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, 2005
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
---------- --------------
(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 June 30, 2005, the Issuer had 36,668,133 shares of common stock
outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___ No X
NEWAVE, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
- --------------------------------
Item 1. Financial Statements. 1-13
Item 2. Management's Discussion and Analysis or Plan of Operation. 14
Item 3. Controls and Procedures. 16
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings. 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 13
Item 3. Defaults Upon Senior Securities. 13
Item 4. Submission of Matters to a Vote of Security Holders. 13
Item 5. Other Information. 13
Item 6. Exhibits and Reports on Form 8-K. 13
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEWAVE, INC.
(FORMERLY UTAH CLAY TECHNOLOGY, INC.)
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
JASPERS + HALL, PC
CERTIFIED PUBLIC ACCOUNTANTS
- ------------------------------
9175 E. KENYON AVENUE, SUITE 100
DENVER, CO 80237
303-796-0099
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Newave, Inc.
Goleta, California
We have reviewed the accompanying consolidated balance sheet of Newave, Inc. as
of June 30, 2005, and the related consolidated statement of operations for the
three-month and six-month period ended June 30, 2005, stockholders' equity, and
cash flows for the six-months ended June 30, 2005. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards of the Public Company
Accounting Oversight Board (United States). The review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with standards of the Public Company Accounting Oversight Board
(United States), the objective of which is the expression of an opinion
regarding the consolidated financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, conditions
exist which raise substantial doubt about the Company's ability to continue as a
going concern unless it is able to generate sufficient cash flows to meet its
obligations and sustain its operation. Management's plans in regard to these
matters are described in Note 4. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
The financial statements for the year ended December 31, 2004 were audited by
other accountants, whose report dated May 6, 2005, expressed an unqualified
opinion on those statements. They have not performed any auditing procedures
since that date. In our opinion, the information set forth in the accompanying
balance sheet as of June 30, 2005 is fairly stated in all material respects in
relation to the consolidated balance sheet from which it has been derived.
Jaspers + Hall, PC
Denver, CO
August 16, 2005
NEWAVE, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
UNAUDITED
June 30 December 31,
2005 2004
---- ----
ASSETS:
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,541 $ 210,361
Accounts Receivable. . . . . . . . . . . . . . . . . . . . 498,511 514,956
Allowance for Doubtful Accounts. . . . . . . . . . . . . . (215,000) (215,000)
Other Receivables. . . . . . . . . . . . . . . . . . . . . 82,684 724,865
Inventory. . . . . . . . . . . . . . . . . . . . . . . . . 91,076 39,796
Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . 520,333 199,150
------------ ------------
Total Current Assets. . . . . . . . . . . . . . . . . . 1,060,145 1,474,128
------------ ------------
FIXED ASSETS:
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 482,148 213,664
Furniture & Fixtures. . . . . . . . . . . . . . . . . . . 76,123 74,798
Computers & Software . . . . . . . . . . . . . . . . . . . 230,325 163,138
Leasehold Improvements . . . . . . . . . . . . . . . . . . 103,124 89,922
------------ ------------
Total Fixed Assets . . . . . . . . . . . . . . . . . . 891,720 541,522
Less: Accumulated Depreciation . . . . . . . . . . . . (188,031) (119,053)
------------ ------------
Net Fixed Assets . . . . . . . . . . . . . . . . . 703,689 422,469
------------ ------------
OTHER ASSETS:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 66,392 66,390
------------ ------------
Total Other Assets. . . . . . . . . . . . . . . . . . . 66,392 66,390
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $1,830,226 $ 1,962,987
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable. . . . . . . . . . . . . . . . . . . . . $ 502,854 $ 391,918
Notes Payable . . . . . . . . . . . . . . . . . . . . . . 26,332 165,429
Notes Payable - related party . . . . . . . . . . . . . . 1,200,848 150,000
Deferred Revenue. . . . . . . . . . . . . . . . . . . . . 150,217 70,563
Convertible Debentures - current. . . . . . . . . . . . . -0- 434,200
------------ ------------
Total current liabilities . . . . . . . . . . . . . . 1,880,251 1,212,110
------------ ------------
LONG-TERM DEBT
Convertible Debentures - Long Term. . . . . . . . . . . . 1,084,971 526,803
------------ ------------
Total long-term debt. . . . . . . . . . . . . . . . . 1,084,971 526,803
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 10,000,000 share authorized
zero shares issued and outstanding. . . . . . . . . . . . - -
Common Stock, $.001 par value; 100,000,000 shares authorized
36,668,133 shares issued and outstanding in 2005. . . . . 36,670 11,297
11,295,039 shares issued and outstanding in 2004
Additional paid-in Capital. . . . . . . . . . . . . . . . . . 7,494,025 4,868,061
Stocks to be Issued . . . . . . . . . . . . . . . . . . . . . 956 541
Stock subscription receivable . . . . . . . . . . . . . . . . (792,840) (59,880)
Accumulated Deficit . . . . . . . . . . . . . . . . . . . . . (7,873,807) (4,595,945)
------------ ------------
Total stockholders' equity (deficit). . . . . . . . . . (1,134,996) 224,074
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . . . . . . $1,830,226 $ 1,962,987
============ ============
NEWAVE, INC.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
UNAUDITED
Three Months Ended June 30, Six Months Ended June 30,
2005 2004 2005 2004
------------------------------ -------------------------
REVENUES. . . . . . . . . . . . $ 2,673,365 1,862,476 4,199,174 2,735,495
LESS REFUNDS, RETURNS, CREDITS (688,733) (33,724) (955,926) (79,116)
------------------------------ -------------------------
NET REVENUES 1,984,632 1,828,752 3,243,248 2,656,379
COSTS OF SALES 489,121 138,509 589,630 310,959
------------------------------ -------------------------
GROSS PROFIT 1,495,511 1,690,243 2,653,618 2,345,420
OPERATING EXPENSES
Salaries . . . . . . . . . . 736,790 710,394 1,485,838 1,190,110
Advertising . . . . . . . . . 923,508 648,940 1,657,159 1,101,181
Directors' Fees . . . . . . . -0- -0- -0- 1,548,000
Other operating expenses . . 1,237,702 444,865 2,075,541 664,884
------------------------------ -------------------------
TOTAL OPERATING EXPENSES . . . 2,898,000 1,804,199 5,218,538 4,504,175
------------------------------ -------------------------
Loss from operations. . . . . . (1,402,489) (113,956) (2,564,920) (2,158,755)
------------------------------ -------------------------
OTHER INCOME (EXPENSES)
