UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
[ ] TRANSITION REPORT UNDER 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)
30 S. La Patera Lane, Suite 7
Goleta, CA 93117
-----------------------------------------------------------
(Address and telephone number of principal executive offices)
805-964-9132
--------------
(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 ___
Indicate by check mark whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act) Yes ___ No X
As of March 31, 2006, the Issuer had 40,361,513 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. 1-23
Item 2. Management's Discussion and Analysis or Plan of Operation. 23
Item 3. Controls and Procedures. 26
PART II. OTHER INFORMATION
- ----------------------------
Item 1. Legal Proceedings. 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 27
Item 3. Defaults Upon Senior Securities. 27
Item 4. Submission of Matters to a Vote of Security Holders. 27
Item 5. Other Information. 27
Item 6. Exhibits and Reports on Form 8-K. 28
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NEWAVE, INC.
(FORMERLY UTAH CLAY TECHNOLOGY, INC.)
FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 2006 AND 2005
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 March 31, 2006, and the related consolidated statement of operations,
stockholders' equity and cash flows for the three-month period then ended.
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. Management's plans in regard to these matters are described in
Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Jaspers + Hall, PC
Denver, CO
May 2, 2006
1
NEWAVE, INC.
CONSOLIDATED INCOME STATEMENT
Unaudited
For the three months ended
-------------------------------
March 31 March 31
2006 2005
-------------- --------------
REVENUE:
Membership Revenue $ 3,307,623 $ 879,941
Upsell Revenue 210,521 237,904
Lead Revenue 388,827 65,317
Other Revenue 25,372 75,454
-------------- --------------
Total Revenue $ 3,932,343 $ 1,258,616
-------------- --------------
Cost of Goods Sold 687,575 182,924
-------------- --------------
GROSS MARGIN 3,244,768 1,075,692
-------------- --------------
EXPENSES:
Salaries 533,213 749,048
Advertising 1,106,616 733,651
Other Expenses 1,070,352 755,424
-------------- --------------
Total Operating Expenses 2,710,181 2,238,123
Other Expense (Income)
Interest 340,207 129,049
-------------- --------------
Total Other Income (Expense) 340,207 129,049
-------------- --------------
LOSS BEFORE INCOME TAXES $ 194,380 $ (1,291,480)
-------------- --------------
Provision for income taxes - -
-------------- --------------
NET INCOME (LOSS) $ 194,380 $ (1,291,480)
============== ==============
BASIC NET INCOME (LOSS) PER COMMON SHARE $ 0.00 $ (0.04)
============== ==============
DILUTED NET INCOME (LOSS) PER SHARE $ 0.00 $ (0.04)
============== ==============
BASIC WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 39,445,891 34,345,673
============== ==============
DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON SHARES OUTSTANDING 66,143,150 34,345,673
============== ==============
<FN>
See accompanying notes to financial statements
2
NEWAVE, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
Unaudited
March 31 December 31
2006 2005
-------------- --------------
ASSETS:
CURRENT ASSETS:
Cash 690,368 253,856
Accounts Receivable 690,861 520,081
Allowance for Doubtful Accounts (277,500) (265,000)
Other Receivables
Inventory 2,590 2,590
Prepaid Expenses 1,301,214 388,587
-------------- --------------
Total Current Assets 2,407,533 900,114
-------------- --------------
FIXED ASSETS:
Equipment 577,512 578,493
Furniture & Fixtures 75,627 75,627
Computers & Software 253,083 240,677
Leasehold Improvements 103,124 103,124
-------------- --------------
Total Fixed Assets 1,009,346 997,921
Less: Accumulated Depreciation (337,044) (292,311)
-------------- --------------
Net Fixed Assets 672,302 705,610
-------------- --------------
OTHER ASSETS:
Deposits . 16,392 16,392
-------------- --------------
Total Other Assets 16,392 16,392
-------------- --------------
TOTAL ASSETS 3,096,227 1,622,116
============== ==============
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Liabilities 1,292,102 710,364
Notes Payable 118,000 345,998
Deferred Revenue 918,983 336,000
-------------- --------------
Total current liabilities 2,329,085 1,392,362
-------------- --------------
LONG-TERM DEBT
Convertible Debentures - Long Term 2,848,903 3,084,018
-------------- --------------
Total long-term debt 2,848,903 3,084,018
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock, 100,000,000 shares authorized
shares at $.001 par value, 40,361,513 shares issued
and outstanding at March 31, 2006 40,362 39,096
Additional paid-in capital 8,567,736 8,230,224
Preferred Shares to be issued 0 0
Shares to be issued 2,143 1,843
Shares to be returned (1,079) (1,805)
Deferred Compensation (23,435) (71,853)
Subscriptions receivable 0 (189,900)
Accumulated deficit (10,667,488) (10,861,869)
-------------- --------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (2,081,761) (2,854,264)
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT) 3,096,227 1,622,116
============== ==============
<FN>
See accompanying notes to financial statements
3
NEWAVE, INC.
CONSOLIDATED Cash flow statement
Unaudited
For the three months ended
--------------------------------
March 31 March 31
2006 2005
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 194,380 $ (1,291,480)
Adjustment to reconcile net loss to net cash
(used in) operating activities:
Stock issued for services 104,668
Depreciation and amortization. 259,011
Bad Debt Expense 12,500 32,861
Debt conversion feature expense 37,411
Debt inducement expense 552,793
Changes in Operating Assets/Liabilities
Accounts receivable (170,779) 108,495
Other receivables 434,560
Inventory (0) (43,874)
Prepaid Expenses (912,627) 115,975
Deposits - 2
Deferred Revenue 582,983 47,806
Accounts payable and accruals 581,738 (16,683)
-------------- --------------
NET CASH FLOWS GENERATED (USED) BY OPERATING ACTIVITIES 689,285 (59,545)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets (11,425) (88,317)
-------------- --------------
NET CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES (11,425) (88,317)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 66,211
Exercise of warrants . 2,000
Payments on Notes payable (335,248) (24,108)
Reduction in stock subscription receivable 189,900
Proceeds from long term debt - related party. 64,734
Proceeds from notes payable & debentures 68,000
Payment of long-term debt (15,000)
Payment of long-term debt - related party (151,000)
Conversion of Debenture (244,143)
Issuance of Common Stock upon conversion of debentures 244,143
-------------- --------------
NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES (241,348) 106,837
-------------- --------------
NET INCREASE (DECREASE) IN CASH 436,512 (41,025)
-------------- --------------
CASH AT BEGINNING OF PERIOD 253,856 210,361
-------------- --------------
CASH AT END OF PERIOD 690,368 169,336
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest 52,880 45,135
============== ===========
Cash paid for taxes $ 800 800
============== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Stock issued for services $ 104,668 $ 0
<FN>
See accompanying notes to financial statements
4
Consolidated Condensed Statement of Stockholders' Equity
31-Mar-06
Unaudited
Common Stock
-----------------------------------------
Par
Shares 0.001
--------------- ---------------
BALANCE, December 31, 2004 33,885,117 $ 33,891
=============== ===============
Issuance of stock
for equity line 1,550,000 1,544
Issuance of stock
for inducement 808,500 810
Issuance of stock
for cash 264,000 264
Beneficial Conversion - -
Exercise of Puts
Conversion on convertible debentures 66,516 67
Stock Issued for Services 1,100,000 1,100
Re-issuance of stock as
registered. 1,420,500 1,420
Issuance of stock warrants - -
Reduction in stock subscription receivable, pre merger
Issuance of Stock Subscription Agreements -
Net Loss for Period . - -
--------------- ---------------
BALANCE, December 31, 2005
39,094,633 $ 39,096
=============== ===============
Beneficial Conversion
Exercise of Warrants 120,000 120
Conversion on convertible debentures 1,872,251 1,873
Shares returned to Company (725,371) (726)
Issuance of Stock for Services
Payment received for stock subscription agreements
