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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
(Mark one)
[x] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999
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 o No o
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of June 30, 1999: 8,456,389
Transitional Small Business Disclosure Format: Yes [ ] No [x]
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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 - June 30, 1999 (unaudited) P. 3
Statements of Operations - For the three and six month periods
ended June 30, 1998 (unaudited) and June 30, 1999
(unaudited) and for the period July 17, 1995 (inception) to
June 30, 1999 (unaudited) P. 4
Statements of Cash Flows - For the three and six month periods
ended June 30, 1998 (unaudited) and June 30, 1999
(unaudited) and for the period from July 17, 1995
(inception) to June 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
<TABLE>
<CAPTION>
<S> <C>
June 30,
1999
-----------
(unaudited)
Current assets:
Cash and cash equivalents $3,530,851
Inventory 49,073
Prepaid expenses and other current assets 68,190
----------
Total current assets 3,648,114
Property and equipment 106,080
Restricted Cash 8,970
Other assets 174,552
----------
Total assets $3,937,716
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 394,811
----------
Total liabilities 394,811
----------
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 June 30, 1999; issued and outstanding 8,456,389 shares. 84,564
Additional paid in capital 18,605,605
Deficit accumulated during the development stage (15,147,264)
----------
Total stockholders' equity 3,542,905
----------
Total liabilities and stockholders' equity $3,937,716
==========
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
3
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995
Three months Three months Six months Six months (inception)
ended ended ended ended to
June 30, June 30, June 30, June 30, June 30,
1998 1999 1998 1999 1999
------------ ------------ ----------- ----------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
Net Sales $ 22,820
Cost of Sales (9,120)
------------
13,700
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development expenses $ (476,098) $ (250,565) $ (857,237) $ (503,836) $ (5,885,000)
General and administrative expenses (709,439) (627,152) (1,240,596) (1,217,103) (8,425,743)
----------- ----------- ----------- ----------- ------------
(1,185,537) (877,717) (2,097,833) (1,720,939) (14,310,743)
----------- ----------- ----------- ----------- ------------
Loss from operations (1,185,537) (877,717) (2,097,833) (1,720,939) (14,297,043)
----------- ----------- ----------- ----------- ------------
Other income (expense):
Interest 43,987 45,395 64,335 100,397 668,376
income
Interest expense (331,542)
Rave Settlement Costs (338,895) (338,895) (338,895)
----------- ----------- ----------- ----------- ------------
43,987 (293,500) 64,335 (238,498) (2,061)
----------- ----------- ----------- ----------- ------------
Net loss before extraordinary item (1,141,550) (1,171,217) (2,033,498) (1,959,437) (14,299,104)
Extraordinary item (848,160)
----------- ----------- ----------- ----------- ------------
Net loss $(1,141,550) $(1,171,217) $(2,033,498) $(1,959,437) $(15,147,264)
=========== =========== =========== =========== ============
Basic and diluted loss per share:
Weighted average
number of
common shares
outstanding 6,818,182 8,392,653 6,156,281 8,374,621
=========== =========== =========== ===========
Basic and diluted
loss per share $ (0.17) $ (0.14) $ (0.33) $ (0.23)
=========== =========== =========== ===========
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
4
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Cumulative from
July 17, 1995
Three months Three months Six months Six months (inception)
ended ended ended ended to
June 30, June 30, June 30, June 30, June 30,
1998 1999 1998 1999 1999
------------ ------------ ----------- ----------- ---------------
(unaudited) (unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,141,549) $(1,171,217) $(2,033,497) $(1,959,437) $(15,147,264)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Extraordinary item 848,160
Depreciation expense 13,279 11,624 24,509 23,313 138,075
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) (49,073)
Decrease (Increase) in prepaid
expenses and other current
assets (164,836) 43,708 (154,345) 58,544 (68,190)
(Increase) Decrease in other
assets (12,877) (13,637) (12,877) (12,273) (174,552)
Issuance of warrants in
connection with consultant
agreement 64,467 128,934 345,972
Issuance of common stock in
connection with an arbitration
settlement 146,200 146,200 146,200
Issuance of options in
connection with an arbitration
settlement 17,695 17,695 17,695
Increase (decrease) in accounts
payable and accrued liabilities 131,461 63,537 272,297 133,610 394,811
----------- ----------- ----------- ----------- ------------
Net cash used in
operating activities (1,172,467) (837,623) (1,906,564) (1,463,414) (13,269,726)
----------- ----------- ----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and
equipment (20,481) (3,016) (41,888) (18,364) (244,152)
----------- ----------- ----------- ----------- ------------
Net cash used in
investing activities (20,481) (3,016) (41,888) (18,364) (244,152)
----------- ----------- ----------- ----------- ------------
The accompanying notes are an integral part of these condensed financial statements
</TABLE>
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 Six months Six months (inception)
ended ended ended ended to
June 30, June 30, June 30, June 30, June 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 7,280,546
Repayment of notes issued in
connection with initial
bridge notes (2,000,000)
Costs incurred for equity
offerings (1,157,780) (3,692) (1,294,230) (44,638) (3,778,857)
Issuance of common stock in
connection with exercise of
stock options 23,332 100,000
(Increase) Decrease in
restricted cash 33,554 44,738 78,294 67,108 (8,970)
Deferred financing costs (201,000)
----------- ----------- ----------- ----------- ------------
Net cash provided (used in)
by financing activities 6,156,320 41,046 7,087,942 22,470 17,044,729
----------- ----------- ----------- ----------- ------------
Net increase (decrease) in
cash and cash equivalents 4,963,372 (799,593) 5,139,490 (1,459,308) 3,530,851
Cash and cash equivalents at the
beginning of the period 1,868,905 4,330,444 1,692,787 4,990,159
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at
the end of the period $ 6,832,277 $ 3,530,851 $ 6,832,277 $ 3,530,851 $ 3,530,851
=========== =========== =========== =========== ============
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/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 2
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. As of June 30,1999, there are 93,000 stock
options reserved for issuance in the Director's plan.
