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 June 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 333-34308
NeWave, Inc.
(Exact name of small business issuer as specified in its charter)
Utah 87-0520575
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(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
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(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 August 19, 2004, the Issuer had 11,245,039 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 CONDENSED BALANCE SHEETS 1
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS 2
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS 3
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 4-5
NEWAVE, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
ASSETS
June 30,
2004
------------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 134,977
Accounts receivable, net of allowance for doubtful accounts
of $185,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318,756
Loans receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,127
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,939
Prepaid Consulting Services . . . . . . . . . . . . . . . . . . . . . . 674,050
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 75,606
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TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 1,299,455
------------
PROPERTY & EQUIPMENT, net of accumulated depreciation
and amortization of $65,881 . . . . . . . . . . . . . . . . . . . . . 362,691
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DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,642
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,677,768
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,513
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . 386,407
Loans payable - related parties . . . . . . . . . . . . . . . . . . . . 50,000
Current portion of notes payable . . . . . . . . . . . . . . . . . . . . 155,000
------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 646,920
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LONG TERM LIABILITIES
Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,398
Convertible debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,110,500
------------
TOTAL LONG TERM LIABILITIES. . . . . . . . . . . . . . . . . . . . . . 1,140,898
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TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,787,818
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COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 100,000,000 shares at $.001 par
value, issued and outstanding 10,844,566 shares as of June 30, 2004. 11,145
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . 3,483,532
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (3,545,388)
Subscription Receivable. . . . . . . . . . . . . . . . . . . . . . . . . (59,880)
Share to be Issued. . . . . . . . . . . . . . . . . . . . . . . . . . . 541
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TOTAL SHAREHOLDERS' EQUITY (DEFICIT). . . . . . . . . . . . . . . . . . (110,050)
------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT). . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,677,768
============
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
NEWAVE, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended June 30, Six Months Ended June 30,
2004 2004
------------------------------ -------------------------
REVENUE . . . . . . . . . . . . $ 1,828,752 2,656,379
OPERATING EXPENSES
Salaries . . . . . . . . . . 710,394 1,190,110
Advertising . . . . . . . . . 648,940 1,101,181
Directors' Fees . . . . . . . 0 1,548,000
Other operating expenses . . 583,374 975,843
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TOTAL OPERATING EXPENSES . . . 1,942,708 4,815 134
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Loss from operations. . . . . . (113,956) (2,158,755)
------------------------------ -------------------------
OTHER INCOME (EXPENSES)
Interest expense. . . . . . . . (115,737) (670,550)
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TOTAL OTHER INCOME
(EXPENSES). . . . . . . . . . (115,737) (670,550)
------------------------------ -------------------------
NET LOSS. . . . . . . . . . . . (229,693) (2,829,305)
------------------------------ -------------------------
BASIC AND DILUTED LOSS
PER SHARE . . . . . . . . . . $ (0.21) (0.26)
============================== =========================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING. 11,079,181 10,768,975
============================== =========================
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
NEWAVE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
Six
months ended
June 30, 2004
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . $ (2,829,305)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization . . . . . . . . 427,816
Bad debt expense . . . . . . . . . . . . . . 60,000
Issuance of stock for directors fees. . . . . . . 1,548,000
Debt conversion feature expense . . . . . . . . . 292,000
Debt Inducement Expense. . . . . . . . . . . . . 337,291
(Increase) / decrease in current assets:
Accounts receivable. . . . . . . . . . . . . . . (169,012)
Accounts receivable - other . . . . . . . . .. . (15,177)
Inventory. . . . . . . . . . . . . . . . . . . . (10,838)
Other current assets . . . . . . . . . . . . . . (75,606)
Other assets. . . . . . . . . . . . . . . . . .. (15,642)
Increase in current liabilities:
Accrued expenses and accounts payable. . . . . 83,333
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NET CASH USED IN OPERATING ACTIVITIES. . . . . . (367,140)
----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . (189,246)
----------------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . (189,246)
----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of Utah Clay, Inc. . . . (150,000)
Proceeds from line of credit. . . . . . . .. . . 515,078
Payments on line of credit. . . . . . . .. . . .. (484,578)
Proceeds from issuance of convertible debentures 833,000
Payments on long term borrowings . . . . . . . . (1,237)
Proceeds from related party debts. . . . . . . . 51,000
Payment on Related Party Debts. . . . . . . .. . (100,000)
Proceeds from borrowings . . . . . . . . . . . . 28,000
----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . . . 691,363
----------------
NET INCREASE IN CASH. . . . . . . . . . . . . . 134,977
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . 0
----------------
CASH AT END OF PERIOD. . . . . . . . . . . . . . $ 134,977
================
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
NEWAVE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 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 an online club membership for a comprehensive
line of products and services at wholesale prices. The Company's main source of
revenue comes from membership fees from their clients. Additionally, the Company
creates, manages and maintains effective website solutions for eCommerce. The
Company is doing business under the name "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 June 30, 2003.
