As filed with Securities and Exchange Commission on August 14, 1998
================================================================================
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, 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 [ ]
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, 1998: 8,358,515
---------
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 Sheet - June 30, 1998 (unaudited) P. 3
Statements of Operations - For the three and six month
periods ended June 30, 1997 (unaudited) and June
30, 1998 (unaudited) and for the period July 17,
1995 (inception) to June 30, 1998 (unaudited) P. 4
Statements of Cash Flows - For the three and six month
periods ended June 30, 1997 (unaudited) and June
30, 1998 (unaudited) and for the period from July
17, 1995 (inception) to June 30, 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. 19
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS P. 19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 20
ITEM 5. OTHER INFORMATION P. 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 21
SIGNATURES P. 22
2
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Balance Sheet
ASSETS
June 30,
1998
--------
(unaudited)
Current assets:
Cash and cash equivalents $ 6,832,277
Inventory 62,469
Prepaid expenses and other current assets 265,350
-----------
Total current assets 7,160,096
Property and equipment 120,850
Restricted Cash 143,187
Other assets 95,077
-----------
Total assets $ 7,519,210
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 425,920
-----------
Total liabilities 425,920
-----------
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 outstanding - none (Such preferences and
rights to be designated by the Board of Directors)
Common stock, $.01 par value; authorized 20,000,000 shares;
as of June 30, 1998; issued and outstanding 8,358,515 shares. 83,585
Additional paid in capital 18,232,759
Deficit accumulated during the development stage (11,223,054)
------------
Total stockholders' equity 7,093,290
------------
Total liabilities and stockholders' equity $ 7,519,210
===========
The accompanying notes are an integral part of these condensed financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Operations
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,
1997 1998 1997 1998 1998
------------ ------------ ---------- ---------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales $ 10,275
Cost of Sales (4,214)
------------ ------------ ----------- ---------- ----------------
6,061
------------ ------------ ----------- ---------- ----------------
Operating expenses:
Research and development expenses $ (577,363) $ (476,098) $ (932,768) $ (857,237) (4,666,037)
General and administrative expenses (598,847) (709,439) (1,291,054) (1,240,596) (5,802,827)
------------ ------------ ----------- ------------ ----------------
(1,176,210) (1,185,537) (2,223,822) (2,097,833) (10,468,864)
------------ ------------ ------------ ------------ ----------------
Loss from operations (1,176,210) (1,185,537) (2,223,822) (2,097,833) (10,468,803)
------------ ------------ ------------ ------------ ----------------
Other income (expense):
Interest income 52,552 43,987 117,613 64,335 419,451
Interest expense (331,542)
------------ ------------ ------------ ------------ ----------------
52,552 43,987 117,613 64,335 87,909
------------ ------------ ------------ ------------ ----------------
Net loss before extraordinary item (1,123,658) (1,141,550) (2,106,209) (2,033,498) (10,374,894)
Extraordinary item (848,160)
------------ ------------ ------------ ------------ ----------------
Net loss $(1,123,658) $(1,141,550) $(2,106,209) $(2,033,498) $ (11,223,054)
============ ============ =========== ============ ================
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 5,348,334 6,818,182 5,338,278 6,156,281
============ ============ =========== ============
Basic and diluted loss
per share $ (0.21) $ (0.17) $ (0.39) $ (0.33)
============ ============ =========== ============
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
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
1997 1998 1997 1998 1998
------------ ------------ ---------- ---------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,123,658) $ (1,141,549) $ (2,106,209) $ (2,033,497) $ (11,223,054)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Extraordinary item 848,160
Depreciation expense 13,630 13,279 23,643 24,509 86,579
Amortization of unamortized
debt discount 168,778
Amortization of deferred
financing costs 89,062
Issuance of common stock
for services rendered 20,600
Increase (decrease) in inventory 2,055 (2,651) (62,469)
Increase in prepaid expenses
and other current assets (107,286) (164,836) (105,313) (154,345) (265,350)
Increase (decrease) in accounts
payable and accrued liabilities (5,749) 131,461 (137,668) 272,297 425,920
