<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
/x/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1995
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission file number 0-16919
WAVEMAT INC.
- --------------------------------------------------------------------------------
(Name of small business issuer 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) (Zip Code)
Issuer's telephone number (313) 454-0020
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on
which registered
NONE
------------------------- ------------------------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
- --------------------------------------------------------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filled 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
--- ---
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is met contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements or any amendment to this Form 10-KSB. /x/
Issuer's revenues for its most recent fiscal year - $__________.
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of March 10, 1996, computed by reference to
the average closing bid and asked prices of the Company's common stock on the
OTC Bulletin Board ("Pink Sheets") on that date was $151,945.
At March 10, 1996, there were 10,182,125 shares of the Registrant's Common
Stock, $.01 par value issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following document (or portions thereof) has been incorporated by reference
in this Annual Report on Form 10-KSB: (1) Proxy Statement for 1996 Annual
Meeting of Shareholders (Part III) and (2) Current Report on Form 8-K, dated
November 9, 1992, as amended, (Part II, Item 8).
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
University Science Partners, Inc. ("USP") was incorporated under the laws
of the State of Delaware on September 19, 1985 to seek technology worldwide
from universities, laboratories and from major international corporations,
which have developed technologies available for transfer or commercialization.
The primary goal of USP was to generate revenues through these technologies by
forming related business entities or through joint venture or licensing
arrangements. During February 1987, USP concluded its initial public offering
of common stock raising net proceeds of approximately $1,995,000. In April
1987, USP formed a majority-owned subsidiary, Wavemat, Inc., which began
operations developing, manufacturing and marketing microwave processing
equipment for materials processing on October 1, 1987.
During 1988, USP restructured its business by focusing exclusively on the
exploitation and development of microwave technology. In the first phase of
this restructuring, USP effected a statutory merger under Section 253 of the
Delaware General Corporation Law on December 28, 1988, whereby USP's
majority-owned subsidiary, Wavemat, Inc., was merged into USP, with Wavemat,
Inc. (the "Company") as the surviving corporation. In May 1989, University
Science Partners, Inc. changed its name to Wavemat Inc. and sold its
non-microwave technology projects to enable the Company to concentrate all of
its available resources on its proprietary microwave technology.
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. 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 attempting to generate working capital through the sale of
its microwave processing systems and through its contract research and
development activities. The Company is continuously evaluating acquisition of
technologies and/or entities owning such technologies which are compatible with
the Company's business strategies with the intention of increasing the
Company's revenue generating capabilities. 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.
The Company's principal office and place of business is located at 44191
Plymouth Oaks Blvd. Suite 100, Plymouth, Michigan, 48170 and its telephone
number is 313-454-0020.
1
<PAGE> 3
PRODUCTS, TECHNOLOGIES AND MARKETS
The Company designs, manufactures, and markets proprietory microwave
plasma systems and sources for advanced materials processing applications. The
Company's microwave processing systems range from standard modules for process
research and development to systems for production integration and turnkey
development. Microwave processing is in use in the areas of semiconductor
device manufacturing, diamond and diamond-like carbon thin films deposition and
other industrial coatings, ion implantation, advanced ceramics, composites, and
polymers.
Pursuant to a license agreement, as amended, Norton Diamond Film Division
("Norton") of Saint-Gobain/Norton Industrial Ceramics Corporation, an affiliate
of the Company, has exclusive rights pertaining to the Company's Microwave
Plasma Disk Reactor (MPDR(R)) incorporating the Company's diamond thin film
technology. In 1994, this exclusive license agreement was amended, which
granted the Company a non-exclusive sublicense to manufacture, sell and lease
equipment for research and commercial production of diamond-like carbon (DLC)
thin films.
The market for the Company's microwave processing equipment includes
microelectronic and photonic component manufacturers, material coating
processors, and solid material processors. To date, the majority of the
Company's systems have been sold to major corporations, universities and
research centers engaged in the development of advanced materials and advanced
material processes. These sales are made through the Company's internal sales
organization and independent sales representatives, both international and
domestic.
Management believes that, as existing and potential customers complete
research and process development demand for the Company's products could
potentially increase as demand to produce advanced materials and/or integrate
advanced materials processing into production processes on an economical basis
increases. Therefore, the Company has developed products which address the
areas of thermal processing, semiconductor processing diamond and diamond-like
thin film industrial coatings.
Diamond Thin Film & Diamond-like Carbon Industrial Coatings. The use of a
gas plasma for material processing and surface modification is a common
technique used in many industries. Excitation of gas molecules in a microwave
chamber causes the gas molecules to disassociate into molecules, ions, atoms
and electrons. When an appropriate substrate is placed into the plasma, these
molecules, ions and atoms react with the substrate surface. This process
results in a thin solid film being formed or deposited on the substrate
surface. The composition of the film is determined by the choice of gases that
are used in creating the plasma discharge. This process is called chemical
vapor deposition or CVD.
The initial application of the Company's microwave CVD reactor was the
depositing of thin diamond films under a joint research program with Norton.
The use of diamond film coatings is a rapidly emerging market with potential
applications in abrasive cutting tools, high speed
2
<PAGE> 4
semiconductors, optical lenses, rigid disk drives, and hundreds of other
applications.
Development of diamond thin film process techniques has been ongoing
utilizing the Wavemat MPDR(R) 300 at Norton, the Company and several major
universities. The advantage of the Company's plasma reactor concept is a
controlled, highly efficient plasma condition that provides, large area,
uniform film coverage.
In October 1992, the Company delivered the first pilot production
microwave plasma chemical vapor deposition (CVD) system to Norton. During
November 1993, the Company delivered the first dual-chamber production system
to Norton's newly completed diamond film manufacturing facility. In February
1994, the Company delivered to Norton what is believed to be the largest
microwave plasma CVD system ever made for production diamond thin film
deposition. This system, which operates at a different microwave frequency
than previous Wavemat systems has been shown to be able to deposit diamond thin
films onto substrates of at least 8 inches in diameter, and its high power
allows deposition rates that have increased Norton's productivity
substantially.
Product development of the Company's diamond and diamond-like thin film
technology is ongoing. The Company's activities center on large area
deposition on complex shaped materials, as well as process automation for
commercial application. The Company works closely with both commercial and
educational institutions for the development of new processes and equipment for
other deposition applications.
Semiconductor Processing. Electron Cyclotron Resonance ("ECR") is the
enhanced condition created by introduction of magnetic field lines into a
microwave plasma with specific shapes and magnitudes. The ECR condition
expands the microwave plasma processing capability to even higher efficiencies.
Research of the use of microwave ECR plasmas for semiconductor process
applications has been conducted over the past ten years. Extensive efforts
have been underway in Japan resulting in several Japanese companies adopting
ECR for production etching and deposition processes. Evaluation of ECR
microwave technology is beginning to emerge within the United States. Despite
the known advantages of ECR plasma processing such as low substrate damage and
the ability to process at much lower temperatures, difficulties still exist
with the process uniformity and the ability to cover large wafers. Management
has believed that the Company's ECR technology, Microwave Plasma Disk Reactor
("MPDR(R)"), contains inherent patented concepts that provide the advantages of
ECR processing while eliminating the apparent disadvantages. This was
demonstrated in 1994 by two major microelectronic device manufacturers, who
used the MPDR ECR plasma source to fabricate "state-of-the-art" devices on
large wafers. This plasma source design offers significant advantages over
other fixed cavity plasma sources, which must utilize external adjustments and
large electromagnets requiring large amounts of electrical power to operate.
The Company has an exclusive worldwide license with Michigan State
3
<PAGE> 5
University for this ECR device, which is distinguished as being the only
United States based patented proprietary design. See "License Agreement".
The Company currently produces the MPDR(R) product line, developed to
address the needs of the ECR market: the 315i, a microwave ECR plasma source
designed to provide the flexibility and control of gas plasma density and
uniformity over a wide range of operating conditions in the micro-electronics
and photonics industries; the 325i, a larger microwave ECR plasma source for
production-scale silicon wafer products; and the 610i microwave ECR ion source,
a small area electrodeless plasma source used in ultrahigh vacuum advanced
semiconductor research and nitride thin film deposition. The MPDR(R) product
line is sold as stand-alone sources or as fully integrated plasma processing
systems.
Thermal Processing. Thermal processing by microwave power is created by
high frequency electromagnetic energy "coupling" into a material causing atomic
and molecular vibration. The friction caused by such vibration energizes and
heats the material. The Company's patented technology is an internally
adjustable chamber that allows for the control of the internal microwave field
patterns. An internal sliding short physically changes the shape of the
cavity. Thus, a resonance occurs in which almost all of the microwave energy
can be focused on the material being processed. Further, since the material
properties may change as the process proceeds, the Company's microwave cavity
can adjust accordingly to maintain optimum efficient coupling to the material.
To address the needs of current thermal processing research, the Company
provides two research systems, the MCR 1100 and 2200. These are designed for
low temperature composites curing and high temperature ceramics sintering,
respectively. Furthermore, the CMPRTM 250 was developed to provide a
controlled environment throughout the process cycle which is necessary in many
thermal process applications. The CMPRTM 250 is also being applied to
warm-press powder metallurgy. This process requires precise heating of
metallic powders, which are then compressed to near solid densities.
