SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A2
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 No: 00-113959
CPS SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1607857
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3400 CARLISLE, SUITE 500
DALLAS, TEXAS 75204
(214) 855-5277
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
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 that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF MAY 07, 1998
----- ---------------------------------
Common stock
Par value $.01 per share 6,732,502
1
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
As of As of
03/31/98 12/31/97
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $6,218 $327
Accounts receivable $1,963 $1,718
Deferred income tax $508 $160
Inventory $393 $161
Refundable income taxes $0 $75
Prepaid expense and other current assets $320 $134
Deferred offering costs $0 $367
------------------ -----------------
Total current assets: $9,402 $2,942
PROPERTY AND EQUIPMENT $578 $536
SOFTWARE DEVELOPMENT COST $1,439 $938
OTHER ASSETS
Costs in excess of net assets acquired $1,834 $1,905
Debt issue costs $140 $160
Other assets $18 $18
------------------ -----------------
$1,992 $2,083
------------------ -----------------
$13,411 $6,499
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $707 $731
Accounts payable $784 $683
Accrued salaries, wages and payroll taxes $12 $12
Accrued offering costs $352 $243
Accrued income tax payable $97 $0
Other accrued expenses $317 $230
Customer deposits and unearned revenue $2,463 $1,533
------------------ -----------------
Total current liabilities: $4,731 $3,432
OTHER LIABILITIES
Long-term debt $2,014 $2,014
Deferred income taxes $317 $317
Notes payable-shareholders $125 $123
Unearned revenue $48 $47
Other liabilities $48 $47
------------------ -----------------
Total long term debt: $2,552 $2,548
------------------ -----------------
Total Liabilities: $7,283 $5,980
PUT WARRANTS $0 $242
COMMITMENTS AND CONTINGENCIES $0 $0
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
10,000,000 shares, none issued and outstanding $0 $0
Common stock, $.01 par value, 50,000,000 shares
authorized; issued and outstanding, 6,732,502
and 3,904,736 shares $67 $39
Additional paid-in capital $7,259 $961
Accumulated deficit (1,198) (723)
------------------ -----------------
Total Shareholders' Equity: $6,128 $277
------------------ -----------------
$13,411 $6,499
================== =================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
2
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
----------- ----------
<S> <C> <C>
Revenue
License fees $198 $190
Recurring maintenance and service fees $1,076 $955
Product sales $643 $501
Other service fees $281 $146
----------- ----------
$2,198 $1,792
Cost of Revenue
Product Sales $499 $363
Purchased software $147 $93
Distribution $4 $3
----------- ----------
$650 $459
Gross profit $1,548 $1,333
----------- ----------
Operating Expenses
Support and customer service $934 $732
Selling and marketing $471 $145
Research and development $102 $353
General and administrative $459 $301
Amortization of intangible goodwill &
non-compete agreements $71 $90
----------- ----------
$2,037 $1,621
Earnings(loss) from operations ($489) ($288)
----------- ----------
Interest and financing costs $245 $116
----------- ----------
Earnings(loss) before income taxes ($734) ($404)
Income tax expense(benefit) ($260) ($125)
----------- ----------
Net Earnings(loss) ($474) ($279)
----------- ----------
Net earnings(loss) per common share
Basic and Diluted ($0.11) ($0.07)
Weighted average shares used in computing net
earnings(loss) per common share:
Basic and Diluted 4,140 3,905
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1998 1997
--------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income(loss) $ (476) $ (279)
Adjustments to reconcile net income(loss) to net cash:
Depreciation and amortization 178 185
Adjustment to put warrants 125 (5)
Loss on disposal of property and equipment 1 0
Accrued interest to shareholders 2 0
Changes in assets and liabilities, net of business acquired:
Accounts receivable (245) 237
Refundable income taxes 75 (148)
Inventories (232) (25)
Deferred income tax expense (508) 0
Prepaid expenses and other current assets (31) (8)
Accounts payable (59) 90
Accrued expenses 253 (46)
Customer deposits and unearned revenue 931 (24)
Income taxes payable 97 (177)
Other liabilities 1 7
--------------------------------
Net cash provided(used) by operating activities $111 ($193)
Cash Flows from investing activities:
Purchase of property and equipment (94) (55)
Software development costs (537) (60)
--------------------------------
Net cash used by investing activities ($631) ($115)
Cash flows from financing activities:
Principal payment on long-term debt (23) (72)
Proceeds from public offering, net of offering cost 6,434 0
--------------------------------
Net cash provided(used) by financing activities $6,411 ($72)
Net increase(decrease) in cash 5,891 (380)
Cash at beginning of period 327 592
--------------------------------
Cash at end of period $6,218 $212
Supplementary Cash Flow Disclosure:
Interest and financing costs paid 92 93
Income taxes (refunded) paid, net 0 198
</TABLE>
Non-cash investing and financing activities:
During the quarter ended March 31, 1998, offering costs of $225 related to
the IPO were accrued and charged against the gross proceeds of the IPO.
