, manages and maintains effective website solutions for
eCommerce. The Company is doing business under "Onlinesupplier.com".
NeWave. Inc. historically engaged in the mining, processing and marketing of
minerals. After experiencing losses, NeWave sold substantially all of its
assets relating to its prior operations. On December 23, 2003, NeWave, Inc.
entered into an Agreement and Plan of Reorganization with Newave dba
Onlinesupplier.com in which NeWave dba Onlinesupplier became a wholly owned
subsidiary of NeWave, Inc. The Agreement and Plan of Reorganization was
consummated on January 15, 2004.
Although from a legal perspective, NeWave, Inc. acquired NeWave dba
Onlinesupplier.com, the transaction is viewed as a recapitalization of NeWave
dba Onlinesupplier.com accompanied by an issuance of stock by NeWave
Onlinesupplier.com for the net assets of NeWave, Inc. This is because NeWave,
Inc. did not have operations immediately prior to the transaction, and following
the reorganization, NeWave Onlinesupplier.com was the operating company.
NeWave, Inc. dba Onlinesupplier.com commenced operations in August 2003;
therefore there were no operations for the three months ended March 31, 2003.
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchanges Commission for the presentation of interim financial information, but
do not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. The audited financial
statements at December 31, 2003 were filed on April 14, 2004 with the Securities
and Exchange Commission and are hereby referenced. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three-months period ended March 31,
2004 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2004.
Going Concern
- --------------
The accompanying financial statements have been prepared on a going concern
basis of accounting, which contemplates continuity of operations, realization of
assets and liabilities and commitments in the normal course of business. The
accompanying financial statements do not reflect any adjustments that might
result if the Company is unable to continue as a going concern. The Company's
losses and negative cash flows from operations might indicate that the Company
will be unable to continue as a going concern. The ability of the Company to
continue as a going concern and appropriateness of using the going concern basis
is dependent upon, among other things, profitability of future operations and
additional cash infusion.
The Company is raising capital through convertible debentures. Management
believes this will generate the additional cash required to fund the Company's
operations and allow it to meet its obligations.
Principle of Consolidation
- ----------------------------
The accompanying financial statements include the accounts of NeWave, Inc.,
formerly Utah Clay Technology, Inc. (legal acquired, the "Parent"), and its 100%
subsidiary Newave dba Onlinesupplier.com. All significant intercompany accounts
and transactions have been eliminated in the consolidation. The results for the
three months ended March 31, 2004 include the accounts of NeWave dba
Onlinesupplier.com, and the results of operations of the Parent from January 15,
2004 through March 31, 2004. No comparative results are presented for the three
months ended March 31, 2003, as NeWave dba Onlinesupplier.com was not operating
during this period.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates
- ------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying financial statements.
Significant estimates made in preparing these financial statements include the
allowance for doubtful accounts, deferred tax asset valuation allowance and
useful lives for depreciable and amortizable assets. Actual results could
differ from those estimates.
Cash Equivalents
- -----------------
The Company considers all highly liquid investments purchased with an original
maturity at date of purchase of three months or less to be cash equivalents.
Cash and cash equivalents are carried at cost, which approximates market value.
Accounts Receivable
- --------------------
The Company maintains an allowance for doubtful accounts for estimated losses
that may arise if any of its customers are unable to make required payments.
Management specifically analyzes the age of customer balances, historical bad
debt experience, customer credit-worthiness, and changes in customer payments
terms when making estimates of the uncollectability of the Company's trade
accounts receivable balances. If the Company determines that the financial
conditions of any of its customers deteriorated, whether due to customer
specific or general economic issues, increase in the allowance may be made.
Accounts receivable are written off when all collection attempts have failed.
Property & Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets,
generally three to five years. Leasehold improvements are amortized over the
remaining lease term at the date of installation.
Fair Value of Financial Instruments
- ---------------------------------------
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried at
cost, which approximates their fair value, due to the relatively short maturity
of these instruments. As of March 31, 2004 and December 31, 2003, the Company's
notes payable have stated borrowing rates that are consistent with those
currently available to the Company and, accordingly, the Company believes the
carrying value of these debt instruments approximates their fair value.