Increase (decrease) in other
assets 12,266 (12,877) (18,209) (12,877) (95,077)
------------ ---------- --------- --------- --------
Net cash used in
operating activities (1,210,797) (1,172,467) (2,343,756) (1,906,564) (10,006,852)
============ =========== =========== =========== ============
Cash flows from investing
activities:
Purchase of property and
equipment (45,367) (20,481) (66,073) (41,888) (207,429)
============ =========== =========== =========== ============
Net cash used in
investing activities (45,367) (20,481) (66,073) (41,888) (207,429)
============ =========== =========== =========== ============
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
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in cash and cash equivalents
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
1997 1998 1997 1998 1998
------------ ------------ ---------- ---------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Proceeds from IPO 11,753,010
Proceeds from equity offering
- February 6, 1998 1,000,000 1,000,000
Proceeds from Janssen Myers
equity offering May & June 1998 7,280,546 7,280,546 7,280,546
Repayment of notes issued in
connection with initial bridge
notes (2,000,000)
Costs incurred for equity
offerings (1,157,780) (1,294,230) (3,642,812)
Issuance of common stock in
connection with exercise of
stock options 46,668 23,332 100,000
(Increase) decrease in
restricted cash (278,001) 33,554 (278,001) 78,294 (143,187)
Deferred financing costs (201,000)
----------- ---------- ----------- ----------- ---------
Net cash provided (used
in) by financing activities (278,001) 6,156,320 (231,333) 7,087,942 17,046,557
----------- ---------- ----------- ----------- ---------
Net increase (decrease)
in cash and cash equivalents (1,534,165) 4,963,372 (2,641,162) 5,139,489 6,832,277
Cash and cash equivalents at the
beginning of the period 4,950,944 1,868,905 6,057,941 1,692,788 -
----------- ---------- ----------- ----------- ---------
Cash and cash equivalents at
the end of the period $3,416,779 $6,832,277 $3,416,779 $6,832,277 $6,832,277
=========== ========== ========== ========== ==========
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 units $ 140,000
==========
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
==========
The accompanying notes are an integral part of these condensed financial statements.
</TABLE>
6
<PAGE>
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
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, par value $.01 per share ("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
shall issue "Puts" to the investor whereby the Company may issue for each Put
and the investor may 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 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
Common Stock.
In connection with the agreement the Company issued to the investor
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 3 years
7
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS ---- (Continued)
thereafter. The supplemental warrant may be exercised at any time beginning
April 19, 1998 and ending 5 years thereafter.
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 term extensions 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 May 11, 1998 the Company entered into a placement agency agreement
with the Consultant to act as the Company's placement agent in a private equity
placement whereby the Company issued to certain accredited investors as defined
under Regulation D as promulgated under the Securities Act of 1933, as amended
(the "Securities Act") 2,745,030 shares of the Company's Common Stock and
2,058,801 Class A Redeemable Warrants ("Warrant") between May 19, 1998 and June
6, 1998, pursuant to six closings, for an aggregate purchase price of
$7,280,546. See Part II, Item 2, (changes in securities) for a more detailed
description of the private placement. Each Warrant entitles the holder thereof
to purchase one share of common stock 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 June 6, 1998 and expiring on May 11, 2003. The
Warrants are subject to redemption by the Company at $.01 per warrant after 12
months 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 Consultant received for acting as placement agent, a commission of
10% ($728,055) of the gross proceeds from the sale of the Units, as well as a 3%
non-accountable expense allowance ($218,416) and reimbursement of other costs,
including legal expenses relating to the offering ($77,171). In addition, the
Consultant received as part of its compensation, warrants exercisable until May
11, 2003, to purchase up to (i) 688,084 shares of the Company's Common Stock at
a price per share ranging from $2.55 to $3.06 and (ii) 516,068 warrants (the
"Placement Agent Warrant for Warrant") to purchase up to 516,068 shares of the
Company's Common Stock at a price per share of $3.24.
