As filed with Securities and Exchange Commission on August 14, 1997
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark one)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-28606
NUWAVE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 22-3387630
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Passaic Avenue, Fairfield, New Jersey 07004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 882-8810
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that registrant
was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of June 30, 1997: 5,348,334
Transitional Small Business Disclosure Format: Yes[] No[X]
<PAGE>
==============================================================================
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Balance Sheets - December 31, 1996 and June 30, 1997 (unaudited) P. 3
Statements of Operations - For the three and six month periods
ended June 30, 1996 (unaudited) and June 30, 1997 (unaudited)
and for the period July 17, 1995 (inception) to
June 30, 1997 (unaudited) P. 4
Statements of Cash Flows - For the three and six month periods
ended June 30, 1996 (unaudited) and June 30, 1997 (unaudited)
and for the period from July 17, 1995 (inception) to
June 30, 1997 (unaudited) P. 5
Notes to Condensed Financial Statements P. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION P. 7
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P. 12
ITEM 2. CHANGES IN SECURITIES P. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 12
ITEM 5. OTHER INFORMATION P. 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 13
SIGNATURES P. 14
<PAGE>
<TABLE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Balance Sheets
ASSETS
<CAPTION>
December 31, June 30,
1996 1997
------------ ------------
(unaudited)
<C> <C> <C>
Current assets:
Cash and cash equivalents $ 6,057,941 $ 3,416,779
Prepaid expenses and other current assets 91,909 197,222
------------ ------------
Total current assets 6,149,850 3,614,001
Property and equipment 69,773 112,203
Restricted cash 278,001
Other assets 72,275 90,484
------------ ------------
Total assets $ 6,291,898 $ 4,094,689
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 373,110 $ 235,442
------------ ------------
Total liabilities 373,110 235,442
------------ ------------
Commitments and contingencies
Stockholders' equity:
Series A Convertible Preferred Stock, noncumulative,
$.01 par value; authorized 1,000,000 shares; issued
and outstanding - none as of December 31, 1996 and
June 30, 1997
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding -
none as of December 31, 1996 and June 30, 1997,
respectively (Such preferences and rights to be
designated by the Board of the Board of Directors)
Common stock, $.01 par value; authorized
20,000,000 shares as of December 31, 1996,
and June 30, 1997; issued and outstanding
5,325,000 shares and 5,348,334 shares as of
December 31, 1996 and June 30, 1997, respectively 53,250 53,483
Additional paid-in capital 11,206,778 11,253,213
Deficit accumulated during the development stage (5,341,240) (7,447,449)
------------ ------------
Total stockholders' equity 5,918,788 3,859,247
------------ ------------
Total liabilities and stockholders' equity $ 6,291,898 $ 4,094,689
============ ============
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
3
<PAGE>
NUWAVE TECHNOLOGIES, INC
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995
Three months Three months Six months Six months (inception)
ended ended ended ended to
June 30, June 30, June 30, June 30, June 30,
1996 1997 1996 1997 1997
------------ ------------ ------------ ------------ ---------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development expenses $ (364,544) $ (577,363) $ (641,577) $ (932,768) $ (3,044,484)
General and administrative expenses (277,095) (598,847) (495,440) (1,291,054) (3,517,285)
------------ ------------ ------------ ------------ ---------------
(641,639) (1,176,210) (1,137,017) (2,223,822) (6,561,769)
------------ ------------ ------------ ------------ ---------------
Loss from operations (641,639) (1,176,210) (1,137,017) (2,223,822) (6,561,769)
------------ ------------ ------------ ------------ ---------------
Other income (expense):
Interest income 6,089 52,552 9,312 117,613 294,022
Interest expense (234,705) (302,066) (331,542)
------------ ------------ ------------ ------------ ---------------
(228,616) 52,552 (292,754) 117,613 (37,520)
------------ ------------ ------------ ------------ ---------------
Net loss before extraordinary item (870,255) (1,123,658) (1,429,771) (2,106,209) (6,599,289)
Extraordinary item (848,160)
------------- ------------ ------------ ------------ ---------------
