UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended January 1, 2000
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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
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(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
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(Address of principal executive offices) (Zip Code)
Registrant`s telephone no., including area code: 508-222-0614
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $0.01 per share
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(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant`s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to the Form 10-K. [ ]
The aggregate market value of the voting Common Stock held by non-
affiliates of the Registrant was $31,842,836 based on the average of the
reported closing bid and asked prices for the Common Stock on March 1,
1999 as reported on the OTC Bulletin Board.
Number of shares of Common Stock outstanding as of January 1,
2000: 12,285,969 shares.
Documents incorporated by reference.
Part I
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Item 1. Business.
Ceramics Process Systems Corporation (the `Company` or `CPS`)
serves the wireless communications infrastructure market, high-
performance microprocessor market, motor controller market, and other
microelectronic markets by developing, manufacturing, and marketing
advanced metal-matrix composite 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`).
Although the Company`s focus is manufacturing components, the
Company has sold licenses to portions of its technology to strategic
partners such as Hitachi Metals Ltd. In fiscal 1999, 100% of the
Company`s total revenue was derived from manufactured products; in
fiscal 1998 86.7% of the Company`s total revenue was derived from
manufactured products and 13.3% from licensing fees; and in fiscal 1997,
91.5% of the Company`s total revenue was derived from manufactured
products and 8.5% from licensing fees.
The Company was incorporated in Massachusetts in 1984. The Company
reincorporated in Delaware in April 1987, through merger into its
wholly-owned Delaware subsidiary organized for purposes of the
reincorporation. In July 1987, the Company completed its initial public
offering of 1.5 million shares of its Common Stock.
Overview of Markets and Products
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Consumer demand continues to motivate the electronics industry to
produce products which:
- - operate at higher speeds;
- - are smaller in size; and
- - operate with higher reliability.
While these three requirements result in products of ever-increasing
performance, these requirements also create a fundamental challenge for
the designer to manage the heat generated by the system moving at higher
speeds. Smaller assemblies further concentrate the heat and increase
the difficulty of removing it.
This challenge is found at each level in an electronic assembly: at
the integrated circuit level speeds are increasing and line widths are
decreasing; at the circuit board level higher density devices are placed
closer together on circuit boards; and at the system level higher
density circuit boards are being assembled closer together.
The designer must resolve the thermal management issues or the system
will fail. For every 10 degree Celsius rise in temperature, the
reliability of a circuit is decreased by approximately half. In
addition, heat usually causes changes in parameters which degrade the
performance of both active and passive electronic components.
To resolve thermal management issues the designer is primarily
concerned with two properties of the materials which comprise the
system: 1) thermal conductivity, which is the rate at which heat moves
through materials, and 2) thermal expansion rate (Coefficient of Thermal
Expansion or CTE) which is the rate at which materials expand or
contract as temperature changes. The designer must ensure that the
temperature of an electronic assembly stays within a range in which the
differences in the expansion rates of the materials in the assembly do
not cause a failure from breaking, delaminating, etc.
CPS combines at the microstructural level a ceramic with a metal
to produce a composite material which has the thermal conductivity
needed to remove heat, and a thermal expansion rate which is
sufficiently close to other components in the assembly to ensure the
assembly is reliable. The ceramic is silicon carbide (SiC), the metal
is aluminum (Al), and the composite is aluminum silicon carbide (AlSiC),
a metal-matrix composite. CPS can adjust the thermal expansion rate of
AlSiC components to match the specific application by modifying the
amount of SiC compared to the amount of Al in the component.
CPS produces products made of AlSiC in the shapes and
configurations required for each application - i.e., in the form of
lids, substrates, housing etc. Every product is made to a customer`s
blueprint. The CPS process technology allows most products to be made
to net shape, requiring no or little final machining.
Although the Company`s focus today is on AlSiC components, the
Company believes its proprietary Quickset- Quickcast process technology
can be used to produce other metal-matrix composites which may meet
future market needs.
Today, the problem of thermal management is most acute in high-
performance, high-density applications such as cellular basestations,
high-performance microprocessors, motor controllers and components for
satellite communications. However, as the trends towards faster speeds,
reduced size and increased reliability continue, and as high-density
circuitry is used in a larger number of applications, the Company
believes that the Company`s products will be used in additional market
segments.
Specific Markets and Products
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Wireless Communications Infrastructure Market
- ---------------------------------------------
The demand for wireless telecommunications services such as
cellular and Personal Communications Systems (`PCS`) has grown
significantly during the past decade, driven by reduced costs for
wireless handsets, a more favorable regulatory environment, increasing
competition among service providers and a greater availability of
services and microwave spectrum.
In developing countries wireless telephone networks are being
installed as an alternative to installing or upgrading traditional
wireline networks. The growth in wireless communications has required,
and will continue to require, substantial investment by service
providers in infrastructure equipment such as basestations.
The Company manufactures substrates and heat sinks on which high-
performance circuits such as power amplifiers are mounted in wireless
basestations. Use of the company`s products allows the basestation
manufacturer to reduce overall basestation size, increase the number of
calls a basestation can handle, and to improve reliability.
Lids for High-Performance Microprocessors and Other Integrated Circuits
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Increases in speed, circuit density, and the number of connections
in microprocessor chips (MPUs) and application specific integrated
circuits (ASICs) are accelerating a transition in the way in which these
ICs are packaged. Packages provide mechanical protection to the
integrated circuit (IC), enable the IC to be connected to other circuits
via pins, solder bumps or other connectors, and allow attachment of a
heat sink or fan to ensure the IC does not overheat. In the past most
high-performance ICs were electrically connected to the package by fine
wires in a process known as wire bonding. Increasingly high-performance
semiconductors are connected to the package by placing metal bumps on
the connection points of the die, turning the die upside down in the
package, and directly connecting the bumps on the die with corresponding
bumps on the package base by reflowing the bumps. This is referred to
as a "flip-chip package". Flip chip packages allow for connection of a
larger number of leads in a smaller space, and can provide other
electrical performance advantages compared to wire bonded packages.
In many flip chip configurations a lid or cap is placed over the
die to protect the die from mechanical damage and to facilitate the
removal of heat from the die. Often a heat sink or fan is then attached
to the lid. For a high-density die the package designer must ensure
that the lid has sufficient thermal conductivity to remove heat from the
die, and that all components of the package assembly - the die itself,
the package base, and the package lid - are made from materials with
sufficiently similar thermal expansion rates to ensure the assembly will
not break itself apart over time as it thermally cycles.
The Company`s composite material, AlSiC, has been developed to
meet these two needs: it is engineered to have sufficient thermal
conductivity to allow the heat generated by the die to be removed
through the lid, and it is engineered to expand upon heating at a rate
similar to other materials used in the package assembly in order to
ensure reliability of the package over time as it thermally cycles. The
Company produces lids made of AlSiC for high performance microprocessors
used in servers and other applications.
Most participants in the semiconductor industry believe the
densities of ICs will continue to increase following the well-known
"Moore`s Law". As IC densities increase, generally so does the IC size,
and the amount of heat generated by the IC. The company believes the
need for thermal management will continue to grow rapidly. For example,
the Semiconductor Industry Association (SIA) 1997 Roadmap anticipates
the use of 1.5 GHz, 40 million transistor, 385mm2 microprocessor chips
dissipating as much as 110 Watts in workstations and servers to be
offered in 2001, and a further substantial increase to 3.5 GHz, 200
million transistor, 520 mm2 chips dissipating 160 watts for use in
workstations and servers to be offered in 2006.
Motor Controller Market
- -----------------------
The use of power modules to control electric motors of all sizes is
growing. This growth is the result of several factors including
emerging high-power applications which demand power controllers such as
trains, subways and certain industrial equipment, and cost declines in
power modules which increasingly make variable speed drives cost
effective. Power semiconductors are a very significant portion of the
cost of variable speed drives, and the cost of the module housing and
thermal management system are also significant; declines in the costs of
all these components is driving increased use of variable speed drives.
For example, worldwide approximately 50 million AC induction motors
greater than one-half horsepower are installed every year. Today only a
small percentage of these motors use variable speed drives because of
costs; as costs decline industry observers predict increased use of
variable speed drives.
The Company provides substrates, baseplates and heatsinks on which
power semiconductors are mounted to produce modules for motor control.
The Company`s AlSiC baseplates have sufficient thermal conductivity to
allow for removal of heat through the baseplate, and have a thermal
expansion rate sufficiently similar to the other components in the
assembly to ensure reliability over time as the assembly thermally
cycles. The Company believes this market will continue to grow as the
use of power modules penetrates additional motor applications, and as
electric motors themselves penetrate new applications such as the hybrid
electric vehicle.
Satellite Communications Market
- -------------------------------
Satellites provide several advantages over earth-based facilities
for many telecommunications applications. Satellites enable high-speed
communications service where there is no earth-based alternative
available which is often the case for military operations and for
communications services in developing countries. Another advantage is
that the cost to provide services via satellite does not increase with
the distance between sending and receiving stations. The cost of
providing services via satellite can be less than the cost of installing
copper or fiber optic networks.
Demand for satellite telecommunications services for both military
and commercial applications is increasing. Some satellite applications
have both military and commercial applications such as the Global
Positioning System. Commercial applications include satellite based
mobile telephone services, direct-to-home television services, and
direct-to-home internet services. Military and commercial entities have
announced plans to deploy over 1,000 satellites during the next decade.
The Company produces housings, substrates, baseplates, and
heatsinks on which circuitry is mounted for use in satellites. In
addition to the thermal conductivity and the tailored thermal expansion
rate, AlSiC is a very lightweight material which is an important
attribute for applications which are air-borne, spaced-based or
transportation related.
Customers
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The Company sells to major United States microelectronics systems
houses. The Company`s customers typically purchase prototype and
evaluation quantities of the Company`s products over a one to three year
period before entering into recurring production.
In fiscal 1999, the Company`s three largest customers accounted for
67%, 8%, and 6% of total revenues, respectively. In fiscal 1998, the
Company`s three largest customers accounted for 72%, 13%, and 6% of
total revenues. In fiscal 1997, the Company`s three largest customers
accounted for 56%, 9% and 9% of total revenues.
In fiscal 1999, 89% of the Company`s revenues were derived from
commercial applications and 11% were derived from defense related
applications. In fiscal 1998, 94% of the Company`s revenues were
derived from commercial applications and 6% were derived from defense
related applications. In fiscal 1997, 76% of the Company`s total
revenues were derived from commercial applications and 24% were derived
from defense related applications.
Research and Development
- ------------------------
The Company continues to perform product development under
prototype manufacturing agreements with customers. The Company had no
externally funded collaborative research and development agreements in
fiscal years 1999, 1998, or 1997.
Availability of Raw Materials
- -----------------------------
The Company uses a variety of raw materials from numerous domestic
and foreign suppliers. These materials are primarily aluminum ingots,
ceramic powders and chemicals. The raw materials used by the
Company are available from domestic and foreign sources and none is
believed to be scarce or restricted for national security reasons.
Patents and Trade Secrets
- -------------------------
As of January 1, 2000, the Company had 10 United States patents.
