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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 September 30, 2001
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-28606
NUWAVE TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 22-3387630
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE PASSAIC AVENUE, FAIRFIELD, NEW JERSEY 07004
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (973) 882-8810
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of September 30, 2001: 10,992,711
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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NUWAVE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000 P. 3
Condensed Statements of Operations for the three
and nine months ended September 30, 2001 and
September 30, 2000 (unaudited) P. 4
Condensed Statements of Cash Flows for the three
and nine months ended September 30, 2001 and
September 30, 2000 (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
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 15
SIGNATURES P. 16
2
NUWAVE TECHNOLOGIES, INC
BALANCE SHEET
(in thousands except number of shares)
ASSETS
September 30, December 31,
2001 2000
------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 1,190 $ 3,847
Accounts receivable 353 --
Inventory 264 45
Prepaid expenses and other current assets 297 292
-------- --------
Total current assets 2,104 4,184
Property and equipment 96 109
Other assets 223 351
Deferred tax benefits 240 240
-------- --------
Total assets $ 2,663 $ 4,884
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 521 $ 417
-------- --------
Total liabilities 521 417
-------- --------
Commitments and contingencies
Stockholders' equity:
Series A Convertible Preferred Stock, noncumulative,
$.01 par value; authorized 400,000 shares; none
outstanding
Preferred stock, $.01 par value; authorized 1,000,000
shares; none issued - (preferences and rights to be
designated by the Board of Directors)
Common stock, $.01 par value; authorized 40,000,000
shares; outstanding 10,992,771 shares at 9/30/2001 and
10,557,729 shares at 12/31/00 110 106
Additional paid in capital 24,969 24,528
Accumulated deficit (22,937) (20,167)
-------- --------
Total stockholders' equity 2,142 4,467
-------- --------
Total liabilities and stockholders' equity $ 2,663 $ 4,884
======== ========
The accompanying notes are an integral part of these
condensed financial statements
3
NUWAVE TECHNOLOGIES, INC
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three Months Three Months Nine Months Nine Months
ended ended ended ended
September 30, September 30, September 30, September 30,
------------- -------------- -------------- -------------
2001 2000 2001 2000
(unaudited) (unaudited) unaudited) (unaudited)
Net Sales $ 445 $ 1 $ 517 $ 13
Cost of Sales (208) (1) (236) (4)
----------- ---------- ---------- -----------
237 0 281 9
----------- ---------- ---------- -----------
Operating expenses:
Research and development expenses $ (249) $ (339) $ (677) $ (1,188)
General and administrative expenses (1,052) (696) (2,448) (2,513)
----------- ---------- ---------- -----------
(1,301) (1,035) (3,125) (3,701)
----------- ---------- ---------- -----------
Loss from operations (1,064) (1,035) (2,844) (3,692)
----------- ---------- ---------- -----------
Other income (expense):
Interest income 12 79 84 209
Interest expense (2) (10)
----------- ---------- ---------- -----------
10 79 74 209
----------- ---------- ---------- -----------
Net loss before (provision) benefit for income
taxes (1,054) (956) (2,770) (3,483)
----------- ---------- ---------- -----------
Net loss $ (1,054) $ (956) $ (2,770) $ (3,483)
=========== ========== ========== ===========
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 10,640 10,558 10,585 9,994
=========== ========== ========== ===========
Basic and diluted loss per share $ (0.10) $ (0.09) $ (0.26) $ (0.35)
=========== ========== ========== ===========
The accompanying notes are an integral part of these
condensed financial statements
4
NUWAVE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2001 2000
(unaudited) (unaudited)
------------- -------------
Cash flows from operating activities:
Net loss $ (2,770) $ (3,484)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for doubtful accounts 28 --
Depreciation expense 34 49
Amortization of website development costs 67 --
Amortization of software development costs 38 --