COMPETITION
The primary factor of competition relating to the Company's microwave
products is process performance. It is management's opinion that the selection
of the Company's product by a customer is based upon the efficiency and
performance of the Company's microwave technologies in relation to conventional
microwave plasma products, diamond and diamond-like deposition equipment, or
thermal processing equipment of competitors. In addition, such factors as
price, service and support, previous history with the customer's application,
and product quality are important considerations of customers in selecting the
Company's instruments and related services. Corporations and institutions with
greater resources than the Company may, therefore, have a significant
competitive advantage over the Company.
Several companies that manufacture microwave plasma components and systems
are also competitors of the Company, including Applied Science and
4
<PAGE> 6
Technology, Inc., Plasma-Therm I.P. Inc., PlasmaQuest, Inc. and Plasma
Technology Inc. Management believes that the Company's proprietary plasma
equipment has a positive differentiation from the equipment of these companies
because the Company's products have a unique tuning capability to focus and
control microwave energy into the specific molecules or ions of reactive gases
for various process purposes.
Competition for sales of the Company's microwave oven based thermal
process systems comes primarily from a number of companies that manufacture
conventional electric and gas fired furnaces which produce various ceramic and
plastic materials. Management believes the Company's microwave products
represent an emerging new technology that have the potential of reaching a
much higher level of productivity in comparison to conventional methods.
LICENSE AGREEMENT
In January 1988, the Company entered into a license agreement with
Michigan State University ("MSU"). This license agreement provides the Company
with exclusive worldwide rights to MSU's patented microwave material processing
technology and related advancements. The term of the license agreement, which
is 17 years, will run from the effective date of the agreement until the
expiration of the last to expire of the related licensed issued patents. This
license agreement forms the basis of the Company's microwave processing system
products. Therefore, this license agreement is of primary importance to the
operations of the Company. See Note 3, 7 and 9 to the Financial Statements.
RESEARCH AND DEVELOPMENT
The research and development activities of the Company during the two
years ending December 31, 1995, were the development of diamond and
diamond-like thin film deposition equipment, ECR plasma and ion sources, and
advanced metallic-powder thermal processing.
During 1995 and 1994, the Company had no customer-sponsored research and
development activities.
The Company sponsored research and development activities amounting to
$52,080 and $50,694 for the years ended December 31, 1995 and 1994,
respectively.
RAW MATERIALS
The materials and components utilized in the manufacture of the Company's
microwave processing systems are purchased from outside suppliers and are
available from several sources. The Company's operations are dependent upon
the ability of its suppliers of materials and component parts to meet
performance and quality specifications and delivery schedules. However, the
Company is not dependent on a single supplier for a particular component or
part which would result in an adverse effect on the Company if that supplier
were unable to serve the Company. The Company
5
<PAGE> 7
has not experienced any shortages of required materials and component parts.
The Company is currently experiencing difficulty in meeting its day-to-day
cash operating requirements. Although this problem has not, to this point in
time, interrupted the delivery of required materials and component parts to the
Company, there is no assurance that such interruptions will not occur in the
future.
EMPLOYEES
At December 31, 1995, the Company employed 5 full-time employees. Growth
also provides certain administrative services to the Company. See Note 9 to
the Financial Statements.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company is presently leasing office and manufacturing space in Plymouth,
Michigan under a lease agreement covering the period of June 6, 1990 through
June 30, 1995. See Note 10 to the Financial Statements. The Company renewed
this lease covering the period from July 1, 1995 through June 30, 1996 with an
option to renew the lease agreement. The Company is currently negotiating a
lease renewal option.
Management believes that the office space and productive capacity of the
manufacturing space of this facility is adequate for presently anticipated
needs. These facilities have been under- utilized as a result of low sales
order activity during the Company's occupation of these facilities.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth quarter
of the year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the National Daily Quotation Survey ("Pink
Sheets"), or the OTC Bulletin board, under the symbol "WVMT".
There were approximately 95 shareholders of record of the Company's common
stock as of March 10, 1996. There are estimated to be 301 beneficial owners of
the Company's common stock as of that date.
6
<PAGE> 8
The Company has never paid cash dividends on its common stock and does not
expect that cash dividends on common stock will be paid in the foreseeable
future.
The high and low bid prices of the Company's common stock during the period of
January 1, 1994 through December 31, 1995 are indicated below. The quotations
indicated below represent inter-dealer quotations without retail markups,
markdowns or commissions and do not reflect actual transactions.
<TABLE>
<CAPTION>
High Low
Quarter Ended Bid Bid
------------- --- ---
<S> <C> <C>
March 31, 1995........... $9/16 $1/8
June 30, 1995............ 9/16 1/8
September 30, 1995....... 3/8 3/32
December 31, 1995........ 3/8 3/32
March 31, 1994........... 9/16 3/16
June 30, 1994............ 9/16 3/16
September 30, 1994....... 11/16 3/16
December 31, 1994........ 1/2 1/8
</TABLE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Operating loss increased significantly primarily as a result of significant
decline in operating revenue.
The decline in operating revenue was attributable to the decrease in sales
volume of the Company's microwave process systems.
Operating expenses decreased primarily as a result of lower cost of sales and
non-sponsored research activities performed by the Company which more than
offset a significant increase in selling, general and administration expenses,
and royalty expenses. Cost of sales decline was attributable to lower
microwave processing system sales referenced above. Selling, general and
administration expenses increased primarily due to higher sales and marketing
activities. The Company's operating results continue to be adversely affected
by under-utilization of capacity.
Net loss increased significantly as a consequence of the increase in operating
loss mentioned above and other expenses, net amounting to $161,749 in 1995
compared to $52,743 in 1994. The other expense, net recognized during 1995,
was attributable to higher interest expenses. The increase in interest expense
is due to higher balances of interest-bearing debt and borrowing costs.
7
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced extreme difficulty meeting its cash requirements during
1995. During 1995, the Company continued to defer payment of all or a portion
of the compensation of certain management personnel to conserve cash for
operating purposes. Deferred compensation costs of the Company amounted to
$85,383 as of December 31, 1995. The Company was in arrears pertaining to
other obligations in the amount of $181,616 as of December 31, 1995.
Obligations which the Company met were satisfied through sales of the Company's
microwave processing systems, customer deposits and short term borrowings
relating to lines of credit. (See Note 3 to the Financial Statements.)
The net cash provided during 1995 was primarily attributable to an increase in
short-term borrowings from an affiliate. The entire amount of cash utilized
in investing activities during 1995 pertained to capital expenditures. The
Company presently has no commitments relating to capital expenditures for 1996.
During 1995, the Company's utilization of cash pertained to debt payments
associated with capital leases relating to certain manufacturing and office
equipment. See Note 10 to the Financial Statements. As indicated in Note 10
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. On
December 31, 1995, the Company had a negative working capital position of
$2,112,864 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 December 31, 1995, the Company had a backlog of open sales
orders, net of customer deposits, amounting to $27,082. 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 to ship all of the
above mentioned backlog and collect the applicable cash proceeds during 1996.
8
<PAGE> 10
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 7. FINANCIAL STATEMENTS.
The financial statements of the Company are included in this report on pages
F-1 through F-19.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company's current report on Form 8-K dated November 9, 1992, as amended,
pertaining to a change in the Registrant's certifying accountant is
incorporated herein by reference.
9
<PAGE> 11
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The directors and executive officers of the Company are as follows:
Name Age Position
- ---- --- --------
Monis Schuster (3) 65 Chairman of the Board and
Chief Executive Officer
Eugene I. Schuster (1)(2)(3) 59 Acting President and Director
Sharon K. Zitnik 50 Vice President, Treasurer,
Chief Financial Officer
& Secretary
Raymond F. Decker 65 Director
Frederick H. Erbisch (MSU) 58 Director
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Executive Committee
DIRECTORS
Monis Schuster, 65, a founder of the Company, has been Chairman of the Board of
Directors of the Company since February 1993 and a Director of the Company from
May 1985 until February 1993. He was serving as acting President of the
Company during the August 1992 to June 1993 period. He had been Vice President
of Corporate Development and General Counsel of the Company from October 1988
to August 1992 and served as Secretary from May 1989 until June 1993. He had
been Vice President of the Company from May 1986 until September 1988. From
1983 to the present, he has been Vice President and Secretary of Venture
Funding, Ltd., a private capital and business development firm, and its
subsidiary, Growth Funding, Ltd.
Eugene I. Schuster, 59, a founder of the Company, has been a Director of the
Company since September 1985. Since September, 1994 he has also been serving as
Acting President of the Company. Since February 1986, he has been Chairman of
the Board of Directors, President and Chief Executive Officer of Quest
BioTechnology, Inc., a development stage company, which was formed to acquire
and commercialize biotechnological products and processes. Since May 1983, he
has been Chairman of the Board, President and Chief Executive Officer of Venture
Funding, Ltd. and President of its subsidiary, Growth Funding, Ltd. Since
January 1988, he has been a Vice President and Director of Mega Financial Corp.,
a public company engaged in retail land sales and resort time sharing, and Chief
Executive Officer of
10
<PAGE> 12
CELLEX BIOSCIENCES, Inc., formerly Endotronics, Inc. In May 1988, he became
Chairman of the Board of Directors of CELLEX BIOSCIENCES, Inc., a company which
designs, manufactures and markets mammalian cell culture instruments. Mr.
