<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 March 31, 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 April 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
Ended March 31,
1997 1996
----------- -----------
<S> <C> <C>
OPERATING REVENUE:
Microwave processing system sales $ 68,417 $ 4,855
Microwave processing system sales
- affiliate -- 13,000
----------- -----------
Total operating revenue 68,417 17,855
----------- -----------
OPERATING COSTS AND EXPENSES:
Cost of sales 35,344 14,935
Research and development 13,116 33,890
Selling, general and administrative 151,775 173,628
Royalty expense - affiliate 3,033 -
----------- -----------
Total operating costs and expenses 203,268 222,453
----------- -----------
Operating loss (134,851) (204,598)
OTHER INCOME (EXPENSE):
Miscellaneous Income 1,260 --
Interest income 30 74
Interest expense (756) (1,592)
Interest expense - affiliate (45,498) (33,877)
----------- -----------
Other expense, net (44,964) (35,395)
----------- -----------
NET LOSS ($179,815) ($239,993)
=========== ===========
NET LOSS PER SHARE OF
COMMON STOCK ($0.02) ($0.02)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 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 Three Months
Ended March 31,
-----------------------------
1997 1996
----------- ----------
<S> <C> <C>
CASH, BEGINNING OF PERIOD $ --- $ ---
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (179,815) (239,993)
Adjustments to reconcile net loss
to net cash provided by (used in) operating
activities:
Depreciation and amortization 13,573 13,602
Changes in current assets and liabilities:
Accounts receivable 716 13,409
Inventory (11,277) (26,441)
Prepaid expenses 263 2,680
Bank overdraft (58,283) 12,179
Short-term borrowings - affiliate 137,100 108,500
Accounts payable 54,177 10,896
Accounts payable - affiliate 2,412 5,693
Accrued liabilities 57,039 90,179
Customer deposits (17,330) 26,672
Customer deposits - affiliate ---
---------- ----------
Net cash (used)provided by operating activities (1,425) 17,376
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold
improvements 1,425 (7,793)
Increase in deferred patent costs --- (9,583)
---------- ----------
Net cash provided (used) in investing activities 1,425 (17,376)
CASH FLOWS FROM FINANCING ACTIVITIES:
--- ---
---------- ----------
Net cash used in financing activities --- ---
---------- ----------
INCREASE (DECREASE)IN CASH --- ---
---------- ----------
CASH, END OF PERIOD $ --- $ ---
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest payments $ --- $ 129
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
WAVEMAT INC.
STATEMENT OF FINANCIAL POSITION
(Unaudited)
<TABLE>
<CAPTION>
MARCH 31,
1997
-------------
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable $ 18,760
Inventory 72,478
Prepaid expenses 4,135
-------------
Total current assets 95,373
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation and amortization of $582,472 65,591
LICENSE AGREEMENT, net of accumulated amortization
of $19,558 16,714
PURCHASED TECHNOLOGY, net of accumulated amortization
of $88,021 236,979
DEFERRED PATENT COSTS -affiliate 178,917
OTHER ASSETS 18,504
-------------
Total assets $ 612,078
=============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft $ 37,418
Short-term borrowings - affiliate 1,820,165
Accounts payable 356,892
Accounts payable - affiliate 60,524
Accrued liabilities 842,702
Customer deposits 18,784
Customer deposits - affiliate 128,243
-------------
Total current liabilities 3,264,728
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 (7,831,645)
-------------
Shareholders' deficit (2,652,650)
-------------
Total liabilities and shareholders' deficit $ 612,078
=============
</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:
<TABLE>
<CAPTION>
March 31, 1997
--------------
<S> <C>
Raw materials $42,482
Work-in-process 29,996
---------
</TABLE> 72,478
<TABLE>
<CAPTION>
A summary of Accrued Liabilities follows:
March 31, 1997
--------------
<S> <C>
Accrued legal & audit $33,988
Royalties - affiliate 52,884
Commissions 64,662
Deferred compensation 193,596
Accrued interest-affiliate 327,232
Other 170,340
--------
$842,702
========
</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
5
<PAGE> 6
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
line carrying an interest rate on outstanding balances of 2 percent above
the prevailing prime rate of a major bank with such interest rate ranging
from 8.25 percent per annum to 10.75 percent annum for the period of
April 7, 1994 through March 31, 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 has made
payments of $12,000 in 1995, reducing the line of credit Promissory Note
to $338,000. In addition, this Promissory Note is to be repaid, pursuant
to an Agreement between the Company and Norton Diamond Film Division
("Norton") of Saint-Gobain/Norton Industrial Ceramics Corporation, an
affiliate of the Company, dated August 9, 1994, in which Norton agreed to
waive their standard 20% discount from the prevailing list price for its
purchases from the Company provided this 20% discount is used to first
repay accrued interest and then principal owing on the outstanding
balance to Venture until the balance is repaid in full.