The accompanying notes are an integral part of these statements.
4
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
NOTE A - BASIS OF PRESENTATION
The interim condensed consolidated financial statements included herein have
been prepared by the Company without audit. These statements reflect all
adjustments which are, in the opinion of management, necessary to present fairly
the consolidated financial position as of March 31, 1998, and the consolidated
results of operation and cash flows for the three months ended March 31, 1998
and 1997. All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes that the disclosures are adequate to
make the information presented not misleading. It is suggested that these
consolidated financial statements and notes be read in conjunction with the
audited consolidated financial statements and notes for the year ended December
31, 1997, included in the Company's Form SB-2 Registration Statement(File No.
333-39173) filed with the Securities and Exchange Commission, effective March
25, 1998.
NOTE B - REVENUE RECOGNITION
The company licenses its software products. Pursuant to AICPA Statement of
Position 97-2, "Software Revenue Recognition", revenue from software license
fees is recognized when an agreement has been executed, software has been
delivered and installed, all significant contractual obligations have been met
and collection of the related receivable is probable. Post contract customer
support revenue, consisting of continuing maintenance and service fees,
including that bundled with initial license fees, is deferred and recognized
ratably over the contractual periods the services are provided. Product sales,
consisting primarily of computer hardware, are recognized upon delivery of the
product.
The accompanying financial statements represent a restatement of the previous
financial statements for the quarter ending March 31, 1998. These previous
financial statements recognized revenue for initial software license fees
ratably over the period during which contracted customer development was being
performed.
NOTE C - INITIAL PUBLIC OFFERING
On March 30, 1998 the Company successfully completed its initial public
offering(IPO) of common stock. The Company issued 1,900,000 shares of common
stock in connection with its IPO, which upon payment of all offering costs, will
result in net proceeds of approximately $5,900, net of issuance costs of
approximately $1,700. In April, the underwriters exercised their option to
purchase 285,000 additional shares of common stock to cover over-allotments. All
of the over-allotment shares were sold by certain selling shareholders,
resulting in no proceeds to the company.
In connection with the IPO, all of the Company's outstanding put warrants were
converted into common stock. The exercise of the put warrants resulted in the
issuance of 927,766 common shares and proceeds to the Company of approximately
$2.4. Upon exercise of the put warrants, their recorded value of $367 was
reclassified to paid in capital.
5
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
NOTE D- SENIOR TERM LOAN AND REVOLVING LINE OF CREDIT
In April 1998, the Company repaid it senior term loan in full utilizing proceeds
from the IPO. The balance of the senior term loan at the time of the repayment,
including principal, interest and repayment penalties, was approximately $761.
Upon repayment of the senior term loan, the Company's $1,000 revolving line of
credit with the same financial institution was terminated. There were no
borrowings outstanding under the revolving line of credit.
NOTE E- STOCK OPTIONS
Upon the completion of the IPO, the Company granted 335,000 stock options to
officers and employees at an exercise price equal to the IPO price of $4.00 per
share pursuant to the 1997 Equity Participation Plan ("the Plan"). Of the
original 335,000 share options granted, 27,500 lapsed pursuant to the terms of
the Plan. These options vest over a period of 3 years and expire in March 2008.
The Company's stock option plan is accounted for under the intrinsic value
method in which compensation expense is recognized for the amount, if any, that
the fair value of the underlying common stock exceeds the exercise price at the
date of grant. Accordingly, no compensation expense was recorded in connection
with the aforementioned options.