Schuster served as Chairman of the Board of AM Diagnostics, Inc., which
manufactured computerized automated blood chemistry equipment and the consumable
diagnostic chemistries used in that equipment, during the period of September
1990 through October 1991, and he served as Director through November 1991.
Messrs. Eugene and Monis Schuster are brothers.
Norton, as holder of the Company's Convertible Preferred Stock, is entitled to
elect one Director to the Company's Board of Directors, but at this time does
not have anyone serving in this capacity.
In conjunction with an Investment Agreement entered into on August 19, 1994
with Michigan State University, as long a the University (or any entity
affiliated with the University) is the owner of at least 2.5% of the Company's
outstanding common stock on a fully diluted basis, MSU shall be entitled, by
notice given to the Company, to elect one director to the Company's Board of
Directors. Effective October 27, 1995, Dr. Frederick H. Erbisch, 58, Director
of Intellectual Property of Michigan State University, was elected to serve on
the Company's Board of Directors.
Dr. Raymond F. Decker, 65, is Chairman and Chief Financial Officer and founder
of Thixomat, Inc., a technology transfer company specializing in semi-solid
injection molding of magnesium alloys. Dr. Decker was re-elected to the Board
of Directors on October 27, 1995. Up until February 26, 1993, Dr. Decker has
served on the Company's Board of Directors as well as being Vice President of
New Technology for Wavemat, Inc. Dr. Decker is a member of the National
Academy of Engineering and has served as past president of ASM International,
the world's largest technical society in materials. He holds a Ph.D. in
Metallurgical Engineering from the University of Michigan.
EXECUTIVE OFFICER
Sharon K. Zitnik, 50, has been Vice President, Treasurer and Chief Financial
Officer of the Company since February 1994. On February 10, 1994, she was
appointed as Secretary of the Company. She had been the Director of Finance
for the Company from September 1989 until February 1994. She also served as
Manager of Finance and Administration of the Company from August 1988 to
September 1989. During the period of August 1983 through August 1988, she
served as Assistant Controller of Froude Engineering, Inc., a capital equipment
company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company is not aware of any report under Section 16(a) of the Securities
Exchange Act of 1934 not timely filed during the year ended December 31, 1995.
11
<PAGE> 13
Item 10. Executive Compensation.
SUMMARY COMPENSATION TABLE
The table shown below sets forth the aggregate compensation incurred by
the Company during the fiscal year ended December 31, 1995 on behalf of the
Company's Chief Executive Officer and Acting President.:
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Awards Payouts
--------------------------- ----------
Restricted LTIP All Other
Name and Principal Fiscal Annual Compensation Stock Payouts Compen-
------------------------------------------
Position Year Salary ($) Bonus ($) Other ($) Awards ($) Options(#) ($) sation($)
-------- ---- ---------- --------- --------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Monis Schuster 1995 $44,000(2) -- -- -- -- -- --
Chairman and
Chief Executive
Officer
Eugene I. Schuster 1995 $24,000(2) -- -- -- 6,000(3) -- --
Acting President
Director (1)
</TABLE>
- ----------------------
(1) Effective September 2, 1994 Eugene I. Schuster assumed the position of
Acting President and Chief Operating Officer.
(2) Due to extreme difficulty the Company experienced in meeting its cash
requirements, the Company deferred all or a portion of certain executive
officer's salaries during 1995. During 1995, the Company deferred payments of
salary to Mr. Monis Schuster in the amount of $44,000 and Mr. Eugene Schuster
in the amount of $24,000. At December 31, 1995, the Company owed Mr. Monis
Schuster $30,461 and Mr. Eugene Schuster the amount of $16,615 in deferred
payments.
(3) Represents options granted pursuant to the Incentive Stock Option Plan for
Non-Employee Directors.
OPTION GRANTS DURING 1995 FISCAL YEAR
The following table summarizes the options granted to the Chief Executive
Officers of the Company during the fiscal year ended December 31, 1995:
<TABLE>
<CAPTION>
% of Total
Options Granted Exercise
Options to Non-Employee or Base
Name Granted(#) Directors in Fiscal Year Price Expiration Date
- ---- --------- ------------------------ -------- ---------------
<S> <C> <C> <C> <C>
Eugene Schuster 6,000 100.0 $.3438 5-10-2005
</TABLE>
- ----------------
OPTION EXERCISES DURING 1995 FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The named executive officers in the Summary Compensation Table did not
exercise any options during fiscal 1995. The Company has no outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
Shares 12/31/95 12/31/95
Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Monis Schuster --- --- 17,300 exercisable ---
Eugene I. Schuster --- --- 36,000 exercisable ---
</TABLE>
12
<PAGE> 14
INCENTIVE STOCK OPTION PLAN
The Company's Incentive Stock Option Plan, (the "ISO Plan"), adopted in
December 1985 and expiring in December 1995, provides for the grant to
employees of the Company and its affiliates, of options to purchase up to
200,000 shares of the Company's common stock. The options generally vest after
the second anniversary of the date of grant. Such options are intended to
qualify as incentive stock options within the meaning of Section 422A of the
Internal Revenue Code of 1954, as amended. The exercise price of the incentive
stock options will not be less than the fair market value of the shares on the
date of the incentive stock option grant as determined by the Compensation
Committee of the Company's Board of Directors. The Compensation Committee has
the authority in its discretion to determine the individuals to whom and the
time or times at which options shall be granted and the number of shares to be
issuable upon the exercise of each option, to interpret the plan, to prescribe,
amend and rescind rules and regulations relating to the plan, to determine the
term and provisions of respective option agreements and to make all other
determinations deemed necessary or advisable for the administration of the
plan.
No incentive stock option may be granted to a person holding 10 percent or more
of the Company's outstanding shares unless the incentive stock option exercise
price, at the time such incentive stock option is granted, is at least 110
percent of the fair market value of the shares on the date the incentive stock
option is granted. Such incentive stock options may be exercised for a term no
longer than ten years and are not transferable except by will or intestacy on
the death of the optionee.
As of December 31, 1995, 62,300 shares, net of forfeitures, were subject to
grant pursuant to this plan at exercise prices per share ranging from $.2813 to
$2.4063 per share.
Options which are forfeited are available for reissuance in accordance with
this plan.
Options to purchase 62,300 shares were exercisable at December 31, 1995.
No options have been exercised to date under the Incentive Stock Option Plan.
NON-QUALIFIED STOCK OPTION PLAN
The Company's Non-qualified Stock Option Plan, (the "NQSO Plan"), adopted in
December 1985, provides for the grant, to consultants and directors of the
Company, of non-qualified options to purchase up to 200,000 shares of the
Company's common stock. The NQSO Plan, which expires in December 1995,
provides that the exercise price of the options will not be less than the fair
market value of the shares on the date of the option grant as determined by the
Compensation Committee of the Board of Directors. The options generally vest
in equal annual installments over the three-year
13
<PAGE> 15
period from the date of grant and expire ten years after date of grant. The
Compensation Committee has the authority in its discretion to determine the
individuals to whom and the time or times at which options shall be granted and
the number of shares to be issuable upon the exercise of each option, to
interpret the plan, to prescribe, amend and rescind rules and regulations
relating to the plan, to determine the term and provisions of respective option
agreements and to make all other determinations deemed necessary or advisable
for the administration of the plan.
As of December 31, 1995, 43,000 shares were subject to grant pursuant to this
plan at exercise prices per share ranging from $.1563 to $1.25 per share.
Options which are forfeited are available for reissuance in accordance with
this plan.
The Company granted no options under this plan for the year 1995.
Options to purchase 43,000 shares were exercisable at December 31, 1995.
No options have been exercised to date under the Non-qualified Stock Option
Plan.
COMPENSATION OF DIRECTORS
The Company presently reimburses Directors for their expenses, if any, for
attending board meetings and compensates each non-employee director at the rate
of $1,000 per meeting attended.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
The Stock Option Plan for Non-Employee Directors (the "NEDSO Plan") provides
for the grant of options to purchase a maximum of 200,000 shares of the
Company's common stock to directors who are not employees of the Company. The
NEDSO Plan also provides that, on May 10, 1990 and May 10 of each subsequent
year through and including the year 2000, each eligible director will be
granted an option to purchase 6,000 shares with an exercise price equal to the
quoted market price of the Company's common stock on the date of the option
grant. Options, once granted, are immediately exercisable and expire 10 years
from date of grant.
During 1995, options to purchase 6,000 shares of the Company's common stock
were granted to Eugene Schuster at an exercise price of $.3438 per share.
As of December 31, 1995, 108,000 shares were subject to grant pursuant to this
plan at exercise prices per share ranging from $.3125 to $2.25 per share.
