UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
or
|_| TRANSITION REPORT UNDER 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 in Its Charter)
DELAWARE 22-3387630
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
101 Hudson Street, Suite 3701
Jersey City, New Jersey 07302
(Address of Principal Executive Offices)
(201) 309-1880
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports)
and (2) has been subject to such filing requirements for the past 90 days. Yes
|X| No |_|
The number of shares of Common Stock outstanding as of August 19, 2005:
2,770,723
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-QSB
JUNE 30, 2005
Index
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PAGE(S)
Balance Sheets as of June 30, 2005 (unaudited)
and December 31, 2004 P. 1
Statements of Operations and Comprehensive Loss
for the three and six months ended June 30, 2005
(unaudited) and June 30, 2004 (unaudited) P. 2
Statements of Cash Flows for the six months ended
June 30, 2005 (unaudited) and June 30, 2004 (unaudited) P. 3
Notes to Condensed Consolidated Financial Statements P. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION P. 15
ITEM 3. CONTROLS AND PROCEDURES P. 21
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS P. 22
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF PROCEEDS P. 22
ITEM 3. DEFAULTS UPON SENIOR SECURITIES P. 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS P. 22
ITEM 5. OTHER INFORMATION P. 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K P. 22
SIGNATURES P. 23
EXHIBIT 31.1 P. 24
EXHIBIT 32.1 P. 25
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
ASSETS
June 30, December 31,
2005 2004
------------------------
(unaudited)
Current assets:
Cash and cash equivalents $ 9 $ 84
Marketable securities - available-for-sale 85 256
Inventory -- 1
Other current assets 23 30
Deferred tax asset -- 50
------------------------
Total current assets 117 421
Property and equipment, net 17 21
Land held for development and sale 2,884 2,761
------------------------
Total assets $ 3,018 $ 3,203
========================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable, accrued liabilities and accrued interest $ 166 $ 122
Current portion of convertible debentures, net of unamortized
discount of $25 and $50 355 335
Current portion of convertible debentures - related party 250 --
Current portion of note payable - related party 176 --
------------------------
Total current liabilities 947 457
------------------------
Non-current liabilities:
Note payable - related party 3,481 --
Note payable - related party, net of current portion 1,224 1,400
Convertible debentures - related party,
net of unamortized discounts of $0 and $694, respectively -- 2,607
Convertible debentures,
net of unamortized discounts of $16 and $37, respectively 84 163
Accrued interest - non-current 183 247
------------------------
Total non-current liabilities 4,972 4,417
------------------------
Total liabilities 5,919 4,874
------------------------
Stockholders' deficiency:
Series A Convertible Preferred Stock, noncumulative,
$.01 par value; authorized 400,000 shares; none issued -- --
Preferred stock, $.01 par value; authorized 1,600,000
shares; none issued - (preferences and
rights to be designated by the Board of Directors) -- --
Common stock, $.001 par value; authorized 140,000,000 shares;
2,770,723 and 2,062,013 shares issued and outstanding
at June 30, 2005 and December 31, 2004, respectively 3 2
Additional paid-in capital 25,918 26,461
Accumulated other comprehensive income (loss) (45) 125
Accumulated deficit (28,777) (28,259)
------------------------
Total stockholders' deficiency (2,901) (1,671)
------------------------
Total liabilties and stockholders' deficiency$ 3,018 $ 3,203
========================
See accompanying notes to these condensed consolidated financial statements.
1
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(In thousands, except share and per share data)
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
Net sales $ -- $ -- $ -- $ --
Cost of sales -- -- -- --
----------- ----------- ----------- -----------
Gross profit -- -- -- --
----------- ----------- ----------- -----------
Operating expenses:
General and administrative 170 166 399 292
Research and development -- -- -- --
----------- ----------- ----------- -----------
Total operating expenses 170 166 399 292
----------- ----------- ----------- -----------
Loss from operations (170) (166) (399) (292)
Other expense:
Interest expense (65) (99) (119) (175)
----------- ----------- ----------- -----------
Net loss $ (235) $ (265) $ (518) $ (467)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 2,524,080 1,944,583 2,294,323 1,910,243
=========== =========== =========== ===========
Basic and diluted net loss
per common share $ (0.09) $ (0.14) $ (0.23) $ (0.24)
=========== =========== =========== ===========
Comprehensive loss:
Net loss $ (235) $ (265) $ (518) $ (467)
Other comprehensive loss net of income taxes:
Unrealized loss on marketable securities (85) -- (170) --
----------- ----------- ----------- -----------
Comprehensive loss $ (320) $ (265) $ (688) $ (467)
=========== =========== =========== ===========
See accompanying notes to these condensed consolidated financial statements.
2
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands except share data)
Six Months Ended June 30,
--------------------------
2005 2004
----------- -----------
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss $ (518) $ (467)
----------- -----------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 4 2
Amortization of debt discount 45 70
Issuance of stock for services -- 18
(Increase) decrease in operating assets:
Inventory 1 --
Other current assets 7 --
Other assets -- --
Deferred tax asset 50 225
Increase (decrease) in operating liabilities:
Accounts payable, accrued liabilities
and accrued interest 99 2
----------- -----------
Total adjustments 206 317
----------- -----------
Net cash used in
operating activities (312) (150)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment -- (15)
Land acquisition and land development costs (35) (137)
----------- -----------
Net cash used in investing activities (35) (152)
----------- -----------
(continued)
See accompanying notes to these condensed consolidated financial statements.
