As filed with the Securities and Exchange Commission on May 21, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark one)
/x/ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
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 o
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 o No o
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of March 31, 1998: 5,613,485
Transitional Small Business Disclosure Format: Yes / / No /x/
================================================================================
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
FORM 10-QSB/A
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Balance Sheet - March 31, 1998 (unaudited) P. 3
Statements of Operations - For the three month periods
ended March 31, 1997 (unaudited) and March 31, 1998
(unaudited) and for the period July 17, 1995
(inception) to March 31, 1998 (unaudited) P. 4
Statements of Cash Flows - For the three month periods
ended March 31, 1997 (unaudited) and March 31, 1998
(unaudited) and for the period from July 17, 1995
(inception) to March 31, 1998 (unaudited). P. 5
Notes to Condensed Financial Statements P. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION P.10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P. 18
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS P. 18
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 18
ITEM 5. OTHER INFORMATION P. 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 18
SIGNATURES P. 19
2
<PAGE>
NUWAVE TECHNOLOGIES, INC
(A Development Stage Enterprise)
Balance Sheet
ASSETS
March 31,
1998
(unaudited)
----------
Current assets:
Cash and cash equivalents $ 1,868,905
Inventory 64,524
Prepaid expenses and other current assets 100,513
-------------
Total current assets 2,033,942
Property and equipment 113,647
Restricted Cash 176,742
Other assets 82,200
------------
Total assets $ 2,406,531
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 294,459
------------
Commitments and contingencies
Stockholders' equity:
Series A Convertible Preferred Stock,
noncumulative, $.01 par value; authorized
400,000 shares; issued and outstanding -
none
Preferred stock, $.01 par value; authorized
1,000,000 shares; issued and oustanding -
none (Such preferences and rights to be
designated by the Board of Directors)
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
as of March 31,1998 - 5,613,485 56,135
Additional paid in capital 12,137,442
Deficit accumulated during the development stage (10,081,505)
-----------
Total stockholders' equity 2,112,072
-----------
Total liabilties and stockholders' equity $ 2,406,531
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
NUWAVE TECHNOLOGIES, INC
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995
Three months Three months (inception)
ended ended to
March 31, March 31, March 31,
1997 1998 1998
----------------- ----------------- ------------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C>
Net Sales $ 10,275
Cost of Sales (4,214)
------------------
6,061
------------------
Operating expenses:
Research and development expenses $ (442,405) $ (381,139) $ (4,189,940)
General and administrative expenses (605,207) (531,157) (5,093,388)
----------------- ----------------- ------------------
(1,047,612) (912,296) (9,283,328)
----------------- ----------------- ------------------
Loss from operations (1,047,612) (912,296) (9,277,267)
----------------- ----------------- ------------------
Other income (expense):
Interest income 65,061 20,348 375,464
Interest expense (331,542)
----------------- ----------------- ------------------
65,061 20,348 43,922
----------------- ----------------- ------------------
Loss before extraordinary item (982,551) (891,948) (9,233,345)
Extraordinary item (848,160)
----------------- ----------------- ------------------
Net loss $ (982,551) $ (891,948) $ (10,081,505)
================= ================= ==================
Basic and diluted loss per share:
Weighted average number of
common shares outstanding
5,328,111 5,487,026
================= =================
Basic and diluted loss per
share $ (0.18) $ (0.16)
================= =================
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements
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 (inception)
ended ended to
March 31, March 31, March 31,
1997 1998 1998
-------------- ----------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (982,551) $(891,948) $(10,081,505)
Adjustments to reconcile net loss to net
cash used in operating activities:
Extraordinary item
848,160
Depreciation expense 10,013 11,230 73,300
Amortization of unamortized debt discount 168,778
