CPS TECHNOLOGIES CORP/DE/ — Interim / Quarterly Report 1995

Oct 26, 1995

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, 1995 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: 508-222-7282 Former Name, Former Address and Former Fiscal Year if Changed since Last Report: Not Applicable. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. [X] Yes [ ] No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Number of shares of common stock outstanding as of October 19, 1995: 7,757,856. CERAMICS PROCESS SYSTEMS CORPORATION Form 10-Q For The Fiscal Quarter Ended September 30, 1995 Index PART I: FINANCIAL INFORMATION Page Item 1: Consolidated Financial Statements 3-8 Consolidated Balance Sheets as of September 30, 1995 and December 31, 1994 3-4 Consolidated Statements of Operations for the fiscal quarters and nine-month periods ended September 30, 1995 and October 1, 1994 5 Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 1995 and October 1, 1994 6 Notes to Consolidated Financial Statements 7-8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 PART II: OTHER INFORMATION Items 1-6 11 Financial Data Schedule 12 Signatures 13 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS

CERAMICS PROCESS SYSTEMS CORPORATION Notes to Consolidated Financial Statements (Unaudited) (1) Nature of Business Ceramics Process Systems Corporation ("CPS" or "the Company"), incorporated on June 19, 1984, is engaged in the design, development, and manufacture of advanced ceramic products for the microelectronics and defense industries. (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, 1995 and October 1, 1994 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 interim periods. The consolidated financial statements include the accounts of CPS and its wholly-owned subsidiary, CPS Superconductor Corporation. All significant intercompany balances and transactions have been eliminated. Certain amounts in the financial statements for the nine-month period ended October 1, 1994 have been reclassified to conform to the presentation of the financial statements for the nine-month period ended September 30, 1995. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. (3) Net Loss per Share Net loss per share is computed based on the weighted average number of common shares outstanding during the period. Common stock equivalents pertaining to stock options and convertible notes payable were not considered in the calculations of net loss per share since their effect would be antidilutive.

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition The Company incurred a net loss in the third fiscal quarter of 1995 in the amount of $275 thousand, versus a net loss of $391 thousand in the third fiscal quarter of 1994. The Company's cash balance at September 30, 1995 and at December 31, 1994 was $33 thousand and $253 thousand, respectively. The Company's operational performance improved for both the fiscal quarter and nine-month period ended September 30, 1995, versus similar time periods in 1994, primarily because its facilities in Chartley, Massachusetts were fully operational in 1995, whereas the Company was in the process of relocating to Chartley during most of the first nine months of 1994. The Company is operating at the Chartley facility as a tenant at will. During 1994, the Company received proceeds of $1.9 million from the issuance of interest bearing debt agreements to existing shareholders and other investors, convertible to shares of the Company's Common Stock at a conversion price of $0.50 per share. These convertible notes are subordinated to all other indebtedness of the Company. In March, 1995 the Company received proceeds of $250 thousand through the issuance of a promissory note to Aavid Thermal Technologies, Inc. ("Aavid"), secured by all of the Company's assets, in connection with a letter of intent entered into between the Company and Aavid. The letter of intent expired April 30, 1995. In the third fiscal quarter of 1995 the Company received a total of $200,000 through the issuance of interest bearing debt agreements to an investor. The total interest cost associated with debt instruments in the third fiscal quarter of 1995 and the nine-month period ended September 30, 1995 amounted to $155 thousand and $56 thousand, respectively. 3,944,936 shares of common stock at September 30, 1995 are reserved for the conversion of convertible notes and related accrued interest. In 1994, in connection with the issuance of selected convertible notes payable, the Company issued warrants with exercise dates ranging through July 30, 1996, for the purchase of the Company's common stock at a price of $0.50 per share. Warrants for the purchase of 410,628 shares of the Company's common stock were outstanding at September 30, 1995. Although the Company has historically made timely payments to its trade creditors, in 1995 it expects to continue to require working capital support for its operations from external financing, and there is no assurance that adequate funds will be available when needed, or on terms acceptable to the Company. Results of Operations The Company's total revenue remained constant at approximately $250 thousand in the third fiscal quarters of 1995 and 1994, and consisted entirely of product sales. Total revenue for the nine-month period ended September 30, 1995 was $906 thousand, an increase of $116 thousand from total revenue of $790 thousand for the nine-month period ended October 1, 1994. This increase consisted of a $146 thousand increase in product sales, from $758 thousand for the nine-month period ended October 1, 1994 to $904 thousand for the nine-month period ended September 30, 1995, partially offset by a $30 thousand decrease in collaborative development revenue, from $30 thousand for the nine-month period ended October 1, 1994 to no collaborative revenue for the nine- month period ended September 30, 1995. The increase in product sales for the nine-month period ended September 30, 1995 versus the similar 1994 time period was primarily due to the fact that the Company's facilities in Chartley, Massachusetts were fully operational in 1995, whereas the Company was in the process of relocating during most of the first nine months of 1994. The relocation also resulted in a series of operational and manufacturing inefficiencies which had a negative effect on the Company's gross margin on product sales in 1994. The Company's gross margin on product sales increased $41 thousand, to a negative gross margin of $102 thousand in the third fiscal quarter of 1995, from a negative $143 thousand gross margin in the third fiscal quarter of 1994. The Company's gross margin on product sales increased $223 thousand, to a negative gross margin of $232 thousand for the nine-month period ended September 30, 1995, from a negative gross margin of $455 thousand for the nine-month period ended October 1, 1994. The Company earned no collaborative development revenue for the nine-month period ended September 30, 1995, and consequently incurred no related research, development, and engineering costs for the same time period. Research development and engineering costs for the fiscal quarter and nine-month period ended October 1, 1994 were $2 thousand and $34 thousand, respectively. Selling, general, and administrative expenses decreased $136 thousand to $116 thousand in the third fiscal quarter of 1995, from $252 thousand in the third fiscal quarter of 1994, primarily due to a $65 thousand reduction in the Company's legal and accounting fees in the third fiscal quarter of 1995 from the similar time period in 1994, and proceeds of $34 thousand received from a property insurance settlement in the third fiscal quarter of 1995. The cumulative effect of these revenues and costs resulted in net losses of $275 thousand, or $0.04 per share, and $885 thousand, or $0.12 per share, for the fiscal quarter and nine-month period ended September 30, 1995, respectively, and net losses of $391 thousand, or $0.05 per share, and $1,091 thousand, or $0.14 per share, for the fiscal quarter and nine-month period ended October 1, 1994, respectively. PART II OTHER INFORMATION Item 1 through Item 5: None Item 6: Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K: None [TYPE] EX-27 [DESCRIPTION] ART. 5 FDS for 3RD QUARTER 10-Q [ARTICLE] 5

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: October 26, 1995 /s/Grant C. Bennett Grant C. Bennett President and Director (Principal Executive Officer) Date: October 26, 1995 /s/Peter F. Valentine Peter F. Valentine Controller and Treasurer (Principal Financial and Accounting Officer)