<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE
SECURITIES ACT OF 1934.
For the quarterly period ended SEPTEMBER 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT.
For the transition period from _______________ to ________________
Commission file number: 0-16919
WAVEMAT INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 38-2512387
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
44191 PLYMOUTH OAKS BLVD, STE. 100, PLYMOUTH, MICHIGAN 48170
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(313) 454-0020
----------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------- -------
As of September 29, 1996, the registrant had 10,182,125 shares of its
Common Stock, $.01 par value outstanding.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
WAVEMAT INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
OPERATING REVENUE: ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C>
Microwave processing system sales $146,391 $23,731 $227,180 $109,970
Microwave processing system sales
- affiliate - - 17,306 24,020
----------- ---------- ------------- --------------
Total operating revenue 146,391 23,731 244,486 133,990
----------- ---------- ------------- --------------
OPERATING COSTS AND EXPENSES:
Cost of sales 84,014 12,255 169,185 83,893
Research and development 18,935 13,148 67,369 36,112
Selling, general and administrative 182,544 204,815 525,676 567,583
Royalty expense - affiliate - - 12,992 5,016
----------- ---------- ------------- --------------
Total operating costs and expenses 285,493 230,218 775,222 692,604
----------- ---------- ------------- --------------
Operating loss (139,102) (206,487) (530,736) (558,614)
OTHER INCOME (EXPENSE):
Interest income 31 120 110 164
Interest expense 1,720 (5,885) (1,331) (7,258)
Interest expense - affiliate (40,942) (41,385) (112,750) (113,213)
----------- ---------- ------------- --------------
Other expense, net (39,191) (47,150) (113,971) (120,307)
----------- ---------- ------------- --------------
NET LOSS ($178,293) ($253,637) ($644,707) ($678,921)
=========== ========== ============= ==============
NET LOSS PER SHARE OF
COMMON STOCK ($0.02) ($0.04) ($0.06) ($0.11)
=========== ========== ============= ==============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,182,125 6,343,353 10,182,125 6,343,353
=========== ========== ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 3
WAVEMAT INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $ ---
---------- ----------
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (644,707) (678,921)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 41,595 58,034
Changes in current assets and liabilities:
Accounts receivable 7,906 (47,143)
Inventory 43,296 (117,999)
Prepaid expenses 2,469 (15,363)
Bank overdraft (1,512) (29,555)
Short-term borrowings --- 181,000
Short-term borrowings - affiliate 369,200 488,075
Accounts payable (47,052) (49,453)
Accounts payable - affiliate 14,267 30,195
Accrued liabilities 297,475 227,677
Customer deposits (9,665) (14,965)
---------- ----------
Net cash provided by operating activities 73,272 31,582
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (42,630) ---
Increase in deferred patent costs (30,642) (24,263)
---------- ----------
Net cash used in investing activities (73,272) (24,263)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of debt --- (3,223)
---------- ----------
Net cash used in financing activities --- (3,223)
---------- ----------
INCREASE IN CASH --- 4,096
---------- ----------
CASH, END OF PERIOD $ --- 4,096
========== ==========
0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ 694 $ 657
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30,
1996
CURRENT ASSETS: -------------
<S> <C>
Accounts receivable $ 50,050
Inventory 72,434
Prepaid expenses 3,097
-------------
Total current assets 125,581
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $572,897 77,517
LICENSE AGREEMENT, net of accumulated amortization
of $18,491 17,780
PURCHASED TECHNOLOGY, net of accumulated amortization
of $74,479 250,521
DEFERRED PATENT COSTS -affiliate 178,917
OTHER ASSETS 18,666
-------------
Total assets $ 668,982
=============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 14,818
Short-term borrowings - affiliate 1,621,065
Accounts payable 307,488
Accounts payable - affiliate 51,624
Accrued liabilities 787,126
Customer deposits 4,626
Customer deposits - affiliate 128,243
-------------
Total current liabilities 2,914,990
SHAREHOLDERS' DEFICIT:
Preferred stock, $.10 par value, 1,000,000 shares
authorized and 4,000 shares ($399,600 aggregate
liquidation preference) issued and outstanding 400,000
Common stock, $.01 par value, 20,000,000 shares
authorized and 10,182,125 shares issued and outstanding 101,822
Additional paid-in capital 4,677,174
Accumulated deficit (7,425,004)
-------------
Shareholders' deficit (2,246,008)
-------------
Total liabilities and shareholders' deficit $ 668,982
=============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
Except as the context otherwise indicates the term the "Company" refers
to Wavemat Inc.
In the opinion of management, all adjustments (consisting primarily of
normal recurring accruals) considered necessary for a fair presentation
have been included. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31,1995.
