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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
|x|
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
or
|x| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
--- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-28606
NUWAVE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3387630
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE PASSAIC AVENUE, FAIRFIELD, NEW JERSEY 07004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 882-8810
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 30, 1999: 8,468,889
---------
Transitional Small Business Disclosure Format: Yes [ ] No [ ]
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<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Balance Sheet - September 30, 1999 (unaudited) P.3
Statements of Operations - For the three and nine month
periods ended September 30, 1998 (unaudited) and
September 30, 1999 (unaudited) and for the period July
17, 1995 (inception) to September 30, 1999 (unaudited) P.4
Statements of Cash Flows - For the three and nine month
periods ended September 30, 1998 (unaudited) and
September 30, 1999 (unaudited) and for the period from
July 17, 1995 (inception) to September 30, 1999
(unaudited) P.5
Notes to Condensed Financial Statements P.7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION P.9
PART II - OTHER INFORMATION P.18
SIGNATURES P.19
2
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
ASSETS
September 30,
1999
-------------
(unaudited)
Current assets:
Cash and cash equivalents $ 2,829,550
Inventory 49,073
Prepaid expenses and other current assets 116,020
------------
Total current assets 2,994,643
Property and equipment 96,653
Other assets 73,176
------------
Total assets $ 3,164,472
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 220,222
------------
Total liabilities 220,222
------------
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; as of September 30, 1999; issued and
outstanding 8,468,889 shares. 84,689
Additional paid in capital 18,664,586
Deficit accumulated during the development stage (15,805,025)
------------
Total stockholders' equity 2,944,250
------------
Total liabilties and stockholders' equity $ 3,164,472
============
The accompanying notes are an integral part of these
condensed 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 Nine months Nine months (inception)
ended ended ended ended to
September 30, September 30, September 30, September 30, September 30,
1998 1999 1998 1999 1999
------------- -------------- -------------- -------------- ----------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net Sales $ 9,666 $ 9,666 $ 22,820
Cost of Sales (3,363) (3,363) (9,120)
------------ ------------ ------------
6,303 6,303 13,700
------------ ------------ ------------
Operating expenses:
Research and development expenses $ (466,247) $ (187,425) $ (1,323,483) $ (691,261) $ (6,072,425)
General and administrative expenses (558,482) (510,716) (1,799,078) (1,727,819) (8,936,459)
------------ ------------ ------------ ------------ ------------
(1,024,729) (698,141) (3,122,561) (2,419,080) (15,008,884)
------------ ------------ ------------ ------------ ------------
Loss from operations (1,018,426) (698,141) (3,116,258) (2,419,080) (14,995,184)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income 81,120 40,380 145,454 140,777 708,756
Interest expense (331,542)
Rave Settlement Costs (338,895) (338,895)
------------ ------------ ------------ ------------ ------------
81,120 40,380 145,454 (198,118) 38,319
------------ ------------ ------------ ------------ ------------
Net loss before extraordinary item (937,306) (657,761) (2,970,804) (2,617,198) (14,956,865)
Extraordinary item (848,160)
------------ ------------ ------------ ------------ ------------
Net loss $ (937,306) $ (657,761) $ (2,970,804) $ (2,617,198) $(15,805,025)
============ ============ ============ ============ ============
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 8,358,515 8,458,291 6,898,426 8,457,030
============ ============ ============ ============
Basic and diluted loss per share $ (0.11) $ (0.08) $ (0.43) $ (0.31)
============ ============ ============ ============
</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 Nine Months Nine Months (inception)
ended ended ended ended to
September 30, September 30, September 30, September 30, September 30,
1998 1999 1998 1999 1999
------------- ------------- ------------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (937,306) $ (657,761) $(2,970,804) $ (2,617,198) $(15,805,025)