Amortization of deferred financing costs 89,062
Issuance of common stock for services rendered 20,600
Increase in inventory (4,706) (64,524)
Decrease (increase) in prepaid expenses and
other current assets 1,973 10,491 (100,514)
Increase (decrease) in accounts payable and
accrued liabilities (131,919) 140,836 294,459
Increase in other assets (30,475) (82,200)
-------------- ----------------- ---------------
Net cash used in operating activities (1,132,959) (734,097) (8,834,385)
------------------------------------- -------------- ----------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (20,706) (21,407) (186,948)
-------------- ----------------- ---------------
Net cash used in investing activities (20,706) (21,407) (186,948)
------------------------------------- -------------- ----------------- ---------------
Cash flows from financing activities:
Proceeds from sales of Series A Convertible
Preferred Stock 900,000
Proceeds from issuance of initial bridge 350,000
units
Proceeds from issuance of bridge units, net
of
exchange of initial bridge notes 1,650,000
Proceeds from IPO 11,753,010
Proceeds from equity offering - February 6, 1998 1,000,000 1,000,000
Repayment of notes issued in connection with
initial bridge notes (2,000,000)
Costs incurred for equity offerings (136,451) (2,485,033)
Issuance of common stock in connection with
exercise of stock options 46,668 23,332 100,000
Decrease (increase) in restricted cash 44,739 (176,742)
Deferred financing costs (201,000)
-------------- ----------------- ---------------
Net cash provided (used in) by financing activities 46,668 931,621 10,890,237
--------------------------------------------------------------- ----------------- ---------------
Net increase (decrease) in cash and cash equivalent(1,106,997) 176,117 1,868,905
Cash and cash equivalents at the beginning of the period 6,057,941 1,692,788 -
-------------- ----------------- ---------------
Cash and cash equivalents at the end of the period 4,950,944 $ 1,868,905 $ 1,868,905
=============================================================== ================= ===============
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 for 14 bridge $ 140,000
units
===============
Deferred equity costs charged to additional paid
in capital in connection with the PPO $ 13,400
===============
Deferred financing costs charged to additional paid-in capital in
connection with the IPO $ 25,000
===============
600,000 Series A Convertible Preferred Stock converted
into Common Stock $ 6,000
===============
</TABLE>
<PAGE>
NUWAVE TECHNOLOGIES, INC.
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
April 14, 1998.
2. Capital Transactions
On February 6, 1998, the Company entered into a two-year agreement with an
investor whereby the Company issued 253,485 shares of the Company's Common Stock
for an aggregate purchase price of $1,000,000. In addition, subject to certain
conditions, the agreement provides that, from time to time over the life of the
agreement, the Company may issue "Puts" to the investor whereby the Company may
issue for each Put and the investor shall purchase, at the Company's option,
shares of the Company's Common Stock for a minimum of $250,000 and a maximum of
$750,000. The total aggregate value of the Puts over the life of the agreement
must be a minimum of $1,000,000 and cannot exceed $5,000,000. The purchase price
of the stock will be at 88% of the 5 day average of the fair market value of the
stock at the time of the Put. The following restrictions, among others, apply,
beginning with the second Put: 1) there must be 20 business days between Puts;
2) the average daily trading volume in the Company's Common Stock for the 30
trading days prior to the Put date must be at least 20,000 shares; 3) The
minimum bid price for the Company's Common Stock on the trading day immediately
preceding the put date must be at least $2.50; and 4) unless the investor agrees
otherwise, no put can be made which causes the investor to own more than 9.9% of
the Company's then outstanding stock.
In connection with the agreement, the Company issued to the investor
warrants (the "warrants") to purchase an aggregate of 50,000 shares of Common
Stock at a purchase price of $6.41 per share and an additional warrant (the
"supplemental warrant") to purchase an aggregate of 50,000 shares of Common
Stock at a purchase price of $3.95 per share. The warrants may be exercised at
any time beginning August 6, 1998 and ending three years thereafter. The
supplemental warrant may be exercised at any time beginning April 22, 1998 and
ending 5 years thereafter.