Interest expense. . . . . . . . (583,893) (115,737) (712,942) (670,550)
------------------------------ -------------------------
TOTAL OTHER INCOME
(EXPENSES). . . . . . . . . . (583,893) (115,737) (712,942) (670,550)
------------------------------ -------------------------
NET LOSS. . . . . . . . . . . . (1,986,382) (229,693) (3,277,862) (2,829,305)
------------------------------ -------------------------
BASIC AND DILUTED LOSS
PER SHARE . . . . . . . . . . $ (.06) (0.01) (.09) (0.09)
============================== =========================
WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING. 34,106,478 32,237,543 34,854,288 32,306,925
============================== =========================
<FN>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATMENTS
NEWAVE, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOW
UNAUDITED
Six Six
months ended months ended
June 30, 2005 June 30, 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . .$ (3,277,862) $ (2,829,305)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization . . . . . . . 68,978 427,816
Bad debt expense . . . . . . . . . . . . . 60,000
Issuance of stock for directors fees. . . . . 1,548,000
Issuance of stock for services . . . . . . . 436,350
Debt conversion feature expense . . . . . . . 292,000
Debt Inducement Expense. . . . . . . . . . . 337,291
(Increase) / decrease in current assets:
Accounts receivable. . . . . . . . . . . . . 16,445 (169,012)
Accounts receivable - other . . . . . . . . 642,181 (15,177)
Inventory. . . . . . . . . . . . . . . . . . 51,280 (10,838)
Other current assets . . . . . . . . . . . . (321,181) (75,606)
Other assets. . . . . . . . . . . . . . . . . (15,642)
Increase in current liabilities:
Accrued expenses and accounts payable. . . 110,936 83,333
Deferred revenue. . . . . . . . . . . . . 79,654
------------ ---------
NET CASH USED IN OPERATING ACTIVITIES. . . . (2,193,219) (367,140)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . (350,198) (189,246)
------------ ---------
NET CASH USED IN INVESTING ACTIVITIES. . . . (350,198) (189,246)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for acquisition of Utah Clay, Inc. (150,000)
Payments on Notes payable. . . . . . . . . (139,097)
Proceeds from line of credit. . . . . . . . 515,078
Payments on line of credit. . . . . . . .. . (484,578)
Proceeds from convertible debentures 64,734 833,000
Proceeds from long term debt . . . . . . . . 558,168
Payments on long term borrowings . . . . . . (1,237)
Proceeds from related party debts. . . . . . 1,050,848 51,000
Payment on Related Party Debts. . . . . . . (100,000)
Proceeds from borrowings . . . . . . . . . . 28,000
Issuance of Common Stock . . . . . . . . . . 880,944
------------ ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES. . 2,415,597 691,363
------------ ---------
NET INCREASE IN CASH. . . . . . . . . . . . (127,820) 134,977
CASH AT BEGINNING OF PERIOD. . . . . . . . . 210,361 0
------------ ---------
CASH AT END OF PERIOD. . . . . . . . . . . . $ 82,541 $ 134,977
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest $ 45,136 $ 4,394
Cash paid for taxes $ -0- $ 800
<FN>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
NEWAVE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Stock
Addi- Subscrip-
tional Shares tions Accum-
Pre- Paid-In To Be Receiv- ulated
ferred Stock Common Stock Capital Issued able Deficit Total
------- ---------- ---------- -------- ----------- -------- ------------ ------------ ------------
# of # of
Shares Amount Shares Amount
------- ---------- ---------- --------
Balance -
December 31, 2003 - - 27,590 28 144,972 - - (605,386) (460,386)
------- ---------- ---------- -------- ----------- -------- ------------ ------------ ------------
Issuance of stock
for Reverse Merger. . 94 - 572,159 574 (153,997) - (59,880) (105,697) (319,000)
Issuance of stock
for preferred stock . (94) - 9,418,000 9,418 (9,418) - - - -
Issuance of stock
for services. . . . . - - 430,000 430 1,128,670 250 - - 1,129,350
Issuance of stock
for director's
expense. . . . . . . - - 750,000 750 1,547,250 - - - 1,548,000
Conversion on
convertible
debenture. . . . . . - - - - 655,616 50 - - 655,666
Conversion
of debentures . . . . - - 77,290 77 252,835 88 - - 253,000
Issuance of
stock warrants. . . . - - 20,000 20 1,302,133 153 - - 1,302,306
Net Loss for Year . . - - - - - - (3,884,862) (3,884,862)
------- ---------- ---------- -------- ----------- -------- ------------ ------------ ------------
Balance -
December 31, 2004 - - 11,295,039 11,297 4,868,061 541 (59,880) (4,595,945) 224,074
------- ---------- ---------- -------- ----------- -------- ------------ ------------ ------------
Issuance of stock
for inducement. . . . - - - - 40,181 38 - - 40,219
Issuance of stock
for equity line . . . - - 139,000 139 274,930 (69) - - 275,000
Issuance of stock
for cash. . . . . . . - - 61,000 59 342,151 - (342,210) - -
Stock split (3 for 1) - - 22,990,078 22,990 (22,990) - - - -
Issuance of stock
for equity line . . . - - - - 207,529 49 - - 207,578
Issuance of stock
for cash. . . . . . . - - 400,000 400 747,600 - (748,000) - -
Issuance of stock
for equity line . . . - - - - 29,980 20 - - 30,000
Stock Split (3 for 1) (1623) 1623 -
Cash Received for Stock Issuances 357,250 357,250
Beneficial Conversion Feature 386,688 386,688
Stock Issued for Finance Inducement 616,500 617 129,047 (496) 129,168
Conversion on convertible debenture 66,516 67 56,472 56,539
Stock Issued for Services 1,100,000 1,100 436,000 (750) 436,350
Net Loss for Period . - - - - - - - (3,277,862) (3,277,862)
Adjustment 1 (1)
------- ---------- ---------- -------- ----------- -------- ------------ ------------ ------------
Balance -
June 30, 2005 - $ - 36,668,133 $ 36,670 $7,494,025 $ 956 $(792,840) $(7,873,807) $(1,134,996)
======= ========== ========== ======== =========== ======== ============ ============ ============
NEWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2005
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
- -------------
Utah Clay Technology, Inc. (the "Company"), a Utah corporation, was incorporated
on March 1, 1994. On December 24, 2003 the Company entered into an Agreement and
Plan of Reorganization with NeWave, Inc. a Nevada corporation, pursuant to which
the Company agreed that NeWave, Inc. would become the wholly-owned subsidiary
subject to the parties to the Agreement meeting certain conditions. The parties
to the Agreement satisfied the required conditions to close on January 15, 2004,
including transfer of all funds. On January 15, 2004, all outstanding shares of
Utah Clay Technology, Inc. common stock were acquired by NeWave, Inc. The
purchase price consisted of $150,000 and the assumption of $165,000 in
convertible debt for 576,968 shares of NeWave, Inc. dba Onlinesupplier.com's
common stock. Although from a legal perspective, NeWave, Inc. acquired NeWave
dba Onlinesupplier.com, the transaction is viewed as a recapitaliztion of NeWave
dba Onlinesupplier.com accompanied by an issuance of stock by NeWave dba
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 dba Onlinesupplier.com was the operating company.