8
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS ---- (Continued)
As a result of the above capital transactions and in accordance with
the provisions of that certain Warrant Agreement dated as of July 3, 1996 ( the
"Public Warrant Agreement"), between the Company, Rickel & Associates, Inc. and
American Stock Transfer & Trust Company, adjustments have been made to the
exercise price (the "Public Warrant Price") for the warrants issued pursuant to
such Warrant Agreement ( the "Public Warrants") and to the number of shares of
Common Stock issuable on exercise of the Public Warrants. The Public Warrant
Price has been reduced from $5.50 to $4.15. In addition, for every share of
Common Stock the Public Warrant holders were entitled to prior to the dilutive
transactions (2,530,000 shares), the Public Warrant holders are now entitled to
1.325 shares of Common stock ( 3,352,250 shares). Also, pursuant to the Public
Warrant Agreement, the Company can redeem the Public Warrants in the event that
the average closing price of the Company's Common Stock is at least 150% of the
then current Public Warrant Price for a period of 20 consecutive trading days:
consequently, the average closing price now required is $6.225 versus the
original price of $8.25.
Also, as a result of the above capital transactions and in accordance
with the provisions of that certain Private Securities Subscription Agreement,
dated as of February 6, 1998, between Profutures Special Equities Fund, L.P. and
the Company, adjustments have been made to the exercise prices and to the number
of shares of Common Stock issuable on exercise of each of two warrants that were
issued pursuant thereto. One warrant (the "Profutures Warrant") had an initial
exercise price of $6.41 per share (the "Profutures Warrant Price") for up to
50,000 shares of Common Stock; the other warrant (the "Supplemental Profutures
Warrant") had an exercise price of $3.95 per share (the "Supplemental Profutures
Warrant Price") for up to 50,000 shares of Common Stock. As a result of the
above capital transactions: (i) the Profutures Warrant Price has been reduced
from $6.41 to $4.61 and for every share of Common Stock the Profutures Warrant
holders were entitled to prior to the dilutive transactions (50,000 shares), the
Profutures Warrant holders are now entitled to 1.390 shares of Common Stock
(69,522 shares) and (ii) the Supplemental Profutures Warrant Price has been
reduced from $3.95 to $3.42 and for every share of Common Stock the Supplemental
Profutures Warrant holders were entitled to prior to the dilutive transactions
(50,000 shares), the Supplemental Profutures Warrant holders are now entitled to
1.155 shares of Common Stock (57,749 shares).
On March 19, 1998, a director exercised options with respect to 11,666
shares of Common Stock at $2.00 per share.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This 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 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, 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
Public 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 $915,000 for 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 shall purchase a minimum of $1,000,000 up to a maximum of
$5,000,000 of the Company's Common Stock (valued at
10
<PAGE>
88% of the market value thereof) Puts are for a minimum of $250,000 and a
maximum of $750,000 with certain restrictions applying beginning with the second
Put.. On May 11, 1998 the Company entered into a placement agency agreement with
Jansen-Meyers Associates, L.P. to act as the Company's placement agent in a
private equity placement whereby the Company issued 2,745,030 shares of the
Company's Common Stock and 2,058,801 Warrants between May 19, 1998 and June 6,
1998 for an aggregate purchase price of $7,280,546.
At the time of the IPO, the Company had produced working prototypes of
the Initial Products (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 products and
technology independent of the "Licensed Products and Technology" as outlined in
the Exclusive Worldwide License Agreement entered into with Rave Engineering
Corporation And the Company on July 21, 1995 These products and technology
include the NUWAVE Video Processor (the "NVP"), a significant amount of the
software included in each of its products and new circuitry to allow certain of
the products to be produced as ASICs. The Advanced Engineering Group also
developed the 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.