7
<PAGE>
On March 3, 1998, the Company entered into a consulting agreement with
an organization (the "Consultant") whereby the Consultant will perform
consulting services relating to corporate finance and other financial services
matters. As compensation for such services, the Company shall pay the consultant
$5,000 per month during an initial term ending September 3, 1999 subject to
automatic one-year terms unless either the Company or the Consultant shall have
given written notice at least 30 days prior to the end of the initial or
subsequent terms.
In connection with this agreement, the Company issued to the Consultant
400,000 common stock purchase warrants. The warrants have an exercise price of
$4 and are exercisable after September 3, 1999. The warrants expire on March 3,
2003.
On March 19, 1998, a director exercised options with respect to 11,666
shares of common stock at $2.00 per share.
3. Subsequent Events
As of May 11, 1998 the Company entered into an agreement with the
Consultant (see Note 2 above) whereby the Consultant will act as the Company's
Placement Agent in a private placement (the "Offering") of Common Stock and
Warrants to purchase Common Stock. Pursuant to the agreement the Company will
raise a minimum of $2,500,000 and a maximum of $7,000,000 through the sale of
not less than 25 and not more than 70 Units (the "Units"). Each Unit consists of
(I) a number of shares of Common Stock of the Company determined by dividing the
purchase price per Unit of $100,000 (the "Offering Price") by, for the initial
closing of the Offering, $2.59, and, for each subsequent closing, the lesser of
(x) $3.20 and (y) 80% of the "Average Closing Bid Price" which shall be the
average closing bid price for the Common Stock for the eight consecutive trading
days immediately preceding the date of a closing ( a "Closing Date") of the
Offering, and (II) Class A Redeemable Warrants (the "Warrants") to purchase 75%
of such number of Common Stock of the Company. The Company at its discretion may
reject any subscriptions for Units.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock (the "Warrant Share") at an exercise price per share of $3.24, subject to
adjustment upon the occurrence of certain events to prevent dilution, at any
time commencing from the date of the final closing of the Offering and expiring
on May 11, 2003. The Warrants are subject to redemption by the Company at $.01
per Warrant after 12 months from the effective date of a registration statement
covering the Warrants on not less than 30 days prior written notice to the
holders of the Warrants, provided the average closing bid price of the Common
Stock has been at least 250% of the then current exercise price of the Warrants
for a period of thirty consecutive days ending on the day prior to the day on
which the Company gives notice of redemption. The Warrants will be exercisable
until the close of business on the day immediately preceding the date fixed for
redemption.
The actual number of securities underlying the Units will be determined by
the number of Units sold in the initial closing and the number of Units sold and
the Average Closing Bid Price at subsequent closings. The Company will be
required to file a registration statement relating to the resale of the shares
of Common Stock, the Warrants and the Warrant Shares underlying the Units under
the Securities Act of 1933, as amended (the "Securities Act"), upon demand,
after six
8
<PAGE>
months following the final closing of the Offering and to keep the
registration statement covering such resale effective until the expiration of
the Warrants.
The Consultant will receive, for acting as placement agent, a
commission of 10% of the gross proceeds from the sale of the Units, as well as a
3% non-accountable expense allowance and reimbursement of other costs, including
legal expenses relating to the Offering, subject to appropriate documentation.
In addition, the Consultant will receive as part of its compensation, warrants
(the "Placement Agent Warrants") to purchase 25% of the units sold in the
Offering, exercisable until May 11, 2003, at a price per Unit equal to the
Offering Price per Unit of $100,000.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This Quarterly Report on Form 10-QSB contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical facts included in this Quarterly Report,
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 ("SEC").
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, Digital Video Disk Players
("DVD'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 ("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. On February 11, 1998, the Company received
net proceeds of approximately $915,000 from the issuance of 253,485 shares of
its Common Stock to an investor. The Company also issued warrants to purchase up
to 100,000 shares of its Common Stock to such investor. In addition the Company
may issue "Puts" to the investor over a two year period whereby the investor
will purchase a minimum of $1,000,000 up to an maximum
10
<PAGE>
of $5,000,000 of the Company's Common Stock (valued at 88% of the market value
thereof) if certain pre-conditions are met.
