UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-16088
CERAMICS PROCESS SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-2832509
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
111 South Worcester Street, P.O. Box 338,
Chartley, Massachusetts 02712
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (508) 222-0614
Facsimile Number: 508-222-0220, E-Mail Address: [email protected].
Former Name, Former Address and Former Fiscal Year if Changed
since Last Report:
Not Applicable.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period than the registrant was required
to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. Number of shares of common stock outstanding as of
September 30, 2000: 12,287,469.
CERAMICS PROCESS SYSTEMS CORPORATION
Form 10-Q
For The Fiscal Quarter Ended September 30, 2000
Index
PART I: FINANCIAL INFORMATION Page
Item 1: Consolidated Financial Statements 3-9
Consolidated Balance Sheets as of
September 30, 2000 and January 1, 2000 3-4
Consolidated Statements of Operations
for the fiscal quarters and nine-month
periods ended September 30, 2000 and
October 2, 1999 5
Consolidated Statements of Cash Flows
for the nine-month periods ended September
30, 2000 and October 2, 1999 6
Notes to Consolidated Financial
Statements 7-9
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-12
PART II: OTHER INFORMATION
Items 1-6 12
Signatures 12
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets
September 30, January 1,
2000 2000
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 994,268 $1,033,522
Short-term investments 306,672
Accounts receivable, trade 464,200 387,569
Accounts receivable, other 15,000 109,065
Inventories 425,666 307,348
Prepaid expenses 20,834 30,193
---------- ----------
Total current assets 1,919,968 2,174,369
---------- ----------
Property and equipment:
Production equipment 1,691,375 2,013,331
Furniture and office equipment 186,690 202,523
Accumulated depreciation
and amortization (810,814) (1,204,000)
---------- ----------
Net property and equipment 1,067,251 1,011,854
---------- ----------
Total assets $2,987,219 $3,186,223
========== ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Balance Sheets (continued)
September 30, January 1,
2000 2000
------------ -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 128,286 $ 142,667
Accrued expenses 130,472 157,300
Deferred revenue 9,884 9,884
Current portion of capital lease
obligations 56,622 52,255
------------ ------------
Total current liabilities 325,264 362,106
Deferred revenue 124,000 124,000
Long-term portion of capital
lease obligations 29,870 72,900
------------ ------------
Total Liabilities 479,134 559,006
------------ ------------
Stockholders' Equity
Common stock, $0.01 par value.
15,000,000 shares authorized
12,310,352 and 12,308,852 shares
issued September 30, 2000 and
January 1, 2000, respectively. 123,104 123,089
Additional paid-in capital 32,656,608 32,656,353
Accumulated deficit (30,210,792) (30,091,390)
Less treasury stock, at cost,
22,883 common shares (60,835) (60,835)
------------ ------------
Total Stockholders' Equity 2,508,085 2,627,217
------------ ------------
Total Liabilities and
Stockholders' Equity $ 2,987,219 $ 3,186,223
============ ============
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Operations
Fiscal Quarters Ended Nine-Month Periods Ended
--------------------- ------------------------
Sept. 30, Oct. 2, Sept. 30, Oct. 2,
2000 1999 2000 1999
Revenue: ---------- ----------- ---------- ---------
Product sales $ 1,056,557 $ 1,197,188 $ 3,757,091 $ 3,863,767
---------- ----------- ---------- ---------
Total revenue 1,056,557 1,197,188 3,757,091 3,863,737
========== =========== ========== ==========
Operating expenses:
Cost of sales 1,149,696 1,025,218 3,214,015 2,919,985
Selling, general, and
administrative 224,258 228,996 723,666 726,906
---------- ----------- ---------- ----------
Total operating expenses 1,373,954 1,254,214 3,937,681 3,646,891
---------- ----------- ---------- ----------
Operating income (loss) (317,397) (57,026) (180,590) 216,846
Other income, net 19,302 113,288 61,188 135,702
---------- ----------- ---------- ----------
Income (loss) before taxes (298,095) 56,262 (119,402) 352,548
---------- ---------- ---------- ----------
Income taxes - - - (5,929)
---------- ---------- ---------- ----------
Net income (loss) $ (298,095) $ 56,262 $(119,402) $ 358,477
========== ========== ========== ==========
Net income (loss) per
basic common share $ (0.02) $ 0.00 $ (0.01) $ 0.03
---------- ---------- ---------- ----------
Weighted average number
of basic common
shares outstanding 12,287,469 12,285,969 12,286,907 12,285,969
========== ========== ========== ==========
Net income (loss) per
diluted common share $ (0.02) $ 0.00 $ (0.01) $ 0.03
---------- ---------- --------- ---------
Weighted average number
of diluted common
shares outstanding 12,287,469 12,521,839 12,286,907 12,541,280
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Consolidated Statements of Cash Flows