Effective February 11, 2004 the Company changed its name from Utah Clay
Technology, Inc. to Newave, Inc. 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.
Basis of Accounting:
- ----------------------
The accompanying financial statements have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Reclassification of Cost of Sales and Operating Expenses:
- ----------------------------------------------------------------
In the accompanying condensed statement of operations, all of the company's
operating expenses have been classified as cost of sales, advertising expense,
salary expense, director fees, and other operating expense. This basis of
presentation is different than in prior reports, and all prior period amounts
have been changed to comply with the current period classification.
Cash and Cash Equivalents:
- -----------------------------
The Company considers all highly liquid debt instruments, purchased with an
original maturity of three months or less, to be cash equivalents.
Use of Estimates:
- -------------------
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
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 seven years.
Going Concern:
- ---------------
The Company's financial statements have been prepared on the basis that it is a
going concern, which contemplated the realization of assets and the satisfaction
of liabilities in the normal course of business.
The Company incurred a net loss of $3,277,862 for the six months ended June 30,
2005. The financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern. The
Company plans to finance the continued operations for the next year through
private funding and funding from officers of the Company.
Income Taxes:
- --------------
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted laws
and rates applicable to the periods in which the differences are expected to
affect taxable income (loss).
Basic and Diluted Net Loss per Share:
- -------------------------------------------
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS 128), Earnings per share. SFAS No. 128
superseded Accounting Principles Board Opinion No. 15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Stock Based Compensation:
- ---------------------------
The Company has adopted the disclosure provisions only of SFAS No. 123 and
continues to account for stock based compensation using the intrinsic value
method prescribed in accordance with the provisions of APB No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. Common stock issued
to employees for compensation is accounted for based on the market price of the
underlying stock, generally the average low bid price.
Fair Value of Financial Instruments:
- ----------------------------------------
Statement of financial accounting standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires that the Company disclose estimated
fair values of financial instruments. The carrying amounts reported in the
statements of financial position for current assets and current liabilities
qualifying as financial instruments are a reasonable estimated of fair value.
Comprehensive Income:
- ----------------------
Statement of financial accounting standards No. 130, "Reporting Comprehensive
Income", (SFAS No. 130), establishes standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity, except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130 requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statements that is displayed with the same prominence as other
financial statements. The Company adopted this standard in 1998 and the
implementation of this standard did not have a material impact on its financial
statements.
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 uncollectibility 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, an increase in the allowance will be made.
Accounts receivable are written off when all collection attempts have failed.
Inventory:
- ----------
Inventories consist of a variety of wholesale goods purchased for individual
resale and are stated at the lower of cost, determined by the first-in,
first-out ("FIFO") method, or market.
Revenue Recognition:
- ---------------------
The Company has six revenue streams: membership fees earned from web hosting and
other web-based services provided to the Company's customers, upsale of services
provided by affiliated service providers, sales of customer lead information
generated from potential customers who decide not to use the Company's services,
advertising income, commissions earned from referrals to affiliated credit card
processing service providers and lastly, product sales from the Company's online
store. The Company does not provide multiple deliverables to its customers as
described in EITF 00-21. Instead, the Company generally uses one revenue stream
to develop potential revenues from another source, not from the same source. As
such, the Company does not anticipate that the adoption of EITF 00-21 has a
material effect on the financial statements.
The Company's revenues earned from membership setup fees and monthly charges are
recorded when the credit card transaction is processed and the Company has
received the cash proceeds from the credit card processor. The Company does not
recognize the revenues earned related to membership fees charged to credit cards
until the revenue is collected. This is due to the uncertainty surrounding the
credit card transactions and the varying percentage of credit card chargebacks.
Current terms of the onlinesupplier.com membership agreement stipulate that the
customer pays a nonrefundable $6.95 fee to set up an account. The customer then
has a fourteen day period to review the Company's offerings. If the customer
does not cancel the service within the fourteen day window, a charge of $29.95
is billed to the customer's credit card on a monthly basis.
The Company initiates the sale of products for its affiliates during the process
of selling the Company's own products, normally when an individual calls the
Company's sales or customer service department. The Company's internal system
maintains records of each sale of an affiliate's product. The affiliate
completes the sales process by fulfilling the particular product. Payments are
forwarded to the Company, plus or minus two percent of actual billings, when the
affiliate has completed the fulfillment of their product and has approved the
cross selling revenue due to the Company. The Company notes that on a historical
basis, its affiliates have generally approved all sales initiated by the
Company. The Company recognizes cross selling revenues once it has reconciled
its internal records of cross selling sales with the affiliate's records. The
Company has several contracts with affiliates. The terms of each contract are
varied but in most cases, a minimum/flat amount of revenue is earned per sale
based on a certain volume being reached.
The Company generates leads for Applied Merchant as potential customers of the
Company contact the Company's customer service department. The Company can not
reasonably determine the actual incremental cost incurred in the process of
generating each telephone call from a potential customer. Therefore costs are
expensed as incurred.
The Company recognizes income when the products are received by the customer.
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. The Company accounts for sales
returns related to product sales on an individual basis, as they occur. Sales
returns related to product sales have not been significant in the past.
Advertising Costs
- ---------------------
We expense advertising costs when incurred.
NOTE 2 - FEDERAL INCOME TAXES
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards Number 109 ("SFAS 109"). "Accounting for Income
Taxes", which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. Under the asset and liability
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities.
2005 2004
------- --------
Deferred tax assets
Net operating loss carryforwards 7,279,483 $ 5,886,425
Valuation allowance (7,279,483) (5,886,425)
------------- -------------
Net deferred tax assets 0 $ 0
============= =============
At June 30, 2005, the Company had net operating loss carryforwards of
approximately 7,279,483 for federal income tax purposes. These carryforwards if
not utilized to offset taxable income will begin to expire in 2025.
NOTE 3 - GOING CONCERN
The Company's financial statements have been prepared on the basis that it is a
going concern, which contemplated the realization of assets and the satisfaction
of liabilities in the normal course of business.
The company incurred a net loss of $3,277,862 for the six months ended June 30,
2005. The financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern. The
Company plans to finance the continued operations for the next year through
private funding and funding from the officers of the Company.
