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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 March 31, 2002
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 March 31, 2002: 12,216,937
Transitional Small Business Disclosure Format: Yes |_| No |X|
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NUWAVE TECHNOLOGIES, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets as of March 31, 2002 (unaudited) and
December 31, 2001 P.3
Condensed Statements of Operations for the three months ended
March 31, 2002 (unaudited) and March 31, 2001 (unaudited) P.4
Condensed Statements of Cash Flows for the three months ended
March 31, 2002 (unaudited) and March 31, 2001 (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 2. CHANGES IN SECURITIES P.14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P.14
SIGNATURES P.15
2
NUWAVE TECHNOLOGIES, INC.
Balance Sheets
(In thousands, except share data)
ASSETS
March 31, December 31,
2002 2001
-------------- ------------
(unaudited)
Current assets:
Cash and cash equivalents $ 795 $ 1,011
Accounts receivable, net 8 138
Inventory 274 413
Prepaid expenses and other current assets 143 179
-------------- ------------
Total current assets 1,220 1,741
Property and equipment 76 82
Other assets 26 30
Deferred tax benefit 280 280
-------------- ------------
Total assets $ 1,602 $ 2,133
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 454 $ 846
-------------- ------------
Total liabilities 454 846
-------------- ------------
Commitments and contingencies
Stockholders' equity:
Series A Convertible Preferred Stock, noncumulative,
$.01 par value; authorized 400,000 shares; none issued
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;
12,216,937 shares issued and outstanding at March 31, 2002 122 114
Additional paid in capital 26,059 5,613
Accumulated deficit (25,033) (24,440)
-------------- ------------
Total stockholders' equity 1,148 1,287
-------------- ------------
Total liabilties and stockholders' equity $ 1,602 $ 2,133
============== ============
The accompanying notes are an integral part of these condensed financial statements
3
NUWAVE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
--------------- ---------------
(unaudited) (unaudited)
Net sales $ 268 $ 2
Cost of sales (140) (1)
--------------- ---------------
128 1
--------------- ---------------
Operating expenses:
Research and development expenses (150) (279)
General and administrative expenses (573) (581)
--------------- ---------------
(723) (860)
--------------- ---------------
Loss from operations (595) (859)
--------------- ---------------
Other income (expense):
Interest income 3 46
Interest expense (1) (4)
--------------- ---------------
2 42
--------------- ---------------
Net loss $ (593) $ (817)
=============== ===============
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 11,838,842 10,557,729
=============== ===============
Basic and diluted loss per share $ (0.05) $ (0.08)
=============== ===============
The accompanying notes are an integral part of these condensed financial statements
4
NUWAVE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
------------- ------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (593) $ (817)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense 6 11
Amortization of website development costs 22
Amortization of software development costs 13
Decrease in accounts receivable 130
Decrease (increase) in inventory 139 (17)
Decrease in prepaid expenses and other
current assets 36 21
Decrease in other assets 4 10
Decrease in accounts payable and accrued liabilities (392) (82)
Issuance of options and warrants in connection with
consultant agreements 9 3
------------- ------------
Net cash used in operating activities (661) (836)
------------- ------------
Cash flows from investing activities:
Purchase of property and equipment (2)
------------- ------------
Net cash used in investing activities - (2)
------------- ------------
(continued)
The accompanying notes are an integral part of these condensed financial statements
5
NUWAVE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
(continued)
Three Months Three Months
Ended Ended
March 31, March 31,
2002 2001
------------ ------------
(unaudited) (unaudited)
Cash flows from financing activities:
Proceeds from equity offering 480
Costs incurred for equity offerings and warrants (35)
------------ ------------
Net cash provided by financing activities 445
------------ ------------
Net decrease in cash and cash equivalents (216) (838)
Cash and cash equivalents at the beginning of the period 1,011 3,848
------------ ------------
Cash and cash equivalents at the end of the period $ 795 $ 3,010
============ ============
Supplemental disclosure of cash flow information:
Interest paid during the period $ 1 $ 4
============ ============
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
During the second half of 2001 we began commercializing our patented
technologies. 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 16, 2002.