6
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This section of the Report contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
Discussion containing such forward-looking statements may be found in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the captions "Comparison of Three Months Ended March 31, 1998
and March 31, 1997" and "Liquidity and Capital Resources." Actual results for
future periods could differ materially from those discussed in this section as a
result of the various risks and uncertainties discussed herein. A comprehensive
summary of such risks and uncertainties can be found in the Company's
registration statement on Form S-1 (File No. 333-39173), which was declared
effective on March 25, 1998. All dollar amounts are expressed in thousands,
except per share amounts. The financial results expressed in this item 2 are
unaudited.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain revenue, expense and income items:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
---- ----
Revenue
<S> <C> <C>
License fees 9.0% 10.6%
Recurring maintenance and service fees 49.0% 53.3%
Product sales 29.2% 28.0%
Other service fees 12.8% 8.1%
----------- ------------
Total Revenue: 100.0% 100.0%
----------- ------------
Cost of Revenue
Product Sales 22.7% 20.3%
Purchased software. 6.7% 5.2%
Distribution 0.2% 0.2%
----------- ------------
Total Cost of Sales: 29.6% 25.6%
----------- ------------
Gross profit: 70.4% 74.4%
Operating Expenses:
Support and customer service 42.5% 40.8%
Selling and marketing 21.4% 8.1%
Research and development 4.6% 19.7%
General and administrative 20.9% 16.8%
Amortization of intangible Goodwill & Non-Compete 3.2% 5.0%
----------- ------------
Total Operating Expense: 92.6% 90.5%
----------- ------------
Earnings(loss) from operations (22.2%) (16.1%)
Interest and financing costs 11.1% 6.5%
----------- ------------
Earnings(loss) before income taxes (33.3%) (22.5%)
Income tax expense(benefit) (11.8%) (7.0%)
------------ -------------
Net Earnings(loss) (21.5%) (15.6%)
------------ ------------
</TABLE>
7
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1997
REVENUE
The Company's revenue includes revenue of license fees, recurring maintenance
and service fees, product sales, and other service fees.
The Company's total revenue was $2,198 for the three months ended March 31, 1998
compared to $1,792 for the three months ended March 31, 1997, an increase of
$406 or 22.7%. This increase was primarily due to an increase in property tax
billing and collection systems ("Collection") installations and to a lesser
extent, remittance processing ("RPS") hardware and software sales.
License Fees. The Company's revenue from license fees was $198 for the three
months March 31, 1998 compared to $190 for the three months ended March 31,
1997, an increase of $8 or 4.2%. The increase was primarily due to an increase
in installations of RPS hardware and software and to a lesser extent, new
customer Collection installations.
Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $1,076 million for the three months ended March 31, 1998 compared to
$955 for the three months ended March 31, 1997, an increase of $121 or 12.7%.
The increase was primarily attributable to the realization of recurring revenue
associated with Collection license fee sales of a prior period. The recurring
revenue attributable to the maintenance and service contracts are recognized
upon the effective date of the maintenance and service contracts(which could
become effective up to 12 months following execution of the licensing
agreement). During this same period, hardware maintenance declined due to
hardware manufacturers offering longer extended warranties, declining costs of
hardware and the Company's belief that some customers no longer view hardware
maintenance as a mission critical need for all components.
Product Sales. Revenue from product sales was $643 for the three months ended
March 31, 1998 compared to $501 for the three months ended March 31, 1997, an
increase of $142 or 28.3%. This increase is primarily due to an increase in RPS
sales and, to a lesser extent, sales of hardware for Collection systems and our
hardware parts and repair group("System Engineering").
Other Service Fees. Revenue from other service fees was $281 for the three
months ended March 31, 1998 compared to $146 for the three months ended March
31, 1997, an increase of $135 or 92.5%. This increase was primarily due to
increased RPS installation sales, and to a lesser extent, integrated voice
response ("IVR") support sales.
COST OF REVENUE
The Company's cost of revenue includes the cost of hardware product sales, the
cost of purchased software, amortization of software development cost and
distribution costs.
The total cost of revenue was $650 for the three months ended March 31, 1998
compared to $459 for the three months ended March 31, 1997, an increase of $191
or 41.6%. This yielded a gross profit margin of 70.4% for the three months ended
March 31, 1998 compared to a gross profit margin of 74.4% for the three months
ended March 31, 1997. This decrease in gross profit margin resulted from an
increase in purchased software from 5.2% of total revenue for the three months
ended March 31, 1997 to 6.7% of total revenue for the three months ended March
31, 1998 and an increase in product sales cost from 20.3% of total revenue for
the three months ended March 31, 1997 to 22.7% for the three months ended March
31, 1998.
