<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 JUNE 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 July 29, 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 Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
OPERATING REVENUE: ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Microwave processing system sales $38,645 $32,200 $86,239 $92,378
Microwave processing system sales
- affiliate 24,020 9,053 24,020 570,681
---------- --------- --------- ---------
Total operating revenue 62,665 41,253 110,259 663,059
---------- --------- --------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales 33,328 50,561 71,638 474,707
Research and development 12,429 21,501 22,964 22,394
Selling, general and administrative 198,953 177,013 362,768 395,347
Royalty expense - affiliate 2,033 2,646 5,016 19,083
---------- --------- --------- ---------
Total operating costs and expenses 246,743 251,721 462,386 911,531
---------- --------- --------- ---------
Operating loss (184,078) (210,468) (352,127) (248,472)
OTHER INCOME (EXPENSE):
Interest income 25 44 44 137
Interest expense (576) (1,517) (1,373) (3,442)
Interest expense - affiliate (38,281) (4,378) (71,828) (6,885)
---------- --------- --------- ---------
Other expense, net (38,832) (5,851) (73,157) (10,190)
---------- --------- --------- ---------
NET LOSS ($222,910) ($216,319) ($425,284) ($258,662)
========== ========= ========= =========
NET LOSS PER SHARE OF
COMMON STOCK ($0.04) ($0.04) ($0.07) ($0.05)
========== ========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 6,343,353 5,672,364 6,343,353 5,674,364
========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 3
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS JUNE 30,
1995
CURRENT ASSETS: -------------
<S> <C>
Cash and cash equivalents $ 40,924
Accounts receivable 31,904
Inventory 45,711
Prepaid expenses 784
-------------
Total current assets 119,323
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $531,882 64,793
LICENSE AGREEMENT, net of accumulated amortization
of $15,824 20,447
PURCHASED TECHNOLOGY, net of accumulated amortization
of $40,625 284,375
DEFERRED PATENT COSTS 84,062
OTHER ASSETS 18,504
-------------
Total assets $ 591,504
=============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 7,192
Short-term borrowings 85,000
Short-term borrowings - affiliate 1,448,365
Accounts payable 343,596
Accounts payable - affiliate 81,081
Accrued liabilities 427,213
Customer deposits 14,857
Customer deposits - affiliate 128,243
-------------
Total current liabilities 2,535,547
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 (6,323,039)
-------------
Shareholders' deficit (1,944,043)
-------------
Total liabilities and shareholders' deficit $ 591,504
=============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
WAVEMAT INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $1,058
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (425,284) (258,662)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 39,920 43,750
Changes in current assets and liabilities:
Accounts receivable (26,993) 97,770
Inventory 986 168,974
Prepaid expenses 3,264 12,584
Bank overdraft (29,555) ---
Short-term borrowings 85,000 ---
Short-term borrowings - affiliate 283,275 182,300
Accounts payable (27,171) 248
Accounts payable - affiliate 19,683 27,579
Accrued liabilities 145,231 45,973
Customer deposits (13,465) 3,402
Customer deposits - affiliate --- (310,486)
---------- ----------
Net cash provided by operating activities 54,891 13,432
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in deferred patent costs (10,744) (9,634)
---------- ----------
Net cash used in investing activities (10,744) (9,634)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of debt (3,223) (4,719)
---------- ----------
Net cash used in financing activities (3,223) (4,719)
---------- ----------
INCREASE (DECREASE) IN CASH 40,924 (921)
---------- ----------
CASH, END OF PERIOD $40,924 $137
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ 565 $1,220
========== ==========
</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: June 30,
1995
-----------
<S> <C>
Raw materials 30,938
Work-in-process 14,773
---------
$ 45,711
=========
A summary of Accrued Liabilities follows: June 30,
1995
-----------
Accrued Legal & Audit 27,626
Royalties - affiliate 17,780
Commissions 55,798
Deferred compensation 115,897
Accrued interest-affiliate 118,591
Other 89,521
---------
$ 425,213
</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. In addition, the Company will incur a $4,000
fee relating to obtaining of this line of credit. The Company has
drawn $85,000 on this line of credit as of June 30, 1995. 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 June 30, 1995, the Company
has drawn $350,000 against this line of credit and has accrued $35,703
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 to shares of voting common shares, without par
value of the Company at a conversion price equal to $.5631 per share.