The Company also has several international patents covering the same
subject matter as the U.S. patents. The Company`s licensees have rights
to use certain patents as defined in their respective license
agreements. The Company has granted co-ownership of five of its patents
and licensing rights to a joint venture company, Metals Process Systems
(MPS) in exchange for its equity ownership in MPS. Under terms of the
agreement, MPS has the exclusive right to use such patents in the area
of metal powders and the Company has the exclusive right to use such
patents in all other areas, provided, however, that MPS has granted to
the Company a non-exclusive license to use the patents in the area of
metal powders.
The Company intends to continue to apply for domestic and foreign
patent protection in appropriate cases. In other cases, the Company
believes it may be better served by reliance on trade secret protection.
In all cases, the Company intends to seek protection for its
technological developments to preserve its competitive position.
Backlog and Contracts
- ---------------------
As of January 1, 2000, the Company had a product backlog of $1.45
million compared with a product backlog of $1.27 million at December 26,
1998. The Company shipped 100% of the year-end 1998 product backlog in
fiscal 1999.
Competition
- -----------
The Company has developed and expects to continue to develop
products for a number of different markets and will encounter
competition from different producers of metal-matrix composites and
other competing materials.
The Company believes that the principal competitive factors in its
markets include technical competence, product performance, quality,
reliability, price, corporate reputation, and strength of sales and
marketing resources. The Company believes its proprietary processes,
reputation, and the price at which it can offer products for sale will
enable it to compete successfully in the advanced microelectronics
markets. However, many of the American and foreign companies now
producing or developing metal-matrix composites have far greater
financial and sales and marketing resources than the Company, which may
enable them to develop and market products which would compete against
those developed by the Company.
Government Regulation
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The Company produces non-nuclear, non-medical hazardous waste in
its development and manufacturing operations. The disposal of such
waste is governed by state and federal regulations. Various customers,
vendors, and collaborative development agreement partners of the Company
may reside abroad, thereby possibly involving export and import of raw
materials, intermediate products, and finished products, as well as
potential technology transfer abroad under collaborative development
agreements. These types of activities are regulated by the Bureau of
Export Administration of the United States Department of Commerce.
Employees
- ---------
As of January 1, 2000, the Company had 50 full-time employees, of
whom 45 were engaged in manufacturing and engineering and 5 in sales and
administration. The Company also employs temporary employees as needed
to support production and program requirements.
None of the Company`s employees is covered by a collective
bargaining agreement. The Company considers its relations with its
employees to be excellent.
Item 2. Properties.
All of the Company`s operations including corporate headquarters,
manufacturing operations and engineering activities are located in a
leased facility in Chartley, Massachusetts. The Company is operating at
the Chartley facility as a tenant-at-will.
The Company`s rental expense for operating leases was $82 thousand,
$82 thousand and $68 thousand in fiscal 1999, 1998 and 1997,
respectively.
Item 3. Legal Proceedings.
The Company is not a party to any litigation which could have a
material adverse effect on the Company or its business and is not aware
of any pending or threatened material litigation against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended January 1, 2000.
Part II
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Item 5. Market for Registrant`s Common Stock and Related
Stockholder Matters
On January 1, 2000, the Company had 876 shareholders. The high and
low closing bid prices of the Company`s common stock for each quarter
during the years ended January 1, 2000 and December 26, 1998 are shown
below.
1999 1998
--------------- --------------
High Low High Low
---- ---- ---- ----
1st Quarter $1.69 $1.19 $2.71 $2.00
2nd Quarter $2.00 $1.38 $2.62 $1.38
3rd Quarter $1.63 $1.00 $1.96 $1.25
4th Quarter $1.19 $0.63 $1.53 $1.25
The Company has never paid cash dividends on its Common Stock. The
Company currently plans to reinvest its earnings, if any, for use in the
business and does not intend to pay cash dividends in the foreseeable
future. Future dividend policy will depend, among other factors, upon
the Company`s earnings and financial condition.
The Company`s Common Stock is traded on NASD`s Over-the-Counter
Bulletin Board (OTCBB) under the symbol CPSX.
Item 6. Selected Consolidated Financial Data
The following selected financial data of the Company
should be read in conjunction with the consolidated financial statements
and related notes filed as part of this Annual Report on Form 10-K.
SELECTED CONSOLIDATED FINANCIAL DATA
For the Fiscal Year: 1999 1998 1997 1996 1995
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Summary of Operations
- ---------------------
Product Revenue $4,806 $4,788 $4,198 $1,922 $1,385
License Revenue 0 737 391 85 2
Operating Expenses 4,723 3,722 2,993 2,201 2,221
------ ------ ------ ------ ------
Operating Income (Loss) 83 1,803 1,596 (194) (834)
Net Other Income (Expense) 155 (131) (219) (217) (274)
------ ------ ------ ------ ------
Net Income (Loss) $ 238 $ 1,672 $ 1,377 $( 411) $(1,108)
====== ====== ====== ====== ======
Net Income (Loss) Per
Basic Common Share $ 0.02 $ 0.16 $ 0.18 $ (0.05) $(0.14)
====== ====== ====== ====== ======
Weighted Average Basic
Number of Common Shares
Outstanding 12,286 10,566 7,799 7,781 7,675
====== ===== ===== ===== ======
Net Income (Loss) Per
Diluted Common Share $ 0.02 $ 0.14 $ 0.13 $ (0.05) $(0.14)
====== ====== ====== ====== ======
Weighted Average Diluted
Number of Common Shares
Outstanding 12,483 12,547 12,280 7,781 7,675
====== ====== ====== ====== ======
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Year-end Position
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Working Capital (Deficit) $1,812 $ 1,782 $(1,788) $(3,200) $(2,736)
Total Assets 3,186 2,984 1,905 795 526
Long-term Obligations 197 125 310 88 -
Stockholders` Equity
(Deficit) $2,627 $ 2,389 $(1,520) $(2,905) $(2,493)
Item 7. Management`s Discussion and Analysis of Financial Condition and
Results of Operations
This Annual Report on Form 10-K 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
- ---------------------
Revenue
- -------
Revenue from sales of products in fiscal 1999 was $4.81 million, up
slightly from sales of products in fiscal 1998 of $4.78 million. No
revenue was received from licensing agreements in fiscal 1999 compared
to $0.74 million received from licensing agreements in fiscal 1998.
Because no licensing revenue was received in fiscal 1999, total revenue
decreased $720 thousand or 13% to $4.81 million in fiscal 1999 from
$5.52 million in fiscal 1998.
Although product revenue increased only slightly in fiscal 1999
compared to fiscal 1998, the sources of product revenue changed
significantly. Demand from the Company`s largest customer declined in
fiscal 1999 by $0.75 million, or 19%, compared to fiscal 1998, while
revenue from other customers increased by $0.77 million, or 94%.
Total revenue of $5.52 million in fiscal 1998 reflects an increase
of $936 thousand or 20% over total revenue of $4.59 million in fiscal
1997. The increase in revenue from fiscal 1997 to fiscal 1998 was due
to increased product shipments of $590 thousand, and increased revenues
from licensing activities of $347 thousand.
Operating Costs
- ---------------
Total operating costs were $4.7 million, $3.7 million, and $3.0
million for years fiscal 1999, fiscal 1998, and fiscal 1997,
respectively.
Operating costs increased in fiscal 1999 compared to fiscal 1998
by $1 million as a result of two factors, 1) actions taken, primarily
the hiring of additional personnel, to strengthen and improve the
quality, engineering, manufacturing and sales functions within the
Company to prepare for future growth, and 2) changes in the product mix.
In fiscal 1999 the Company hired managers for new business development
and quality assurance, and technicians for product development, quality
assurance and maintenance, in addition to operators for production
positions. The Company purchased additional capital equipment for the
quality department and manufacturing operations. The Company also
conducted a year-long program to revise and upgrade its quality system
with the objective of achieving registration to the ISO 9001 standard in
early 2000. Management believes these actions will enable the company
to better meet the rigorous quality requirements of its current and
future customer base. Changes in product mix resulted in increases in
tooling and raw material expenses. Operating costs increased in fiscal
1998 compared to fiscal 1997 by $0.7 million primarily as a result of
increased sales volume.
Cost of sales for fiscal years 1999, 1998, and 1997 were $3.8
million $3.0 million, and $2.5 million, respectively. Selling, general
and administrative costs were $0.9 million, $0.7 million, and $0.5
million for these same years, respectively.
The $0.8 million increase in cost of sales in fiscal 1999 versus
fiscal 1998 is attributable to increased overhead expenses described
above, as well as increased raw material and labor expenses associated
with changes in product mix. The $0.5 million increase in cost of sales
in fiscal 1998 versus fiscal 1997 is due to higher average sales volume
in fiscal 1998.
Gross margins on product revenue for fiscal years 1999, 1998 and
1997 were 21%, 37% and 41% respectively. As the Company has
transitioned from a research and development focus to a manufacturing
focus, the Company has incurred expenses to build the manufacturing
infrastructure needed to support future growth. In 1999, the Company
added engineering and preventative maintenance personnel, for example.
The Company does not anticipate continuing to add fixed costs at a
greater rate than revenue growth in the near future. In addition,
fiscal 1999 gross margins were negatively affected by reduced shipments
in the second half of fiscal 1999 to the Company`s largest customer,
resulting in the fixed costs being spread over a smaller base.
Selling, general and administrative expenses for fiscal years 1999,
1998 and 1997 were $0.9 million, $0.7 million, and $0.5 million
respectively. The increase of $0.2 million from fiscal 1998 to fiscal
1999, and the increase of $0.2 million from fiscal 1997 to fiscal 1998
primarily resulted from hiring additional sales personnel in fiscal 1999
and fiscal 1998, and incurring additional travel and sales promotion
expenses. The Company began to sell product actively in Europe in
fiscal 1999.
The Company continues to perform product development under
prototype manufacturing agreements with customers. The Company had no
externally funded collaborative research and development agreements in
fiscal 1999, 1998 or 1997.
Net Other Income and Expense
- ------------------
The Company had net other income (expense) of $149 thousand, $0
thousand and ($219) thousand for the fiscal years 1999, 1998 and 1997
respectively. The increase in net other income in fiscal 1999 compared
to fiscal 1998 is primarily due to the gain on sale of obsolete
equipment. Additionally, interest income increased due to average higher
cash balances in fiscal 1999. Net other expenses were similar in amount
in 1999 and 1998, and were primarily interest expense.
Income Taxes
- ------------
The Company`s Federal income tax expenses were ($6), $36, and $21
thousand for 1999, 1998 and 1997 respectively. The Company paid no
income tax in 1999 due to its tax loss carryforwards and changes in the
tax code relating to small business and the alternative minimum tax.
The ($6) expense for 1999 is an adjustment for over accrual of taxes in
1998.
Certain provisions of the Internal Revenue Code limit the annual
utilization of net operating loss carryforwards if, over a three-year
period, a greater than 50% change in ownership occurs. The Company
believes that they did not exceed the 50% ownership change in the three-
year period ending January 1, 2000; therefore, at January 1, 2000 all
net operating loss carryforwards are available to offset future taxable
income.
Liquidity and Cash Reserves
- ---------------------------
Cash on hand of $1,034 thousand at fiscal year end 1999 reflects a
decrease of $465 thousand or 31% over cash on hand of $1,499 thousand at
fiscal year end 1998. Government securities on hand at fiscal year end
1999 were $307 thousand compared to no government securities on hand at
fiscal year end 1998. In fiscal 1999, operations generated net cash of
$365 thousand, investing activities, primarily the purchase of capital
equipment and short term investments in the form of government
securities, consumed net cash of $784 thousand, and financing
activities, namely principal payments of capital lease obligations,
consumed net cash of $47 thousand.