Revenue Recognition
- --------------------
The Company recognizes income when the products are shipped, and when the
service is provided. The Company applies the provisions of SEC Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB No. 101 outlines the basic criteria that must be met
to recognize revenue and provides guidance for the disclosure of revenue
recognition policies. The Company's revenue recognition policy for sale of
products is in compliance with SAB No. 104. Revenue from the sale of products
is recognized when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed and collectibility is reasonably
assured. Generally, the Company extends credit to its customers and does not
require collateral. The Company performs ongoing credit evaluations of its
customers and historic credit losses have been within management's expectations.
Net Loss Per Share
- ---------------------
Net loss per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Convertible debentures
may have a dilutive effect on the Company's earnings per share in the future but
are not included in the calculation for the three months ended March 31, 2004
because they have an antidilutive effect in these periods.
Advertising Costs
- ------------------
Advertising and promotional materials are expensed when incurred. Total
advertising costs were $28,500 for the three months ended March 31, 2004.
Stock-Based Compensation
- -------------------------
The Company accounts for employee stock option grants in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretations (APB 25), and has adopted the "Disclosure
only" alternative described in Statement of Financial Accounting Standards,
(SFAS) No. 123, Accounting for Stock-Based Compensation.
Income Taxes
- -------------
The Company uses the liability method of accounting for income taxes. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to the financial statements carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. The measurement of deferred tax assets and liabilities is based
on provisions of applicable tax law. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance based on the portion of tax
benefits that are more likely than not, not to be realized based on available
evidence.
2. NOTES PAYABLE
On March 9, 2004, the Company was issued a revolving credit facility by related
parties totaling $50,000. The Revolver carries an interest rate or 1% per
month, and a minimum payment is due to each month of $500.
On February 4, 2004, the Company issued a Debenture to a related party totaling
$155,000. The term of the debenture was 14 calendar days. The debenture was
paid in full and there is no balance outstanding.
3. CONVERTIBLE DEBENTURE
During the quarter ended March 31, 2004, the Company issued a total of $611,000
worth of 6%, 5-Year Term, Convertible Debentures (the "Debentures"),
The Debentures shall pay six percent (6%) cumulative interest and are subject to
automatic conversion at the end of five (5) years from the date of issuance at
which time all Debentures outstanding will be automatically converted based upon
the formula set forth in the agreement. The Debentures convert at the lower of
a) 75% of the lowest closing bid price of the common stock during the 15 trading
days immediately preceding conversion or b) 100% of the average of the five
lowest closing bid prices for the 20 trading days immediately following the
first reverse split in the stock price. In accordane with EITF 00-27 98-5, the
beneficial conversion feature on the issuance of the convertible debenture for
the quarter ended March 31, 2004 has been recorded in the amount of $150,000 of
which $10,000 was expensed.
5. COMMITMENTS AND CONTINGENCIES
Legal Matters
--------------
The Company is involved in certain legal actions and claims arising in the
ordinary course of business. It is the opinion of management, that such
litigation and claims will be resolved without a material effect on the
Company's financial position.
6. RECAPITALIZATION
On January 15, 2004, the Company consummated an Agreement and Plan of
Reorganization with NeWave dba Onlinesupplier.com, a Nevada Corporation,
pursuant to which the Onlinesupplier.com became a wholly owned subsidiary of
NeWave, Inc.
All the shares of NeWave dba Onlinesupplier.com were acquired by the Parent in
exchange for 100% of the common shares of the Parent. In addition, the Company
issued 94 shares of Class C Convertible Preferred Stock to the shareholders of
NeWave, Inc. (Parent), and 1 share of Class C Preferred Stock to Dutchess
Private Equities Fund L.P. as an incentive for an investment of a convertible
debenture in the amount of $250,000 cash and the release of all outstanding debt
of UCT with the exception of $165,000 debt related to certain convertible
debentures of UCT issued in November and December 2001. 14 shares of 95 total
Series C Preferred shares were issued to Dutchess Advisors, LLC. Thus, Dutchess
Private Equity Fund, L.P. and Dutchess Advisors, LLC together own 15 shares of
the Class C Preferred Stock of the Registrant. The 95 Class C Preferred Stock
shares were converted into 9,500,000 shares of the Company's common stock after
giving effect to reverse stock split.
