As filed with Securities and Exchange Commission on November 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 September 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 September 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 September 30, 1997 (unaudited) P. 3
Statements of Operations - For the three and nine month periods ended
September 30, 1996 (unaudited) and September 30, 1997 (unaudited)
and for the period July 17, 1995 (inception) to
September 30, 1997 (unaudited) P. 4
Statements of Cash Flows - For the three and nine month periods ended
September 30, 1996 (unaudited) and September 30, 1997 (unaudited)
and for the period from July 17, 1995 (inception) to
September 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. 13
ITEM 2. CHANGES IN SECURITIES P. 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 13
ITEM 5. OTHER INFORMATION P. 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 13
SIGNATURES P. 13
EXHIBIT INDEX P. 14
<PAGE>
<TABLE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Balance Sheets
ASSETS
<CAPTION>
December 31, September 30,
1996 1997
------------ -------------
(unaudited)
<C> <C> <C>
Current assets:
Cash and cash equivalents $ 6,057,941 $ 2,438,965
Accounts receivable 6,525
Inventory 21,877
Prepaid expenses and other current assets 91,909 143,540
------------ ------------
Total current assets 6,149,850 2,610,907
Property and equipment 69,773 103,321
Restricted cash 256,003
Other assets 72,275 90,013
------------ ------------
Total assets $ 6,291,898 $ 3,060,244
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 373,110 $ 133,744
------------ ------------
Total liabilities 373,110 133,744
------------ ------------
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
September 30, 1997
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and outstanding -
none as of December 31, 1996 and September 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 September 30, 1997; issued and outstanding
5,325,000 shares and 5,348,334 shares as of
December 31, 1996 and September 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) (8,380,196)
------------ ------------
Total stockholders' equity 5,918,788 2,926,500
------------ ------------
Total liabilities and stockholders' equity $ 6,291,898 $ 3,060,244
============ ============
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 Nine months Nine months (inception)
ended ended ended ended to
September 30, September 30, September 30, September 30, September 30,
1996 1997 1996 1997 1997
------------ ------------ ------------ ------------ ---------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ $ 6,395 $ $ 6,395 $ 6,395
Cost of sales (3,080) (3,080) (3,080)
------------ ------------ ------------ ------------ ---------------
3,315 3,315 3,315
------------ ------------ ------------ ------------ ---------------
Operating expenses:
Research and development expenses (475,634) (411,196) (1,117,211) (1,343,964) (3,455,680)
General and administrative expenses (456,227) (562,417) (951,667) (1,853,471) (4,079,702)
------------ ------------ ------------ ------------ ---------------
(931,861) (973,613) (2,068,878) (3,197,435) (7,535,382)
------------ ------------ ------------ ------------ ---------------
Loss from operations (931,861) (970,298) (2,068,878) (3,194,120) (7,532,067)
------------ ------------ ------------ ------------ ---------------
Other income (expense):
Interest income 82,190 37,551 91,502 155,164 331,573
Interest expense (23,802) (325,868) (331,542)
------------ ------------ ------------ ------------ ---------------
58,388 37,551 (234,366) 154,164 31
------------ ------------ ------------ ------------ ---------------
Net loss before extraordinary item (873,473) (932,747) (2,303,244) (3,038,956) (7,532,036)
Extraordinary item (848,160) (848,160) (848,160)
------------ ------------ ------------ ------------ ---------------
Net loss $ (1,721,633) $ (932,747) $ (3,151,404) $ (3,038,956) $ (8,380,196)
============ ============ ============ ============ ===============
Loss per share:
Weighted average number of
common shares outstanding 5,212,609 5,348,334 3,248,956 5,341,667
============= ============ ============ ============
Net loss per share before
extraordinary item $ (0.17) $ (0.17) $ (0.70) $ (0.57)
Net loss per share on
extraordinary item (0.16) $ (0.26)
Net loss per share $ (0.33) $ (0.17) $ (0.96) $ (0.57)
============= ============= ============ ============
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 Nine months Nine months (inception)
ended ended ended ended to
September 30, September 30, September 30, September 30, September 30,
1996 1997 1996 1997 1997
------------ ------------ ------------ ------------ -------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,721,633) $ (932,747) $ (3,151,404) $ (3,038,956) $ (8,380,196)