Adjustments to reconcile net loss
to net cash used
in operating activities:
Extraordinary item 848,160
Depreciation expense 12,532 12,703 37,041 36,016 150,778
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 685 (1,967) (49,073)
Decrease (Increase) in prepaid expenses and other
current assets 70,717 (47,830) (83,628) 10,714 (116,020)
(Increase) Decrease in other assets (69,476) 101,376 (82,353) 89,103 (73,176)
Issuance of warrants in connection with
consultant agreement 40,830 169,765 386,802
Issuance of common stock in connection with
an arbitration settlement 146,200 146,200
Issuance of options in connection with
an arbitration settlement 17,695 17,695
Increase (decrease) in accounts payable and
accrued liabilities (263,179) (174,588) 9,118 (40,979) 220,223
----------- ----------- ----------- ----------- ------------
Net cash used in operating act (1,186,027) (725,270) (3,092,593) (2,188,684) (13,994,996)
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (1,851) (3,276) (43,738) (21,640) (247,428)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities (1,851) (3,276) (43,738) (21,640) (247,428)
----------- ----------- ----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements
5
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
Cumulative
from
July 17, 1995
Three Months Three Months Nine Months Nine Months (inception)
ended ended ended ended to
September 30, September 30, September 30, September 30, September 30,
1998 1999 1998 1999 1999
------------- ------------- ------------- ------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
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
Proceeds from IPO 11,753,010
Proceeds from equity offering - February 6, 1998 1,000,000 1,000,000
Proceeds from equity offering May 19 to
June 6, 1998 7,280,546 7,280,546
Repayment of notes issued in connection with
initial bridge notes (2,000,000)
Costs incurred for equity offerings (14,019) (1,308,249) (44,638) (3,778,857)
Issuance of common stock in connection with
exercise of stock options 18,275 23,332 18,275 118,275
(Increase) Decrease in restricted cash 11,185 8,970 89,479 76,078
Deferred financing costs (201,000)
----------- ----------- ----------- ----------- -----------
Net cash provided (used in) by financing
activities (2,834) 27,245 7,085,108 49,715 17,071,974
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (1,190,712) (701,301) 3,948,777 (2,160,609) 2,829,550
Cash and cash equivalents at the beginning
of the period 6,832,277 3,530,851 1,692,788 4,990,159
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at the end
of the period $ 5,641,565 $ 2,829,550 $ 5,641,565 $ 2,829,550 $ 2,829,550
=========== =========== =========== =========== ===========
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
===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements
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/A as filed with the Securities and Exchange Commission
("SEC") on April 15, 1999.
2. Capital transactions
--------------------
On May 28, 1999, in accordance with a Settlement Agreement (see Note 3
below), the Company issued 100,000 shares of its Common Stock and options to
purchase 50,000 shares of the Company's Common Stock at an exercise price of
$1.46.
On June 23, 1999, options to purchase 15,000 shares of the Company's
Common Stock were granted under the Non-Employee Director Stock Option Plan at
an exercise price of $2.07 per share.
On June 30, 1999, options to purchase 100,000 shares of the Company's
Common Stock were granted under the 1996 Performance Incentive Stock Option
Plan. As of June 30,1999, there are 362,500 stock options reserved for issuance
in the Performance Incentive plan.
On September 16, 1999, options issued under the May 28, 1999
Settlement Agreement were exercised to purchase 12,500 shares of Common Stock.
On September 28, 1999, options to purchase 45,000 shares of the
Company's Common Stock were granted under the Non-Employee Director Stock Option
Plan at an exercise price of $2.56 per share. As of September 30, 1999, there
are 48,000 stock options reserved for issuance in the Director's plan.
7
<PAGE>
On September 28, 1999, a performance based option agreement was
entered into with a person who became a non-employee Director whereby he was
granted options to purchase up to 100,000 shares of the Company's Common Stock
at an exercise price of $2.56 per share, vesting based on the achievement of
specified performance criteria.
