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 October 2, 1999
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: [email protected].
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 2, 1999: 12,285,969
CERAMICS PROCESS SYSTEMS CORPORATION
Form 10-Q
For The Fiscal Quarter Ended October 2, 1999
Index
PART I: FINANCIAL INFORMATION Page
Item 1: Consolidated Financial Statements 3-9
Consolidated Balance Sheets as of
October 2, 1999 and December 26, 1998 3-4
Consolidated Statements of Operations
for the fiscal quarters and nine-month
periods ended October 2, 1999 and
September 26, 1998 5
Consolidated Statements of Cash Flows
for the nine-month periods ended October
2, 1999 and September 26, 1998 6
Notes to Consolidated Financial
Statements 7-9
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-12
PART II: OTHER INFORMATION
Items 1-6 12
Signatures 12
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets
October 2, December 26,
1999 1998
------------ -----------
ASSETS
Current assets:
Cash $1,177,316 $1,498,774
Accounts receivable, trade 721,591 514,152
Accounts receivable, other 118,417 32,982
Inventories 246,588 204,200
Prepaid expenses 21,522 1,830
---------- ----------
Total current assets 2,285,434 2,251,938
---------- ----------
Property and equipment:
Production equipment 1,951,210 1,569,021
Furniture and office equipment 181,134 155,232
Accumulated depreciation
and amortization (1,145,071) (1,000,637)
---------- ----------
Net property and equipment 987,273 723,616
---------- ----------
Deposits 5,207 8,772
---------- ----------
Total assets $3,277,914 $2,984,326
========== ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets (continued)
October 2, December 26,
1999 1998
------------ -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 94,743 $ 96,753
Accrued expenses 164,279 184,032
Deferred revenue 133,885 142,266
Current portion of obligations
under capital leases 50,877 46,959
------------ ------------
Total current liabilities 443,784 470,010
Obligations under capital
leases less current portion 86,492 125,155
------------ ------------
Total Liabilities 530,276 595,165
------------ ------------
Stockholders' Equity
Common stock, $0.01 par value.
Authorized 15,000,000 shares;
issued 12,308,852 shares at December
26, 1998, outstanding 12,308,852
shares at October 2, 1999 123,089 123,089
Additional paid-in capital 32,656,353 32,656,353
Accumulated deficit (29,970,969) (30,329,446)
Less treasury stock, at cost,
22,883 common shares at October
2, 1999 and December 26, 1998 (60,835) (60,835)
------------ ------------
Total Stockholders' Equity
2,747,638 2,389,161
------------ ------------
Total Liabilities and
Stockholders' Equity
$ 3,277,914 $ 2,984,326
============ ============
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Operations
Fiscal Quarters Ended Nine-Month Periods Ended
Oct. 2, Sept. 26, Oct. 2, Sept. 26,
1999 1998 1999 1998
Revenue: ---------- ----------- ---------- ---------
Product sales $ 1,197,188 $ 1,260,767 $ 3,863,737 $ 3,679,916
License agreements - - - 740,750
---------- ----------- ---------- ---------
Total revenue 1,197,188 1,260,767 3,863,737 4,420,666
========== =========== ========== ==========
Operating expenses:
Cost of sales 1,025,218 798,503 2,919,985 2,259,571
Selling, general, and
administrative 228,996 162,961 726,906 486,163
---------- ----------- ---------- ----------
Total operating expenses 1,254,214 961,464 3,646,891 2,745,734
---------- ----------- ---------- ----------
Operating income (loss) (57,026) 299,303 216,846 1,674,932
Other income (exp.), net 113,288 96,978 135,702 ( 11,575)
---------- ----------- ---------- ----------
Income before taxes 56,262 396,281 352,548 1,663,357
---------- ---------- ---------- ----------
Income taxes - 30,274 (5,929) 128,027
---------- ---------- ---------- ----------
Net income $ 56,262 $ 366,007 $ 358,477 $1,535,330
========== ========== ========== ==========
Net income per
basic common share $ 0.005 $ 0.029 $ 0.029 $ 0.154
---------- ---------- ---------- ----------
Weighted average number
of basic common
shares outstanding 12,308,852 12,307,186 12,308,852 9,916,550
========== ========== ========== ==========
Net income per
diluted common share $ 0.004 $ 0.029 $ 0.028 $ 0.127
---------- ---------- --------- ---------
Weighted average number
of diluted common
shares outstanding 12,544,722 12,506,198 12,564,163 12,729,075
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Nine-Month Periods Ended
Oct. 2, Sept. 26,
1999 1998
--------- --------
Cash flows from operating activities:
Net income $ 358,477 $1,535,330
Adjustments to reconcile net income
to cash provided by
operating activities:
Depreciation and amortization 144,434 134,579
Gain on disposal of equipment (104,225) (53,000)
Changes in assets and liabilities:
Accounts receivable (292,874) (115,084)
Inventories (42,388) (184,228)
Prepaid expenses (19,693) 7,644
Other current assets (4,700)
Accounts payable 2,010 (47,601)
Accrued expenses (19,753) (176,513)
Deferred revenue (8,381) (16,083)
--------- --------
Net cash provided by
operating activities 17,607 1,080,344
--------- --------
Cash flows from investing activities:
Additions to property and equipment (408,090) (273,619)
Disposal of property and equipment 100,205 5,000
Deposits 3,565
--------- --------
Net cash used in investing
activities (304,320) (268,619)
--------- --------
Cash flows from financing activities:
Principal payments for capital lease
obligations (34,745) (31,229)
Principal payments of Notes Payable (344,830)
Proceeds from issuance of common stock 3,364
--------- --------
Net cash used in
financing activities (34,745) (372,695)
--------- --------
Net increase (decrease) in cash (321,458) 439,030
Cash at beginning of period 1,498,774 561,166
--------- ---------
Cash at end of period $1,177,316 $1,000,196
========= =========
See accompanying notes to consolidated financial statements.