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.
3. Commitments and Contingencies
-----------------------------
License and Development Agreements
On November 13, 1998, pursuant to the provisions of the License Agreement
and the Development Agreement, the Company commenced an arbitration
7
<PAGE>
proceeding under the American Arbitration Association Rules of Patent
Arbitration against Rave and Randy Burnworth. Such proceeding sought (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.
Pursuant to On May 28, 1999, a Settlement Agreement 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. Our
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 technology that we are
commercializing is in the field of video-enhancement and in this regard we are
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. We intend to license or have
manufactured through third parties and directly market products which use this
technology to improve picture quality in set-top boxes, televisions, VCR's,
DVD's, camcorders, video and pictures on the Internet and P.C.'s, and other
video devices. 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
9
<PAGE>
issuance of 253,485 shares of our Common Stock to Profutures. We also issued
warrants to purchase up to 100,000 shares of the Company's Common Stock to
Profutures. 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. On May 11, 1998, we 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 we issued 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."
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").
We produced our first NVP ASIC chips for testing and final evaluation
purposes and are working with our outside design house and foundry to complete
this process. After final evaluation of these chips, 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. This technology is intended to be marketed
under the name iMAGENU Picture Wizard.
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 iMAGENU Picture Wizard software product line. We are also conducting
investigation and research and development activities with respect to additional
new
10
<PAGE>
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.
As of June 30, 1999 the Company had accumulated a deficit during the
development stage of $15,147,264 which includes a net loss for the six months
ended June 30, 1999 of $1,959,437. The loss for the six months ended June 30,
1999 included $1,217,103 in general and administrative expenses, representing a
decrease of $23,493 compared to the six-month period ended June 30, 1998. We do
not anticipate deriving significant, if any, revenue from the sale of our
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
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). During March 1999 we
produced our first NVP ASIC chips for testing and evaluation purposes and we are
currently working with our outside design house and foundry to complete this
process.. After final evaluation and modification of these chips 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. 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.
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 during 1999 is to work
through distributors who will manufacture and sell to retailers, including those
with whom they are currently doing business. We recently announced a five-year
manufacturing and marketing agreement with Terk Industries 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. 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.
11
<PAGE>
During the second quarter of 1998, we opened a sales and engineering office
in Osaka, Japan to maintain on-going discussions, provide in-person
demonstrations of the Company's technology and directly participate in technical
due diligence sessions with potential customers who are evaluating our
technology. During the third quarter of 1998, we opened a sales and engineering
office in Beijing, China for our products and technology to be sold into the
Chinese domestic market, which is equal in size to the U.S. market.
We plan to market and sell our iMAGENU Picture Wizard software product
through our exclusive e-commerce imagenu.com web site store, which is currently
under construction. The opening of the web site store and the introduction of
iMAGENU Picture Wizard is expected to take place during the summer of 1999.
Research and Development
For a discussion of our research and development activities carried out by
its Advanced Engineering Group, see "Management's Discussion and Analysis or
Plan of Operation--General."