Net Income for Period
--------------- ---------------
40,361,513 $ 40,363
=============== ===============
<FN>
(Continued)
5
Consolidated Condensed Statement of Stockholders' Equity
31-Mar-06
Unaudited
(Continued)
Common Stock
------------------------------------------------------
Total
Additional Shares Shares Stock Accum- Stock-
Paid In To be To be Deferrred Sub ulated holders'
Capital Issued Returned Compensation Receivable Deficit Equity
---------- ------ -------- ------------ ---------- ------------ --------
BALANCE, December 31, 2004 $4,844,385 $1,473 $ - $ (199,150) $ (59,880) $(4,595,945) $ 24,774
========== ====== ======== ============ ========== ============ ========
Issuance of stock
for equity line (1,165) (385) - (6)
Issuance of stock
for inducement 322,135 (410) 322,535
Issuance of stock
for cash - (264) - - 0
Beneficial Conversion 754,238 - - - 754,238
Exercise of Puts 1,348,696 - 1,348,696
Conversion on convertible debentures 56,472 - - - 56,539
Stock Issued for Services 436,000 (750) 127,297 - - 563,647
Re-issuance of stock as
registered. - - (1,420) - 0
Issuance of stock warrants 341,238 - - - 341,238
Reduction in stock subscription receivable, pre merger (59,880) 59,880 0
Issuance of Stock Subscription Agreements 188,105 1,794 (189,900) (1)
Net Loss for Period . - - - (6,265,924) (6,265,924)
---------- ------ -------- ------------ ---------- ------------ --------
BALANCE, December 31, 2005
$8,230,224 $1,843 $(1,805) $ (71,853) $(189,900) $(10,861,869)$(2,854,264)
========== ====== ======== ============ ========== ============ ========
Beneficial Conversion 37,411 37,411
Exercise of Warrants 1,880 2,000
Conversion on convertible debentures 242,270 244,143
Shares returned to Company 726 0
Issuance of Stock for Services 55,950 300 48,418 1 104,669
Payment received for stock subscription agreements 189,900 189,900
Net Income for Period 194,380 194,380
---------- ------ -------- ------------ ---------- ------------ --------
$8,567,735 $2,143 $(1,079) $ (23,435) $ - $(10,667,488)$(2,081,761)
========== ====== ======== ============ ========== ============ ========
6
NEWAVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2006
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
recapitalization of NeWave dba Onlinesupplier.com accompanied by an issuance of
stock by NeWave d/b/a 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 d/b/a 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, 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.
7
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 has incurred a cumulative net loss of $10,861,869 since inception.
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 cash generated
from operations, and, if necessary and available, 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:
- -------------------------------------------
Basic and diluted loss per share is computed on the basis on the weighted
average of common shares outstanding. Diluted earnings per share is calculated
based on the same number of shares plus additional shares representing stock
distributable under common stock warrant agreements and convertible debt
agreements. For the period ended March 31, 2005 the Company's common stock
equivalents were excluded from the calculation of diluted loss per common share
because they were anti-dilutive to the Company's net loss in that period. At
March 31, 2005, there were convertible debts and warrants to purchase common
stock which were outstanding and may dilute future earnings per share.
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 estimation 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.
8
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 three primary 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, and revenue generated from
sale of our customer information or by sharing the revenues generated from
contacting the Company's customer with third parties. Other sources of revenue
include 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 confirmation that the credit card processing has been successful. The
Company does not recognize the revenues earned related to membership fees
charged to credit cards until the collection of the revenue is assured. This is
due to the uncertainty surrounding the credit card transactions. Current terms
of the onlinesupplier.com membership agreement stipulate that the customer pays
a nonrefundable fee between $1.85 and $9.95 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
membership terms are agreed to under a negative option that the Company will
continue to bill the customer on a monthly basis until they cancel their
account. The Company initiates the sale of products for its affiliates during
the process of selling the Company's own products, normally when an individual
accesses the Company's internet home page or 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. On a historical basis, the Company's 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 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.
9
ADVERTISING COSTS
- ------------------
The Company expenses the media costs of advertising the first time the
advertising takes place, except for direct-response advertising that is
contracted with the Company's advertising partners on a cost per customer
acquired basis, which is capitalized and amortized over its expected period of
future benefits. Direct-response advertising consists primarily of on line
advertising that include reference codes that are used for purchasing the
Company's products and services. The capitalized costs of the advertising are
amortized over the three-month period following the receipt of a trial order for
the Company's products and services. At March 31, 2006, and March 31, 2005,
capitalized direct-response advertising costs of $890,806 and zero,
respectively, were included in "Prepaid Expenses" in the accompanying Balance
Sheets. Advertising expense was $1,106,616 and $733,651 For the three months
ended March 31, 2006, and March 31, 2005.
DISCONTINUED OPERATIONS
- -----------------------
In April, 2004, the Company organized Discount Online Warehouse as a
wholly-owned subsidiary to offer heavily discounted products purchased in bulk
to consumers. The Company organized its subsidiary, Auction Liquidator, Inc., in
September 2004 and Auction Liquidator began to generate immaterial revenues in
October 2004. During 2005, management decided to cease operations at Auction
Liquidator, Inc. and Discount Online Warehouse in order to focus efforts and
resources on Onlinesupplier.com. Discontinued operations did not have a material
effect on the financial statements.
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.
March 31,2006 December 31, 2005
------------- -----------------
Deferred tax assets
Net operating loss carryforwards $ 13,260,800 $ 13,455,180
Valuation allowance (13,260,800) (13,455,180)
------------- -------------
Net deferred tax assets $ 0 $ 0
============= =============
At March 31, 2006, the Company had net operating loss carryforwards of
approximately 13,260,800 for federal income tax purposes. These carryforwards if
not utilized to offset taxable income will begin to expire in 2025.
10
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 has incurred cumulative net losses of $10,861,869 since its
inception. 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 cash
generated from operations, and if necessary, private funding and funding from
the officers of the Company.
NOTE 4 - ACCOUNTS RECEIVABLE
As of March 31, 2006, accounts receivable, consists of the following:
Accounts Receivable
Impact Legal $284,482
Platinum Values 72,256
Misc. Receivables 334,123
--------
$690,861
========
NOTE 5 - ACCOUNTS PAYABLE & ACCRUED EXPENSES
As of March 31, 2006, accounts payable and accrued expenses, consists of the
following:
Accounts Payable and Accrued Expenses $1,011,140
Accrued Payroll and Payroll Taxes 185,260
Accrued Interest 95,702
----------
$1,292,102
==========
NOTE 6 - NOTES PAYABLE - RELATED PARTIES AND OTHERS
NOTES PAYABLE - RELATED PARTIES:
- -----------------------------------
At March 31, 2006, the Company had Notes Payable to two majority shareholders
for $25,000 each for a total of $50,000. Each note is unsecured, due on demand,
and bears interest at a rate of 12%. See Note 7 for further information
regarding convertible notes payable to related parties.