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 October 2, 1999 and September 26, 1998 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 Nine month
Quarters Ended Periods ended
Oct. 2, Sept. 26, Oct. 2, Sept. 26,
1999 1998 1999 1998
----------- ---------- ---------- ----------
Basic EPS Computation:
Numerator:
Net income $ 56,262 $366,007 $ 358,477 $1,535,330
Denominator:
Weighted average
common shares
outstanding 12,308,852 12,307,186 12,308,852 9,916,550
Basic EPS $0.005 $0.029 $0.029 $0.154
Diluted EPS Computation:
Numerator:
Net income $ 56,262 $366,007 $ 358,477 $1,535,330
Interest on
convertible debt - - - 87,290
--------- -------- --------- ---------
Total net income $ 56,262 $366,007 $ 358,477 $1,622,620
Denominator:
Weighted average
common shares
outstanding 12,308,852 12,307,186 12,308,852 9,916,550
stock options 235,870 199,012 255,311 214,349
Convertible debt - - - 2,598,176
---------- --------- ---------- ----------
Total Shares 12,544,722 12,506,198 12,564,163 12,729,075
Diluted EPS $0.004 $0.029 $0.028 $0.127
(4) Inventory
---------
Inventories consist of the following:
October 2, December 26,
1999 1998
--------- ----------
Raw materials $ 111,155 $ 107,299
Work in process 135,433 96,941
--------- ----------
$ 246,588 $ 204,200
========= ==========
(5) Accrued Expenses
----------------
Accrued expenses consist of the following:
October 2, December 26,
1999 1998
--------- ----------
Accrued legal and
accounting $ 24,062 $ 47,500
Accrued payroll and
other 140,217 136,532
--------- ----------
$ 164,279 $ 184,032
========= ==========
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 1999 Compared to Third
Fiscal Quarter of 1998
- ----------------------
Revenue from product sales decreased 5% in Q3 1999 compared to Q3
1998. The decline in product revenue in Q3 1999 compared to Q3 1998 was
primarily the result of a decline in shipments to a single major customer
partially offset by increased shipments to new customers.
Total operating expenses in Q3 1998 were $1.3 million, a 30% increase
over operating expenses of $961 thousand in Q3 1998. Total operating
expenses consist of cost of sales and sales, general and administrative
expenses.
Cost of sales were $1025 thousand in Q3 1999 compared to $799 thousand
in Q3 1998, an increase of $227 thousand. The increase in cost of sales was
primarily driven by 1) increased personnel expense in the quality and
engineering functions, and 2) a significant increase in the number of new
products in Q3 1999 compared to Q3 1998. During 1999, the Company has added
indirect personnel in the quality and engineering functions to strengthen
the Company's ability to grow and serve a broader range of customers. As a
result fixed costs have increased in 1999, and the increase in fixed costs
coupled with the decline in revenues in Q3 1999 resulted in reduced gross
margins in Q3 1999 compared to Q3 1998. Shipments of new products grew
significantly in Q3 1999 compared to Q3 1998, but these shipments did not
totally offset reduced shipments to a single major customer. Although the
average unit prices of many new products were higher than existing products,
the higher prices were more than offset by higher direct labor and material
costs, resulting in reduced gross margins. However, the Company expects
that as the production volume increases for these new products the cost of
manufacturing on a unit basis will decline.
Sales, general and administrative expenses were $229 thousand in Q3
1999 compared to $163 thousand in Q3 1998, an increase of $66 thousand.