2. Capital Transactions
On February 5, 2002, the Company entered into a private placement
agreement with investors whereby the Company issued 600,000 shares of the
Company's common stock for an aggregate purchase price of $330,000. In
connection with this agreement, the Company issued to the Placement Agent a
Placement Agent Warrant, exercisable to purchase up to 30,000 shares of Common
Stock, representing five percent of the total of the stock issued in the
Offering. The warrants shall be exercisable for a period of five years, expiring
on February 5, 2007, at an exercise price of $.55 per share. The Placement agent
also received a cash placement fee of eight percent of the purchase price and a
non-accountable allowance equal to two percent of the purchase price, totaling
$33,000.
On February 27, 2002, the Company entered into agreement with an investor
whereby the Company issued 214,286 shares of Common Stock for an aggregate
purchase price of $150,000 and warrants to purchase up to 50,000 shares of
Common Stock at an exercise price of $1.00 per share with an exercise period of
five years expiring February 27, 2007. Under the terms of the agreement a
consultant was paid a finder's fee of $1,500 representing one percent of the
Purchase Price.
7
3. Subsequent Events
On April 15, 2002, the Company entered into a $3.0 million Equity Line of
Credit Agreement with a qualified investor (the "Purchaser"). Provided we are in
compliance with the terms of the Agreement, we may, at our option, periodically
require the Purchaser to purchase up to $100,000 in any seven day period of the
Company's Common Stock (the "put" shares) up to a maximum of $3.0 million over
the next two years, commencing upon the effective date of a Securities Act
registration statement covering such shares. For each share of common stock
purchased under the Equity Line of Credit, the Purchaser will pay 97% of the
then Market Price (as defined in the Equity Line of Credit), the Purchaser will
be paid a fee of 4% of each advance. The sale of the shares under the Equity
Line of Credit is conditioned upon the SEC declaring effective a registration
statement under the Securities Act of 1933 concerning the shares of Common Stock
to be sold under the equity line of credit. On April 29, 2002, the Company filed
a registration statement on Form SB-2 for the registration of 5,000,000 shares
of Common Stock to be sold under the Equity Line of Credit, plus the 238,095
shares mentioned below. The Company has issued to the purchaser 218,095 shares
of Common Stock as a commitment fee for entering into the Equity Line of Credit
Agreement. In addition, the Company issued to the placement agent 20,000 shares
of NUWAVE's common stock.
The Equity Line of Credit is non-exclusive; thereby permitting us to offer
and sell our securities to third parties while the Equity Line of Credit is in
effect. NUWAVE has the option to terminate the Equity Line of Credit Agreement
at any time, provided there is no pending advance thereunder.
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," and
"Liquidity and Capital Resources," 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, lack of acceptance of the Company's products, general economic
conditions, risks of intellectual property litigation, product demand, industry
capacity, new product development, failure of distributor to market our
products effectively, 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
During the second half of 2001 we began commercializing our patented
technologies. 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. Our focus to date has
been and continues to be on unique 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 by original equipment manufacturers (OEM's) for placement
into products that produce images on display screens such as televisions or DVD
players, for supplementing and increasing video quality on existing television
monitors and video displays via set-top boxes containing our technology, and by
individuals over the Internet for improving their personal images and
photographs. Our patented high speed filtering 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) Retail
Products and 3) Digital Filtering Technology.
9
RESULTS OF OPERATIONS
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31,
2001
Revenues for the quarter ended March 31, 2002 were $268,000 compared to
$2,000 for the quarter ended March 31, 2001 as we began selling the NVP
Technology in the form of ASIC (application specific integrated circuits) chips
to OEMs and our first retail product the "VGE" video game enhancer during the
second half of 2001. In December 2001, we entered into a strategic alliance with
Gemini Industries (Gemini), a leading manufacturer and distributor of consumer
electronics accessories. Gemini was granted a five-year exclusive license to
market and distribute NUWAVE's VGE in North America. Initial shipments of the
VGE and ASIC chips to Gemini took place during the first quarter of 2002. Cost
of sales for the quarter was $140,000 compared to $1,000 for the same
three-month period in 2001. During the three months ended March 31, 2002,
$150,000 was spent on research and development activities compared to $280,000
for the same three-month period in 2001, a decrease of $130,000. This decrease
was a direct result of the completion of the Company's core technologies during
2001. General and administrative expenses for the current first quarter totaled
$573,000 representing a decrease of $7,000 compared to the quarter ended March
31, 2001. Such decrease was the result of decreases in payroll of $43,000 and
other 17,000, which were offset by increased sales and marketing costs of
$33,000, combined with increases in professional fees of $20,000.