At the time of the IPO, the Company had produced and tested fully
operational working prototypes of products then being developed by the Company,
such as the AVP, the Magic Card, the NUWAVE Dual TBC and the NUWAVE Ministudio
(the "Initial Products"). Subsequent to the IPO, the Company established the
Advanced Engineering Group to support the continuing development of its products
and related technology, and the identification of additional sources of new
technology. The Advanced Engineering Group is made up of the Company's own
employees and third party consultants who work with the Company on a project by
project basis. The Advanced Engineering Group operates under the direction of
the Vice President-Marketing/Technical Development. The Company has used its
Advanced Engineering Group to create the NUWAVE Video Processor (the "NVP"), to
develop a significant amount of the software included in each of its products
and to develop new circuitry to allow certain of the products to be produced as
Application Specific Integrated Circuits ("ASICs"). The Advanced Engineering
Group also developed a separate proprietary software product ("Softsets") for
the NVP and certain of the enhancements to it. Utilizing this technology, the
Company has developed the ProWave NVP 2.2 that 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"). During the first half of 1997, the Company
began marketing the NVP and Softsets as well as the NVP 2.2 as a stand-alone
unit and as a PC board with software. In September, 1997 the Company began
selling limited quantities of the NVP 2.2 (primarily to representatives for
demonstration purposes).
The Company intends to produce the NVP in the form of an ASIC chip 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 contracted with Adaptive Micro-Wave, Inc. ("Adaptive"), an
engineering firm specializing in engineering product management, to provide
necessary technical support and manage this process under the Company's
direction. The Company also 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 and
contracted with Zentrum Mikroelectronik Dresden GmbH ("ZMD"), a fabricator
and manufacturer of integrated circuits, for production of the ASIC. The Company
anticipates the ASIC will be in production during the second half of 1998 and
recently entered into a multi-year supply agreement with Thomson Consumer
Electronics ("Thomson") for the purchase of the NVP ASIC chip.
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 Softsets and NVP products (i.e., ASIC chip for the original
equipment manufacturer ("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.
11
<PAGE>
As of March 31, 1998, the Company had accumulated a deficit during the
development stage of $10,081,505 which includes a net loss for the quarter ended
March 31, 1998 of $891,948. The loss for the quarter included $531,157 in
selling, general and administrative expenses, representing an decrease of
$74,050 compared to the quarter ended March 31, 1997. Such decrease was
primarily a reduction in sales and marketing expenditures of $155,738 discussed
more fully below and a $70,000 decrease in the payments made to Prime
Technologies, Inc. pursuant to the Exclusive Agency Agreement (see Liquidity and
Capital Resources below). Such decreases were partially offset by increases in
professional and legal services costs ($118,710), insurance costs ($9,243),
investor relations costs ($16,083) and other ($7,651). 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 1997, the Company had 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
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. The developmental costs relating to these programs
was substantially incurred during 1997 and as a result such expenditures for the
first quarter of 1998 were reduced by approximately $161,000 compared to the
first quarter of 1997. During 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. The Company anticipates the ASIC will be in production
during the second half of 1998 and as indicated above recently entered into a
multi-year supply agreement with Thomson for the purchase of the NVP ASIC chip.
Several other potential customers have signed Confidentiality/Non Disclosure
agreements with NUWAVE allowing them to expand their review and examination of
NUWAVE's exclusive video enhancement technology.
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). In September 1997,
the Company began selling limited quantities (primarily for demonstration
purposes) of its first commercial product, the NVP 2.2. In November 1997, the
Company contracted with The LACOM Group to help the Company activate a national
"rep" and dealer sales network to support the launch of this Division. Through
March 31, 1998 eight organizations had signed contracts to represent the
Company's ProWave Division. Management anticipates
12
<PAGE>
adding several additional rep organizations over the next two months and expects
to have their product and sales training along with the necessary sales and
marketing programs and materials in place by the end of the second quarter of
1998. During the last quarter of 1997, the Company began its premarketing
efforts with regard to the retail market by introducing a prototype of its
stand-alone consumer product to selected retail chains.