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 to provide necessary technical
support and manage this process under the Company's direction. The Company also
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 the ASIC will be in production
during the second half of 1998 and has entered into a multi-year supply
agreement with 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 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
11
<PAGE>
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 June 30, 1998, the Company had accumulated a deficit during the
development stage of $11,223,054 which includes a net loss for the six months
ended June 30, 1998 of $2,033,498. The loss for the six months ended June 30,
1998 included $1,240,596 in general and administrative expenses, representing a
decrease of $50,458 compared to the six-month period ended June 30, 1997. This
decrease included a reduction in sales and marketing costs of $314,226 discussed
more fully below and a $70,000 decrease in payments made to Prime Technologies,
Inc. pursuant to the Exclusive Agency Agreement See "Liquidity and Capital
Resources" . Such decreases were substantially offset by increases resulting
from the Company's planned growth and expansion including increased personnel
and payroll costs ($35,609), professional and legal services ($162,600),
insurance costs ($32,349), investor relations ($44,906), travel and
entertainment costs ($28,915), office rent ($9,032) and other ($20,357).
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
In January 1998, the Company entered into a multi-year supply agreement
with Thomson for the purchase of its NVP ASIC chip which the Company expects
will be in production during the second half of 1998. In anticipation of such
production, the Company is currently conducting sales presentations of the NVP
and Softsets to prospective OEM customers world wide (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 its products have
been well received. The Company has increased the number of potential customers
who have signed Confidentiality/Non-Disclosure agreements with NUWAVE allowing
them to expand their review and examination of NUWAVE's exclusive video
enhancement technology in order to evaluate its use in their products.
In addition, in May 1998 the Company opened a sales and engineering
office in Osaka, Japan to maintain on-going discussions, provide in-person
demonstrations of NUWAVE technology and directly participate in technical due
diligence sessions with potential customers who are evaluating this technology.
NUWAVE continues to evaluate the sales and marketing opportunities for its
products and technology to be sold into the Chinese domestic market, which is
equal to the size of the U.S. market.
12
<PAGE>
During 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) and began selling
limited quantities (primarily for demonstration purposes) of its first
commercial product, the NVP 2.2. Through June 30, 1998 four organizations had
contracts to represent the Company's ProWave Division. The Company is currently
in the process of adding additional representative organizations to cover the
"high end" Home Theater market by calling on a very select group of retailers
who are members of a national organization of professionals known as CEDIA
(Custom Electronic Design and Installation Association).
The Company is currently developing retail products 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. These products will be marketed by the
Company's CWave Division. The Company has determined that the most effective way
to introduce this product into the retail marketplace during 1999 is to work
through distributors who will manufacture and sell to retailers, including those
with whom they are currently doing business. The Company is currently in
discussions with several distributors and hopes to establish strategic
partnerships to help expedite the introduction of the retail products to the
market in 1999.
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 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
were substantially incurred during 1997 and as a result such expenditures for
the first half of 1998 were reduced by approximately $314,226 compared to the
first half of 1997. During the six-month period ended June 30, 1998 costs
included $37,047 for professional sales and marketing consultants compared to
$211,659 for the six-month period ended June 30, 1997; $76,595 for advertising
and public relations compared to $169,097 for the six months ended June 30,
1997; and $6,646 for trade shows compared to $53,760 for the six months ended
June 30, 1997. The Company is continually reviewing its needs with a view to
maximizing efficiency while conserving its resources.
13
<PAGE>
Research and Development
Research and development activity with respect to the Company's Initial
Products was carried out by Rave prior to July 21, 1995, the date upon which the
Company and Rave entered into the License Agreement and the Development
Agreement. The Company's Initial Products were based on technology originated by
Rave prior to the Company's organization and licensed to the Company by Rave
pursuant to the License Agreement. Although it was the Company's intention to
utilize Rave as its primary source for research and development activities, the
Company has been less than satisfied with the results of Rave's performance over
the life of the Development agreement and has found it necessary to utilize
outside engineering sources as its primary means for product development. In
accordance with its terms, the Development Agreement will terminate on October
2, 1998. The Company does not believe the termination of this agreement will
have 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 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 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 &
development activities for the Initial Products.