(Increase) in inventory (219) (3)
(Increase) Decrease in prepaid expenses and other
current assets (386) (14)
(Increase) Decrease in other assets 23 (2)
(Increase) Decrease in deferred tax benefits -- 363
Increase (Decrease) in accounts payable and
accrued liabilities 103 (84)
Extension of stock options expiration date at less
than current market price -- 45
Issuance of warrants in connection with
consultant agreements 11 190
------ ------
Net cash used in operating activities (3,071) (2,940)
------ ------
Cash flows from investing activities:
Purchase of property and equipment (21) (64)
Capitalized software and website development costs ------ ------
Net cash used in investing activities (21) (64)
------ ------
The accompanying notes are an integral part of these
condensed financial statements
5
NUWAVE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2001 2000
(unaudited) (unaudited)
------------- -------------
Cash flows from financing activities:
Proceeds from equity offering - March 14, 2000 -- 6,600
Costs incurred for equity offerings and warrants -- (1,101)
Issuance of common stock in connection with
exercise of stock options and/or warrants 435 1
----------- -----------
Net cash provided (used in) by financing activities 435 5,500
----------- -----------
Net increase (decrease) in cash and cash equivalent (2,657) 2,496
Cash and cash equivalents at the beginning of the period 3,847 1,969
----------- -----------
Cash and cash equivalents at the end of the period $ 1,190 $ 4,465
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid during the period $ 10
The accompanying notes are an integral part of these
condensed financial statements
6
NUWAVE TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Interim Financial Statement Preparation
------------------------------------------------
Prior to April 1, 2001, NUWAVE Technologies, Inc. was a development
stage enterprise.
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"), 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 2, 2001.
2. Capital Transactions
--------------------
On April 30, 2001, the Company's Board of Directors approved the
extension of the expiration date of the IPO Warrants, issued in the Company's
initial public offering, for one year until July 3, 2002. As part of the
extension, NUWAVE will be able to redeem the IPO Warrants in the event that
the average closing price of the Company's Common Stock is at least 120% of the
then-current exercise price of the IPO Warrants for a period of twenty
consecutive trading days ($4.79). The redemption price of the IPO Warrants is
$0.10 per warrant.
During the first nine months of 2001, options covering an aggregate of
360,000 shares of our common stock were granted under the Company's Performance
Incentive Stock Option Plan to four persons at exercise prices of $0.61 to
$1.16. The foregoing options include performance-based options to three
executive officers to purchase 200,000, 65,000 and 50,000 shares, respectively,
of the Company's common stock at exercise prices of $0.79, $0,79 and $1.16 per
share. As of September 30, 2001, 50,000 of these options, exercisable at $0.79
per share, have vested.
On August 16, 2001 the Company announced the Board Directors decision
to offer holders of its placement agent warrants the opportunity to exercise
such warrants at a reduced exercise price of $1 per share of common stock for a
period of sixty days terminating on October 12, 2001. There were 1,987,391
shares of common stock underlying the placement agent warrants eligible under
this program. These warrants were originally issued to the placement agent in
connection with two private placements of the Company's equity in May 1998 and
March 2000. During the third quarter of 2001, the Company issued 434,982 shares
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of common stock to holders of the placement agent warrants in accordance with
the Company's Board of Directors decision.
3. Subsequent Events
-----------------
On October 5, 2001, the Company extended the termination date of the
offering to the holders of the placement agent warrants to November 30, 2001
from the previous termination date of October 12, 2001 which grants a reduced
exercise price of $1.00 per common share. From the period October 1, 2001 to
November 11, 2001 an additional 403,940 shares of common stock were issued upon
warrant exercise.