Interest income (net of interest expense) was $2,000 for the quarter ended
March 31,2002 as compared to $42,000 for the same period in 2001 primarily due
to the Company's lower cash position as well as lower interest rates. As a
result of the above, we had a net loss of $593,000 for the quarter ended March
31, 2002 compared to a net loss for the quarter ended March 31, 2002, of
$817,000.
MARKETING AND SALES
Retail Products
The Company's alliance with Gemini combines the respective strengths of
each company. We have licensed our proprietary technology to Gemini, who will
then manufacture, market and distribute the VGE to its customer base, which
covers approximately 17,000 retail locations in North America. This alliance
supports our strategy to obtain access to an established retail distribution
channel for the specialized image enhancement products we develop. Additionally,
it allows us to allocate our time and resources away from costly retail
marketing and distribution processes, to focus on developing innovative
technologies and products for license to third parties with established
marketing and distribution channels.
Gemini, which sells products under the Zenith, Philips, and Magnavox
brands, also received the "right of first offer" on future versions of the VGE
as well as future video and image enhancement set-top boxes for retail
distribution. Gemini is considering marketing the VGE using the Zenith brand. We
expect to offer several additional set-top box products to Gemini under their
right of first offer over the next five months. In light of the Gemini agreement
10
we have also reduced our marketing expenditures in Europe and are currently
concentrating our efforts there on finding a distributor to market our products
on a similar arrangement as Gemini.
NVP ASIC Technology
The NUWAVE Video Processor (NVP) technology is 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 are marketing this technology in the form of ASIC chips
(Application Specific Integrated Circuits) directly to OEM's who by
incorporating this enabling technology would improve picture quality in their
televisions, VCR's, DVD's, camcorders, set-top boxes and other video output
devices. This technology can also be licensed to the OEM for incorporation onto
their own ASIC design. The completed NVP 104 plastic (silicon) chip is currently
being offered for sale. We are planning to introduce in June 2002 a step-up ASIC
chip, the "NVP 1104" which will be produced at not only a lower cost for both
NUWAVE and the potential OEM but will also allow for easier design
implementation for the OEM.
Digital Filtering Technology
Our proprietary digital filters remove graininess and digital artifacts
while preserving proper focus better than any other "real time" filters that are
on the market today. In October 2001, we were granted a patent by the U.S.
Patent Office covering our digital filters. We plan to license our digital
filtering technology to OEM's for embedding in products such as PC's, printers,
scanners, camcorders and DVD's, among other digital imaging devices. These
patented filters are expected to be in demand for use in processing digital
video and movies used for streaming video over the Internet. The digital
technology not only complements our proprietary analog ASIC chip technology but
can also work in conjunction with it to further improve the resulting image
quality. In April 2002, we signed an agreement with Sony Corporation, giving
Sony the non-exclusive right to use one of our filters in its digital color
printers, in return for a nominal one-time licensing fee. While this initial
step may lead to a growing relationship between Sony Corporation and NUWAVE,
there is no assurance that such a relationship will develop.
With the initial sales of our VGE retail product and our ASIC chips to
Gemini during the first quarter of 2002, our net sales for the three months
ended March 31, 2002 were $268,000 as compared to $2,000 for the three months
ended March 31, 2001. As a result of the exclusive Gemini Agreement, we
anticipate a substantial reduction in our overall marketing and distribution
costs in 2002 since they will be responsible for marketing and selling to retail
outlets in North America. Although we anticipate deriving increased revenues
from the sale of our ASIC chips and retail products and the licensing of our
proprietary digital software during 2002, no assurance can be given that these
products will be successfully marketed or that losses will not continue to occur
during such period. See "Liquidity and Capital Resources."
