-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MNiO1i6qct6FBbCs1NHlHFKVbfa+8us9dhgUvgvIp2cTkX5FSWnP1NI1EDgRjXI1 cp2p4AGvgRqWPwuuFE0WtQ== 0000814676-98-000004.txt : 19980810 0000814676-98-000004.hdr.sgml : 19980810 ACCESSION NUMBER: 0000814676-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980627 FILED AS OF DATE: 19980807 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERAMICS PROCESS SYSTEMS CORP/DE/ CENTRAL INDEX KEY: 0000814676 STANDARD INDUSTRIAL CLASSIFICATION: POTTERY & RELATED PRODUCTS [3260] IRS NUMBER: 042832509 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16088 FILM NUMBER: 98679021 BUSINESS ADDRESS: STREET 1: 111 SOUTH WORCESTER STREET STREET 2: PO BOX 338 CITY: CHARTLEY STATE: MA ZIP: 02712 BUSINESS PHONE: 508-222-0614 MAIL ADDRESS: STREET 1: 111 SOUTH WORCESTER STREET STREET 2: PO BOX 338 CITY: CHARTLEY STATE: MA ZIP: 02712 10-Q 1 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 June 27, 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 June 27, 1998: 12,284,303. 2 CERAMICS PROCESS SYSTEMS CORPORATION Form 10-Q For The Fiscal Quarter Ended June 27, 1998 Index PART I: FINANCIAL INFORMATION Page Item 1: Consolidated Financial Statements 3 Consolidated Balance Sheets as of June 27, 1998 and December 27, 1997 3 Consolidated Statements of Operations for the fiscal quarters and six month periods ended June 27, 1998 and June 28, 1997 5 Consolidated Statements of Cash Flows for the six month periods ended June 27, 1998 and June 28, 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 3 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Balance Sheets (continued on next page) June 27, December 27, 1998 1997 ASSETS ---------- ---------- Current assets: Cash and cash equivalents $1,073,532 $ 561,166 Trade receivables 236,587 626,121 Inventories 541,479 123,325 Prepaid expenses 13,067 15,528 ---------- ---------- Total current assets 1,864,665 1,326,140 ---------- ---------- Property and equipment: Production equipment 1,713,191 1,470,253 Furniture and office equipment 80,001 70,404 ---------- ---------- 1,793,192 1,540,657 Less accumulated depreciation (1,054,941) (967,161) ---------- ---------- Net property and equipment 738,251 573,496 ---------- ---------- Deposits 8,572 5,072 ---------- ---------- Total assets $2,611,488 $1,904,708 ========== ========== See accompanying notes to consolidated financial statements. 4 CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Balance Sheets (continued) LIABILITIES AND STOCKHOLDERS` EQUITY (DEFICIT) June 27, December 27, 1998 1997 --------- ----------- Current liabilities: Accounts payable $ 104,828 $ 154,657 Accrued expenses 272,869 677,109 Deferred revenue 155,003 163,430 Notes payable - 206,962 Convertible notes payable: Related parties - 260,000 Other - 1,610,000 Current portion of obligations under capital leases 44,518 42,205 ------------ ------------ Total current liabilities 577,218 3,114,363 Obligations under capital leases less current portion 149,262 172,114 Notes payable less current portion - 137,868 ------------ ------------ Total liabilities 726,480 3,424,345 ------------ ------------ Stockholders` Equity (Deficit) Common stock, $0.01 par value. Authorized 15,000,000 shares; issued 12,307,186 shares at June 27, 1998 and 7,824,582 at December 27, 1997 123,072 78,246 Additional paid-in capital 32,655,329 30,464,833 Accumulated deficit (30,832,558) (32,001,881) ------------ ------------ 1,945,843 (1,458,802) Less treasury stock, at cost, 22,883 common shares at June 27,1998 and December 27, 1997 (60,835) (60,835) ------------ ------------ Total stockholders` equity (deficit) 1,885,008 (1,519,637) ------------ ------------ Total liabilities and stockholders` equity (deficit) $ 2,611,488 $ 1,904,708 ============ ============ See accompanying notes to consolidated financial statements. 