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 April 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 April
3, 1999: 12,285,969.
CERAMICS PROCESS SYSTEMS CORPORATION
Form 10-Q
For The Fiscal Quarter Ended April 3, 1999
Index
PART I: FINANCIAL INFORMATION Page
Item 1: Consolidated Financial Statements 3
Consolidated Balance Sheets as of
April 3, 1999 and December 26, 1998 3
Consolidated Statements of Operations
for the fiscal quarters ended April 3,
1999 and March 28, 1998 5
Consolidated Statements of Cash Flows
for the fiscal quarters ended April 3,
1999 and March 28, 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
April 3, December 26,
1999 1998
ASSETS ---------- ----------
Current assets:
Cash and cash equivalents $1,412,765 $1,498,774
Trade receivables 702,477 547,134
Inventories 318,035 204,200
Prepaid expenses 29,664 1,830
---------- ----------
Total current assets 2,462,941 2,251,938
Property and equipment:
Production equipment 1,677,094 1,569,021
Furniture and office equipment 155,232 155,232
Accumulated depreciation
and amortization (1,050,956) (1,000,637)
---------- ----------
Net property and equipment 781,370 723,616
---------- ----------
Deposits 8,772 8,772
---------- ----------
Total assets $3,253,083 $2,984,326
========== ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets (continued)
LIABILITIES AND STOCKHOLDERS` April 3, December 26,
EQUITY 1999 1998
--------- -----------
Current liabilities:
Accounts payable $ 228,916 $ 96,753
Accrued expenses 182,935 184,032
Deferred revenue 139,766 142,266
Current portion of obligations
under capital leases 48,230 46,959
------------ ------------
Total current liabilities 599,847 470,010
Obligations under capital
leases less current portion 112,610 125,155
------------ ------------
Total liabilities 712,457 595,165
------------ ------------
Stockholders` Equity
Common stock, $0.01 par value.
Authorized 15,000,000 shares;
issued 12,285,969 shares at April
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 (30,177,981) (30,329,446)
Less treasury stock, at cost,
22,883 common shares at April
3, 1999 and December 26, 1998 (60,835) (60,835)
------------ ------------
Total stockholders` equity 2,540,626 2,389,161
------------ ------------
Total liabilities and stockholders'
equity $ 3,253,083 $ 2,984,326
============ ============
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Operations
Fiscal Quarters Ended
April 3, March 28,
1999 1998
---------- -----------
Product sales $1,245,414 $ 1,333,214
---------- -----------
Total revenue $1,245,414 $ 1,333,214
========== ===========
Operating expenses:
Cost of product sales 833,551 727,807
Selling, general, and
administrative 260,656 157,957
---------- -----------
Total operating expenses 1,094,207 885,764
---------- -----------
Operating income 151,207 447,450
Other income (expense), net 10,100 (54,633)
---------- -----------
Net income before taxes $ 161,307 $ 392,817
---------- -----------
Provision for income taxes 9,842 7,856
--------- -----------
Net income $ 151,465 $ 384,961
========== ===========
Net income per
basic common share $ 0.01 $ 0.05
---------- -----------
Weighted average number of
basic common shares
outstanding 12,308,852 7,978,197
========== ===========
Net income per
diluted common share $ 0.01 $ 0.03
---------- -----------
Weighted average number of
diluted common shares
outstanding 12,488,954 11,658,621
========== ===========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Fiscal Quarters Ended
April 3, March 28,
1999 1998
--------- ---------
Cash flows from operating activities:
Net income $ 151,465 $ 384,961
Adjustments to reconcile net income to
cash provided by operating activities
Depreciation and amortization 50,319 43,891
Changes in assets and liabilities:
Accounts receivable, trade (155,343) 193,144
Inventories (113,835) (262,522)
Prepaid expenses (27,834) 207
Accounts payable 132,163 (12,155)
Accrued expenses (1,097) (105,219)
Deferred revenue (2,500) (7,869)
--------- ----------
Net cash provided by
operating activities 33,338 234,438
--------- ----------
Cash flows from investing activities:
Additions to property and equipment (108,073) (174,489)
--------- ----------
Net cash used in
investing activities (108,073) (174,489)
--------- ----------
Cash flows from financing activities:
Principal payments of capital lease
obligations (11,274) (11,983)
Proceeds from issuance of common stock 2,131
Principal payments of notes payable
obligations -- (82,237)
--------- ---------
Net cash used in
financing activities (11,274) (92,089)
--------- ---------
Net decrease in cash and
cash equivalents (86,009) (32,140)
Cash and cash equivalents at
beginning of period 1,498,774 561,166
--------- ----------
Cash and cash equivalents at
end of period $1,412,765 $ 529,026
========= ==========
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 ended
April 3, 1999 and March 28, 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.
requirements.