From July 17, 1995 through June 30, 1998, the Company incurred expenses
of $4,666,037 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 $1,000,000 on research and development
and in support of the commercialization of its products. Of that amount the
Company estimates that approximately 10% will be paid to Rave pursuant to the
Development Agreement and approximately 90% 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
14
<PAGE>
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.
Employees
The Company currently has eleven 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 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 February 6,
2000. The decision to make draws, and the
15
<PAGE>
timing and amount of such draws are solely at the Company's discretion, subject
to certain conditions beginning with the second Put; however the Company is
required to draw a minimum of $1,000,000 by February 6, 2000.
On May 11, 1998 the Company entered into a placement agency agreement
with Janssen-Meyers Associates, L.P. ("Janssen-Meyers") to act as the Company's
placement agent in a private equity placement whereby the Company issued to
certain accredited investors as defined under Regulation D as promulgated under
the Securities Act of 1933, as amended (the "Securities Act") 2,745,030 shares
of the Company's Common Stock and 2,058,801 Class A Redeemable Warrants
("Warrant") between May 19, 1998 and June 6, 1998, pursuant to six closings, for
an aggregate purchase price of $7,280,546. See Part II, Item 2, (changes in
securities) for a more detailed description of the private placements. Each
Warrant entitles the holder thereof to purchase one share of common stock 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 June 6, 1998 and
expiring on May 11, 2003. The Warrants are subject to redemption by the Company
at $.01 per warrant after 12 months 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.
Janssen-Meyers received for acting as placement agent, a commission of
10% ($728,055) of the gross proceeds from the sale of the Units, as well as a 3%
non-accountable expense allowance ($218,416) and reimbursement of other costs,
including legal expenses relating to the offering ($77,171). In addition, the
Consultant received as part of its compensation, warrants (the "Placement Agent
Warrants") exercisable until May 11, 2003, to purchase up to (i) 688,084 shares
of the Company's Common Stock at a price per share ranging from $2.55 to $3.06
and (ii) 516,068 warrants (the "Placement Agent Warrant for Warrant") to
purchase up to 516,068 shares of the Company's Common Stock at a price per share
of $3.24.
Pursuant to the terms of the License Agreement and the Development
Agreement, the Company has been paying Rave minimum monthly aggregate amount of
$65,000 to maintain the exclusivity under the license agreement and for
development fees under the Development agreement. In accordance with its terms,
the Development Agreement will terminate on October 2, 1998. In order to
maintain exclusivity under the License Agreement, the Company may be required to
continue to pay a minimum amount of $65,000 per month for the term of the
License agreement. The Company is considering its options in this regard. 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. As of July 22, 1998 all such payments have been made. 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 Licensed Products and Technology, if certain conditions
were met. In this
16
<PAGE>
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 has subsequently been reduced to $225,000. Through
August 14, 1998, the Company had made payments of $314,660 against the $850,000
of equipment purchases in addition to the $300,000 guarantee of leases payments.
With the termination of the Development Agreement on October 2, 1998, management
does not expect the remaining expenditures of $235,340 to be required.
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 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. As indicated earlier, the Company
has developed products and technology independent of the "Licensed Products and
Technology" and believes that a substantial portion of its future sales will not
include the "Licensed Products and Technology".
Pursuant to the terms of an Exclusive Agency Agreement (the "Agency
Agreement") dated as of July 21, 1995 between the Company and 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. As indicated earlier, the Company has developed products and technology
independent of the "Licensed Products and Technology" and believes that a
substantial portion of its future sales will not include the "Licensed Products
and Technology".