Net loss $ (870,255) $ (1,123,658) $ (1,429,771) $ (2,106,209) $ (7,447,449)
============= ============ ============ ============ ===============
Loss per share:
Weighted average number of
common shares outstanding 2,405,000 5,348,334 2,250,879 5,338,278
============= ============ ============ ============
Net loss per share $ (0.36) $ (0.21) $ (0.63) $ (0.39)
============= ============= ============ ============
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
4
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Cumulative
from
July 17, 1995
Three months Three months Six months Six months (inception)
ended ended ended ended to
June 30, June 30, June 30, June 30, June 30,
1996 1997 1996 1997 1997
------------ ------------ ------------ ------------ -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (870,255) $ (1,123,658) $ (1,429,771) $ (2,106,209) $ (7,447,449)
Adjustments to reconcile net loss to net
cash used in operating activities:
Extraordinary item 848,160
Depreciation expense 1,310 13,630 2,400 23,643 43,359
Amortization of unamortized debt discount 119,819 150,769 168,778
Amortization of deferred financing costs 64,838 82,733 89,062
Issuance of common stock for services
rendered 20,600
Decrease (increase) in prepaid expenses
and other current assets 40,739 (107,286) 11,478 (105,313) (197,222)
Increase (decrease) in accounts payable
and accrued liabilities 248,354 (5,749) 366,279 (137,668) 235,442
Increase in other assets 12,266 18,209 (90,484)
------------ ------------ ------------- ------------- -------------
Net cash used in operating activities (395,195) (1,210,797) (816,112) (2,343,756) (6,329,754)
------------ ------------ ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (5,897) (45,367) (13,938) (66,073) (155,562)
------------ ------------ ------------- ------------- -------------
Net cash used in investing activities (5,897) (45,367) (13,938) (66,073) (155,562)
------------ ------------ ------------- ------------- -------------
Cash flows from financing activities:
Proceeds from sales of Series A
Convertible Preferred Stock 900,000
Proceeds from issuance of initial bridge
units 350,000
Proceeds from issuance of bridge units,
net of exchange of initial bridge notes 1,650,000 1,650,000
Proceeds from IPO 11,753,010
Repayment of bridge notes issued in
connection with bridge units (2,000,000)
Costs incurred for equity offerings (337,124) (750,644) (2,348,582)
Issuance of common stock in connection with
exercise of stock options 46,668 76,668
Increase in restricted cash (300,000) (300,000) (300,000)
Decrease in restricted cash 21,999 21,999 21,999
Deferred financing costs (180,900) (201,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities (337,124) (278,001) 718,456 (231,333) 9,902,095
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (738,216) (1,534,165) (111,594) (2,641,162) 3,416,779
Cash and cash equivalents at the beginning
of the period 999,422 4,950,944 372,800 6,057,941
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at the end
of the period $ 261,206 $ 3,416,779 $ 261,206 $ 3,416,779 $ 3,416,779
============ ============ ============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid during the period $ 73,702
============
Supplemental disclosure of non cash investing
and financing activities:
Deferred financing costs incurred in connection
with the exchange of the initial bridge notes
14 bridge units $ 140,000 $ 140,000
============ ============
Deferred equity costs charged to additional
paid-in capital in connection with the PPO $ 13,400 $ 13,400
============ ============
Deferred equity costs charged to additional
paid-in capital in connection with the IPO $ 25,000
============
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
<PAGE>
5
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Interim Financial Statement Preparation
------------------------------------------------
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for
interim information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. The results of
operations for the interim periods shown in this report are not
necessarily indicative of expected results for any future interim
period or for the entire fiscal year. NUWAVE Technologies, Inc. (the
"Company" or "NUWAVE"), a development stage enterprise, believes that
the quarterly information presented includes all adjustments (consisting
only of normal, recurring adjustments) necessary for a fair presentation
in accordance with generally accepted accounting principles. The
accompanying condensed financial statements should be read in conjunction
with the Company's Annual Report on Form 10-KSB as filed with the
Securites and Exchange Commission on March 31, 1997.