3
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(In thousands except share data)
Six Months Ended June 30,
--------------------------
2005 2004
----------- -----------
Cash flows from financing activities:
Sale of common stock pursuant to
Standby Equity Distribution Agreement 22 --
Proceeds from issuance of convertible debenture 250 360
----------- -----------
Net cash provided by financing activities 272 360
----------- -----------
Net increase (decrease) in cash and cash equivalents (75) 58
Cash and cash equivalents - beginning of the period 84 119
----------- -----------
Cash and cash equivalents - end of the period $ 9 $ 177
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid during the period $ -- $ --
=========== ===========
Supplemental disclosures of non-cash investing and
financing activities:
Recording of debt discount $ -- $ 110
=========== ===========
Recording of interest payable and amortization of
debt discount that is capitalized as an addition to
the cost of the land held for development and sale $ 88 $ 141
=========== ===========
Reacquisition of beneficial conversion
feature upon early extinquishment of debt $ (678) $ --
=========== ===========
Refinancing of the convertible debenture -
related party, as follows:
Convertible debenture - related party $ (3,300) $ --
Accrued interest (182) --
----------- -----------
Promissory note - related party $ 3,482 $ --
=========== ===========
Issuance of common stock upon
conversion of convertible debentures
and accrued interest $ 114 $ --
=========== ===========
See accompanying notes to these condensed consolidated financial statements.
4
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in conformity with accounting principles generally accepted
in the United States of America for interim information. Accordingly, they do
not include all of the information and footnotes required by accounting
principles generally accepted in the United States of America 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 accounting principles
generally accepted in the United States of America. The accompanying condensed
consolidated 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 13, 2005.
2. GOING CONCERN AND MANAGEMENT'S PLANS
The Company's sales have declined from approximately $20,000 to $0 and $0
for each of the years 2003 and 2004 and the six month period ended June 30,
2005, respectively, as the Company has had difficulty securing buyers for its
technology products in a very competitive environment and there have yet to be
revenues realized from the sale of developed real estate properties. The Company
has incurred net losses of approximately $790,000, $336,000, $235,000 and
$518,000 for the years 2003, 2004 and for the three and six months ended June
30, 2005, respectively, resulting in a stockholders deficiency of approximately
$2,901,000 at June 30, 2005, which raises substantial doubt about the Company's
ability to continue as a going concern.
Management has taken a number of actions to lower costs and to improve the
Company's liquidity. The Company has reduced its cash flow requirements through
its control and management of general operating expenses.
Management's plans include the raising of cash through the issuance of
debt or equity although there are no assurances that the Company will be
successful. The Company continues to require funding by and the financial
support of Cornell Capital Partners, LP ("Cornell"). In January 2005, the
Company entered into a Standby Equity Distribution Agreement ("SEDA") with
Cornell, and during April 2005, the Company raised net cash of $22,000 through
the SEDA facility (See Note 8).
Managements' plans also include possibly selling the company (See Note
11).
On February 4, 2005, the Company filed a Form SB-2 Registration Statement,
with an amendment filed on February 14, 2005, with the SEC, to register
130,690,033 shares of its common stock, including 120,122,191 shares of common
stock to be issued to Cornell pursuant to the SEDA. On February 14, 2005, the
Securities and Exchange Commission declared the registration statement
effective.
5
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
2. GOING CONCERN AND MANAGEMENT'S PLANS - CONTINUED
During May 2005, the Company issued a convertible debenture in the face
amount of $250,000 to Cornell (see Note 6).
Management does not intend to expend any additional funds toward the
development of the land held for development and sale until such time as new
funding is secured.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and satisfaction of liabilities in the normal course of business. These
condensed consolidated financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as
a going concern. Accordingly, there is substantial doubt about the Company's
ability to continue as a going concern. There can be no assurance that the
Company will be successful in these endeavors and therefore may have to consider
other alternatives.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
NuWave and its wholly-owned subsidiaries Lehigh Acquisition Corp. ("Lehigh"), WH
Acquisition Corp, Harwood Acquisition Corp and JK Acquisition Corp
(collectively, the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
REVENUE RECOGNITION
In regard to the technology operations, income is recorded when orders are
shipped and the Company has no further involvement with the product. In regard
to real estate operations, income from sales of real estate is recorded when
title is conveyed to the buyer, adequate cash payment has been received and
there is no continued involvement.
STOCK-BASED COMPENSATION
For the six months ended June 30, 2005 and 2004, there was no stock based
employee compensation expense as determined under the fair value based method.
Accordingly, for these periods, there are no differences between basic and
diluted net loss per share as reported and pro forma net loss.
6
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", which provides for the calculation of "basic" and
"diluted" earnings (loss) per share. Basic earnings (loss) per share includes no
dilution and is computed by dividing earnings (loss) available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur through the effect of common shares issuable upon the exercise of stock
options and warrants and convertible securities. For the periods ended June 30,
2005 and 2004, potential common shares amount to 14,029,855 and 62,304,891
shares, respectively. For the three and six months ended June 30, 2005 and 2004,
such potential common shares have not been included in the computation of
diluted loss per share since the effect would be antidilutive.
MARKETABLE SECURITIES
The Company evaluates its investment policies and the appropriate
classification of securities at the time of purchase consistent with Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," at each balance sheet date and
determined that all of its investment securities are to be classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses reported in Stockholders' Deficiency under
the caption "Accumulated Other Comprehensive Gain (Loss)." Realized gains and
losses and declines in value judged to be other-than-temporary on
available-for-sale securities are included in general and administrative
expenses. The cost of securities sold is based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in interest and dividend income.
INTEREST CAPITALIZATION
The Company follows SFAS No. 34, "Capitalization of Interest Costs", which
provides for the capitalization of interest as part of the historical cost of
acquiring certain assets. Interest is capitalized on assets that require a
period of time to get them ready for their intended use, such as real estate
development projects. Interest is capitalized from the period activities begin,
such as planning and permitting, until such time as the project is complete.
