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 July 3, 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
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 July 3, 1999:
12,285,969.
CERAMICS PROCESS SYSTEMS CORPORATION
Form 10-Q
For The Fiscal Quarter Ended July 3, 1999
Index
PART I: FINANCIAL INFORMATION Page
Item 1: Consolidated Financial Statements 3
Consolidated Balance Sheets as of
July 3, 1999 and December 26, 1998 3
Consolidated Statements of Operations
for the fiscal quarters and six month
periods ended July 3, 1999 and
June 27, 1998 5
Consolidated Statements of Cash Flows
for the six month periods ended
July 3, 1999 and June 27, 1998 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
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets
(continued on next page)
July 3, December 26,
1999 1998
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents $1,457,913 $1,498,774
Trade receivables 559,728 547,134
Inventories 421,629 204,200
Prepaid expenses 31,854 1,830
---------- ----------
Total current assets 2,471,124 2,251,938
---------- ----------
Property and equipment:
Production equipment 1,773,062 1,569,021
Furniture and office equipment 179,472 155,232
Accumulated depreciation
and amortization (1,092,062) (1,000,637)
---------- ----------
Net property and equipment 860,472 723,616
---------- ----------
Deposits 8,707 8,772
---------- ----------
Total assets $3,340,303 $2,984,326
========== ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets (continued)
LIABILITIES AND STOCKHOLDERS` EQUITY
July 3, December 26,
1999 1998
--------- -----------
Current liabilities:
Accounts payable $ 213,315 $ 96,753
Accrued expenses 148,779 184,032
Deferred revenue 137,572 142,266
Current portion of obligations
under capital leases 49,536 46,959
------------ ------------
Total current liabilities 549,202 470,010
Obligations under capital
leases less current portion 99,725 125,155
------------ ------------
Total liabilities 648,927 595,165
------------ ------------
Stockholders` Equity
Common stock, $0.01 par value.
Authorized 15,000,000 shares;
issued 12,308,852 shares at July
3, 1999 and 7,824,582 at
December 27, 1997 123,089 123,089
Additional paid-in capital 32,656,353 32,656,353
Accumulated deficit (30,027,231) (30,329,446)
------------ ------------
2,752,211 (1,458,802)
Less treasury stock, at cost,
22,883 common shares at July
3, 1999 and December 26, 1998 (60,835) (60,835)
------------ ------------
Total stockholders' equity 2,691,376 2,389,161
------------ ------------
Total liabilities and
stockholders` equity $ 3,340,303 $ 2,984,326
============ ============
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Operations
Fiscal Six month
Quarters Ended Periods Ended
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
Revenue: ---------- ---------- ---------- ----------
Product sales $1,421,136 $1,085,936 $2,666,550 $2,419,149
License revenue 0 740,750 0 740,750
---------- ---------- ---------- ----------
Total revenue 1,421,136 1,826,686 2,666,550 3,159,899
========== ========== ========== ==========
Operating expenses:
Cost of product sales 1,062,085 733,261 1,894,768 1,461,068
Selling, general, and
administrative 237,254 169,488 497,910 327,445
---------- ---------- ---------- ----------
Total operating expenses 1,299,339 902,740 2,392,678 1,788,513
---------- ---------- ---------- ----------
Operating income 121,796 923,937 273,872 1,371,386
Other income (expense), net 12,314 (49,677) 22,414 (104,310)
---------- ---------- ---------- ----------
Income before taxes 134,110 874,260 296,286 1,267,076
---------- ---------- ---------- ----------
Income taxes (15,771) 89,897 (5,929) 97,753
---------- ---------- --------- ----------
Net income $ 149,881 $ 784,363 $ 302,215 $1,169,323
========== ========== ========== ==========
Net income per
basic common share $ 0.01 $ 0.08 $ 0.03 $ 0.13
---------- ---------- ---------- ----------
Weighted average number of
basic common shares
outstanding 12,308,852 9,496,117 12,308,852 8,721,231
========== ========== ========= =========
Net income per
diluted common share $ 0.01 $ 0.07 $ 0.02 $ 0.10
---------- ---------- ----------- ---------
Weighted average number of
diluted common shares
outstanding 12,515,749 12,310,768 12,503,941 12,503,427
========== ========== ========= ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Six month period ended
July 3, June 27,