No options granted under the NEDSO Plan have been exercised to date.
14
<PAGE> 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Set forth below is information concerning stock ownership of the Company's
Common Stock, $.01 par value ("Shares") of each person known by the Company to
own beneficially 5% or more of the Shares, each director and officer and all
directors and officers of the Company as a group, based upon the number of
outstanding Shares as of March 10, 1996.
<TABLE>
<CAPTION>
Shares Subject
to Purchase Upon
the Exercise of
Warrants, Stock
Options & the
Name and Address Shares Conversion of
Of Beneficial Beneficially Convertible Pre- Percentage
Owner Owned (1) ferred Stock (5) of Total
- ---------------- ------------ ----------------- ----------
<S> <C> <C> <C>
Eugene I. Schuster
321 Fisher Bldg.
Detroit, MI 48202 7,447,522(2)(3) 4,133,023 80.9%
Venture Funding, Ltd.
321 Fisher Bldg.
Detroit, MI 48202 7,404,522(2) 4,097,023 80.5%
Norton Diamond Film
One New Bond St.
Worcester, MA 01615 1,066,667 273,569(4) 12.8%
Michigan State Univ.
412 Administration Bldg.
East Lansing, MI 48224 670,989 -- 6.6%
Monis Schuster
44191 Plymouth Oaks
Blvd., Suite 100
Plymouth, MI 48170 7,429,022(2) 4,114,323 80.7%
Sharon K. Zitnik
44191 Plymouth Oaks
Blvd., Suite 100
Plymouth, MI 48170 2,000 137,500 1.4%
Raymond F. Decker
717 East Huron
Ann Arbor, MI 48104 80,327 -- *
All Directors and
officers as a group
(5 persons) 8,225,338 4,287,823 86.5%
</TABLE>
- -------------------------
* Less than 1%
15
<PAGE> 17
(1) All Shares are beneficially owned and sole voting and investment power is
held by the person named, except as otherwise noted.
(2) Eugene I. Schuster and Monis Schuster are principal shareholders,
officers and directors of Venture Funding, Ltd., ("Venture"), and,
therefore, may be deemed to hold voting and investment power over the
Shares owned by Venture, and, thus, control the 7,404,522 Shares owned by
Venture.
(3) Does not include 177,680 Shares held by members of Eugene I. Schuster's
immediate family for which he has neither voting nor investment power,
and, therefore, disclaims beneficial ownership.
(4) Represents the number of Shares into which each Share of Convertible
Preferred Stock held by Norton Company could be converted. Norton Company
is the holder of 4,000 Shares of the Company's Convertible Preferred Stock
with a conversion rate currently equivalent to 51.02 Shares of Common
Stock plus accumulated unpaid dividends, for each Share of Convertible
Preferred Stock held.
(5) Includes Shares such persons have the right to purchase upon the exercise
of outstanding stock options currently exercisable or exercisable within
60 days after March 10, 1996, and also includes Shares of Common Stock
into which each Share of Convertible Preferred Stock could be presently
converted.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
MANAGEMENT AND ADMINISTRATIVE SERVICES AGREEMENT AND CONTRIBUTION
OF CAPITAL
Growth provides the Company with certain accounting, shareholder and public
relations services on a month-to-month basis for a monthly fee of $3,500 plus
out-of-pocket expenses. On October 27, 1995, the Management and Administrative
Services Agreement with Growth was cancelled by resolution of the Company's
Board of Directors. If such services are needed the Company will hire Growth
on an hourly basis. During each of the years ended December 31, 1995 and 1994,
the Company accrued management fees to Growth in the amounts of $38,500 and
42,000 respectively.
Certain additional costs incurred by Growth on behalf of the Company are
reimbursed to Growth. There were no amounts reimbursed to Growth related to
these costs during 1995 and approximately $21,100 reimbursed to Growth in 1994.
16
<PAGE> 18
SALES TO NORTON
There where no microwave processing system sales to the Norton during 1995. In
1994, microwave processing system sales amounted to $575,134 with corresponding
cost of sales of $575,134.
BORROWINGS
On January 29, 1992, the Company entered into a $125,000 line of credit
arrangement evidenced by a promissory note with Venture. The amounts borrowed
pursuant to this line of credit are payable by the Company upon demand. The
Company had utilized the entire line of credit during 1992. The applicable
interest rate is at two percentage points above the prime rate of a major bank
with such interest rate ranging from 8.0 percent per annum to 9.25 percent per
annum for the period of January 29, 1992 through August 17, 1994. This
obligation with related interest was extinguished by inclusion in a Convertible
Debenture issues by the Company to Growth on August 18, 1994. 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
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 with such interest rate ranging
from 8.25 percent per annum to 10.75 percent per annum for the period of April
7, 1994 through December 31, 1995. 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 St. Gobain/Norton
Industrial Ceramics Corporation , an affiliate of the Company, dated August 3,
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 December 31, 1995. 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 August 19, 1994, $377,767 of the Company's accumulated obligations relating
to license agreement entered into with Michigan State University ("MSU") in
January 1988, prior research and development activities performed by MSU on
behalf of the Company and patent maintenance fees incurred on behalf of the
Company, were extinguished in exchange for 670,989 shares of the Company's
common stock. (See Notes 3 and 4 to the
17
<PAGE> 19
Financial Statements.) The $377,767 represented amounts owed by the Company in
relation to license fee ($25,000), research and development ($102,528),
royalties ($153,586), and patent maintenance fees ($96,653).
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 had utilized $100,000 of the line of credit by December 31, 1995. The
applicable interest rate is at 2 percent points about the prime rate of a major
bank with such interest rate ranging from 9.75 percent per annum to 10.5
percent per annum for the period ending December 31, 1995.
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 $689,290 on
this line of credit as of December 31, 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 December 31, 1995.
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 due a balance of
$124,574 under the Convertible Debenture.
ISSUANCES OF COMMON STOCK
On August 19, 1994, the Company entered into an Investment Agreement with MSU,
in which $377,767 of the Company's accumulated obligations related to a license
agreement entered into with MSU in January 1988, prior research and development
performed by MSU on behalf of the Company and patent maintenance fees incurred
on behalf of the Company, were extinguished in exchange for 670,989 shares of
the Company's common stock. The exchange price per share of common stock was
$.5630. (See Notes 3 and 4 to the Financial Statements.)
In October 27, 1995, Growth converted $600,000 of debt obligations into
3,838,772 shares of the Company's common stock, pursuant to the Convertible
Debenture issued by the Company to Growth on August 18, 1994 for the principal
amount of $724,575 with interest occurring on the outstanding balance. On the
same date, the exercise price of the Debenture was reduced from $.5630 per
share to $.1563 per share, the average of the bid-ask price of the stock on
that date, in consideration for financing and contribution of capital provided
to the Company by Growth during 1995.
18
<PAGE> 20
WARRANTS TO PURCHASE COMMON STOCK
On August 19, 1994, pursuant to a resolution of the Company's Board of
Directors, a warrant was issued by the Company to Venture, a significant
shareholder of the Company, for the purchase of 1,300,000 shares of the
Company's common stock at an exercise price of $.5313 per share. This warrant
could be exercised at any time and from time to time during the five year
period from August 9, 1994 to August 9, 1999. On October 27, 1995, the
Company's Board of Directors, by resolution, reduced the exercise price of the
warrant to $.1563 per share of common stock, the average of the bid-ask price
of the Company's common stock on that date. The issuance of the warrant and
reduction in the exercise price were in consideration for providing financing
to the Company.
On October 27, 1995, a warrant was issued by the Company to Growth Funding,
Ltd., a wholly owned subsidiary of Venture Funding, Ltd., for the purchase of
2,000,000 shares of the Company's common stock at an exercise price of $.1563
per share. This warrant may be exercised at any time, and from time to time
during the five year period from October 27, 1995 to October 27, 2000. This
warrant was issued in consideration for Growth providing financing to the
Company.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of warrants for 100,000 shares each of the Company's
common stock at a exercise price of $.1563 per share to Raymond F. Decker and
Michigan State University, a substantial shareholder of the Company. These
warrants will vest in one-third amounts at the end of the first, second and
third year of the terms of Raymond F. Decker and Michigan State University
(Frederick H. Erbisch), or their successors as members of the Board of
Directors. Vesting will occur so long as they are members of the Board of
Directors.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 500,000 shares of the Company's
common stock at an exercise price of $.1563 per share to Sharon Zitnik. These
warrants will vest equally each year over a five year period, so long as Sharon
Zitnik remains an employee of the Company.
On October 27, 1994, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 100,000 shares of the Company's
common stock at a exercise price of $.1563 per share to Robert Rudnick. These
warrants will vest equally each year over a four year period, so long as Robert
Rudnick remains an employee of the Company.