Cash on hand of $1,499 thousand at fiscal year end 1998 reflects
an increase of $938 thousand or 167% over cash on hand of $561 thousand
at fiscal year end 1997. The increase in 1998 from 1997 is primarily
the result of receipt of licensing fees, and cash generated by
operations.
In 1999, 1998, and 1997 the Company financed its operations through
funds generated from operations.
In 1994 and 1995, the Company issued notes and convertible notes
in the amount of $2.4 million to finance its working capital obligations
and building renovations cost. In 1997, the Company paid down several
notes. In 1998, the Company converted the remaining notes into equity.
Specifically, in 1998 the Company issued 3,740,000 shares of common
stock upon conversion of note principal in the amount of $1,870,000, the
Company issued 723,916 shares of common stock upon conversion of accrued
interest in the amount of $361,958, and the Company paid accrued
interest in cash in the amount of $160,542.
The Company believes it will be able to finance its working capital
obligations and capital expenditures through funds generated from
operations throughout 2000. The Company continues to sell to a limited
number of customers and loss of any one of these customers could cause
the Company to require external financing.
Newly Issued Accounting Pronouncements and Future Accounting Changes
- --------------------------------------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for
hedging activities. The Company will adopt SFAS No. 133 as required by
SFAS No. 137, "Deferral of the Effective Date of SFAS No. 133", in
fiscal 2001. To date the Company has not utilized derivative
instruments or engaged in hedging activities, and therefore the adoption
of SFAS No. 133 is not expected to have a material impact on the
Company`s financial position or results of operations.
In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements". SAB 101 summarizes the SEC`s view
in applying generally accepted accounting principles to selected revenue
recognition issues. The application of the guidance in SAB 101 will be
required no later than the Company`s second quarter of the fiscal year
2000. The effect of applying the guidance, if any, will be reported as
a cumulative effect adjustment resulting from a change in accounting
principle. The Company`s evaluation of SAB 101 is not yet complete.
Year 2000 Issue
- ---------------
In 1998 and 1999 the Company 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 conducts business.
The Company completed an assessment of its exposure in each of
these three areas and developed and implemented a plan to address issues
identified. The assessment indicated the area of greatest risk was the
area of application programs. In the process of addressing the Year
2000 issue, the Company concurrently sought to upgrade certain computer
systems to provide greater functionality. In fiscal 1998 and 1999, the
Company made capital expenditures of less than $100 thousand to purchase
and install new financial, accounting, and selected manufacturing
computer systems which are Year 2000 compliant and which provide greater
functionality.
Regarding the second area, the Company tested all production and
analytical equipment to determine where Year 2000 problems existed, and
implemented upgrades or other remedies as appropriate. No production or
analytical equipment required replacement as a result of Year 2000
problems.
Regarding the third area, the Company interviewed vendors and
customers to determine their exposure to Year 2000 issues, and developed
a contingency plan for sourcing materials and other services in the
event of an interruption.
As of March 1, 2000 the Company has not experienced any
interruptions in its operations from the Year 2000 issue, and does not
expect any interruptions in the future; however there can be no
assurance this will be the case.
Inflation
- ---------
Inflation had no material effect on the results of operations or
financial condition during 1999, 1998 or 1997. There can be no
assurance; however, that inflation will not affect the Company`s
operations or business in the future.
Item 8. Financial Statements and Supplementary Data
See Index to the Company`s Financial Statements and the
accompanying financial statements and notes which are filed as part of
this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Part III
- --------------------------------------------------------------------
Item 10. Directors and Executive Officers of the Registrant
Directors of the Company are elected annually and hold office until
the next annual meeting of stockholders and until their respective
successors are duly elected and qualified. The executive officers of the
Company are appointed by the Board of Directors and hold office until
their respective successors are duly elected and qualified.
The directors and executive officers of the Company are as
follows:
Name Age Position
- ---- --- --------
Grant C. Bennett 45 President
Chief Executive
Officer,
Treasurer
and Director
Michael Bernique 56 Director
H. Kent Bowen 58 Director
Francis J. Hughes, Jr. 49 Director
Mr. Grant C. Bennett has held the positions of President, Chief
Executive Officer and Director of the Company since September, 1992.
Prior to that time, he served as Vice President-Marketing and Sales of
the Company from November, 1985 to September, 1992. Before joining CPS,
Mr. Bennett was a consultant at Bain & Company, a Boston-based
management consulting firm.
Mr. Michael Bernique is currently President and CEO of TelOptica, a
network optimization and professional services firm. He served as
President, Satellite Data Networks Group of General Instrument
Corporation from 1996 to 1998, as Senior Vice President, North American
Sales and Vice President and General Manager, Transmission Products
Division of DSC Communications from 1989 to 1996, and in a variety of
positions with Motorola from 1985 to 1989, including Vice President
Domestic Operations, Cellular Infrastructure. Mr. Bernique was elected
to the Company`s Board of Directors in 1999. Mr. Bernique is also
Chairman of the Board of Directors of RF Monolithics, Inc.
Dr. H. Kent Bowen has served as a Professor at Harvard Business
School since July, 1992. Prior to that time, he held the position of
Ford Professor of Engineering at the Massachusetts Institute of
Technology (`MIT`) from 1981 to 1992. Dr. Bowen served as Co-Director
of the Leaders for Manufacturing Program at MIT from 1991 through July,
1992. Dr. Bowen has been a Director of the Company since 1984 and
served as Chairman of the Board of Directors of the Company from 1984 to
August, 1988. Dr. Bowen is also a director of SPX Corporation.
Mr. Francis J. Hughes, Jr. has served as President of American
Research and Development Corporation (`ARD`), a venture capital firm,
since 1992. Mr. Hughes joined ARD`s predecessor organization in 1982,
and became Chief Operating Officer in 1990. Mr. Hughes served as General
Partner of the following venture capital funds: ARD I, L.P., ARD II,
L.P. (since July, 1985), ARD III, L.P. (since April, 1988), Hospitality
Technology Fund, L.P.(since June, 1991) and Egan-Managed Capital, L.P.
(since February, 1997). Mr. Hughes has served as a Director of the
Company since 1993. Mr. Hughes is also a director of RF Monolithics,
Inc.
There are no family relationships between or among any executive
officers or directors of the Company.
Item 11. Executive Compensation
The following table sets forth certain information with respect to
the annual and long-term compensation of the Company`s Chief Executive
Officer for the three fiscal years ended January 1, 2000. No other
executive officer of the Company serving on the last day of fiscal year
1999 received total annual salary and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Other All Other
Compen- Options/ LTIP Compensa-
Name & Position Year Salary Bonus sation SAR`s Payouts tion
- ---------------------- -------- ----- ------- -------- ------- ---------
($) ($) ($) ($) ($) ($)
Grant C. Bennett 1999 $125,000 $0 $0 0 $0 $0 $0
President and 1998 $104,026 $0 $0 0 $0 $0 $0
Chief Executive 1997 $100,163 $0 $0 0 $0 $0 $0
Officer
The Company`s President and Chief Executive Officer did not receive
option grants during fiscal year 1999. During fiscal year 1999 no
options were exercised by him, and at the end of the fiscal year 1999 no
options were held by him.
Directors` Fees
- ---------------
The Company adopted the 1992 Director Stock Option Plan ("1992
Director Plan") on February 20, 1992. As of January 1, 2000 options to
purchase 35,000 shares of Common Stock were outstanding under the 1992
Director Plan. No grants were made under this plan in fiscal 1999, 1998
or 1997. The 1992 Director Plan expired on April 16, 1998 and no new
grants are available under it.
The Company adopted the 1999 Stock Incentive Plan ("1999 Plan") on
January 22, 1999. Under the terms of the 1999 Plan, all of the
Company`s employees, officers, directors, consultants and advisors are
eligible to be granted options, restricted stock awards, or other stock-
based awards. In 1999, options to purchase 24,000 shares of the
Company`s Common Stock were granted to directors under the 1999 Plan.
All options granted are nonstatutory stock options granted at the fair
market value of the stock, are exercisable one year from the date of
grant, and expire ten years from the date of grant. The 1999 Plan
includes provisions for the acceleration of vesting in the event of a
change in control of the Company. Outside directors may receive expense
reimbursements for attending board and committee meetings. Directors
who are officers or employees of the Company do not receive any
additional compensation for their services as directors.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of March 1,
2000, with respect to the beneficial ownership of the Company`s Common
Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each Director of
the Company, (iii) each Executive Officer of the Company named above in
the Summary Compensation Table, and (iv) all Directors and Officers as a
group:
Percentage of
Common Stock Shares of
Name and Address Beneficially Common Stock
of Beneficial Owner Owned (1) Outstanding
- ------------------- ------------ -----------
ARD Master, L.P.
30 Federal Street
Boston, MA 02110-2508 1,173,214 (2) 9.5%
ARD I, L.P.
30 Federal Street
Boston, MA 02110-2508 1,021,884 (3) 8.3
Waco Partners
c/o Wechsler & Co., Inc.
105 South Bedford Road, Suite 310
Mount Kisco, NY 10549 1,669,980 13.6%
Grant C. Bennett (Director & Officer) 1,627,331 13.2%
Michael Bernique (Director) 8,000 (4) *
H. Kent Bowen (Director) 16,000 (5) *
Francis J. Hughes, Jr. (Director) 2,199,598 (6) 18.3%
All Directors and Officers as a
group (four persons) 3,850,929 (7) 31.6%
*Less than 1% of the total number of outstanding shares of
Common Stock.
1. The inclusion herein of any shares of Common Stock deemed
beneficially owned does not constitute an admission of beneficial
ownership of those shares. Unless otherwise indicated, each
stockholder referred to above has sole voting and investment power
respect to the shares listed.
2. Total of 1,173,214 shares consists of 1,170,494 shares owned by ARD
Master L.P., and options to purchase 2,720 shares of common stock
exercisable within 60 days after March 1, 2000. Excludes options to
purchase 4,500 shares of common stock held by Mr. Hughes which are
exercisable within 60 days after March 1, 2000.
3. Total of 1,021,884 shares consists of 1,019,604 shares owned by ARD
I, L.P., and options to purchase 2,280 shares of common stock
exercisable within 60 days after March 1, 2000. Excludes options to
purchase 4,500 shares of common stock held by Mr. Hughes which are
exercisable within 60 days after March 1, 2000.
4. Consists of options to purchase 8,000 shares of common stock
exercisable within 60 days after March 1, 2000
5. Consists of options to purchase 16,000 shares of common stock
exercisable within 60 days after March 1, 2000.
6. Consists of shares and options to purchase shares described in
Footnotes 2 and 3 above owned by ARD Master, L.P., and ARD I, L.P.,
and options to purchase 4,500 shares of common stock held by Mr.
Hughes which are exercisable within 60 days after March 1, 2000.
7. Consists of all shares and options to purchase shares described in
Footnotes 4,5 and 6 above, and shares owned by Grant C. Bennett
listed in above table.
Item 13. Certain Relationships and Related Transactions
In 1994, the Company issued convertible subordinated notes to
affiliates of Directors and other persons known by the Company to
beneficially own more than 5% of the outstanding shares of the Company.
In 1998 all remaining notes were converted into equity and accrued
interest was paid in cash or converted into equity as summarized below.
