<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
___
/__/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE SECURITIES ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995.
___
/__/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _______________ to _______________
Commission file number 0-16919
WAVEMAT INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 38-2512387
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44191 PLYMOUTH OAKS BLVD., SUITE 100 PLYMOUTH, MICHIGAN 48170
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(313) 454-0020
- --------------------------------------------------------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 ___
As of October 26, 1995 the registrant had 6,343,353 shares of its
Common Stock, $.01 par value outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WAVEMAT INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
OPERATING REVENUE: ----------------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Microwave processing system sales $23,731 $46,188 $109,970 $138,566
Microwave processing system sales
- affiliate --- 1,910 24,020 572,591
----------------- ----------------- ----------------- -------------------
Total operating revenue 23,731 48,098 133,990 711,157
----------------- ----------------- ----------------- -------------------
OPERATING COSTS AND EXPENSES:
Cost of sales 12,255 61,932 83,893 536,639
Research and development 13,148 25,494 36,112 47,888
Selling, general and administrative 204,815 171,663 567,583 567,011
Royalty expense - affiliate --- 3,229 5,016 22,312
----------------- ----------------- ----------------- -------------------
Total operating costs and expenses 230,218 262,318 692,604 1,173,850
----------------- ----------------- ----------------- -------------------
Operating loss (206,487) (214,220) (558,614) (462,693)
OTHER INCOME (EXPENSE):
Interest income 120 17 164 154
Interest expense (5,885) (1,311) (7,258) (4,753)
Interest expense - affiliate (41,385) (16,338) (113,213) (23,223)
--- 950 --- 950
----------------- ----------------- ----------------- -------------------
Other expense, net (47,150) (16,682) (120,307) (26,872)
----------------- ----------------- ----------------- -------------------
NET LOSS ($253,637) ($230,902) ($678,921) ($489,565)
================= ================= ================= ===================
NET LOSS PER SHARE OF
COMMON STOCK ($0.04) ($0.04) ($0.11) ($0.08)
================= ================= ================= ===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,343,353 5,985,978 6,343,353 5,778,051
================= ================= ================= ===================
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 3
WAVEMAT INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $1,058
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (678,921) (489,565)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 58,034 65,043
Changes in current assets and liabilities:
Accounts receivable (47,143) 110,584
Inventory (117,999) 179,007
Prepaid expenses (15,363) 12,666
Bank overdraft (29,555) 10,231
Short-term borrowings 181,000 ---
Short-term borrowings - affiliate 488,075 914,875
Accounts payable (49,453) (11,018)
Accounts payable - affiliate 30,195 (49,164)
Accrued liabilities 227,677 (403,642)
Customer deposits (14,965) (1,112)
Customer deposits - affiliate --- (310,486)
----------------- -----------------
Net cash provided by operating activities 31,582 27,419
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements --- (462)
Increase in deferred patent costs (24,263) (19,449)
----------------- -----------------
Net cash used in investing activities (24,263) (19,911)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of debt (3,223) (8,566)
----------------- -----------------
Net cash used in financing activities (3,223) (8,566)
----------------- -----------------
INCREASE (DECREASE) IN CASH 4,096 (1,058)
----------------- -----------------
CASH, END OF PERIOD $4,096 $ ---
================= =================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ 657 $7,121
================= =================
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30,
1995
<S> <C>
CURRENT ASSETS: ---------------
Cash and cash equivalents $ 4,096
Accounts receivable 52,054
Inventory 164,696
Prepaid expenses 19,411
---------------
Total current assets 240,257
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $542,692 53,983
LICENSE AGREEMENT, net of accumulated amortization
of $16,358 19,914
PURCHASED TECHNOLOGY, net of accumulated amortization
of $47,396 277,604
DEFERRED PATENT COSTS 97,581
OTHER ASSETS 18,504
---------------
Total assets $ 707,843
===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 7,192
Short-term borrowings 181,000
Short-term borrowings - affiliate 1,653,165
Accounts payable 321,314
Accounts payable - affiliate 91,593
Accrued liabilities 509,659
Customer deposits 13,357
Customer deposits - affiliate 128,243
---------------
Total current liabilities 2,905,523
SHAREHOLDERS' DEFICIT:
Preferred stock, $.10 par value, 1,000,000 shares authorized
and 4,000 shares ($399,600 aggregate liquidation preference)
issued and outstanding 400,000
Common stock, $.01 par value, 20,000,000 shares authorized and
6,343,353 shares issued and outstanding 63,434
Additional paid-in capital 3,915,562
Accumulated deficit (6,576,676)
---------------
Shareholders' deficit (2,197,680)
---------------
Total liabilities and shareholders' deficit $ 707,843
===============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
Except as the context otherwise indicates the term the "Company"
refers to Wavemat Inc.
In the opinion of management, all adjustments (consisting primarily of
normal recurring accruals) considered necessary for a fair
presentation have been included. For further information, refer to
the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1994.