NOTE 4 - ACCOUNTS RECEIVABLE
As of June 30, 2005, accounts receivable, consists of the following:
Accounts Receivable
Impact Legal $313,963
Platinum Values 72,256
Misc. Receivables 112,292
----------
$498,511
========
NOTE 5 - ACCOUNTS PAYABLE & ACCRUED EXPENSES
Accounts Payable and Accrued Expenses $463,816
Accrued Payroll and Payroll Taxes 39,038
---------
$502,854
========
NOTE 6 - NOTES PAYABLE - RELATED PARTIES AND OTHERS
Notes Payable - Others:
Notes Payable to others, unsecured, bearing an interest rate of 9% per annum,
unsecured and due on demand. $ 25,000
Notes Payable to others, unsecured, bearing an interest rate of 9% per annum,
unsecured and due on demand. $ 1,332
Notes Payable - Related Parties:
Note Payable to a majority shareholder, unsecured,
bearing an interest rate of 10%, due on demand. $ 125,000
Note Payable to a majority shareholder, unsecured,
bearing an interest rate of 26.8%, due on demand. $25,000
Note Payable to a majority shareholder, unsecured,
bearing an interest rate of 26.8%, due on demand. $25,000
Note Payable to a majority shareholder, unsecured,
bearing an interest rate of 6%, due on demand. $25,000
Note Payable to a majority shareholder, unsecured,
bearing an interest rate of 6%, due on demand. $25,000
NOTE 7 - CONVERTIBLE DEBT:
Convertible Debentures:
- ------------------------
On January 15, 2004 the Company issued $250,000 worth of 6%, 5-year Term,
Convertible Debentures, (the "Debentures) to a majority shareholder. On January
25, 2004 the Company issued $355,000 worth of 6%, 5-year Term, Convertible
Debentures to a majority shareholder. On January 26, 2004 the Company issued
$50,000 worth of 6%, 5-year Term Convertible Debentures to a majority
shareholder. On March 3, 2004 the Company issued $28,000 worth of 6%, 5-year
Term, Convertible Debentures to Preston Capital Partners. On April 1, 2004 the
Company issued $180,000 worth of 8%, 5-year Term, Convertible Debentures at a
discount of $30,000, to majority shareholders. Additionally, warrants to
purchase additional shares of common stock were attached to these Convertible
Debentures and were valued at $99,224. On May 5, 2004 the Company issued
$180,000 worth of 8%, 5-year Term, Convertible Debentures at a discount of
$30,000, to majority shareholders. Additionally, warrants to purchase
additional shares of common stock were attached to these Convertible Debentures
and were valued at $130,196. On July 7, 2004 the Company issued $180,000 worth
of 8%, 5-year Term, Convertible Debentures at a discount of $30,000, to a
majority shareholder. Additionally, warrants to purchase additional shares of
common stock were attached to these Convertible Debentures and were valued at
$127,126. On August 18, 2004 the Company issued $204,000 worth of 8%, 5-year
Term, Convertible Debentures at a discount of $34,000, to majority shareholders.
Additionally, warrants to purchase additional shares of common stock were
attached to these Convertible Debentures and were valued at $106,028. On
September 25, 2004 the Company issued $282,000 worth of 8%, 5-year Term,
Convertible Debentures at a discount of $47,000, to majority shareholders.
Additionally, warrants to purchase additional shares of common stock were
attached to these Convertible Debentures and were valued at $178,003. On October
25, 2004 the Company issued $60,000 worth of 8%, 5-year Term, Convertible
Debentures at a discount of $10,000, to a majority shareholder. Additionally,
warrants to purchase additional shares of common stock were attached to these
Convertible Debentures and were valued at $37,840. On November 11, 2004 the
Company issued $162,000 worth of 8%, 5-year Term, Convertible Debentures at a
discount of $27,000, to a majority shareholder. Additionally, warrants to
purchase additional shares of common stock were attached to these Convertible
Debentures and were valued at $168,254. On December 28, 2004 the Company issued
$240,000 worth of 8%, 5-year Term, Convertible Debentures at a discount of
$40,000, to majority shareholders. Additionally, warrants to purchase
additional shares of common stock were attached to these Convertible Debentures
and were valued at $200,010.
The Debentures shall pay six percent (6%) or eight percent (8%) cumulative
interest, in cash or in shares of common stock, par value $.001 per share, of
the Company, at the Company's option, at the time of each conversion. The
Company shall pay interest on the unpaid principal amount of this Debenture at
the time of each conversion until the principal amount hereof is paid in full or
has been converted. If the interest is to be paid in cash, the Company shall
make such payment within five (5) business days of the date of conversion. If
the interest is to be paid in Common Stock, said Common Stock shall be delivered
to the Holder, or per Holder's instructions, within five (5) business days of
the date of conversion. The Debentures 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 principal amount of the Debentures are secured by shares pledged as
collateral pursuant to the terms of a Security Agreement. These Debentures are
full recourse loans being made by the Holder and the Company is liable for any
deficiency.
A payment of $5,500 against the principle balance of the convertible debenture
dated January 15, 2004 was made during the six months ended June 30, 2005.
Amortization of the debt discount on all convertible debentures outstanding as
of June 30, 2005 amounted to $91,401 and $156,135 for the three and six months
ended June 30, 2005, and is included in interest expense on the consolidated
condensed statement of operations.
As of June 30, 2005, Convertible Debentures of $1,084,971 remained outstanding
- --------------------------------------------------------------------------------
and are comprised of the following components:
- ----------------------------------------------------
Convertible Debentures
Convertible debentures issued at face value $2,165,500
Unamortized debt discounts (205,792)
Unamortized warrants to purchase common stock (874,737)
-----------
$1,084,971
===========
Convertible Promissory Notes:
- -------------------------------
On April 19, 2005, the Company issued $264,000 of non-interest bearing
Convertible Promissory Notes, due August 18, 2005 (the "Promissory Notes") at a
discount of $44,000, to majority shareholders. On May 20, 2005, the Company
issued a $402,750 non-interest bearing Convertible Promissory Note, due
September 20, 2005 at a discount of $52,750, to a majority shareholder. On June
2, 2005, the Company issued a $540,000 non-interest bearing Convertible
Promissory Note, due December 20, 2005 at a discount of $80,000, to a majority
shareholder.
The Debentures shall be paid in cash or in shares of common stock, par value
$.001 per share, of the Company, at the Company's option, at the time of each
conversion. The Company shall pay interest on the unpaid principal amount of
this Promissory Note at the time of each conversion until the principal amount
hereof is paid in full or has been converted. If the interest is to be paid in
cash, the Company shall make such payment within five (5) business days of the
date of conversion. If the interest is to be paid in Common Stock, said Common
Stock shall be delivered to the Holder, or per Holder's instructions, within
five (5) business days of the date of conversion. The Promissory Notes are
subject to automatic conversion at the maturity date at which time all
Promissory Notes outstanding will be automatically converted based upon the
formula set forth in the agreement.
