<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, 1997.
[ ] 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 July 29, 1997, 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,
1997 1996 1997 1996
OPERATING REVENUE: ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Microwave processing system sales $45,177 $75,933 $113,594 $80,789
Microwave processing system sales
- affiliate -- 4,306 -- 17,306
Contract research and development
- affiliate 50,000 -- 50,000 --
----------- ----------- ----------- -----------
Total operating revenue 95,177 80,239 163,594 98,095
----------- ----------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 58,598 70,236 93,942 85,171
Research and development 28,357 14,544 41,473 48,434
Selling, general and administrative 145,888 169,606 297,663 343,132
Royalty expense - affiliate 2,550 5,356 5,583 5,356
----------- ----------- ----------- -----------
Total operating costs and expenses 235,393 259,742 438,661 482,093
----------- ----------- ----------- -----------
Operating loss (140,216) (179,503) (275,067) (383,998)
OTHER INCOME (EXPENSE):
Miscellaneous Income 2,137 -- 3,397 --
Interest income 9 5 39 79
Interest expense 1,362 (1,459) 606 (3,051)
Interest expense - affiliate (49,067) (37,931) (94,565) (71,808)
----------- ----------- ----------- -----------
Other expense, net (45,559) (39,385) (90,523) (74,780)
----------- ----------- ----------- -----------
NET LOSS ($185,775) ($218,888) ($365,590) ($458,778)
=========== =========== =========== ===========
NET LOSS PER SHARE OF
COMMON STOCK ($0.02) ($0.02) ($0.04) ($0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 10,182,125 10,182,125 10,182,125 10,182,125
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 3
WAVEMAT INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $ ---
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (365,590) (458,778)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 24,910 27,549
Changes in current assets and liabilities:
Accounts receivable (5,103) 7,351
Inventory (34,530) 17,513
Prepaid expenses (5,212) 1,026
Bank overdraft (80,564) 50,658
Short-term borrowings 125,000 ---
Short-term borrowings - affiliate 143,100 275,000
Accounts payable 99,075 (79,175)
Accounts payable - affiliate 4,753 6,038
Accrued liabilities 144,842 186,074
Customer deposits (27,399) 23,641
---------- ----------
Net cash provided by operating activities 23,282 56,897
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements (9,990) (42,630)
Increase in deferred patent costs (13,292) (14,267)
---------- ----------
Net cash used in investing activities (23,282) (56,897)
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of debt --- ---
---------- ----------
Net cash used in financing activities --- ---
---------- ----------
INCREASE (DECREASE) IN CASH --- ---
---------- ----------
CASH, END OF PERIOD $ --- $ ---
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ --- $ 694
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
ASSETS JUNE 30,
1997
CURRENT ASSETS: --------------
<S> <C>
Accounts receivable $ 24,579
Inventory 95,731
Prepaid expenses 9,610
--------------
Total current assets 129,920
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $587,431 72,974
LICENSE AGREEMENT, net of accumulated amortization
of $20,091 16,180
PURCHASED TECHNOLOGY, net of accumulated amortization
of $94,792 230,208
DEFERRED PATENT COSTS - affiliate 192,209
OTHER ASSETS 18,504
--------------
Total assets $ 659,995
==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 15,137
Short-term borrowings 125,000
Short-term borrowings - affiliate 1,826,165
Accounts payable 401,790
Accounts payable - affiliate 62,865
Accrued liabilities 930,505
Customer deposits 8,715
Customer deposits - affiliate 128,243
--------------
Total current liabilities 3,498,420
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 101,821
Additional paid-in capital 4,677,174
Accumulated deficit (8,017,420)
--------------
Shareholders' deficit (2,838,425)
--------------
Total liabilities and shareholders' deficit $ 659,995
==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<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 31,1996.
(2) DETAILS TO STATEMENTS OF FINANCIAL POSITION
-------------------------------------------
Inventory consisted of the following:
June 30, 1997
-------------
Raw materials $ 26,425
Work-in-process 69,306
----------
$ 95,731
----------
A summary of Accrued Liabilities follows:
June 30, 1997
-------------
Accrued legal & audit $ 37,188
Royalties - affiliate 55,434
Commissions 60,391
Accrued Payroll 78,877
Deferred compensation 212,810
Accrued interest-affiliate 376,298
Other 109,507
----------
$ 930,505
----------
(3) SHORT TERM BORROWINGS
---------------------
On June 16, 1997, the Company entered into a $125,000 line of credit
arrangement with a bank with such credit line carrying an interest rate
on outstanding balances of two percent above the prevailing prime rate of
a major bank. The Company paid no commitment fee for the arrangement of
the line of credit. This line of credit is secured pursuant to a
guarantee agreement between Venture Funding, Ltd. ("Venture"), a
significant shareholder of the Company and
5
<PAGE> 6
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
the lending bank. The Company has drawn $125,000 against this line of
credit and has accrued $510 of interest pertaining to this obligation at
an interest rate of 10.50 percent as of June 30, 1997. The amounts
borrowed pursuant to this line of credit are payable by the Company as of
October 14, 1997.
(4) 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 June 30, 1997. 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 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 30,1997. 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.