The above warrants issued to Sharon Zitnik and Robert Rudnick were granted in
consideration for exceptional contributions performed for the Company over the
past several years.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 100,000 shares of the Company's
common stock at an exercise price of $.1563 per share to Dennis Schweiger, who
has been working part-time and as a consultant for the Company. These warrants
will vest equally over a four year period so long as he remains a consultant to
the Company at the end of each year during the four year
19
<PAGE> 21
period. These warrants were granted in consideration for exceptional
contributions performed for the Company.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 2,000 shares of the Company's common
stock at an exercise price of $.1563 per share to Gordon St. John. These
warrants are immediately vested and can be exercised at any time over a five
year period. These warrants were granted for exceptional service performed for
the Company.
20
<PAGE> 22
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER OF
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2(a) Certificate of Ownership and Merging Wavemat, Inc. into
University Science Partners, Inc. effective December 28, 1988. (6)
3(a) Articles of Incorporation of the Company. (1)
3(b) By-Laws of the Company. (1)
3(c) Certificate of Amendment to Certificate of Incorporation effective May 5, 1989. (8)
10(f) Form of Registration Rights Agreement between the Company and certain of its
shareholders. (1)
10(g) Form of Indemnification Agreement between the Company and its directors. (1)
10(j) Research and Funding Agreement, dated April 1, 1987, with Michigan State
University. (2)
10(m) Exclusive License Agreement, dated January 15, 1988, between Wavemat and
Michigan State University. (4) (5).
10(o) Research Agreement, dated January 15, 1988, between Wavemat and Michigan
State University. (4) (5)
10(p) Agreement, dated March 3, 1988, between Wavemat and Norton Company. (4)
10(x) Research and Development Agreement, dated as of October 1, 1988, between
Wavemat Inc. and Growth Funding, Ltd. (6)
10(y) Cross License Agreement, dated as of October 1, 1988, between Wavemat
Inc. and Growth Funding, Ltd. (6)
10(z) Commercialization Agreement, dated as of October 1, 1988, between
Wavemat Inc. and Growth Funding, Ltd. (7)
10(a)(f) Incentive Stock Option Plan, as Amended, of the Company. (12)
10(a)(g) Non-Qualified Stock Option Plan, as Amended, of the Company. (12)
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
NUMBER OF
EXHIBIT DESCRIPTION OF EXHIBIT
- --------- ----------------------
<S> <C>
10(a)(h) Restated Agreement between the Company and Materials
Science Partner, Inc. dated October 1, 1988. (12)
10(a)(i) Certificate of Designations, Preferences and Rights of Series A 5-1/2%
Convertible Preferred Stock. (9)
10(a)(j) License Agreement, dated December 29, 1989, between
Wavemat and Norton Company. (10)
10(a)(k) Preferred Stock Purchase Agreement, dated December 29, 1989, between
Wavemat and Norton Company. (10)
10(a)(l) Research and Development Agreement, dated December 29, 1989, between
Wavemat and Norton Company. (10)
10(a)(m) Supply Agreement, dated December 29, 1989, between Wavemat and Norton Company. (10)
10(a)(n) Lease Agreement between the Company and P.M. Associates, II dated March
13, 1990. (12)
10(a)(o) Stock Option Plan for Non-Employee Directors. (12)
10(a)(p) Sale Agreement, dated January 28, 1991, between Wavemat and Thixomat Inc. (12)
10(a)(q) Amendment to Research and Development Agreement between Wavemat and Growth
with such Amendment dated Funding, Ltd., dated October 1, 1988,
November 1, 1990. (12)
10(a)(r) Amendment to Cross License Agreement between Wavemat and Growth
Funding, Ltd., dated October 1, 1988, with such Amendment dated November
1, 1990. (12)
10(a)(s) Amendment to Commercialization Agreement between Wavemat and Growth
Funding, Ltd., dated October 1, 1988, with such Amendment dated November
1, 1990. (12)
10(a)(t) Lease Agreement, dated July 11, 1990, between Wavemat and Sterling
Savings Bank. (12)
10(a)(u) Stock Purchase Warrant to purchase 300,000 shares of common stock of
Wavemat, dated March 1, 1989, issued to Growth Funding, Ltd. (12)
10(a)(v) Amendment to Stock Purchase Warrant to purchase 300,000 shares of
common stock of Wavemat, dated March 1, 1989, issued to Growth Funding,
Ltd., with such warrant dated July 12, 1990. (12)
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
NUMBER OF
EXHIBIT DESCRIPTION OF EXHIBIT
- --------- ----------------------
<S> <C>
10(a)(w) Employment Agreement between the Company and Richard J. Dexter dated June 7, 1993. (14)
10(a)(x) Wavemat Inc. Employee Savings and Retirement Plan adopted September 1, 1993. (14)
10(a)(4) Amendment to Supply Agreement, dated December 29, 1989, between Wavemat and Norton
Diamond Film with such amendment dated August 9, 1994.
10(a)(z) Stock Purchase Wavemat, dated August 9, 1994, between Wavemat, Inc.
and Venture Funding, Ltd.
10(b)(a) Investment Agreement dated August 19, 1994 between Wavemat, Inc. and
Michigan State University.
- -------------------------
16.1 Arthur Andersen & Company letter addressed to Securities and Exchange
Commission dated November 12, 1992. (13)
1. Previously filed with Registration Statement on Form S-18 (No. 33-9290-C),
incorporated herein by reference.
2. Previously filed with Form 10-Q for the quarter ended June 30, 1988, and
incorporated herein by reference.
3. Previously filed with Form 10-Q for the quarter ended September 30, 1988,
and incorporated herein by reference.
4. Previously filed with Form 10-K for the year ended December 31, 1987, and
incorporated herein by reference.
5. Confidential treatment has been granted for certain portions of this
Exhibit.
6. Previously filed with Form 10-K for the year ended December 31, 1988, and
incorporated by reference herein.
7. Previously filed with Form 10-Q for the quarter ended March 31, 1989.
8. Previously filed with Form 10-Q for the quarter ended March 31, 1989.
9. Previously filed on Form 8-K dated December 29, 1989.
10. To be filed upon amendment.
</TABLE>
23
<PAGE> 25
<TABLE>
<S> <C>
11. Previously filed with Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference.
12. Previously filed with Form 10-K for the year ended December 31, 1990,
reference. and incorporated herein by
13. Previously filed with Form 8-K dated November 9, 1992.
14. Filed herewith.
(b) No reports on Form 8-K were filed during the last quarter of the
Company's year ended December 31, 1995.
</TABLE>
24
<PAGE> 26
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Statements of Operations for F-2
Each of the Two Years
in the Period Ended
December 31, 1995
Statement of Financial Position F-3
at December 31, 1995
Statements of Cash Flows F-4
for Each of the Two
Years in the Period Ended
December 31, 1995
Statements of Shareholders' F-5
Deficit for Each of the
Two Years in the Period
Ended December 31, 1995
Notes to Financial Statements F-6
F-1
<PAGE> 27
WAVEMAT INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------
1995 1994
(Unaudited) (Unaudited)
----------- -------------
<S> <C> <C>
OPERATING REVENUE:
Microwave processing system sales $ 438,127 $ 158,741
Microwave processing system sales
- affiliate 33,430 575,134
---------- ----------
Total operating revenue 471,557 733,875
---------- ----------
OPERATING COSTS AND EXPENSES:
Cost of sales 317,809 558,506
Research and development 52,080 113,529
Selling, general and administrative 772,461 714,938
Royalty expense - affiliate 50,000 22,312
---------- ----------
Total operating costs and expenses 1,192,350 1,409,285
---------- ----------
Operating loss (720,793) (675,410)
OTHER INCOME (EXPENSE):
Interest income 250 164
Interest expense (10,578) (4,620)
Interest expense - affiliate (151,421) (52,087)
Other -- 3,800
---------- ----------
Other income (expense), net (161,749) (52,743)
---------- ----------
NET LOSS ($882,542) ($728,153)
---------- ----------
NET LOSS PER SHARE OF
COMMON STOCK ($0.13) ($0.12)
---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 7,037,487 5,920,538
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 28
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS December 31,
1995
--------------
<S> <C>
CURRENT ASSETS:
Accounts receivable $ 57,956
Inventory 115,730
Prepaid expenses 5,728
--------------
Total current assets 179,414
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 54,570
LICENSE AGREEMENT, net 19,381
PURCHASED TECHNOLOGY, net 270,833
DEFERRED PATENT COSTS - affiliate 148,275
OTHER ASSETS 18,504
--------------
Total assets $ 690,977
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 16,330
Short-term borrowings - affiliate 1,251,865
Accounts payable 354,540
Accounts payable - affiliate 37,357
Accrued liabilities 489,652
Customer deposits 14,291
Customer deposits - affiliate 128,243
--------------
Total current liabilities 2,292,278
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 (6,780,297)
--------------
Shareholders' deficit (1,601,301)
--------------
Total liabilities and shareholders' deficit $ 690,977
==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 29
To Be Inserted
F-4
<PAGE> 30
WAVEMAT INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR YEARS ENDED DECEMBER 31, 1994 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
----------------------- ----------------------------------------------------
Additional
Number of Number of Paid-in
shares Amount Warrants shares Amount Capital
---------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 4,000 $400,000 --- 5,672,364 $56,724 $3,544,504
Issuance of warrant to affiliate - August 9,1994 --- --- 1,300,000 --- --- ---
Issuance of common stock to affiliate to
extinguish debt - August 19, 1994 --- --- --- 670,989 6,710 371,058
Net loss for 1994 --- --- --- --- --- ---
----- -------- --------- ---------- ------- ----------
BALANCE AT DECEMBER 31, 1994 4,000 400,000 1,300,000 6,343,353 63,434 3,915,562
Issuance of warrant to affiliate - October 27, 1995 --- --- 2,000,000 --- --- ---
Issuance of warrant to affiliate - October 27, 1995 --- --- 100,000 --- --- ---
Capital contribution by affiliate - October 27, 1995 --- --- --- --- --- 200,000
Issuance of common stock to affiliate from
conversion of convertible debenture -
October 27, 1995 --- --- --- 3,838,772 38,388 561,612
Issuance of warrant to director - October 27, 1995
Issuance of warrant to consultants - October 27, 1995 --- --- 102,000 --- --- ---
Issuance of warrants to employees - October 27, 1995 --- --- 600,000 --- --- ---
Net loss for 1995 --- --- --- --- --- ---
----- -------- --------- ---------- ------- ----------
4,000 $400,000 4,102,000 10,182,125 101,822 4,677,174
===== ======== ========= ========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Shareholders'
Deficit Deficit
------------ -------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1993 $ (5,153,271) $ (1,152,043)
Issuance of warrant to affiliate - August 9,1994 --- ---
Issuance of common stock to affiliate to
extinguish debt - August 19, 1994 --- 377,768
Net loss for 1994 (744,484) (744,484)
------------ -------------
BALANCE AT DECEMBER 31, 1994 $ (5,897,755) $ (1,518,759)
Issuance of warrant to affiliate - October 27, 1995 --- ---
Issuance of warrant to affiliate - October 27, 1995 --- ---
Capital contribution by affiliate - October 27, 1995 --- 200,000
Issuance of common stock to affiliate from
conversion of convertible debenture -
October 27, 1995 --- 600,000
Issuance of warrant to director - October 27, 1995
Issuance of warrant to consultants - October 27, 1995 --- ---
Issuance of warrants to employees - October 27, 1995 --- ---
Net loss for 1995 (882,542) (882,542)
------------ -------------
$ (6,780,297) $ (1,601,301)
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 31
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
Except as the context otherwise indicates, the term the "Company" refers to
Wavemat Inc.