The accompanying unaudited condensed interim financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange 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 of the parent 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 June 30, 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
six months ended June 30, 2004 include the accounts of NeWave dba
Onlinesupplier.com, and the results of operations of the Parent from January 15,
2004 through June 30, 2004. No comparative results are presented for the three
months ended June 30, 2003, as NeWave dba Onlinesupplier.com was not operating
during this period.
Use of Estimates
- ------------------
The preparation of 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 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.
Prepaid Consulting Services
- -----------------------------
During the three months ended June 30, 2004,the Company issued 50,000 shares of
common stock valued at $100,000 for business consulting services to be rendered
during the next 12 months. During the three months ended March 31, 2004, the
Company issued 580,000 shares common shares valued at $969,350 and paid $25,000
cash for advertising and legal services to be rendered during the following 8 to
12 months. The Company expensed $282,321 and $137,979 during the three months
and six months ended June 30, 2004, respectively, leaving a prepaid balance
outstanding of $674,050 at June 30, 2004.
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 June 30, 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. 104, "Revenue Recognition in Financial Statements" which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB No. 104 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 and six months ended
June 30, 2004 because they have an antidilutive effect in these periods.
Advertising Costs
- ------------------
Advertising and promotional activities are expensed when incurred. Total
advertising costs were $648,940 and $1,101,181 for the three months and six
months ended June 30, 2004, respectively.
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 AND RELATED PARTIES
The Company has a note payable to an unrelated party that was issued in 2003.
This note was settled for $180,000 in August of 2004, payable $30,000 in August
2004, and $12,500 per month thereafter. As of June 30, 2004, the balance of
this note was $180,000, of which $155,000 is presented as current.
The Company has a consulting agreement with Barrett Evans, a member of the Board
of Directors that was entered into on August 18, 2003. The term of the
agreement was for twelve months at $10,000 per month. The Company paid $8,000
on the agreement during the three months ended June 30, 2004 and owes $55,166 at
June 30, 2004.
The Company has a consulting agreement with Michael Hill, the CEO, that was
entered into on August 18, 2003. The term of the agreement was for twelve
months at $12,000 per month. The Company paid $43,000 on the agreement during
the three months ended June 30, 2004 and owes $59,000 at June 30, 2004.
3. CONVERTIBLE DEBENTURE
During the quarter ended June 30, 2004, the Company issued a discounted total of
$300,000 worth of 8%, 5-Year Term, Convertible Debentures (the "Debentures").
The total discount in the amount of $60,000 is amortized over the 5-year term of
the debentures. Total amortization was $2,500 for the three months ended June
30, 2004.
The Debentures shall pay six percent (8%) 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 30 trading days immediately following the
first reverse split in the stock price. In accordance with EITF 00-27 98-5, the
beneficial conversion feature on the issuance of the convertible debenture for
the quarter ended June 30, 2004 has been recorded in the amount of $90,000.
4. COMMITMENTS AND CONTINGENCIES
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.
Management believes that there are no other claims or litigation pending, the
outcome of which could have a material adverse effect on the financial condition
or operating results.
5. 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.
6. EQUITY
Common Stock
- -------------
During the quarter ended June 30, 2004, the following common stock transactions
were made:
The Company physically issued 250,000 shares of the Company's common stock which
were to be issued in the three months ended March 31, 2004 for services
amounting to $430,000.
The Company also issued 50,000 shares of common stock for $100,000 of services
during the three months ended June 30, 2004.
7. 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 June
30, 2004.
Item 2. Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis describes our results of operations for
the three and six months ended June 30, 2004. This discussion and analysis
should be read in conjunction with our consolidated condensed financial
statements and related notes thereto included elsewhere in this report and our
Form 10-KSB for the year ended December 31, 2003.
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 the risks described in our
10-KSB for the period ended December 31, 2003 and elsewhere in this report.
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.
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. On the same date,
pursuant to an Agreement and Plan of Reorganization with NeWave, Inc., a Nevada
corporation, we changed our name to NeWave, Inc. and OnlineSupplier.com became
our wholly-owned subsidiary. We now own and operate an online membership club
that offers a comprehensive line of products and services at wholesale prices
through our 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 30, 2004, the State of Utah recognized our name change 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 House Wares
- - 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.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business operations and
the understanding of our results of operations. The impact and any associated
risks related to these policies on our business operations are discussed
throughout this section where such policies affect our reported and expected
financial results. Our preparation of our Consolidated Financial Statements
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, disclosure of contingent assets and liabilities at
the date of our financial statements, and the reported amounts of revenue and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates.