Nine-Month Periods Ended
Sept. 30, Oct. 2,
2000 1999
--------- --------
Cash flows from operating activities:
Net income (loss) $ (119,402) $ 358,477
Adjustments to reconcile net income
to cash provided by
operating activities:
Depreciation and amortization 165,400 144,434
Gain on disposal of equipment (18,331) (104,225)
Changes in assets and liabilities:
Accounts receivable (76,631) (207,439)
Inventories (118,318) (42,388)
Prepaid expenses 9,359 (19,693)
Accounts payable (14,381) 2,010
Accrued expenses (26,828) (19,753)
Deferred revenue (8,381)
--------- --------
Net cash (used in) provided by
operating activities (199,132) 103,042
--------- --------
Cash flows from investing activities:
Proceeds from sale of assets 127,865 14,770
Additions to property and equipment (236,266) (408,090)
Marketable Securities 306,672
Deposits 3,565
--------- --------
Net cash provided by (used in)
investing activities 198,271 (389,755)
--------- --------
Cash flows from financing activities:
Principal payments for capital lease
obligations (38,663) (34,745)
Proceeds from issuance of common stock 270 -
--------- --------
Net cash used in
financing activities (38,393) (34,745)
--------- --------
Net decrease in cash (39,254) (321,458)
Cash at beginning of period 1,033,522 1,498,774
--------- ---------
Cash at end of period $ 994,268 $1,177,316
========= =========
See accompanying notes to consolidated financial statements.
CERAMICS PROCESS SYSTEMS CORPORATION
Notes to Consolidated Financial Statement
(Unaudited)
(1) Nature of Business
------------------
Ceramics Process Systems Corporation (the `Company` or `CPS`) serves
the wireless communications, satellite communications, flip-chip integrated
circuit, motor controller 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 and heat sinks, and are used in applications
where thermal management and or weight are important considerations.
The Company`s products are manufactured by proprietary processes the
Company has developed including the QuicksetTM Injection Molding Process
(`Quickset Process`) and the QuickCastTM Pressure Infiltration Process
(`QuickCast Process`).
The Company was incorporated on June 19, 1984.
(2) Interim Consolidated Financial Statements
-----------------------------------------
As permitted by the rules of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q, these notes are condensed and
do not contain all disclosures required by generally accepted accounting
principles.
The accompanying financial statements for the fiscal quarters and nine
month periods ended September 30, 2000 and October 2, 1999 are unaudited.
In the opinion of management, the unaudited consolidated financial
statements of CPS reflect all adjustments necessary to present fairly the
financial position and results of operations for such periods.
Certain reclassifications have been made to the 1999 unaudited
financial statements to conform to the 2000 presentation.
The consolidated financial statements include the accounts of CPS and
its wholly-owned subsidiary, CPS Superconductor Corporation. All
significant intercompany balances and transactions have been eliminated.
The results of operations for interim periods are not necessarily indicative
of the results to be expected for the full year.
(3) Net Income/Loss Per Common and Common Equivalent Share
------------------------------------------------------
Basic EPS excludes the effect of any dilutive options, warrants or
convertible securities and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the entity. Diluted EPS is
computed by dividing income available to common stockholders by the sum of
the weighted average number of common shares and common share equivalents
computed using the average market price for the period under the treasury
stock method.
Fiscal Nine month
Quarters Ended Periods ended
Sept.30, Oct. 2, Sept.30, Oct. 2,
2000 1999 2000 1999
----------- ---------- ---------- ----------
Basic EPS Computation:
Numerator:
Net income (loss) $ (298,095) $ 56,262 $ (119,402) $ 358,477
Denominator:
Weighted average
common shares
outstanding 12,287,469 12,285,969 12,286,907 12,285,969
Basic EPS $ (0.02) $ 0.00 $ (0.01) $ 0.03
Diluted EPS Computation:
Numerator:
Net income (loss) $ (298,095) $ 56,262 $ (119,402) $ 358,477
--------- -------- --------- ---------
Total net income (loss) $ (298,095) $ 56,262 $ (119,402) $ 358,477
Denominator:
Weighted average
common shares
outstanding 12,287,469 12,285,969 12,286,907 12,285,969
stock options 235,870 255,311
---------- --------- ---------- ----------
Total Shares 12,287,469 12,521,839 12,286,907 12,541,280
Diluted EPS $(0.02) $0.00 $(0.01) $ 0.03
The diluted share base for the three and nine months ended September 30,
2000 excludes approximately 774,000 potential shares related to employee
stock options. These shares are excluded due to their antidilutive effect
as a result of the Company's loss from continuing operations during 2000.
