-----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, DOXHdsMUG7wejFFAV28EO+fAgeupn0P1ynumTY3pAGqs2UCl6U5lbYvXKWrGswTl Yir2BvfKoKSAzVKGa062sQ== 0000814676-98-000005.txt : 19981113 0000814676-98-000005.hdr.sgml : 19981113 ACCESSION NUMBER: 0000814676-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980926 FILED AS OF DATE: 19981112 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: 98744134 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 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 September 26, 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 Facsimile Number: 508-222-0220, E-Mail Address: info@alsic.com. 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 October 21, 1998: 12,307,186 2 CERAMICS PROCESS SYSTEMS CORPORATION Form 10-Q For The Fiscal Quarter Ended September 26, 1998 Index PART I: FINANCIAL INFORMATION Page Item 1: Consolidated Financial Statements 3-9 Consolidated Balance Sheets as of September 26, 1998 and December 27, 1997 3-4 Consolidated Statements of Operations for the fiscal quarters and nine-month periods ended September 26, 1998 and September 27, 1997 5 Consolidated Statements of Cash Flows for the nine-month periods ended September 26, 1998 and September 27, 1997 6 Notes to Consolidated Financial Statements 7-9 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 10-11 PART II: OTHER INFORMATION Items 1-6 13 Signatures 14 3 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Balance Sheets September 26, December 27, 1998 1997 ------------ ----------- ASSETS Current Assets: Cash $1,000,196 $ 561,166 Accounts receivable 789,205 626,121 Inventories 307,553 123,325 Prepaid expenses 7,884 15,528 Prepaid assets 9,772 5,072 ---------- ---------- Total current assets $2,114,610 1,331,212 ---------- ---------- Property and equipment: Production equipment 1,540,339 1,470,253 Furniture and office equipment 124,582 70,404 ---------- ---------- 1,664,921 1,540,657 Less accumulated depreciation and amortization (952,384) (967,161) ---------- ---------- Net property and equipment $ 712,537 573,496 ---------- ---------- Total Assets $2,827,147 $1,904,708 ========== ========== See accompanying notes to consolidated financial statements. 4 CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Balance Sheets (continued) September 26, December 27, 1998 1997 ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 107,055 $ 154,657 Accrued expenses 138,638 677,109 Deferred revenue 147,347 163,430 Notes payable - 206,962 Current portion of convertible notes payable: Related parties - 260,000 Other - 1,610,000 Current portion of obligations under capital leases 45,722 42,205 ------------ ------------ Total current liabilities 438,762 3,114,363 Notes payable, less current portion - 137,868 Obligations under capital leases less current portion 137,369 172,114 ------------ ------------ Total Liabilities 576,131 3,424,345 ------------ ------------ Stockholders' Equity (Deficit) Common stock, $0.01 par value. Authorized 15,000,000 shares; issued 12,307,186 shares at September 26, 1998 and 7,824,528 shares at December 27, 1997 123,072 78,246 Additional paid-in capital 32,655,329 30,464,833 Accumulated deficit (30,466,550) (32,001,881) ------------ ------------ 2,311,851 (1,458,802) Less treasury stock, at cost, 22,883 common shares at September 27, 1997 and December 28, 1996 (60,835) (60,835) ------------ ------------ Total stockholders' equity (deficit) 2,251,016 (1,519,637) ------------ ------------ Total Liabilities and Stockholders' Equity (Deficit) $ 2,827,147 $ 1,904,708 ============ ============ See accompanying notes to consolidated financial statements. 5 CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Statements of Operations Fiscal Quarters Ended Nine-Month Periods Ended Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1998 1997 1998 1997 Revenue: ---------- ----------- ---------- --------- Product sales $ 1,260,767 $ 1,084,960 $ 3,679,916 $ 2,852,046 License agreements - 130,333 740,750 285,667 ---------- ----------- ---------- --------- Total revenue 1,260,767 1,215,293 4,420,666 3,137,713 ========== =========== ========== ========== Operating expenses: Cost of sales 798,503 607,137 2,259,571 1,707,839 Selling, general, and administrative 162,961 121,287 486,163 387,865 ---------- ----------- ---------- ---------- Total operating expenses 961,464 728,424 2,745,734 2,095,704 ---------- ----------- ---------- ---------- Operating income 299,303 486,869 1,674,932 1,042,009 Other income (exp.), net 96,978 (52,328) (11,575) (176,125) Income before taxes 396,281 434,541 1,663,357 865,884 ---------- ---------- ---------- ---------- Income taxes 30,274 - 128,027 - Net income $ 366,007 $ 434,541 $1,535,330 $ 865,884 ========== ========== ========== ========== Net income per basic common share $ 0.03 $ 0.05 $ 0.15 $ 0.11 ---------- ---------- ---------- ---------- Weighted average number of basic common shares outstanding 12,307,186 8,079,585 9,916,550 8,084,907 ========== ========== ========== ========== Net income per diluted common share $ 0.03 $ 0.04 $ 0.13 $ 0.08 ---------- ---------- --------- --------- Weighted average number of diluted common shares outstanding 12,506,198 12,938,206 12,729,075 12,820,926 ========== ========== ========== ========== See accompanying notes to consolidated financial statements. 