There were no notes outstanding as of year-end 1998 or year-end 1999.
Shares Issued Upon Conversion of
Principal and Shares Issued or cash
Paid for Accrued Interest in 1998
Per ---------------------------------
Annum Principal Interest Interest
Principal Interest Conversion Conversion Payment
Amount Rate Shares Shares Cash
Noteholder ($) (%) ---------- ---------- ---------
ASMV $660,000 10% 1,320,000 517,810 -
Waco Partners $750,000 10% 1,500,000 - $132,260
ARD III $141,440 10% 282,880 112,122 -
ARD I $118,560 10% 237,120 93,984 -
Affiliates of
Directors as
a group $260,000 10% 520,000 206,106 -
Part IV
- ------------------------------------------------------------------------
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) Documents filed as part of this Form 10-K.
1. Financial Statements
--------------------
The financial statements filed as part of this
Form 10-K are listed on the Index to Consolidated
Financial Statements of this Form 10-K.
2.a. Exhibits
--------
The exhibits to this Form 10-K are listed on the
Exhibit Index of this Form 10-K.
2.b. Reports on Form 8-K
-------------------
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Grant C. Bennett
--------------------------
Grant C. Bennett
President
Date: March 30, 2000
Pursuant to the Requirements of the Securities Act of 1934, this report
has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- -------------------- ------------------------ ------------
/s/ Grant C. Bennett President, Treasurer and Director}
- -------------------------- (Principal Executive Officer) }
Grant C. Bennett }
}
}
}
/s/ Michael Bernique Director }
- -------------------------- }
Michael Bernique }Mar. 30,
}2000
}
}
/s/ H. Kent Bowen Director }
- -------------------------- }
H. Kent Bowen }
}
}
}
/s/ Francis J. Hughes, Jr. Director }
- -------------------------- }
Francis J. Hughes, Jr. }
}
CERAMICS PROCESS SYSTEMS CORPORATION
EXHIBIT INDEX
Exhibit
No. Description Page
- ------- ----------- ----
3.1** Restated Certificate of Incorporation of the
Company, as amended, is incorporated herein by
reference to Exhibit 3 to the Company`s
Registration Statement on Form 8-A
(File No. 0-16088) --
3.2** By-laws of the Company, as amended, are
incorporated herein by reference to Exhibit 3.2
to the Company`s Registration Statement on Form
S-1 (File No. 33-14616)(the `1987 S-1Registration
Statement`) --
4.1** Specimen certificate for shares of Common Stock of
the Company is incorporated herein by reference to
Exhibit 4 to the 1987 S-1 Registration Statement --
4.2** Description of Capital Stock contained in the
Restated Certificate of Incorporation of the
Company, as amended, filed as Exhibit 3.1 --
(1)10.1** 1984 Stock Option Plan of the Company, as amended,
is incorporated herein by reference to Exhibit
10(b) to the Company`s Annual Report on Form 10-K
for the year ended December 31, 1988 --
(1)10.2** 1989 Stock Option Plan of the Company, is
incorporated by reference to Exhibit 10.6 to the
Company`s 1989 S-1 Registration Statement --
(1)10.3** 1992 Director Stock Option Plan is incorporated by
reference to Exhibit 10.5 to the Company`s Annual
Report on Form 10-K for the fiscal year ended
December 28, 1991 --
10.4** Participation Agreement, dated February 14, 1991,
between the Company and Sopretac, a French societe
anonyme, is incorporated by reference to Exhibit
10.10 to the Company`s Annual Report on Form 10-K
for the year ended December 28, 1991 --
(1)10.5** Retirement Savings Plan, effective September 1,
1987 is incorporated by reference to Exhibit 10.35
to the Company`s 1989 S-1 Registration Statement --
(1)10.6** Severance Benefit Program, effective June 1, 1989,
is incorporated by reference to Exhibit 10.36 to
the Company`s S-1 Registration Statement --
10.7** Research and Development Agreement, dated as of
June 26, 1991, between the Company and Carpenter
Technology Corporation (`CarTech`) is
incorporated by reference to Exhibit 10.17 to the
Company`s Annual Report on Form 10-K for the year
ended December 28, 1991 --
10.8** Option and License Agreement, dated as of June 26,
1991, between the Company and CarTech is
incorporated by reference to Exhibit 10.19 to the
Company`s Annual Report on Form 10-K for the year
ended December 28, 1991 --
10.9** License Agreement, dated as of December 11, 1992,
between the Company and CarTech is incorporated by
reference to Exhibit 10.19 to the Company`s Annual
Report on Form 10-K for the fiscal year ended
January 2, 1993 --
10.10** Amendment to Research and Development Agreement,
dated as of December 11, 1992, between the Company
and CarTech is incorporated by reference to Exhibit
10.20 to the Company`s Annual Report on Form 10-K
for the fiscal year ended January 2, 1993 --
10.11** Amendment to Option and License Agreement, dated as
of December 11, 1992, between the Company and
CarTech is incorporated by reference to Exhibit
10.21 to the Company`s Annual Report on Form 10-K
for the fiscal year ended January 2, 1993 --
10.12** BancBoston lease line of credit, dated December 23,
1991, between the Company and The First National
Bank of Boston is incorporated by reference to
Exhibit 10.20 to the Company`s Annual Report on
Form 10-K for the year ended December 28, 1991 --
10.13** Amendment to BancBoston lease line of credit, dated
December 31, 1992, between the Company and the
First National Bank of Boston is incorporated by
reference to Exhibit 10.21 to the Company`s Annual
Report on Form 10-K for the fiscal year ended
January 2, 1993 --
10.14** Form of 10% Convertible Subordinated Note Due June
30, 1995 and related Common Stock Purchase Warrant
between the Company and noteholder is incorporated
by reference to Exhibit 10.22 to the Company`s
Annual Report for the fiscal year ended January 1,
1994 --
10.15** 10% Convertible Subordinated Note Due April 21,
2001 between the Company and Waco Partners and
related Subordinated Convertible Note Purchase
Agreement between the Company and Wechsler & Co.,
Inc. is incorporated by reference to Exhibit 10.21
to the Company`s Annual Report for the fiscal year
ended December 31, 1994 --
10.16** 10% Convertible Subordinated Note Due January 31,
1996 and related Common Stock Purchase Warrant
between the Company and Ampersand Specialty
Materials Ventures Limited Partnership is
incorporated by reference to Exhibit 10.22 to the
Company`s Annual Report for the fiscal year ended
December 31, 1994 --
10.17** Form of 10% Convertible Subordinated Note Due April
24, 1996 and related Common Stock Purchase Warrant
between the Company and noteholder is incorporated
by reference to Exhibit 10.23 to the Company`s
Annual Report for the fiscal year ended December
31, 1994 --
10.18** Senior Secured Promissory Note Due March 30, 1996
and related Security Agreement between the Company
and Aavid Thermal Technologies, Inc. is
incorporated by reference to Exhibit 10.24 to the
Company`s Annual Report for the fiscal year ended
December 31, 1994 --
10.19** Secured Line of Credit Note Due June 30, 1996 and
related Security Agreement between the Company and
Kilburn Isotronics, Inc. --
10.20** Amended and Restated Promissory Note dated July
31, 1996 between the Company and Texas Instruments
Incorporated
10.21 1999 Stock Incentive Plan adopted by the Company`s
Board of Directors on January 22, 1999
21** Subsidiaries of the Registrant are incorporated
herein by reference to Exhibit 22 to the Company`s
Annual Report on Form 10-K for the year ended
December 31, 1988 --
23.1 Consent of PricewaterhouseCoopers LLP
** Incorporated herein by reference.
(1) Management Contract or compensatory plan or arrangement filed as an
exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
CERAMICS PROCESS SYSTEMS CORPORATION
Page
- ------------------------------------------------------------
Report of Independent Accountants 22
Consolidated Balance Sheets as of January 1, 2000 and
December 26, 1998 23-24
Consolidated Statements of Operations for the years ended
January 1,2000, December 26, 1998,
and December 27, 1997 25
Consolidated Statements of Stockholders` Equity (Deficit)
for the years ended January 1, 2000,
December 26, 1998 and December 27, 1997 26
Consolidated Statements of Cash Flows for the years ended
January 1, 2000, December 26, 1998,
and December 27, 1997 27
Notes to Consolidated Financial Statements 28-37
All schedules are omitted because they are not applicable or
the required information is included in the financial
statements or notes thereto.