The diluted share base for the three and nine months ended October 2, 1999
excludes approximately 193,000 and 200,000 potential shares of common stock
that are antidilutive.
(4) Inventory
---------
Inventories consist of the following:
September 30, January 1,
2000 2000
--------- ----------
Raw materials $ 94,616 $ 71,134
Work in process 322,714 236,214
Finished goods 8,336
--------- ----------
$ 425,666 $ 307,348
========= ==========
(5) Accrued Expenses
----------------
Accrued expenses consist of the following:
September 30, January 1,
2000 2000
--------- ----------
Accrued legal and
accounting $ 34,125 $ 37,000
Accrued payroll 76,144 87,814
Accured other 20,203 32,486
--------- ----------
$ 130,472 $ 157,300
========= ==========
(6) Recent Accounting Pronouncements
--------------------------------
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues, as well as examples of how the staff applies revenue recognition
guidance to specific circumstances. In June 2000, SEC issued staff
accounting bulletin 101B delaying the implementation of SAB 101 for six
months. The application of the guidance in SAB 101 will be required by the
fourth quarter of 2000. The effect of applying this guidance, in any, will
be reported as a cumulative effect adjustment resulting from a change in
accounting principal. Our evaluation of SAB 101 is not yet complete.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (FAS 133) which, as amended, is
currently effective January 1, 2001 for the Corporation. FAS 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction, and if it
is, the type of hedge transaction. Management believes adoption of this
standard and related transition adjustments will not have a material impact
on the Corporation's consolidated financial position, results of operations
or cash flows.
ITEM 2 MANAGEMENT`S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve a number of risks and uncertainties. There are a number of
factors that could cause the Company`s actual results to differ materially
from those forecasted or projected in such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of the date hereof. The Company undertakes
no obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or changed
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations - Third Fiscal Quarter of 2000 Compared to Third
Fiscal Quarter of 1999
----------------------
Revenue in Q3 2000 of $1,057 thousand was 12% lower than revenue in Q3
1999 of $1,197 thousand. The decline in product revenue in Q3 2000 compared
to Q3 1999 was primarily the result of a decline in shipments to the
Company's largest customer partially offset by increased shipments to new
customers.
Historically the Company's largest customer has been a producer of
cellular telephone basestations. The Company's sales to this customer
declined by 61% from Q3 1999 to Q3 2000. The Company believes the wireless
infrastructure market is growing, and continues to be an attractive market,
however, demand has proven to be very volatile from quarter to quarter. The
Company anticipates that this volatility will continue in the future. In
addition, product transitions at the Company's customer will affect demand
for the Company's products on a quarter to quarter basis.
Although sales to the Company's largest customer declined as described
above, during this same time period sales to other customers increased by
74%. In Q3 2000, the Company's largest customer accounted for 28% of total
revenue, compared to Q3 1999 in which the Company's largest customer
accounted for 64% of total revenue. The Company's broadening customer base
makes the Company less dependent on any single customer.
AlSiC lids and heat spreaders for flip-chip integrated circuit
applications account for a majority of the increase in sales to other
customers. Although the Company experienced some start-up costs such as
labor and material inefficiences in Q3 2000 associated with the significant
change in product mix, management believes that costs will decline and that
it can profitably serve this market segment. Management believes the market
for AlSiC lids and heat spreaders for flip-chip applications will continue
to grow as high-density and higher speed integrated circuits are introduced.
Total operating expenses in Q3 2000 were $1,374 thousand, a 9% increase
over operating expenses of $1,254 thousand in Q3 1999. Total operating
expenses consist of cost of sales and sales, general and administrative
expenses.
Cost of sales was $1,150 thousand in Q3 2000 compared to $1,025
thousand in Q3 1999, an increase of 12%. The increase in cost of sales was
primarily driven by 1) a 22% increase in the materials costs, and 2) a 12%
increase in direct labor costs. Manufacturing overhead remained relatively
constant, increasing 3% in Q3 2000 compared to Q3 1999.
