1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 28, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-16088
CERAMICS PROCESS SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2832509
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
111 South Worcester Street, P.O. Box 338,
Chartley, Massachusetts 02712
(Address of Principal Executive Offices) (Zip Code)
Registrant`s Telephone Number, including Area Code:
(508) 222-0614
Former Name, Former Address and Former Fiscal Year if Changed
since Last Report:
Not Applicable.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period than the registrant was required
to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer`s classes of common stock, as of the latest practicable
date. Number of shares of common stock outstanding as of March
28, 1998: 8,736,426.
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CERAMICS PROCESS SYSTEMS CORPORATION
Form 10-Q
For The Fiscal Quarter Ended March 28, 1998
Index
PART I: FINANCIAL INFORMATION Page
Item 1: Consolidated Financial Statements 3
Consolidated Balance Sheets as of
March 28, 1998 and December 27, 1997 3
Consolidated Statements of Operations
for the fiscal quarters ended March 28,
1998 and March 29, 1997 5
Consolidated Statements of Cash Flows
for the fiscal quarters ended March 28,
1998 and March 29, 1997 6
Notes to Consolidated Financial
Statements 7
Item 2: Management`s Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II: OTHER INFORMATION
Items 1-6 12
Signatures 12
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PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets
March 28, December 27,
1998 1997
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents $ 529,026 $ 561,166
Trade receivables 432,977 626,121
Inventories 385,847 123,325
Prepaid expenses 15,321 15,528
---------- ----------
Total current assets 1,363,171 1,326,140
---------- ----------
Property and equipment:
Production equipment 1,643,422 1,470,253
Furniture and office equipment 71,724 70,404
---------- ----------
1,715,146 1,540,657
Less accumulated depreciation (1,011,051) (967,161)
---------- ----------
Net property and equipment 704,095 573,496
---------- ----------
Deposits 5,072 5,072
---------- ----------
Total assets $2,072,338 $1,904,708
========== ==========
See accompanying notes to consolidated financial statements.
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CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets (continued)
LIABILITIES AND STOCKHOLDERS` March 28, December 27,
DEFICIT 1998 1997
--------- -----------
Current liabilities:
Accounts payable $ 142,502 $ 154,657
Accrued expenses 571,890 677,109
Deferred revenue 155,561 163,430
Notes payable 218,474 206,962
Current portion of convertible
notes payable:
Related parties 260,000 260,000
Other 1,160,000 1,610,000
Current portion of obligations
under capital leases 41,498 42,205
------------ ------------
Total current liabilities 2,549,925 3,114,363
Obligations under capital
leases less current portion 160,840 172,114
Obligations under notes payable
less current portion 44,118 137,868
------------ ------------
Total liabilities 2,754,883 3,424,345
------------ ------------
Stockholders` Deficit
Common stock, $0.01 par value.
Authorized 15,000,000 shares;
issued 8,736,426 shares at March
28, 1998 and 7,824,582 at
December 27, 1997 87,364 78,246
Additional paid-in capital 30,907,846 30,464,833
Accumulated deficit (31,616,920) (32,001,881)
------------ ------------
(621,710) (1,458,802)
Less treasury stock, at cost,
22,883 common shares at March
28, 1998 and December 27, 1997 (60,835) (60,835)
------------ ------------
Total shareholders` deficit (682,545) (1,519,637)
------------ ------------
Total liabilities and
stockholders` deficit $ 2,072,338 $ 1,904,708
============ ============
See accompanying notes to consolidated financial statements.