(2) DETAILS TO STATEMENTS OF FINANCIAL POSITION
Inventory consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996
------------------
<S> <C>
Raw materials $40,848
Work-in-process 31,586
-------
$72,434
=======
</TABLE>
A summary of Accrued Liabilities follows:
<TABLE>
<CAPTION>
September 30,1996
-----------------
<S> <C>
Accrued legal & audit $ 32,570
Royalties - affiliate 70,755
Commissions 66,970
Deferred compensation 191,143
Accrued interest-affiliate 238,417
Other 160,886
--------
$787,126
========
</TABLE>
(3) SHORT TERM BORROWINGS - AFFILIATE
On April 7, 1994, the Company finalized a $350,000 revolving Line of
Credit Promissory Note with Growth Funding, Ltd. ("Growth"), a
wholly-owned subsidiary of Venture, a significant shareholder of the
Company, with such credit line carrying an interest rate on outstanding
balances of 2 percent above the prevailing prime rate of a major bank
with such interest rate ranging from 8.25 percent per annum to 10.75
percent annum for the period of April 7, 1994 through September 30, 1996.
The Company had utilized this entire line of credit during 1994. Amounts
borrowed pursuant to
4
<PAGE> 6
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
this line of credit are payable by the Company on demand. The Company has
made payments of $12,000 in 1995, reducing the line of credit Promissory
Note to $338,000. In addition, this Promissory Note is to be repaid,
pursuant to an Agreement between the Company and Norton Diamond Film
Division ("Norton") of Saint-Gobain/Norton Industrial Ceramics
Corporation, an affiliate of the Company, dated August 9, 1994, in which
Norton agreed to waive their standard 20% discount from the prevailing
list price for its purchases from the Company provided this 20% discount
is used to first repay accrued interest and then principal owing on the
outstanding balance to Venture until the balance is repaid in full.
On August 18, 1994, the Company issued a Convertible Debenture
("Debenture") to Growth, for the principal amount of $724,575 with the
interest accruing on the outstanding balance at a rate of 2 percent above
the prime rate of a major bank with such rate ranging from 9.75 percent
per annum to 11.00 percent per annum for the period from August 12, 1994
through September 30, 1996. The Debenture amount of $724,575 represents
amounts owed by the Company to Venture in relation to a promissory
note($125,000), plus related accrued interest ($23,603), deferred
compensation ($261,139), accrued royalties ($212,591), and other
miscellaneous liabilities ($102,242). The Debenture has an exercise
price of $.5630 per share of common stock.
On October 27, 1995, by resolution of the Board of Directors, the
exercise price of the Debenture issued to Growth on August 18, 1994 was
reduced from $.5630 to $.1563 per share of common stock, the average of
the bid-ask price of the Company's common stock on that date in
consideration for financing and contributions of capital provided to the
Company during 1995. On the same date, $600,000 of the debt owed Growth
under the Debenture was converted to 3,838,772 shares of the Company's
common stock. There remains a balance due of $124,574 under the
Convertible Debenture.
On December 1, 1994, the Company entered into a $100,000 line of credit
arrangement evidenced by a promissory note with Growth. The amounts
borrowed pursuant to this line of credit are payable by the Company on
demand. The Company has utilized $100,000 of the line of credit by
December 31, 1995. The applicable interest rate is at 2 percentage points
above the prime rate of a major bank with such interest rates ranging from
9.75 percent per annum to 10.5 percent per annum for the period ending
September 30, 1996.
5
<PAGE> 7
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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
$1,051,290 on this line of credit as of September 30, 1996. The
applicable interest rate is 2 percentage points above the prime rate of a
major bank with such interest rates ranging from 10.25 percent per annum
to 11.00 percent per annum for the period from January 4, 1995 through
September 30,1996.
(4) COMMITMENTS AND CONTINGENCIES
GOING CONCERN
The Company has incurred operating losses and generated cash flow
deficits from operating activities since inception, therefore, the
Company's ability to continue as a going concern is contingent upon its
ability to raise additional funds to support its activities.
The Company is relying on sales of its microwave processing systems to
provide additional working capital. The Company is also continuously
evaluating acquisitions of technologies and/or entities owning such
technologies which are compatible to the Company's business strategies
with the intention of increasing the Company's revenue generating
capabilities. In addition, the Company is continuing to seek capital
from various sources of funding such as additional term loans, lines of
credit, corporate partners and sales of equity securities. However,
there is no assurance that the required amount of additional funds can be
raised.
6
<PAGE> 8
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's operating loss declined significantly during the third quarter of
1996 compared to the same period of 1995 as a result of increased revenue. The
increase in operating revenue was attributable to a substantial increase in the
sales volume of the Company's microwave processing systems.