This increase is primarily attributable to increased personnel costs and
travel expenses in the sales function, primarily to support increased sales
activities in Europe and Japan.
Income taxes in Q3 1999 were $0 thousand compared to $30 thousand in Q3
1998 as a result of changes in the tax code for 1999 relating to small
businesses and the alternative minimum tax.
Results of Operations - First Nine Months of 1999 Compared to First Nine
Months of 1998
- --------------
Revenue from product sales increased 5% in the first nine months of
1999 compared to the first nine months of 1998. No revenue was earned from
license agreements in the first nine months of 1999 compared to revenue of
$741 thousand in the first nine months of 1998. Although the Company
expects to receive royalties from existing license agreements in the future,
selling of additional licenses to other companies to use the Company's
proprietary technology is not a focus of management.
Total operating expenses in the first nine months of 1999 were $3.6
million, a 33% increase over operating expenses of $2.7 in the first nine
months of Q3 1998. Total operating expenses consist of cost of sales and
sales, general and administrative expenses.
Cost of sales were $2.9 million in the first nine months of 1999
compared to $2.3 million in the first nine months of 1998, an increase of
$660 thousand. In the first nine months of 1999 the Company added personnel
in the quality and engineering functions in anticipation of future growth,
increasing fixed costs at a greater rate than revenues increased, resulting
in reduced gross profits. The Company believes the personnel additions are
essential to support a broader range of customers in the future, and the
Company does not expect to continue to add fixed costs at the same rate in
the future.
Shipments of new products grew significantly in the first nine months
of 1999 compared to the first nine months of 1998, offsetting a reduction in
shipments of existing products to a single major customer, the net result
being an increase of 4% in total unit shipments in the first nine months of
1999 compared to the first nine months of 1998. Although the average unit
prices of many new products were higher than existing products, the higher
prices were more than offset by higher direct labor and material costs,
resulting in reduced gross margins. However, the Company expects that as
the production volume increases for these new products the cost of
manufacturing on a unit basis will decline.
Sales, general and administrative expenses were $727 thousand in the
first nine months of 1999 compared to $486 thousand in the first nine months
of 1998, an increase of $241 thousand. This increase is attributable to
increased personnel costs and travel expenses in the sales function,
primarily to support increased sales activities in Europe and Japan.
Income taxes in the first nine months of 1999 were ($6) thousand,
compared to $128 thousand in the first nine months of 1998 as a result of
changes in the tax code for 1999 relating to small businesses and the
alternative minimum tax.
The cumulative effect of these revenues and costs resulted
in net income of $358 thousand, or $0.03 per basic share, $0.03 per diluted
share, in the first nine months of 1999, compared to net income of $1,535
thousand, or $0.15 per basic share, $0.13 per diluted share in the first
nine months of 1998.
Financial Condition
- -------------------
The Company`s cash balance at October 2, 1999 was $1,177 thousand
compared to $1,499 thousand at December 26, 1998. In the first nine months
of 1999 operations generated cash of $17 thousand. The Company consumed
cash of $408 thousand by purchasing production equipment. These equipment
additions provide the Company with increased capacity for future growth and
with increased ability to serve a broader range of customers.
Inventories increased to $246 thousand at October 2, 1999 from $204
thousand at December 26, 1998. Raw material inventory increased to $111
thousand from $107 thousand, and work in process inventory increased to $135
thousand from $97 thousand over the same period.
Accounts Receivable increased to $840 thousand at October 2, 1999 from
$547 thousand at December 26, 1998. Shipments to customers increased
towards the end of the third quarter resulting in an increase in accounts
receivables.
The Company financed its working capital requirements during the third
fiscal quarter of 1999 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 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 addressed the issues identified. The assessment
indicated the area of greatest risk was in 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 1998 and 1999, the Company purchased and installed new
financial, accounting, and selected manufacturing computer systems which are
Year 2000 compliant and which provide greater functionality.
Regarding the second area, the Company has tested production and
analytical equipment one machine at a time to determine where Year 2000
problems exist. The Company has purchased some new capital equipment which
is Year 2000 compliant, to replace equipment which was not Year 2000
compliant and this equipment has been installed in an orderly manner without
disrupting production. Based on its testing, the Company believes there are
no remaining issues in this second area but there is no guarantee this will
be the case.
Regarding the third area the Company has qualified multiple vendors for
all critical materials and has implemented an inventory policy the Company
believes will reduce risk if vendors do have unanticipated short-term supply
interruptions as the year 2000 begins.
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 11, 1999 /s/Grant C. Bennett
Grant C. Bennett
President and Treasurer
(Principal Executive
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
consolidated financial statments of Ceramics Process Systems Corporation
and is qualified in its entirety by reference to such Form 10-Q for
period ending October 2, 1999.
</LEGEND>
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