(2) DETAILS TO STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
Inventory consisted of the following: September 30,
1995
-------------
<S> <C>
Raw materials 32,936
Work-in-process 131,760
---------
$ 164,696
=========
<CAPTION>
A summary of Accrued Liabilities follows: September 30,
1995
-------------
Accrued legal & audit 31,112
Royalties - affiliate 17,780
Commissions 55,299
Deferred compensation 139,132
Accrued interest-affiliate 159,976
Other 106,360
---------
$ 509,659
=========
</TABLE>
(3) SHORT TERM BORROWINGS
On June 28, 1995, the Company entered into a $100,000 line of credit
arrangement with a bank with such credit line carrying an interest
rate on outstanding balances of two percent above the prevailing prime
rate of a major bank. The Company paid a commitment fee of $4,000 for
the arrangement of the line of credit. On July 6, 1995, the line of
credit was extended for an additional $85,000. This line of credit is
secured pursuant to a guarantee agreement between Venture Funding Ltd.
("Venture"), a significant shareholder of the Company and the lending
bank. The Company has drawn $181,000 against this line of credit and
has accrued $3,855 of interest pertaining to this obligation at
interest rates ranging from 11.00 percent to 10.75 percent. The
amounts borrowed pursuant to this line of credit are payable by the
Company as of December 28, 1995.
4
<PAGE> 6
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(4) SHORT TERM BORROWINGS - AFFILIATE
The Company finalized a $350,000 revolving Line of Credit Promissory
Note with Growth Funding, Ltd. ("Growth"), a wholly-owned subsidiary
of Venture Funding, Ltd. ("Venture"), a significant shareholder of the
Company, with such credit line carrying an interest rate on
outstanding balances of 2 percent above the prevailing prime rate of a
major bank. The amounts borrowed pursuant to this line of credit are
payable by the Company upon demand. In addition, this Promissory Note
is to be repaid, pursuant to the amended Supply Agreement between the
Company and Norton Diamond Film Division ("Norton") of
Saint-Gobain/Norton Industrial Ceramics Corporation, an affiliate of
the Company, dated August 9, 1994, in which Norton has agreed to waive
their standard 20% discount from the prevailing list price for its
purchases from the Company provided this 20% discount is used to first
repay accrued interest and then principal owing on the outstanding
balance to Venture until the balance is repaid in full.
For the period from April 7, 1994 through September 30, 1995, the
Company has drawn $350,000 against this line of credit and has accrued
$48,573 of interest pertaining to this obligation at interest rates
ranging from 8.25 percent to 11 percent.
On August 18, 1994 the Company issued a Convertible Debenture
("Debenture") to Growth, for the principal amount of $724,575, with
the interest accruing on the outstanding balance at a rate of 2
percent above the prime rate of a major bank. The Debenture principal
amount plus accrued interest is payable on August 18, 1995, or may be
converted by Growth at its option, to shares of voting common shares,
without par value of the Company at a conversion price equal to $.5631
per share. On September 30, 1995, interest had accrued of $87,055
pertaining to the Debenture at interest rates ranging from 9.75
percent to 11.00 percent. The Debenture amount of $724,575 represents
amounts owed by the Company to Venture in relation to a promissory
note ($125,000), plus related accrued interest ($23,603), deferred
compensation ($261,139), accrued royalties ($212,591), and other
miscellaneous liabilities ($102,242).
On December 1, 1994, the Company entered into a $100,000 line of
credit arrangement evidenced by a promissory note with Growth. The
amounts borrowed pursuant to this line of credit are payable by the
Company on demand. The Company has drawn $100,000 of the line of
credit as of September 30, 1995. The applicable interest rate is at 2
percentage points above the prime rate of a major bank with such
interest rates ranging from 9.75 percent per annum to 11 percent per
annum for the period ending September 30, 1995. On September 30,
1995, the Company had accrued $6,723 of interest pertaining to this
obligation.
5
<PAGE> 7
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(4) SHORT TERM BORROWINGS - AFFILIATE (CONTINUED)
On January 4, 1995, the Company entered into a line of credit
arrangement evidenced by a promissory note with Growth. The amounts
borrowed pursuant to this line of credit are payable on demand. The
Company has drawn $478,590.00 on this line of credit as of September
30, 1995. The applicable interest rate is 2 percentage points above
the prime rate of a major bank with such interest rates ranging from
10.50 percent per annum to 11.00 percent per annum for the period from
January 4, 1995 through September 30, 1995. On September 30, 1995,
the Company had accrued $16,573 of interest pertaining to this
obligation.
(5) COMMITMENTS AND CONTINGENCIES
GOING CONCERN
The Company has incurred operating losses and generated cash flow
deficits from operating activities since inception, therefore, the
Company's ability to continue as a going concern is contingent upon
its ability to raise additional funds to support its activities.