Report of Independent Accountants
- ------------------------------------------------------------------------
To the Board of Directors and Stockholders
Ceramics Process Systems Corporation:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the
financial position of Ceramics Process Systems Corporation and its
subsidiary at January 1, 2000 and December 26, 1998, and the results
of their operations and their cash flows for each of the fiscal years
ended January 1, 2000, December 26, 1998 and December 27, 1997 in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the
Company`s management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 3, 2000
CONSOLIDATED BALANCE SHEETS
Ceramics Process Systems Corporation
ASSETS
January 1, December 26,
2000 1998
-------- --------
Current assets:
Cash & cash equivalents $ 1,033,522 $ 1,498,774
Short-term investments 306,672 --
Accounts receivable-trade 387,569 514,152
Accounts receivable-other 109,065 32,982
Inventories 307,348 204,200
Prepaid expenses 30,193 1,830
------------ ------------
Total current assets 2,174,369 2,251,938
Property & equipment:
Production equipment 2,013,331 1,569,021
Office equipment 202,523 155,232
Accumulated depreciation
and amortization (1,204,000) (1,000,637)
------------ ------------
Net property and equipment 1,011,854 723,616
------------ ------------
Deposits -- 8,772
------------ ------------
Total assets
$ 3,186,223 $ 2,984,326
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED BALANCE SHEETS (continued)
Ceramics Process Systems Corporation
LIABILITIES & STOCKHOLDERS` EQUITY
January 1, December 26,
2000 1998
-------- ------
Current liabilities:
Accounts payable $ 142,667 $ 96,753
Accrued expenses 157,300 184,032
Deferred revenue 9,884 10,670
Current portion of capital lease
obligations 52,255 46,959
---------- --------
Total current liabilities 362,107 338,414
Deferred revenue 124,000 131,596
Long-term portion of capital lease
obligations 72,900 125,155
---------- --------
Total liabilities 559,006 595,165
---------- --------
Stockholders` Equity
Common stock, $0.01 par value,
authorized 15,000,000 shares; issued
12,308,852 shares at January 1, 2000
and 12,308,852 shares at
December 26, 1998 123,089 123,089
Additional paid-in capital 32,656,353 32,656,353
Accumulated deficit (30,091,390) (30,329,446)
Less treasury stock, at cost, 22,883
common shares (60,835) (60,835)
---------- --------
Total stockholders`equity 2,627,217 2,389,161
---------- --------
Total liabilities & stockholders`
equity $ 3,186,223 $ 2,984,326
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Ceramics Process Systems Corporation
For the years ended
January 1, December 26, December 27,
2000 1998 1997
------------ ------------ -----------
Revenue:
Product sales $4,805,865 $4,787,790 $4,197,912
License revenues -- 737,504 391,001
---------- ---------- ----------
Total revenue 4,805,865 5,525,294 4,588,913
---------- ---------- ----------
Operating expenses:
Cost of sales 3,812,094 3,037,351 2,475,140
Selling, general, and
administrative 910,343 684,658 517,362
---------- ---------- ----------
Total operating expenses 4,722,437 3,722,009 2,992,502
---------- ---------- ----------
Operating income 83,428 1,803,285 1,596,411
---------- ---------- ----------
Other income (expense):
Interest income 59,739 41,455 3,581
Interest expense ( 15,957) (132,202) (237,968)
Other income 104,917 90,774 15,122
---------- ---------- ----------
Income before taxes 232,127 1,803,312 1,377,146
Provision for(benefit from) taxes 5,929 (130,877) --
---------- ---------- ----------
Net income $ 238,056 $1,672,435 $1,377,146
========== ========== ==========
Net income per
basic common share $0.02 $0.16 $ 0.18
========== ========== ==========
Weighted average
number of basic common
shares outstanding 12,285,969 10,565,961 7,799,279
=========== ========== ==========
Net income per
diluted common share $0.02 $0.14 $ 0.13
========== ========== ==========
Weighted average number
of diluted common
shares outstanding 12,483,279 12,547,427 12,279,643
=========== ========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS` EQUITY (DEFICIT)
For the years ended January 1, 2000, December 26, 1998 and
December 27, 1997
Ceramics Process Systems Corporation
Common stock Stock-
-----------------Additional holders`
Number Par Paid-in Accumulated Treasury equity
of shares Value capital deficit stock (deficit)
------- ------- ---------- ---------- ------- -----------
Balance at December 28, 1996
7,780,766 $77,808 $30,457,384 $(33,379,027) $(60,835) $(2,904,670)
Stock Options Exercised
43,816 438 7,449 -- -- 7,887
Net income
-- -- -- 1,377,146 -- 1,377,146
------- ------- ------- --------- ------ ---------
Balance at December 27, 1997
7,824,582 78,246 30,464,833 32,001,881 (60,385) (1,519,637)
Common stock issued in debt conversion
4,463,916 44,639 2,187,319 -- -- 2,231,958
Stock Options Exercised
20,354 204 4,201 -- -- 4,405
Net income
-- -- -- 1,672,435 -- 1,672,435
------- ------- ------- ------- ------- --------
Balance at December 26,1998
12,308,852 123,089 32,656,353 (30,329,446) (60,385) 2,389,161
Net income
-- -- -- 238,056 -- 238,056
------- ------- ------- ------- ------- ---------
Balance at January 1, 2000
12,308,852$123,089 $32,656,353 $(30,091,390) $(60,835) $2,627,217
========== ======= =========== ============ ======== =========
The accompanying notes are an integral part of the consolidated
financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Ceramics Process Systems Corporation
For the years ended
Jan. 1, Dec. 26, Dec 27,
2000 1998 1997
---------- ---------- ---------
Cash flows from operating activities:
Net income $ 238,056 $1,672,435 $1,377,146
Adjustments to reconcile net income
to cash provided by
operating activities:
Depreciation 167,359 146,234 115,994
Amortization 46,959 36,600 36,500
Gain on disposal of equipment (104,225) (53,800) --
Changes in assets and liabilities:
Accounts receivable, trade 126,583 78,987 (485,086)
Accounts receivable, other 17,982
Inventories (103,148) (80,875) 33,120
Prepaid expenses (28,364) 13,698 (14,188)
Accrued interest on investments (6,672) -- --
Accounts payable 45,914 (57,904) 25,895
Accrued expenses (26,732) (131,120) (112,657)
Deferred revenue (8,382) ( 21,164) (192,557)
Net cash provided by ----------- ---------- --------
operating activities 365,330 1,603,091 784,167
----------- ---------- --------
Cash flows from investing activities:
Additions to property and equipment (502,555) (332,954) (212,827)
Proceeds on disposal of property and
equipment 10,160 53,800 --
Deposits 8,772 (3,700) (2,735)
Purchase of marketable securities (300,000)
Net cash used in investing ----------- ----------- ---------
activities (783,623) (282,854) (215,562)
----------- ----------- ---------
Cash flows from financing activities:
Principal payment of capital lease (46,959) (42,204) (23,487)
obligations
Principal payments of notes payable -- (344,830) (105,170)
Proceeds from issuance of common stock -- 4,405 7,887
Net cash used in ----------- ----------- ---------
financing activities (46,959) (382,629) (120,770)
----------- ----------- --------
Net increase (decrease) in cash (465,252) 937,608 447,835
Cash and cash equivalents at beginning
of period 1,498,774 561,166 113,331
Cash and cash equivalents at ----------- --------- -------
end of period $1,033,522 $1,498,774 $561,166
=========== =========== =======
The accompanying notes are an integral part of the consolidated
financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Ceramics Process Systems Corporation
- ------------------------------------------------------------------------
(1) Nature of Business
------------------
The Company serves the wireless communications infrastructure
market, high-performance microprocessor market, motor controller market,
and other microelectronic markets by developing, manufacturing, and
marketing advanced metal-matrix composite components to house,
interconnect and thermally manage microelectronic devices.
(2) Summary of Significant Accounting Policies
------------------------------------------
(2)(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Ceramics Process Systems Corporation (the "Company") and its wholly-
owned subsidiary, CPS Superconductor Corporation(`CPSS`). All
intercompany balances and transactions have been eliminated in
consolidation.
(2)(b) Basis of Presentation
----------------------
Certain amounts in the financial statements and notes thereto have
been reclassified to conform to fiscal year 1999 classifications.
(2)(c) Cash, Cash Equivalents, and Investments
---------------------------------------
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
Management determines the appropriate classification of securities
at the time of purchase and re-evaluates such designation as of each
balance sheet date. As of January 1, 2000, in addition to cash and cash
equivalents, the Company held investments in government securities with
an original maturity of greater than three months in the amount of
$306,672. These government securities are classified as held-to-
maturity and carried at amortized cost. As of January 1, 2000, the
estimated fair value of each investment approximated its amortized cost
and therefore there were no significant unrealized gains or losses. No
investments were held as of December 26, 1998.
Short-term investments of $306,672 held at January 1, 2000 had
maturities of less than one year.
(2)(d) Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Year-end
inventory balances consisted of the following:
January 1, December 26,
2000 1998
--------- ---------
Raw materials $ 71,134 $107,259
Work-in-process 236,214 96,941
--------- ---------
$ 307,348 $204,200
========= =========
(2)(e) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation of
equipment is calculated on a straight-line basis over the estimated
useful life, generally five years. Amortization under capital leases is
calculated on a straight-line basis over the life of the lease.
Depreciation of leasehold improvements is calculated using the straight-
line method over the lease term or the estimated useful lives, whichever
is shorter. Maintenance and repairs are charged to expenses as incurred
and betterments are capitalized. Upon retirement or sale, the cost and
related accumulated depreciation or amortization are removed from their
respective accounts. Any gains or losses are included in the results of
operations in the period in which they occur.
(2)(f) Revenue Recognition
-------------------
The Company recognizes product revenue generally upon shipment.
Revenue related to license agreements is recognized upon receipt of the
license payment or over the license period, if the Company has
continuing obligations under the agreement. Advance payments in excess
of revenue recognized are recorded as deferred revenue.
(2)(g) Research and Development Costs
------------------------------
The Company continues to perform product development under
prototype manufacturing agreements with customers. In fiscal 1999 and
fiscal 1998, the Company did not incur any costs for research and
development and did not perform any externally funded research and
development programs. In prior periods research and development costs
were charged to expense as incurred.
(2)(h) Income Taxes
------------
The Company accounts for income taxes utilizing the asset and
liability method which requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between tax and financial statement basis of assets and
liabilities, measured using enacted tax rates expected to be in effect
in the period which the temporary differences reverse.
(2)(i) Net Income Per Common Share
---------------------------
Basic net income per common share is calculated by dividing net
income by the weighted average number of common shares outstanding
during the period. Diluted net income per common share is calculated by
dividing net income by the sum of the weighted average number of common
shares plus additional common shares that would have been outstanding if
potential dilutive common shares had been issued for granted stock
option and stock purchase rights.
(2)(j) Comprehensive Income
--------------------
The Company has no items of comprehensive income, and therefore
net income is equal to comprehensive income.
(2)(k) Recent Accounting Pronouncements
--------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts and for
hedging activities. The Company will adopt SFAS No. 133 as required by
SFAS No. 137, "Deferral of the Effective Date of SFAS No. 133", in
fiscal 2001. To date the Company has not utilized derivative
instruments or engaged in hedging activities, and therefore the adoption
of SFAS No. 133 is not expected to have a material impact on the
Company`s financial position or results of operations.
In December 1999, the Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue
Recognition in Financial Statements". SAB 101 summarizes the SEC`s view
in applying generally accepted accounting principles to selected revenue
recognition issues. The application of the guidance in SAB 101 will be
required no later than the Company`s second quarter of the fiscal year
2000. The effect of applying the guidance, if any, will be reported as
a cumulative effect adjustment resulting from a change in accounting
principle. The Company`s evaluation of SAB 101 is not yet complete.
(2)(l) Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
(2)(m) Risks and Uncertainties
-----------------------
The Company manufactures its products to customer specifications
and a significant portion of the Company`s revenues have historically
been generated from three customers. Financial instruments which
potentially subject the Company to concentrations of credit risk consist
of trade and other accounts receivable. The Company has not incurred
significant losses on its accounts receivable in the past.
(2)(n) Fiscal Year-End
---------------
The Company`s fiscal year end is the last Saturday in December or
the first Saturday in January, which results in a 52- or 53-week year.
Fiscal year 1999 consisted of 53 weeks and fiscal years 1998, and 1997,
consisted of 52 weeks.
(2)(o) Stock-based Compensation Plans
-------------------------------
The Company has adopted the disclosure requirements of Statements
of Financial Accounting Standards (SFAS) No.123, `Accounting for Stock-
Based Compensation`. The Company continues to recognize compensation
costs using the intrinsic value based method described in Accounting
Principles Board Opinion No. 25, `Accounting for Stock Issued to
Employees`. No stock-based compensation costs were recognized in 1999,
1998, and 1997.
(3) Supplemental Cash Flow Information
----------------------------------
No equipment was acquired through capital lease obligations in
1999 or 1998. The Company acquired equipment through capital lease
obligations in 1997 in the amount of $135,160. The Company paid interest
on these capital leases amounting to $15,957, $20,710, and $15,196 in
fiscal years 1999, 1998, and 1997, respectively. In fiscal 1998 the
Company issued 4,463,916 shares of common stock upon conversion of note
principal and accrued interest in the amount of $2,231,959, and paid
$160,542 in cash for accrued interest. The Company paid federal income
taxes of $36,066 and $21,060 in 1998 and 1997 respectively. In 1999 the
Company recognized a gain of $104,225 on the sale of equipment. At
January 1, 2000 a receivable of $94,065 was outstanding on the
transaction.
(4) Leases
------
At January 1, 2000 the Company had production equipment with a
cost of $262,108 and accumulated amortization of $125,349 under capital
leases. At December 26, 1998 the Company had production equipment with
a cost of $262,108 and accumulated amortization of $78,390 under capital
leases.
Future payments required under capital lease
obligations are as follows at January 1, 2000:
2000 62,916
2001 56,940
2002 21,497
--------
Total future minimum lease payments 141,353
--------
Less amount representing interest 16,198
--------
Present value of net future lease payments 125,155
Less current portion 52,255
--------
Long-term obligation under capital leases $ 72,900
========
The Company is operating at its Chartley facility as a tenant-at-
will. Total rental expense for operating leases was $82,000 for 1999,
$82,000 for 1998 and $67,500 for 1997.