The following table presents the calculation of both basic and diluted
EPS:
For the periods ended
April 3, March 28,
1999 1998
----------- -----------
Basic EPS Computation:
Numerator:
Net income $151,465 $384,961
Denominator:
Weighted average
common shares
outstanding 12,308,852 7,978,197
Basic EPS $0.01 $0.05
Diluted EPS Computation:
Numerator:
Net income $151,465 $384,961
Interest on
convertible debt -- $ 22,266
--------- --------
Total net income $151,465 $407,227
Denominator:
Weighted average common
shares outstanding 12,308,852 7,978,197
Stock options 180,102 231,111
Convertible debt -- 3,449,313
---------- ---------
Total Shares 12,488,954 11,658,621
Diluted EPS $0.01 $0.03
As of April 3, 1999 and March 28, 1998, the Company had 215,353 and
74,000 securities in the form of options to purchase common stock that were
antidilutive, respectively.
(4) Inventory
---------
Inventories consist of the following:
April 3 , December 26,
1999 1998
--------- ----------
Raw materials $ 107,338 $ 107,259
Work in process 210,697 96,941
--------- ----------
$ 318,035 $ 204,200
========= ==========
(5) Accrued Expenses
- ----------------
Accrued expenses consist of the following:
April 3, December 26,
1999 1998
--------- ----------
Accrued legal and
accounting $ 10,750 $ 47,500
Accrued payroll 112,701 107,383
Accrued other 59,484 29,149
--------- ----------
$ 182,935 $ 184,032
========= ==========
(6) Supplemental Cash Flow Information
- ----------------------------------
In the first fiscal quarter of 1999, the Company paid $5,491 interest on
leases for production equipment compared to $5,595 in the first 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: First Quarter of 1999 Compared to First Quarter of
1998.
- ---------------------
The Company`s net revenue in the first fiscal quarter of 1999 of $1,245
thousand declined by 7% compared with net revenue in the first fiscal quarter
of 1998 of $1,333 thousand. The reduced revenue was solely the result of
reduced unit shipments compared to a year ago. In the opinion of management
this decrease reflects fluctuations in timing of specific customer
requirements, and does not reflect an underlying decline in demand, nor any
inherent seasonality in the business. For example, on a sequential quarterly
basis, revenues increased 13% from the fourth quarter of 1998 to the first
quarter of 1999, and net income increased 10%.
Gross margins declined to 33% of revenues from 45% over the same period
as a result of increased costs in the manufacturing support area, and the
fact that fixed costs were spread over a smaller base. Sales, General and
Administrative expenses (SG&A) increased to $260 thousand in the first fiscal
quarter of 1999 compared to $158 thousand in the first fiscal quarter of 1998
primarily as a result of increased personnel costs in the sales and marketing
area. The Company has added personnel in sales to support future growth.
Total operating expenses in the first fiscal quarter of 1999 were $1,094
thousand, a 23% increase over operating expenses in the first fiscal quarter
of 1998 of $886 thousand.
Other income increased to $10 thousand in the first fiscal quarter of
1999 compared to other expense of $55 thousand in the first fiscal quarter of
1998. In the first fiscal quarter of 1998 the other expense consisted
primarily of interest expense on notes payable. There were no notes payable
outstanding in the first fiscal quarter of 1999 so no interest expense was
incurred. Higher cash balances during the first fiscal quarter of 1999
compared to the first quarter of 1998 resulted in higher interest income.
The cumulative effect of these revenues and costs resulted in net income
of $151 thousand, or $0.01 per basic common share, in the first fiscal
quarter of 1999, versus net income of $385 thousand, or $0.05 per basic
common share, in the first fiscal quarter of 1998.
Liquidity
- -------------------
The Company`s cash balance at April 3, 1999 was $1,413 thousand
compared to the balance at December 26, 1998 of $1,499 thousand, a decline of
6%.
Inventory increased to $318 thousand at the end of the first fiscal
quarter of 1999 from $204 thousand at December 26, 1998. Management believes
the higher inventory level will allow the Company to better address weekly
fluctuations in demand from a major customer to whom the company supplies
several products on a just-in-time basis.
Accounts Receivable increased to $702 thousand at April 3, 1999 from
$547 thousand at December 26, 1998. This change reflects 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 first
fiscal quarter of 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 from its existing cash balance and from funds
generated by 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 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 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 is 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.
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: 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: May 17, 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 statements of Ceramics Process Systems Corporation
and is qualified in its entirety by reference to such Form 10-Q for period
ending April 3, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-01-2000
<PERIOD-END> Apr-03-1999
<CASH> 1,412,765
<SECURITIES> 0
<RECEIVABLES> 702,477
<ALLOWANCES> 0
<INVENTORY> 318,035
<CURRENT-ASSETS> 2,462,941
<PP&E> 781,370
<DEPRECIATION> 1,050,956
<TOTAL-ASSETS> 3,253,083
<CURRENT-LIABILITIES> 599,847
<BONDS> 0
0
0
<COMMON> 12,285,969
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,253,083
<SALES> 1,245,414
<TOTAL-REVENUES> 1,245,414
<CGS> 833,551
<TOTAL-COSTS> 1,094,207
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 161,307
<INCOME-TAX> 9,842
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 151,465
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
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