Adjustments to reconcile net loss to net
cash used in operating activities:
Extraordinary item 848,160 848,160 848,160
Depreciation expense 2,000 12,340 4,400 35,983 55,700
Amortization of unamortized debt discount 12,334 163,103 168,778
Amortization of deferred financing costs 6,329 89,062 89,062
Issuance of common stock for services
rendered 20,600
Increase in accounts receivable (6,525) (6,525) (6,525)
Increase in inventory (21,877) (21,877) (21,877)
Decrease (increase) in prepaid expenses
and other current assets (179,118) 53,683 (167,640) (51,631) (143,540)
Increase (decrease) in accounts payable
and accrued liabilities (391,370) (101,700) (25,091) (239,366) 133,744
Increase in other assets 471 (17,737) (90,013)
------------ ------------ ------------- ------------- -------------
Net cash used in operating activities (1,423,298) (996,335) (2,239,410) (3,340,109) (7,326,107)
------------ ------------ ------------- ------------- -------------
Cash flows from investing activities:
Purchase of property and equipment (38,161) (3,458) (52,099) (69,532) (159,021)
------------ ------------ ------------- ------------- -------------
Net cash used in investing activities (38,161) (3,458) (52,099) (69,532) (159,021)
------------ ------------ ------------- ------------- -------------
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 11,753,010 11,753,010
Repayment of bridge notes issued in
connection with bridge units (2,000,000) (2,000,000) (2,000,000)
Costs incurred for equity offerings (1,559,538) (2,310,182) (2,348,582)
Issuance of common stock in connection with
exercise of stock options 30,000 30,000 46,668 76,668
Increase in restricted cash (300,000) (300,000)
Decrease in restricted cash 21,999 43,997 43,997
Deferred financing costs (180,900) (201,000)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing activities 8,223,472 21,999 8,941,928 (209,335) 9,924,093
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents 6,762,013 (977,814) 6,650,419 (3,618,976) 2,438,965
Cash and cash equivalents at the beginning
of the period 261,206 3,416,779 372,800 6,057,941
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents at the end
of the period $ 7,023,219 $ 2,438,965 $ 7,023,219 $ 2,438,965 $ 2,438,965
============ ============ ============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid during the period $ 73,702 $ 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 $ 25,000
============ ============
600,000 Series A Convertible Preferred Stock
converted into Common stock $ 6,000 $ 6,000
============ ============
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
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 Securities and Exchange Commission on March 31,
1997.
The interim financial statements have been prepared on a going
concern basis, which contemplates realization of assets and
liquidation of liabilities in the ordinary course of business. As
of September 30, 1997 the Company has working capital of
$2,477,163 and is seeking to raise additional working capital
through the sale of its equity securities in order to carry out its
plans for further development and marketing of its proprietary
products within the next twelve months. In the event the Company
is unable to either generate sufficient revenues from product sales
or to raise additional capital duringthis period, it will revise
its current plans and reduce expenditures accordingly. The
financial statements do not include any adjustments that might
result from the outcome of such uncertainty.
2. Restricted Cash
---------------
On April 22, 1997, the Company deposited $300,000 into a
certificate of deposit. 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 guarantee
monthly equipment lease payments to be made by the Company on
behalf of Rave Engineering Corp. ("Rave") pursuant to the a
Development Agreement dated as of July 21,1995 between Rave and
the Company (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 September 30, 1997, payments made in support of
the equipment lease totaled $43,997, thereby reducing the
restricted cash to $256,003.
3. Inventories
-----------
Inventories are stated at the lower of cost (using FIFO) or market.
4. Capital Transactions
--------------------
In 1997, under the 1996 Performance Incentive Plan, 60,000 stock
options were granted during the first quarter, 42,500 stock
options were granted during the second quarter, and 20,000 stock
options were terminated during the third quarter. 182,500 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. 48,000 stock options remain available for grant under
the Non-Employee Director Stock Option Plan. All such stock
options were granted at an option price equal to the fair market
value of the Company's Common Stock on the date of grant.