6 CERAMICS PROCESS SYSTEMS CORPORATION Consolidated Statements of Cash Flows Nine-Month Periods Ended Sept. 26, Sept. 27, 1998 1997 --------- -------- Cash flows from operating activities: Net income $1,535,330 $ 865,884 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and Amortization 134,579 98,242 (gain) on disposal of equipment (53,000) (1,610) Changes in assets and liabilities: Accounts receivable, trade (115,084) (215,955) Inventories (184,228) 9,524 Prepaid expenses 7,644 (6,102) Other current assets (4,700) - Accounts payable (47,601) 107,184 Accrued expenses (176,513) (218,430) Deferred revenue (16,083) (85,654) --------- -------- Net cash provided by operating activities 1,080,344 553,083 --------- -------- Cash flows from investing activities: Additions to property and equipment (273,619) (195,942) Disposal of property and equipment 5,000 1,610 Deposits - (4,506) --------- -------- Net cash (used in) investing activities (268,619) (198,838) --------- -------- Cash flows from financing activities: Principal capital lease obligations (31,229) 47,199 Principal payments of Notes Payable (344,830) (54,664) Proceeds from issuance of common stock 3,364 3,927 --------- -------- Net cash provided by (used in) financing activities (372,695) (3,538) --------- -------- Net increase in cash 439,030 350,707 Cash at beginning of period 561,166 113,331 --------- --------- Cash at end of period $1,000,196 $ 464,038 ========= ========= 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 and 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 nine month periods ended September 26, 1998 and September 27, 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 ignificant 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. 8 (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 Nine month Quarters Ended Periods ended Sept. 26, Sept. 27, Sept. 26, Sept. 27, 1998 1997 1998 1997 ----------- ---------- ---------- ---------- Basic EPS Computation: Numerator: Net income $366,007 $434,541 $1,535,330 $865,884 Denominator: Weighted average common shares outstanding 12,307,186 8,079,585 9,916,550 8,084,907 Basic EPS $0.03 $0.05 $0.15 $0.11 Diluted EPS Computation: Numerator: Net income $366,007 $434,541 $1,535,330 $865,884 Interest on convertible debt 0 56,293 87,290 103,043 --------- -------- --------- --------- Total net income $366,007 $490,834 $1,622,620 $968,927 Denominator: Weighted average common shares outstanding 12,307,186 8,079,585 9,916,550 8,084,907 Stock options 199,012 190,739 214,349 161,637 Convertible debt 0 4,667,882 2,598,176 4,574,382 ---------- --------- ---------- ---------- Total Shares 12,506,198 12,938,206 12,729,075 12,820,926 Diluted EPS $0.03 $0.04 $0.13 $0.08 9 (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, and 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: September 26, December 27, 1998 1997 --------- ---------- Raw materials $ 137,504 $ 11,097 Work in process 170,049 112,228 --------- ---------- $ 307,553 $ 123,325 ========= ========== (6) Accrued Expenses ---------------- Accrued expenses consist of the following: September 26, December 27, 1998 1997 --------- ---------- Accrued legal and accounting $ 22,500 $ 33,190 Accrued interest - 526,294 Accrued payroll 79,885 108,242 Accrued rent and utilities 9,451 11,077 Accrued other 26,801 ( 1,694) --------- ---------- $ 138,637 $ 677,109 ========= ========== 10 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 - Third Fiscal Quarter of 1998 Compared to Third Fiscal Quarter of 1997 - ---------------------- Total revenue increased 4% in Q3 1998 compared to Q3 1997. Revenue from product sales increased 16% in Q3 1998 compared to Q3 1997. No revenue was earned from license agreements in Q3 1998 compared to revenue from license agreements of $130 thousand earned in Q3 1997. The growth in product revenue in Q3 1998 compared to Q3 1997 was primarily due to increased shipments of the Company's metal-matrix composites for use in wireless telecommunication applications. Unit shipments in Q3 1998 were 26% higher than unit shipments in Q3 1997, and 15% higher than unit shipments in Q2 1998. Total operating expenses in Q3 1998 were $961 thousand, a 32% increase over operating expenses of $728 thousand in Q3 1997. Of the $233 thousand increase in operating expenses in Q3 1998 compared to the Q3 1997, $192 thousand related to cost of sales and $41 thousand related to selling, general and administrative expenses. Gross margins for Q3 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, July and part of August, which reduced gross margins for the quarter as overhead expenses were spread over a smaller production base. In addition, no revenue from licence agreements was earned in Q3 1998 whereas revenue of $130 thousand was earned from license agreements in Q3 1997. Income taxes in Q3 1998 were $30 thousand compared to $0 in Q3 1997. The cumulative effect of these revenues and costs resulted in net income of $366 thousand, or $0.03 per basic share, $0.03 per diluted share, in Q3 1998, compared to net income of $435 thousand, or $0.05 per basic share, $0.04 per diluted share in the Q3 1997. 