NOTE 7 - CONVERTIBLE DEBT
CONVERTIBLE DEBENTURES:
- ------------------------
On January 5, 2004, the Company issued $125,000 worth of 6%, 5-year Term,
Convertible Debentures to a minority shareholder. During the three months ended
March 31, 2006, $6,590 of the total debenture amount was converted into 49,000
shares of common stock, and $15,000 of the total debenture was repaid. At March
31, 2006, $103,410 was outstanding for this debenture.
11
On January 15, 2004, the Company issued convertible debentures of $250,000 to
Dutchess Private Equities Fund LP. The debentures convert on January 15, 2009.
The holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. During the three
months ended March 31, 2006, $83,068 of the total debenture amount was converted
into 655,950 shares of common stock. At March 31, 2006, $166,933 was outstanding
for this debenture.
On January 19, 2004, the Company issued convertible debentures of $305,000 to
eFund Capital Partners, LLC. The debentures convert on January 19, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. During the three
months ended March 31, 2006, $41,775 of the total debenture amount was converted
into 281,480 shares of common stock, and $48,500 of the total debenture was
repaid. At March 31, 2006, $214,725 was outstanding for this debenture.
On January 25, 2004, the Company issued convertible debentures of $50,000 to
Dutchess Private Equities Fund LP. The debentures convert on January 25, 2009.
The holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. At March 31, 2006,
$44,500 was outstanding for this debenture.
On January 25, 2004, the Company issued convertible debentures of $50,000 to
eFund Capital Partners, LLC. The debentures convert on January 25, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. During the three
months ended March 31, 2006, the entire $50,000 of this debenture was converted
into 398,150 shares of common stock. At March 31, 2006, this debenture was fully
repaid.
On March 3, 2004, the Company issued convertible debentures of $28,000 to
Preston Capital Partners, LLC. The debentures convert on March 3, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 6% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. At March 31, 2006,
$28,000 was outstanding for this debenture.
On April 1, 2004, the Company issued convertible debentures of $90,000 to
Dutchess Private Equities Fund, II. 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 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.
The convertible debentures shall pay 8% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. The debenture was
issued at a discount of $15,000. On July 9, 2004, the Company issued a warrant
to Dutchess Private Equities Fund, II, to purchase 225,000 of common shares at
an exercise price at $1.42 per share. These warrants were valued at $49,612.
During the three months ended March 31, 2006, $34,536 of this debenture was
converted into 287,801 shares of common stock. At March 31, 2006, this debenture
was fully repaid.
12
On April 1, 2004, the Company issued convertible debentures of $90,000 to eFund
Capital Partners, LLC. 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 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. The convertible
debentures shall pay 8% cumulative interest, payable in cash or stock at the
Company's option, at the time of conversion. The debenture was issued at a
discount of $15,000. On July 9, 2004, the Company issued a warrant to eFund
Capital Partners, LLC, to purchase 225,000 of common shares at an exercise price
at $1.42 per share. These warrants were valued at $49,612. During the three
months ended March 31, 2006, $23,000 of this debenture was converted into
170,370 shares of common stock. At March 31, 2006, $67,000 was outstanding for
this debenture.
On May 5, 2004, the Company issued convertible debentures of $90,000 to Dutchess
Private Equities Fund, II. 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 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. The convertible
debentures shall pay 8% cumulative interest, payable in cash or stock at the
Company's option, at the time of conversion. The debenture was issued at a
discount of $15,000. On July 9, 2004, the Company issued a warrant to Dutchess
Private Equities Fund, II, to purchase 225,000 of the Company's common shares at
an exercise price at $1.42 per share. These warrants were valued at $65,098.
During the three months ended March 31, 2006, $5,175 of this debenture was
converted into 30,000 shares of common stock. At March 31, 2006, $84,825 was
outstanding for this debenture.
On May 5, 2004, the Company issued convertible debentures of $90,000 to eFund
Capital Partners, LLC. 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 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. The convertible
debentures shall pay 8% cumulative interest, payable in cash or stock at the
Company's option, at the time of conversion. The debenture was issued at a
discount of $15,000. On July 9, 2004, the Company issued a warrant to eFund
Capital Partners, LLC, to purchase 225,000 of common shares at an exercise price
at $1.42 per share. These warrants were valued at $65,098. At March 31, 2006,
$90,000 was outstanding for this debenture.
On July 9, 2004, the Company issued convertible debentures of $180,000 to
Dutchess Private Equities Fund, II. The debentures convert on July 9, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 8% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. The debenture was
issued at a discount of $30,000. On July 9, 2004, the Company issued a warrant
to Dutchess Private Equities Fund, II, to purchase 450,000 of common shares at
an exercise price at $1.17 per share. These warrants were valued at $127,126. At
March 31, 2006, $180,000 was outstanding for this debenture.
13
On August 15, 2004, the Company issued convertible debentures of $144,000 to
Dutchess Private Equities Fund, II. The debentures convert on August 15, 2009.
The holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 8% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. This debenture was
issued at a discount of $24,000. On August 18, 2004, the Company issued a
warrant to Dutchess Private Equities Fund, II, to purchase 360,000 of common
shares at an exercise price at $1.03 per share. These warrants were valued at
$74,843. At March 31, 2006, $144,000 was outstanding for this debenture.
On August 15, 2004, the Company issued convertible debentures of $60,000 to
eFund Small Cap Fund, LP. The debentures convert on August 15, 2009. The holder
of the debentures can convert the face value of the debenture plus accrued
interest into shares of 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. The
convertible debentures shall pay 8% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. This debenture was
issued at a discount of $10,000. On August 18, 2004, the Company issued a
warrant to eFund Capital Partners, to purchase 150,000 of common shares at an
exercise price at $1.03 per share. These warrants were valued at $31,185. During
the three months ended March 31, 2006, $53,000 of this debenture was repaid, and
$7,000 of this debenture was forgiven. At March 31, 2006, this debenture was
fully repaid.
On September 25, 2004, the Company issued convertible debentures of $222,000 to
Dutchess Private Equities Fund. The debentures convert on September 25, 2009.
The holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 8% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. This debenture was
issued at a discount of $37,000. On September 25, 2004, the Company issued a
warrant to Dutchess Private Equities Fund, to purchase 540,000 of common shares
at an exercise price at $1.25 per share. These warrants were valued at $140,130.
At March 31, 2006, $222,000 was outstanding for this debenture.
On September 25, 2004, the Company issued convertible debentures of $60,000 to
eFund Small Cap Fund, LP. The debentures convert on September 24, 2009. The
holder of the debentures can convert the face value of the debenture plus
accrued interest into shares of 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.
The convertible debentures shall pay 8% cumulative interest, payable in cash or
stock at the Company's option, at the time of conversion. This debenture was
issued at a discount of $10,000. On September 25, 2004, the Company issued a
warrant to eFund Capital Partners, to purchase 150,000 of common shares at an
exercise price at $1.25 per share. These warrants were valued at $37,873. At
March 31, 2006, $60,000 was outstanding for this debenture.
On October 25, 2004, the Company issued convertible debentures of $60,000 to
Dutchess Private Equities Fund, II, LP. The debentures convert on October 25,
2009. The holder of the debentures can convert the face value of the debenture
plus accrued interest into shares of 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. The convertible debentures shall pay 8% cumulative interest,
payable in cash or stock at the Company's option, at the time of conversion.
This debenture was issued at a discount of $10,000. On October 25, 2004, the
Company issued a warrant to Dutchess Private Equities Fund, II, to purchase
150,000 of common shares at an exercise price at $1.53 per share. These warrants
were valued at $37,840. At March 31, 2006, $60,000 was outstanding for this
debenture.