2. Restricted Cash
---------------
On April 22, 1997, the Company deposited $300,000 into a certificate
of deposit maturing July 22, 1997. The certificate of deposit has been
pledged as collateral for an irrevocable standby letter of credit in
the amount of $300,000 opened by the Company to gaurantee monthly
equipment lease payments to be made by the Company on behalf of Rave
Engineering pursuant to the Development Agreement. The standby letter
of credit will be reduced by any payments made in support of the
equipment lease. Any cash restriction on the certificate of deposit
is limited to the balance of the standby letter of credit. As of
June 30, 1997, payments made in support of the equipment lease totaled
$21,999, thereby reducing the cash restriction to $278,001.
3. Capital Transactions
--------------------
Under the 1996 Performance Incentive Plan, 60,000 stock options were
granted during the first quarter, and 42,500 stock options were
granted during the second quarter. 162,500 stock options remain
available for grant under the 1996 Performance Incentive Plan.
Under the Non-Employee Director Stock Option Plan, 20,000 stock
options were granted during the second quarter of 1997. 48,000
stock options remain available for grant under the Non-Employee
Director Stock Option Plan. All such options were granted at an
option price equal to the fair market value of the Company's Common
Stock on the date of grant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company, a development stage enterprise organized in July
1995, was formed to develop, manufacture and market products which
improve picture quality image in set top boxes, televisions, VCR's,
camcorders and other video devices by enhancing and manipulating video
signals, and to facilitate the production of sophisticated consumer and
professional videos. In July 1996 the Company completed an Initial
Public Offering (the "IPO") of its common stock and warrants from which
it received net proceeds of $9,538,428 and repaid $2,000,000 principal
amount of promissory notes issued in a previous financing. At the time
of the IPO, the Company had produced and tested fully operational
working prototypes of (1) an analog video processor which significantly
enhances video picture quality ("AVP"), (2) another video enhancement
device which combined the AVP with digitally based frame extrapolation
and video noise reduction circuits for use in NTSC or PAL standard
devices (the "Magic Card"), and (3) a time base corrector providing for
analog to digital conversion and the synchronization of up to three
video sources used for video editing (the "NUWAVE Dual TBC"). It had
also produced an initial prototype of a video editing "studio" mounted
on PCBs (the "NUWAVE Ministudio"). The AVP, the NUWAVE Dual TBC, the
Magic Card and the NUWAVE Ministudio are called the "Initial Products."
The Company is using the proceeds of the IPO to further develop,
commercialize and market certain of its products. The Company has not
licensed or received revenues from the sale of any of its products or
technologies to date.
During the last twelve months, the Company established an
Advanced Engineering Group (the "Advanced Engineering Group"). The
Advanced Engineering Group is made up of employees and third party
consultants who work with the Company on a project by project basis to
support the continuing development of its products and related
technology and the identification of additional sources of new
technology. The Company, through its Advanced Engineering Group, has
significantly enhanced the performance of the original AVP to create the
NUWAVE Video Processor ("NVP"). Utilizing this technology the Company has
developed the ProWave NVP 2.2 which is available as a stand alone unit
or a PC board with software. The Advanced Engineering Group is currently
developing a commercial video retail product also utilizing the NVP
technology (the "retail version"). The Advanced Engineering Group has
developed separate proprietary presets, a software product to be
marketed under the name Softsets ("Softsets"). Softsets provide end
users and manufacturers with an option to manipulate the attributes of
video images to their own taste or standards. In late January 1997, the
Company began marketing the NVP and Softsets. In April, 1997, the
Company began marketing the NVP 2.2 as a stand alone unit and as a PC
board with software. The Company intends to produce the NUWAVE Video
Processor in the form of an "ASIC" chip (Application Specific Integrated
Circuit) in accordance with the customer's specific application
requirements supported by firm commitments rather than producing and
inventorying ASIC chips and endeavoring to anticipate applications
required by customers in the future. In this regard, the Company has
contracted with Adaptive Micro-Ware, Inc., a leading-edge engineering
firm specializing in engineering project management to provide
necessary technical support and manage this process .