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 next twelve months.
17
<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 beyond this period 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.
Year 2000
The Company is currently addressing a universal situation commonly
referred to as the "Year 2000 Problem". The Year 2000 Problem relates to the
inability of certain computer software programs to properly recognize and
process date-sensitive information relative to the year 2000 and beyond. During
1998, the Company is devoting the necessary resources to identify and modify
systems impacted by the Year 2000 Problem, or to implement new systems to become
year 2000 compliant in a timely manner. The cost of executing this plan is not
expected to have a material impact on the Company's results of operations or
financial condition. In addition the Company is contacting its major suppliers
and vendors to ensure their awareness of the Year 2000 Problem. If the Company,
its suppliers or vendors are unable to resolve issues related to the year 2000
on a timely basis, it could result in a material financial risk.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
As of May 11, 1998, the registrant entered into a placement
agency agreement (the "Placement Agreement") with Janssen-Meyers
Associates, L.P. ("JMA") whereby JMA agreed to act as the registrant's
placement agent in a private placement (the "Offering") to certain
"accredited investors," as defined under Regulation D as promulgated
under the Securities Act of 1933, as amended (the "Act"), of not less
than 25 and not more than 70 Units (as defined below) of the Company,
as such maximum number of Units may be increased by the Chief Executive
Officer or Chief Financial Officer of the Company. Each Unit consists
of (i) a number of shares of common stock, par value $.01 per share
(the "Common Stock"), of the registrant determined by dividing the
purchase price per Unit of $100,000 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 of
the Offering, and (ii) Class A Redeemable Warrants to purchase
seventy-five percent (75%) of the number of shares of Common Stock of
the registrant determined in (i) above at an exercise price of $3.235.
The registrant at its discretion may reject any subscriptions for
Units.
Under the Placement Agreement, the Company agreed to pay to JMA,
for its services as the placement agent of the Units, 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 for other costs,
including legal expenses related to the Offering, subject to receipt by
the Company of appropriate documentation. The Company also agreed to
grant to JMA warrants (the "Placement Agent Warrants") to purchase 25%
of the number of 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.
On May 19, 1998 the initial closing of the Offering took place.
The aggregate subscription amount was $5,070,483.41 resulting in the
sale of 50.7 Units. The per share purchase price for the Common Stock
was $2.59. A total of 1,957,727 shares of Common Stock and 1,468,318
Class A Redeemable Warrants were issued. The net proceeds to the
Company (net of payments to JMA and JMA's counsel) were $4,347,831.57.
On May 21, 1998 the second closing of the Offering took place.
The aggregate subscription amount was $783,713.07 resulting in the sale
of 7.837 Units. The per share purchase price for the Common Stock was
$3.06. A total of 256,120 shares of Common Stock and 192,093 Class A
Redeemable Warrants were issued. The net proceeds to the Company (net
of payments to JMA) were $681,831.37.
On May 27, 1998 the third closing of the Offering took place. The
aggregate subscription amount was $625,900 resulting in the sale of
6.259 Units. The per share purchase price for the Common Stock was
$2.903. A total of 215,613 shares of Common Stock and 161,713 Class A
Redeemable Warrants were issued. The net proceeds to the Company (net
of payments to JMA and JMA's counsel) were $535,896.75.
On June 1, 1998 the fourth closing of the Offering took place.
The aggregate subscription amount was $273,750.00 resulting in the sale
of 2.738 Units. The per share purchase price for the Common Stock was
$2.61. A total of 104,890 shares of Common Stock and 78,667 Class A
Redeemable Warrants were issued. The net proceeds to the Company (net
of payments to JMA) were $237,389.50.
On June 4, 1998 the fifth closing of the Offering took place. The
aggregate subscription amount was $201,700.00 resulting in the sale of
2.017 Units. The per share purchase price for the Common Stock was
$2.50. A total of 80,680 shares of Common Stock and 60,510 Class A
Redeemable Warrants were issued. The net proceeds to the Company (net
of payments to JMA) were $175,480.00.