Amortization of the debt discount on all convertible promissory notes as of June
30, 2005 amounted to $52,137 for the three and six months ended June 30, 2005
and is included in interest expense on the consolidated condensed statement of
operations. Beneficial conversion feature expense relating to the convertible
promissory notes issued during the three and six months ended June 30, 2005 of
$361,688 was recorded during the three and six months ended June 30, 2005 and is
included in interest expense on the consolidated condensed statement of
operations.
Payments of $41,437 were applied against the convertible promissory note dated
April 11, 2005 during the three months ended June 30, 2005.
A total of $64,851 of the principle balance of the Convertible Promissory Notes
dated April 11, 2005 were converted to 66,516 shares of common stock during the
three months ended June 30, 2005, leaving a balance on these debts of $157,711,
as of June 30, 2005.
The principal amounts of these Promissory Notes are secured by shares pledged as
collateral pursuant to the terms of a Security Agreement. The Promissory Notes
are full recourse loans being made by the Holder. The Company is liable for any
deficiency.
As of June 30, 2005, Notes Payable - Related Parties of $1,200,848 remained
- --------------------------------------------------------------------------------
outstanding and are comprised of the following components:
- -----------------------------------------------------------------
Notes Payable - Related Parties
Promissory notes issued at face value $1,100,461
Notes payable to majority shareholders 225,000
Unamortized debt discounts (124,613)
-----------
$1,200,848
===========
NOTE 8 - CAPITAL STOCK
Common Stock
In January 2004, the Company increased the authorized shares of common stock to
300,000,000.
During the six months ended June 30, 2005, the following shares of common stock
were issued by the Company:
The Company issued 369,512 shares of the Company's common stock for $869,828 in
connection with the Equity Line Agreement dated September 13, 2004 with Preston
Capital Partners.
The Company agreed to issue 159,000 shares of the Company's common stock valued
at $169,387 to a majority shareholder as an inducement to provide financing to
the Company.
The Company issued 457,500 shares of common stock which were contracted and
accounted for as a financing inducement expense of $221,125 during the three
months ended March 31, 2004.
The Company issued 750,000 shares of common stock valued at $381,250 which were
contracted and accounted for as advertising expenses during the twelve month
period ended March 2, 2005.
atAmy Trombly1721273503We need the Note for the Exhibits section.The Company
issued 66,516 shares of common stock to majority shareholders upon the
conversion of $64,851 in convertible promissory notes dated April 11, 2005.
The Company issued 230,488 shares of the Company's common stock for $732,960 to
a majority shareholder. Proceeds of $732,960 had not yet been received by the
Company as of the date of these financial statements.
The Company issued 350,000 shares of Common Stock valued at $436,350 for
marketing service to be provided over the twelve month period beginning March 3,
2005
The Company effectuated a 3 for 1 forward stock split on February 18, 2005. All
shares have been stated to retroactively affect this reverse stock split.
Preferred Stock
Effective September30, 1996, the Company authorized 10,000,000 shares of
preferred stock at par value of $.001. There is no preferred stock outstanding
as of June 30, 2005.
NOTE 9 - FINANCIAL ACCOUNTING DEVELOPMENTS
Recently issued Accounting Pronouncements
In February 2003, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 150, "Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity". SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. This
statement establishes new standards of how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. SFAS 150 requires that an issuer classify a financial instrument that is
within the scope of this statement as a liability because the financial
instrument embodies an obligation of the issuer. This statement applies to
certain forms of mandatorily redeemable financial instruments including certain
types of preferred stock, written put options and forward contracts. SFAS 150
did not materially effect the financial statements.
In December 2003, the FASB issued FASB Interpretation No. 146, (revised December
2003) "Consolidation of Variable Interest Entities" (FIN 146) which addresses
how a business enterprise should evaluate whether it has a controlling financial
interest in an entity through means other than voting rights and accordingly
should consolidate the entity. FIN No. 146R replaces FASB Interpretation No.
146, "Consolidation of Variable Interest Entities", which was issued in January
2003. Companies are required to apply FIN No. 146R to variable interests in
variable interest entities ("VIEs") created after December 31, 2003. For
variable interest in VIEs created before January 1, 2004, the Interpretation is
applied beginning January 1, 2005. For any VIEs that must be consolidated under
FIN No. 146R that were created before January 1, 2004,the assets, liabilities
and non-controlling interests of the VIE initially are measured at their
carrying amounts with any difference between the net amount added to the balance
sheet and any previously recognized interest being recognized as the cumulative
effect of an accounting change.
If determining the carrying amounts is not practicable, fair value at the date
FIN No. 146R first applies may be used to measure the assets, liabilities and
non-controlling interest of the VIE. The Company doe not have any interest in
any VIE.
In March 2003, the FAS issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS 149 is effective for
contracts entered into or modified after June 30, 2003. This statement amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 149did
not materially effect the financial statements.
In December 2004, the FASB issued SFAS No. 123(R)(revised 2004), "Share Based
Payment" which amends FASB Statement No. 123 and will be effective for public
companies for interim or annual periods after January 15, 2005. The new standard
will require entities to expense employee stock options and other share-based
payments. The new standard may be adopted in one of three ways - the modified
prospective transition method, a variation of the modified prospective
transition method or the modified retrospective transition method. The Company
is to evaluate how it will adopt the standard and evaluate the effect that the
adoption of SFAS 123(R) will have on our financial position and results of
operations.
In November 2004, the FASB issued SFAS NO. 151, "Inventory Costs, an amendment
of ARB No 43, Chapter 4". This statement amends the guidance in ARB No. 43,
Chapter 4 Inventory Pricing, to clarify the accounting for abnormal amounts of
idle facility expense, freight, handling cost, and wasted material (spoilage).
Paragraph 5 of ARB No. 43, Chapter 4, previously stated that, "under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight and rehandling costs may be so abnormal as to require treatment as
current period charges." SFAS No. 151 requires that those items be recognized as
current-period charges regardless of whether they meet the criterion of "so
abnormal". In addition, this statement requires that allocation of fixed
production overheads to the costs of conversion be based on the prospectively
and are effective for inventory costs incurred during fiscal years beginning
after June 5, 2005, with earlier application permitted for inventory costs
incurred during fiscal years beginning after the date this Statement was issued.
The adoption of SFAS No. 151 is not expected to have a material impact on the
Company's financial position and results of operations.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary
Assets, an amendment of APB Opinion No. 29. The guidance in APB Opinion 29,
Accounting for Non-monetary Transactions, is based on the principle that
exchange of non-monetary assets should be measured based on the fair value of
assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. This Statement amends Opinion 29 to eliminate the
exception for non-monetary exchanges of similar productive assets that do not
have commercial substance. A non-monetary exchange has commercial substance if
the future cash flows of the entity are expected to change significantly as a
result of the exchange. SFAS No. 153 is effective for non-monetary exchanges
occurring in fiscal periods beginning after June 15, 2005. The adoption of SFAS
No. 153 is not expected to have a material impact on the Company's financial
position and results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 subsidiaries
serve; competition from others in the markets and industry segments occupied by
us and our subsidiaries; 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
subsidiaries; and other risks and uncertainties as may be detailed in our 10-KSB
for the year ended December 31, 2004 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.