11
LIQUIDITY AND CAPITAL RESOURCES
On March 31, 2002, the Company had cash and cash equivalents of
approximately $795,000 and no long-term liabilities. On April 15, 2002, we
entered into a $3 million Equity Line of Credit. Provided we are in compliance
with the terms of the Equity Line of Credit Agreement, including the effective
registration of shares to be sold, we may, at our option, require the Investor
to purchase up to $100,000 in any seven business day period of our common stock,
up to a maximum of $3 million over the two years immediately following the
effective date of the registration statement filed with the SEC on April 29,
2002. The purchase price of the shares will be 97% of the then current market
price. In addition, we have issued as a fee to the Investor 218,095 shares of
restricted stock with a fair value of $150,000. Upon the initial advance and all
subsequent advances, the Investor shall receive a fee equal to 4% of the gross
proceeds of each advance. The Equity Line of Credit is non-exclusive; thereby
permitting us to offer and sell our securities to third parties while the Equity
Line of Credit is in effect. We have the option to terminate the Equity Line of
Credit Agreement at any time, provided there is no pending advance thereunder.
In their report on the audit of NUWAVE's financial statements for the year
ended December 31, 2001, our independent auditors included an explanatory
paragraph because of the uncertainty that we could continue in business as a
going concern in the event we are unable to complete a registration and sale of
our Common Stock pursuant to this Equity Line of Credit. We anticipate that with
our cash currently on hand and the completion of an effective registration
statement relating to the $3 million Equity Line of Credit and sales thereunder,
we will be able to satisfy currently contemplated cash requirements for at least
through the next twelve months. In the event we are unable to complete a
registration and sale of our Common Stock pursuant to this agreement or
otherwise; there would be substantial doubt about our ability to continue as a
going concern.
Our common stock is listed the Nasdaq SmallCap Market. The National
Association of Securities Dealers maintains requirements for the continued
listing on the Nasdaq SmallCap Market that include the following: the listed
shares of common stock have a minimum bid price of $1.00 per share; companies
with listed shares have net tangible assets of $2 million (effective November 1,
2002 this will change to $2.5 million in net equity) or market capitalization of
$35 million or net income (in the latest fiscal year or in two of the last three
fiscal years) of $500,000; and that the market value of the public float of its
common stock be at least $4 million. Since January 4, 2002, the minimum bid
price of our stock has been less than $1.00. We have been notified by Nasdaq
that we have until August 19, 2002 to regain compliance under the minimum bid
rule to avoid a delisting notification. At December 31, 2001, we had net
tangible assets of $1,287,000. We have also been notified by Nasdaq that as of
December 31, 2001, we did not meet the various financial tests. We intend to
raise additional cash through the Equity Line of Credit and other possible
equity financings in an attempt to regain compliance under the financial tests.
These equity financings should involve substantial dilution to the interests of
12
our then existing shareholders. There can be no assurance that such additional
capital will be available to us on commercially reasonable terms or at all.
13
PART II - OTHER INFORMATION
Item 2. Changes in Securities
(c) On February 5 and February 27, 2002, the Company sold an aggregate of
814,286 shares of Common Stock to two investors receiving gross proceeds of
$480,000. In connection with these placements the Company issued warrants to
purchase an aggregate of 80,000 shares of Common Stock exercisable for five
years at exercise prices ranging from $0.55 to $1.00 per share.
These placements were claimed exempt form the registration requirements of
the Securities Act of 1933 by reason of Section 4(2) thereon and Regulation D
thereunder as each purchaser represented it was an "accredited investor" and
made additional representations regarding its purchase.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K
none
14
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
May 15, 2002.
NUWAVE TECHNOLOGIES, INC.
-------------------------
(Registrant)
DATE: May 15, 2002 By:/s/Gerald Zarin
-----------------------------------
Gerald Zarin
Chief Executive Officer and
Chairman of the Board
DATE: May 15, 2002 By:/s/Jeremiah F.O'Brien
-----------------------------------
Jeremiah F. O'Brien
Chief Financial Officer
(Principal Financial Officer)
15