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ 302,215 $1,169,323
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization 91,425 87,780
Changes in assets and liabilities:
Accounts receivables, trade ( 12,594) 389,534
Inventories (217,429) (418,154)
Prepaid expenses (30,024) 2,461
Accounts payable 116,562 (49,829)
Accrued expenses (35,253) (42,282)
Deferred revenue (4,694) ( 8,427)
--------- ----------
Net cash provided by
operating activities 210,208 1,130,406
--------- ----------
Cash flows from investing activities:
Additions to property and equipment (228,281) (252,533)
Deposits 65 (3,500)
--------- ----------
Net cash used in
investing activities (228,216) (256,033)
--------- ---------
Cash flows from financing activities:
Principal payments of capital lease
obligations (22,853) (20,541)
Proceeds from issuance of common stock 3,364
Principal payments of notes payable (344,830)
--------- ---------
Net cash used in
financing activities ( 22,853) (362,007)
--------- ---------
Net increase (decrease) in cash and
cash equivalents ( 40,861) 512,366
Cash and cash equivalents at
beginning of period 1,498,774 561,166
--------- ----------
Cash and cash equivalents at
end of period $1,457,913 $1,073,532
========= ==========
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 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 July 3, 1999 and June 27, 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 net income 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
July 3, June 27, July 3, June 27,
1999 1998 1999 1998
----------- ---------- ---------- ----------
Basic EPS Computation:
Numerator:
Net income $149,881 $784,363 $ 302,215 $1,169,323
Denominator:
Weighted average
common shares
outstanding 12,308,852 9,496,117 12,308,852 8,721,231
Basic EPS $0.01 $0.08 $0.03 $0.13
Diluted EPS Computation:
Numerator:
Net income $149,881 $784,363 $ 302,215 $1,169,323
Interest on
convertible debt 0 42,027 0 87,290
--------- -------- --------- ---------
Total net income $149,881 $826,390 $ 302,215 $1,256,613
Denominator:
Weighted average
common shares
outstanding 12,308,852 9,496,117 12,308,852 8,721,231
Stock options 206,897 216,475 195,089 219,001
Convertible debt 0 2,598,176 0 3,563,195
---------- --------- ---------- ----------
Total Shares 12,515,749 12,310,768 12,503,941 12,503,427
Diluted EPS $0.01 $0.07 $0.02 $0.10
As of July 3, 1999 and June 27, 1998, the Company had 193,000 and 121,000
securities in the form of stock options to purchase common stock that were
antidilutive, respectively.
(4) Inventory
---------
Inventories consist of the following:
July 3, December 26,
1999 1998
--------- ----------
Raw materials $ 141,871 $ 107,259
Work in process 279,758 96,941
--------- ----------
$ 421,629 $ 204,200
========= ==========
(5) Accrued Expenses
----------------
Accrued expenses consist of the following:
July 3, December 26,
1999 1998
--------- ----------
Accrued legal and
accounting $ 15,000 $ 47,500
Accrued payroll 108,386 107,383
Accrued other 25,393 29,149
--------- ----------
$ 148,779 $ 184,032
========= ==========
(6) Supplemental Cash Flow Information
- ----------------------------------
In the second fiscal quarter of 1999, the Company paid interest on
leases for production equipment in the amount of $4,150 compared to $5,322
in the second fiscal quarter of 1998.
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 - Second Fiscal Quarter of 1999 (Q2 1999) Compared to
- ---------------------------------------------------------------------------
the Second Fiscal Quarter of 1998 (Q2 1998)
- -------------------------------------------
Total revenue decreased to $1,421 thousand in Q2 1999 from $1,827
thousand in Q2 1998, a 22% decrease. Revenue from product shipments
increased 31% to $1,421 thousand in Q2 1999 from $1,086 thousand in Q2 1998
while revenue from licensing agreements declined to zero in Q2 1999
compared to revenue of $741 thousand in Q2 1998.
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.
The growth in product revenue in Q2 1999 compared to Q2 1998 was
primarily due to increased shipments of the Company's metal-matrix
composites for use as heat spreaders on microprocessors. Unit shipments in
Q2 1999 were 42% higher than unit shipments in Q2 1998.
Total operating expenses increased 44% to $1,299 in Q2 1999 compared
to $903 thousand in Q2 1998. Cost of sales increased 45% while selling,
general and administrative expenses increased 40% over this period.