5 CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Statements of Operations Fiscal Six month Quarters Ended Periods Ended June 27, June 28, June 27, June 28, 1998 1997 1998 1997 Revenue: ---------- ---------- ---------- ---------- Product sales $1,085,936 $ 829,477 $2,419,149 $1,767,085 License revenue 740,750 155,333 740,750 155,333 ---------- ---------- ---------- ---------- Total revenue 1,826,686 984,810 3,159,899 1,922,418 ========== ========== ========== ========== Operating expenses: Cost of product sales 733,261 466,435 1,461,068 1,100,699 Selling, general, and administrative 169,488 136,649 327,445 266,582 ---------- ---------- ---------- ---------- Total operating expenses 902,749 603,084 1,788,513 1,367,281 ---------- ---------- ---------- ---------- Operating income 923,937 381,726 1,371,386 555,137 Other income (expense), net (49,677) (58,829) (104,310) (123,797) Income before taxes 874,260 322,897 1,267,076 431,340 ---------- ---------- ---------- ---------- Income taxes 89,897 - 97,753 - Net income $ 784,363 $ 322,897 $1,169,323 $ 431,340 ========== ========== ========== ========== Net income per basic common share $ 0.08 $ 0.04 $ 0.13 $ 0.06 ---------- ---------- ---------- ---------- Weighted average number of basic common shares outstanding 9,496,117 7,782,582 8,721,231 7,781,844 ========== ========== ========= ========= Net income per diluted common share $ 0.07 $ 0.03 $ 0.10 $ 0.04 ---------- ---------- ----------- --------- Weighted average number of diluted common shares outstanding 12,310,768 12,550,713 12,503,427 12,442,785 ========== ========== ========= ========== See accompanying notes to consolidated financial statements. 6 CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Statements of Cash Flows Six month period ended June 27, June 28, 1998 1997 --------- --------- Cash flows from operating activities: Net income $1,169,323 $ 431,340 Adjustments to reconcile net income to cash provided by operating activities Depreciation 69,480 52,800 Amortization 18,300 12,695 Loss (gain) on disposal of equipment - (1,550) Changes in assets and liabilities: Trade receivables 389,534 (87,663) Inventories (418,154) (11,212) Prepaid expenses 2,461 (6,586) Accounts payable (49,829) 37,654 Accrued expenses (42,282) (2,003) Deferred revenue (8,427) (138,320) --------- ---------- Net cash provided by operating activities 1,130,406 287,155 --------- ---------- Cash flows from investing activities: Additions to property and equipment (252,533) (75,447) Proceeds from sales of property and equipment - 1,550 Deposits (3,500) 100 --------- ---------- Net cash used in investing activities (256,033) (73,797) --------- --------- Cash flows from financing activities: Principal payments of capital lease obligations (20,541) ( 9,893) Proceeds from issuance of common stock 3,364 327 Principal payments of notes payable (344,830) - --------- --------- Net cash used in financing activities (362,007) ( 9,566) --------- --------- Net increase in cash and cash equivalents 512,366 203,792 Cash and cash equivalents at beginning of period 561,166 113,331 --------- ---------- Cash and cash equivalents at end of period $1,073,532 $ 317,123 ========= ========== See accompanying notes to consolidated financial statements. 7 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 and six month periods ended June 27, 1998 and June 28, 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 and common share equivalents computed using the average market price for the period under the treasury stock method. Fiscal Six month Quarters Ended Periods ended June 27, June 28, June 27, June 28, 1998 1997 1998 1997 ----------- ---------- ---------- ---------- Basic EPS Computation: Numerator: Net income $784,363 $322,897 $1,169,323 $431,340 Denominator: Weighted average common shares outstanding 9,496,117 7,782,582 8,721,231 7,781,844 Basic EPS $0.08 $0.04 $0.13 $0.06 Diluted EPS Computation: Numerator: Net income $784,363 $322,897 $1,169,323 $431,340 Interest on convertible debt 42,027 46,750 87,290 93,500 --------- -------- --------- --------- Total net income $826,390 $369,647 $1,256,613 $524,840 Denominator: Weighted average common shares outstanding 9,496,117 7,782,582 8,721,231 7,781,844 Stock options 216,475 174,925 219,001 161,235 Convertible debt 2,598,176 4,593,206 3,563,195 4,499,706 ---------- --------- ---------- ---------- Total Shares 12,310,768 12,550,713 12,503,427 12,442,785 Diluted EPS $0.07 $0.03 $0.10 $0.04 As of June 27, 1998 and June 28, 1997, the Company had 121,000 and 92,500 securities that were antidilutive, respectively. (4) Newly Issued Accounting Changes - ------------------------------- The Company has adopted Financial Accounting Standards Board Statement No. 130 (`FAS 130`) `Reporting Comprehensive Income` effective for fiscal years beginning after December 15, 1997. FAS 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general-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 has no items of comprehensive income therefore net income is equal to comprehensive income. 