8
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
Product Sales. The cost of product sales was $499, or approximately 77.6% of
product sales, for the three months ended March 31, 1998 compared to $363,
approximately 72.5% of product sales, for the three months ended March 31, 1997,
an increase of $136 or 37.5%. This increase was primarily due to costs
associated with an increase in RPS hardware sales and, to a lesser extent,
hardware sales associated with Collections and Systems Engineering systems. The
increase in cost as a percentage of product sales was due to RPS hardware
comprising a larger portion of total hardware sales. RPS hardware generally has
a higher cost of sales than other hardware products.
Purchased Software. Cost of software includes purchased as well as the
amortization of capitalized software development costs. The cost of software was
$147, or approximately 74.2% of license fees, for the three months ended March
31, 1998 compared to $93, or approximately 48.9% of license fees, for the three
months ended March 31, 1997, an increase of $54 or 58.1%. This increase was
largely due to the installation of RPS third-party software sales. The Company
is a preferred reseller of Rpxpress software. Amortization of software
development cost was $33 for the three months ended March 31, 1998 and $36 for
the three months ended March 31, 1997.
Distribution. The costs associated with distribution were $4 for the three
months ended March 31, 1998 compared to $3 for the three months ended March 31,
1997, an increase of $1 or 33.3%. This increase was due to increased sales of
RPS.
The total cost of revenue was $650 for the three months ended March 31, 1998
compared to $459 for the three months ended March 31, 1997, an increase of $191
or 41.6%. This yielded a gross profit margin of 70.4% for the three months ended
March 31, 1998 compared to a gross profit margin of 74.4% for the three months
ended March 31, 1997. This decrease in gross profit margin resulted from an
increase in cost of product sales and purchased software.
OPERATING EXPENSES
The Company's operating expenses includes support and customer service, selling
and marketing, research and development, general and administrative, and
amortization of intangible goodwill & non-compete agreements.
Support and Customer Service. Expenses related to support and customer service
were $934 for the three months ended March 31, 1998 compared to $732 for the
three months ended March 31, 1997, an increase of $202 or 27.6%. This increase
resulted from an increase in salaries and hiring to enhance customer service and
support future growth. In addition, outsourcing costs rose to accommodate
expansion into new markets and build infrastructure for growth expected from
Year 2000 sales.
Selling and Marketing. The Company's selling and marketing expenses were $471
for the three months ended March 31, 1998 compared to $145 for the three months
ended March 31, 1997, an increase of $326 or 224.8%. This increase was due to an
increase in the numbers of sales personnel and expenses related to covering new
markets such as California, Illinois, Nevada, Georgia and Ohio. In addition,
sales commission expenses rose as a result of increased sales of RPS.
Research and Development. Research and development expenses were $102 for the
three months ended March 31, 1998 compared to $353 for the three months ended
March 31, 1997, a decrease of $251 or 71.1%. These expenses are comprised
primarily of salaries as well as amounts paid to outside consultants to
supplement continuing product enhancement efforts. The decrease resulted from
the capitalization of research and development cost associated with new product
development.
9
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
General and Administrative. General and administrative expenses were $459 for
the three months ended March 31, 1998 compared to $301 for the three months
ended March 31, 1997, an increase of $158 or 52.5%. This increase was primarily
due to a increase in legal expenses related to claims arising out of the
Company's operations in the normal course of business.
Amortization of Goodwill and Non-compete Agreements. The Company incurred a
non-cash expense related to the 1994 acquisition of the Company by a private
investor group of $71 for the three months ended March 31, 1998 compared to $90
for the three months ended March 31, 1997, a decrease of approximately $19 or
21.1%. The decrease in amortization is primarily due to the completion in
December 1997 of the non-compete agreement amortization.
EARNINGS FROM OPERATIONS
Net loss from operations was $489, for the three months ended March 31, 1998,
compared to a net loss from operations of $288 for the three months ended March
31, 1997. This decrease in earnings from operations of $201 was primarily due to
the increase of selling and marketing expenses to 21.4% of total revenue for the
three months ended March 31, 1998 compared to 8.1% of total revenue for the
three months ended March 31, 1997, and to a lesser extent the increase of
general and administrative expenses to 20.9% of total revenue for the three
months ended March 31, 1998 compared to 16.8% for the three months ended March
31, 1997, and was partially offset by the reduction in research and development
expenses from 19.7% of total revenue to 4.6% for the three months ended March
31, 1998.
