===============================================================================
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 March 31, 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 April 15, 1999: 8,356,389
----------------------
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 - March 31, 1999 (unaudited) P. 3
Statements of Operations - For the three month periods
ended March 31, 1998 (unaudited) and March 31, 1999
(unaudited) and for the period July 17, 1995
(inception) to March 31, 1999 (unaudited) P. 4
Statements of Cash Flows - For the three month periods
ended March 31, 1998 (unaudited) and March 31, 1999
(unaudited) and for the period from July 17, 1995
(inception) to March 30, 1999 (unaudited) P. 5
Notes to Condensed Financial Statements P. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION P. 8
SIGNATURES P. 16
2
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Balance Sheet
ASSETS
March 31,
1999
-------------
(unaudited)
Current assets:
Cash and cash equivalents $ 4,330,444
Inventory 49,073
Prepaid expenses and other current assets 111,898
-------------
Total current assets 4,491,415
Property and equipment 114,686
Restricted Cash 53,709
Other assets 160,916
-------------
Total assets $ 4,820,726
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 331,274
-------------
Total liabilities 331,274
-------------
Commitments and contingencies
Stockholders' equity:
Series A Convertible Preferred Stock, noncumulative,
$.01 par value; authorized 400,000 shares; issued - none
Preferred stock, $.01 par value; authorized 1,000,000
shares; issued - 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 March 31, 1999; issued and outstanding
8,356,389 shares. 83,564
Additional paid in capital 18,381,935
Deficit accumulated during the development stage (13,976,047)
-------------
Total stockholders' equity 4,489,452
-------------
Total liabilities and stockholders' equity $ 4,820,726
=============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Operations
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative from
July 17, 1995
Three Months Three Months (inception)
ended ended to
March 31, March 31, March 31,
1998 1999 1999
------------------- ------------------- --------------------
(unaudited) (unaudited) (unaudited)
Net Sales $ 22,820
Cost of Sales (9,120)
------------------- ------------------- --------------------
------------------- ------------------- --------------------
13,700
------------------- ------------------- --------------------
Operating expenses:
Research and development expenses $ (381,139) $ (253,271) (5,634,435)
General and administrative expenses (531,157) (589,951) (7,798,591)
------------------- ------------------- --------------------
(912,296) (843,222) (13,433,026)
------------------- ------------------- --------------------
Loss from operations (912,296) (843,222) (13,419,326)
------------------- ------------------- --------------------
Other income (expense):
Interest income 20,348 55,002 622,981
Interest expense (331,542)
------------------- ------------------- --------------------
20,348 55,002 291,439
------------------- ------------------- --------------------
Loss before extraordinary item (891,948) (788,220) (13,127,887)
Extraordinary item (848,160)
------------------- ------------------- --------------------
Net loss $ (891,948) $ (788,220) $ (13,976,047)
=================== =================== ====================
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 5,487,026 8,356,389
=================== ===================
Basic and diluted loss per share $ (0.16) $ (0.09)
=================== ===================
(unaudited)
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative
from
July 17, 1995
Three Months Three Months (inception)
ended ended to
March 31, March 31, March 31,
1998 1999 1999
-------------- ------------- -------------
(unaudited) (unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (891,948) $ (788,220) $ (13,976,047)
Adjustments to reconcile net loss to net
cash used in operating activities:
Extraordinary item 848,160
Depreciation expense 11,230 11,691 126,451
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 (4,706) (49,073)
(Increase) in prepaid expenses and other
current assets 10,491 14,836 (111,898)
(Increase) in other assets 1,364 (160,915)
Issuance of warrants in connection with
consultant agreement 64,465 281,505
Increase (decrease) in accounts payable and
accrued liabilities 140,836 70,073 331,274
------------ ----------- ------------
Net cash used in operating activities 734,097) (625,791) (12,432,103)
------------ ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (21,407) (15,348) (241,136)
------------ ----------- -----------
Net cash used in investing activities (21,407) (15,348) (241,136)
------------ ----------- -----------
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
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
NUWAVE TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Increase (decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative
from
July 17, 1995
Three Months Three Months (inception)
ended ended to
March 31, March 31, March 31,
1998 1999 1999
--------------- --------------- ---------------
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
Repayment of notes issued in connection with
initial bridge notes (2,000,000)
Costs incurred for equity offerings and warrants (136,451) (40,946) (3,775,165)
Issuance of common stock in connection with
exercise of stock options 23,332 100,000
(Increase) Decrease in restricted cash 44,739 22,370 (53,708)
Deferred financing costs (201,000)
--------------- --------------- ---------------
Net cash provided (used in) by financing 931,621 (18,576) 17,003,683
activities --------------- --------------- ---------------
Net increase (decrease) in cash and cash 176,117 (659,715) 4,330,444
equivalents
Cash and cash equivalents at the beginning of 1,692,788 4,990,159 -
the period
--------------- --------------- ---------------
Cash and cash equivalents at the end of $ 1,868,905 $ 4,330,444 $ 4,330,444
the period =============== =============== ===============
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 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 as filed with the Securities and Exchange Commission
("SEC") on April 15, 1999.