On June 9, 1998 the sixth and final closing of the Offering took
place. The aggregate subscription amount was $325,000 resulting in the
sale of 3.25 Units. The per share purchase price for the Common Stock
was
19
<PAGE>
$2.55. A total of 130,000 shares of Common Stock and 97,500 Class A
Redeemable Warrants were issued. The net proceeds to the Company (net
of payments to JMA and JMA's counsel) were $278,474.65.
The aggregate amount of the subscriptions for all six closings
was $7,280,546.48, resulting in the sale of 72.801 units. In the
aggregate, a total of 2,745,030 shares of Common Stock and 2,058,801
Class A Redeemable Warrants were issued. The aggregate net proceeds to
the Company were $6,256,903.84.
The aggregate amount for all six closings the Company paid to
JMA, pursuant to the Placement Agreement, was $728,054.65 as commission
and $218,416.39 as non-accountable expense allowance. In addition, the
Company granted to JMA, in the aggregate, 18.263 Placement Agent
Warrants to purchase 18.263 Units of the Company.
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On June 23, 1998 the company held its annual meeting of stockholders to
(i) elect directors, (ii) ratify amendments to the Company's 1996 Stock
Incentive Plan for Employees and Consultants and to ratify the grant of
stock options to the Named Executive Officers of the Company, (iii) to
ratify amendments to the Company's Non-Employee Director Stock Option
Plan and to ratify the grant of stock options to the Directors of the
Company and (iv) transact such other business as might be bought 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 4,206,705 82,280 0
Edward Bohn 4,206,705 82,280 0
Lyle Gramley 4,206,705 82,280 0
David Kwong 4,206,705 82,280 0
Joseph Sarubbi 4,206,705 82,280 0
(ii) Ratification of amendments to, 1996 Stock Incentive Plan for
Employees and Consultants and ratification of grant of stock
options to the Named Executive Officers
Against or
For Withheld Abstentions
--- -------- -----------
3,620,539 646,181 22,265
(iii) Ratification of amendments to Company's Non-Employee Director
Stock Option Plan and ratification of grant of stock options
to the Directors
Against or
For Withheld Abstentions
--- -------- -----------
3,630,339 636,941 21,705
(iv) No other business was transacted at the meeting
20
<PAGE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*10.1 Placement Agency Agreement, dated as of May 11, 1998, between
Janssen-Meyers Associates, L.P. and NUWAVE Technologies, Inc.
*10.2 Escrow Agreement, dated May 11, 1998, between NUWAVE
Technologies, Inc., Janssen-Meyers Associates, L.P. and
Republic National Bank of New York.
*10.3 Warrant Agreement, dated May 15, 1998, between NUWAVE
Technologies, Inc. and American Stock Transfer & Trust
Company.
*10.4 Form of Warrant Certificate.
*10.5 Placement Agent Warrant Agreement, dated May 19, 1998, between
NUWAVE Technologies, Inc. and Janssen-Meyers Associates, L.P.
*10.6 Form of Placement Agent Warrant Certificate.
*10.7 Form of Subscription Agreement.
27. Financial data schedule
* Previously filed with the SEC as part of an 8-K filing on June 11,
1998.
(b) Reports on Form 8-K
During the quarter ended June 30, 1998, a current report on
Form 8-K with respect to Items 5 & 7 therein was filed with
the Securities and Exchange Commission on June 11, 1998.
21
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has 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
August 14, 1998.
NUWAVE TECHNOLOGIES, INC.
-------------------------
(Registrant)
DATE: August 14, 1998 By: /s/ Gerald Zarin
---------------------------------
Gerald Zarin
_ Chief Executive Officer and Chairman of the Board
DATE: August 14, 1998 By: /s/ Jeremiah F. O'Brien
---------------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
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