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 our business plan. 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
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 31, 2003.
We acquired our operating subsidiary, Auction Liquidator, on October 13, 2004
and its operations are therefore not reflected on our financial statements for
the fiscal year ending December 31, 2003. We acquired our operating subsidiary,
Discount Online Warehouse, on April 13, 2004 and its operations are therefore
not reflected on our financial statements for the fiscal year ending December
31, 2003.
SIX MONTHS ENDED JUNE 30, 2005 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30,
2004.
Revenues
- --------
We generated net revenues of $3,243,248 for the six months ended June 30, 2005,
as compared to $2,656,379 for the six months ended June 30, 2004. The increase
in revenue is due to the introduction of new products, and increased marketing
and sales efforts.
Costs of Sales
- ----------------
We incurred costs of sales of $589,630 for the six months ended June 30, 2005,
as compared to $310,959 for the six months ended June 30, 2004, reflecting an
increase in costs to maintain our customers' web stores, costs associated with
printing and distributing a welcome kit to all new customers beginning in 2005,
and costs paid to a third party vendor to provide service for one of our new
products.
OperatingExpenses
- -----------------
We incurred costs of $5,218,538 for the six months ended June 30, 2005 as
compared to $4,504,175 for the six months ended June 30, 2004. The increase in
Operating Expenses was due to an increase in salaries, advertising, financing
inducement fees, and investor relations expenses. These increases were partially
offset by a decrease in director fees which totaled $1,548,000 in the first
quarter of 2004.
Net Loss
- ---------
We had a net loss of $3,277,862 for the six months ended June 30, 2005 as
compared to $2,829,305 for the six months ended June 30, 2004. The increase in
expenses due to the factors above contributed mainly to the increase in our loss
as well.
Basic and Diluted Loss Per Share
- -------------------------------------
Our basic and diluted loss per share for the six months ended June 30, 2005 was
($0.09) as compared to ($0.09) for the six months ended June 30, 2004. The loss
per share remained constant even though the net loss increased by $$448,557
because of an increase in the weighted shares outstanding of 2,547,363.
Liquidity andCapitalResources
- ------------------------------
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,
2005, we had total Current Assets of $1,060,145.
We had Current Liabilities of $1,880,251 as of June 30, 2005. Cash and cash
equivalents were $82,541 as of June 30, 2005. Our Stockholder's Deficit at June
30, 2005 was $1,134,996.
We had a net usage of cash due to operating activities in as of June 30, 2005 of
$2,193,219 as compared to $367,140 for the same period ended 2004. The increase
was due to an increase in accounts and other receivable and prepaid expenses
while director fees decreased substantially.
We had net cash provided by financing activities of $2,415,597 in the six months
ended June 30, 2005 including $1,534,653 of proceeds for the equity line and
related-party borrowings; as compared to $691,263 for the same period ended
2004.
Financing activities
- ---------------------
On February 11, 2005, we issued a Note to Dutchess Private Equities Fund, II, in
the amount of $360,000. The Note has a 0% interest rate and was repaid on May
20, 2005.
112220400On April 18, 2005, we issued a Note to Dutchess Private Equities Fund,
II, in the amount of $132,000. The Note has a 0% interest rate and is due and
payable on August 19, 2005. This note was repaid on August 5, 2005.
On April 18, 2005, we issued a Note to eFund Capital Partners, in the amount of
$132,000. The Note has a 0% interest rate and is due and payable on August 19,
2005.
On May 20, 2005, we issued a Note to Dutchess Private Equities Fund, II, in the
amount of $402,750. The Note has a 0% interest rate and is due and payable on
December 20, 2005.
On June 2, 2005, we issued a Note to Dutchess Private Equities Fund, II, in the
amount of $540,000. The Note has a 0% interest rate and is due and payable on
December 20, 2005.
Subsidiaries
- ------------
As of June 30, 2005, we have three subsidiaries, Onlinesupplier.com, Inc.,
Auction Liquidator, and Discount Online Warehouse.
ITEM 3. CONTROLS AND PROCEDURES.
Our management evaluated, with the participation of our Chief Executive Officer
and our Chief Financial Officer, the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this Quarterly Report on
Form 10-QSB. Based on this evaluation, our Chief Executive Officer and our
Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that information we are required to disclose
in reports that we file or submit under the Securities Exchange Act of 1934 (i)
is recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and (ii) is
accumulated and communicated to our management, including our Chief Executive
Officer and our Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosure. Our disclosure controls and procedures
are designed to provide reasonable assurance that such information is
accumulated and communicated to our management. Our disclosure controls and
procedures include components of our internal control over financial reporting.
Management's assessment of the effectiveness of our internal control over
financial reporting is expressed at the level of reasonable assurance that the
control system, no matter how well designed and operated, can provide only
reasonable, but not absolute, assurance that the control system's objectives
will be met.
There was no change in our internal control over financial reporting that
occurred during our last fiscal quarter that materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We believe that there are no claims or litigation pending, the outcome of which
could have a material adverse effect on our financial condition or operating
results.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
Paul S. Daniel was appointed as Chief Financial Officer on June 28, 2005.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBIT
NUMBER DESCRIPTION
- ---------------------------------------------
2.1 Agreement and Plan of Reorganization between Utah Clay Technology, Inc. and
NeWave, Inc., D.B.A. Online Supplier NeWave Shareholders and Dutchess Advisors,
Ltd., dated December 24, 2003 (included as Exhibit 2.1 to the Form 8-K filed
February 12, 2004, and incorporated herein by reference).
3.1 Articles of Incorporation (included as Exhibit 3.(i) to the Form SB-2/A
filed April 11, 2000, and incorporated herein by reference).
3.2 Amended Articles of Incorporation (included as Exhibit 3.(i) to the Form
10-QSB filed November 14, 2001, and incorporated herein by reference).
3.3 Articles of Amendment to Articles of Incorporation, dated January 30, 2004
(included as Exhibit 3.2 to the 10-QSB filed May 24, 2004, and incorporated
herein by reference).
3.4 By-laws (included as Exhibit 3.(ii) to the Form SB-2/A filed April 11,
2000,
and incorporated herein by reference).
4.1 Certificate of Designation of Series C (included as Exhibit 4.1 to the
10-KSB filed April 14, 2004, and incorporated herein by reference).
