<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 JUNE 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
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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 July 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 Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
OPERATING REVENUE:
Microwave processing system sales $ 75,933 $ 38,645 $ 80,789 $ 86,239
Microwave processing system sales
- affiliate 4,306 24,020 17,306 24,020
----------- ---------- ----------- ---------
Total operating revenue 80,239 62,665 98,095 110,259
----------- ---------- ----------- ---------
OPERATING COSTS AND EXPENSES:
Cost of sales 70,236 33,328 85,171 71,638
Research and development 14,544 12,429 48,434 22,964
Selling, general and administrative 169,606 198,953 343,132 362,768
Royalty expense - affiliate 5,356 2,033 5,356 5,016
----------- ---------- ----------- ---------
Total operating costs and expenses 259,742 246,743 482,093 462,386
----------- ---------- ----------- ---------
Operating loss (179,503) (184,078) (383,998) (352,127)
OTHER INCOME (EXPENSE):
Interest income 5 25 79 44
Interest expense (1,459) (576) (3,051) (1,373)
Interest expense - affiliate (37,931) (38,281) (71,808) (71,828)
----------- ---------- ----------- ---------
Other expense, net (39,385) (38,832) (74,780) (73,157)
----------- ---------- ----------- ---------
NET LOSS ($218,888) ($222,910) ($458,778) ($425,284)
=========== ========== =========== =========
NET LOSS PER SHARE OF
COMMON STOCK ($0.02) ($0.04) ($0.05) ($0.07)
=========== ========== =========== =========
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 Six Months
Ended June 30,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $ ---
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (458,778) (425,284)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 27,549 39,920
Changes in current assets and liabilities:
Accounts receivable 7,351 (26,993)
Inventory 17,513 986
Prepaid expenses 1,026 3,264
Bank overdraft 50,658 (29,555)
Short-term borrowings --- 85,000
Short-term borrowings - affiliate 275,000 283,275
Accounts payable (79,175) (27,171)
Accounts payable - affiliate 6,038 19,683
Accrued liabilities 186,074 145,231
Customer deposits 23,641 (13,465)
Customer deposits - affiliate --- ---
---------- ----------
Net cash provided by operating activities 56,897 54,891
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (42,630) ---
Increase in deferred patent costs (14,267) (10,744)
---------- ----------
Net cash used in investing activities (56,897) (10,744)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of debt --- (3,223)
---------- ----------
Net cash used in financing activities --- (3,223)
---------- ----------
INCREASE IN CASH --- 40,924
---------- ----------
CASH, END OF PERIOD $ --- $40,924
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ 694 $ 565
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS JUNE 30,
1996
--------------
<S> <C>
CURRENT ASSETS:
Accounts receivable $ 50,605
Inventory 98,217
Prepaid expenses 4,702
--------------
Total current assets 153,524
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $566,155 84,259
LICENSE AGREEMENT, net of accumulated amortization
of $17,958 18,314
PURCHASED TECHNOLOGY, net of accumulated amortization
of $67,708 257,292
DEFERRED PATENT COSTS - affiliate 162,542
OTHER ASSETS 18,504
--------------
Total assets $ 694,435
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 66,988
Short-term borrowings - affiliate 1,526,865
Accounts payable 275,365
Accounts payable - affiliate 43,395
Accrued liabilities 675,726
Customer deposits 37,932
Customer deposits - affiliate 128,243
--------------
Total current liabilities 2,754,514
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 (7,239,075)
--------------
Shareholders' deficit (2,060,079)
--------------
Total liabilities and shareholders' deficit $ 694,435
==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) GENERAL
Except as the context otherwise indicates the term the "Company" refers
to Wavemat Inc.
In the opinion of management, all adjustments (consisting primarily of
normal recurring accruals) considered necessary for a fair presentation
have been included. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1995.
(2) DETAILS TO STATEMENTS OF FINANCIAL POSITION
<TABLE>
<S> <C>
Inventory consisted of the following: June 30,
1996
-----------
Raw materials $ 38,744
Work-in-process 44,085
Consignment 15,388
-----------
$ 98,217
===========
A summary of Accrued Liabilities follows: June 30,
1996
-----------
Accrued legal & audit $ 32,176
Royalties - affiliate 68,120
Commissions 65,547
Deferred compensation 151,939
Accrued interest-affiliate 197,474
Other 160,470
-----------
$ 675,726
===========
</TABLE>
(3) SHORT TERM BORROWINGS - AFFILIATE
On April 7, 1994, the Company finalized a $350,000 revolving Line of
Credit Promissory Note with Growth Funding, Ltd. ("Growth"), a
wholly-owned subsidiary of Venture, a significant shareholder of the
Company, with such credit
4
<PAGE> 6
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
line carrying an interest rate on outstanding balances of 2 percent above
the prevailing prime rate of a major bank with such interest rate ranging
from 8.25 percent per annum to 10.75 percent annum for the period of
April 7, 1994 through June 30, 1996. The Company had utilized this
entire line of credit during 1994. Amounts borrowed pursuant to this
line of credit are payable by the Company on demand. The Company has made
payments of $12,000 in 1995, reducing the line of credit Promissory Note
to $338,000. In addition, this Promissory Note is to be repaid, pursuant
to an Agreement between the Company and Norton Diamond Film Division
("Norton") of Saint-Gobain/Norton Industrial Ceramics Corporation, an
affiliate of the Company, dated August 9, 1994, in which Norton agreed to
waive their standard 20% discount from the prevailing list price for its
purchases from the Company provided this 20% discount is used to first
repay accrued interest and then principal owing on the outstanding
balance to Venture until the balance is repaid in full.