Interest costs include interest recognized on obligations having explicit rates,
as well as the amortization of discounts that result from imputing interest on
convertible debentures over the life of the obligation. Interest is capitalized
on only the net book value of the land and improvements, net of the discount
recorded on the acquisition of the land. Interest on specific borrowings
associated with the land, that are in excess of its net book value are expensed
as incurred.
7
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
RECENT ACCOUNTING PRONOUNCEMENTS
In May, 2005 the FASB issued Statement No. 154, "Accounting Changes and
Error Corrections - a replacement of APB No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes In Interim Financial Statements
("FAS No. 154"). Under FAS No. 154, changes in accounting principles will
generally be made by the retrospective application of the new accounting
principle to the financial statements of prior periods unless it is impractical
to determine the effect of the change on prior periods. The reporting of a
change in accounting principles as a cumulative adjustment to net income in the
period of the change permitted under APB No. 20 will no longer be permitted
unless it is impractical to determine the effect of the change on prior periods.
Corrections of errors in the application of accounting principles will continue
to be reported by retroactively restating the affected financial statements. The
provisions of FAS No. 154 will not apply to new accounting standards that
contain specific transition provisions. FAS No. 154 is applicable to accounting
changes made in fiscal years beginning on or after December 15, 2005. The early
application of FAS No. 154 is permitted for accounting changes made in fiscal
years that began after the issuance of FAS No. 154. The Company does not expect
that SFAS No. 154 will have a material affect on its consolidated financial
statements.
8
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. LAND HELD FOR DEVELOPMENT AND SALE
During April 2004, WH Acquisition Corp. purchased real estate property
consisting of land and a residential building in Jersey City, New Jersey for a
total purchase price of $122,000. This property is currently being offered for
sale by the Company. On December 22, 2003, Lehigh acquired a parcel of land in
New Jersey that it intends to either develop or sell prior to development.
During the three month periods ended June 30, 2005 and 2004, the Company
capitalized approximately $40,000 and $68,000 of interest relating to the
financing costs incurred for the portion of the Lehigh land that was capitalized
in December 2003 and $25,000 and $0 in professional fees, respectively. During
the six month periods ended June 30, 2005 and 2004, the Company capitalized
approximately $88,000 and $141,000 of interest relating to the financing costs
incurred for the portion of the Lehigh land that was capitalized in December
2003 and $35,000 and $15,000 in professional fees, respectively.
5. NOTE PAYABLE - RELATED PARTY
During January 2005, the Company's wholly-owned subsidiary, Lehigh,
entered into an Assignment and Amendment Agreement (the "Assignment Agreement")
related to that certain $1,400,000 Note Payable issued by Lehigh on December 22,
2003 to Stone Street Asset Management, LLC ("Stone Street"), a related party.
Pursuant to the Assignment Agreement, Stone Street assigned its rights under the
note to Cornell. In addition, Stone Street, Cornell and Lehigh agreed to defer
the begining of the monthly payments due under the note of $35,546 per month for
the period of one year, from January 1, 2005 to January 1, 2006.
6. CONVERTIBLE DEBENTURES
During January 2005, the Company and Cornell terminated a $3,300,000
convertible debenture issued to Cornell, a related party, by the Company on
December 22, 2003. Upon the termination of the convertible debenture, the
Company issued a $3,481,274 promissory note (the "Promissory Note") to Cornell,
representing the sum of the unpaid balance of $3,300,000 and accrued interest of
$181,274 through the date of the termination. The Promissory Note bears interest
at a rate of five percent (5%) per annum, with interest due at maturity. The
Promissory Note matures on December 22, 2008 and is collateralized by the
Company's investment in its land held for development and sale located in
Cranford, New Jersey. In order to record the reacquisition of the beneficial
conversion feature related to the extinguishment of the convertible debenture,
the Company recorded a net charge of $678,000 to additional paid in capital.
ISSUANCE OF CONVERTIBLE DEBENTURE
During May 2005, NuWave issued a $250,000 convertible debenture to
Cornell, a related party. This debenture bears interest at a rate of twelve
percent (12%) per annum, with interest due at maturity or upon conversion. This
debenture matures in December 2006. At the option of the holder, at any time
prior to maturity, any portion of this convertible debenture may be converted
into Common Stock. The value of principal and accrued interest is convertible at
$0.10 per share. At the option of the Company at any time, or upon maturity for
any amounts not converted, the Company may redeem this convertible debenture and
upon such, shall pay a twenty percent (20%) redemption premium to Cornell.
NuWave paid fees of $25,000 and $5,000 to Cornell and an affiliate of Cornell,
respectively, in connection with this transaction.
9
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. OTHER NON-CURRENT LIABILITIES
The Company accrues interest payable on all of its debt obligations. For
the convertible debentures, the interest is payable at maturity or redemption,
if earlier, and such interest may be converted into the Company's common stock
upon the conversion of the convertible debentures. For the $3,482,000 note
payable, the interest is payable at maturity or redemption, if earlier. Accrued
interest of approximately $28,000 on convertible debentures due before June 30,
2006 are classified as current, with the accrued interest on the remaining
obligations, of approximately $77,000, classified as non-current on the
condensed consolidated balance sheet at June 30, 2005.
Under the terms of the amended $1,400,000 note payable, the Company
accrues interest from the date of issue, December 22, 2003, through December 31,
2005. Pursuant to the terms of the amended note, the interest that accrues
through June 30, 2005 will be capitalized to the balance of the note and then
will be repaid in forty eight (48) equal installments of $35,546 per month,
including interest at five percent (5%) per annum, which will fully repay the
outstanding obligations under the note by January 2010. Accrued interest of
approximately $106,000 is classified as non-current on the condensed
consolidated balance sheet at June 30, 2005.