(5) Stock-Based Compensation Plans
------------------------------
In 1999 no options were exercised by Company employees. In 1998
Company employees exercised options for 20,354 shares of common stock at
market prices between $0.18 and $.0625. In 1997 Company employees
exercised options for 43,816 shares of common stock at market prices
between $0.625 and $2.375.
In 1999 the Company granted 311,500 options at fair market values
of $1.00 to $1.53 under the 1989 Stock Option Plan and the 1999 Stock
Incentive Plan. In 1998 the Company granted 51,000 options at fair
market values of $1.44 to $2.375 under the 1989 Stock Option Plan. In
1997, under the 1989 Stock Option Plan, the Company granted 109,000
options at fair market value of $0.18 with similar terms and conditions
to existing option holders in exchange for the previously issued
options. As of January 1, 2000, the total number of options outstanding
under all option plans was 632,853.
The Company adopted the 1999 Stock Incentive Plan ("1999 Plan") on
January 22, 1999. Under the terms of the 1999 Plan all of the Company`s
employees, officers, directors, consultants and advisors are eligible to
be granted options, restricted stock awards, or other stock-based
awards. In 1999, options to purchase 273,500 shares of the Company`s
Common Stock were granted to employees and directors under the 1999
Plan. All options were nonstatutory stock options granted at the fair
market value of the stock, and expire ten years from the date of grant.
The options granted to employees vest in equal annual installments over
a five-year period. The options granted to directors vest one year from
date of grant. The 1999 Plan includes provisions for the acceleration of
vesting in the event of a change in control of the Company.
Under the 1999 Plan a total of 1,250,000 shares of common stock is
available for issuance. In 1999, options to purchase 273,500 shares of
the Company`s Common Stock were granted to employees and directors,
leaving 976,500 shares available for grant as of January 1, 2000.
As of January 1, 2000 the 1999 Plan is the only stock option plan
from which awards can be made, all other options plans have expired.
The 1984 Stock Option Plan expired on August 24, 1994 and no additional
grants can be made from this plan. The 1989 Stock Option Plan expired
on February 22, 1999 and no additional grants can be made from this
plan. The 1992 Director Stock Option Plan expired on April 16, 1998 and
no additional grants can be made from this plan. A total of 359,353
options granted under the 1984, 1989 and 1992 Plans prior to their
expiration dates were outstanding as of January 1, 2000.
The following is a summary of stock option activity for all of the
above plans for the fiscal years 1999, 1998 and 1997.
1999 1998 1997
-------- -------- --------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------ ------------------ ------------------
Outstanding at
beginning of
year 338,698 $ 0.81 374,386 $ 0.93 430,961 $ 0.68
Granted at fair
market value 311,500 $ 1.09 51,000 $ 2.04 109,000 $ 1.00
Exercised (20,354) $ 0.22 (43,816) $ 0.18
Cancelled (17,345) $ 1.58 (66,334) $ 2.57 (121,759) $ 0.41
--------- -------- --------- ------ -------- ------
Outstanding at
end of year 632,853 $ .92 338,698 $ 0.81 374,386 $ 0.93
========= ======= ========= ===== ======== ======
Options exercisable
at year-end 273,053 $ .56 176,734 $ 0.60 165,461 $ 1.44
The following table summarizes information about stock options
outstanding at January 1, 2000:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average
Range Remaining Weighted Weighted
Of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Price Outstanding (in years) Price Exercisable Price
- -------- ----------- ----------- -------- ----------- --------
$0.18 203,353 6.2 $0.18 203,353 $0.18
0.75-0.875 12,000 2.3 0.80 12,000 0.80
$1.00 243,000 9.6 1.00 0 0
1.3 - 1.53 115,000 8.48 1.35 32,666 1.35
2.188 - 2.88 59,500 6.89 2.36 25,034 2.56
------- ------
$0.18 - $2.88 632,853 7.9 $0.93 273,053 $0.56
======== =======
The fair value of each option grant under SFAS 123 is estimated on
the date of grant using the Black-Scholes option-pricing model. The
following table presents the annualized weighted average values of the
significant assumptions used to estimate the fair values of the options:
1999 1998 1997
---- ---- ----
Options issued 311,500 51,000 59,000
Risk-free interest rate 5.30% 5.52% 6.27%
Expected life in years 7 7 7
Expected volatility 95% 88% 80%
Expected dividends 0 0 0
All options are granted at the fair market value on the date of
grant.
Had compensation cost for the Company`s two employee stock option
plans been recorded based on the fair value of awards at grant date
consistent with the alternative method prescribed by SFAS 123, the
Company`s pro forma net income for 1999, 1998, and 1997 would have been
$181,810, $1,632,788, and $1,362,316 respectively. Diluted
income per share for 1999, 1998 and 1997 would have been $.01, $0.14,
and $0.13, respectively. The pro forma amounts include
amortized fair values attributable to options granted after December 15,
1994 only and therefore, are not likely to be representative of the
effects on reported net income for future years.
(6) Accrued Expenses
------------
Accrued expenses consist of the following:
January 1, December 26,
2000 1998
-------- --------
Accrued legal and accounting $ 37,000 $ 47,500
Accrued payroll 87,814 107,383
Accrued other 32,486 29,149
-------- --------
$ 157,300 $184,032
======== ========
(7) Income Taxes
------------
Deferred tax assets and liabilities are as follows:
January 1, December 26,
2000 1998
------------ ------------
Net operating losses $10,683,000 $10,851,000
Vacation and other accrued
expenses 88,000 79,000
Depreciation (107,000) (99,000)
------------ ------------
Total 10,664,000 10,831,000
Valuation allowance (10,664,000) (10,831,000)
----------- -----------
-- --
============ ============
Due to the uncertainty related to the realization of the net
deferred tax asset, a full valuation allowance has been provided. At
January 1, 2000, the Company had net operating loss carryforwards of
approximately $30,900,000 available to offset future income for U.S.
Federal income tax purposes, and $2,800,000 for state income tax
purposes. These operating loss carryforwards expire at various dates
from the years 2000 through 2011 for federal income tax purposes and the
years 1999 through 2001 for state income tax purposes.
Certain provisions of the Internal Revenue Code limit the annual
utilization of net operating loss carryforwards if, over a three-year
period, a greater than 50% change in ownership occurs. The Company
believes that it did not exceed the 50% ownership change in the three-
year period ending at year-end 1999 therefore as of year-end 1999 all
net operating loss carryforwards are available to offset future taxable
income.
(10) Retirement Savings Plan
-----------------------
Effective September 1, 1987, the Company established the Retirement
Savings Plan (the `Plan`) under the provisions of Section 401 of the
Internal Revenue Code. Employees, as defined in the Plan, are eligible
to participate in the Plan after 30 days of employment. Under the terms
of the Plan, the Company may match employee contributions under such
method as described in the Plan and as determined each year by the Board
of Directors. Through January 1, 2000, no employer matching
contributions had been made to the Plan since inception.
(11) Significant Customers and Segment Information
---------------------------------------------
Significant customers in 1999, 1998, and 1997 were as follows:
Significant Significant
Customer Customer
Year ended January 1, 2000 A 67%
B 8%
C 6%
D 4%
Year ended December 26, 1998 A 72%
B 13%
C 6%
D 1%
Year ended December 28, 1997 A 56%
B 9%
C 9%
D 10%
All of the Company`s long-lived assets and operations are located
in the United States. Revenue generated from overseas customers
accounted for 0%, 13% and 1% for 1999, 1998, and 1997 respectively.
(12) Earnings Per Share
------------------
SFAS 128 requires the following reconciliation of the basic and
diluted EPS calculations.
For the years ended
Jan. 1, 2000 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- -------------
Basic EPS Computation:
Numerator:
Net income $ 238,056 $ 1,672,435 $1,377,146
Denominator:
Weighted average
common shares
outstanding 12,285,969 10,565,961 7,799,279
Basic EPS $ 0.02 $ 0.16 $ 0.18
Diluted EPS Computation:
Numerator:
Net income $ 238,056 $ 1,672,435 $1,377,146
Interest on
convertible debt -- 87,290 186,489
----------- ----------- ----------
Total net income
$ 238,056 $ 1,759,725 $1,563,635
Denominator:
Weighted average
common shares
outstanding 12,285,969 10,565,961 7,799,279
Stock options 197,310 204,749 191,040
Interest converted 359,292 --
Convertible debt -- 1,417,425 4,289,324
----------- ----------- ----------
Total Shares 12,483,279 12,547,427 12,279,643
Diluted EPS $ 0.02 $ 0.14 $ 0.13
Ceramics Process Systems
2000 Stock Incentive Plan
Adopted by the Board of Directors January 22, 1999
1. Purpose
The purpose of this 1999 Stock Incentive Plan (the "Plan") of
Ceramics Process Systems Corporation, a Delaware corporation (the
"Company"), is to advance the interests of the Company's stockholders by
enhancing the Company's ability to attract, retain and motivate persons
who make (or are expected to make) important contributions to the
Company by providing such persons with equity ownership opportunities
and performance-based incentives and thereby better aligning the
interests of such persons with those of the Company's stockholders.
Except where the context otherwise requires, the term "Company" shall
include any of the Company's present or future subsidiary corporations
of as defined in Section 424(f) of the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder (the "Code") and any
other business venture (including, without limitation, joint venture or
limited liability company) in which the Company has a significant
interest, as determined by the Board of Directors of the Company (the
"Board").
2. Eligibility
All of the Company's employees, officers, directors, consultants
and advisors (and any individuals who have accepted an offer for
employment) are eligible to be granted options, restricted stock awards,
or other stock-based awards (each, an "Award") under the Plan. Each
person who has been granted an Award under the Plan shall be deemed a
"Participant".
3. Administration, Delegation
(1) Administration by Board of Directors. The Plan will be
administered by the Board. The Board shall have authority to grant
Awards and to adopt, amend and repeal such administrative rules,
guidelines and practices relating to the Plan as it shall deem
advisable. The Board may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or any Award in the manner and
to the extent it shall deem expedient to carry the Plan into effect and
it shall be the sole and final judge of such expediency. All decisions
by the Board shall be made in the Board's sole discretion and shall be
final and binding on all persons having or claiming any interest in the
Plan or in any Award. No director or person acting pursuant to the
authority delegated by the Board shall be liable for any action or
determination relating to or under the Plan made in good faith.
(2) Delegation to Executive Officers. To the extent permitted
by applicable law, the Board may delegate to one or more executive
officers of the Company the power to make Awards and exercise such other
powers under the Plan as the Board may determine, provided that the
Board shall fix the maximum number of shares subject to Awards and the
maximum number of shares for any one Participant to be made by such
executive officers.
(3) Appointment of Committees. To the extent permitted by
applicable law, the Board may delegate any or all of its powers under
the Plan to one or more committees or subcommittees of the Board (a
"Committee"). All references in the Plan to the "Board" shall mean the
Board or a Committee of the Board or the executive officer referred to
in Section 3(b) to the extent that the Board's powers or authority under
the Plan have been delegated to such Committee or executive officer.
4. Stock Available for Awards
(1) Number of Shares. Subject to adjustment under Section 8,
Awards may be made under the Plan for up to 1,250,000 shares of common
stock, $0.01 par value per share, of the Company (the "Common Stock").