The Company is relying on sales of its microwave processing systems to
provide additional working capital. The Company is also continuously
evaluating acquisitions of technologies and/or entities owning such
technologies which are compatible to the Company's business strategies
with the intention of increasing the Company's revenue generating
capabilities. In addition, the Company is continuing to seek capital
from various sources of funding such as additional term loans, lines
of credit, corporate partners and sales of equity securities.
However, there is no assurance that the required amount of additional
funds can be raised.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE AND
NINE MONTHS ENDED SEPTEMBER 30, 1994
Operating loss increased significantly during the 1995 quarter and nine-month
period as a result of a substantial decline in operating revenue.
Operating revenue declined because of significantly lower microwave processing
system sales which continue to be negatively impacted by the availability of
funds to purchase capital equipment by major customers.
Operating expenses decreased modestly for the quarter ended and significantly
for the nine-month period as a result of lower cost of sales, lower research
and development activities and royalty expense. The decline in cost of sales
was attributed to significantly lower microwave processing system sales. The
decrease in research and development activities reflects lower non-sponsored
activities for the period. The decrease in royalty expense was attributable to
lower microwave processing system sales. For the quarter ending, the overall
decrease in operating expense was somewhat offset by an increase in selling,
general and administrative due to an increase in sales and marketing
activities.
Net loss increased for the quarter ended and increased significantly for the
nine-month period as a result of the changes in operating loss mentioned above.
Other expenses, net recognized for the quarter and period ending September 30,
1995, reflect an increase in interest expense due to higher balances of
interest bearing debt and borrowing costs in comparison to the same period of
time in 1994.
7
<PAGE> 9
FINANCIAL CONDITION
SEPTEMBER 30, 1995 COMPARED TO DECEMBER 31, 1995
The Company continued to have difficulty meeting its cash requirements during
the first nine months of 1995. For the nine months ended September 30, 1995,
the Company continued to defer payment of all or a portion of compensation of
certain management personnel to conserve cash for operating purposes. Deferred
compensation costs of the Company amounted to $139,132 as of September 30,
1995. The Company was also in arrears pertaining to other obligations in the
amount of $178,944 as of September 30, 1995.
Obligations which the Company met during the first nine months of 1995 were
satisfied through sales of the Company's microwave processing systems, customer
deposits, lines of credit and short-term borrowings.
As indicated in Note 5 to the Financial Statements, the Company has incurred
operating losses and generated cash flow deficits from operating activities
since its inception, therefore, the Company's ability to continue as a going
concern is contingent upon its ability to raise additional funds to support its
activities. At September 30, 1995, the Company had a negative working capital
position of $2,665,266 compared to a negative working capital position of
$2,020,116 at December 31, 1994.
The Company is attempting to generate working capital through the sale of its
microwave processing systems and through its contract research and development
activities. As of September 30, 1995, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $290,366. Subject to various
qualifications and assuming no change in delivery dates or in the shipment of
orders in the normal course of business, management expects, although there can
be no assurance, to ship all of the above mentioned backlog and collect the
applicable cash proceeds during 1995.
The Company must increase its backlog of open sales orders substantially and
obtain additional product development assistance to adequately support its
activities. The Company is continuously evaluating acquisitions of
technologies and/or entities owning such technologies which are compatible to
the Company's business strategies with the intention of increasing the
Company's revenue generating capabilities. In addition, the Company is
continuing to seek funding from various other sources such as additional term
loans, lines of credit, corporate partners and equity financing. However,
there is no assurance that the required amount of additional funds can be
raised.
8
<PAGE> 10
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Ex. 27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the
Quarter ended September 30, 1995.
9
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WAVEMAT INC.
-----------------
REGISTRANT
DATE: NOVEMBER 19, 1995 BY: /s/ MONIS SCHUSTER
-----------------------------
MONIS SCHUSTER, CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL OPERATING OFFICER)
DATE: NOVEMBER 19, 1995 BY: /s/ SHARON K. ZITNIK
-----------------------------
SHARON K. ZITNIK, VICE PRESIDENT
TREASURER AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL
OFFICER)
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ----------- ------------
<S> <C> <C>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 4,096
<SECURITIES> 0
<RECEIVABLES> 52,054
<ALLOWANCES> 0
<INVENTORY> 164,696
<CURRENT-ASSETS> 240,257
<PP&E> 596,675
<DEPRECIATION> 542,692
<TOTAL-ASSETS> 707,843
<CURRENT-LIABILITIES> 2,905,523
<BONDS> 0
<COMMON> 63,434
0
400,000
<OTHER-SE> (2,661,114)
<TOTAL-LIABILITY-AND-EQUITY> 707,843
<SALES> 133,990
<TOTAL-REVENUES> 133,990
<CGS> 83,893
<TOTAL-COSTS> 692,604
<OTHER-EXPENSES> (120,307)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (120,471)
<INCOME-PRETAX> (678,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (678,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (678,921)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> 0
</TABLE>