8. STANDBY EQUITY DISTRIBUTION AGREEMENT
In May 2004, NuWave entered into a Standby Equity Distribution Agreement
(the "2004 Agreement") with Cornell which was terminated in January 2005. The
Company entered into a new SEDA with Cornell on January 26, 2005 with
substantially the same terms as the 2004 Agreement. Pursuant to the new SEDA,
the Company may, at its discretion, periodically sell to Cornell registered
shares of the Company's common stock for a total purchase price of up to $30
million. For each share of common stock purchased under the SEDA, Cornell will
pay NuWave ninety nine percent (99%) of the volume weighted average price on the
Over-the-Counter Bulletin Board or other principal market on which its common
stock is traded for the five (5) days immediately following the notice date.
Further, Cornell will retain an underwriting fee of ten percent (10%) of each
advance under the SEDA. Pursuant to the terms of the new SEDA, the Company is
restricted from raising capital from the sale of securities at a price less than
the market price of the Company's common stock on the date of issuance or
granting additional security interests in the Company's assets.
The amount of each advance is limited to a maximum draw down of $1,000,000
every seven (7) trading days up to a maximum of $4,000,000 in any 30-day period.
The amount available under the new SEDA is not dependent on the price or volume
of the Company's common stock. The Company's ability to request advances is
conditioned upon the Company having enough shares of common stock registered
pursuant to the SEC rules and regulations. In addition, the Company may not
request advances if the shares to be issued in connection with such advances
would result in Cornell owning more than 9.9% of the Company's outstanding
common stock. During April 2005, the Company issued 600,000 shares of common
stock to Cornell under the new SEDA in exchange for gross proceeds of $25,000.
NuWave paid fees of $2,500 and $500 to Cornell and an affiliate of Cornell,
respectively. Approximately 133,000 shares remain with Cornell for assignment
under future SEDA fundings.
10
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. SEGMENT DATA
Commencing with the acquisition of land in December 2003, the Company
operates in two industry segments - video and image technology and real estate
development and sale. The Company evaluates segment performance based on loss
from operations.
Summarized financial information for the three and six months ended June
30, 2005 and 2004 concerning the Company's reportable segments is shown in the
following table:
THREE MONTHS ENDED JUNE 30, 2005
(IN THOUSANDS)
REAL ESTATE
VIDEO & IMAGE DEVELOPMENT
TECHNOLOGY AND SALE TOTAL
----------- ----------- -----------
Net sales from customers $ -- $ -- $ --
=========== =========== ===========
Loss from operations $ (7) $ (163) $ (170)
=========== =========== ===========
Interest expense $ 35 $ 30 $ 65
=========== =========== ===========
Total identifiable assets $ 4 $ 3,014 $ 3,018
=========== =========== ===========
Capital expenditures, including
capitalized interest $ -- $ 64 $ 64
=========== =========== ===========
SIX MONTHS ENDED JUNE 30, 2005
(IN THOUSANDS)
REAL ESTATE
VIDEO & IMAGE DEVELOPMENT
TECHNOLOGY AND SALE TOTAL
----------- ----------- -----------
Net sales from customers $ -- $ -- $ --
=========== =========== ===========
Loss from operations $ (28) $ (371) $ (399)
=========== =========== ===========
Interest expense $ 69 $ 50 $ 119
=========== =========== ===========
Total identifiable assets $ 4 $ 3,014 $ 3,018
=========== =========== ===========
Capital expenditures, including
capitalized interest $ -- $ 124 $ 124
=========== =========== ===========
11
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
9. SEGMENT DATA - CONTINUED
THREE MONTHS ENDED JUNE 30, 2004
(IN THOUSANDS)
REAL ESTATE
VIDEO & IMAGE DEVELOPMENT
TECHNOLOGY AND SALE TOTAL
----------- ----------- -----------
Net sales from customers $ -- $ -- $ --
=========== =========== ===========
Loss from operations $ (76) $ (90) $ (166)
=========== =========== ===========
Interest expense $ 42 $ 57 $ 99
=========== =========== ===========
Total identifiable assets $ 5 $ 3,438 $ 3,443
=========== =========== ===========
Capital expenditures, including
capitalized interest $ -- $ 198 $ 198
=========== =========== ===========
SIX MONTHS ENDED JUNE 30, 2004
(IN THOUSANDS)
REAL ESTATE
VIDEO & IMAGE DEVELOPMENT
TECHNOLOGY AND SALE TOTAL
----------- ----------- -----------
Net sales from customers $ -- $ -- $ --
=========== =========== ===========
Loss from operations $ (145) $ (147) $ (292)
=========== =========== ===========
Interest expense $ 76 $ 99 $ 175
=========== =========== ===========
Total identifiable assets $ -- $ 3,443 $ 3,443
=========== =========== ===========
Capital expenditures, including
capitalized interest $ -- $ 293 $ 293
=========== =========== ===========
12
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
10. LEASE COMMITMENTS
In May 2004, the Company entered into a five-year sublease agreement for
the rental of 3,580 square feet of corporate office tower space in Jersey City,
New Jersey. This rental agreement is effective as of July 1, 2004 and requires
the Company to pay rent of approximately $7,000 and approximately $3,000 in
shared building operating expenses, monthly. Through February 2005, the Company
subleased one half of this space to a subtenant for approximately $5,000 per
month. The Company's obligations under this lease are guaranteed by Yorkville
Advisors Management, LLC ("Yorkville"). Yorkville is related to Cornell and is a
related party to the Company.