If any Award expires or is terminated, surrendered or canceled without
having been fully exercised or is forfeited in whole or in part or
results in any Common Stock not being issued, the unused Common Stock
covered by such Award shall again be available for the grant of Awards
under the Plan, subject, however, in the case of Incentive Stock Options
(as hereinafter defined), to any limitation required under the Code.
Shares issued under the Plan may consist in whole or in part of
authorized but unissued shares or treasury shares.
(2) Per-Participant Limit. Subject to adjustment under
Section 8, the maximum number of shares of Common Stock with respect to
which an Award may be granted to any Participant under the Plan shall be
250,000 per calendar year. The per-Participant limit described in this
Section 4(b) shall be construed and applied consistently with Section
162(m) of the Code.
5. Stock Options
(1) General. The Board may grant options to purchase Common
Stock (each, an "Option") and determine the number of shares of Common
Stock to be covered by each Option, the exercise price of each Option
and the conditions and limitations applicable to the exercise of each
Option, including conditions relating to applicable federal or state
securities laws, as it considers necessary or advisable. An Option
which is not intended to be an Incentive Stock Option (as hereinafter
defined) shall be designated a "Nonstatutory Stock Option".
(2) Incentive Stock Options. An Option that the Board intends
to be an "incentive stock option" as defined in Section 422 of the Code
(an "Incentive Stock Option") shall only be granted to employees of the
Company and shall be subject to and shall be construed consistently with
the requirements of Section 422 of the Code. The Company shall have no
liability to a Participant, or any other party, if an Option (or any
part thereof) which is intended to be an Incentive Stock Option is not
an Incentive Stock Option.
(3) Exercise Price. The Board shall establish the exercise
price at the time each Option is granted and specify it in the
applicable option agreement; provided, however, that the exercise price
shall be not less than 100% of the fair market value of the Common
Stock, as determined by the Board, at the time the Option is granted.
(4) Duration of Options. Each Option shall be exercisable at
such times and subject to such terms and conditions as the Board may
specify in the applicable option agreement; provided, however, that no
Option will be granted for a term in excess of 10 years.
(5) Exercise of Option. Options may be exercised by delivery to
the Company of a written notice of exercise signed by the proper person
or by any other form of notice (including electronic notice) approved by
the Board together with payment in full as specified in Section 5(f) for
the number of shares for which the Option is exercised.
(6) Payment Upon Exercise. Common Stock purchased upon the
exercise of an Option granted under the Plan shall be paid for as
follows:
(1) in cash or by check, payable to the order of the
Company;
(2) except as the Board may, in its sole discretion,
otherwise provide in an option agreement, by (i) delivery of an
irrevocable and unconditional undertaking by a creditworthy broker to
deliver promptly to the Company sufficient funds to pay the exercise
price or (ii) delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the
exercise price;
(3) when the Common Stock is registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), by
delivery of shares of Common Stock owned by the Participant valued at
their fair market value as determined by (or in a manner approved by)
the Board in good faith ("Fair Market Value"), provided (i) such method
of payment is then permitted under applicable law and (ii) such Common
Stock was owned by the Participant at least six months prior to such
delivery;
(4) to the extent permitted by the Board, in its sole
discretion by (i) delivery of a promissory note of the Participant to
the Company on terms determined by the Board, or (ii) payment of such
other lawful consideration as the Board may determine; or
(5) by any combination of the above permitted forms of
payment.
6. Restricted Stock
(1) Grants. The Board may grant Awards entitling recipients to
acquire shares of Common Stock, subject to the right of the Company to
repurchase all or part of such shares at their issue price or other
stated or formula price (or to require forfeiture of such shares if
issued at no cost) from the recipient in the event that conditions
specified by the Board in the applicable Award are not satisfied prior
to the end of the applicable restriction period or periods established
by the Board for such Award (each, a "Restricted Stock Award").
(2) Terms and Conditions. The Board shall determine the terms
and conditions of any such Restricted Stock Award, including the
conditions for repurchase (or forfeiture) and the issue price, if any.
Any stock certificates issued in respect of a Restricted Stock Award
shall be registered in the name of the Participant and, unless otherwise
determined by the Board, deposited by the Participant, together with a
stock power endorsed in blank, with the Company (or its designee). At
the expiration of the applicable restriction periods, the Company (or
such designee) shall deliver the certificates no longer subject to such
restrictions to the Participant or if the Participant has died, to the
beneficiary designated, in a manner determined by the Board, by a
Participant to receive amounts due or exercise rights of the Participant
in the event of the Participant's death (the "Designated Beneficiary").
In the absence of an effective designation by a Participant, Designated
Beneficiary shall mean the Participant's estate.
7. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon
the Common Stock having such terms and conditions as the Board may
determine, including the grant of shares based upon certain conditions,
the grant of securities convertible into Common Stock and the grant of
stock appreciation rights.
8. Adjustments for Changes in Common Stock and Certain Other Events
(1) Changes in Capitalization. In the event of any stock split,
reverse stock split, stock dividend, recapitalization, combination of
shares, reclassification of shares, spin-off or other similar change in
capitalization or event, or any distribution to holders of Common Stock
other than a normal cash dividend, (i) the number and class of
securities available under this Plan, (ii) the per-Participant limit set
forth in Section 4(b), (iii) the number and class of securities and
exercise price per share subject to each outstanding Option, (iv) the
repurchase price per share subject to each outstanding Restricted Stock
Award, and (v) the terms of each other outstanding Award shall be
appropriately adjusted by the Company (or substituted Awards may be
made, if applicable) to the extent the Board shall determine, in good
faith, that such an adjustment (or substitution) is necessary and
appropriate. If this Section 8(a) applies and Section 8(c) also applies
to any event, Section 8(c) shall be applicable to such event, and this
Section 8(a) shall not be applicable.
(2) Liquidation or Dissolution. In the event of a proposed
liquidation or dissolution of the Company, the Board shall upon written
notice to the Participants provide that all then unexercised Options
will (i) become exercisable in full as of a specified time at least 10
business days prior to the effective date of such liquidation or
dissolution and (ii) terminate effective upon such liquidation or
dissolution, except to the extent exercised before such effective date.
The Board may specify the effect of a liquidation or dissolution on any
Restricted Stock Award or other Award granted under the Plan at the time
of the grant of such Award.
(3) Acquisition and Change in Control Events
(1) Definitions
(1) An "Acquisition Event" shall mean:
(1) any merger or consolidation of the Company
with or into another entity as a result of
which the Common Stock is converted into
or exchanged for the right to receive
cash, securities or other property; or
(2) any exchange of shares of the Company for
cash, securities or other property
pursuant to a statutory share exchange
transaction.
(2) A "Change in Control Event" shall mean:
(1) the acquisition by an individual, entity
or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") of
beneficial ownership of any capital stock
of the Company if, after such acquisition,
such Person beneficially owns (within the
meaning of Rule 13d-3 promulgated under
the Exchange Act) thirty percent (30%) or
more of either (x) the then-outstanding
shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y)
the combined voting power of the then-
outstanding securities of the Company
entitled to vote generally in the election
of directors (the "Outstanding Company
Voting Securities"); provided, however,
that for purposes of this subsection (i),
the following acquisitions shall not
constitute a Change in Control Event: (A)
any acquisition directly from the Company
(excluding an acquisition pursuant to the
exercise, conversion or exchange of any
security exercisable for, convertible into
or exchangeable for common stock or voting
securities of the Company, unless the
Person exercising, converting or
exchanging such security acquired such
security directly from the Company or an
underwriter or agent of the Company), (B)
any acquisition by any employee benefit
plan (or related trust) sponsored or
maintained by the Company or any
corporation controlled by the Company, (C)
any acquisition by any corporation
pursuant to a Business Combination (as
defined below) which complies with clauses
(x) and (y) of subsection (iii) of this
definition or (D) any acquisition by
(i) American Research and Development I,
L.P.; (ii) American Research and
Development III, L.P.; (iii) Ampersand
Specialty Material Ventures Limited
Partnership; (iv) Grant C. Bennett or (v)
Waco Partners (each such party is referred
to herein as an "Exempt Person") of any
shares of Common Stock; provided that,
after such acquisition, such Exempt Person
does not beneficially own more than forty-
five percent (45%) of either (i) the
Outstanding Company Common Stock or (ii)
the Outstanding Company Voting Securities;
or
(2) such time as the Continuing Directors (as
defined below) do not constitute a
majority of the Board (or, if applicable,
the Board of Directors of a successor
corporation to the Company), where the
term "Continuing Director" means at any
date a member of the Board (x) who was a
member of the Board on the date of the
initial adoption of this Plan by the Board
or (y) who was nominated or elected
subsequent to such date by at least a
majority of the directors who were
Continuing Directors at the time of such
nomination or election or whose election
to the Board was recommended or endorsed
by at least a majority of the directors
who were Continuing Directors at the time
of such nomination or election; provided,
however, that there shall be excluded from
this clause (y) any individual whose
initial assumption of office occurred as a
result of an actual or threatened election
contest with respect to the election or
removal of directors or other actual or
threatened solicitation of proxies or
consents, by or on behalf of a person
other than the Board; or
(3) the consummation of a merger,
consolidation, reorganization,
recapitalization or statutory share
exchange involving the Company or a sale
or other disposition of all or
substantially all of the assets of the
Company (a "Business Combination"),
unless, immediately following such
Business Combination, each of the
following two conditions is satisfied: (x)
all or substantially all of the
individuals and entities who were the
beneficial owners of the Outstanding
Company Common Stock and Outstanding
Company Voting Securities immediately
prior to such Business Combination
beneficially own, directly or indirectly,
more than 50% of the then-outstanding
shares of common stock and the combined
voting power of the then-outstanding
securities entitled to vote generally in
the election of directors, respectively,
of the resulting or acquiring corporation
in such Business Combination (which shall
include, without limitation, a corporation
which as a result of such transaction owns
the Company or substantially all of the
Company's assets either directly or
through one or more subsidiaries) (such
resulting or acquiring corporation is
referred to herein as the "Acquiring
Corporation") in substantially the same
proportions as their ownership of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities,
respectively, immediately prior to such
Business Combination and (y) no Person
(excluding the Acquiring Corporation, any
employee benefit plan (or related trust)
maintained or sponsored by the Company or
by the Acquiring Corporation or any Exempt
Person) beneficially owns, directly or
indirectly, 30% or more of the then-
outstanding shares of common stock of the
Acquiring Corporation, or of the combined
voting power of the then-outstanding
securities of such corporation entitled to
vote generally in the election of
directors (except to the extent that such
ownership existed prior to the Business
Combination).