Our accounting policies that are the most important to the portrayal of our
financial condition and results, and which require the highest degree of
management judgment relate to revenue recognition, the provision for
uncollectible accounts receivable, property and equipment, advertising and
issuance of shares for service.
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. 104, "Revenue Recognition in Financial Statements" which
provides guidance on the recognition, presentation and disclosure of revenue in
financial statements. SAB No. 104 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.
We estimate the likelihood of customer payment based principally on a customer's
credit history and our general credit experience. To the extent our estimates
differ materially from actual results, the timing and amount of revenues
recognized or bad debt expense recorded may be materially misstated during a
reporting period.
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the declining balance method over the estimated
useful lives of the assets at five to seven years. Expenditures for maintenance
and repairs are charged to expense as incurred.
We expense advertising costs as incurred.
We account for the issuance of equity instruments to acquire goods and services
based on the fair value of the goods and services or the fair value of the
equity instrument at the time of issuance, whichever is more reliably
measurable.
GOING CONCERN OPINION
Our unaudited financial statements for the quarter ended June 30 2004, reflect a
net loss of $(229,693). These conditions raised substantial doubt about our
ability to continue as a going concern if we do not acquire sufficient
additional funding or alternative sources of capital to meet our working capital
needs. 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.
SIX MONTHS ENDED JUNE 30, 2004
NeWave, Inc. dba Onlinesupplier.com commenced operations in August 2003;
therefore there were no operations for the three and six months ended June 30,
2003.
Revenues
We generated revenues of $2,656,379 for the six months ended June 30, 2004,due
to the acquisition of NeWave.
Operating Expenses
- -------------------
We incurred costs of $4,815,134 for the six months ended June 30, 2004, due to
of the acquisition of NeWave and the increase in Revenue.
Net Loss
- ---------
We had a loss of ($2,829,305) for the six months ended June 30, 2004, due to the
acquisition of NeWave.
Basic and diluted loss per share
- -------------------------------------
Our basic and diluted loss per share for the six months ended June 30, 2004 was
($0.26).
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 June 30,
2004, we had total Current Assets of $1,229,455 and Current Liabilities of
$646,920. Cash and cash equivalents were $134,977. Our Stockholder's Deficit at
June 30, 2004 was ($110,050).
We had a net usage of cash due to operating activities in June 30, 2004 of
$(367,140). We had net cash provided by financing activities of $691,363 in the
six months ended June 30, 2004.
Capital Commitments
- --------------------
We have a note payable to an unrelated party that was issued in 2003. This note
was settled for $180,000 in August of 2004, payable $30,000 in August 2004, and
$12,500 per month thereafter.
We have a consulting agreement with Barrett Evans, a member of the Board of
Directors, that was entered into on August 18, 2003. The term of the agreement
was for twelve months at $10,000 per month. We paid $8,000 on the agreement
during the three months ended June 30, 2004 and owe $55,166 at June 30, 2004.
We have a consulting agreement with Michael Hill, our CEO, that was entered into
on August 18, 2003. The term of the agreement was for twelve months at $12,000
per month. We paid $43,000 on the agreement during the three months ended June
30, 2004 and owe $59,000 at June 30, 2004.
On March 2, 2004, we entered into a Consulting Agreement with Luminary Ventures,
Inc. where in exchange for services, we agreed to pay the consultant the sum
of $10,000 per month for non-accountable expenses. Payment may be made
either: (i) in cash or (ii) shares of our common stock. The term of
this agreement is twelve (12) months.
Financing Activities
- ---------------------
On April 1, 2004, we issued convertible debentures of $90,000 to Dutchess
Private Equities Fund, II, LP. The debentures convert on April 1, 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 full 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 first reverse split in stock price
after the date in the preamble. The convertible debentures shall pay 8%
cumulative interest. We must make minimum payments of $1,000 per month to the
Investor.
On April 2, 2004, we issued convertible debentures of $90,000 to eFund Capital
Partners. The debentures convert on April 2, 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 full 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 first reverse split in the stock price after after the
date in the preamble. The convertible debentures shall pay 8% cumulative
interest. We must make minimum payments of $1,000 per month to the Investor.
On May 5, 2004, we issued convertible debentures of $90,000 to Dutchess Private
Equities Fund, II, LP. The debentures convert on May 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 full 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 first reverse split in stock price after after
the date in the preamble. The convertible debentures shall pay 8% cumulative
interest. We must make minimum payments of $1,000 per month to the Investor.