The acquisition of Newave dba Onlinesupplier.com was accounted for as a
recapitalization of NeWave dba Onlinesupplier.com followed by an issuance of
stock by NeWave dba Onlinesupplier.com for the assets of the Parent.
7. EQUITY
Common Stock
- -------------
During the quarter ended March 31, 2004, the following common stock transactions
were made:
The Company issued 530,000 shares of the Company's common stock for services
amounting $585,500.
The Company issued 750,000 shares of the Company's common stock for board
compensation amounting to $750,000.
The Company issued 76,505 shares of the Company's common stock for conversion of
$165,000 issued debenture.
The Company issued 172,500 shares of the Company's common stock for an incentive
for an investment amounting to $172,500.
The Company effectuated the 344.33 to 1 reverse stock split on February 9, 2004.
All shares have been stated to retroactively affect this reverse stock split.
Preferred Stock
- ----------------
Effective September 30, 1996, the Company authorized the following:
(a) Authorization of 95 shares of convertible preferred series C Stock. Each
shares of Series C Preferred is convertible into 100,000 of the Company's common
stock. On February 6, 2004, the Holders of the Series C elected to convert all
outstanding Preferred Shares into 9,500,000 shares of common stock after giving
effect to the reverse stock split, at par value of $0.001.
8. STOCK OPTIONS
The Company has a stock option plan, under which options granted may be
"employee incentive stock option" as defined under Section 422 of the Internal
revenue code or non-qualified stock options, as determined by the option
committee of the board of directors at the time of grant of an option. The plan
enables the option committee of the board of directors to grant up to 500,000
stock options to employees and consultants from time to time. The Option
Committee has granted no options. The date of grant of an Option shall, for all
purposes, be the date on which the Option Committee makes the determination
granting such Option, or such other date as is determined by the Option
Committee. The Company has not granted any option under the plan, through March
31, 2004.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including,
without limitation, statements concerning possible or assumed future results of
operations and those preceded by, followed by or that include the words
"believes," "could," "expects," "intends" "anticipates," or similar expressions.
Our actual results could differ materially from these anticipated in the
forward-looking statements for many reasons including: materially adverse
changes in economic conditions in the markets that we and our subsidiary serve;
competition from others in the markets and industry segments occupied by us and
our subsidiary; the ability to enter, the timing of entry and the profitability
of entering new markets; greater than expected costs or difficulties related to
the integration of the businesses acquired by our subsidiary; and other risks
and uncertainties as may be detailed in our 10-KSB for the year ended December
31, 2003 and from time to time in our public announcements and SEC filings.
Although we believe the expectations reflected in the forward-looking statements
are reasonable, they relate only to events as of the date on which the
statements are made, and our future results, levels of activity, performance or
achievements may not meet these expectations. We do not intend to update any of
the forward-looking statements after the date of this document to conform these
statements to actual results or to changes in our expectations, except as
required by law.
The discussion and financial statements contained herein are for the three
months ended March 31, 2004 and March 31, 2003. The following discussion should
be read in conjunction with our financial statements and the notes thereto
included herewith.
OVERVIEW
We incorporated in the State of Utah on March 1, 1994 as Utah Clay Technology,
Inc. From our formation until January 15, 2004, our business plan included:
(1) locating kaolin deposits in Utah;
(2) obtaining the legal rights to these deposits;
(3) conducting exploratory operations;
(4) testing the extracted minerals in the laboratory; and
(5) selling samples of the processed form of our kaolin to a commercial company
for market evaluation.