7
<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.
The Company develops and intends to manufacture (through third parties) and
market products that improve picture quality image in set top boxes,
televisions, VCR's, DVD's, camcorders and other video devices by enhancing and
manipulating video signals. 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. The Company also raised
additional capital through the following equity offerings. On February 11, 1998,
the Company received net proceeds of $859,347 for issuance of 253,485 shares of
its Common Stock to Profutures Special Equities Fund, L.P. ("Profutures"). The
Company also issued warrants to purchase up to 100,000 shares of its Common
Stock to Profutures. In addition, the Company may issue Puts to Profutures over
a two-year period 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, 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
2,742,904 shares of its Common Stock and 2,057,207 Class A Redeemable
8
<PAGE>
Warrants between May 19, 1998 and June 9, 1998 for net proceeds of $5,994,616.
See "Management's Discussion and Analysis or Plan of Operation--Liquidity and
Capital Resources."
At the time of the IPO, the Company had produced and tested fully
operational working prototypes of certain of the "Licensed Products" as such
term is defined in the Exclusive Worldwide License Agreement ("License
Agreement") between the Company and Rave Engineering Corporation ("Rave") dated
July 21, 1995 (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 Company's Vice President-Engineering (prior to September 1998,
it operated under the direction of the Company's 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 License Agreement with Rave. These
independently developed 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, in conjunction
with Terk Technologies Corp., is currently developing a commercial video retail
product utilizing the NVP technology (the "retail version").
The Company recently produced its first NVP ASIC chips for testing and
final evaluation purposes. The Company is working with The Engineering
Consortium ("TEC") to complete this process. The Company intends 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.
The Company is concentrating its activities on completion of the
testing and evaluation of the first ASIC chips and 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,
through its Advanced Engineering Group and agreements with third parties, is
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. The Company believes this product strategy will
allow it to take full advantage of the growth opportunity presented by the
converging PC, television, HDTV and telecommunication markets, which the Company
believes to be quite significant.
9
<PAGE>
As of March 31, 1999 the Company had accumulated a deficit during the
development stage of $13,976,047 which includes a net loss for the three months
ended March 31, 1999 of $788,220. The loss for the three months ended March 31,
1999 included $589,951 in general and administrative expenses, representing an
increase of $58,794 compared to the three-month period ended March 31, 1998.
This increase was primarily the result of the Company's planned growth and
expansion including establishment of Japan and China offices ($56,952). The
Company does not anticipate deriving significant revenue from the sale of its
proprietary software (Softsets) and the NVP products during 1999. The Company
expects to continue to incur losses for at least the next 12 months. See
"Liquidity and Capital Resources."
Marketing and Sales
During March 1999 the Company produced its first NVP ASIC chips for
testing and evaluation purposes. In anticipation of production of its NVP ASIC
chip, the Company has been conducting sales presentations of the NVP and
Softsets to prospective OEM customers world wide (i.e., manufacturers of set-top
boxes, televisions, VCR's, DVD's and other video output devices). After final
evaluation and modification of these chips the Company 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 these chips in their
products. The Company has marketing and sales organizations in place in the
U.S., Japan and China, close to key prospective customers, to implement this
program. 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 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. The Company's CWave Division will market
these products. 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 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.
During the second quarter of 1998, the Company opened a sales and
engineering office in Osaka, Japan to maintain ongoing discussions, provide
in-person demonstrations of the Company's technology and directly participate in
technical due diligence sessions with potential customers who are evaluating the
Company's technology. During the third quarter of 1998, the Company opened a
sales and engineering office in Beijing, China for its products and technology
to be sold into the Chinese domestic market, which is equal in size to the U.S.
market.
10
<PAGE>
The Company has contracted with Competitive Technologies, Inc. ("CTI")
to assist it in the development of the Company'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.
Research and Development
For a discussion of the Company's research and development activities
carried out by its Advanced Engineering Group, see "Management's Discussion and
Analysis or Plan of Operations - General".
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 become dissatisfied with Rave's performance under the Development
Agreement and has found it necessary to utilize its Advanced Engineering Group
as its primary means for product development. On October 1, 1998 the three-year
term of the Development Agreement between the Company and Rave expired. The
Company paid Rave an aggregate of (i) $2,731,906 for development services
("Development Service Payments"), (ii) $564,566 for equipment which was to be
used in conjunction with required development services and (iii) $125,913 for
materials to be used in conjunction with the development services. The Company
has also guaranteed an additional $53,709 for related equipment lease payments
to be made on Rave's behalf.