The approximate future minimum lease payments under the Company's
non-cancelable operating lease in effect at June 30, 2005, are as follows:
Minimum Lease
Payments Under
Period: Operating Lease
-------------------------------------- ---------------
Six months ended
December 31, 2005 39,000
Year ended December 31, 2006 78,000
Year ended December 31, 2007 78,000
Year ended December 31, 2008 78,000
Six-months ended June 30, 2009 40,000
---------------
Total $ 313,000
===============
13
NUWAVE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
11. PROPOSED MERGER TRANSACTION
NuWave entered into a non-binding letter of intent with Corporate
Strategies, Inc. ("Corporate Strategies") during June 2005, pursuant to which
NuWave would acquire Corporate Strategies in a triangular merger. Under the
agreement, Corporate Strategies would be merged into a newly formed subsidiary
of NuWave and all of the shareholders of Corporate Strategies would exchange
their shares in Corporate Strategies for restricted shares of NuWave.
Pursuant to the letter of intent agreement, each Class A Common
Stockholder of Corporate Strategies would receive one share of the Company's
common stock, for three shares of Class A common stock of Corporate Strategies
and the Company will issue and deliver a number of shares of convertible
preferred stock of the Company to the Class B Common Stock holders of Corporate
Strategies, which will effectively convert into 91% of the issued and
outstanding common stock of the Company. As a result of the merger, the
shareholders of Corporate Strategies will control NuWave.
The Company has yet to reach a definitive agreement with Corporate
Strategies and negotiations are ongoing.
12. SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURE
During July 2005, NuWave issued a $150,000 convertible debenture to
Cornell, a related party. This debenture bears interest at a rate of twelve
percent (12%) per annum, with interest due at maturity or upon conversion. This
debenture matures in February 2006. At the option of the holder, at any time
prior to maturity, any portion of this convertible debenture may be converted
into Common Stock. The value of principal and accrued interest is convertible at
$0.10 per share. At the option of the Company at any time, or upon maturity for
any amounts not converted, the Company may redeem this convertible debenture and
upon such, shall pay a twenty percent (20%) redemption premium to Cornell.
NuWave paid fees of $15,000 and $5,000 to Cornell and an affiliate of Cornell,
respectively, in connection with this transaction.
14
ITEM 2. 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 "Results of Operations," "Plan of
Operation" 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 and real estate development,
competitive products and pricing, general economic conditions, interest rate
risks, 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, the Company's ability to obtain
the various approvals and permits for the land development and the risk factors
detailed from time to time in the Company's periodic reports and other materials
filed with the Securities and Exchange Commission ("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.
GOING CONCERN
The Company's sales have declined from approximately $20,000 to $0 and $0
for each of the years 2003 and 2004 and the six month period ended June 30,
2005, respectively, as the Company has had difficulty securing buyers for its
technology products in a very competitive environment and there have yet to be
revenues realized from the sale of developed real estate properties. The Company
has incurred net losses of approximately $790,000, $336,000 and $518,000 for the
years 2003 and 2004 and for the six months ended June 30, 2005, respectively,
resulting in a stockholders deficiency of approximately $2,901,000 at June 30,
2005, which raises substantial doubt about the Company's ability to continue as
a going concern. Our financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. Our condensed consolidated
financial statements do not include any adjustments relating to the recovery of
the recorded assets or the classification of the liabilities that might be
necessary should the Company be unable to continue as a going concern.
PROPOSED MERGER AGREEMENT
NuWave entered into a non-binding letter of intent with Corporate
Strategies, Inc. ("Corporate Strategies") during June 2005, pursuant to which
NuWave would acquire Corporate Strategies in a triangular merger. Under the
agreement, Corporate Strategies would be merged into a newly formed subsidiary
of NuWave and all of the shareholders of Corporate Strategies would exchange
their shares in Corporate Strategies for restricted shares of NuWave.
Pursuant to the letter of intent agreement, each Class A Common
Stockholder of Corporate Strategies would receive one share of the Company's
common stock, for three shares of Class A common stock of Corporate Strategies
and the Company will issue and deliver a number of shares of convertible
preferred stock of the Company to the Class B Common Stock holders of Corporate
Strategies, which will effectively convert into 91% of the issued and
outstanding common stock of the Company. As a result of the merger, the
shareholders of Corporate Strategies will control NuWave.
15
The Company has yet to reach a definitive agreement with Corporate
Strategies and negotiations are ongoing.
CRITICAL ACCOUNTING POLICIES
NuWave's condensed consolidated financial statements and related public
financial information are based on the application of accounting principles
generally accepted in the United States ("GAAP"). GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported. These estimates can also affect supplemental information
contained in our external disclosures including information regarding
contingencies, risk and financial condition. We believe our use of estimates and
underlying accounting assumptions adhere to GAAP and are consistently and
conservatively applied. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ materially from these estimates under
different assumptions or conditions. We continue to monitor significant
estimates made during the preparation of our condensed consolidated financial
statements.
Certain of our significant accounting policies are summarized in Note 3 of
our condensed consolidated financial statements at June 30, 2005. While all
these significant accounting policies impact our financial condition and results
of operations, NuWave views certain of these policies as critical. Policies
determined to be critical are those policies that have the most significant
impact on NuWave's condensed consolidated financial statements and require
management to use a greater degree of judgment and estimates. Actual results may
differ from those estimates. Our management believes that given current facts
and circumstances, it is unlikely that applying any other reasonable judgments
or estimate methodologies would cause a material effect on our condensed
consolidated results of operations, financial position or liquidity for the
periods presented in this report.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
In May, 2005 the FASB issued Statement No. 154, "Accounting Changes and
Error Corrections - a replacement of APB No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes In Interim Financial Statements
("FAS No. 154"). Under FAS No. 154, changes in accounting principles will
generally be made by the retrospective application of the new accounting
principle to the financial statements of prior periods unless it is impractical
to determine the effect of the change on prior periods. The reporting of a
change in accounting principles as a cumulative adjustment to net income in the
period of the change permitted under APB No. 20 will no longer be permitted
unless it is impractical to determine the effect of the change on prior periods.