5. Reclassifications
-----------------
Certain reclassifications were made to the 1996 interim financial
statements to conform with the presentation in the 1996 calendar
year financial statements.
</PAGE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This Quarterly Report on Form 10-QSB includes "forward -looking
statements" within the meaning of Section 27A of the Securities Act of
1933 , as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements other than statements of historical
facts included in this Quarterly Report on Form 10-QSB, including
without limitation, the statements under "General," "Marketing and
Sales," "Research and Development," "Manufacturing," "Liquidity and
Capital Resources," and "Plan of Operation" are forward-looking
statements. The Company cautions that forward-looking statements are
subject to certain risks and uncertainties that could cause actual
results to differ materially from those indicated in the forward-
looking statements, due to several important factors herein
identified. Important factors that could cause actual results to
differ materially from those indicated in the forward-looking
statements ("Cautionary Statements") include delays in product
development, competitive products and pricing , general economic
conditions, risks of intellectual property litigation, product demand
and industry capacity, new product development, commercialization of
new technologies, the Company's ability to raise additional capital
when required, and the risk factors detailed from time to time in the
Company's annual report on Form 10-KSB and other materials filed with
the Securities and Exchange Commission.
All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
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. In September 1997, the Company began selling limited
quantities of its first commercial product, the NVP2.2 described more
fully below.
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 currently
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 the first quarter of 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.
</PAGE>
7
<PAGE>
The Company intends to produce the NVP 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 in
anticipation of applications required by customers in the future. In
this regard, the Company has contracted with Adaptive Micro-Ware,
Inc., an engineering firm specializing in engineering project
management to provide necessary technical support and manage this
process. The Company also recently contracted with The Engineering
Consortium ("TEC") , a specialized design engineering group, to
complete the work necessary to convert the Company's current NVP PC
board design to ASIC specifications.
The Company has significantly scaled back its research and
development, and marketing and related activities with respect to all
other existing or proposed products in order to concentrate its
resources on the continued development and marketing of its
proprietary software (Softsets) and the NVP 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 PC, television, HDTV 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.
As of September 30, 1997, the Company had accumulated a deficit
during the development stage of $8,380,196 which includes a net loss
for the nine months ended September 30, 1997 of $3,038,956. The loss
for the nine months ended September 30, 1997 included $1,853,471 in
selling, general and administrative expenses, representing an increase
of $901,804 compared to the nine month period ended September 30,
1996. Such increase was primarily a result of sales and marketing
efforts discussed more fully below ($546,593) , and general operating
expenses as a result of the Company's planned growth and expansion
following the IPO, including increased personnel and payroll costs
($202,236), professional and legal services costs ($156,858),
insurance costs ($88,083), depreciation expense ($31,581), office rent
($21,834) and other ($34,618). Such increases were partially offset
by a decrease in the payments made to Prime Technologies, Inc.
pursuant to the Exclusive Agency Agreement (see Liquidity and Capital
Resources below) ($180,000). 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 NVP products, management anticipates it will be able to lower
its level of expenditures from that experienced over the past twelve
months. Although the Company anticipates deriving some revenue from
the sale of its proprietary software (Softsets) and the NVP products
within the next 12 months, no assurance can be given that these
products will be successfully marketed during such period. 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, the production
of 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 NVP 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.
</PAGE>
8
<PAGE>
In April 1997, the Company formed its ProWave Division for sales
and marketing of the NVP 2.2 and related products to the professional
video market (e.g., medical imaging and security surveillance
systems). The Company has recently begun shipping its ProWave
products and 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, and contracted with professional sales consultants
to establish and manage the development of the Company's sales
organization. In this regard, the Company has contracted with
Competitive Technologies, Inc. ("CTI") to assist it in the development
of NUWAVE's OEM business. CTI has been in the business of taking R&D
and technology to the marketplace for over twenty-six years. 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 nine months ended September 30,
1997, the Company's sales and marketing costs included $218,887 for
professional sales and marketing consultants, $267,706 for advertising
and public relations and $60,000 for trade shows. The Company began
its sales and marketing activities during the fourth quarter of 1996.