Concurrent with the research and development undertaken by the Advanced
Engineering Group, the Company 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, the Company had identified as
the most likely candidate for immediate commercial exploitation. The Company was
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"). The Company has determined not to proceed with further
prosecution of the patent application on the Rave Clarity Circuit. The Company
acquired the exclusive rights to the Prior Art in August 1998.
In July 1998, the Company's 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. The Company concluded, on the basis of the Technical
Audit and the
11
<PAGE>
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.
The Development Service Payments also satisfied the Company's payment
obligations under the License Agreement between the Company and Rave which gave
the Company exclusive rights to the "Licensed Product" and "Licensed Process"
(each as defined therein) for the three-year term of the Development Agreement.
Commencing October 1, 1998, the Company did not pay Rave $65,000 per month under
the License Agreement thereby giving Rave the right, which was exercisable by
giving notice to the Company prior to November 2, 1998, to convert the Company's
rights to the "Licensed Product" and "Licensed Process" into that of a
non-exclusive licensee. Rave failed to give such notice in the specified time
and the Company believes it retains exclusive rights to the "Licensed Product"
and "Licensed Process."
On November 13, 1998, pursuant to the provisions of the License
Agreement and the Development Agreement, the Company commenced an arbitration
proceeding under the American Arbitration Association Rules of Patent
Arbitration against Rave and Randy Burnworth. Such proceeding seeks (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 has 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 seeking a
declaration that Rave is entitled to the return and exclusive use of its own
technology. Rave claims that it is 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. The
Company believes that Rave's claims are completely without merit; accordingly no
liability has been recorded for this claim.
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 recently produced its first NVP ASIC chips for testing and
final evaluation purposes. The Company is working with The Engineering
Consortium ("TEC") to complete this process. The Company intends 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.
12
<PAGE>
Employees
The Company has ten full-time employees and, depending on its level of
business activity will adjust its number of employees accordingly.
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 6, 1998, the Company entered into a two-year agreement with
Profutures whereby the Company issued 253,485 shares of its Common Stock for an
aggregate purchase price of $1,000,000. On May 11, 1998, the Company entered
into a placement agency agreement with 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, 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. See "Market For Registrant's Common
Equity and Related Stockholder Matters--Recent Sales of Unregistered Securities"
for further descriptions of these agreements.
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 the Agency Agreement between the
Company and Prime, which only pertains to the Licensed Products and Technology
covered by the License Agreement with Rave, 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 any
royalty payments made 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 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.
Plan of Operation
13
<PAGE>
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. In this regard, the Company has recently produced the first NVP
ASIC chips. After final evaluation of the chips, the Company plans to launch a
full-scale sales and marketing program aimed initially at obtaining orders from
those customers who have already evaluated the Company's technology and wish to
test the chips in their products. Also, the Company, through its Advanced
Engineering Group and agreement with third parties, is 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.
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. In the
event of unanticipated expenses, delays or other problems beyond this period,
the Company might be required to seek additional funding. In addition, in the
event that the Company receives a larger than anticipated number of initial
purchase orders upon introduction of 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 recognizes the need to ensure that its 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 the
Company's installed computer systems, software applications and other business
systems that have time sensitive programs.
14
<PAGE>
The Company has 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. In
addition, the Company has contacted its 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 the Company's major
supplier, or others with whom the Company does business, experience problems
related to the year 2000 issue, the Company's business, financial condition or
results of operations could be materially adversely affected. Based on its
current estimates and on information currently available, the Company does not
anticipate that the costs associated with year 2000 compliance issues will be
material to the Company's financial position or results of operations.
The Company believes that its year 2000 project will allow it to be
year 2000 compliant in a timely manner. There can be no assurances, however,
that the Company's information systems or those of a third party on which the
Company relies will be year 2000 compliant by the year 2000. An interruption of
the Company's ability to conduct its business due to a year 2000 readiness
problem could have a material adverse affect on the Company's 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>
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
April 29, 1999.
NUWAVE TECHNOLOGIES, INC.
(Registrant)
DATE: April 29, 1999 By: /s/ Gerald Zarin
----------------------
Gerald Zarin
Chief Executive Officer
Chairman of the Board
DATE: April 29, 1999 By: /s/ Jeremiah F. O'Brien
----------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001009802
<NAME> NUWAVE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,330
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 49
<CURRENT-ASSETS> 4,491
<PP&E> 241
<DEPRECIATION> 126
<TOTAL-ASSETS> 4,821
<CURRENT-LIABILITIES> 331
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 4,406
<TOTAL-LIABILITY-AND-EQUITY> 4,821
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 843
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (55)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (788)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (788)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