INVENTORY
Inventory is valued at the lower of cost or market, determined by the first-in,
first-out method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Equipment pertaining
to capital leases are stated at fair market value as of the inception date of
the lease. Depreciation and amortization is provided using the straight-line
method over estimated useful lives ranging from five to ten years.
Maintenance and repairs are charged to expense as incurred. The cost of
renewals and betterments is capitalized, and the cost and accumulated
depreciation associated with assets retired or sold are eliminated. Gains or
losses on disposal of equipment and leasehold improvements are credited or
charged to income.
LICENSE AGREEMENT
Costs incurred in obtaining the license agreement have been capitalized and are
being amortized by the straight-line method over the estimated useful life of
the license agreement of 17 years.
PURCHASED TECHNOLOGY
The cost of purchased technology is being amortized by the straight-line method
over an estimated useful life of 12 years.
DEFERRED PATENT COSTS
Costs incurred in relation to patent applications are capitalized as deferred
patent costs. If and when a patent is issued, the related patent application
costs will be transferred to the patent classification and will be amortized by
the straight-line method over the useful life of the applicable patent. If it
is determined that a patent will not be issued, the related patent application
costs will be expensed at the time such determination is made.
REVENUE RECOGNITION
Sales are recognized in the period in which the related products are shipped.
Contract research and development revenues are recognized during the period in
which the related research and development activities are conducted.
F-6
<PAGE> 32
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(1) SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
NET LOSS PER SHARE OF COMMON STOCK
The computation of net loss per share of common stock is based upon the
weighted average number of shares of common stock outstanding during each
period presented. Stock options, warrants and convertible preferred stock have
been excluded from the computation because the effect is antidilutive.
FINANCIAL STATEMENT RECLASSIFICATION
Certain reclassifications have been made to the financial statements of prior
years to conform to the 1995 presentation.
(2) DETAILS TO STATEMENT OF FINANCIAL POSITION
Inventory consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Raw Materials $ 49,733
Work-in-Process 65,997
--------
$115,730
========
<CAPTION>
A summary of Equipment and Leasehold Improvements at
December 31, 1995 follows:
<S> <C>
Machinery & equipment $545,173
Leasehold improvements 61,612
--------
607,785
Less: Accumulated
depreciation and
amortization 553,216
--------
$ 54,570
========
<CAPTION>
A summary of the License Agreement at December 31, 1995 follows:
<S> <C>
License agreement $36,271
Less: Accumulated
amortization 16,891
-------
$19,380
=======
<CAPTION>
A summary of Purchased Technology at December 31, 1995 follows:
<S> <C>
Purchased Technology $325,000
Less: Accumulated Amortization $ 54,167
--------
$270,833
========
</TABLE>
F-7
<PAGE> 33
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
A summary of Accrued Liabilities at December 31, 1995 follows:
<TABLE>
<S> <C>
Royalties - affiliate $ 62,764
Deferred compensation 85,383
Commissions 72,049
Accrued interest - affiliate 125,677
Accrued legal and audit 32,501
Other 111,290
--------
$489,652
========
</TABLE>
------------------------------------------------------
(3) DEBT
On January 29, 1992, the Company entered into a $125,000 line of credit
arrangement evidenced by a promissory note with Venture. The amounts borrowed
pursuant to this line of credit are payable by the Company upon demand. The
Company had utilized the entire line of credit during 1992. The applicable
interest rate is at two percentage points above the prime rate of a major bank
with such interest rate ranging from 8.0 percent per annum to 9.25 percent per
annum for the period of January 29, 1992 through August 17, 1994. This
obligation with related interest was extinguished by inclusion in a Convertible
Debenture issues by the Company to Growth on August 18, 1994.
On April 7, 1994, the Company finalized a $350,000 revolving line of credit
Promissory Note with Growth, a wholly-owned subsidiary of Venture and
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 with such interest rate ranging from 8.25 percent per
annum to 10.75 percent per annum for the period of April 7, 1994 through
December 31, 1995. 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 St. Gobain/Norton Industrial Ceramics
Corporation, an affiliate of the Company, dated August 3, 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
F-8
<PAGE> 34
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(3) DEBT - CONTINUED
through December 31, 1995. 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 August 19, 1994, $377,767 of the Company's accumulated obligations relating
to license agreement entered into with MSU in January 1988, prior research and
development activities performed by MSU on behalf of the Company and patent
maintenance fees incurred on behalf of the Company, were extinguished in
exchange for 670,989 shares of the Company's common stock. (See Notes 3 and 4
to the Financial Statements.) The $377,767 represented amounts owed by the
Company in relation to license fee ($25,000), research and development
($102,528), royalties ($153,586), and patent maintenance fees ($96,653).
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 had utilized $100,000 of the line of credit by December 31, 1995. The
applicable interest rate is at 2 percent points above the prime rate of a major
bank with such interest rate ranging from 9.75 percent per annum to 10.5
percent per annum for the period ending December 31, 1995.
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 $689,290 on
this line of credit as of December 31, 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 December 31, 1995.
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.
On October 27, 1995, Growth made a contribution of capital to the company in
the amount of $200,000, which extinguished deferred compensation ($57,642),
accrued interest relating to the above mentioned Convertible Debenture
($72,517) and other miscellaneous liabilities ($69,841) owed by the Company to
Growth.
F-9
<PAGE> 35
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(3) DEBT - CONTINUED
All interest costs incurred by the Company have been charged to expense.
Interest payments of $7,934 and $2,177 were made in 1995 and 1994,
respectively.
(4) SHAREHOLDERS' DEFICIT
On August 9, 1994, pursuant to a resolution of the Company's Board of
Directors, a warrant was issued by the Company to Venture, a significant
shareholder of the Company, for the purchase of 1,300,000 shares of the
Company's common stock at an exercise price of $.5313 per share. This warrant
could be exercised at any time and from time to time during the five year
period from August 9, 1994 to August 9, 1999. On October 27, 1995, the
Company's Board of Directors, by resolution, reduced the exercise price of the
warrant to $.1563 per share of common stock, the average of the bid-ask price
of the Company's common stock on that date. The issuance of the warrant and
reduction in the exercise price were in consideration for providing financing
to the Company.
On August 19, 1994, the Company entered into an Investment Agreement with MSU,
an affiliate of the Company, in which $377,767 of the Company's accumulated
obligations related to MSU were extinguished in exchange for 670,989 shares of
the Company's common stock. The exchange price per share of common stock was
$.5630. See Notes 3 and 9.
