<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 MARCH 31, 1996.
--------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
ACT.
For the transition period from to
--------------------- ---------------------
Commission file number: 0-16919
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WAVEMAT INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 38-2512387
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44191 PLYMOUTH OAKS BLVD, STE. 100, PLYMOUTH, MICHIGAN 48170
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(Address of principal executive offices) (Zip Code)
(313) 454-0020
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(Registrant'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 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 April 30, 1996, the registrant had 10,182,125 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
Ended March 31,
1996 1995
---------- -----------
<S> <C> <C>
OPERATING REVENUE:
Microwave processing system sales $ 4,855 $ 47,594
Microwave processing system sales
- affiliate 13,000 -
---------- -----------
Total operating revenue 17,855 47,594
---------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 14,935 38,310
Research and development 33,890 10,535
Selling, general and administrative 173,628 163,815
Royalty expense - affiliate - 2,983
---------- -----------
Total operating costs and expenses 222,453 215,643
---------- -----------
Operating loss (204,598) (168,049)
OTHER INCOME (EXPENSE):
Interest income 74 19
Interest expense (1,592) (797)
Interest expense - affiliate (33,877) (33,547)
---------- -----------
Other expense, net (35,395) (34,325)
---------- -----------
NET LOSS ($239,993) ($202,374)
========== ===========
NET LOSS PER SHARE OF
COMMON STOCK ($0.02) ($0.03)
========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,182,125 6,343,353
========== ===========
</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 Three Months
Ended March 31,
--------------------------------------
1996 1995
------------- -----------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $ ---
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (239,993) (202,374)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 13,602 20,000
Changes in current assets and liabilities:
Accounts receivable 13,409 (25,151)
Inventory (26,441) (38)
Prepaid expenses 2,680 3,671
Bank overdraft 12,179 (22,034)
Short-term borrowings - affiliate 108,500 128,150
Accounts payable 10,896 39,709
Accounts payable - affiliate 5,693 2,537
Accrued liabilities 90,179 67,094
Customer deposits 26,672 ---
Customer deposits - affiliate --- (9,587)
------------- -----------
Net cash provided by operating activities 17,376 1,977
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (7,793) ---
Increase in deferred patent costs (9,583) ---
------------- -----------
Net cash used in investing activities (17,376) ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of debt --- (1,977)
------------- -----------
Net cash used in financing activities --- (1,977)
------------- -----------
INCREASE (DECREASE)IN CASH --- ---
------------- -----------
CASH, END OF PERIOD $ --- $ ---
============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ 129 $ 386
============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31,
1996
----------------
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 44,547
Inventory 142,171
Prepaid expenses 3,048
----------------
Total current assets 189,766
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $559,513 56,065
LICENSE AGREEMENT, net of accumulated amortization
of $17,424 18,847
PURCHASED TECHNOLOGY, net of accumulated amortization
of $60,937 264,063
DEFERRED PATENT COSTS -affiliate 157,858
OTHER ASSETS 18,504
----------------
Total assets $ 705,103
================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 28,509
Short-term borrowings - affiliate 1,360,365
Accounts payable 365,436
Accounts payable - affiliate 43,050
Accrued liabilities 579,831
Customer deposits 40,963
Customer deposits - affiliate 128,243
----------------
Total current liabilities 2,546,397
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
10,182,125 shares issued and outstanding 101,822
Additional paid-in capital 4,677,174
Accumulated deficit (7,020,290)
----------------
Shareholders' deficit (1,841,294)
----------------
Total liabilities and shareholders' deficit $ 705,103
================
</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, 1995.
(2) DETAILS TO STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
Inventory consisted of the following:
March 31,
1996
--------
<S> <C>
Raw materials $ 36,845
Work-in-process 89,938
Consignment 15,388
--------
$142,171
========
<CAPTION>
A summary of Accrued Liabilities follows: March 31,
1996
--------
<S> <C>
Accrued legal & audit $ 32,206
Royalties - affiliate 62,764
Commissions 71,547
Deferred compensation 107,918
Accrued interest-affiliate 159,544
Accrued payroll 35,141
Other 110,711
--------
$579,831
========
</TABLE>
(3) SHORT TERM BORROWINGS - AFFILIATE
On April 7, 1994, the Company finalized a $350,000 revolving Line of
Credit Promissory Note with Growth Funding, Ltd. ("Growth"), a
wholly-owned subsidiary of Venture, a significant shareholder of the
Company, with such credit
4
<PAGE> 6
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
line carrying an interest rate on outstanding balances of 2 percent above
the prevailing prime rate of a major bank with such interest rate ranging
from 8.25 percent per annum to 10.75 percent annum for the period of
April 7, 1994 through March 31, 1996. The Company had utilized this
entire line of credit during 1994. Amounts borrowed pursuant to this
line of credit are payable by the Company on demand. The Company has made
payments of $12,000 in 1995, reducing the line of credit Promissory Note
to $338,000. In addition, this Promissory Note is to be repaid, pursuant
to an 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 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.