On August 18, 1994, the Company issued a Convertible Debenture
("Debenture") to Growth, for the principal amount of $724,575 with the
interest accruing on the outstanding balance at a rate of 2 percent above
the prime rate of a major bank with such rate ranging from 9.75 percent
per annum to 11.00 percent per annum for the period from August 12, 1994
through June 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.
5
<PAGE> 7
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
On December 1, 1994, the Company entered into a $100,000 line of credit
arrangement evidenced by a promissory note with Growth. The amounts
borrowed pursuant to this line of credit are payable by the Company on
demand. The Company has utilized $100,000 of the line of credit by
December 31, 1995. The applicable interest rate is at 2 percentage points
above the prime rate of a major bank with such interest rates ranging from
9.75 percent per annum to 10.5 percent per annum for the period ending
June 30,1996.
On January 4, 1995, the Company entered into a line of credit arrangement
evidenced by a promissory note with Growth. The amounts borrowed pursuant
to this line of credit are payable on demand. The Company has drawn
$964,290 on this line of credit as of June 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 June
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 JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1995
The Company's operating loss decreased for the second quarter of 1996 compared
to the corresponding quarter of 1995. The decrease in operating loss resulted
in lower selling, general and administrative expenses more than offsetting
higher costs of sales and non-sponsored research and development activities
operating.
Operating expenses increased primarily as a result of higher cost of sales due
to production inefficiencies and a modest increase in non-sponsored research
and development activities performed by the Company. Selling, general and
administration expenses decreased primarily due to lower sales activities.
Higher royalty expenses was attributable to increased sales activities.
Net loss decreased slightly as a result of the decrease in operating loss
mentioned above. The other expense, net recognized during 1996 period resulted
from continued borrowing and related interest cost.
FINANCIAL CONDITION
JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995
The Company continued to have difficulty meeting its cash requirements during
the six months of 1996. For the six months ended June 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 $151,359 as of June 30, 1996.
The Company was also in arrears pertaining to other obligations in the amount
of $180,530 as of June 30, 1996.
Obligations which the Company met during the six months of 1996 were
satisfied through sales of the Companys microwave processing systems, customer
deposits, lines of credit and short-term borrowings.
7
<PAGE> 9
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
As indicated in Note 4 to the Financial Statements, the Company has incurred
operating losses and generated cash flow deficits from operating activities
since its inception, therefore, the Company's ability to continue as a going
concern is contingent upon its ability to raise additional funds to support its
activities. At June 30, 1996, the Company had a negative working capital
position of $2,600,990 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 June 30, 1996, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $131,677. Subject to various
qualifications and assuming no change in delivery dates or in the shipment of
orders in the normal course of business, management expects, although there can
be no assurance, to ship all of the above mentioned backlog and collect the
applicable cash proceeds during 1996.
The Company must increase its backlog of open sales orders substantially and
obtain additional product development assistance to adequately support its
activities. The Company is continuously evaluating acquisitions of
technologies and/or entities owning such technologies which are compatible to
the Company's business strategies with the intention of increasing the Company's
revenue generating capabilities. In addition, the Company is continuing to
seek funding from various other sources such as additional term loans, lines of
credit, corporate partners and equity financing. However, there is no
assurance that the required amount of additional funds can be raised.
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - Ex. 27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during
the Quarter ended June 30, 1996.
8
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WAVEMAT INC.
-----------------------------------
REGISTRANT
DATE: AUGUST 20, 1996 BY: /S/ MONIS SHUSTER
-----------------------------------------
MONIS SCHUSTER, CHAIRMAN OF THE
BOARD AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL OPERATING OFFICER)
DATE: AUGUST 20 , 1996 BY: /S/ SHARON K. ZITNIK
-----------------------------------------
SHARON K. ZITNIK, VICE PRESIDENT
TREASURER AND CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL
OFFICER)
9
<PAGE> 11
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 50,605
<ALLOWANCES> 0
<INVENTORY> 98,217
<CURRENT-ASSETS> 153,524
<PP&E> 650,414
<DEPRECIATION> 566,155
<TOTAL-ASSETS> 694,435
<CURRENT-LIABILITIES> 2,754,514
<BONDS> 0
<COMMON> 101,822
0
400,000
<OTHER-SE> (2,561,901)
<TOTAL-LIABILITY-AND-EQUITY> 694,435
<SALES> 98,095
<TOTAL-REVENUES> 98,095
<CGS> 85,171
<TOTAL-COSTS> 482,093
<OTHER-EXPENSES> 74,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74,859
<INCOME-PRETAX> (458,778)
<INCOME-TAX> 0
<INCOME-CONTINUING> (458,778)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (458,778)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> 0
</TABLE>