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 131 will have a material impact on its financial statements. (5) Inventory --------- Inventories consist of the following: June 27, December 27, 1998 1997 --------- ---------- Raw materials $ 155,435 $ 11,097 Work in process 386,044 112,228 Finished goods - - --------- ---------- $ 541,479 $ 123,325 ========= ========== (6) Accrued Expenses ---------------- Accrued expenses consist of the following: June 27, December 27, 1998 1997 --------- ---------- Accrued legal and accounting $ 18,000 $ 33,190 Accrued interest - 526,294 Accrued payroll 155,148 108,242 Accrued rent and utilities 9,676 11,077 Accrued other 90,045 ( 1,694) --------- ---------- $ 272,869 $ 677,109 ========= ========== (7) Supplemental Cash Flow Information - ---------------------------------- In the second fiscal quarter of 1998, the Company paid interest in cash on notes payable in the amount of $70,951 and interest on leases for production equipment in the amount of $5,322. In the second fiscal quarter of 1998, the Company issued 2,840,000 shares of common stock upon the conversion of the principal of convertible notes payable in the amount of $1,420,000 and 723,916 shares of common stock upon the conversion of accrued interest on convertible notes payable in the amount of $361,958. 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. Results of Operations - --------------------- Net income increased to $784 thousand from $323 thousand, a 143% increase, in the second fiscal quarter of 1998 from the second fiscal quarter of 1997. Revenues increased to $1,827 thousand from $985 thousand, a 85% increase over the same time period. Revenue from product shipments in the second fiscal quarter of 1998 was $1,086 thousand, a 31% increase over revenue from product shipments in the second fiscal quarter of 1997 of $829 thousand. Revenue from licensing agreements was $741 thousand in the second fiscal quarter of 1998 compared to $155 thousand in the second fiscal quarter of 1997, a 378% increase. The increase in licensing revenue was a result of receipt of licensing fees from a licensing agreement the Company entered into during the second fiscal quarter of 1998 with Hitachi Metals, Ltd. of Tokyo, Japan. The key terms of the licensing agreement are: 1) the Company licensed Hitachi Metals to use the Company`s proprietary technology to produce metal matrix composites in Japan, and to sell metal matrix composites world-wide except in the United States of America, 2) the Company and Hitachi Metals will share with each other future improvements they develop in the Company`s proprietary technology and in related manufacturing technology, and 3) the Company will receive royalties based on the sales of metal matrix products by Hitachi Metals. Management believes this agreement will benefit the Company by accelerating the further development of the Company`s proprietary technology and related manufacturing technology for metal matrix composites. Although the Company believes it will receive royalty payments from certain existing licensees in the future, the Company`s primary focus is in manufacturing and selling metal matrix composites; selling of additional licenses is not a focus of management. Total operating expenses in the second fiscal quarter of 1998 were $903 thousand, a 50% increase over operating expenses in the second fiscal quarter of 1997 of $603 thousand. Cost of sales increased 57% while selling, general and administrative expenses increased 24% over the same period. Unit shipments increased 56% over the same period, reflecting an ongoing change in product mix from small prototyping runs to recurring production. Gross margins on product sales in the second fiscal quarter of 1998 averaged 32% compared to 44% in the second fiscal quarter of 1997. Gross margins for the second fiscal quarter of 1998 were negatively affected by the decision in late May of a major customer to reduce inventories. This decision resulted in reduced shipments of the Company`s products to that customer in June, which reduced gross margins for the quarter as overhead