11 Results of Operations - First Nine Months of 1998 Compared to First Nine Months of 1997 - -------------- Total revenue increased 41% in the first nine months of 1998 compared to the first nine months of 1997. Revenue from product sales increased 29% in the first nine months of 1998 compared to the first nine months of 1997. Revenue from license agreements increased 159% in the first nine months of 1998 compared to the first nine months of 1997. The growth in product revenue in the first nine months of 1998 compared to the first nine months of 1997 was primarily due to increased shipments of the Company's metal-matrix composites for use in wireless telecommunication applications. Unit shipments in the first nine months of 1998 were 65% higher than unit shipments in the first nine months of 1997. Total operating expenses in the first nine months of 1998 were $2.75 million, a 31% increase over operating expenses of $2.10 million in the first nine months of 1997. The increase in operating expenses is primarily attributable to the increased unit shipments, and additional personnel in sales and marketing. Of the $650 thousand increase in operating expenses in the first nine months of 1998 compared to the first nine months of 1997, $552 thousand related to cost of sales and $98 thousand related to selling, general and administrative expenses. Gross margins on product sales for the first nine months of 1998 were 39% compared to 40% for the first nine months of 1997. Gross margins on product sales in Q1 1998 were higher than Q1 1997 as a result of higher unit volumes, however, gross margins on product sales in Q2 and Q3 1998 were lower than Q2 and Q3 1997 due to the decision in late May of a major customer to reduce inventories which resulted in lower than planned shipments of the Company`s products to that customer in June, July and part of August, increasing unit costs as as overhead expenses were spread over a smaller production base. Income taxes in the first nine months of 1998 were $128 thousand compared to $0 in the first nine months of 1997. The cumulative effect of these revenues and costs resulted in net income of $1,535 thousand, or $0.15 per basic share, $0.13 per diluted share, in the first nine months of 1998, compared to net income of $865 thousand, or $0.11 per basic share, $0.08 per diluted share in the first nine months of 1997. Financial Condition - ------------------- The Company`s financial condition and liquidity improved as of the end of Q3 1998 compared to year-end 1997 as a result 1) operations generating cash, 2) elimination of debt in Q1 and Q2 1998 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, and 3) receipt of licensing revenues. 12 The Company`s cash balance at September 26, 1998 was $1,000 thousand compared to $561 thousand at December 27, 1997. Inventories increased to $307 thousand at September 26, 1998 from $123 thousand at December 27, 1997. Raw material inventory increased to $138 thousand from $11 thousand, and work in process inventory increased to $170 thousand from $112 thousand over the same period. Management believes the increase in raw material inventory and work in process inventory is appropriate to support the increased production volume. Accounts Receivable increased to $789 thousand at September 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 third fiscal quarter of 1998 with funds generated by operations. Management considers cash flow from operations and available cash to be adequate to meet its working capital requirements for the for the foreseeable future. Year 2000 Issue - --------------- The Company has identified three areas of possible exposure to Year 2000 problems: 1) Application programs (financial, CAD/CAM and management information programs) used by the company, 2) Embedded programs in production and analytical equipment used by the Company, and 3) Programs used by vendors, customers and other third parties with whom the Companies does business. The Company has completed an assessment of its exposure in each of these three areas and has developed a plan and timetable to address issues identified. The assessment indicated the area of greatest risk is the area of application programs. In the process of addressing the Year 2000 issue, the Company has concurrently sought to upgrade certain computer systems to provide greater functionality. In the first nine months of 1998, the Company purchased and installed new financial, accounting, and selected manufacturing computer systems which are Year 2000 compliant and which provide greater functionality. For the application programs which the Company does not intend to replace but which are not currently Year 2000 compliant, the Company has identified patches and upgrades which the company will be implementing through the first half of 1999. Regarding the second area, the Company is testing production and analytical equipment one machine at a time to determine where Year 2000 problems exist, and to implement upgrades and or manual workarounds for problems identified. The Company's timetable calls for completion of this process by the end of the first half of 1999. If upgrades or manual workarounds are not possible for certain equipment, the Company believes it can replace the capital equipment in an orderly manner without disrupting production. The Company does not currently believe any capital equipment will need to be replaced, but there is no guarantee this will be the case. The Company does not believe the cost of upgrades and or manual workarounds will be material, but there is no guarantee this will be the case. 13 Regarding the third area, the Company is interviewing vendors and customers to determine their exposure to Year 2000 issues. The Company has not yet established a contingency plan in the event of noncompliance by its customers and vendors. 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: November 10, 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 the period ending September 26, 1998. 3-MOS DEC-26-1998 SEP-26-1998 1,000,196 0 789,205 0 307,553 2,114,610 712,537 952,384 2,827,147 438,762 0 0 0 12,307,186 0 2,827,147 1,260,767 1,260,767 798,503 961,464 0 0 3,391 396,281 30,274 366,007 0 0 0 366,007 0.03 0.03
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