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CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Operations
Fiscal Quarters Ended
March 28, March 29,
1998 1997
Revenue: ---------- -----------
Product sales $1,333,214 $ 937,609
License agreements - -
---------- -----------
Total revenue $1,333,214 $ 937,609
========== ===========
Operating expenses:
Cost of product sales 727,807 634,264
Selling, general, and
administrative 157,957 129,933
---------- -----------
Total operating expenses 885,764 764,197
---------- -----------
Operating income 447,450 173,412
Other income (expense), net (54,633) (64,969)
Net income before taxes $ 392,817 $ 108,443
---------- -----------
Income taxes 7,856 --
Net income $ 384,961 $ 108,443
========== ===========
Net income per
basic common share $ 0.05 $ 0.01
---------- -----------
Weighted average number of
basic common shares
outstanding 7,978,197 7,781,266
========== ===========
Net income per
diluted common share $ 0.03 $ 0.01
---------- -----------
Weighted average number of
diluted common shares
outstanding 11,658,621 12,247,964
========== ===========
See accompanying notes to consolidated financial statements.
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CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Fiscal Quarters Ended
March 28, March 29,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income $ 384,961 $ 108,443
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation 34,741 26,400
Amortization 9,150 6,347
Changes in assets and liabilities:
Accounts receivable, trade 193,144 (94,218)
Inventories (262,522) 72,168
Prepaid expenses 207 (8,624)
Accounts payable (12,155) 43,742
Accrued expenses (105,219) (28,678)
Deferred revenue ( 7,869) (174,440)
--------- ----------
Net cash provided by (used in)
operating activities 234,438 ( 48,860)
--------- ----------
Cash flows from investing activities:
Additions to property and equipment (174,489) (15,681)
--------- ----------
Net cash used in
investing activities (174,489) (15,681)
--------- ----------
Cash flows from financing activities:
Principal payments of capital lease
obligations (11,983) ( 5,570)
Proceeds from issuance of common stock 2,131
Principal payments of notes payable
obligations (82,237) --
--------- ---------
Net cash used in
financing activities (92,089) ( 5,570)
--------- ---------
Net decrease in cash and
cash equivalents (32,140) (70,110)
Cash and cash equivalents at
beginning of quarter 561,166 113,331
--------- ----------
Cash and cash equivalents at
end of quarter $ 529,026 $ 43,221
========= ==========
See accompanying notes to consolidated financial statements.
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CERAMICS PROCESS SYSTEMS CORPORATION
Notes to Consolidated Financial Statement
(Unaudited)
(1) Nature of Business
- ------------------
Ceramics Process Systems Corporation (the `Company` or `CPS`)
serves the wireless communications, satellite communications, motor
controller and other microelectronic markets by developing,
manufacturing, and marketing advanced metal-matrix composite and
ceramic components to house, interconnect and thermally manage
microelectronic devices. The Company`s products are typically in the
form of housings, packages, lids, substrates, thermal planes, or heat
sinks, and are used in applications where thermal management and or
weight are important considerations.
The Company`s products are manufactured by proprietary processes
the Company has developed including the QuicksetTM Injection Molding
Process (`Quickset Process`) and the QuickCastTM Pressure Infiltration
Process (`QuickCast Process`).
The Company was incorporated on June 19, 1984.
(2) Interim Consolidated Financial Statements
-----------------------------------------
As permitted by the rules of the Securities and Exchange
Commission applicable to quarterly reports on Form 10-Q, these notes
are condensed and do not contain all disclosures required by generally
accepted accounting principles.
The accompanying financial statements for the fiscal quarters
ended March 28, 1998 and March 29, 1997 are unaudited. In the opinion
of management, the unaudited consolidated financial statements of CPS
reflect all adjustments necessary to present fairly the financial
position and results of operations for such periods.
The consolidated financial statements include the accounts of CPS
and its wholly-owned subsidiary, CPS Superconductor Corporation. All
significant intercompany balances and transactions have been
eliminated. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
(3) Net Income/Loss Per Common and Common Equivalent Share
- ------------------------------------------------------
Basic EPS excludes the effect of any dilutive options, warrants or
convertible securities and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
entity. Diluted EPS is computed by dividing income available to common
stockholders by the sum of the weighted average number of common shares
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and common share equivalents computed using the average market price
for the period under the treasury stock method. All earnings per share
amounts have been restated to conform with the SFAS 128 requirements.