On June 30, 1995, interest had accrued of $67,119 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 June 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 June 30, 1995. On June 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 $273,790 on this line of credit as of June 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 June 30, 1995. On June 30, 1995, the Company
had accrued $7,505 of interest pertaining to this obligation.
(5) STOCK OPTIONS
On May 10, 1995, options to purchase a total of 6,000 shares of the
Company's common stock were granted to a non-employee Director of the
Company under the Company's Stock Option Plan for Non-employee
Directors at an option price of $.3438 per share.
(6) 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
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO THE THREE AND SIX
MONTHS ENDED JUNE 30, 1994
Operating loss declined during the 1995 quarter compared to 1994 due to
slightly higher operating revenue, while operating loss increased substantially
for the six month period of 1995 in comparison with the same period in 1994 as
a result of a substantial decline in operating revenue.
Operating revenue increased slightly during the quarter ending June 30, 1995,
due to an improvement in microwave processing systems sales. Operating revenue
for the six month period ending June 30, 1995 declined because of a significant
decrease in microwave processing system sales. Microwave processing orders for
the six month period continued to be negatively impacted by the availability of
funds to purchase capital equipment by our major customers.
Operating expenses declined slightly for the quarter, primarily as a result of
lower cost of sales and research and development expenses. Operating expenses
for the six month period were significantly lower due to an overall decrease in
cost of sales, selling, general and administrative expense and royalty
expense-affiliate. The decrease in cost of sales and royalty expense-affiliate
reflects lower microwave processing system sales as mentioned above. Selling,
general and administrative expenses were slightly higher for the quarter due to
higher advertising expenses while selling, general and administrative expense
decreased for the six months ending June 30, 1995 because of lower salary and
benefit costs.
Net loss increased slightly for the quarter ended and increased significantly
for the six-month period as a result of the changes in operating loss mentioned
above. Other expenses, net recognized for the quarter and period ending June
30, 1995 reflect an increase in interest expense due to higher balances of
interest bearing debt and borrowing costs in comparison to the same periods of
time in 1994.
7
<PAGE> 9
FINANCIAL CONDITION
JUNE 30, 1995 COMPARED TO DECEMBER 31, 1995
The Company continued to have difficulty meeting its cash requirements during
the first six months of 1995. For the six months ended June 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 $115,897 as of June 30, 1995.
The Company was also in arrears pertaining to other obligations in the amount
of $296,025 as of June 30, 1995.
Obligations which the Company met during the first six 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 6 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 June 30, 1995, the Company had a negative working capital
position of $2,416,224 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 June 30, 1995, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $289,486. 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. OTHER INFORMATION
On July 5, 1995, Dr. Frederic H. Erbish was appointed by
Michigan State University ("MSU"), an affiliate of the
Company, to service on the Company's Board of Directors,
pursuant to an Investment Agreement entered into with the
Company and MSU on August 19, 1994.
ITEM 5. 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 June 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: August 14, 1995 BY: /s/ Monis Schuster
-------------------------------------
Monis Schuster, Chairman of the
Board and Chief Executive Officer
(Principal Operating Officer)
Date: August 14, 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>
Exhibit
No. Description Page
------- ----------- ----
<S> <C> <C>
EX.27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 40,924
<SECURITIES> 0
<RECEIVABLES> 31,904
<ALLOWANCES> 0
<INVENTORY> 45,711
<CURRENT-ASSETS> 119,323
<PP&E> 596,675
<DEPRECIATION> 531,882
<TOTAL-ASSETS> 591,504
<CURRENT-LIABILITIES> 2,535,547
<BONDS> 0
<COMMON> 63,434
0
400,000
<OTHER-SE> (2,407,477)
<TOTAL-LIABILITY-AND-EQUITY> 591,504
<SALES> 110,259
<TOTAL-REVENUES> 110,259
<CGS> 71,638
<TOTAL-COSTS> 462,386
<OTHER-EXPENSES> (73,157)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (73,201)
<INCOME-PRETAX> (425,284)
<INCOME-TAX> 0
<INCOME-CONTINUING> (425,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (425,284)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> 0
</TABLE>