8
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," "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,
industry capacity, new product development, commercialization of new
technologies, the Company's ability to raise additional capital, 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
Our mission is to identify, develop and commercialize high-margin,
proprietary technologies suited for high-volume, high-growth markets and, in
turn, achieve attractive long-term growth for our company. We have been focusing
on technology related to image and video enhancement designed to enrich picture
and video output with clearer, more defined detail in texture, color, contrast
and tone, at low cost. Our initial products can be used for placement in
products which have display screens and for supplementing existing television
monitors and video game displays and can also be used by individuals over the
Internet for improving their personal photographs. Our technology removes
approximately 70% of the picture noise while retaining correct focus (the image
and text in the image does not blur). The three product lines based upon our
proprietary technology are: 1) the NUWAVE Video Processor (NVP) Technology; 2)
Hardware and Retail Products and 3) Digital Software We recently started selling
our technologies, having been a development stage enterprise from our
organization in July 1995 through March 2001.
The NUWAVE Video Processor (NVP) technology is designed to
9
significantly enhance video output devices with clearer, sharper details and
more vibrant colors when viewed on the display screen. This patented technology
is manufactured in the form of ASICs (Application Specific Integrated Circuit)
chips through third parties. The Company directly markets this technology to
OEMs, who by incorporating this enabling technology in their products improve
picture quality in their set-top boxes, televisions, VCRs, DVDs, camcorders
and other video output devices. OEMs can either purchase the ASIC chips or
license the NVP technology. The first full-scale production runs of the NVP 104
plastic (silicon) chip took place earlier this year and it is now being sold to
the OEM marketplace. In June of 2001 we completed development and began selling
to retailers VGE 101 set-top box utilizing the NVP ASIC chip for use with video
games and DVD's. This is our first retail product utilizing the NVP ASIC chip.
The VGE 101 is a low-cost video game enhancer that provides home video "gamers"
with better video quality, to give game players an "edge" to improve their
scores.
We are concentrating our activities primarily on the marketing and
sales of our NVP 104 ASIC technology, the introduction and launch of the VGE
101, a set top box utilizing the NVP ASIC chip for use with video games and
DVD's, marketing of our digital software technology and internet presence to the
OEM and retail and security and surveillance markets, and on the continuing
development of our digital and analog video enhancement technology.
Nine Months Ended September 30, 2001 Compared to Nine Months Ended
September 30, 2000
We had a net loss for the nine months ended September 30, 2001 of
$2,770,000 compared to a net loss for the nine months ended September 30, 2000
of $3,484,000. The loss for the nine months ended September 30, 2001 included
$2,448,000 in general and administrative expenses, representing a decrease of
$65,000 compared to the nine-month period ended September 30, 2000. Such
decrease was primarily the result of reduced sales and marketing costs
($392,000) combined with a decrease in payroll costs ($64,000) and other
($4,000). The reduction in sales and marketing costs is primarily a result of a
significant reduction of ad creation costs and advertising expenditures relating
to the promotion of the Company's Internet and photo portal presence partially
offset by increased marketing costs related to development of the China
marketplace ($136,000) for the nine-month period ended September 30, 2001. These
decreases were partially offset by increases in amortization ($124,000),
professional expenses ($135,000).
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2000
For the quarter ended September 30, 2001, we had a net loss of
$1,054,000 compared to a net loss for the quarter ended September 30, 2000 of
$955,000. The loss for the quarter ended September 30, 2001 included $1,052,000
in general and administrative expenses, representing an increase of $356,000
compared to the quarter ended September 30, 2000. Such increase was the result
of increased sales and marketing costs of ($105,000) discussed more fully below
combined with a increases in professional fees ($94,000), financial consulting
($39,000), amortization ($40,000), and other ($78,000).
10
Initial shipments of the VGE to our retail customers took place in late
June and sales of the NVP 104 ASIC chips to OEM customers began during the
current third quarter. As a result revenues for the three and nine month periods
ended September 30, 2000, were $445,000 and $517,000. Although we anticipate
deriving revenue from the sale of our ASIC chips and retail products during the
fourth quarter of 2001, no assurance can be given that these products will be
successfully marketed during such period. See "Liquidity and Capital Resources."