3. Commitments and Contingencies
-----------------------------
License and Development Agreements
On November 13, 1998, pursuant to the provisions of an Exclusive
Worldwide Licensing Agreement the "License Agreement" and a Development
Agreement, both dated July 21,1995 the Company commenced an arbitration
proceeding against Rave Engineering Corporation ("Rave") and its principal Randy
Burnworth seeking (a) damages for the injuries to the Company caused by Rave's
and Burnworth's breaches of their contractual and common law obligations to the
Company, including but not limited to those referred to above, and (b) a
declaration that, among other things, Rave is not entitled to any royalties or
other payments with respect to the Company's technology and that the Company
continues to have exclusive license rights to the "Licensed Product" and
"Licensed Process" under the License Agreement.
Rave filed an amended counterclaim against the Company in the
Arbitration alleging breaches of the License Agreement and Development
Agreement, trade libel, tortious interference and conspiracy, and sought a
declaration that Rave was entitled to the return and exclusive use of its own
technology. Rave claimed that it was entitled to $65,000 per month for the life
of any patents on products it developed for the Company (approximately 15 more
years), as well as damages in excess of $4 million on the various claims.
On May 28, 1999, a Settlement Agreement was reached, the Arbitration
was resolved and the License Agreement was terminated. As a result of the
Settlement Agreement, the Company continues to maintain exclusive worldwide
license rights to make, market and license its video enhancement technology free
of any claims of ownership or inventorship by Rave; in return, Rave and certain
individuals associated with Rave received $175,000 in cash as well as 100,000
shares of the Company's Common Stock and options to purchase 50,000 shares of
the Company's Common Stock at an exercise price of $1.46.
Agency Agreement
Subsequent to the Rave Settlement Agreement, on June 2, 1999 the
Agency Agreement with Prime dated July 24,1999 was terminated.
8
<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 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 is a development stage enterprise organized in July 1995.
Its mission is to identify and commercialize high margin, proprietary
technologies suited for high-volume, high-growth markets and, in turn achieve
attractive long-term growth for the Company. The first technologies being
commercialized are in the field of video-enhancement. In this regard the Company
is developing proprietary video-enhancement technology designed to significantly
enhance video output devices with clearer, sharper details and more vibrant
colors when viewed on the display screen. This is known as the NUWAVE video
processor ("NVP") technology. We intend to license this technology or have it
manufactured in the form of Application Specific Integrated Circuits ("ASICs")
through third parties and to directly market products which use this technology
to improve picture quality in set-top boxes, televisions, VCRs, DVDs,
camcorders, video and pictures on the Internet and PCs, and other video devices.
In addition to the NVP technology, the Company has recently completed
development of Picture Wizard, a proprietary software product with the ability
to digitally enhance both pictures and video on PCs while the user is surfing
the Internet or working offline.
9
<PAGE>
In July 1996, we completed an initial public offering ("IPO") of the
Company's Common Stock and Public Warrants from which we 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 $859,347 for issuance of 253,485 shares of our Common Stock to Profutures
Special Equities Fund, L.P. ("Profutures"), together with warrants to purchase
up to 100,000 shares of the Company's Common Stock. In addition, the Company may
issue "Puts" to Profutures over a two year period ending February 11, 2000
whereby Profutures shall purchase a minimum of $1,000,000 up to a maximum of
$5,000,000 of the Company's Common Stock (valued at 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. Pursuant to a
Placement Agency Agreement, dated May 11, 1998, with Janssen-Meyers Associates,
L.P. ("Janssen-Meyers"), the Company effected a private equity placement for an
aggregate of 2,742,904 shares of the Company's Common Stock and 2,057,207 Class
A Redeemable Warrants between May 19, 1998 and June 9, 1998 for net proceeds of
$5,990,924. See "Management's Discussion and Analysis or Plan of
Operation--Liquidity and Capital Resources."