On August 18, 1994, the Company issued a Convertible Debenture
("Debenture") to Growth, for the principal amount of $724,575 with the
interest accruing on the outstanding balance at a rate of 2 percent above
the prime rate of a major bank with such rate ranging from 9.75 percent
per annum to 11.00 percent per annum for the period from August 12, 1994
through March 31,1997. 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.
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
6
<PAGE> 7
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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
March 31, 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
$1,051,290 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
March 31, 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 March 31, 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
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 March 31, 1997.
7
<PAGE> 8
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
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 March 31, 1997.
(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.
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 THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THE THREE MONTHS ENDED MARCH
31, 1996
The Company's operating loss decreased significantly for the first quarter of
1997 compared to the corresponding quarter of 1996. The decrease in operating
loss occurred as a result of significantly higher operating revenue, lower
non-sponsored research and development activities performed by the Company and
lower selling, general and administrative expenses which more than off-set
higher costs of sales.
The increase in operating revenue was attributable to the increase in sales
volume of the Company's Microwave Systems.
Operating expenses decreased significantly primarily as a result of lower
non-sponsored research and development activities performed by the Company.
Selling, general and administration decreased primarily due to lower sales and
marketing activities. The increase in cost of sales and royalty expense was
attributable to higher microwave processing system sales.
Net loss declined significantly as a consequence of the decrease in operating
loss mentioned above. Other expenses, net for the quarter ended March 31, 1997
increased significantly compared to March 31, 1996 due to higher interest
expense.
FINANCIAL CONDITION
MARCH 31, 1997 COMPARED TO DECEMBER 31, 1996
The Company continued to have difficulty meeting its cash requirements during
the three months of 1997. For the three months ended March 31, 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
9
<PAGE> 10
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
compensation costs of the Company amounted to $193,596 as of March 31, 1997.
The Company was also in arrears pertaining to other obligations in the amount
of $210,906 as of March 31,1997.
Obligations which the Company met during the three months of 1997 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 March 31, 1997, the Company had a negative working capital
position of $3,169,355 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 March 31, 1997, the Company had a backlog of open sales
orders, net, of customer deposits, amounting to $38,856. 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 4. OTHER INFORMATION
10
<PAGE> 11
WAVEMAT, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 4. OTHER INFORMATION
In consideration of the Company pursuing commercial sales
agreement with Norton Diamond Film Division ("Norton") of
Saint-Gobain/ Norton Industrial Ceramics Corporation, an
affiliate of the Company, allowing for the development and
commercialization of 2.45 Ghz Microwave Processing Systems,
Michigan State University ("MSU"), an affiliate of the Company,
has granted the Company an extension of a letter agreement
pertaining to payment of $100,758 relating to outstanding
royalties and patent obligations, until May 15, 1997 under the
condition that Wavemat enter into the sales agreement with
Norton by September 30, 1997. The above amount has been
unconditionally guaranteed by Venture Funding Ltd., an
affiliate of the Company.
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 March 31,1997.
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: May 20, 1997 BY: /s/ Monis Schuster
----------------------------------------
Monis Schuster, Chairman of the
Board and Chief Executive Officer
(Principal Operating Officer)
Date: May 20, 1997 BY: /s/ Sharon K. Zitnik
----------------------------------------
Sharon K. Zitnik, Vice President
Treasurer, Secretary and Chief Financial
Officer (Principal Financial Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 18,760
<ALLOWANCES> 0
<INVENTORY> 72,478
<CURRENT-ASSETS> 95,373
<PP&E> 648,063
<DEPRECIATION> 582,472
<TOTAL-ASSETS> 612,078
<CURRENT-LIABILITIES> 3,264,728
<BONDS> 0
0
400,000
<COMMON> 101,821
<OTHER-SE> (3,154,471)
<TOTAL-LIABILITY-AND-EQUITY> 612,078
<SALES> 68,417
<TOTAL-REVENUES> 68,417
<CGS> 35,344
<TOTAL-COSTS> 203,268
<OTHER-EXPENSES> 44,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,254
<INCOME-PRETAX> (179,815)
<INCOME-TAX> 0
<INCOME-CONTINUING> (179,815)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (179,815)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