14
On November 11, 2004, the Company issued convertible debentures of $162,000 to
Dutchess Private Equities Fund, II, LP. The debentures convert on November 11,
2009. The holder of the debentures can convert the face value of the debenture
plus accrued interest into shares of 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. The convertible debentures shall pay 8% cumulative interest,
payable in cash or stock at the Company's option, at the time of conversion.
This debenture was issued at a discount of $27,000. On November 11, 2004, the
Company issued a warrant to Dutchess Private Equities Fund, II, to purchase
480,000 of common shares at an exercise price at $1.25 per share. These warrants
were valued at $168,254. At March 31, 2006, $162,000 was outstanding for this
debenture.
On December 28, 2004, the Company issued convertible debentures of $240,000 to
Dutchess Private Equities Fund, II, LP. The debentures convert on December 28,
2009. The holder of the debentures can convert the face value of the debenture
plus accrued interest into shares of 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. The convertible debentures shall pay 8% cumulative interest,
payable in cash or stock at the Company's option, at the time of conversion.
This debenture was issued at a discount of $40,000. On December 28, 2004, the
Company issued a warrant to Dutchess Private Equities Fund, II, to purchase
720,000 of common shares at an exercise price at $1.25 per share. These warrants
were valued at $200,010. During the three months ended March 31, 2006, $49,500
of this debenture was repaid. At March 31, 2006, $190,500 was outstanding for
this debenture.
The Debentures 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 pays
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.
Effective November 1, 2005, the Company entered into a Convertible Debenture
agreement with a majority shareholder to issue $180,000 worth of 5% interest
bearing, 5-year Term, Convertible Debentures at a discount of $178,200. The
debentures are convertible into shares of the Company's common stock at a price
equal to the lesser of; (i) seventy-five percent (75%) of the average of the
closing bid price of the stock for the five days prior to conversion or (ii) the
average of the closing bid price of the stock on the five (5) days immediately
preceding the date of the of debenture agreement. At March 31, 2006, $180,000
was outstanding for this debenture.
15
Effective December 18, 2005, the Company entered into a Convertible Debenture
Exchange Agreement with majority shareholders to exchange the unpaid balance of
promissory notes issued in 2005 worth $1,784,239 into 10%, 4-year term,
Convertible Debentures. The debentures are convertible at the lesser of (i)
seventy-five percent (75%) of the average of the lowest closing bid price during
fifteen (15) immediately preceding the conversion date or (ii) 100% of the
average of the closing bid price of the stock for the twenty (20) days
immediately preceding the closing date of the debenture agreement. At March
31, 2006, $1,784,239 was outstanding for this debenture.
Amortization of the debt discount on all convertible debentures outstanding as
of March 31, 2006 amounted to $186,452 and $64,734 for the three months ended
March 31, 2006 and 2005, and is included in interest expense on the consolidated
condensed statement of operations.
As of March 31, 2006, Convertible Debentures of $2,848,903 remained outstanding
and are comprised of the following components:
Convertible Debentures
Convertible debentures issued at face value $3,782,132
Unamortized debt discounts (307,168)
Unamortized warrants to purchase common stock (626,061)
-----------
$2,848,903
===========
CONVERTIBLE PROMISSORY NOTES:
- -------------------------------
On September 16, 2005, the Company issued a Note to Dutchess Private Equities
Fund, L.P., in the amount of $192,000, at a discount of $32,000. The Note has a
0% interest rate and $162,752 was repaid during 2005, and the remaining $29,248
was outstanding at December 31, 2005. This amount was due and payable on March
15, 2006, and was repaid on March 1, 2006.
On September 30, 2005, the Company issued a Note to Dutchess Private Equities
Fund, LP, in the amount of $276,000, at a discount of $46,000. The Note has a 0%
interest rate and is due and payable on March 30, 2006. On March 1, 2006, we
repaid $210,000 of this note. On March 30, 2006, we repaid the remaining balance
of $66,000.
On October 11, 2005, the Company issued a Note to Dutchess Private Equities
Fund, LP, in the amount of $30,000, at a discount of $5,000. The Note has a 0%
interest rate and is due and payable on April 11, 2006, and was repaid on March
30, 2006.
On January 6, 2006, the Company issued a convertible promissory note of $20,000
to an unrelated party. The promissory note matures on January 6, 2007. The
Holder, at their option, shall have the right to receive 20% simple interest or
convert the promissory note into shares of common stock. The holder of the
promissory note can convert the face value of the debenture into shares of
common stock at either (i) 70% of the market value of the stock on the day of
conversion or (ii) 200,000 shares of common stock, whichever results in the
greater value to the Holder. At March 31, 2006, $20,000 was outstanding for this
debenture.
On January 9, 2006, the Company issued a convertible promissory note of $48,000
to an unrelated party. The promissory note matures on January 9, 2007. The
Holder, at their option, shall have the right to receive 20% simple interest or
convert the promissory note into shares of common stock. The holder of the
promissory note can convert the face value of the debenture into shares of
common stock at either (i) 70% of the market value of the stock on the day of
conversion or (ii) 480,000 shares of common stock, whichever results in the
greater value to the Holder. At March 31, 2006, $48,000 was outstanding for this
debenture.
16
Amortization of the debt discount on all convertible promissory notes amounted
to $39,250 and zero for the three months ended March 31, 2006 and March 31,
2005. This amortization 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 months
ended March 31, 2006 and March 31, 2005 amounted to $37,411 and zero, and is
included in interest expense on the consolidated condensed statement of
operations.
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 March 31, 2006, Notes Payable of $118,000 remained outstanding and are
comprised of the following components:
Notes Payable
Promissory notes issued at face value $ 68,000
Notes payable to majority shareholders 50,000
-----------
$ 118,000
===========
NOTE 8 - CAPITAL STOCK
COMMON STOCK
- -------------
In January 2004, the Company increased the number of authorized shares of common
stock to 100,000,000.
The Company effectuated a 3 for 1 forward stock split on February 18, 2005. All
shares have been stated to retroactively affect this forward stock split.
During the three months ended March 31, 2006, the outstanding shares of common
stock were changed by the following:
- - The Company issued 120,000 shares to a minority shareholder due to the
exercise of a warrant.
- - The Company issued 1,823,251 shares of common stock to majority
shareholders upon the conversion of $237,554 in convertible debentures
dated January 15, 2004, January 19, 2004, January 25, 2004, April 1, 2004,
May 5, 2004, and December 28, 2004. The shares were valued at 75% of the
lowest closing bid price in the fifteen days prior to execution of the
conversion.
- - The Company issued 49,000 shares of common stock to a minority shareholder
upon the conversion of $6,589 in convertible debentures dated January 6,
2004 bid price in the fifteen days prior to execution of the conversion.
- - The Company agreed to issue 300,000 shares to an unrelated party for
consulting services.
- - Two shareholders returned to the Company share certificates comprising
725,371 shares of common stock that were previously issued.
17
Basic net earnings (loss) per common share is computed by dividing net earnings
(loss) applicable to common shareholders by the weighted-average number of
common shares outstanding during the period. Diluted net earnings (loss) per
common share is determined using the weighted-average number of common shares
outstanding during the period, adjusted for the dilutive effect of common stock
equivalents, consisting of shares that might be issued upon exercise of common
stock warrants and conversion of convertible debt. In periods where losses are
reported, the weighted-average number of common shares outstanding excludes
common stock equivalents, because their inclusion would be anti-dilutive. At
March 31, 2005, the total amount of outstanding convertible debentures was
$2,237,211, which could have been converted into 1,988,632 shares of common
stock, based on the closing price of common stock on March 31, 2005. At March
31, 2006, the total amount of outstanding convertible debentures was $3,850,132,
which might be converted into 21,691,842 shares of common stock, based on the
convertible debt agreements and the closing price of common stock on March 31,
2006. At March 31, 2006, there were 4,028,750 warrants outstanding that were
eligible for conversion into shares of common stock.