As of September 30, 1999 the Company had accumulated a deficit during
the development stage of $15,805,025 which includes a net loss for the nine
months ended September 30, 1999 of $2,617,198. The loss for the nine months
ended September 30, 1999 included $1,727,819 in general and administrative
expenses, representing a decrease of $71,259 compared to the nine-month period
ended September 30, 1998. We do not anticipate deriving significant, if any,
revenue from the sale of our NVP products during 1999. We expect to continue to
incur losses for at least the next 12 months. See "Management's Discussion and
Analysis or Plan of Operation--Liquidity and Capital Resources."
MARKETING AND SALES
The Company has recently completed development of Picture Wizard, a
proprietary software product with the ability to digitally enhance both pictures
and video on PCs while the user is surfing the Internet or working offline. The
Picture Wizard will be sold directly to consumers through our exclusive
e-commerce Web site store at picturewizard.com. The construction and initial
design of the store is complete and provides for all activity including product
demonstration, order taking, product delivery, and payment processing to take
place automatically. Picturewizard.com opened for business in September 1999 for
the primary purpose of limited test marketing, system and product evaluation in
a live setting, and to garnish customer feedback on both the product and the Web
site prior to the full product launch expected to take place in late
November/early December 1999.
The Company is currently developing retail products for consumers who
do not have NUWAVE enabled products for their TV's but want to improve the
picture quality of their home viewing. We believe that the most effective way to
introduce this product into the retail marketplace is to work through
distributors who will manufacture
10
<PAGE>
and sell to retailers, including those with whom they are currently doing
business. In this regard, we announced earlier this year a five-year
manufacturing and marketing agreement with Terk Technologies Corp. to
manufacture and market under the Terk brand name, a line-up of set-top boxes,
incorporating NUWAVE's technology for existing televisions and video output
products. In early October we received our first order from Terk as they are
nearing the completion of their initial product design. Terk is endeavoring to
have some product on the retail store shelves by Christmas 1999 although we
recognize that this is an aggressive timetable. At present, there are three
hundred million non-enhanced televisions in the United States alone. Terk
products are currently marketed to all major consumer electronics retailers in
the U.S.
We recently produced our first NVP ASIC chips for use in Terk retail
product. After modification and final evaluation of this design for OEM customer
use, we will launch a full-scale sales program aimed at obtaining orders
initially from those customers who have already evaluated the Company's
technology and wish to test the ASIC chips in their products. In anticipation of
production of the NVP ASIC chip, the Company has been conducting sales
presentations of the NVP and Softset technologies to prospective OEM customers
world wide (i.e., manufacturers of set-top boxes, televisions, VCR's, DVD's and
other video output devices). We have marketing and sales organizations in place
in the U.S., Japan and China, close to key prospective customers, to implement
this program. Although we are unable to predict whether our marketing efforts
will be successful, we believe that our products have been well received.
RESEARCH AND DEVELOPMENT
At the time of the IPO, we had produced and tested fully operational
working prototypes of certain of our potential products. Subsequent to the IPO,
we established the Advanced Engineering Group to support the continuing
development of our 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 us on a
project by project basis under our direction. Products and technology developed
by the Advanced Engineering Group include: the NUWAVE Video Processor ("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, we have developed the NVP 2.2, a
product for the professional video market that is currently available as a
stand-alone unit or a PC board with software. The Advanced Engineering Group, in
conjunction with Terk Technologies Corp., is currently developing a commercial
video retail product also utilizing the NVP technology (the "Retail Version").
11
<PAGE>
We produced our first NVP ASIC chips for use in the Terk retail
product. After modification and final evaluation of this design for OEM customer
use, we will launch a full scale sales program aimed at obtaining orders
initially from those customers who have already evaluated our technology and
wish to test these chips in their products. In addition to the NVP technology,
we have developed a proprietary software technology which allows a user to clean
and enhance pictures and video, including streaming video on the home PC while
surfing the Internet or offline using any picture or video program. Our first
product utilizing this technology is marketed under the name Picture Wizard and
is sold directly to consumers via our e-commerce web site store at
picturewizard.com.