NON-OPERATING EXPENSES
Interest and Financing Costs. The Company's interest expense for its long term
debt was $245 for the three months ended March 31, 1998 compared to $116 for the
three months ended March 31, 1997, an increase of $129 or 111%. This increase
was primarily attributed to a increase in the put warrant adjustment. The put
warrant adjustment is primarily based on the operating earnings of the Company
for the previous twelve month period.
Provisions for Income Taxes. The Company's provision for income taxes was $(260)
for the three months ended March 31, 1998 compared to $(125) for the three
months ended March 31, 1997, an increase of $(135). This increase in tax benefit
was attributable primarily to decreased earnings from operations. The income tax
provision is higher than income taxes determined by applying the applicable
statutory rates primarily due to non-deductible amortization of goodwill and
non-deductible put warrant adjustments.
LIQUIDITY AND CAPITAL RESOURCES
On March 25, 1998 CPS SYSTEMS, INC. successfully completed its initial public
offering of common stock. The Company sold 1,900,000 shares of common stock for
$6,434 net of issuance costs of $1,265. Subsequent to March 31, 1998, the
underwriters exercised their option to purchase 285,000 additional shares of
common stock from certain selling shareholders to cover over-allotments. Certain
selling shareholders received $1,140 from the transaction and the Company
incurred additional issuance costs of $148. The Company has invested the net
proceeds in short-term investment grade interest-bearing securities.
The Company's operating activities provided cash of $111 and cash usage of
$(193) during the three months ended March 31, 1998 and March 31, 1997,
respectively. The
10
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
Company's use of cash during the three months ended March 31, 1998 was primarily
attributable to increases in deferred income tax expense of $508, a decrease in
net earnings of $476 and to a lesser extent increases in accounts receivable of
$245 and inventories of $232. These decreases to cash were offset by increases
in customer deposits and unearned revenue of $931, plus non-cash depreciation
and amortization of $178, accrued expenses increase of $253, put warrant
adjustment of $125, for the three months ended March 31, 1998.
The Company used cash of $631 and $115 for investing activities during the three
months ended March 31, 1998 and March 31, 1997, respectively. Investing
activities have consisted principally of the acquisition of property and
equipment and capitalized software development cost. The increase of $516 was
primarily attributable to increases in capitalized software development cost. In
addition, the Company made significant investments in upgrading internal
systems.
The Company's financing activities provided cash of $6,411 for the three months
ended March 31, 1998 and a cash usage of $72 for the three months ended March
31, 1997. In March 1998, the Company raised aggregate net proceeds of $6,434
from the sale of 1,900,000 share of common stock through its initial public
offering. Subsequent to March 31, 1998, the Company paid $761 to retire the
outstanding principal amount of its senior term loan including interest and
prepayment fees to Finova Capital Corporation, $128 in loans from shareholders
to the Company and $148 for over-allotment issuance cost.
The Company believes its cash balances and cash generated from operations will
satisfy the Company's working capital and capital expenditure requirements for
at least the next 12 months. In the longer term, the Company may require
additional sources of liquidity to fund future growth. Such sources of liquidity
may include additional equity offerings or debt financing. In the normal course
of business, the Company evaluates acquisitions of businesses, products and
technologies that complement the Company's business. The Company has not
executed any agreements with respect to any such transaction.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in several legal actions arising in the normal course of
business. While it is not possible to determine with certainty the outcome of
these matters, in the opinion of management, the eventual resolution of these
claims and actions will not have a material adverse effect on the Company's
financial position or operating results.
ITEM 2. CHANGES IN SECURITIES
Use of Proceeds from Registered Securities. Pursuant to Rule 463 of the
Rules and Regulations of the Securities Act of 1933, as amended, the CPS
Systems, Inc. (the "Company") is furnishing the use of proceeds from its initial
public offering in its first periodic report after effectiveness.
11
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
(1) The Company's Form SB-2, Registration Statement Under the
Securities Act of 1933, Registration No. 333-39173, was declared effective by
oral order of the Securities and Exchange Commission on March 25, 1998 (the "IPO
Registration Statement").
(2) The offering pursuant to the IPO Registration
Statement commenced on March 25, 1998 (the "Offering").
(4) (i) The Offering continued uninterrupted thereafter until
the sale of all securities registered under the IPO Registration
Statement.
(ii) The managing underwriters of the Offering were
Cruttenden Roth Incorporated and Josephthal & Co. Inc.