MARKETING AND SALES
Our three product lines are each in their initial stages of full
commercialization and are currently being marketed to their respective
distribution channels.
NVP 104 ASIC Technology
We have been concentrating our efforts to date on demonstrating and
marketing this technology to the large Asian consumer electronics OEM's in Japan
and China. Several of these potential customers have expressed serious interest
in this technology. As a result, after signing confidentiality/non-disclosure
agreements, these OEMs have received our specially designed evaluation boards
using the patented NVP 104 chip. This board enables them to conduct the
necessary testing and evaluation of the chip as it applies to their specific
product(s). We received our first OEM orders for the NVP 104 chips from a
premier Chinese electronics company who will utilize the chip in their DVD line.
Initial deliveries took place in August and September. We believe this is a
significant step towards our goal of making our technology a new standard in
video equipment and expect other OEM's to follow.
Retail Products
The first full-scale production run of the VGE 101 took place during
June 2001. We know of no competitive product that is capable of similarly
enhancing a video game and have been introducing the VGE 101 through
manufacturer's representatives who sell to select gaming distributors and
nationally known retail specialty chains. Since its introduction in June the VGE
has been sold to such name retailers as Electronic Boutique, GameStop, Babbages
and J&R Music World and is now available in over 2500 retail stores throughout
the US. During late June, the Company entered into a strategic sales and
marketing agreement with Partners In Europe ("PIE"), a Shannon, Ireland based
firm offering complete business solutions to North American companies seeking to
establish or expand their European businesses. Under the agreement, PIE will
establish a full-scale European distribution, sales, marketing and warehousing
operation for NUWAVE and become the central hub for NUWAVE's European
operations.
11
Digital Software Technology
During October, 2001 the Company was granted U.S. patent approval for
its proprietary digital filtering technology, US Patent 6301384. With faster
processing and significant visual noise reduction capabilities, we believe this
technology will be essential for a number of applications, including video
surveillance. The technology removes picture noise while retaining correct focus
(the image and text in the image does not blur). The NUWAVE algorithm process is
three times faster than any other known filter, thus allowing use in and during
real time streaming video. This is especially useful for electronic news
gathering; such as when journalists are on location filming/broadcasting a
story.
The Company believes this patent will be useful to commercially market
segments from security video surveillance systems in public access areas such as
banks, airports and ATM vestibules, to computer face recognition systems. We
plan to license the digital filtering technology to OEMs for embedding in, or
bundling with, products such as digital cameras, PC's, scanners, camcorders and
DVDs, among other digital imaging devices. The technology can also be bundled
with the sale of a third party's product.
During 2000 the Company completed the initial development of its first
proprietary digital photo and video software technology and launched the
PicturePreptm 2000 product line. PicturePrepClub.com, an Internet photo portal,
was also launched at that time. In connection with the PicturePrepClub.com web
site, the Company entered into an agreement with Eastman Kodak Company whereby
Print@KODAK has been NUWAVE's exclusive on-line fulfillment service to deliver
prints and photoproducts directly to consumers' homes. Kodak has recently
informed the Company that they will be discontinuing this service. The Company
is currently exploring alternative fulfillment services and has temporally
suspended marketing efforts relating to PicturePrepClub.
We believe our focused video and picture enhancement product strategy
provides our Company with proprietary solutions for sale in both analog and
digital formats to meet the continuing evolution and convergence of the PC to
television and video markets and the worldwide trend towards digital devices.
The Company intends to support the above sales efforts through various sales and
12
marketing programs/activities including trade advertising, attendance at
industry trade shows, attendance at participating dealer shows, attendance at
end-user events, literature mailers and co-op dealer advertising.