SFAS 128, which now governs earnings per share computation,
requires the following reconciliation of the basic and diluted EPS
calculations:
For the periods ended
March 28, March 29,
1998 1997
----------- -----------
Basic EPS Computation:
Numerator:
Net income $384,961 $108,443
Denominator:
Weighted average
common shares
outstanding 7,978,197 7,781,266
Basic EPS $0.05 $0.01
Diluted EPS Computation:
Numerator:
Net income $384,961 $108,443
Interest on
convertible debt $ 22,266 34,250
--------- --------
Total net income $407,227 $142,693
Denominator:
Weighted average common
shares outstanding 7,978,197 7,781,266
Stock options 231,111 102,506
Convertible debt 3,449,313 4,364,192
---------- ---------
Total Shares 11,658,621 12,247,964
Diluted EPS $0.03 $0.01
As of March 28, 1998 and March 29, 1997, the Company had 74,000 and
92,500 securities that were antidilutive, respectively.
(4) Newly Issued Accounting Changes
- -------------------------------
Financial Accounting Standards Board Statement No. 130 (`FAS 130`)
`Reporting Comprehensive Income` is effective for fiscal years
beginning after December 15, 1997, although earlier application is
permitted. The Company intends to adopt the requirements of this
pronouncement in its financial statements for the year ending December
26, 1998. FAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
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purpose financial statements. FAS 130 requires that all components of
comprehensive income shall be reported in the financial statements in
the period in which they are recognized. Furthermore, a total amount
for comprehensive income shall be displayed in the financial statement
where the components of other comprehensive income are reported. The
Company was not previously required to present comprehensive income or
the components thereof in its financial statements under generally
accepted accounting principles.
Financial Accounting Standards Board Statement No. 131 (`FAS 131`)
`Disclosure about Segment of an Enterprise and Related Information` is
effective for financial statements issued for periods beginning after
December 15, 1997. FAS 131 requires disclosures about segments of an
enterprise and related information regarding the different types of
business activities in which an enterprise engages and the different
economic environments in which it operates.
The Company does not believe that the implementation of FAS 130 or
131 will have a material impact on its financial statements.
(5) Inventory
---------
Inventories consist of the following:
March 28, December 27,
1998 1997
--------- ----------
Raw materials $ 64,819 $ 11,097
Work in process 321,028 112,228
Finished goods - -
--------- ----------
$ 385,847 $ 123,325
========= ==========
(6) Accrued Expenses
----------------
Accrued expenses consist of the following:
March 28, December 27,
1998 1997
--------- ----------
Accrued legal and
accounting $ 32,000 $ 33,190
Accrued interest 377,565 526,294
Accrued payroll 95,738 108,242
Due to landlord 12,893 11,077
Accrued other 53,694 ( 1,694)
--------- ----------
$ 571,890 $ 677,109
========= ==========
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(7) Supplemental Cash Flow Information
- ----------------------------------
In the first fiscal quarter of 1998, the Company paid interest in
cash on notes payable in the amount of $204,319, including accrued
interest of $160,542 on convertible notes with principal of $450,000
which were converted into common stock by the note holders on March 19,
1998. In the first fiscal quarter of 1998, the Company paid $5,595
interest on leases for production equipment.
(8) Subsequent Event
- ----------------
As of the end of the first fiscal quarter of 1998, three
convertible notes payable in the total principal amount of $1,420,000
were outstanding and in default. As of April 9, 1998 the Company had
cured all conditions of default relating to convertible notes. On
April 9, 1998, two convertible notes outstanding in the total principal
amount of $920,000 were amended by agreement of note holders and the
Company to establish a maturity date of January 15, 1999. The third
convertible note outstanding in the principal amount of $500,000 has a
maturity date of April 21, 2001.
All three convertible notes payable outstanding are convertible
into shares of the Company`s common stock at the option of the note
holder at a rate of one share of the Company`s common stock for each
$0.50 of unpaid principal and related interest. As of March 28, 1998,
3,493,842 shares of common stock were reserved for the conversion of
principal and related interest of these convertible notes payable.