(iii) The title of the only class of securities
registered is the common stock, par value $0.01 per share.
(iv) The following information for the account of the
Company is provided:
Aggregate Price Aggregate Price
Amount of Offering Amount of Offering Amount
Registered Registered Amount Sold Sold to Date
- --------------------------------------------------------------------------------
1,900,000 $7,600,000 1,900,000 $7,600,000
The amount of securities registered by the Company is hereinafter referred to as
the "Shares."
The following information for the account of the Selling
Shareholders is also provided:
Aggregate Price Aggregate Price
of Offering of Offering
Selling Amount Amount Amount
Shareholder Registered Registered Amount Sold Sold to Date
- --------------------------------------------------------------------------
Sidney H. Cordier .... 85,660 $342,640 85,660 $342,640
Brian R. Wilson ...... 85,660 342,640 85,660 342,640
G. Dean Booth, Jr .... 18,288 73,152 18,288 73,152
Hanifen Imhoff
Mezzanine Fund, LP .. 63,472 253,888 63,472 253,888
John K. Percival ..... 21,280 85,120 21,280 85,120
Robert J. Newcorn .... 10,640 42,560 10,640 42,560
All of the proceeds from the Offering of the shares by the Selling Shareholders
were part of the over-allotment option exercised on April 14, 1998 and are for
the benefit of the Selling Shareholders only. Accordingly, the aggregate price
of the Offering amount sold by the selling shareholders is not included in the
net proceeds to the Company of the Offering.
(v) From March 25, 1998 through March 31, 1998, the
effective date of the IPO Registration Statement to the end of the
reporting period, the amount of expenses incurred for the account of
the Company in connection with the issuance and distribution of the
Shares is, based upon reasonable estimate, as follows:
Underwriting discounts and commissions $ 760,000
Finders fees 0
Expenses paid to or for Underwriters 228,000
Other expenses 801,500
------------
TOTAL EXPENSES 1,789,500
12
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
Additional expenses totaling approximately $150,000, incurred on behalf of the
Selling Shareholders upon exercise of the over-allotment option on April 14,
1998, are not reflected herein. None of the expenses of the Offering constituted
direct or indirect payments to directors, officers or general partners, or
associates thereof, persons owning 10% or more of any class of securities or any
affiliates of the Company.
(vi) The net proceeds to the Company of the Offering pursuant to
the IPO Registration Statement, after the expenses listed in (v)
above, is $5,810,500.
(vii) From March 25, 1998 through March 31, 1998, the Company has
applied the following amounts of its net proceeds from the Offering
pursuant to the IPO Registration Statement:
Construction of plant, building and facilities $ 0
Purchase and installation of machinery and equipment 0
Purchases of real estate 0
Acquisitions of other business(es) 0
Repayment of indebtedness 0
Working capital 0
Temporary investments (as specified below) 5,270,000
Other uses of at least $100,000 (as specified below) $ 540,500
None of the uses constituted direct or indirect payments to the Company's
directors, officers or general partners, or associates thereof, persons owning
10% or more of any class of securities or any affiliates of the Company. The
temporary investments consist of money market accounts available on a daily
basis. Other uses of at least $100,000 reflects research and development
expenses.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
The Company's common stock is listed on the American Stock Exchange under the
symbol "SYS". Trading in the stock began on March 25, 1998.
Pursuant to the 1997 Equity Participation Plan (the "Plan"), the Company has the
authority to issue up to 600,000 shares (the "Options") of the Company's common
stock, par value $.01 per share (the "Common Stock"). These Options vest over a
period of three years from the date of the grant and expire in March 2008. The
Board of Directors granted to certain officer and directors of the Company
Options to purchase 335,000 shares of Common Stock at an exercise price of $4.00
per share (the
13
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
MARCH 31, 1998
initial public offering price). Of the original 335,000 share options granted,
27,500 lapsed pursuant to the terms of the Plan. The grant became effective upon
the consummation of the initial public offering on March 30, 1998.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits and reports on Form 8-K were filed by CPS SYSTEMS, INC. during the
quarter ended March 31, 1998.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 11, 1998
-----------------------------------------------
Paul E. Kana
CHAIRMAN OF THE BOARD OF DIRECTORS,
CHIEF EXECUTIVE OFFICER
AND DIRECTOR (PRINCIPAL EXECUTIVE OFFICER)
-----------------------------------------------
Kevin L. Figge
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
14
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