Operating expenses increased significantly as a result of higher cost of sales
and research and development activities. The cost of sales increased due to an
increase in microwave processing system sales. The research and development
expenses increased primarily as a result of non-sponsored research and
development activities performed by the Company. Despite the overall in
increase in operating expenses, selling, general and administrative expenses
were lower in comparison to the same period of 1995. Selling, general and
administrative expenses decreased primarily due to lower promotional and lower
sales adminstrative expenses. The increase in royalty expenses for the quarter
reflects higher sales activity.
Net loss decreased as the result of the decrease in the operating loss
mentioned above. The other expense, net recognized during 1996 period resulted
from continued borrowing and related interest cost.
FINANCIAL CONDITION
SEPTEMBER 30, 1996 COMPARED TO DECEMBER 31, 1995
The Company continued to have difficulty meeting its cash requirements during
the nine months of 1996. For the nine months ended September 30, 1996, the
Company continued to defer payment of all or a portion of compensation of
certain management personnel to conserve cash for operating purposes. Deferred
compensation costs of the Company amounted to $191,143 as of September 30,
1996. The Company was also in arrears pertaining to other obligations in the
amount of $174,245 as of September 30, 1996.
7
<PAGE> 9
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Obligations which the Company met during the nine months of 1996 were satisfied
through sales of the Company's microwave processing systems, customer deposits,
lines of credit and short-term borrowings.
As indicated in Note 4 to the Financial Statements, the Company has incurred
operating losses and generated cash flow deficits from operating activities
since its inception, therefore, the Company's ability to continue as a going
concern is contingent upon its ability to raise additional funds to support its
activities. At September 30, 1996, the Company had a negative working capital
position of $2,789,409 compared to a negative working capital position of
$2,112,864 at December 31, 1995.
The Company is attempting to generate working capital through the sale of its
microwave processing systems and through its contract research and development
activities. As of September 30, 1996, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $41,325. Subject to various
qualifications and assuming no change in delivery dates or in the shipment of
orders in the normal course of business, management expects, although there can
be no assurance, to ship all of the above mentioned backlog and collect the
applicable cash proceeds during 1996.
The Company must increase its backlog of open sales orders substantially and
obtain additional product development assistance to adequately support its
activities. The Company is continuously evaluating acquisitions of
technologies and/or entities owning such technologies which are compatible to
the Company's business strategies with the intention of increasing the
Company's revenue generating capabilities. In addition, the Company is
continuing to seek funding from various other sources such as additional term
loans, lines of credit, corporate partners and equity financing. However,
there is no assurance that the required amount of additional funds can be
raised.
ITEM 4. OTHER INFORMATION
On November 18, 1996, the Company reached agreement with Michigan State
University ("MSU"), an affiliate of the Company, concerning outstanding
royalties and patent obligations owed to MSU. This agreement will require the
Company to bring to current status its previously agreed upon payment schedule
for 1996, of approximate-ly $36,000, by December 31, 1996, as well as provide
any reports which have not been provided to MSU. In addition, all prior past
debt owed MSU is to be paid by the Company approximately in the
8
<PAGE> 10
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
third quarter of 1997. The above payments have been guaranteed by an affiliate
of the Company.
In addition, the Company must provide MSU with a copy of a signed Commercial
Sales Agreement with Norton, an affiliate of the Company, regarding the 2.45
GHz microwave processing systems as of December 31, 1996.
On October 28, 1996, Dr. Frederick H. Erbish (of MSU) resigned from the
Company's Board of Directors. On November 18, 1996, Dr. Erbish agreed in
principle to rejoin the Company's Board of Directors provided that certain
conditions were met.
ITEM 5. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Ex. 27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during
the Quarter ended September 30,1996.
9
<PAGE> 11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WAVEMAT INC.
REGISTRANT
Date: November 21, 1996 BY: /s/ Monis Schuster
-------------------------------------
Monis Schuster, Chairman of the
Board and Chief Executive Officer
(Principal Operating Officer)
Date: November 21, 1996 BY: /s/ Sharon K. Zitnik
-------------------------------------
Sharon K. Zitnik, Vice President
Treasurer and Chief Financial
Officer (Principal Financial Officer)
10
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description Page
- ------- ----------- ----
<S> <C> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 50,050
<ALLOWANCES> 0
<INVENTORY> 72,434
<CURRENT-ASSETS> 125,581
<PP&E> 650,414
<DEPRECIATION> 572,897
<TOTAL-ASSETS> 668,982
<CURRENT-LIABILITIES> 2,914,990
<BONDS> 0
0
400,000
<COMMON> 101,822
<OTHER-SE> 2,747,830
<TOTAL-LIABILITY-AND-EQUITY> 668,982
<SALES> 244,486
<TOTAL-REVENUES> 244,486
<CGS> 169,185
<TOTAL-COSTS> 775,222
<OTHER-EXPENSES> 113,971
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,081
<INCOME-PRETAX> (644,707)
<INCOME-TAX> 0
<INCOME-CONTINUING> (644,707)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (644,707)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