The Company also has concluded development of the first version of
its NUWAVE Dual TBC, Magic Card and certain related products. The
Company had anticipated marketing these products in the second half of
1997. However, in light of the favorable reception to the NUWAVE Video
Processor and initial market reaction to the proposed introduction of the
retail version, the Company has determined to significantly scale back
its research and development, and marketing and related activities with
respect to all other existing or proposed products and concentrate its
resources on the continued development and marketing of its proprietary
software (Softsets) and the NUWAVE Video Processor products
(i.e., ASIC chip for the OEM market, the NVP 2.2 in the stand alone unit
and PC board version for the professional video market and the consumer
video retail version). The Company believes this product strategy will
allow it to take full advantage of the growth opportunity presented by
the converging P.C., television and telecommunication markets which the
Company believes to be quite significant. The Company anticipates this
strategy will also allow it to conserve its resources and at the same
time maximize the benefits to be derived from introducing these
products into these converging and expanding markets.
7
<PAGE>
As of June 30, 1997, the Company had accumulated a deficit during
the development stage of $7,447,449, which includes the net loss for the
six months ended June 30, 1997 of $2,106,209. The loss for the six months
ended June 30, 1997 included $1,291,054 in selling, general and
administrative expenses, representing an increase of $795,614 compared
to the six month period ended June 30, 1996. Such increase was primarily
a result of sales and marketing efforts, discussed more fully below, and
general operating expenses as a result of the Company's planned growth and
expansion following the IPO, including increased personnel and payroll
costs ($129,017), professional and legal services costs ($77,382) and
insurance costs ($75,841). As a result of the Company's decision to
devote substantially all of its resources in the immediate future to the
development and marketing of its proprietary software (Softsets) and
the NUWAVE Video Processor products, management anticipates it will be
able to lower its level of expenditures from those experienced over the
past twelve months. Although the Company anticipates deriving some
revenue from the sale of its proprietary software (Softsets) and the
NUWAVE Video Processor products within the next 12 months, no assurance
can be given that these products will be successfully marketed during
such period, and the Company has projected its expenses based on the
assumption that it will receive no revenues from the sale of its
products during the next 12 months. Even if revenues are produced from
the sale of such products, the Company expects to continue to incur
losses for at least the next 12 months. See "Liquidity and Capital
Resources."
Marketing and Sales
During the past twelve months, the Company has recruited a
Director of Marketing Communications and contracted with a professional
marketing communications firm to assist in the development and
implementation of a program to develop market awareness and
commercialization of its products. This program has included development
of Company and product brochures and press kits, product specification
sheets, development of a Company booth for use at trade shows, attendance
at key trade shows, mailers, corporate videos for use at sales
presentations, development of and placement of advertisements in key
industry journals, etc. Because this material is now developed, the
Company does not anticipate the need for a similar level of expenditure
in this area over the next twelve months. In late January 1997, the
Company began sales presentations of the NUWAVE Video Processor and
Softsets to prospective OEM customers (i.e., original equipment
manufacturers of set top boxes, televisions, multimedia computers and
teleconferencing equipment). Although the Company is unable to predict
whether its marketing efforts will be successful, it believes that
the products have been well received. Several potential customers have
indicated their desire to continue discussions and as a result have signed
Confidentiality/Non Disclosure agreements with NUWAVE allowing them to
expand their review and examination of NUWAVE's proprietary video
enhancement technology. In April 1997, the Company formed its ProWave
Division for sales and marketing of the NVP 2.2 and other products to
the professional video market (e.g., medical imaging and security
surveillance systems). It expects to receive limited revenues from this
division during the fourth quarter of 1997.
During the past twelve months the Company has recruited a Vice
President of Sales, a National Sales Manager, and contracted with
professional sales consultants to establish and manage the development
of the Company's sales organization. The Company also has contracts with
several individuals and organizations who will act in a commissioned
sales representation capacity regarding the Company's products. During
the six months ended June 30, 1997, the Company's sales and marketing costs
included $211,659 for professional sales and marketing consultants,
$152,532 for advertising and public relations and $231,952 for internal
sales and marketing personnel. The Company is continually reviewing its
needs with a view to maximizing efficiency while conserving its
resources and anticipates reducing certain of these expenditures.