Corrections of errors in the application of accounting principles will continue
to be reported by retroactively restating the affected financial statements. The
provisions of FAS No. 154 will not apply to new accounting standards that
contain specific transition provisions. FAS No. 154 is applicable to accounting
changes made in fiscal years beginning on or after December 15, 2005. The early
application of FAS No. 154 is permitted for accounting changes made in fiscal
years that began after the issuance of FAS No. 154. The Company does not expect
that SFAS No. 154 will have a material affect on its consolidated financial
statements.
16
OVERALL FINANCIAL PERFORMANCE
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
For the three months ended June 30, 2005, the Company reported a net loss
of $235,000 as compared to a net loss of $265,000 for the three months ended
June 30, 2004. This represented a $30,000 decrease in the Company's net loss.
General and administrative expenses for the Company for the three months
ended June 30, 2005 were $170,000, as compared to $166,000 for the three months
ended June 30, 2004, an increase of $4,000 or 2%. During the three months ended
June 30, 2005, there were decreases in compensation of approximately $20,000
offset by a charge of approximately $17,000 to establish a reserve against the
collectability of an amount receivable. Rent expense increased by approximately
$30,000 as the Company lost the rental income offset from the co-tenant in its
office tower space. The Company allocated approximately $7,000 of these general
and administrative expenses to the Video and Image Technology segment and
approximately $163,000 to the Real Estate segment, for the three months ended
June 30, 2005.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
For the six months ended June 30, 2005, the Company reported a net loss of
$518,000 as compared to a net loss of $467,000 for the six months ended June 30,
2004. This represented a $51,000 increase in the Company's net loss.
General and administrative expenses for the Company for the six months
ended June 30, 2005 were $399,000, as compared to $292,000 for the six months
ended June 30, 2004, an increase of $107,000 or 37%. This increase was primarily
the result of increases in professional fees incurred in order to prepare the
Company's financial reports and to support the Company's capital raising
initiatives. During the six months ended June 30, 2005, there were increases in
accounting fees of $83,000 and legal fees of $31,000, offset by decreases in
other consulting fees of approximately $41,000. There were increases in rent of
$43,000. primarily due to the Company's rental of office tower space in Jersey
City. The Company allocated approximately $28,000 of these general and
administrative expenses to the Video and Image Technology segment and
approximately $371,000 to the Real Estate segment, for the six months ended June
30, 2005.
THE COMPANY WILL DISCUSS ITS TECHNOLOGY BUSINESS UNDER RESULTS OF OPERATIONS -
VIDEO AND IMAGE TECHNOLOGY BUSINESS OPERATIONS AND WILL DISCUSS ITS REAL ESTATE
DEVELOPMENT BUSINESS UNDER RESULTS OF OPERATIONS - REAL ESTATE OPERATIONS AND
PLAN OF OPERATION - REAL ESTATE ACTIVITIES.
RESULTS OF OPERATIONS - VIDEO AND IMAGE TECHNOLOGY BUSINESS OPERATIONS
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
The Company recorded a net loss on the video and image technology segment
of approximately $42,000 and $118,000 for the three month periods ended June 30,
2005 and 2004, respectively.
The Company has had difficulty selling its video and image technology
products. The market for the Company's technology products has been adversely
affected by strong competition and price compression in the imaging and video
electronics markets. On account of these difficulties, the Company has reduced
the level of activity in this segment to a maintenance level There were no
revenues for the three month period ended June 30, 2005 and 2004.
17
General and administrative expenses for the technology business for the
three months ended June 30, 2005 were $7,000, as compared to $76,000 for the
three months ended June 30, 2004, a decrease of $69,000 or 91%. This decrease
was the result of a lower percentage allocation of general and administrative
expenses to the technology activities. Interest expense for non real estate
operations for the three months ended June 30, 2005 were $35,000, as compared to
$42,000 for the three months ended June 30, 2005.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
The Company recorded a net loss on the video and image technology segment
of approximately $97,000 and $221,000 for the six month periods ended June 30,
2005 and 2004, respectively.
The Company has had difficulty selling its video and image technology
products. The market for the Company's technology products has been adversely
affected by strong competition and price compression in the imaging and video
electronics markets. On account of these difficulties, the Company has reduced
the level of activity in this segment to a maintenance level. There were no
revenues for the six month periods ending June 30, 2005 and 2004, respectively.
General and administrative expenses for the technology business for the
six months ended June 30, 2005 were $28,000, as compared to $145,000 for the six
months ended June 30, 2004, a decrease of $117,000 or 81%. This decrease was the
result of a lower percentage allocation of general and administrative expenses
to the technology activities. Interest expense for non real estate operations
for the six months ended June 30, 2005 were $69,000, as compared to $76,000 for
the six months ended June 30, 2004.
RESULTS OF OPERATIONS - REAL ESTATE OPERATIONS
Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
The Company recorded a net loss on the real estate segment of
approximately $193,000 and $147,000 for the three month periods ended June 30,
2005 and 2004.