As a result, there were no comparable costs during the nine month
period ended September 30,1996. 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 into an Exclusive Worldwide License Agreement dated July
21,1995 (the "License Agreement") and a Development Agreement dated
July 21,1995 (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 Rave's activities with respect to 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. Because (i) the development of the Initial
Products has been substantially completed, (ii) the Company has
increased its ability to take advantage of the expertise of its
Advanced Engineering Group, and (iii) it has determined to devote
substantially all of its resources to its proprietary software
(Softsets) and the NVP 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.
In October of 1997 contracted with TEC to complete the ASIC design.
The Advanced Engineering Group also developed the proprietary Softsets
and certain of the enhancements to the NVP. The Company intends to use
members of the Advanced Engineering Group to assist it with the
continued development of the NVP in its OEM and retail versions but
otherwise significantly reduce its research and development activities
in the near term.
From July 17, 1995 through September 30, 1997, the Company incurred
$3,455,680 on research and development, of which approximately 70% was paid
to Rave pursuant to the Development Agreement. During the next 12 months,
the Company intends to spend approximately $2,071,800 on research and
</PAGE>
9
<PAGE>
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 NVP 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 NVP ASIC chip and related
products.
Employees
The Company currently has eight employees.
Liquidity and Capital Resources
From its inception until the 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 its 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. 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 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
September 30, 1997, the Company had made payments of $43,997 against
the $850,000 of equipment purchases and at that date had $256,003
pledged as collateral to guarantee the monthly equipment lease
payments. Expenditures of the remaining $254,995 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 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, and (ii) the Company's aggregate net profits
from sales of Licensed Products and Technology equaling $5,000,000.
</PAGE>
10
<PAGE>
Pursuant to the terms of an Exclusive Agency Agreement ("the
"Agency Agreement") dated as of July 21,1995 between the Company and
Prime Technology, Inc.("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 Agency 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 NVP products, the Company anticipates that its
available cash will be sufficient to satisfy its contemplated cash
requirements for at least the next 9 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 NVP products in the OEM, 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 9
months. Prior to June 30, 1998, the Company will have to raise
additional working capital in order to implement its plan of
operation. 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 NVP 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
agreements 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 Board 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. Currently, outstanding common stock equivalents are
antidilutive and therefore 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.
In addition, The Financial Accounting Standards Board issued
Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" in February 1997. This statement establishes
standards for disclosing information about an entity's capital
structure. The Company intends to comply with the disclosure
requirements of this statement which are effective for periods ending
after December 15, 1997.
</PAGE>
11
<PAGE>
The Financial Accounting Standards Board issued Financial
Accounting Standards 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 operations. The Company will adopt SFAS 130 for the periods
ending after December 15, 1997.
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 131"). 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 1998 and is
currently evaluating the impact of the standard.
</PAGE>
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial data schedule
(b) Reports on Form 8-K
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 November 14, 1997.
NUWAVE TECHNOLOGIES, INC.
-------------------------
(Registrant)
DATE: November 14, 1997 By: /s/ Gerald Zarin
---------------------------
Gerald Zarin
Chief Executive Officer and
Chairman of the Board
DATE: November 14, 1997 By: /s/ Jeremiah F. O'Brien
-----------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
Exhibits Index
Exhibits Description Page
- -------- ----------- ----
27.1 Financial Data Schedule 15
14
<PAGE>
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<ARTICLE> 5
<CIK> 0001009802
<NAME> NUWAVE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,439
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 22
<CURRENT-ASSETS> 2,611
<PP&E> 159
<DEPRECIATION> 56
<TOTAL-ASSETS> 3,060
<CURRENT-LIABILITIES> 134
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 2,873
<TOTAL-LIABILITY-AND-EQUITY> 3,060
<SALES> 6
<TOTAL-REVENUES> 6
<CGS> 3
<TOTAL-COSTS> 3,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (155)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,039)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,039)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> 0
</TABLE>