(2) Effect on Options
(1) Acquisition Event. Upon the occurrence of an
Acquisition Event (regardless of whether such
event also constitutes a Change in Control
Event), or the execution by the Company of any
agreement with respect to an Acquisition Event
(regardless of whether such event will result in
a Change in Control Event), the Board shall
provide that all outstanding Options shall be
assumed, or equivalent options shall be
substituted, by the acquiring or succeeding
corporation (or an affiliate thereof); provided
that if such Acquisition Event also constitutes
a Change in Control Event, except to the extent
specifically provided to the contrary in the
instrument evidencing any Option or any other
agreement between a Participant and the Company,
such assumed or substituted options shall be
immediately exercisable in full upon the
occurrence of such Acquisition Event. For
purposes hereof, an Option shall be considered
to be assumed if, following consummation of the
Acquisition Event, the Option confers the right
to purchase, for each share of Common Stock
subject to the Option immediately prior to the
consummation of the Acquisition Event, the
consideration (whether cash, securities or other
property) received as a result of the
Acquisition Event by holders of Common Stock for
each share of Common Stock held immediately
prior to the consummation of the Acquisition
Event (and if holders were offered a choice of
consideration, the type of consideration chosen
by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that
if the consideration received as a result of the
Acquisition Event is not solely common stock of
the acquiring or succeeding corporation (or an
affiliate thereof), the Company may, with the
consent of the acquiring or succeeding
corporation, provide for the consideration to be
received upon the exercise of Options to consist
solely of common stock of the acquiring or
succeeding corporation (or an affiliate thereof)
equivalent in fair market value to the per share
consideration received by holders of outstanding
shares of Common Stock as a result of the
Acquisition Event.
Notwithstanding the foregoing, if the
acquiring or succeeding corporation (or an
affiliate thereof) does not agree to assume, or
substitute for, such Options, then the Board
shall, upon written notice to the Participants,
provide that all then unexercised Options will
become exercisable in full as of a specified
time prior to the Acquisition Event and will
terminate immediately prior to the consummation
of such Acquisition Event, except to the extent
exercised by the Participants before the
consummation of such Acquisition Event;
provided, however, in the event of an
Acquisition Event under the terms of which
holders of Common Stock will receive upon
consummation thereof a cash payment for each
share of Common Stock surrendered pursuant to
such Acquisition Event (the "Acquisition
Price"), then the Board may instead provide that
all outstanding Options shall terminate upon
consummation of such Acquisition Event and that
each Participant shall receive, in exchange
therefor, a cash payment equal to the amount (if
any) by which (A) the Acquisition Price
multiplied by the number of shares of Common
Stock subject to such outstanding Options
(whether or not then exercisable), exceeds (B)
the aggregate exercise price of such Options.
(2) Change in Control Event that is not an
Acquisition Event. Upon the occurrence of a
Change in Control Event that does not also
constitute an Acquisition Event, except to the
extent specifically provided to the contrary in
the instrument evidencing any Option or any
other agreement between a Participant and the
Company, all Options then-outstanding shall
automatically become immediately exercisable in
full.
(3) Effect on Restricted Stock Awards
(1) Acquisition Event that is not a Change in
Control Event. Upon the occurrence of an
Acquisition Event that is not a Change in
Control Event, the repurchase and other rights
of the Company under each outstanding Restricted
Stock Award shall inure to the benefit of the
Company's successor and shall apply to the cash,
securities or other property which the Common
Stock was converted into or exchanged for
pursuant to such Acquisition Event in the same
manner and to the same extent as they applied to
the Common Stock subject to such Restricted
Stock Award.
(2) Change in Control Event. Upon the occurrence of
a Change in Control Event (regardless of whether
such event also constitutes an Acquisition
Event), except to the extent specifically
provided to the contrary in the instrument
evidencing any Restricted Stock Award or any
other agreement between a Participant and the
Company, all restrictions and conditions on all
Restricted Stock Awards then-outstanding shall
automatically be deemed terminated or satisfied.
(4) Effect on Other Awards
(1) Acquisition Event that is not a Change in
Control Event. The Board shall specify the
effect of an Acquisition Event that is not a
Change in Control Event on any other Award
granted under the Plan at the time of the grant
of such Award.
(2) Change in Control Event. Upon the occurrence of
a Change in Control Event (regardless of whether
such event also constitutes an Acquisition
Event), except to the extent specifically
provided to the contrary in the instrument
evidencing any other Award or any other
agreement between a Participant and the Company,
all other Awards shall become exercisable,
realizable or vested in full, or shall be free
of all conditions or restrictions, as applicable
to each such Award.
9. General Provisions Applicable to Awards
(1) Transferability of Awards. Except as the Board may
otherwise determine or provide in an Award, Awards shall not be sold,
assigned, transferred, pledged or otherwise encumbered by the person to
whom they are granted, either voluntarily or by operation of law, except
by will or the laws of descent and distribution, and, during the life of
the Participant, shall be exercisable only by the Participant.
References to a Participant, to the extent relevant in the context,
shall include references to authorized transferees.
(2) Documentation. Each Award shall be evidenced by a written
instrument in such form as the Board shall determine. Such written
instrument may be in the form of an agreement signed by the Company and
the Participant or a written confirming memorandum to the Participant
from the Company. Each Award may contain terms and conditions in
addition to those set forth in the Plan.
(3) Board Discretion. Except as otherwise provided by the Plan,
each Award may be made alone or in addition or in relation to any other
Award. The terms of each Award need not be identical, and the Board
need not treat Participants uniformly.
(4) Termination of Status. The Board shall determine the effect
on an Award of the disability, death, retirement, authorized leave of
absence or other change in the employment or other status of a
Participant and the extent to which, and the period during which, the
Participant, the Participant's legal representative, conservator,
guardian or Designated Beneficiary may exercise rights under the Award.
(5) Withholding. Each Participant shall pay to the Company, or
make provision satisfactory to the Board for payment of, any taxes
required by law to be withheld in connection with Awards to such
Participant no later than the date of the event creating the tax
liability. Except as the Board may otherwise provide in an Award, when
the Common Stock is registered under the Exchange Act, Participants may,
to the extent then permitted under applicable law, satisfy such tax
obligations in whole or in part by delivery of shares of Common Stock,
including shares retained from the Award creating the tax obligation,
valued at their Fair Market Value. The Company may, to the extent
permitted by law, deduct any such tax obligations from any payment of
any kind otherwise due to a Participant.
(6) Amendment of Award. The Board may amend, modify or
terminate any outstanding Award, including but not limited to,
substituting therefor another Award of the same or a different type,
changing the date of exercise or realization, and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Board
determines that the action, taking into account any related action,
would not materially and adversely affect the Participant.
(7) Conditions on Delivery of Stock. The Company will not be
obligated to deliver any shares of Common Stock pursuant to the Plan or
to remove restrictions from shares previously delivered under the Plan
until (i) all conditions of the Award have been met or removed to the
satisfaction of the Company, (ii) in the opinion of the Company's
counsel, all other legal matters in connection with the issuance and
delivery of such shares have been satisfied, including any applicable
securities laws and any applicable stock exchange or stock market rules
and regulations, and (iii) the Participant has executed and delivered to
the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws,
rules or regulations.
(8) Acceleration. The Board may at any time provide that any
Options shall become immediately exercisable in full or in part, that
any Restricted Stock Awards shall be free of restrictions in full or in
part or that any other Awards may become exercisable in full or in part
or free of some or all restrictions or conditions, or otherwise
realizable in full or in part, as the case may be.
10. Miscellaneous
(1) No Right To Employment or Other Status. No person shall
have any claim or right to be granted an Award, and the grant of an
Award shall not be construed as giving a Participant the right to
continued employment or any other relationship with the Company. The
Company expressly reserves the right at any time to dismiss or otherwise
terminate its relationship with a Participant free from any liability or
claim under the Plan, except as expressly provided in the applicable
Award.
(2) No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have
any rights as a stockholder with respect to any shares of Common Stock
to be distributed with respect to an Award until becoming the record
holder of such shares. Notwithstanding the foregoing, in the event the
Company effects a split of the Common Stock by means of a stock dividend
and the exercise price of and the number of shares subject to such
Option are adjusted as of the date of the distribution of the dividend
(rather than as of the record date for such dividend), then an optionee
who exercises an Option between the record date and the distribution
date for such stock dividend shall be entitled to receive, on the
distribution date, the stock dividend with respect to the shares of
Common Stock acquired upon such Option exercise, notwithstanding the
fact that such shares were not outstanding as of the close of business
on the record date for such stock dividend.
(3) Effective Date and Term of Plan. The Plan shall become
effective on the date on which it is adopted by the Board but no Award
granted to a Participant designated by the Board as subject to Section
162(m) of the Code by the Board shall become exercisable, vested or
realizable, as applicable to such Award, unless and until the Plan has
been approved by the Company's stockholders to the extent stockholder
approval is required by Section 162(m) in the manner required under
Section 162(m) (including the vote required under Section 162(m)). No
Awards shall be granted under the Plan after the completion of ten years
from the earlier of (i) the date on which the Plan was adopted by the
Board or (ii) the date the Plan was approved by the Company's
stockholders, but Awards previously granted may extend beyond that date.
(4) Amendment of Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time provided that to
the extent required by Section 162(m) of the Code, no Award granted to a
Participant designated as subject to Section 162(m) by the Board after
the date of such amendment shall become exercisable, realizable or
vested, as applicable to such Award (to the extent that such amendment
to the Plan was required to grant such Award to a particular
Participant), unless and until such amendment shall have been approved
by the Company's stockholders as required by Section 162(m) (including
the vote required under Section 162(m)).
(5) Governing Law. The provisions of the Plan and all Awards
made hereunder shall be governed by and interpreted in accordance with
the laws of the State of Delaware, without regard to any applicable
conflicts of law.
<PAGE>
SFAS 128 requires the following reconciliation of the basic and
diluted EPS calculations.
For the years ended
Jan. 1, 2000 Dec. 26, 1998 Dec. 27, 1997
------------- ------------- -------------
Basic EPS Computation:
Numerator:
Net income $ 238,056 $ 1,672,435 $1,377,146
Denominator:
Weighted average
common shares
outstanding 12,285,969 10,565,961 7,799,279
Basic EPS $ 0.02 $ 0.16 $ 0.18
Diluted EPS Computation:
Numerator:
Net income $ 238,056 $ 1,672,435 $1,377,146
Interest on
convertible debt -- 87,290 186,489
----------- ----------- ----------
Total net income
$ 238,056 $ 1,759,725 $1,563,635
Denominator:
Weighted average
common shares
outstanding 12,285,969 10,565,961 7,799,279
Stock options 197,310 204,749 191,040
Interest converted 359,292 --
Convertible debt -- 1,417,425 4,289,324
----------- ----------- ----------
Total Shares 12,483,279 12,547,427 12,279,643
Diluted EPS $ 0.02 $ 0.14 $ 0.13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No.33-25690, 33-18398, 33-42556, 33-47587)
of Ceramics Process Systems Corporation of our report dated March 3, 2000
relating to the consolidated financial statements which appear in this
10-K.
PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
March 29, 2000
<TABLE> <S> <C>
<PAGE>
<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
10K for Period ending January 1, 2000.
</LEGEND>
<S> <C>
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JAN-01-2000
<EXCHANGE-RATE> 1
<CASH> 1,033,522
<SECURITIES> 306,672
<RECEIVABLES> 496,634
<ALLOWANCES> 0
<INVENTORY> 307,348
<CURRENT-ASSETS> 2,174,370
<PP&E> 2,215,853
<DEPRECIATION> 1,204,000
<TOTAL-ASSETS> 3,186,223
<CURRENT-LIABILITIES> 362,107
<BONDS> 0
0
0
<COMMON> 12,285,969
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,186,223
<SALES> 4,805,865
<TOTAL-REVENUES> 4,805,865
<CGS> 3,812,094
<TOTAL-COSTS> 3,722,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,957
<INCOME-PRETAX> 232,127
<INCOME-TAX> (5,929)
<INCOME-CONTINUING> 238,056
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 238,056
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