Although we did obtain certain legal rights to properties possibly containing
kaolin, due to a lack of capital, we never commenced mining operations. As a
result, we have had no revenues since our inception. On January 15, 2004, we
abandoned the business plan for Utah Clay Technologies, Inc. On the same date,
pursuant to an Agreement and Plan of Reorganization with NeWave, Inc., a Nevada
corporation, Utah Clay Technologies, Inc. changed its name to NeWave, Inc. and
OnlineSupplier.com became our wholly-owned subsidiary. NeWave, Inc. owns and
operates an online membership club that offers a comprehensive line of products
and services at wholesale prices through its membership program. As a result of
this change in our focus and direction, the entire former management team and
board of directors resigned and we employed a new management team and appointed
a new board of directors.
On January 2, 2004, we changed our name to NeWave, Inc. We acquired our
operating subsidiary, Onlinesupplier.com, on January 15, 2004 and its operations
are therefore not reflected on our financial statements for the fiscal year
ending December 31, 2003. We did not generate any revenues in the fiscal year
ending December 2003.
Through our wholly-owned subsidiary, Onlinesupplier.com, we offer a
comprehensive line of products and services at wholesale prices through our
online club membership. Additionally, our technology allows both large complex
organizations and small stand-alone businesses to create, manage, and maintain
effective website solutions for eCommerce. Onlinesupplier.com's web address is
www.onlinesupplier.com.
----------------------
Our integrated suite of electronic commerce products enables individuals and
businesses to conduct electronic commerce over the Internet at affordable price
levels. Our products integrate transaction processing, accounting and financial
systems, customer relationship management, advertising, merchant processing and
a wide array of wholesale products. Our suite of products is accessed by our
customers through our online club membership. Through our membership program, we
charge our members a monthly fee for unlimited access to our products and
services.
Our website offers wholesale merchandise in categories such as:
- - Consumer Electronics
- - Home, garden and outdoor living products
- - Kitchenware and housewares
- - Sports and Outdoor Equipment
- - Automobile Accessories
- - Tools and hardware
- - Jewelry
- - Travel Accessories
Furthermore, our online membership program provides the following services and
capabilities:
- - Automated Webstore Generation and Customization
- - Merchant Processing Capabilities
- - Domain Name Registration
- - Online Training Modules
We are a publicly traded company, which trades on the Over-the-Counter Bulletin
Board of the National Quotation Service under the ticker symbol "NWAV."
The address of our principal executive office is 404 East 1st Street, #1345,
Long Beach, California 90802. Our telephone number is (562) 983-5331. Our
website address is www.newave-inc.com. Information contained on our website does
not constitute part of this report and our address should not be used as a
hyperlink to our website.
THREE MONTHS ENDED MARCH 31, 2004 AS COMPARED TO THREE MONTHS ENDED
MARCH 31, 2003
Results of Operations
- -----------------------
We generated consolidated revenues of $1,046,388 for the three months ended
March 31, 2004 as compared to $0 for the three months ended March 31, 2003. The
increase in revenue is due the to acquisition on NeWave, Inc.
Net Revenues
- -------------
We had net revenues of $944,902 for the three months ended March 31, 2004 as
compared to $0 for the three months ended March 31, 2003. All of our revenue in
the current period is from our wholly-owned subsidiary Onlinesupplier.com. The
increase in revenues is due to the acquisition of NeWave, Inc.
Cost of Revenue
- -----------------
We incurred Cost of Revenue of $101,486 for the three months ended March 31,
2004 as compared to $0 for the three months ended March 31, 2003.
General, Administrative and Selling Expenses
- ------------------------------------------------
We incurred costs of $2,164,344 for the three months ended March 31, 2004 as
compared to $79,701 for the three months ended March 31, 2003. The increase in
General, Administrative and Selling Expenses in the current period primarily due
to of the acquisition of NeWave, Inc.
Net loss before income taxes and loss on discontinued segments
- -----------------------------------------------------------------------
We had a loss before taxes and discontinued segments of ($1,242,366) for the
three months ended March 31, 2004, as compared to a loss of ($94,392) for the
three months ended March 31, 2003. The increase in net loss before income taxes
is due the acquisition of NeWave, Inc.