The products we initially contemplated for commercialization were licensed
to the Company by Rave pursuant to the License Agreement. Although it was our
intention to utilize Rave as our primary source for research and development
activities, we became dissatisfied with Rave's performance under the Development
Agreement and have utilized the Advanced Engineering Group as our primary means
for product development. On October 1, 1998 the three-year term of the
Development Agreement between the Company and Rave expired. In conjunction with
the License and Development Agreements, we paid to Rave or on behalf of Rave an
aggregate of (i) $2,731,906 for development services ("Development Service
Payments"), (ii) $618,759 for equipment which was supposed to be used in
conjunction with development services and (iii) $125, 913 for materials intended
to be used in conjunction with the development services.
Concurrent with the research and development undertaken by the Advanced
Engineering Group, we retained patent counsel in 1996 to prosecute a patent
application on the video clarity circuit provided by Rave (the "Rave Clarity
Circuit"), which, of the initial products, we had identified as the most likely
candidate for immediate commercial exploitation. We were informed in January,
1998, that (a) such application had been rejected, and (b) such initial
rejections by the United States Patent and Trademark Office ("Patent office")
are not uncommon. The claims in the application were modified and the
application was resubmitted twice. Both times it was again rejected by the
Patent Office on the grounds that the Rave Clarity Circuit was identical to a
circuit that was the subject of a prior United States patent issued to a third
party (the "Prior Art"). We have decided not to proceed with further prosecution
of the patent
12
<PAGE>
application on the Rave Clarity Circuit. We acquired the exclusive rights to the
Prior Art in August 1998.
In July 1998, our representatives conducted a "Technical Audit" of the
consulting and development services (not limited to the Rave Clarity Circuit)
that Rave was to have performed under the License Agreement and the Development
Agreement. We concluded, on the basis of the Technical Audit and the information
regarding the Prior Art, that Rave had not performed the required services and
misled the Company about its ability to perform them, and about Rave's ownership
of the technology licensed to the Company.
On November 13, 1998, pursuant to the provisions of the License Agreement
and the Development Agreement, we commenced an arbitration proceeding under the
American Arbitration Association Rules of Patent Arbitration against Rave and
Randy Burnworth. Such proceeding sought (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.
Pursuant to a Settlement Agreement reached on May 28, 1999, the Arbitration
was resolved and the License Agreement was terminated. As a result of the
Settlement Agreement, we continue to maintain exclusive worldwide license rights
to make, market and license our video enhancement technology free of any claims
of ownership or inventorship by Rave; in return, Rave and certain individuals
associated with Rave received from us $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.
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.
13
<PAGE>
We recently produced our first NVP ASIC chips for testing and final
evaluation purposes and we are working with our outside design house and foundry
to complete this process. After final evaluation of these chips, 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. 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.
Employees
We currently have ten full-time employees and, depending on our level of
business activity, expect 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 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 Profutures
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 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.
14
<PAGE>
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, we entered into a placement agency agreement with
Janssen-Meyers to act as the Company's placement agent in a private equity
placement whereby we issued to certain accredited investors, as defined under
Regulation D as promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), 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 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 during the period commencing on June 9, 1998
and expiring on May 11, 2003. The Class A Redeemable Warrants are subject to
redemption by the Company at $.01 per warrant 12 months after the effective date
of a registration statement covering the Class A Redeemable Warrants 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. The Class A Redeemable
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 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.
We anticipate that our available cash will be sufficient to satisfy our
contemplated cash requirements for at least through the next twelve months.
Plan of Operation
Our plan of operation over the next 12 months focuses primarily on the
final phase of the development of our ASIC chip, marketing and sales of our
Softsets and
15
<PAGE>
NVP products in the OEM, professional video and retail markets and the continued
effort necessary to support the sales and marketing of these products and
introduction of our software product iMAGENU Picture Wizard. In this regard, we
have recently produced the first NVP ASIC chips. After final evaluation of the
chips, 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. We plan to open our
exclusive e-commerce imagenu.com web site store and introduce the iMAGENU
Picture Wizard software product during the summer of 1999. 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 its operations, 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'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 technology. 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.
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
16
<PAGE>
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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
On June 22, 1999 the company held its annual meeting of stockholders to
(i) elect directors, and (ii) transact such other business as might be
bought before the meeting.
The following table sets forth information regarding the number of
votes cast for, against, and abstentions, with respect to the 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 5,067,463 44,940 0
Edward Bohn 5,067,463 44,940 0
Lyle Gramley 5,067,463 44,940 0
Joseph Sarubbi 5,067,463 44,940 0
(ii) No other business was transacted at the meeting
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
27. Financial data schedule
18
<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 13, 1999.
NUWAVE TECHNOLOGIES, INC.
(Registrant)
DATE: August 13, 1999 By: /s/ Gerald Zarin
-----------------------------
Gerald Zarin
Chief Executive Officer and
Chairman of the Board
DATE: August 13, 1999 By: /s/ Jeremiah F. O'Brien
-----------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
19
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