Research and Development
Research and development activity with respect to the Company's
Initial Products was carried out by Rave Engineering Corp. ("Rave")
prior to July 21, 1995, the date upon which the Company and Rave entered
8
<PAGE>
into a License Agreement and the Development Agreement. Substantially
all of the technology on which the Company's Initial Products were based
was originated by Rave prior to the Company's organization. This
technology is licensed to the Company pursuant to the License Agreement.
Pursuant to the Development Agreement, the Company has utilized Rave to
continue the development of the Initial Products. Rave's role in the
development of the initial products is substantially completed and the
Company and Rave are currently discussing what role Rave might play in
the development of additional products for evaluation by the Company
during the remaining term of the Development Agreement.
The Development Agreement terminates on October 2, 1998, unless
the parties agree to additional services to be performed by Rave and
related compensation by October 2, 1997, in which event it may be
extended on a year to year basis. The Company is unable to predict
the outcome of discussions. Because (i) the development of the Initial
Products has been substantially completed, (ii) the Company's increased
ability to take advantage of the expertise of its Advanced Engineering
Group, and (iii) its determination to devote substantially all of its
resources to its proprietary software (Softsets) and the NUWAVE Video
Processor products, the Company believes that in the event the
Development Agreement were not extended, there would not be a
materially adverse effect on its operations or ability to develop
new technology.
The Company's Advanced Engineering Group utilizes the services of
third party contractors in connection with its research and development
activities. The Company intends to continue to use outside consultants
to assure exposure to new ideas and technology and its Advanced
Engineering Group to direct, supervise and coordinate such efforts. The
Company has used its Advanced Engineering Group to develop a significant
amount of the software included in each of its products and to
reconfigure certain circuitry to allow certain of the products to be
developed as ASICs. In April of 1997, it contracted with Adaptive Micro-
Ware, Inc. to manage the ASIC development process. The Advanced
Engineering Group also developed the proprietary Softsets and certain of
the enhancements to the NUWAVE Video Processor . The Company intends to
use members of the Advanced Engineering Group to assist it with the
continued development of the NUWAVE Video Processor in its OEM and
retail versions but otherwise significantly reduce its research and
development activities in the near term.
From July 17, 1995 through June 30, 1997, the Company incurred
$3,044,484 on research and development, of which approximately 71% was
paid to Rave pursuant to the Development Agreement. During the next 12
months, the Company intends to spend approximately $1,812,392 on
research and development and in support of the commercialization of its
products. Of that amount the Company estimates that approximately 65%
will be paid to Rave pursuant to the Development Agreement and
approximately 35% will be spent by the Company's Advanced Engineering
Group for software development, ASIC chip development, and supervising
and directing production engineering undertaken by third parties and on
internal research and development. In the event the Company is able to
generate sufficient revenues from sales of its proprietary software
(Softsets) and the NUWAVE Video Processor products during such 12-
month period, it anticipates it will increase its expenditures on
research and development and the identification of new sources of
technology.
Manufacturing
The Company does not currently contemplate that it will directly
manufacture any of its products. It intends to contract with third
parties to manufacture its proposed NUWAVE Video Processor ASIC chip and
related products.
Employees
The Company currently has twelve employees.
9
<PAGE>
Liquidity and Capital Resources
From its inception through completion of its IPO, the Company
relied for all of its funding ($2,900,000 in cash plus the cancellation
of the notes in the principal amount of $350,000) on private sales of
its debt and equity securities (the "Private Financings"). In July
1996, the Company completed an IPO and received net proceeds of
$9,538,428. The Company used $2,073,652 of the net proceeds of the IPO
to repay the principal and interest on the outstanding notes issued to
investors in connection with the Private Financings.