Net loss
- ---------
We had a net loss of ($1,242,366) for the three months ended March 31,
2004 as compared to a net loss of ($94,417) for the three months ended
March 31, 2003.
Basic and diluted loss per share
- -------------------------------------
Our basic and diluted loss per share for the three months ended March 31, 2004
was ($0.14) as compared to ($.003) for the three months ended March 31, 2003.
Liquidity and Capital Resources
- ----------------------------------
We must continue to raise capital to fulfill our plan of acquiring companies and
assisting in the development of those companies internally. If we are unable to
raise any additional capital our operations will be curtailed. As of March 31,
2004, we had total Current Assets of $1,206,230 and Current Liabilities of
$417,578. Cash and cash equivalents were $174,124 as compared to $0 at March 31,
2003. Our Stockholder's Deficit at March 31, 2004 was $72,977.
We had a net usage of cash due to operating activities in March 31, 2004 of
$(296.330). We had net cash provided by financing activities of $478,886 and
$20,536 in the three months ended March 31, 2004 and 2003, respectively. We had
$25,000 from borrowings in the period ended March 31, 2004 as compared to $0 in
the corresponding period last year.
Financing Activities
- ---------------------
On January 5, 2004, we issued convertible debentures of $250,000 to Dutchess
Private Equities Fund, LP. The debentures convert on January 5, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of our common stock at the lesser of (i) 75% of the
lowest closing bid price during the 15 trading days prior to the Conversion Date
or (ii) 100% of the average of the five lowest closing bid prices for the 30
trading days immediately following the Closing Date of the Transaction. The
convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at our option, at the time of conversion.
On January 25, 2004, we issued convertible debentures of $50,000 to Dutchess
Private Equities Fund, LP. The debentures convert on January 25, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of our common stock at the lesser of (i) 75% of the
lowest closing bid price during the 15 trading days prior to the Conversion Date
or (ii) 100% of the average of the five lowest closing bid prices for the 30
trading days immediately following the Closing Date of the Transaction. The
convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at our option, at the time of conversion.
On January 26, 2004, we issued convertible debentures of $50,000 to eFund
Capital Partners. The debentures convert on January 25, 2009. The holder of the
debentures can convert the face value of the debenture plus accrued interest
into shares of our common stock at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the five lowest closing bid prices for the 30 trading days
immediately following the Closing Date of the Transaction. The convertible
debentures shall pay 6% cumulative interest, payable in cash or stock at our
option, at the time of conversion.
On February 19, 2004, we issued convertible debentures of $305,000 to eFund
Capital Partners. The debentures convert on February 19, 2009. The holder of the
debentures can convert the face value of the debenture plus accrued interest
into shares of our common stock at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the five lowest closing bid prices for the 30 trading days
immediately following the Closing Date of the Transaction. The convertible
debentures shall pay 6% cumulative interest, payable in cash or stock at our
option, at the time of conversion.
On March 3, 2004, we issued convertible debentures of $28,000 to Preston
Capital Partners, LLC. The debentures convert on March 3, 2009. The holder of
the debentures can convert the face value of the debenture plus accrued interest
into shares of our common stock at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the five lowest closing bid prices for the 30 trading days
immediately following the Closing Date of the Transaction. The convertible
debentures shall pay 6% cumulative interest, payable in cash or stock at our
option, at the time of conversion.
On March 8, 2004, we issued 10,000 shares each to (i) Dutchess Private Equities
Fund, II, LP and (ii) eFund Capital Partners as an inducement for an investment.
The shares were valued at 3.32 per share.
The securities issued in the foregoing transactions were offered and sold in
reliance upon exemptions from the Securities Act of 1933 ("Securities Act")
registration requirements set forth in Sections 3(b) and 4(2) of the Securities
Act, and any regulations promulgated thereunder, relating to sales by an issuer
not involving any public offering. No underwriters were involved in the
foregoing sales of securities.
Subsidiaries
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As of March 31, 2004, we have one subsidiary, Onlinesupplier.com, Inc.
Item 3. Controls and Procedures
We have established disclosure controls and procedures to ensure that material
information relating to us, including our consolidated subsidiaries, is made
known to the officers who certify our financial reports and to other members of
senior management and the Board of Directors.