WARRANT ACTIVITY FOR THE THREE MONTHS ENDED MARCH 31, 2006 AND SUMMARY OF
OUTSTANDING WARRANTS
- ----------------------------------------------------------------------------
Warrants to Purchase Common Stock:
During the three months ended March 31, 2006, the Board of Directors did not
approve the issuance of any warrants to purchase common stock. During the three
months ended March 31, 2006, 120,000 warrants to purchase common shares were
exercised.
A summary of common stock warrant activity for 2006 and 2005 is as
follows:
Weighted- Weighted-
Number of Average Average
Warrants Exercise Warrants Exercise
Price Exercisable Price
Outstanding, December 31, 2004
4,020,000 $ 1.23 4,020,000 $ 1.23
Granted 878,750 $ 0.67 128750 0.0594
Exercised 0 $ - 0
----------
Outstanding, December 31, 2005
4,898,750 $ 1.13 4,148,750 $ 1.19
Granted
Exercised (120000) $ 0.017 (120000)
Outstanding, March 31, 2006 --------- ----------
4,778,750 $ 1.16 4,028,750 $ 1.23
At March 31, 2006, the range of warrant prices for shares under warrants and the
weighted-average remaining contractual life is as follows:
At March 31, 2006, the range of warrant prices for shares under warrants and
the weighted-average remaining contractural life is as follows:
Warrants Exercisable
Outstanding Weighted Average Average Remaining Weighted Average
Range of Warrant Exercise Price Number of Warrants Exercise Price Contractural Life Number of Warrants Exercise Price
..06-1.53 4,778,750 $ 1.16 3.4 4,028,750 $ 1.23
18
NOTE 9 - FINANCIAL ACCOUNTING DEVELOPMENTS
Recently issued Accounting Pronouncements
- ---------------------------------------------
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 the Company's 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.
19
In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance
relating to the identification of and financial reporting for legal obligations
to perform an asset retirement activity. The Interpretation requires recognition
of a liability for the fair value of a conditional asset retirement obligation
when incurred if the liability's fair value can be reasonably estimated. FIN 47
also defines when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The provision is
effective no later than the end of fiscal years ending after December 15, 2005.
The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006
and does not believe the adoption will have a material impact on its
consolidated financial position or results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions
No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in
Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154
provides guidance on the accounting for and reporting of accounting changes and
error corrections. It establishes retrospective application, or the latest
practicable date, as the required method for reporting a change in accounting
principle and the reporting of a correction of an error. SFAS 154 is effective
for accounting changes and a correction of errors made in fiscal years beginning
after December 15, 2005 and is required to be adopted by the Company in the
first quarter of 2006. The Company is currently evaluating the effect that the
adoption of SFAS 154 will have on its results of operations and financial
condition but does not expect it to have a material impact.
In June 2005, the Emerging Issues Task Force, or EITF, reached a consensus on
Issue 05-6, Determining the Amortization Period for Leasehold Improvements,
which requires that leasehold improvements acquired in a business combination or
purchased subsequent to the inception of a lease be amortized over the lesser of
the useful life of the assets or a term that includes renewals that are
reasonably assured at the date of the business combination or purchase. EITF
05-6 is effective for periods beginning after July 1, 2005. Management does not
expect the
provisions of this consensus to have a material impact on the financial
position, results of operations or cash flows.
NOTE 10 - COMMITMENTS
COMMITMENTS
- -----------
Minimum future rental payments under non-cancelable operating leases as of
March 31, 2006 for each of the next five years and in the aggregate are as
follows:
2006. $140,778
2007. $187,704
2008. $187,704
2009. $ 62,568
--------
TOTAL $578,754
========
In February 2005, the Company entered into a software agreement with Discount
Solutions, Inc. to purchase certain software license rights to software that is
used to provide web based stores to the Company's customers. The Company agreed
to purchase a perpetual license for use of the software of $52,500, and to
compensate Discount Solutions $24,000 monthly for the full service hosting and
maintenance of the Company's customers' web stores. The Company's Chief
Executive Officer is a majority owner of Discount Solutions. This agreement
automatically renews monthly unless notice is provided be either party. The
Company intends to renegotiate and extend the terms of this agreement.
20
The Company entered into a consulting agreement with Barrett Evans, a member of
the Board of Directors, effective November 1, 2005. The term of the agreement
was for twelve months at $5,000 per month. All payments are current as of March
31, 2006.
The Company entered into a consulting agreement for ecommerce business
consulting services with Olive Tree Holdings, effective January 1, 2006. The
term of the agreement was for 12 months at $23,667 per month. All payments are
current as of March 31, 2006.
NOTE 11 - RELATED PARTY TRANSACTIONS
On February 11, 2005, the Company issued a Note to Dutchess Private Equities
Fund, II, in the amount of $360,000, at a discount of $60,000. The Note has a 0%
interest rate. During the year ended December 31, 2005, this Note was repaid,
and the balance at December 31, 2005 was zero. The Company issued 37,500 shares
to the Holder as an inducement to provide financing. The shares were valued at
$40,219.
In February 2005, the Company entered into a software agreement with Discount
Solutions, Inc. to purchase certain software license rights to software that is
used to provide web based stores to the Company's customers. The Company agreed
to purchase a perpetual license for use of the software of $52,500, and to
compensate Discount Solutions $24,000 monthly for the full service hosting and
maintenance of the Company's customers' web stores. The Company's Chief
Executive Officer is a majority owner of Discount Solutions. This agreement
automatically renews monthly unless notice is provided be either party. The
Company intends to renegotiate and extend the terms of this agreement.
On April 18, 2005, the Company issued $132,000 of non-interest bearing
Convertible Promissory Notes, due August 18, 2005 at a discount of $44,000, to
eFund Capital Partners, LLC and Dutchess Private Equities Fund, II, LP. The
Notes have a 0% interest rate. During the year ended December 31, 2005, this
Note was repaid, and the balance at December 31, 2005 was zero. The Company
issued 13,750 shares to eFund Capital Partners and Dutchess Private Equities
Fund, II, LP as an inducement to provide financing. The shares were valued at
$31,968.
On May 20, 2005, the Company issued a $402,750 non-interest bearing Convertible
Promissory Note, due December 20, 2005 at a discount of $52,750, to Dutchess
Private Equities Fund, II, LP. The Note has a 0% interest rate. During the year
ended December 31, 2005, $112,500 of this Note was repaid, and the balance was
exchanged into a Convertible Debenture effective December 18, 2005. The balance
at December 31, 2005 was zero. The Company issued 40,000 shares to Dutchess
Private Equities Fund, II, LP as an inducement to provide financing. The shares
were valued at $46,500.
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 Dutchess
Private Equities Fund, II, LP. The Note has a 0% interest rate. During the year
ended December 31, 2005, none of this Note was repaid, and the balance was
exchanged into a Convertible Debenture effective December 18, 2005. The balance
at December 31, 2005 was zero. The Company issued 54,000 shares to Dutchess
Private Equities Fund, II, LP as an inducement to provide financing. The shares
were valued at $50,700.