4.2 Form Series C Convertible Preferred Stock Purchase Agreement (included as
Exhibit 4.2 to the 10-KSB filed April 14, 2004, and incorporated herein by
reference).
4.3 Debenture Agreement between the Company and Dutchess Private Equities Fund,
dated January 5, 2004 (included as Exhibit 4.1 to the Form 10-QSB filed May 24,
2004, and incorporated herein by reference).
4.4 Debenture Agreement between the Company and Dutchess Private Equities Fund,
dated January 25, 2004 (included as Exhibit 4.2 to the Form 10-QSB filed May 24,
2004, and incorporated herein by reference).
4.5 Debenture Agreement between the Company and eFund Capital Partners, LLC,
dated January 26, 2004 (included as Exhibit 4.3 to the Form 10-QSB filed May
24, 2004, and incorporated herein by reference).
4.6 Debenture Agreement between the Company and eFund Capital Partners, LLC,
dated February 19, 2004 (included as Exhibit 4.4 to the Form 10-QSB filed May
24, 2004, and incorporated herein by reference).
4.7 Debenture Agreement between the Company and Preston Capital Partners, LLC,
dated March 3, 2004 (included as Exhibit 4.5 to the Form 10-QSB filed May 24,
2004, and incorporated herein by reference).
4.8 Debenture Agreement between the Company and Dutchess Private Equities Fund,
II, dated April 1, 2004 (included as Exhibit 4.6 to the Form 10-QSB filed August
23, 2004, and incorporated herein by reference).
4.9 Debenture Agreement between the Company and eFund Capital Partners, dated
April 2, 2004 (included as Exhibit 4.7 to the Form 10-QSB filed August 23, 2004,
and incorporated herein by reference).
4.10 Debenture Agreement between the Company and Dutchess Private Equities
Fund,
II, dated May 5, 2004 (included as Exhibit 4.8 to the Form 10-QSB filed August
23, 2004, and incorporated herein by reference).
4.11 Debenture Agreement between the Company and eFund Capital Partners,
dated
May 5, 2004 (included as Exhibit 4.9 to the Form 10-QSB filed August 23, 2004,
and incorporated herein by reference).
4.12 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated April 1, 2004 (included as Exhibit 4.10 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.13 Warrant Agreement between the Company and eFund Capital Partners, dated
April 2, 2004 (included as Exhibit 4.11 to the Form SB-2 filed October 8, 2004,
and incorporated herein by reference).
4.14 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated May 5, 2004 (included as Exhibit 4.12 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.15 Warrant Agreement between the Company and eFund Capital Partners, dated
May 5, 2004 (included as Exhibit 4.13 to the Form SB-2 filed October 8, 2004,
and incorporated herein by reference).
4.16 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated July 9, 2004 (included as Exhibit 4.14 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.17 Debenture Agreement between the Company and Dutchess Private Equities Fund
II, LP, dated July 9, 2004 (included as Exhibit 4.15 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.18 Debenture Agreement between the Company and Dutchess Private Equities Fund
II, LP, dated August 15, 2004 (included as Exhibit 4.16 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.19 Debenture Agreement between the Company and eFund Small Cap Fund, LP,
dated August 15, 2004 (included as Exhibit 4.17 to the Form SB-2 filed October
8, 2004, and incorporated herein by reference).
4.20 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated August 18, 2004 (included as Exhibit 4.18 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.21 Warrant Agreement between the Company and eFund Small Cap Fund, LP, dated
August 18, 2004 (included as Exhibit 4.19 to the Form SB-2 filed October 8,
2004, and incorporated herein by reference).
4.22 Debenture Agreement between the Company and Dutchess Private Equities
Fund, LP, dated September 25, 2004 (included as Exhibit 4.20 to the Form SB-2
filed October 8, 2004, and incorporated herein by reference).
4.23 Debenture Agreement between the Company and eFund Small Cap Fund, LP,
dated September 25, 2004 (included as Exhibit 4.21 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.24 Warrant Agreement between the Company and Dutchess Private Equities Fund,
LP, dated September 25, 2004 (included as Exhibit 4.22 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
4.25 Warrant Agreement between the Company and eFund Small Cap Fund, LP, dated
September 25, 2004 (included as Exhibit 4.23 to the Form SB-2 filed October 8,
2004, and incorporated herein by reference).
4.26 Debenture Agreement between the Company and Dutchess Private Equities Fund,
dated February 4, 2004 (included as Exhibit 4.24 to the Form SB-2 filed December
9, 2004, and incorporated herein by reference).
4.27 Debenture Agreement between the Company and Dutchess Private Equities
Fund, II, LP, dated October 25, 2004 (included as Exhibit 4.25 to the
Form 10-KSB filed April 15, 2005, and incorporated herein by reference).
4.28 Warrant Agreement between the Company and Dutchess Private Equities Fund,
II, LP, dated October 25, 2004 (included as Exhibit 4.26 to the Form
10-KSB filed April 15, 2005, and incorporated herein by reference).
4.29 Debenture Agreement between the Company and Dutchess Private Equities
Fund, II, LP, dated November 11, 2004 (included as Exhibit 4.27 to the
Form 10-KSB filed April 15, 2005, and incorporated herein by reference).
4.30 Warrant Agreement between the Company and Dutchess Private Equities Fund,
LP, dated November 11, 2004 (included as Exhibit 4.28 to the Form 10-KSB
Filed April 15, 2005, and incorporated herein by reference).
4.31 Debenture Agreement between the Company and Dutchess Private Equities
Fund, II, LP, dated December 28, 2004 (included as Exhibit 4.29 to the
Form 10-KSB filed April 15, 2005, and incorporated herein by reference).
4.32 Warrant Agreement between the Company and Dutchess Private Equities Fund,
LP, dated December 28, 2004 (included as Exhibit 4.30 to the Form 10-KSB
filed April 15, 2005, and incorporated herein by reference).
4.33 Promissory Note between the Company and Dutchess Private Equities
Fund, II, LP, dated February 11, 2005 (included as Exhibit 4.31 to the
Form 10-QSB filed
May 23, 2005, and incorporated herein by reference).
4.34 Promissory Note between the Company and eFund Small Cap Fund, L.P.,
dated April 8, 2005 (filed herewith).
4.35 Promissory Note between the Company and Dutchess Private Equities
Fund, II, LP, dated April 12, 2005 (filed herewith).
4.36 Promissory Note between the Company and Dutchess Private Equities
Fund, II, LP, dated May 20, 2005 (filed herewith).
4.37 Promissory Note between the Company and Dutchess Private Equities
Fund, II, LP, dated June 2, 2005 (filed herewith).
4.38 Receivable Factoring Agreement between the Company and Dutchess
Private Equities
Fund, II, LP, dated June 8, 2005 (filed herewith).