Evaluation of disclosure controls and procedures. Our management, with the
participation of our principal executive officer and principal financial
officer, has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this Quarterly Report on Form 10-QSB. Based on this
evaluation, our principal executive officer and principal financial officer
concluded that these disclosure controls and procedures are effective and
designed to ensure that the information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the requisite time periods.
Changes in internal controls. There was no change in our internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Securities Exchange Act of 1934, as amended) that occurred during our last
fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On February 20, 2004, Newave, Inc. initiated legal proceedings in Superior
Court, County of Santa Barbara, Anacapa Division against Paydirt, L.P., a Utah
limited partnership, alleging causes of action for usury, unfair business
practices and unfair competition in connection with loan agreements entered into
with Paydirt, LP in September and November 2003. This action is entitled Newave,
Inc. et al. v. Paydirt, LP, Case No. 01156046 (S.B.S.C.). The parties to the
lawsuit dispute whether Newave, Inc. currently owes Paydirt, LP the sum of
$225,829. Paydirt, LP retained Los Angeles counsel, who removed Newave's
superior court action to the United States District Court, Central District of
California. On April 5, 2004, Paydirt, LP filed a motion to dismiss Newave's
action. While this motion was pending, Paydirt, LP initiated an action in the
State of Utah, Washington County entitled Paydirt, LP v. Newave, Inc. et al.,
Civil No. 040500597 (Wash. County, Utah). On May 3, 2004, the District Court
dismissed Newave's complaint without prejudice to Newave filing the action in
Utah. Newave filed a notice of appeal to the United States Court of Appeal for
the Ninth Circuit, which currently is pending. Newave intends to file a
motion to stay the Utah state court action pending the Ninth Circuit's
determination of Newave's appeal.
We believe that there are no other claims or litigation pending, the outcome of
which could have a material adverse effect on our financial condition or
operating results.
Item 2. Changes in Securities
(a) Amendment to the Certificate of Incorporation
On February 9, 2004, we filed a certificate of amendment to our certificate of
incorporation wherein (i) our name was changed to NeWave, Inc. and (ii) we
effected a 345.33:1 reverse split. Shareholders received 1 share of NeWave for
every 345.33 outstanding shares of Utah Clay Technology, Inc.
(b) Not Applicable
(c) Recent Sales of Unregistered Securities
On January 5, 2004, we issued convertible debentures of $250,000 to Dutchess
Private Equities Fund, LP. The debentures convert on January 5, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of our common stock at the lesser of (i) 75% of the
lowest closing bid price during the 15 trading days prior to the Conversion Date
or (ii) 100% of the average of the five lowest closing bid prices for the 30
trading days immediately following the Closing Date of the Transaction. The
convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at our option, at the time of conversion.
On January 25, 2004, we issued convertible debentures of $50,000 to Dutchess
Private Equities Fund, LP. The debentures convert on January 25, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of our common stock at the lesser of (i) 75% of the
lowest closing bid price during the 15 trading days prior to the Conversion Date
or (ii) 100% of the average of the five lowest closing bid prices for the 30
trading days immediately following the Closing Date of the Transaction. The
convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at our option, at the time of conversion.
On January 26, 2004, we issued convertible debentures of $50,000 to eFund
Capital Partners. The debentures convert on January 25, 2009. The holder of the
debentures can convert the face value of the debenture plus accrued interest
into shares of our common stock at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the five lowest closing bid prices for the 30 trading days
immediately following the Closing Date of the Transaction. The convertible
debentures shall pay 6% cumulative interest, payable in cash or stock at our
option, at the time of conversion.
On February 19, 2004, we issued convertible debentures of $305,000 to eFund
Capital Partners. The debentures convert on February 19, 2009. The holder of the
debentures can convert the face value of the debenture plus accrued interest
into shares of our common stock at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the five lowest closing bid prices for the 30 trading days
immediately following the Closing Date of the Transaction. The convertible
debentures shall pay 6% cumulative interest, payable in cash or stock at our
option, at the time of conversion.