During the three months ended June 30, 2005, our real estate activities
incurred general and administrative expenses of approximately $163,000, which
consisted principally of real estate taxes and maintenance expenses of
approximately $31,000 and an allocation of other general and administrative
expenses of approximately $132,000. During the three months ended June 30, 2004,
the real estate activities incurred general and administration expenses of
$90,000. Interest expense for the real estate activities was approximately
$30,000 and $57,000 for the three months ended June 30, 2005 and 2004,
respectively. In addition, the Company capitalized interest and development
costs of $39,000 and $24,000, respectively, for the three months ended June 30,
2005 and $7,000 and $68,000, respectively, for the three month period ended June
30, 2004, respectively.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
The Company recorded a net loss of $421,000 and $246,000 for the six month
periods ended June 30, 2005 and 2004.
During the six months ended June 30, 2005, our real estate activities
incurred general and administrative expenses of approximately $371,000, which
consisted principally of real estate taxes and maintenance expenses of
approximately $47,000 and an allocation of other general and administrative
expenses of approximately $324,000. During the six months ended June 30, 2004,
the real estate activities incurred general and administration expenses of
$147,000, representing real estate taxes of $30,000 and an allocation of other
general and administrative expenses of approximately $115,000. Interest expense
18
for the real estate activities was approximately $50,000 and $99,000 for the six
months ended June 30, 2005 and 2004, respectively. In addition, the Company
capitalized interest and development costs of $88,000 and $36,000, respectively,
for the six months ended June 30, 2005 and $141,000 and $14,000, respectively,
for the six month period ended June 30, 2004, respectively.
PLAN OF OPERATION - REAL ESTATE ACTIVITIES
The Company's first real estate investment, of land held for development
and sale, acquired through its wholly owned subsidiary, Lehigh, was made on
December 22, 2003. On April 30, 2004, the Company, through a separate wholly
owned subsidiary, WH Acquisition Corp., purchased a parcel of residential real
estate for $122,000, utilizing approximately $113,000 in cash and the
application of deposits of approximately $9,000.
NuWave is preparing a development plan for the property acquired on
December 22, 2003. The Company will then determine whether to sell or further
develop the property. The property acquired in April 2004 will not be developed
and is in the process of being marketed by a real estate company for sale for a
gain. To date, there have been no revenues from real estate activities. Revenues
from development activities are not projected to be realized until late 2007
into mid 2008.
NuWave follows SFAS No. 34, "Capitalization of Interest Costs", which
provides for the capitalization of interest as part of the historical cost of
acquiring certain assets. Interest is capitalized on assets that require a
period of time to get them ready for their intended use, such as real estate
development projects. Interest is capitalized from the period activities begin,
such as planning and permitting, until such time as the project is complete.
Interest costs include interest recognized on obligations having explicit rates,
as well as the amortization of discounts that result from imputing interest on
convertible debentures over the life of the obligation. Interest is capitalized
on only the net book value of the land and improvements, net of the discount
recorded on the acquisition of the land. Interest on specific borrowings
associated with the land, that are in excess of its net book value are expensed
as incurred.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash balances on hand of $9,000 and $84,000 as of June 30,
2005 and December 31, 2004, respectively. The Company's future cash funding
sources continue to be uncertain. The Company's primary cash needs are to fund
ongoing operations, debt instruments and related interest when due and real
estate development activities. The Company will defer any land development and
construction expenditures until after it has arranged adequate funding. In order
to obtain funding during the next twelve months, the Company intends to seek
financing through a combination of sources. These sources might include, in
addition to the Standby Equity Distribution Agreement, funding through the sale
of securities, loans, property, finding a merger candidate and establishing
joint venture or partner arrangements.
On January 26, 2005, the Company entered into a Standby Equity
Distribution Agreement with Cornell Capital Partners, LP ("Cornell"). Pursuant
to the Standby Equity Distribution Agreement, the Company may, at its
discretion, periodically sell to Cornell registered shares of the Company's
common stock for a total purchase price of up to $30 million. For each share of
common stock issued under the Standby Equity Distribution Agreement, Cornell
will pay NuWave 99% of the volume weighted average price on the Over-the-Counter
Bulletin Board or other principal market on which its common stock is traded for
the 5 days immediately following the notice date. Further, Cornell will retain
an underwriting fee of 10% of each advance under the Standby Equity Distribution
Agreement. Pursuant to the terms of the Standby Equity Distribution Agreement,
the Company is restricted from raising capital from the sale of securities at a
price less than the market price of the Company's common stock on the date of
issuance or granting additional security interests in the Company's assets.
19
In seeking sources of liquidity, NuWave intends to continue to rely on the
sale of securities or loans for near term working capital needs. NuWave expects
to satisfy its funding needs in the remaining part of 2005 through the Standby
Equity Distribution Agreement and other financing sources. In their reports on
the audits of NuWave's consolidated financial statements for the years ended
December 31, 2004, and 2003, our independent registered public accounting firms
included an explanatory paragraph in their reports because of the uncertainty
that we could continue in business as a going concern. In the event we are
unable to raise the anticipated operating capital needs through the sale of
securities or some other form of financing or receive cash from sales of our
products, there would be substantial doubt about our ability to continue as a
going concern.
During the six month period ended June 30, 2005, the Company had a net
decrease in cash of $75,000. The Company's sources and uses of funds were as
follows:
CASH USED IN OPERATING ACTIVITIES. Net cash used in operating activities
was $312,000 for the six months ended June 30, 2005, as compared to net cash
used in operating activities of $150,000 for the six months ended June 30, 2004.
This was primarily driven by a consolidated net loss of $518,000, offset by the
receipt of proceeds of $50,000 from the sale of certain of the Company's state
net operating losses and an increase in accounts payable, accrued liabilities
and accrued interest of $108,000.