10.1 2000 Stock Option Plan (included as Exhibit 9 to the Form SB-2/A filed
April 11, 2000, and incorporated herein by reference).
10.2 Sublease between the Company and Pinnacle Sales Group, LLC, dated August
18, 2003 (included as Exhibit 10.1 to the Form 10-KSB filed April 14, 2004, and
incorporated herein by reference).
10.3 Sublease Agreement between the Company and Mammoth Moving Inc., dated July
14, 2003 (included as Exhibit 10.2 to the Form 10-KSB filed April 14, 2004, and
incorporated herein by reference).
10.4 Investment Agreement between the Company and Preston Capital Partners,
LLC,
dated September 13, 2004 (included as Exhibit 10.3 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
10.5 Registration Rights Agreement between the Company and Preston Capital
Partners, LLC, dated September 13, 2004 (included as Exhibit 10.4 to the Form
SB-2 filed October 8, 2004, and incorporated herein by reference).
10.6 Placement Agent Agreement between the Company, Preston Capital Partners,
and Legacy Trading Co., LLC, Inc., dated September 13, 2004 (included as Exhibit
10.5 to the Form SB-2 filed October 8, 2004, and incorporated herein by
reference).
10.7 Registration Rights Agreement between the Company and Dutchess Private
Equities Fund, LP, dated January 14, 2004 (included as Exhibit 10.1 to the Form
10-QSB filed May 24, 2004, and incorporated herein by reference).
10.8 Registration Rights Agreement between the Company and Dutchess Private
Equities Fund, LP, dated January 26, 2004 (included as Exhibit 10.2 to the Form
10-QSB filed May 24, 2004, and incorporated herein by reference).
10.9 Registration Rights Agreement between the Company and eFund Capital
Partners, LLC, dated January 26, 2004 (included as Exhibit 10.3 to the Form
10-QSB filed May 24, 2004, and incorporated herein by reference).
10.10 Registration Rights Agreement between the Company and eFund Capital
Partners, LLC, dated February 19, 2004 (included as Exhibit 10.4 to the Form
10-QSB filed May 24, 2004, and incorporated herein by reference).
10.11 Registration Rights Agreement between the Company and Preston Capital
Partners, LLC, dated March 3, 2004 (included as Exhibit 10.5 to the Form 10-QSB
filed May 24, 2004, and incorporated herein by reference).
10.12 Consulting Agreement between the Company and Luminary Ventures, Inc.,
dated March 2, 2004 (included as Exhibit 99.1 to the Form S-8 filed March 11,
2004, and incorporated herein by reference).
10.13 Consulting Agreement between the Company and Jeffrey Conrad, dated January
30, 2004 (included as Exhibit 99.2 to the Form S-8 filed February 13, 2004, and
incorporated herein by reference).
10.14 Consulting Agreement between the Company and Catherine Basinger, dated
January 30, 2004 (included as Exhibit 99.3 to the Form S-8 filed February 13,
2004, and incorporated herein by reference).
10.15 Consulting Agreement between the Company and Barrett Evans, dated August
18, 2003 (included as Exhibit 10.11 to the Form 10-QSB filed August 23, 2004,
and incorporated herein by reference).
10.16 Consulting Agreement between the Company and Michael Hill, dated August
18, 2003 (included as Exhibit 10.12 to the Form 10-QSB filed August 23, 2004,
and incorporated herein by reference).
10.17 Lead Marketing Agreement between the Company and Vandalay Venture, Group,
Inc. d/b/a Applied Merchant, dated June 2004 (included as Exhibit 10.13 to the
Form 10-QSB filed August 23, 2004, and incorporated herein by reference).
10.18 Standard Multi-Tenant Office Lease between the Company and La Patera
Investors, dated April 9, 2004 (included as Exhibit 10.17 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
10.19 ASP Software Subscription Agreement between the Company and Net Chemistry,
dated August 11, 2004 (included as Exhibit 10.18 to the Form SB-2 filed October
8, 2004, and incorporated herein by reference).
10.20 Consulting Agreement between the Company and Pacific Shore Investments,
LLC, dated August 15, 2004 (included as Exhibit 10.19 to the Form SB-2 filed
October 8, 2004, and incorporated herein by reference).
10.21 Membership Agreement between the Company and Memberworks, dated September
30, 2003 (included as Exhibit 10.20 to the Form SB-2 filed October 8, 2004, and
incorporated herein by reference).
10.22 Amendment to Membership Agreement between the Company and Memberworks,
dated August 17, 2004 (included as Exhibit 10.21 to the Form SB-2 filed October
8, 2004, and incorporated herein by reference).
10.23 Revolving Credit Facility between the Company and Dutchess Private
Equities Fund and eFund, dated March 9, 2004 (included as Exhibit 10.23 to the
Form 10-QSB filed November 22, 2004, and incorporated herein by reference).
10.24 Line of Credit Agreement between the Company and Barrett Evans, dated
August 18, 2003 (included as Exhibit 10.23 to the Form SB-2 filed December 9,
2004, and incorporated herein by reference).
10.25 Debt Financing Agreement between the Company and Shirley Oaks, dated
January 26, 2004 (included as Exhibit 10.24 to the Form SB-2 filed December 9,
2004, and incorporated herein by reference).
10.26 Consulting Agreement between the Company and Aaron Gravitz, dated August
18, 2003 (included as Exhibit 10.25 to the Form SB-2 filed December 9, 2004, and
incorporated herein by reference).
10.27 Debt Financing Agreement between the Company and Sharon Paugh, dated
January 26, 2004 (included as Exhibit 10.26 to the Form SB-2 filed December 9,
2004, and incorporated herein by reference).
10.28 Debt Financing Agreement between the Company and Jennifer Strohl, dated
March 22, 2004 (included as Exhibit 10.27 to the Form SB-2 filed December 9,
2004, and incorporated herein by reference).
10.29 Business Services Agreement between the Company and Luminary Ventures,
Inc., dated March 3, 2005 (included as Exhibit 10.1 to the Form S-8 filed April
29, 2005, and incorporated herein by reference).
10.30 Employment Offer Letter between the Company and Paul Daniel, dated June
24, 2005 (included as Exhibit 10.1 to the Form 8-K filed August XX, 2005, and
incorporated herein by reference).
14.1 Corporate Code of Conduct and Ethics (included as Exhibit 14.1 to the
10-KSB filed April 14, 2004, and incorporated herein by reference).
21.1 List of Subsidiaries (filed herewith).
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Reports Filed on Form 8-K
None.
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 19, 2005 NeWave, Inc.
/s/ Michael Hill
-----------------------
Michael Hill
Chief Executive Officer
Dated: August 19, 2005
/s/ Paul Daniel
-----------------
Paul Daniel
Chief Financial Officer