On July 22, 2005, the Company issued a $258,000 non-interest bearing Convertible
Promissory Note, due December 22, 2005 at a discount of $33,000, to Dutchess
Private Equities Fund, II, LP. The Note has a 0% interest rate. During the year
ended December 31, 2005, none of this Note was repaid, and the balance was
exchanged into a Convertible Debenture effective December 18, 2005. The balance
at December 31, 2005 was zero. The Company issued 10,000 shares to Dutchess
Private Equities Fund, II, LP as an inducement to provide financing. The shares
were valued at $8,925.
21
The Company awarded seven hundred and fifty thousand warrants to the Company's
Chief Financial Officer upon his hiring during July 2005. Five hundred thousand
of the warrants vest one year after his date of hire, and two hundred fifty
thousand vest two years after his date of hire. Five hundred thousand of the
warrants are priced at $1.12 per share, and two hundred fifty thousand are
priced at $0.10 per share.
On August 4, 2005, the Company issued a $162,000 non-interest bearing
Convertible Promissory Note, due January 4, 2006 at a discount of $17,000, to
Dutchess Private Equities Fund, II, LP. The Note has a 0% interest rate. During
the year ended December 31, 2005, none of this Note was repaid, and the balance
was exchanged into a Convertible Debenture effective December 18, 2005. The
balance at December 31, 2005 was zero. The Company issued 25,000 shares to
Dutchess Private Equities Fund, II, LP as an inducement to provide financing.
The shares were valued at $15,937.
On August 17, 2005, the Company issued a $247,200 non-interest bearing
Convertible Promissory Note, due January 17, 2006 at a discount of $40,200, to
Dutchess Private Equities Fund, II, LP. The Note has a 0% interest rate. During
the year ended December 31, 2005, none of this Note was repaid, and the balance
was exchanged into a Convertible Debenture effective December 18, 2005. The
balance at December 31, 2005 was zero. The Company issued 37,000 shares to
Dutchess Private Equities Fund, II, LP as an inducement to provide financing.
The shares were valued at $24,975.
On August 18 2005, the Company issued $221,000 of non-interest bearing
Convertible Promissory Notes, due December 18, 2005 at a discount of $37,000, to
eFund Capital Partners. The Note has a 0% interest rate. During the year ended
December 31, 2005, $18,211 of this Note was repaid, and the balance was
exchanged into a Convertible Debenture effective December 18, 2005. The balance
at December 31, 2005 was zero. The Company issued 30,000 shares to eFund Capital
Partners as an inducement to provide financing. The shares were valued at
$19,125.
On August 18 2005, the Company issued $84,000 of non-interest bearing
Convertible Promissory Notes, due December 18, 2005 at a discount of $14,000, to
Barrett Evans. The Note has a 0% interest rate. During the year ended December
31, 2005, none of this Note was repaid, and the balance was exchanged into a
Convertible Debenture effective December 18, 2005. The balance at December 31,
2005 was zero. The Company issued 10,000 shares to Barrett Evans as an
inducement to provide financing. The shares were valued at $6,375.
On September 16, 2005, the Company issued a $192,000 non-interest bearing
Convertible Promissory Note, due March 15, 2006 at a discount of $32,000, to
Dutchess Private Equities Fund, II, LP. The Note has a 0% interest rate. During
the year ended December 31, 2005, $162,752 of this Note was repaid, and the
balance at December 31, 2005 was $29,248. The Company issued 50,000 shares to
Dutchess Private Equities Fund, II, LP as an inducement to provide financing.
The shares were valued at $31,500. This note was repaid in full on March 1,
2006.
On September 30, 2005, the Company issued a $276,000 non-interest bearing
Convertible Promissory Note, due March 30, 2006 at a discount of $46,000, to
Dutchess Private Equities Fund, LP. The Note has a 0% interest rate. During the
year ended December 31, 2005, none of this Note was repaid, and the balance at
December 31, 2005 was $276,000. The Company issued 70,000 shares to Dutchess
Private Equities Fund, LP as an inducement to provide financing. The shares were
valued at $42,000. The Company repaid $210,000 of this note on March 1, 2006.
On October 11, 2005, the Company issued a $30,000 non-interest bearing
Convertible Promissory Note, due April 11, 2006 at a discount of $5,000, to
Dutchess Private Equities Fund, LP. The Note has a 0% interest rate. During the
year ended December 31, 2005, none of this Note was repaid, and the balance
December 31, 2005 was $30,000. The Company issued 8,000 shares to Dutchess
Private Equities Fund, LP as an inducement to provide financing. The shares were
valued at $5,000.
22
The Company entered into a consulting agreement with Barrett Evans, a member of
the Board of Directors, effective November 1, 2005. The term of the agreement
was for twelve months at $5,000 per month. The Company made no payments on the
agreement during the year ended December 31, 2005. The Company is current on
this agreement through March 31, 2006
Effective November 1, 2005, the Company to issued a convertible debenture to
eFund Capital Partners, in the amount of $180,000, at a discount of $176,200.
The debenture has a 10% interest rate and is due and payable November 1, 2009.
The debentures are convertible into shares of common stock at a price equal to
the lesser of; (i) seventy-five percent of the average of the closing bid price
of the stock for the five days prior to conversion or (ii) the average of the
closing bid price of the stock on the five days immediately preceding the date
of the of debenture agreement.
Effective December 15, 2005, the Company entered into a Convertible Debenture
Exchange Agreement with Dutchess Private Equities Fund, II, LP and eFund Capital
Partners to exchange the unpaid balance of promissory notes issued in 2005 worth
$1,784,239 into 10%, 4-year term, Convertible Debentures. The debentures are
convertible at the lesser of (i) seventy-five percent of the average of the
lowest closing bid price during fifteen immediately preceding the conversion
date or (ii) 100% of the average of the closing bid price of the stock for the
twenty days immediately preceding the closing date of the debenture agreement.
NOTE 12 - SUBSEQUENT EVENTS
On April 27, 2006, the Company paid a total of $277,314 in principal notes due
to several institutional investors with cash generated from operations.
On April 27, 2006, The Company paid the remaining balance of $190,500 on its
Promissory Note with Dutchess Private Equities Fund, L.P. dated December 28,
2004. The Company paid $9,000 on its Convertible Debenture with Dominic Bohnett
dated January 6, 2004. As of April 27, 2006, this Debenture has a remaining
balance of $65,381. The Company paid $72,750 on its Convertible Debenture with
eFund Capital Partners dated January 15, 2004. As of April 27, 2006, this
debenture now has a remaining balance of $62,542. The Company paid $5,064 on its
Convertible Debenture with Dutchess Private Equities Fund, L.P. dated September
25, 2004. As of April 27, 2006, this Debenture has a remaining balance of
$216,936.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Report on Form 10-QSB contains forward-looking statements, including,
without limitation, statements concerning possible or assumed future results of
operations and those preceded by, followed by or that include the words
"believes," "could," "expects," "intends," "anticipates," or similar
expressions. Our actual results could differ materially from these anticipated
in the forward-looking statements for many reasons including: materially adverse
changes in economic conditions in the markets that we and our 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, 2005 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.
23
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.
THREE MONTHS ENDED MARCH 31, 2006 AS COMPARED TO THE THREE MONTHS ENDED MARCH
31, 2005.
Revenues
We generated net revenues of $3,932,343 for the three months ended March 31,
2006, as compared to $1,258,616 for the three months ended March 31, 2005, an
increase of 212%. Our revenues are derived from three primary sources, -
membership revenue, upsell revenue, and lead revenue.