Gross margins declined in Q3 2000 compared to Q3 1999 as the Company
experienced start-up costs such as labor and material inefficiencies
associated with this significant change in product mix. Although most of
the decline in gross margins results from increased materials and labor
costs, the decline in total revenue coupled with the slight increase in
manufacturing overhead, which is largely a fixed cost, also contributed to
lower gross margins.
Sales, general and administrative expenses were $224 thousand in Q3
2000 compared to $229 thousand in Q3 1999, a decrease of 2%.
Results of Operations - First Nine Months of 2000 Compared to First Nine
Months of 1999
--------------
Revenue for the first nine months of 2000 of $3,757 thousand was 3%
lower than revenue in the first nine months of 1999 of $3,864 thousand.
Revenues from the Company's largest customer declined by 12% while revenue
from other customers increased by 15% during this time period.
Total operating expenses in the first nine months of 2000 were $3,938
thousand, a 8% increase over operating expenses of $3,647 thousand in the
first nine months of Q3 1999. Total operating expenses consist of cost of
sales and sales, general and administrative expenses.
Cost of sales were $3,214 thousand in the first nine months of 2000
compared to $2,920 thousand in the first nine months of 1999, an increase of
10%. In the first nine months of 2000 the Company added personnel in the
quality and engineering functions in anticipation of future growth,
increasing fixed costs at a greater rate than revenues increased, resulting
in reduced gross profits.
Shipments of new products grew significantly in the first nine months
of 2000 compared to the first nine months of 1999, partially but not fully
offsetting a reduction in shipments of existing products to a single major
customer. The product mix changed significantly, particularly in Q3 2000,
and the Company experienced some labor and material inefficiencies as it
ramped up these new products. AlSiC lids and heat sinks for flip-chip
applications account for the majority of new products in the first nine
months of 2000 compared to the same period a year ago.
Sales, general and administrative expenses were $724 thousand in the
first nine months of 2000 compared to $727 thousand in the first nine months
of 1999, a decrease of less than 1%.
The cumulative effect of these revenues and costs resulted
in a net loss of ($119) thousand, or ($0.01) per basic share, ($0.01) per
diluted share, in the first nine months of 2000, compared to net income of
$358 thousand, or $0.03 per basic share, $0.03 per diluted share in the
first nine months of 1999.
Financial Liquidity
-------------------
The Company`s cash and short-term investments balance at September
30, 2000 was $994 thousand compared to a balance at January 1, 2000 of
$1,340 thousand.
In the first nine months of 2000 operations consumed cash of $199
thousand. Purchases of production equipment consumed cash of $236 thousand
and the sale of obsolete equipment generated $128 thousand, resulting in net
cash consumption associated with the purchase and sale of production
equipment of $108 thousand. The equipment additions provide the Company
with increased capacity for future growth and with increased ability to
serve a broader range of customers.
Inventories increased to $426 thousand at September 30, 2000 from $307
thousand at January 1, 2000. Management expects that inventory levels will
fluctuate from quarter to quarter depending on specific timing of customer
releases and management actions to smooth demand on the production floor.
Accounts Receivable trade increased to $464 thousand at September 30,
2000 from $388 thousand at January 1, 2000. Shipments to customers
increased towards the end of Q3 2000 resulting in an increase in accounts
receivables.
The Company financed its working capital requirements during the third
fiscal quarter of 2000 with funds generated from sales and cash on hand.
Management considers future cash flow from operations and available cash to
be adequate to meet its working capital requirements for the foreseeable
future.
Recent Accounting Pronouncements
--------------------------------
In December 1999, the United States Securities and Exchange Commission
issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 provides the staff's views in applying
generally accepted accounting principles to selected revenue recognition
issues, as well as examples of how the staff applies revenue recognition
guidance to specific circumstances. In June 2000, SEC issued staff
accounting bulletin 101B delaying the implementation of SAB 101 for six
months. The application of the guidance in SAB 101 will be required by the
fourth quarter of 2000. The effect of applying this guidance, in any, will
be reported as a cumulative effect adjustment resulting from a change in
accounting principal. Our evaluation of SAB 101 is not yet complete.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," (FAS 133) which, as amended, is
currently effective January 1, 2001 for the Corporation. FAS 133 requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction, and if it
is, the type of hedge transaction. Management believes adoption of this
standard and related transition adjustments will not have a material impact
on the Corporation's consolidated financial position, results of operations
or cash flows.
PART II Other Information
Item 1 through Item 5: None
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits:
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ceramics Process Systems Corporation
(Registrant)
Date: November 13, 2000 /s/Grant C. Bennett
Grant C. Bennett
President and Treasurer
(Principal Executive
Officer)