The Company is currently developing a retail product for those
Consumers that have a TV and do not have a NUWAVE enabled product but want to
improve the picture quality of their home viewing. This product will be marketed
by the Company's CWave Division.
During 1997 the Company contracted with professional sales consultants to
establish the development of the Company's sales organization managed by the
Vice President of Sales. In this regard, the Company has contracted with
Competitive Technologies, Inc. ("CTI") to assist it in the development of
NUWAVE's OEM business. CTI, for over twenty six years, has been in the business
of taking R&D and technology companies and introducing them to the major
companies specializing in their respective markets. The Company also has
contracts with several individuals and organizations that will act in a
commissioned sales representation capacity regarding the Company's products.
During the quarter ended March 31, 1998 the Company's sales and marketing costs
included $12,470 for professional sales and marketing consultants compared to
$105,382 for the quarter ended March 31, 1997 and $15,669 for advertising and
public relations compared to $85,509 for the quarter ended March 31, 1997. The
Company is continually reviewing its needs with a view to maximizing efficiency
while conserving its resources.
Research and Development
Research and development activity with respect to the Company's Initial
Products was carried out by Rave Engineering Corporation ("Rave") prior to July
21, 1995, the date upon which the Company and Rave entered into the License
Agreement and the Development Agreement. The technology on which the Company's
Initial Products is based was originated by Rave prior to the Company's
organization and is licensed to the Company by Rave 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 these products is substantially completed.
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 Softsets and the NVP products,
the Company believes that in the event the Development Agreement is not
extended, there would not be a materially adverse effect on its operations or
ability to develop new technology.
13
<PAGE>
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 create the NVP, to develop a significant amount of the software included in
each of its products and to develop new circuitry to allow certain of the
products to be produced as ASICs. In April 1997, it contracted with Adaptive to
assist in the ASIC development process. In November of 1997 the Company
contracted with TEC to complete the ASIC design in coordination with Adaptive
under the supervision of the Company's Vice President of Marketing/Technical
Development. The Advanced Engineering Group also developed 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 for the Initial Products.
From July 17, 1995 through March 31, 1998, the Company incurred
expenses of $4,189,940 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 $1,500,000 on research and
development and in support of the commercialization of its products. Of that
amount the Company estimates that approximately 34% will be paid to Rave
pursuant to the Development Agreement and approximately 66% 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 Softsets and 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 contemplate that it will directly manufacture any
of its products. It intends to contract with third parties to manufacture its
proposed NVP and Softsets. It also may license to third parties the rights to
manufacture the products, either through direct licensing, OEM arrangements or
otherwise.
The Company intends to produce the NVP ASIC chip 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
contracted with Adaptive to provide necessary technical support and manage this
process under the Company's direction, contracted with TEC to complete the work
necessary to convert the Company's current NVP PC board design to ASIC
specifications and contracted with ZMD for production of the ASIC. The Company
anticipates producing the initial ASIC during the second half of 1998 in
accordance with the requirements of the Thomson supply agreement and believes
that this initial ASIC will be readily adaptable to other customer
specifications, if required.
14
<PAGE>
Employees
The Company currently has nine full-time employees and, depending on
its level of business activity, expects to hire additional employees in the next
12 months, as needed, to support marketing and sales, manufacturing and research
and development.
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. On February 11, 1998, the
Company received net proceeds of approximately $915,000 from the sale of 253,485
shares of common stock pursuant to an agreement with ProFutures Special equities
Fund, L.P. ("ProFutures") dated February 6, 1998. The agreement provides up to
$5,000,000 in additional equity funding under certain terms and conditions (see
Note 2 to Notes to Financial Statements - "Capital Transactions"). Under the
terms of the agreement, since the registration statement filed on Form S-3 on
April 14, 1998 became effective, the Company has the right to draw up to
$5,000,000 in cash (in exchange for shares of Common Stock at a 12% discount to
market) at any time through April 14, 2000. The decision to make draws, and the
timing and amount of such draws are solely at the Company's discretion, subject
to certain conditions; however the Company is required to draw a minimum of
$1,000,000 by April 14, 2000.