ITEM 2 MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking
statements that involve a number of risks and uncertainties. There are
a number of factors that could cause the Company`s actual results to
differ materially from those forecasted or projected in such forward-
looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the
results of any revisions to these forward-looking statements which may
be made to reflect events or changed circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Financial Condition
- -------------------
Net income increased to $385 thousand from $108 thousand, a 256%
increase, from the first fiscal quarter of 1997 to the first fiscal
quarter of 1998. Revenues increased to $1,333 thousand from $938
thousand, a 42% increase over the same time period. The Company`s cash
balance at March 28, 1998 and at December 27, 1997 was $529 thousand
and $561 thousand, respectively.
PAGE <11>
The improvement in the Company`s overall financial performance in
the first fiscal quarter of 1998 versus the first fiscal quarter of
1997 was primarily the result of increased unit shipments of the
Company`s metal-matrix composites for use in wireless telecommunication
applications and improved gross margins.
The Company financed its working capital requirements during the
first fiscal quarter of 1998 with funds generated by operations. The
Company expects it will continue to be able to fund its working capital
requirements for the remainder of 1998 through operations.
The Company`s entire operations are currently housed in a leased
facility in Chartley, Massachusetts.
Results of Operations
- ---------------------
The Company`s total revenue in the first fiscal quarter of 1998
was $1,333 thousand, a 42% increase over revenue in the first fiscal
quarter of 1997 of $938 thousand. Unit shipments increased 141%,
reflecting an ongoing change in product mix from small prototyping runs
to recurring production, and gross margins increased to 45% from 32%
over the same period. Total operating expenses in the first fiscal
quarter of 1998 were $886 thousand, a 16% increase over operating
expenses in the first fiscal quarter of 1997 of $764 thousand.
The growth in revenue in the first fiscal quarter of 1998 from the
first fiscal quarter of 1997 was primarily due to increased unit
shipments of the Company`s metal-matrix composites for use in wireless
telecommunication applications. Customer demand increased while unit
manufacturing costs declined, resulting in both revenue growth and
improved profitability. The improvement in gross margins resulted from
process improvements in the Company`s manufacturing operations and the
spreading of fixed manufacturing costs over greater unit volume.
The cumulative effect of these revenues and costs resulted in net
income of $385 thousand, or $0.05 per basic common share, in the first
fiscal quarter of 1998, versus net income of $108 thousand, or $0.01
per basic common share, in the first fiscal quarter of 1997.
Liquidity
- ---------
The Company`s liquidity improved during the first quarter as debt
was reduced and the Company continued to generate cash from operations.
On March 19, 1998 convertible notes outstanding in the principal amount
of $450 thousand were converted by note holders into 900,000 shares of
the Company`s common stock. The Company paid accrued interest in full
on these notes in cash.
Inventory increased to $386 thousand at the end of the first
fiscal quarter of 1998 from $123 thousand at December 27, 1997.
Management believes the higher inventory level will allow the Company
to better address weekly fluctuations in demand from a major customer
to whom the company supplies several products on a just-in-time basis.
PAGE <12>
Accounts Receivable decreased to $433 thousand at March 28, 1998
from $626 thousand at December 27, 1997. This change reflects
fluctuations in timing of specific customer requirements, and, in the
opinion of management, does not reflect any inherent seasonality in the
business.
PART II OTHER INFORMATION
Item 1 through Item 5: None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 10.1
Amendment To
10% Convertible Subordinated Notes Due June 30, 1995,
10% Convertible Subordinated Note Due January 31, 1996
And 10% Convertible Subordinated Notes Due April 24, 1996
Exhibit 10.2
Registration Rights Agreement
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Ceramics Process Systems Corporation
(Registrant)
Date: May 11, 1998 /s/Grant C. Bennett
Grant C. Bennett
President and Treasurer
(Principal Executive
Officer)