The following summarizes our revenue:
For the three months ended
-------------------------------
March 31 March 31
2006 2005
-------------- --------------
REVENUE:
Membership Revenue $ 3,307,623 $ 879,941
Upsell Revenue 210,521 237,904
Lead Revenue 388,827 65,317
Other Revenue 25,372 75,454
-------------- --------------
Total Revenue $ 3,932,343 $ 1,258,616
-------------- --------------
Membership revenue is our largest source of revenue, and comprised 84% and 70%
of total revenue for the three months ended March 31, 2006 and 2005,
respectively. The increase in membership revenue is due to a significant
increase in new members acquired during the quarter ended March 31, 2006. The
number of new members increased from approximately 16,000 in the quarter ended
March 31, 2005 to approximately 91,000 in the quarter ended March 31, 2006. The
increase in new members reflects the success of our initiatives to emphasize the
internet as our preferred method of allowing our customers to activate a trial
for our products. Revenue did not grow as rapidly as the increase in new members
because approximately 47% of our new members in the current period were acquired
during the month of March 2006, and we do not earn significant revenue from new
members during the month that the trial period starts.
24
Upsell revenue declined 11% from the quarter ended March 31, 2006 as compared to
the quarter ended March 31, 2005 because the prior year quarter included revenue
of approximately $200,000 from one customer who is no longer a customer of the
Company. We are currently offering three primary upsell offers, and none of the
three we currently offer comprise more than 50% of our total upsell revenue.
Lead revenue increased by 498% because of an increase in our activations and
because we initiated a new program at the beginning of 2006 to increase our
focus on selling extended business coaching products and services to our
members.
Costs of Sales
We incurred costs of sales of $687,575 (17.5% of revenue) for the quarter ended
March 31, 2006, as compared to $182,924 (14.5% of revenue) for the quarter ended
March 31, 2005 because we began to distribute a welcome kit to all new customers
beginning in the second quarter of 2005. Also, we have incurred higher merchant
fees associated with the processing of credit card transactions because a higher
percentage of sales in 2006 have been paid via credit cards versus automated
clearing (ACH) of checking account information. We terminated the use of the ACH
method of payment for new customers in the third quarter of 2005 because of an
unacceptable collection rate related to this type of payment method.
Operating Expenses
Operating expenses were comprised of the following:
For the three months ended
-------------------------------
March 31 March 31
2006 2005
-------------- --------------
EXPENSES:
Salaries 533,213 749,048
Advertising 1,106,616 733,651
Other Expenses 1,070,352 755,424
-------------- --------------
Total Operating Expenses 2,710,181 2,238,123
Salaries declined by 29% from the year earlier period due to our focus on
utilizing the internet as the primary method for our customers to activate their
trial subscriptions. Consequently, we reduced the size of our sales staff late
in the fourth quarter of 2005. Our total headcount at March 31, 2006 was 60, as
compared to 144 as of March 31, 2005.
Advertising expense increased 51% from the prior year period because of the
increase in the number of new members acquired during the three months ended
March 31, 2006. Advertising expense did not increase on a pro-rata basis with
sales because our cost per customer acquired has decreased and because of the
impact of capitalization and amortization of certain advertising costs. We
expense the media costs of advertising the first time the advertising takes
place, except for direct-response advertising that is contracted with our
advertising partners on a cost per customer acquired basis, which is capitalized
and amortized over its expected period of future benefits. The capitalized costs
of the advertising are amortized over the three-month period following the
receipt of a trial order for our products and services. At March 31, 2006, and
March 31, 2005, capitalized direct-response advertising costs of $890,086 and
zero, respectively, were included in "Prepaid Expenses" in the accompanying
Balance Sheets.
Other expenses increased 42% from the prior year period, at a lower rate than
the increase in sales, because certain of the expenses in this category do not
change significantly because of changes in revenue. Included in other expenses
are expenses related to our facility, professional fees, depreciation,
insurance, and investor relations. During the quarter ended March 31, 2006, we
recorded an estimated expense of $263,000 for executive compensation for our
Chief Executive Officer and a consultant who assists our Chief Executive Officer
on strategic planning and new product development. We are currently negotiating
an executive compensation agreement with these two individuals.
25
Interest expense was $340,207 and $129,049 for the three months ended March 31,
2006 and 2005. The increase is attributable to higher debt levels in 2006 as
compared to 2005 and because we repaid or converted certain debt prior to its
scheduled maturity. Our debt increased from $2,412,211 at March 31, 2005 to
$3,900,132 at March 31, 2006. Also, during the quarter, we repaid and converted
a total of $745,391 of debt, $556,576 of which was repaid or converted prior to
its maturity date, which resulted in an additional charge to interest expense to
accelerate the associated amortization of debt discounts.
Net Income (Loss)
- -----------------
We had a net income of $194,380 for the three months ended March 31, 2006 as
compared to a net loss of $1,294,180 for the three months ended March 31, 2005.
Basic and Diluted Loss Per Share
- --------------------------------
Our basic and diluted loss per share for the three months ended March 31, 2006
was ($.00) as compared to ($0.04) for the three months ended March 31, 2005. For
the period ended March 31, 2005, our common stock equivalents were excluded from
the calculation of diluted loss per common share because they were anti-dilutive
to our net loss in that period. At March 31, 2005, there were convertible debts
and warrants to purchase common stock which were outstanding and may dilute
future earnings per share. For the quarter ended March 31, 2006, the weighted
average number of common shares outstanding was 39,445,891. The fully diluted
weighted average number of common shares outstanding was 66,143,150.
Liquidity and Capital Resources
- -------------------------------
For the quarter ended March 31, 2006, we generated $689,285 in cash from
operations. We also issued convertible debt of $68,000 and received $189,900 in
cash for stock subscriptions sold in December 2005 and collected in January
2006. During the quarter, we repaid $501,248 of debt and purchased approximately
$11,000 of capital equipment. The net increase in cash during the quarter was
$436,512. For the last two quarters, we have achieved positive cash flow. Prior
to these two quarters, we issued convertible debt in order to provide sufficient
cash to fund operations. Even though we have generated positive cash flow for
only two quarters, we believe we will continue to generate positive cash flow
for the balance of 2006 and will be able to continue to reduce our outstanding
debt.
Financing activities
- --------------------
During the three months ended March 31, 2006, we have issued short term
promissory notes for a total of $68,000 to help fund our future growth. These
promissory notes are more fully discussed in Part II, Item 2 of this Form
10-KSB.
Subsidiaries
- ------------
As of March 31, 2006, we have two subsidiaries, Onlinesupplier.com, Inc and
Auction Liquidator, Inc. We ceased operations at Auction Liquidator in 2005.
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.
26
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.
On January 6, 2006, we issued a convertible promissory note of $20,000 to an
unrelated party. The promissory note matures on January 6, 2007. The Holder, at
its option, has the right to receive 20% simple interest or convert the
promissory note into shares of common stock. The holder of the debenture can
convert the face value of the debenture into shares of our common stock at
either (i) 70% of the market value of the stock on the day of conversion or (ii)
200,000 shares of our common stock, whichever results in the greater value to
the Holder.
On January 9, 2006, we issued a convertible promissory note of $48,000 to an
unrelated party. The promissory note matures on January 6, 2007. The Holder, at
its option, has the right to receive 20% simple interest or convert the
promissory note into shares of common stock. The holder of the debenture can
convert the face value of the debenture into shares of our common stock at
either (i) 70% of the market value of the stock on the day of conversion or (ii)
480,000 shares of our common stock, whichever results in the greater value to
the Holder.