In addition, for as long as MSU (or any other entity affiliated with MSU,
including the Michigan State Foundation) is the owner of at least 2.5% of the
Company's outstanding common stock on a fully diluted bases, then MSU shall be
entitled on notice given to the Company to have one of MSU's nominees elected
to and maintained on the Board of Directors of the Company. In July, 1995, MSU
appointed Dr. Frederick Erbisch to serve on the Company's Board of Directors
and he was elected to the Board of Directors by resolution on October 27, 1995.
The Company has 4,000 shares of Series A 5-1/2% Convertible Preferred Stock
("Convertible Preferred Stock") outstanding. The dividends relating to the
Convertible Preferred Stock are cumulative and amount to $22,000 per annum in
the aggregate. The Company is in arrears pertaining to the declaration and
payment of these dividends in the amount of $132,000 as of December 31, 1995.
The holder of the Convertible Preferred Stock is entitled to vote on all
matters submitted to a vote of the shareholders of the Company, voting together
with holders of the Company's common stock as one class. For each share of
Convertible Preferred Stock held, the holder shall be entitled to a number of
votes equal to the number of shares of common stock into which each share of
Convertible Preferred Stock could be converted. The holder of the Convertible
Preferred Stock is entitled at all times, voting as a separate class, to elect
one director to the Company's Board of Directors.
At any time after December 31, 1992, the holder of shares of Convertible
Preferred Stock is entitled to cause one or all of such shares to be
F-10
<PAGE> 36
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) SHAREHOLDER'S DEFICIT - CONTINUED
converted into shares of common stock at an initial conversion price equal
to $2.38 per share of common stock, subject to adjustment, with each share of
Convertible Preferred Stock being valued at $100 plus all accrued and
unpaid dividends thereon through the date of conversion; that is, a conversion
rate equivalent to 42.02 shares of common stock plus accrued dividends for each
share of Convertible Preferred Stock. During the period of July 1, 1991
through December 31, 1993, due to the effects of anti-dilution provisions and
product order criteria, the conversion price was changed to $1.96 per share of
common stock, which represents a conversion rate equivalent to 51.02 shares of
common stock plus accrued dividends for each share of Convertible Preferred
Stock.
The conversion of each share of Convertible Preferred Stock into common stock
shall automatically occur upon the closing of a public offering of the
Company's common stock, if that offering meets certain conditions. The
Convertible Preferred Stock shall be callable, in whole or in part, at the
option of the Company at any time after December 31, 1994, at a price per share
of $100 plus accrued and unpaid dividends thereon.
The Board of Directors is authorized to issue up to 1,000,000 shares of
preferred stock from time to time in one or more series and, subject to the
limitations contained in the Certificate of Incorporation and any limitations
prescribed by law, to establish and designate series and to fix the number of
shares and the relative rights, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions) and liquidation
preferences.
On October 27, 1995, Growth converted $600,000 of debt obligations into
3,838,772 shares of the Company's common stock, pursuant to the Convertible
Debenture issued by the Company to Growth on August 18, 1994 for the principal
amount of $724,575 with interest occurring on the outstanding balance. On that
same date, the exercise price of the Debenture was reduced from $.5630 per
share to $.1563 per share, the average of the bid-ask price of the stock on
that date, in consideration for financing and contribution of capital provided
to the Company by Growth during 1995.
On October 27, 1995, Growth made a contribution of capital to the Company in
the amount of $200,000. See Note 3.
On October 27, 1995, a warrant was issued by the Company to Growth Funding,
Ltd., a wholly owned subsidiary of Venture Funding, Ltd., for the purchase of
2,000,000 shares of the Company's common stock at an exercise price of $.1563
per share. This warrant may be exercised at any time, and from time to time
during the five year period from October 27, 1995 to October 27, 2000. This
warrant was issued in consideration for Growth providing financing to the
Company.
F-11
<PAGE> 37
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(4) SHAREHOLDER'S DEFICIT - CONTINUED
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of warrants for 100,000 shares each of the Company's
common stock at a exercise price of $.1563 per share to Raymond F. Decker and
Michigan State University, a substantial shareholder of the Company. These
warrants will vest in one-third amounts at the end of the first, second and
third year of the terms of Raymond F. Decker and Michigan State University
(Frederick H. Erbisch), or their successors as members of the Board of
Directors. Vesting will occur so long as they are members of the Board of
Directors.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 500,000 shares of the Company's
common stock at an exercise price of $.1563 per share to Sharon Zitnik. These
warrants will vest equally each year over a five year period, so long as Sharon
Zitnik remains an employee of the Company.
On October 27, 1994, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 100,000 shares of the Company's
common stock at a exercise price of $.1563 per share to Robert Rudnick. These
warrants will vest equally each year over a four year period, so long as Robert
Rudnick remains an employee of the Company.
The above warrants issued to Sharon Zitnik and Robert Rudnick were granted in
consideration for exceptional contributions performed for the Company over the
past several years.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 100,000 shares of the Company's
common stock at an exercise price of $.1563 per share to Dennis Schweiger, who
has been working part-time and as a consultant for the Company. These warrants
will vest equally over a four year period so long as he remains a consultant to
the Company at the end of each year during the four year period. These
warrants were granted in consideration for exceptional contributions performed
for the Company.
On October 27, 1995, the Company's Board of Directors passed a resolution
authorizing the issuance of a warrant for 2,000 shares of the Company's common
stock at an exercise price of $.1563 per share to Gordon St. John. These
warrants are immediately vested and can be exercised at any time over a five
year period. These warrants were granted for exceptional service performed for
the Company.
F-12
<PAGE> 38
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(5) STOCK OPTION PLANS
INCENTIVE STOCK OPTION PLAN
In December 1985, the Company adopted an Incentive Stock Option Plan, which
expires in December 1995. Under the terms of this plan, the Company may grant
options to employees of the Company to purchase a maximum of 200,000 shares of
the Company's common stock at prices not less than the quoted market price of
the common stock on the date of grant. The options generally vest after the
second anniversary of the date of grant and may be exercised for a term no
longer than ten years. The Compensation Committee of the Company's Board of
Directors has the authority, in its discretion, to determine the employees to
whom and the time or times at which options shall be granted and the number of
shares issuable upon the exercise of each option.
As of December 31, 1995, 62,300 shares, net of forfeitures, were subject to
grant pursuant to this plan at exercise prices per share ranging from $.2813 to
$2.4063 per share.
No options were granted in 1995.
Options which are forfeited are available for reissuance in accordance with
this plan.
Options to purchase 62,300 shares were exercisable at December 31, 1995.
No options have been exercised to date under the Incentive Stock Option Plan.
NON-QUALIFIED STOCK OPTION PLAN
In December 1985, the Company also adopted a Non-Qualified Stock Option Plan,
which expires in December 1995. Under the terms of this plan, the Company may
grant options to consultants and directors of the Company for the purchase of a
maximum of 200,000 shares of the Company's common stock at prices not less
than the quoted market price of the common stock on the date of grant.
Options, once granted, vest equally over a three-year period and expire ten
years after the date of grant. The Compensation Committee of the Board of
Directors has the authority, in its discretion, to determine the individuals to
whom, and the time or times at which options shall be granted and the number of
shares issuable upon the exercise of each option.
F-13
<PAGE> 39
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(5) STOCK OPTION PLANS - CONTINUED
NON-QUALIFIED STOCK OPTION PLAN - CONTINUED
As of December 31, 1995, 43,000 shares were subject to grant pursuant to this
plan at exercise prices per share ranging from $.3750 to $1.25 per share.
Options which are forfeited are available for reissuance in accordance with
this plan.
No options were granted pursuant to this plan during 1995.
Options to purchase 43,000 shares were exercisable at December 31, 1995.
No options have been exercised to date under the Non-Qualified Stock Option
Plan.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On May 10, 1990, the Company adopted the Stock Option Plan for Non-employee
Directors (the "NEDSO Plan"). The NEDSO Plan provides for the grant of options
to purchase a maximum of 200,000 shares of the Company's common stock to
directors who are not employees of the Company. The NEDSO Plan also provides
that, on May 10, 1990 and May 10 of each subsequent year through and including
the year 2000, each eligible director will be granted an option to purchase
6,000 shares with an exercise price equal to the quoted market price of the
Company's common stock on the date of the option grant. Options once granted are
immediately exercisable and expire 10 years from date of grant.
As of December 31, 1995, 108,000 shares were subject to grant pursuant to this
plan at exercise prices per share ranging from $.3125 to $2.25 per share.
On May 10, 1995 and 1994, the Company granted options under this plan for the
purchase of 6,000 shares and 24,000 shares at an exercise price of $.3438 and
$.5313 per share respectively.
No options granted under the NEDSO Plan have been exercised to date.
(6) INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"). There
was no cumulative effect of this change in accounting for income taxes as of
January 1, 1993.
F-14
<PAGE> 40
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(6) INCOME TAXES - CONTINUED
No provision for income taxes has been recognized for 1995 and 1994 because of
the losses incurred during those years.
On December 31, 1995, the Company had net operating loss carryforwards for
financial reporting purposes of $6,780,297 which will, if unused, expire from
2002 to 2010. For tax reporting purposes, the Company had net operating loss
carry forward to offset future taxable income estimated at $6,313,226, which
will if unused, expire from 2002 to 2010.