On May 5, 2004, we issued convertible debentures of $90,000 to eFund Capital
Partners. The debentures convert on May 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 full 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 first reverse split in the stock price after after the
date in the preamble. The convertible debentures shall pay 8% cumulative
interest. We must make minimum payments of $1,000 per month to the Investor.
Subsidiaries
- ------------
As of June 30, 2004, we have one subsidiary, Onlinesupplier.com, Inc.
Item 3. Controls and Procedures
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, we 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 in September and November 2003. This action is entitled NeWave,
Inc. et al. v. Paydirt, Case No. 01156046 (S.B.S.C.). The parties to the lawsuit
dispute whether we currently owe Paydirt the sum of $225,829. Paydirt retained
California counsel, who removed our superior court action to the United States
District Court, Central District of California. On April 5, 2004, Paydirt filed
a motion to dismiss our action. While this motion was pending, Paydirt 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 our complaint without prejudice to our filing the
action in Utah. Subsequently, we have settled the lawsuit by agreeing to make a
payment to Paydirt of $180,000.
Item 2. Changes in Securities
(c) Recent Sales of Unregistered Securities
On April 1, 2004, we issued convertible debentures of $90,000 to Dutchess
Private Equities Fund, II, LP. The debentures convert on April 1, 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 full 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 first reverse split in stock price
after the date in the preamble. The convertible debentures shall pay 8%
cumulative interest, payable in cash or stock at our option, at the time of
conversion.
On April 2 , 2004, we issued convertible debentures of $90,000 to eFund Capital
Partners. The debentures convert on April 2, 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 full 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 first reverse split in the stock price after the date
in the preamble. The convertible debentures shall pay 8% cumulative interest,
payable in cash or stock at our option, at the time of conversion.
On May 5, 2004, we issued convertible debentures of $90,000 to Dutchess Private
Equities Fund, II, LP. The debentures convert on May 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 full 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 first reverse split in stock price after the date
in the preamble. The convertible debentures shall pay 8% cumulative interest,
payable in cash or stock at our option, at the time of conversion.
On May 5, 2004, we issued convertible debentures of $90,000 to eFund Capital
Partners. The debentures convert on May 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 full 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 first reverse split in the stock price after the date
in the preamble. The convertible debentures shall pay 6% cumulative interest,
payable in cash or stock at our option, at the time of conversion.
During the quarter ended June 30, 2004, we issued 250,000 shares of our common
stock which were to be issued in the three months ended March 31, 2004 for
services amounting to $430,000, and 50,000 shares of our common stock for
$100,000 of services.
With respect to the sales of our common stock described above, we relied on the
Section 4(2) and/or 4(6) exemptions from securities registration under the
federal securities laws for transactions not involving any public offering. No
advertising or general solicitation was employed in offering the shares. The
shares were sold to sophisticated and/or accredited investors. The securities
were offered for investment purposes only and not for the purpose of resale or
distribution, and the transfer thereof was appropriately restricted by us.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information.
On April 9, 2004,we entered into a five-year and one half-month lease
running from April 15, 2004 to April 30, 2009. The lease is for a 15,800 square
feet of office space located a 30 South La Patera Ln.#7, Goleta, Ca 93117. There
was an initial payment of $38,552.00 which included first month's rent of
$15,042, a security deposit of $15,042 and common area operating expenses of
$7,268. Our monthly lease payments are $19,276, which include $15,642 in rent
and $3,634 for common area operating expenses.
On May 20, 2004, we entered into a Lead Marketing Agreement with Applied
Merchant Systems. The Agreement allows Online Supplier members access to
merchant processing that enables credit card acceptance from their customers.
The benefits of the merchant account include: no startup costs, acceptance of
all major credit cards, and guaranteed 48 hour setup. E-commerce processing
assists Online Supplier customers in establishing multiple payment options for
their customers and maximizing revenue.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- --------------------------------
3.1 Articles of Incorporation (filed as Exhibit 3.(i) to the Registrant's SB-2/A
filed on April 11, 2000 and incorporated herein by reference).
3.2 Amended Articles of Incorporation (filed as Exhibit 3.(i) to the
Registrant's 10QSB filed on November 14, 2001 and incorporated herein by
reference).
3.3 Articles of Amendment to Articles of Incorporation, dated January 30,
2004 (filed as Exhibit 3.2 to the Registrant's 10QSB filed on May 24, 2004 and
incorporated herein by reference).