We are concentrating our activities on completion of the ASIC chips
and on the continued development and marketing of our Softsets and NUWAVE Video
Processor products as well as final product development and market introduction
of the Picture Wizard software product line. We are also conducting
investigation and research and development activities with respect to additional
new technologies/products to address the digital, PC and Internet markets. These
activities may give rise to additional products that may be commercialized by
NUWAVE. We believe this focused product strategy will provide NUWAVE with an
expanded technology base and diversify the product line and services we can
offer potential customers and allow us to take advantage of the significant
video growth opportunity presented by the converging PC, Internet, television,
HDTV and telecommunication markets. There can be no assurance that these efforts
will result in marketable products or products that can be produced at
commercially acceptable costs.
MANUFACTURING
We do not contemplate that we will directly manufacture any of our
products. We intend to contract with third parties to manufacture our NVP and
Softsets. We may also license to third parties the rights to manufacture the
products, either through direct licensing, OEM arrangements or otherwise. We
intend to produce the NVP ASIC chips based upon the receipt of firm commitments
rather than producing and inventorying ASIC chips in anticipation of
applications required by customers in the future.
LIQUIDITY AND CAPITAL RESOURCES
From our inception until the IPO, we relied for all of our funding
($2,900,000 in cash plus the cancellation of the notes in the principal amount
of $350,000) on private sales of debt and equity securities ("Private
Financings"). In July 1996, we completed our IPO and received net proceeds of
$9,538,428. We 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 6, 1998, we entered into a two-year agreement with
ProFuture's Special Equities Fund, LP (the "ProFuture Agreement") whereby we
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
12
<PAGE>
time to time over the life of the agreement, the Company shall issue "Puts" to
Profutures whereby we shall issue for each Put and Profutures shall purchase,
at our 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 Common Stock will be at 88% of the fair market value
of the Common Stock at the time of the Put. It is our intention to issue our
first Put under the agreement for $750,000 during the next quarter. 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 Profutures agrees otherwise, no Put can be made which
causes Profutures to own more than 9.9% of the Company's then outstanding
Common Stock.
In connection with the agreement, we issued to Profutures warrants to
purchase an aggregate of 50,000 shares of Common Stock at a purchase price of
$6.41 per share and supplemental warrants 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 thereafter.
The supplemental warrants may be exercised at any time beginning April 19, 1998
and ending 5 years thereafter.
On May 11, 1998, pursuant to a placement agency agreement, with
Janssen-Meyers acted as the Company's placement agent in a private equity
placement as of 2,742,904 shares of the Company's Common Stock and 2,057,207
Class A Redeemable Warrants for an aggregate purchase price of $7,280,546. Each
Class A Redeemable 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 expiring on
May 11, 2003. The Class A Redeemable Warrants are subject to redemption by the
Company at $.01 per warrant at anytime after, February 8, 1999, on not less than
30 days prior written notice to the holders of the Class A Redeemable Warrants,
provided the average closing bid price of the Common Stock has been at least
250% of the then current exercise price of the Class A Redeemable Warrants for a
period of thirty consecutive trading days ending on the day prior to the day on
which the Company gives notice of redemption.
Janssen-Meyers received for acting as placement agent a commission of
10% ($728,055) of the gross proceeds from the sale of the Common Stock and Class
A Redeemable Warrants, 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, Janssen-Meyers received as part of its
compensation warrants (the "Unit 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 $2.50 to $3.06 and (ii) 516,068 Class A Redeemable Warrants
to purchase up to 516,068 shares of the Company's Common Stock at a price per
share of $3.24.
13
<PAGE>
PLAN OF OPERATION
The Company has recently completed development of Picture Wizard, a
proprietary software product with the ability to digitally enhance both pictures
and video on PCs while the user is surfing the Internet or working offline. The
Picture Wizard will be sold directly to consumers through our exclusive
e-commerce web site store at picturewizard.com. Our plan of operation over the
next 12 months focuses primarily on the introduction and marketing Picture
Wizard over the Internet, the final phase of the development of our ASIC chip,
marketing and sales of our 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. In this regard, we have recently produced the
first NVP ASIC chips for use in the retail product to be manufactured and
distributed by Terk Technologies. After modification and final evaluation of
these chips for OEM use, we plan to launch a full-scale sales and marketing
program aimed initially at obtaining orders from those customers who have
already evaluated our technology and wish to test the chips in their products.