Pursuant to the terms of the License Agreement and the Development
Agreement, the Company is paying Rave minimum aggregate royalties and
development fees of $65,000 per month for the term of the License
Agreement. The License Agreement also provides for additional payments
of $60,000 per year through July 22, 1998 to be made to Rave for
consulting services to be rendered to the Company. The Development
Agreement also provides for Rave to receive additional payments
aggregating $850,000 to purchase or lease equipment for use in
developing the Licensed Products and Technology (as defined below). The
payments will be based upon the submission of mutually agreed upon
development schedules to the Company and will be made in monthly
installments not to exceed $23,611 with a lump sum payment of $283,336
due in March 1998. In this regard, on April 22, 1997, the Company
deposited $300,000 into a certificate of deposit maturing July 22, 1997.
The certificate of deposit has been pledged as collateral for an
irrevocable standby letter of credit opened by the Company to guarantee
monthly equipment lease payments (not to exceed $23,611 per month) to be
made by the Company on behalf of Rave Engineering pursuant to the
Development Agreement. The balance of the standby letter of credit will
be reduced by any payments made and any cash restriction on the
certificate of deposit is limited to the balance of the standby letter
of credit. Through June 30, 1997, the Company had made payments of
$309,870 of $850,000 equipment purchases and at that date had $278,001
pledged as collateral to guarantee the monthly equipment lease payments.
Expenditures of the remaining $262,129 of the $850,000 will depend on
finalizing mutually agreed plans for the development of additional
products for evaluation by the Company during the remaining term of the
Development Agreement.
A substantial portion of the Company's technology has been
licensed from Rave pursuant to the Exclusive Worldwide License
Agreement. Pursuant to the terms of the License Agreement, the Company
is obligated to pay Rave royalties ("Royalties") of (i) 2 1/2% of net sales
of products utilizing Rave's technology ("Sales Royalties"), and (ii)
25% of any sublicensing fees received by the Company from sublicenses of
the products and technology covered by the License Agreement ("Licensed
Products and Technology"). Payments of Sales Royalties will commence
upon the earlier of (i) accumulated net sales of Licensed Products and
Technology sold by the Company or its future affiliates reaching an
aggregate of $50,000,000, or (ii) the Company's aggregate net profits
from sales of Licensed Products and Technology equaling $5,000,000.
Pursuant to the terms of the Agency Agreement with Prime, Prime
will receive 35% of net sublicensing fees received by the Company with
respect to the first $50,000,000 of aggregate net sales made by the
Company's sublicensees, after subtracting the payments to Rave and
licensing expenses, and thereafter 45%. Prime will also receive up to
an additional $1,500,000 of which (i) $400,000 has been paid in
accordance with the terms of the agreement, (ii) $400,000 is payable out
of the Company's first sublicensing fees, and (iii) $700,000 is payable
out of the Company's portion of sublicensing royalties when net
sublicensing sales exceed $200,000,000.
Because the Company has determined to concentrate its resources
and product strategy on the sale of its proprietary software
(Softsets) and the NUWAVE Video Processor products, the Company
anticipates that its available cash will be sufficient to satisfy its
contemplated cash requirements for at least the next 12 months. The
Company intends to attempt to raise funds to insure its longer term
financial needs. Additional equity financing may involve substantial
dilution to the interests of the Company's then existing stockholders.
Plan of Operation
The Company's plan of operation over the next 12 months focuses
primarily on the marketing and sales of its proprietary software
(Softsets) and the NUWAVE Video Processor products in the OEM,
10
<PAGE>
professional video and retail markets and the continued effort necessary
to support the sales and marketing of these products.
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that it has sufficient cash to
satisfy the estimated cash requirements of the Company for the next 12
months. In the event of unanticipated expenses, delays or other
problems the Company would be required to seek additional funding. In
addition, in the event that the Company receives a larger than
anticipated number of initial purchase orders upon introduction of
proprietary software (Softsets) and the NUWAVE Video Processor
products, it may require resources substantially greater than its
available cash or than are otherwise available to the Company. In such
event the Company may be required to raise additional capital. The
Company has no current arrangements with respect to, or sources of, any
such capital, and there can be no assurance that such additional capital
will be available to the Company when needed, on commercially reasonable
terms or at all.