3.4 Bylaws (filed as Exhibit 3.(ii) to the Registrant's SB-2/A filed 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 (filed as Exhibit 4.1 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 24, 2004 and incorporated herein by
reference).
4.2 Debenture Agreement between the Registrant and Dutchess Private Equities
Fund dated January 25, 2004 (filed as Exhibit 4.2 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 24, 2004 and incorporated herein by
reference).
4.3 Debenture Agreement between the Registrant and eFund Capital Partners, LLC
dated January 26, 2004 (filed as Exhibit 4.3 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 24, 2004 and incorporated herein by
reference).
4.4 Debenture Agreement between the Registrant and eFund Capital Partners, LLC
dated February 19, 2004 (filed as Exhibit 4.4 to the Registrant's Quarterly
Report on Form 10-QSB filed on May 24, 2004 and incorporated herein by
reference).
4.5 Debenture Agreement between the Registrant and Preston Capital
Partners, dated March 3, 2004 (filed as Exhibit 4.5 to the Registrant's
Quarterly Report on Form 10-QSB filed on May 24, 2004 and incorporated herein by
reference).
4.6 Debenture Agreement between the Registrant and Dutchess Private Equities
Fund, II, dated April 1, 2004.
4.7 Debenture Agreement between the Registrant and eFund Capital Partners, LLC
dated April 2, 2004.
4.8 Debenture Agreement between the Registrant and Dutchess Private Equities
Fund, II, dated May 5, 2004.
4.9 Debenture Agreement between the Registrant and eFund Capital Partners, LLC
dated May 5, 2004.
10.1 Sublease between the Registrant and Pinnacle Sales Group, LLC, dated
August 18, 2003 (filed as Exhibit 10.1 to the Registrant's 10KSB filed on April
14, 2004 and incorporated herein by reference).
10.2 Sublease Agreement between the Registrant and Mammoth Moving Inc.,
dated July 14, 2003 (filed as Exhibit 10.2 to the Registrant's 10KSB filed on
April 14, 2004 and incorporated herein by reference).
10.3 Registration Rights Agreement between the Registrant and Dutchess Private
Equities Fund, LP, dated January 14, 2004 (filed as Exhibit 10.1 to the
Registrant's 10QSB filed on May 24, 2004 and incorporated herein by reference).
10.4 Registration Rights Agreement between the Registrant and Dutchess Private
Equities Fund, LP, dated January 26, 2004 (filed as Exhibit 10.2 to the
Registrant's 10QSB filed on May 24, 2004 and incorporated herein by reference).
10.5 Registration Rights Agreement between the Registrant and eFund Capital
Partners, LLC, dated January 26, 2004 (filed as Exhibit 10.3 to the
Registrant's 10QSB filed on May 24, 2004 and incorporated herein by reference).
10.6 Registration Rights Agreement between the Registrant and eFund Capital
Partners, LLC dated February 19, 2004 (filed as Exhibit 10.4 to the
Registrant's 10QSB filed on May 24, 2004 and incorporated herein by reference).
10.7 Registration Rights Agreement between the Registrant and Preston Capital
Partners, LLC dated March 3, 2004 (filed as Exhibit 10.5 to the Registrant's
10QSB filed on May 24, 2004 and incorporated herein by reference).
10.8 Consulting Agreement between NeWave and Luminary Ventures, Inc., dated
March 2, 2004 (filed as Exhibit 99.1 to the Registrant's S-8 filed on March 11,
2004 and incorporated herein by reference).
10.9 Consulting Agreement between the Registrant and Jeffrey Conrad, dated
January 30, 2004 (filed as Exhibit 99.2 to the Registrant's S-8 filed on
February 13, 2004 and incorporated herein by reference).
10.10 Consulting Agreement between the Registrant and Catherine Basinger,
dated January 30, 2004 (filed as Exhibit 99.3 to the Registrant's S-8 filed on
February 13, 2004 and incorporated herein by reference).
10.11 Consulting Agreement with Barrett Evans, dated August 18, 2003.
10.12 Consulting Agreement with Michael Hill, dated August 18, 2003.
10.13 Lead Marketing Agreement between the Registrant and Applied Merchant
Systems, dated May 20, 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
On May 4, 2004, we filed an 8-K pursuant to a change in our certifying
accountant.
On June 1, 2004, we filed an 8-K pursuant to a press release we issued to report
our financial results for the first quarter ended March 31, 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: August 23, 2004 NeWave, Inc.
/s/ Michael Hill
-----------------------
Michael Hill, Chief Executive
Officer
Dated: August 23, 2004
/s/ Barrett Evans
-----------------
Barrett Evans, Interim Chief
Financial Officer