On March 3, 2004, we issued convertible debentures of $28,000 to Preston
Capital Partners, LLC. The debentures convert on March 3, 2009. The holder of
the debentures can convert the face value of the debenture plus accrued interest
into shares of our common stock at the lesser of (i) 75% of the lowest closing
bid price during the 15 trading days prior to the Conversion Date or (ii) 100%
of the average of the five lowest closing bid prices for the 30 trading days
immediately following the Closing Date of the Transaction. The convertible
debentures shall pay 6% cumulative interest, payable in cash or stock at our
option, at the time of conversion.
On March 8, 2004, we issued 10,000 shares each to (i) Dutchess Private Equities
Fund, II, LP and (ii) eFund Capital Partners as an inducement for an investment.
The shares were valued at 3.32 per share.
The securities issued in the foregoing transactions were offered and sold in
reliance upon exemptions from the Securities Act of 1933 ("Securities Act")
registration requirements set forth in Sections 3(b) and 4(2) of the Securities
Act, and any regulations promulgated thereunder, relating to sales by an issuer
not involving any public offering. No underwriters were involved in the
foregoing sales of securities.
(d) Not Applicable
(e) Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
We submitted the Amendment to the Certificate of Incorporation to the
shareholders on Janaury 20, 2004. Of the 198,668,524 shares outstanding as of
the record date, the majority shareholders, consisting of 160,345,416 shares
voted to ratify the Amendments and were effective as of January 2, 2004.
Item 5. Other Information.
On March 18, 2004, our Board of Director's unanimously voted to appoint Pacific
Stock Transfer as our transfer agent located at: 500 E. Warm Springs Road,
Suite 240, Las Vegas NV 89119, (702) 361-3033
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
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2.1 Agreement and Plan of Reorganization between Utah Clay Technologies, Inc.
and NeWave, Inc. (previously filed as Exhibit 2.1 to the Registrant's 8-K filed
on February 12, 2004 and incorporated herein by reference).
3.1 Articles of Incorporation for Utah Clay Technologies, Inc. (previously filed
as Exhibit 3(i) to the Registrant's Form SB-2/A on April 11, 2000 and
incorporated herein by reference.)
3.2 Article of Amendment to Articles of Incorporation.
3.3 Bylaws for Utah Clay Technologies, Inc.(previously filed as exhibit 3(ii) to
the Registrant's Form SB-2/A on April 11, 2000 and incorporated herein by
reference).
4.1 Debenture Agreement between the Registrant and Dutchess Private Equities
Fund dated January 5, 2004.
4.2 Debenture Agreement between the Registrant and Dutchess Private Equities
Fund dated January 25, 2004.
4.3 Debenture Agreement between the Registrant and eFund Capital Partners, LLC
dated January 26, 2004.
4.4 Debenture Agreement between the Registrant and eFund Capital Partners, LLC
dated February 19, 2004.
4.5 Debenture Agreement between the Registrant and Preston Capital Partners
dated March 3, 2004.
10.1 Registration Rights Agreement between the Registrant and Dutchess Private
Equities Fund, LP, dated January 14, 2004.
10.2 Registration Rights Agreement between the Registrant and Dutchess Private
Equities Fund, LP, dated January 26, 2004.
10.3 Registration Rights Agreement between the Registrant and eFund Capital
Partners, LLC, dated January 26, 2004 .
10.4 Registration Rights Agreement between the Registrant and eFund Capital
Partners, LLC dated February 19, 2004.
10.5 Registration Rights Agreement between the Registrant and Preston Capital
Partners, LLC dated March 3, 2004.
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Interim Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Forms 8-K
The Registrant filed a Form 8-K on February 12, 2004.
The Registrant filed a Form 8-K on March 15, 2004.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
Date: May 24, 2004 NeWave, Inc.
/s/ Michael Hill
By -----------------------
Michael Hill, Chief Executive
Officer
Dated: May 24, 2004
/s/ Barrett Evans
-----------------
Barrett Evans, Interim Chief
Financial Officer