The Company's future performance will be subject to a number of
business factors, including those beyond the Company's control, such as
economic downturns and evolving industry needs and preferences, as well
as the level of competition and the ability of the Company to
successfully market its products and technology. There can be no
assurance that the Company will be able to successfully implement a
marketing strategy, generate significant revenues or achieve profitable
operations. In addition, because the Company has had only limited
operations to date, there can be no assurance that its estimates will
prove to be accurate or that unforeseen events will not occur.
Impact of the Adoption of Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Boards issued
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 will require the Company to replace the current presentation of
"primary" per share data with "basic" and "diluted" per share data.
Current;y, outstanding common stock equivalents are antidilutive and
therfore management estimates that the future adoption of SFAS 128 currently
will not have a material impact on the Company's per share data. SFAS 128
will be adopted by the Company for periods ending after December 15, 1997.
The Financial Accounting Standards Boards issued Financial Accounting
Standard No. 130, "Reporting Comprehensive Income" ("SFAS 130") in June
1997. Comprehensive income represents the change in net assets of a
business enterprise as a result of nonowner transactions. Management does
not believe that the future adoption of SFAS 130 will have a material
effect on the Company's financial position and results of operation. The
Company will adopt SFAS 130 for the year ending December 31, 1998
Also in June 1997, the Financial Accounting Standards Board issued
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS"). SFAS 131 requires that a
business enterprise report certain information about operating segments,
products and services, geographic areas of operation, and major customers
in complete sets of financial statements and in condensed financial
statements for interim periods. The Company is required to adopt this
standard in 198 and is currently evaluating the impact of the standard.
This Quarterly Report on Form 10-QSB contains forward-looking
statements that involve a number of risks and uncertainties. Among the
important factors that could cause actual results to differ materially
from those indicated by such forward-looking statements are delays in
product development, competitive pressures, general economic conditions,
risks of intellectual property litigation, and the risk factors detailed
from time to time in the Company's annual report on form 10KSB and other
material filed with the Securities and Exchange Commission.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On May 29, 1997, the Company held its annual meeting of stockholders
to (i) elect directors, (ii) consider and act upon a proposal to
adopt the Non-Employee Director Stock Option Plan (the "Director's
Plan"), (iii) ratify the appointment of Coopers & Lybrand LLP as the
independent certified public accountants to audit the Company's
books and records for the fiscal year ending December 31, 1997, and
(iv) transact such other business as might be brought before the
meeting.
The following tables set forth information regarding the number of
votes cast for, against, and abstentions, with respect to each
matter presented at the meeting. Abstentions and broker-non votes
are counted only for purposes of electing directors in accordance
with Proposal One.
(i) Election of Directors
Against or
Nominee For Withheld Abstentions
------------- --------- -------- -----------
Gerald Zarin 4,807,082 6,450 0
Lyle Gramley 4,808,082 5,450 0
Joseph Sarubbi 4,808,082 5,450 0
David Kwong 4,808,082 5,450 0
Ed Bohn 4,808,082 5,450 0
(ii) Adoption of the Non-Employee Director Stock Option Plan
Against or
For Withheld Abstentions
--------- -------- -----------
4,762,232 36,450 14,850
(iii) Ratification of Coopers & Lybrand LLP
Against or
For Withheld Abstentions
--------- -------- ----------
4,808,622 0 4,910
(iv) No other business was transacted at the meeting
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31. Annual Report to Shareholders (incorporated by reference from
the Company's Annual Report to Shareholders filed with the
Commission on April 30, 1997.)
27. Financial data schedule
(b) Reports on Form 8-K
During the second quarter of 1997, the Company filed a
Form 8-K dated May 29, 1997 to report on "Item 5. Other
Events" regarding the actions taken at the Annual Meeting
of Shareholders.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized in
the City of Fairfield in the State of New Jersey on August 14, 1997.
NUWAVE TECHNOLOGIES, INC.
-------------------------
(Registrant)
DATE: August 14, 1997 By: /s/ Gerald Zarin
---------------------------
Gerald Zarin
Chief Executive Officer and
Chairman of the Board
DATE: August 14, 1997 By: /s/ Jeremiah F. O'Brien
-----------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
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