On February 7, 2006, we entered into an agreement with Seacoast Financial LLC,
whereby, in exchange for consulting services, we agreed to issue 300,000 shares
of our common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the first quarter
of 2006.
ITEM 5. OTHER INFORMATION.
None.
27
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 Convertible Preferred Stock (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 (included as Exhibit 4.34 to the Form 10-QSB filed
August 19, 2005, and incorporated herein by reference).
4.35 Promissory Note between the Company and Dutchess Private Equities Fund, II,
LP, dated April 12, 2005 (included as Exhibit 4.38 to the Form 10-QSB filed
August 19, 2005, and incorporated herein by reference).
4.36 Promissory Note between the Company and Dutchess Private Equities Fund, II,
LP, dated May 20, 2005 (included as Exhibit 4.38 to the Form 10-QSB filed August
19, 2005, and incorporated herein by reference).
4.37 Promissory Note between the Company and Dutchess Private Equities Fund, II,
LP, dated June 2, 2005 (included as Exhibit 4.38 to the Form 10-QSB filed August
19, 2005, and incorporated herein by reference).
4.38 Receivable Factoring Agreement between the Company and Dutchess Private
Equities Fund, II, LP, dated June 8, 2005 (included as Exhibit 4.38 to the Form
10-QSB filed August 19, 2005, and incorporated herein by reference).
4.39 Promissory Note between the Company and Dutchess Private Equities Fund, II,
LP, dated July 22, 2005 (included as Exhibit 4.39 to the Form 10-QSB filed
November 14, 2005, and incorporated herein by reference).
4.40 Promissory Note between the Company and Dutchess Private Equities Fund, II,
LP, dated August 4, 2005 (included as Exhibit 4.40 to the Form 10-QSB filed
November 14, 2005, and incorporated herein by reference)
4.41 Promissory Note between the Company and Dutchess Private Equities Fund, II,
LP, dated August 17, 2005 (included as Exhibit 4.41 to the Form 10-QSB filed
November 14, 2005, and incorporated herein by reference)
4.42 Promissory Note between the Company and eFund Capital Partners, LLC, dated
August 18, 2005 (included as Exhibit 4.42 to the Form 10-QSB filed November 14,
2005, and incorporated herein by reference)
4.43 Promissory Note between the Company and Barrett Evans, dated August 18,
2005 (included as Exhibit 4.43 to the Form 10-QSB filed November 14, 2005, and
incorporated herein by reference)
4.44 Promissory Note between the Company and eFund Capital Partners, LLC, dated
August 18, 2005 (included as Exhibit 4.44 to the Form 10-QSB filed November 14,
2005, and incorporated herein by reference)
4.45 Promissory Note between the Company and eFund Capital Partners, LLC, dated
August 18, 2005 (included as Exhibit 4.45 to the Form 10-QSB filed November 14,
2005, and incorporated herein by reference)
4.46 Promissory Note between the Company and Dutchess Private Equities Fund,,
LP, dated September 16, 2005 (included as Exhibit 4.46 to the Form 10-QSB filed
November 14, 2005, and incorporated herein by reference)
4.47 Promissory Note between the Company and Dutchess Private Equities Fund,
L.P., dated September 30, 2005 (included as Exhibit 4.47 to the Form 10-QSB
filed November 14, 2005, and incorporated herein by reference)
4.48 Convertible Debenture Exchange Agreement between the Company and Dutchess
Private Equities Fund, II, LP dated December 18, 2005 (included as Exhibit 4.2
to the Form 8-K filed February 17, 2006, and incorporated herein by reference).
4.49 Convertible Debenture Exchange Agreement between the Company and eFund
Capital Partners, LLC dated December 18, 2005 (included as Exhibit 4.1 to the
Form 8-K filed February 17, 2006, and incorporated herein by reference).
4.50 Promissory Note between the Company and Dutchess Private Equities Fund,
L.P., dated October 11, 2005 (included as Exhibit 4.50 to the Form 10-KSB
dated March 21, 2006, and incorporated by reference).
4.51 Stock Subscription Agreement between the Company and Gary D. Elliston,
dated December 22, 2005, (included as Exhibit 4.51 to the Form 10-KSB
dated March 21, 2006, and incorporated by reference).
4.52 Stock Subscription Agreement between the Company and Cliff M. Holloway,
dated December 22, 2005, (included as Exhibit 4.52 to the Form 10-KSB
dated March 21, 2006, and incorporated by reference).
4.53 Stock Subscription Agreement between the Company and John C. Boutwell, Jr,
dated December 22, 2005, (included as Exhibit 4.53 to the Form 10-KSB
dated March 21, 2006, and incorporated by reference).
4.54 Stock Subscription Agreement between the Company and Mr. and Mrs. Jack B.
Manning, dated December 22, 2005, (included as Exhibit 4.54 to the Form
10-KSB dated March 21, 2006, and incorporated by reference).
4.55 Stock Subscription Agreement between the Company and Stephen Moore, dated
December 22, 2005, (included as Exhibit 4.55 to the Form 10-KSB dated March
21, 2006, and incorporated by reference).
4.56 Stock Subscription Agreement between the Company and Monte L. Roach, dated
December 22, 2005, (included as Exhibit 4.56 to the Form 10-KSB dated March
21, 2006, and incorporated by reference).
4.57 Convertible Promissory Notes between the Company and Ronald Feldman, dated
January 9, 2006, and filed herewith.
4.58 Convertible Promissory Notes between the Company and Ronald Feldman, dated
January 9, 2006, and filed herewith.
4.59 Convertible Promissory Notes between the Company and Wakelin McNeel, dated
January 6, 2006, and 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 25, 2005, and
incorporated herein by reference).
10.31 Corporate Consulting Agreement between the Company and eFund Capital
Partners LLC dated November 1, 2005 (included as Exhibit 10.1 to the Form 8-K
filed February 17, 2006, and incorporated by reference herein).
10.32 Corporate Consulting Agreement between the Company and Olive Tree LLC
dated June 28, 2005, as amended on October 25, 2005, October 31, 2005, and
January 4, 2006, (included as Exhibit 10.32 to the Form 10-KSB filed March 21
2006, and incorporated herein by reference).
10.33 Corporate Consulting Agreement between the Company and SeaCoast Financial
LLC, dated February 7, 2006, and filed herewith.
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
23.1 Consent of Michael Johnson and Company, LLC Independent Auditors (included
as Exhibit 23.1 to the Form 10-KSB filed March 21, 2006, and incorporated herein
by reference).
23.2 Report of Independent Registered Public Accounting Firm regarding the audit
of Newave, Inc. for the year ended December 31, 2004, (included as Exhibit 23.2
to the Form 10-KSB filed March 21, 2006, and incorporated herein by reference).
23.3 Consent of Jaspers + Hall, PC - Independent Auditors to the Form 10-K filed
March 21, 2006, (included as Exhibit 23.3 to the Form 10-KSB filed March
21, 2006, and incorporated herein by reference).
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.
28
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, hereunto duly
authorized.
Date: May 8, 2006 NeWave, Inc.
/s/ Michael Hill
-----------------------
Michael Hill
Chief Executive Officer
Dated: May 8, 2006
/s/ Paul Daniel
-----------------
Paul Daniel
Chief Financial Officer and
Principal Accounting Officer
29