CASH USED IN INVESTING ACTIVITIES. Net cash used in investing activities
was $35,000 for the six months ended June 30, 2005, as compared to $152,000 for
the same period in 2004, during which the Company purchased a real estate
property for development. The decrease in cash used in investing activities was
due to the Company not purchasing additional real estate parcels during the six
months ended June 30, 2005.
CASH USED IN FINANCING ACTIVITIES. Net cash flows from financing for the
six months ended June 30, 2005 consisted primarily of the proceeds from the
issuance of a convertible debenture to Cornell to provide the Company with
operating capital. During the period ended June 30, 2004, the Company realized
proceeds of $360,000 for the issuance of convertible debentures.
At June 30, 2005, the Company had a negative net working capital position
of approximately $830,000. The Company intends to monitor spending carefully
until such time that new funding is arranged. Beyond the financing provided
through the Standby Equity Distribution Agreement, NuWave is exploring other
means of providing working capital that may include seeking joint venture
partners, other lenders or even selling the Company.
During April 2005, NuWave received net proceeds of approximately $22,000
under the Standby Equity Distribution by issuing 600,000 shares of common stock
to Cornell. On May 5, 2005, NuWave received net proceeds of $220,000 from the
issuance of a convertible debenture to Cornell. Any part of the principal amount
of the convertible debenture, plus accrued interest, is convertible at Cornell's
option any time up to maturity into shares of the Company's common stock at a
fixed price per share equal to $0.10. The convertible debenture has a 210-day
term, piggy-back registration rights and accrues interest at 12% per year.
On July 20, 2005 NuWave Technologies, Inc. (the "Company") issued a
$150,000 debenture (the "Debenture") to Cornell Capital Partners, LP
("Cornell"). Any part of the principal amount of the Debenture, plus accrued
interest, is convertible at Cornell's option any time up to maturity into shares
of the Company's common stock at a fixed price per share equal to $0.10. The
Debenture has a 210-day term, has piggy-back registration rights and accrues
interest at twelve percent (12%) per year.
20
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer, who is also the acting Principal
Financial Officer, has evaluated the effectiveness of the Company's "disclosure
controls and procedures," as such term is defined in Rule 13a-15(e) of the
Securities Exchange Act of 1934, as amended, as of the end of the period covered
by this report. The evaluation process, including the inherent limitations on
the effectiveness of such controls and procedures is more fully discussed below.
Based upon his evaluation, the principal executive officer, who is also the
acting principal financial officer, has concluded that the Company's disclosure
controls and procedures, although effective, did contain a material weakness.
This material weakness is the lack of the necessary corporate accounting
resources. At the current time, the Company's Chief Executive Officer, who is
one of only two of the Company's full time employees, solely has the
responsibility for receipts and disbursements. The Company employs a financial
consultant to prepare the periodic financial statements and public filings.
Reliance on these limited resources impairs our ability to provide for a proper
segregation of duties and the ability to ensure consistently complete and
accurate financial reporting, as well as disclosure controls and procedures. As
the Company grows, and as resources permit, we project that the Company's Chief
Executive Officer will hire such additional competent financial personnel to
assist in the segregation of duties with respect to financial reporting, and
Sarbanes-Oxley Section 404 compliance.
We believe that, for the reasons described above, we will be able to
improve our financial reporting and disclosure controls and procedures and
remedy the material weakness identified above. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, will
be or have been detected.
There were no changes in our internal controls over financial reporting
that occurred during the quarter ended June 30, 2005 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
21
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During April 2005, NuWave received net proceeds of approximately $22,000
under the Standby Equity Distribution Agreement by issuing 600,000 shares of
common stock to Cornell.
On May 5, 2005, NuWave received net proceeds of $220,000 from the issuance
of a convertible debenture to Cornell. Any part of the principal amount of the
convertible debenture, plus accrued interest, is convertible at Cornell's option
any time up to maturity into shares of the Company's common stock at a fixed
price per share equal to $0.10. The convertible debenture has a 210-day term,
piggy-back registration rights and accrues interest at 12% per year. In regard
to this transaction, the facts relied on to make the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 available for the sale of
securities discussed above were: (1) the limited number of purchasers; (2) the
sophistication or accreditation of the purchasers; (3) their relationship with
the Company and/or access to material information about the Company; (4) the
information furnished to them by the Company; (5) the absence of any general
solicitation or advertising; and (6) restrictions on transfer of the securities
issued to them as indicated by a legend on the certificates representing such
securities.
On July 20, 2005 NuWave Technologies, Inc. (the "Company") issued a
$150,000 debenture (the "Debenture") to Cornell Capital Partners, LP
("Cornell"). Any part of the principal amount of the Debenture, plus accrued
interest, is convertible at Cornell's option any time up to maturity into shares
of the Company's common stock at a fixed price per share equal to $0.10. The
Debenture has a 210-day term, has piggy-back registration rights and accrues
interest at twelve percent (12%) per year.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT.
31.1 Certification by Chief Executive Officer/Acting Principal Financial
Officer pursuant to 15 U.S.C. Section 7241, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification by Chief Executive Officer/Acting Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NUWAVE TECHNOLOGIES, INC.
(Registrant)
Date: August 19, 2005 By: /s/ George Kanakis,
-----------------------------------
George Kanakis,
President, Chief Executive Officer and
Acting Principal Financial Officer
SIGNATURE TITLE DATE
--------------------------- ----------------- ---------------------
/s/ George Kanakis Director August 19, 2005
---------------------------
George Kanakis
/s/ Gary Giannantonio Director August 19, 2005
---------------------------
Gary Giannantonio
23