Also, we are currently conducting investigation and research and development
activities with respect to other new technologies/products to address the
digital, PC and internet markets. These activities may give rise to additional
products that may be commercialized by the Company. However, there can be no
assurance that its efforts will result in marketable products or products that
can be produced at commercially acceptable costs.
We anticipate, based on our current proposed plans and assumptions
relating to operations along with the commitments from the ProFuture Agreement,
that we have sufficient cash to satisfy our estimated cash requirements for the
next 12 months. In the event of unanticipated expenses, delays or other problems
beyond this period, we might be required to seek additional funding. In
addition, in the event that we receive a larger than anticipated number of
initial purchase orders upon introduction of Softsets and the NVP products, we
may require resources greater than our available cash or than are otherwise
available to us. In such event, we may be required to raise additional capital.
There can be no assurance that such additional capital will be available to us
if needed, on commercially reasonable terms or at all. The Company is also
contemplating other avenues of raising additional capital as an alternative to
the ProFuture Agreement.
The Company's future performance will be subject to a number of
business factors, including those beyond the our control, such as economic
downturns and evolving industry needs and preferences, as well as the level of
competition and our ability to successfully market our products and new and
competing technologies. There can be no assurance that we will be able to
successfully implement a marketing strategy, generate significant revenues or
achieve profitable operations. In addition, because we have had only limited
operations to date, there can be no assurance that our estimates will prove to
be accurate or that unforeseen events will not occur.
14
<PAGE>
YEAR 2000
We recognize the need to ensure that our operations and systems
(including information technology ("IT") and non-information technology
("non-IT") systems) will not be adversely affected by year 2000 hardware and
software issues. The year 2000 problem is the result of computer programs being
written using two digits (rather than four) to define the applicable years. Any
of the company's programs that have time-sensitive software may recognize the
date using "00" as the year 1900 rather than the year 2000, which could result
in miscalculations or system failures. The Year 2000 problem affects our
installed computer systems, software applications and other business systems
that have time sensitive programs.
We have conducted a review of its IT and non-IT systems to identify
those systems that could be affected by the Year 2000 problem. Modifications to
the Company's systems as a result of the findings have been completed. Testing
of these modifications was completed January 31, 1999 and our systems were
determined to be Year 2000 compliant. In addition, we have contacted our major
supplier (the fabricator/manufacturer of its ASIC chip) to verify that the
systems that the major supplier uses are or will be Year 2000 compliant. If our
major supplier or others with whom the Company does business experience problems
related to the Year 2000 issue, our business, financial condition or results of
operations could be materially adversely affected. Based on our current
estimates and information currently available, we do not anticipate that the
costs associated with Year 2000 compliance issues will be material to the
Company's financial position or results of operations.
We believe that our Year 2000 project will allow us to be Year 2000
compliant in a timely manner. There can be no assurances, however, that our
information systems or those of a third party on which we rely will be year 2000
compliant by the year 2000. An interruption of our ability to conduct business
due to a Year 2000 readiness problem could have a material adverse affect on our
business, operations or financial condition. There can be no guarantee that the
Company's Year 2000 goals or expense estimates will be achieved, and actual
results could differ.
15
<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
---------------------------------
Not applicable
27. Financial data schedule
16
<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 October 21, 1999.
NUWAVE TECHNOLOGIES, INC.
-------------------------
(Registrant)
DATE: October 21, 1999 By: /s/ Gerald Zarin
-------------------------------
Gerald Zarin
Chief Executive Officer and
Chairman of the Board
DATE: October 21, 1999 By: /s/ Jeremiah F. O'Brien
-------------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
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