In accordance with certain provisions of the Tax Reform Act of 1986, a change
in ownership of greater than 50 percent of a corporation within a three-year
period will place an annual limitation on the corporation's ability to utilize
its existing tax benefit carryforwards. Such a change in ownership occurred on
December 31, 1993 in relation to the issuance of 1,000,000 shares of common
stock in consideration for the acquisition of technology. As a result, an
annual limitation of approximately $58,000 applies to operating loss carry
forward of approximately $4,126,700 existing as of December 31, 1993.
Therefore, the Company does not expect to utilize the tax benefits of a
significant amount of its net operating loss carry forward existing as of
December 31, 1993. There were no changes of ownership greater than 50% in
1995, and therefore the Company may utilize the tax benefit carryforwards of
operating losses relating to 1995 without limitation. The Company's
utilization of its tax benefit carryforwards may be further restricted in the
event of subsequent changes in ownership of the Company. See Note 4.
Temporary differences and carryforwards which give rise to deferred tax assets
and liabilities as of December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
Net operating loss $269,733
Depreciation (4,751)
Accrued compensation 29,030
Accrued commissions 24,496
Accrued royalties 21,334
Accrued warranty 4,543
Other accrued expenses 26,003
Valuation allowance pertaining
to deferred tax assets (370,388)
--------
$ -
========
</TABLE>
F-15
<PAGE> 41
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(7) LICENSE, RESEARCH AND DEVELOPMENT, ROYALTY AND PATENT MAINTENANCE
OBLIGATIONS
In January 1988, the Company entered into a license agreement with a major
university. The license agreement provides the Company with exclusive
worldwide rights to the MSUs patented microwave plasma processing technology
and advancements. The license agreement required the Company to pay a sign-up
fee of $40,000. The license agreement also provides for royalty payments to
be made by the Company to the MSU based on the Company's net sales in relation
to the license agreement. The royalty payments shall be based upon established
percentages of certain levels of related sales. The Company incurred royalty
expense of $50,000 and $22,312 in relation to this license agreement during
1995 and 1994, respectively. On December 31, 1993, the Company owed the MSU
$62,764 in accrued royalties. See Note 3.
(8) EMPLOYEE SAVINGS AND RETIREMENT PLAN
Effective September 1, 1993, the Company adopted a retirement savings plan
covering all employees eligible to participate in the plan (eligible employees
of the Company as of the first day of a plan year or as of a date six months
thereafter). Eligible employees may make annual earnings reduction
contributions of up to 15 percent of compensation limited to $8,994 on a
pre-tax basis to their plan accounts. The Company may also make discretionary
contributions to this plan, subject to approval of the Board of Directors,
which are then allocated to the accounts of the participants in proportion to
each participant's annual compensation from the Company.
The Company may terminate the plan at any time. Upon termination, all amounts
credited to the accounts of participants will become fully vested.
The Company made no discretionary contributions to the plan during 1995.
(9) RELATED PARTY TRANSACTIONS
Growth provides the Company with certain accounting, shareholder and public
relations services on a month-to-month basis for a monthly fee of $3,500 plus
out-of-pocket expenses. On October 27, 1995, the Management and
Administrative Services Agreement with Growth was cancelled by resolution of
the Company's Board of Directors. If such services are need the Company will
hire Growth on an hourly basis. During each of the years ended December 31,
1995 and 1994, the Company accrued management fees to Growth in the amounts of
$38,500 and $42,000 respectively.
Certain additional costs incurred by Growth on behalf of the Company are
reimbursed to Growth. There were no amounts reimbursed to Growth related to
these costs during 1995 and approximately $21,100 reimbursed to Growth in 1994.
F-16
<PAGE> 42
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(9) RELATED PARTY TRANSACTIONS - CONTINUED
In January 1988, the Company entered into a license agreement with MSU. The
license agreement provides the Company with exclusive worldwide rights to MSU's
patented microwave plasma processing technology and advancements. The license
agreement required the Company to pay a sign-up fee of $40,000, thereof. The
license agreement also provides for royalty payments to MSU by the Company on
the Company's net sales. The royalty payments are based on established
percentages of certain levels of related sales. The Company incurred related
royalty expenses of $50,000 and $22,312 in relation to this license agreement
during 1995 and 1994, respectively. On December 31, l995, the Company owed MSU
$62,764 in accrued royalties. See, Note 3.
On December 31, 1993, the Company owed MSU a total of $203,755 in relation to
research and development activities, performed prior to 1991, and patent
maintenced fees incurred by MSU on behalf of the Company.
On August 9, l994, $377,767 of the Company's accumulated obligations to MSU
were extinguished in exchange for 670,989 shares of the Company's common stock.
The $377,767 was comprised of amounts owed in relation to license fees
($25,000), research and development expenses ($102,528), royalties ($153,586)
and patent maintence fees ($96,653).
On August 3, 1994, the Company entered into an agareement with Norton, an
affiliate of the Company, in which Norton will waive their standard 20%
discount from the prevailing list price for its purchases from the Company.
This waiver of the 20 discount is contingent upon repayment to Growth, a
significant shareholder of the Company, first of any accrued interest and then
the outstanding principal until the outstanding debt to Growth is repaid in
full.
On August 9, 1994, the Company received an amendment to an exclusive license
agreement entered into in 1989 with Norton, which grants a non-transferable,
non-exclusive sublicense to manufacture and sell diamond-like carbon (DLC) CVD
processing equipment. As consideration for the license, the Company agrees to
pay Norton a royalty of .5% of the net sales of DLC processing equipment.
On January 17, 1995, the Company reached an agreement with Norton to permit
sales to universities and government laboratories of certain types of diamond
thin film chemical vapor deposition (CVD) processing systems currently being
used by Norton.
See Note 3 for information pertaining to borrowings of the Company from Venture
and Growth.
See Note 4 for a description of capital transactions between the Company and
Venture, Growth and the affiliates.
F-17
<PAGE> 43
WAVEMAT INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(10) 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 and
proceeds from contract research and development activities 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 other sources of funding
such as 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.
LEASES
The Company has capital lease agreements pertaining to certain manufacturing
equipment and office equipment covering the period of July 1990 through January
1995 which are summarized as of December 31, 1995 as follows:
<TABLE>
<S> <C>
Equipment $81,325
Less: Accumulated
amortization 81,325
-------
$ ---
=======
</TABLE>
In March 1990, the Company entered into an operating lease agreement covering
the period of June 6, 1990 through June 30, 1995 pertaining to manufacturing
and office space. The Company renewed their lease covering the period from
July 1, 1995 through June 30, 1996 with an additional option for renewal.
The Company is currently negotiating a lease renewal option. Rental expenses
in relation to this and the renewal lease option amounted to $107,386 in 1995
and $107,386 in 1994.
Future minimum lease payments to be made by the Company in relation to this
lease renewal are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 $ 60,066
--------
Total future minimum lease payments $ 60,066
========
</TABLE>
F-18
<PAGE> 44
On December 31, 1995, the Company was in arrears in relation to minimum lease
payments and executory costs pertaining to this lease in the amounts of $64,959
and $64,964, respectively. The $64,964 is included in minimum lease payments
for 1995. The Company continues in negotiations with the lessor pertaining to
the extinguishment of the amounts in arrears.
F-19
<PAGE> 45
SIGNATURES
In accordance with Section 13 or 15(d) 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: April 15, 1996 /s/Monis Schuster
---------------------------------------
Monis Schuster, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated
on April 15, 1996.
/s/Monis Schuster
---------------------------------------
Monis Schuster, Chairman of the
Board and Chief Executive Officer
(Principal Executive Officer)
and Director
/s/Eugene I. Schuster
---------------------------------------
Eugene I. Schuster, Acting
President and Director
/s/Sharon K. Zitnik
---------------------------------------
Sharon K. Zitnik, Vice President,
Secretary, Treasurer and Chief
Financial Officer (Principal
Financial and Accounting Officer)
/s/Raymond F. Decker
---------------------------------------
Raymond F. Decker, Director
/s/Frederick H. Erbisch
---------------------------------------
Dr. Frederick H. Erbisch (Michigan
State University), Director
<PAGE> 46
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
EX - 27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> (16,330)
<SECURITIES> 0
<RECEIVABLES> 57,956
<ALLOWANCES> 0
<INVENTORY> 115,730
<CURRENT-ASSETS> 179,414
<PP&E> 607,785
<DEPRECIATION> 553,216
<TOTAL-ASSETS> 690,977
<CURRENT-LIABILITIES> 2,292,278
<BONDS> 0
0
400,000
<COMMON> 101,822
<OTHER-SE> (2,103,123)
<TOTAL-LIABILITY-AND-EQUITY> 690,977
<SALES> 471,557
<TOTAL-REVENUES> 471,557
<CGS> 317,809
<TOTAL-COSTS> 1,192,350
<OTHER-EXPENSES> (161,749)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (161,999)
<INCOME-PRETAX> (882,542)
<INCOME-TAX> 0
<INCOME-CONTINUING> (882,542)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (882,542)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> 0
</TABLE>