expenses were spread over a smaller production base. Management believes this customer`s decision to reduce inventory will continue to negatively affect shipments by the Company to this customer throughout at least the first half of the third quarter. During the second fiscal quarter of 1998 the Company hired personnel in both manufacturing and sales functions; management believes the additional personnel are needed to continue growth. Income taxes in the second fiscal quarter of 1998 were $90 thousand compared to $0 in the second fiscal quarter of 1997. The increase is primarily attributable to Japanese withholding taxes paid in connection with the licensing agreement described above. The cumulative effect of these revenues and costs resulted in net income of $784 thousand, or $0.08 per basic common share, in the second fiscal quarter of 1998, versus net income of $323 thousand, or $0.04 per basic common share, in the second fiscal quarter of 1997. Liquidity - --------- The Company`s liquidity in the second fiscal quarter of 1998 was primarily affected by three developments: 1) elimination of debt as note holders converted the Company`s subordinated convertible notes into common stock and the Company retired all nonconvertible debt by making payment of principal and accrued interest in full, 2) receipt of certain licensing revenues, and 3) increased shipments of the Company`s metal matrix composites. The Company`s cash balance at June 27, 1998 was $1,074 thousand compared to $561 thousand at December 27, 1997. The Company`s current ratio (current assets divided by current liabilities) was 3.23 at June 27, 1998, compared to 0.43 at December 27, 1997. In 1994 the Company issued subordinated notes convertible into the Company`s common stock at the note holders` option at a conversion rate of $0.50 of note principal and accrued interest per common share. A total of 4,463,916 shares of common stock were issued to noteholders upon conversion of the notes in the first two fiscal quarters of 1998. The total number of shares of common stock outstanding after conversion of all convertible debt is 12,284,303, excluding 22,883 treasury shares. In addition, the Company retired $620,100 of debt principal and accrued interest during the first two fiscal quarters of 1998 using funds generated from operations. Although to the Company`s knowledge the former noteholders do not have immediate plans to sell stock issued upon conversion, pursuant to terms of the original note purchase agreement the Company will shortly file a registration statement with the Securities and Exchange Commission to register these shares. Inventories increased to $541 thousand at June 27, 1998 from $123 thousand at December 27, 1997. Raw material inventory increased to $155 thousand from $11 thousand, and work in process inventory increased to $386 thousand from $112 thousand over the same period. Management believes the increase in raw material inventory is appropriate to support the increased production volume. Work in process inventory increased primarily as a result of a major customer`s decision to reduce their inventory. Accounts Receivable decreased to $237 thousand at June 27, 1998 from $626 thousand at December 27, 1997. This change resulted from fluctuations in timing of specific customer requirements, and, in the opinion of management, does not reflect any inherent seasonality in the business. The Company financed its working capital requirements during the second 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. PART II OTHER INFORMATION Item 1 through Item 5: None Item 6: Exhibits and Reports on Form 8-K (a) Exhibits: (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: August 7, 1998 /s/Grant C. Bennett Grant C. Bennett President and Treasurer (Principal Executive Officer) EX-27 2
5 This schedule contains summary financial information extracted from consolidated financial statements of Ceramics Process Systems Corporation and is qualified in its entirety by reference to such Form 10-Q for period ending June 27, 1998 3-MOS DEC-26-1998 JUN-27-1998 1,073,532 0 236,587 0 541,479 1,864,665 738,251 1,054,941 2,611,488 577,218 0 0 0 12,284,303 0 2,611,488 1,085,936 1,826,686 733,261 902,749 0 0 76,273 874,260 89,897 784,363 0 0 0 784,363 0.08 0.07
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