Sales and Marketing costs for the three and nine month periods ending
September 30, 2001 were $267,000 and $507,000, respectively as compared to
$161,000 and $763,000 in the same three and nine month periods ending September
30, 2000. The comparative three and nine month periods resulted in an increase
of $105,000 and decrease of $256,000, respectively. The nine month reduction is
primarily a result of a significant decline in ad creation costs and advertising
expenditures relating to the promotion of the Company's Internet and photo
portal presence of $392,000 which was partially offset by increased marketing
costs related to development of the China marketplace for the nine-month period
ended September 30, 2001 of $136,000. The three-month period increase was due to
increased costs relating to the China marketplace development of $53,000 and
increased costs for consulting, warehousing and advertising relating to the
introduction to the marketplace of the VGE product of $52,000.
RESEARCH AND DEVELOPMENT
During the nine months ended September 30, 2001 $677,000 was spent on
research and development activities compared to $1,188,000 for the same
nine-month period in 2000, a decrease of $511,000. For quarter ended September
30, 2001 $249,000 was spent on research and development activities compared to
$339,000 for the same quarterly period in 2000, a decrease of $90,000, this
decrease was a direct result of the completion of the NVP104 ASIC chip. During
the next twelve months, the Company estimates that it will spend approximately
$300,000 on research and development. Any increases or decreases to these
research and development expenditure estimates are expected to be directly
related to revenues generated from the Company's current product line-up.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2001, the Company had cash and cash equivalents of
approximately $1,190,000 and no long-term liabilities. On August 16th the
Company had announced the Board Directors decision to offer holders of its
placement agent warrants the opportunity to exercise such warrants at a reduced
exercise price of $1 per share of common stock for a period of sixty days
terminating on October 12, 2001, which was extended to November 30, 2001. There
were 1,987,391 shares of common stock underlying the placement agent warrants
eligible under this program and we had anticipated a significantly high
percentage of the warrant holders to exercise. During the third quarter of 2001,
the Company raised $434,982 from the exercise of placement agent warrants. The
reduced percentage of conversions was directly attributable the close and then
downturn in the stock market subsequent to the events of September 11. From
October 1 through November 12, 2001 an additional $404,000 was raised from the
exercise of placement agent warrants.
In order to satisfy our estimated cash requirements based on our
assumptions relating to our current operations and business plan the Company is
13
contemplating a private placement (the "Placement") of up to 7,500,000 shares of
its Common Stock, including shares underlying warrants (the "Warrants") which
may be part of the Placement; provided that the aggregate gross proceeds from
the Placement does not exceed $6,000,000 (without giving effect to proceeds
which would be obtained upon subsequent exercise of the Warrants). Although the
Company has been in discussions with potential placement agents, it has not yet
finalized a term sheet for a Placement, therefore the specific terms of the
proposed Placement have not been determined.
Since it is contemplated that the aggregate number of shares of Common
Stock plus the shares underlying the Warrants which may be issuable upon the
Placement could exceed 20% of the Company's currently outstanding shares and
will be at a per share purchase price at a discount from the current market
price, Nasdaq corporate governance rules would require stockholder approval for
such issuance. In order to expedite the time required to obtain shareholder
approval, the Company has issued a proxy containing pro forma information
regarding the proposed transaction and has requested its
common stockholders approve the Placement. A Special Meeting of the Company's
stockholders has been scheduled on November 28, 2001 for this purpose.
We believe that based on the success of this Placement the Company
would have sufficient fund to satisfy our estimated cash requirements for at
least the next twelve months. There can be no assurance that such additional
capital will be available to us on commercially reasonable terms or at all, or
that the Placement would not be substantially dilutive to stockholders.
14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
(b) Reports on Form 8-K
none
15
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
November 14, 2001.
NUWAVE TECHNOLOGIES, INC.
-------------------------
(Registrant)
DATE: November 14, 2001 By: /s/ Gerald Zarin
-----------------------------
Gerald Zarin
Chief Executive Officer and
Chairman of the Board
DATE: November 14, 2001 By: /s/ Jeremiah F. O'Brien
-----------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
16