Gross margins on product sales in Q2 1999 were 25% compared to gross
margins in Q2 1998 of 32%. This decline in gross margin is the result of
changes in product mix and increased manufacturing expenses, primarily in
the quality function, which the Company believes are essential to support
future growth.
The increase in selling, general and administrative expenses are the
result of additional personnel and travel expense in the sales function.
As a result of changes in tax code relating to the Alternative
Minimum Tax as applied to small businesses, income taxes in the second
fiscal quarter of 1999 were $0 compared to $90 thousand in the second
fiscal quarter of 1998.
The cumulative effect of these revenues and costs resulted in net
income of $150 thousand, or $0.01 per basic common share, in Q2 1999 versus
net income of $784 thousand, or $0.08 per basic common share, in Q2 1998.
Results of Operations - First Six Months 1999 Compared to First Six
- -------------------------------------------------------------------
Months of 1998
- --------------
Total revenue decreased 16% to $2,667 thousand in the first six
months of 1999 from $3,160 in the first six months of 1998. Revenue from
product shipments increased 10% in the first six months of 1999 to $2,667
thousand, from $2,419 thousand in the first six months of 1998. Revenue
from licensing agreements declined to zero in the first six months of 1999
compared to $741 thousand in the first six months of 1998.
The growth in product revenue in the first six months of 1999
compared to Q2 1998 was primarily due to increased shipments of the
Company's metal-matrix composites for use as heat spreaders in
microprocessors, partially offset by declines in unit shipments in the
wireless communications area. Unit shipments in the first six months of
1999 were 8% higher than unit shipments in the first six months of 1998.
Total operating expenses in the first six months of 1999 were $2,393
thousand, a 34% increase over operating expenses in the first six months of
1998 of $1,789 thousand. Cost of sales increased 29% while selling,
general and administrative expenses increased 54% over the same period.
Gross margins on product sales in the first six months of 1999 was
29% compared with gross margins in the first six months of 1998 of 40%.
This decline in gross margin is the result of changes in product mix and
increased manufacturing expenses, primarily in the quality function, which
the Company believes are essential to support future growth.
The increase in selling, general and administrative expenses are the
result of additional personnel and travel expense in the sales function.
Income taxes in the first six months of 1999 were ($6) thousand
compared to $98 thousand in the the first six months of 1998.
The cumulative effect of these revenues and costs resulted in net
income of $302 thousand, or $0.03 per basic common share, in the first six
months of 1999 versus net income of $1,169 thousand, or $0.13 per basic
common share, in the first six months of 1998.
Financial Condition
- -------------------
The Company's financial condition and liquidity remained fairly
constant as of the end of Q2 1999 compared to the end of fiscal 1998. The
Company's cash balance as of July 3, 1998 was $1,458 thousand compared with
the cash balance as of December 26, 1998 of $1,499 thousand, a 3% decline.
In both 1998 and in the the first six months of of 1999, operations
generated cash; in the the first six months of 1999 investments in
equipment slightly exceeded the cash generated by operations.
Inventories increased to $422 thousand at July 3, 1999 from $204
thousand at December 26, 1998. Raw material inventory increased to $141
thousand from $107 thousand, and work in process inventory increased to
$280 thousand from $97 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 varies with product
mix and timing of customer demand.
Accounts Receivable increased to $560 thousand at July 3, 1999 from
$547 thousand at December 26, 1998.
The Company financed its working capital requirements during Q2 1999
with funds generated by operations. The Company expects it will continue
to be able to fund its working capital requirements for the remainder of
1999 through operations.
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 Company
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, and has completed the plan in the first and second areas. 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 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 has implemented.
Regarding the second area, the Company has tested production and
analytical equipment to determine if Year 2000 problems exist, and has
implemented upgrades, manual workarounds, or replaced the equipment where
problems have been identified. In the process of addressing the Year 2000
issue, the Company has concurrently sought to upgrade production capability
and accordingly has purchased certain new pieces of equipment which are
Year 2000 compliant and which provide greater production capability. The
Company believes all production and analytical equipment currently in use
is Year 2000 compliant.
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: August 16, 1999 /s/Grant C. Bennett
Grant C. Bennett
President and Treasurer
(Principal Executive
Officer)
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<LEGEND>
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 July 3, 1999.
</LEGEND>
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