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 with such rate ranging from 9.75 percent
per annum to 11.00 percent per annum for the period from August 12, 1994
through March 31, 1996. 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). The Debenture has an exercise
price of $.5630 per share of common stock.
On October 27, 1995, by resolution of the Board of Directors, the
exercise price of the Debenture issued to Growth on August 18, 1994 was
reduced from $.5630 to $.1563 per share of common stock, the average of
the bid-ask price of the Company's common stock on that date in
consideration for financing and contributions of capital provided to the
Company during 1995. On the same date, $600,000 of the debt owed Growth
under the Debenture was converted to 3,838,772 shares of the Company's
common stock. There remains a balance due of $124,574 under the
Convertible Debenture.
5
<PAGE> 7
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 utilized $100,000 of the line of credit by
December 31, 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 10.5 percent per annum for the period ending
March 31, 1996.
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
$797,790 on this line of credit as of March 31, 1996. The applicable
interest rate is 2 percentage points above the prime rate of a major bank
with such interest rates ranging from 10.25 percent per annum to 11.00
percent per annum for the period from January 4, 1995 through March 31,
1996.
(4) 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 MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1995
Operating loss increased significantly during the 1996 quarter due primarily to
a decline in operating revenue and higher operating expenses.
The decline in operating revenue was attributable to the decrease in sales
volume of the company's microwave systems.
Operating expenses increased modestly primarily as a result of higher
non-sponsored research and development activities performed by the Company and
selling, general and administration expenses. Selling, general and
administration expenses increased primarily due to higher consulting expenses.
Other expense, net for the quarter ending March 31, 1996 changed slightly from
the same period of time in 1995, due to higher interest due on debt balances.
FINANCIAL CONDITION
MARCH 31, 1996 COMPARED TO DECEMBER 31, 1995
The Company continued to have difficulty meeting its cash requirements during
the three months of 1996. For the three months ended March 31, 1996, 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 $107,918 as of March 31, 1996.
The Company was also in arrears pertaining to other obligations in the amount
of $206,634 as of March 31, 1996.
Obligations which the Company met during the three months of 1996 were
satisfied through sales of the Company's microwave processing systems, customer
deposits, lines of credit and short-term borrowings.
7
<PAGE> 9
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
As indicated in Note 4 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 March 31, 1996, the Company had a negative working capital
position of $2,198,298 compared to a negative working capital position of
$2,112,864 at December 31, 1995.
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 March 31, 1996, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $76,851. 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 1996.
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.
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 March 31,1996.
8
<PAGE> 10
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.
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REGISTRANT
DATE: MAY 20, 1996 BY: /S/ MONIS SCHUSTER
------------------------------------
MONIS SCHUSTER, CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL OPERATING OFFICER)
DATE: MAY 20, 1996 BY: /S/ SHARON K. ZITNIK
------------------------------------
SHARON K. ZITNIK, VICE PRESIDENT
TREASURER AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL
OFFICER)
<PAGE> 11
Exhibit Index
Exhibit
Number Description
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27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 44,547
<ALLOWANCES> 0
<INVENTORY> 142,171
<CURRENT-ASSETS> 189,766
<PP&E> 615,578
<DEPRECIATION> 559,513
<TOTAL-ASSETS> 705,103
<CURRENT-LIABILITIES> 2,546,397
<BONDS> 0
0
400,000
<COMMON> 101,822
<OTHER-SE> (2,343,116)
<TOTAL-LIABILITY-AND-EQUITY> 705,103
<SALES> 17,855
<TOTAL-REVENUES> 17,855
<CGS> 14,935
<TOTAL-COSTS> 222,453
<OTHER-EXPENSES> 35,395
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,469
<INCOME-PRETAX> (239,993)
<INCOME-TAX> 0
<INCOME-CONTINUING> (239,993)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (239,993)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