6
<PAGE> 7
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 June 30, 1997.
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 $1,231,590 on this line of credit as of June 30, 1997. The Company
made payments of $35,500 during the quarter, reducing the line of credit
note balance. 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, 1997.
On December 31, 1996, the Company entered into a $25,000 line of
credit arrangement evidenced by a promissory note with Growth. The
amounts borrowed pursuant to the line of credit are payable by the
Company on demand. The Company had drawn $25,000 on this line of credit
in 1996. The applicable interest rate is at 2 percentage points above
the prime rate rate of a major bank with such interest rate ranging from
10.25 percent per annum to 10.50 percent per annum for the period from
December 3, 1996 through June 30, 1997.
On December 20, 1996, the Company entered into $3,500 line of credit
arrangement evidenced by a promissory note with Growth. The amounts
borrowed pursuant to the line of credit are payable by the Company on
demand. The Company had utilized $3,500 of the line of credit in 1996.
The applicable interest rate is at 2 percentage points above the
7
<PAGE> 8
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
prime rate of a major bank with such interest rate ranging from 10.25
percent per annum to 10.50 percent per annum for the period from
December 20, 1996 through June 30, 1997.
On January 9, 1997, the Company entered into a $3,500 line of credit
arrangement evidenced by a promissory note with Growth. The amounts
borrowed pursuant to the line of credit are payable by the Company on
demand. The Company had utilized $3,500 of the line of credit by March
31, 1997. The applicable interest rate is at 2 percentage points above
the prime rate of a major bank with such interest rate ranging from 10.25
percent per annum to 10.50 percent per annum for the period from January
9, 1997 through June 30, 1997.
(5) 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.
8
<PAGE> 9
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
THE SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO THE SIX MONTHS
- -----------------------------------------------------------------
ENDED JUNE 30, 1996
- -------------------
Operating loss declined during the 1997 quarter as a result of significant
decline in operating expenses and, to a lesser extent, an increase in operating
revenue.
Operating revenue increased slightly during the 1997 quarter as a result of
higher sponsored contract research and development activities.
Operating expenses decreased primarily as a result of significantly lower cost
of sales, and selling, general and administrative expenses more than
offsetting higher research and development expenses. Lower cost of sales and
royalty expenses reflect lower microwave processing system sales. The increase
in research and development expense reflects increased sponsored and
non-sponsored research and development activities. The decline in selling,
general and administrative expenses resulted primarily from temporarily lower
salary and benefit costs.
Net loss declined significantly as a result of the decline in operating loss
mentioned above. The other expenses, net recognized for the quarter ended June
30, 1997 increased significantly compared to June 30, 1996 due to higher
interest expense.
FINANCIAL CONDITION
- -------------------
JUNE 30, 1997 COMPARED TO DECEMBER 31, 1996
- -------------------------------------------
The Company continued to have difficulty meeting its cash requirements during
the six months of 1997. For the six months ended June 30, 1997, 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 $212,810 as of June 30, 1997.
The Company was also in arrears pertaining to other obligations in the amount
of $235,640 as of June 30,1997.
Obligations which the Company met during the six months of 1997 were
satisfied through sales of the Company's microwave processing systems and
contracted research and development
9
<PAGE> 10
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
activities, 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 June 30, 1997, the Company had a negative working capital
position of $3,368,500 compared to a negative working capital position of
$3,004,700 at December 31, 1996.
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, 1997, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $198,000. 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 1997.
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 5. OTHER INFORMATION
- ------- -----------------
In consideration of the Company pursuing the acquisition of the exclusive
license agreement from Norton Diamond Film Division ("Norton"), an affiliate of
the Company, Michigan State University ("MSU"), an affiliate of the Company,
rescinded its notices of default to the Company until August 26, 1997 provided
the Company enters into an agreement with "Norton" as outlined in a payment
plan modification agreement (December 6, 1996) between Wavemat Inc. and
("MSU"), an affiliate of the Company.
10
<PAGE> 11
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 6. 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 30,1997.
11
<PAGE> 12
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 19, 1997 BY: /s/ Monis Schuster
------------------------------
Monis Schuster, Chairman of the
Board and Chief Executive Officer
(Principal Operating Officer)
Date: August 19, 1997 BY: /s/ Sharon K. Zitnik
-------------------------------------
Sharon K. Zitnik, Vice President
Treasurer, Secretary and Chief Financial
Officer (Principal Financial Officer)
12
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 24,579
<ALLOWANCES> 0
<INVENTORY> 95,731
<CURRENT-ASSETS> 129,920
<PP&E> 660,405
<DEPRECIATION> 587,431
<TOTAL-ASSETS> 659,995
<CURRENT-LIABILITIES> 3,498,420
<BONDS> 0
0
400,000
<COMMON> 101,821
<OTHER-SE> (3,340,246)
<TOTAL-LIABILITY-AND-EQUITY> 659,995
<SALES> 163,594
<TOTAL-REVENUES> 163,594
<CGS> 93,942
<TOTAL-COSTS> 438,661
<OTHER-EXPENSES> 90,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,959
<INCOME-PRETAX> (365,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (365,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (365,590)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