On May 11, 1998 the Company entered into an agreement with the Consultant
(see Note 3 to Notes to Financial Statements -"Subsequent Events") whereby the
Consultant will act as the Company's Placement Agent in a private placement of
Common Stock and Warrants. Pursuant to the agreement the Company will raise a
minimum of $2,500,000 and a maximum of $7,000,000 through the sale of not less
than 25 and not more than 70 Units (the "Units"). Each Unit consists of (I) a
number of shares of Common Stock of the Company determined by dividing the
purchase price per unit of $100,000 (the "Offering Price") by, for the initial
closing of the Offering, $2.59, and, for each subsequent closing, the lesser of
(x) $3.20 and (y) 80% of the "Average Closing Bid Price" which shall be the
average closing bid price for the Common Stock for the eight consecutive trading
days immediately preceding the date of a closing ( a "Closing Date") of the
Offering, and (II) Class A Redeemable Warrants (the "Warrants") to purchase 75%
of such number of shares of Common Stock of the Company. (see Note 3 to Notes to
Financial Statements - "Subsequent Events").
Pursuant to the terms of the License Agreement and the Development
Agreement, the Company is paying Rave minimum aggregate royalties to maintain
the exclusivity under the license agreement 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
15
<PAGE>
services to be rendered to the Company. The Development Agreement also
provides for Rave to receive additional payments under certain conditions
aggregating $850,000 to purchase or lease equipment for use in developing the
products and technology covered by the License Agreement (the "Licensed Products
and Technology"). The payments were originally to be made in monthly
installments not to exceed $23,611 with a lump sum payment of $283,336 due in
March 1998, if certain conditions were met. 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 March 31, 1998, the Company had made payments of $431,396
against the $850,000 of equipment purchases and at that date had $176,742
pledged as collateral to guarantee the monthly equipment lease payments.
Expenditures of the remaining $241,862 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.
The technology on which the Initial Products is based 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 Licensed Products and Technology. Payments of Sales Royalties
will commence upon the earlier of (i) accumulated net sales of the 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 the Licensed Products and Technology equaling $5,000,000.
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. The
Agency Agreement only pertains to the Licensed Products and Technology covered
by the License Agreement with Rave.
The Company has determined to concentrate its resources and product
strategy on the sale of its Softsets and NVP products and therefore the Company
anticipates that its available cash will be sufficient to satisfy its
contemplated cash requirements for at least through the remainder of 1998.
16
<PAGE>
Plan of Operation
The Company's plan of operation over the next 12 months focuses
primarily on the final phase of the development of its ASIC chip, marketing and
sales of its Softsets and 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 12 months from the
date of this document. In the event of unanticipated expenses, delays or other
problems the Company might be required to either utilize the equity financing
available under the terms of its agreement with ProFutures (see Note 2 to Notes
to Financial Statements - "Capital Transactions") or to seek additional funding
elsewhere. In addition, in the event that the Company receives a larger than
anticipated number of initial purchase orders upon introduction of Softsets and
the NVP products, it may require resources 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. There can be no assurance that such
additional capital will be available to the Company if 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.
17
<PAGE>
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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule
(b) Reports of Form 8-K
During the quarter ended March 31, 1998, a current report on
Form 8-K with respect to Items 4 & 5 therein was filed with the
Securities and Exchange Commission on February 18, 1998.
18
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this Quarterly 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 May 21, 1998.
NUWAVE TECHNOLOGIES, INC.
(Registrant)
DATE: May 21, 1998 By: /s/ Gerald Zarin
--------------------------------------
Gerald Zarin
Chief Executive Officer and Chairman of
the Board
DATE: May 21, 1998 By: /s/ Jeremiah F. O'Brien
--------------------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
19
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