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

Aug 17, 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 July 1, 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 Identification No.) of Incorporation or Organization) 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 August 10, 1995: 7,690,613. CERAMICS PROCESS SYSTEMS CORPORATION Form 10-Q For The Fiscal Quarter Ended July 1, 1995 Index PART I: FINANCIAL INFORMATION Page Item 1: Consolidated Financial Statements 3-8 Consolidated Balance Sheets as of 3-4 July 1, 1995 and December 31, 1994 Consolidated Statements of Operations 5 for the fiscal quarters ended July 1, 1995 and July 2, 1994 Consolidated Statements of Cash Flows 6 for the fiscal quarters ended July 1, 1995 and July 2, 1994 Notes to Consolidated Financial Statements 7-8 Item 2: Management's Discussion and 8-10 Analysis of Financial Condition and Results of Operations PART II: OTHER INFORMATION Items 1-6 11 Signatures 12 PART I FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS

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 and composites 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 fiscal quarters and six month periods ended July 1, 1995 and July 2, 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. 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 second fiscal quarter of 1995 in the amount of $379 thousand, which approximated its net loss of $376 incurred in the second fiscal quarter of 1994. The Company's net loss for the six month period ended July 1, 1995 was $610 thousand, versus a net loss of $700 thousand for the six month period ended July 2, 1994. The Company's July 1, 1995 cash balance of $55 thousand reflected a decrease of $198 thousand from its 1994 year end cash balance of $253 thousand. The Company's operational performance improved for both the fiscal quarter and six month period ended July 1, 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 the first six months of 1994. The Company is currently operating at the Chartley facility as a tenant at will. Payments in the amount of $66 thousand made to Metals Process Systems ("MPS"), a joint venture company, to meet MPS' working capital needs, were expensed by the Company in the second fiscal quarter of 1995. 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. The total interest cost associated with debt instruments in the second fiscal quarter of 1995 and the six month period ended July 1, 1995 amounted to $53 thousand and $100 thousand, respectively. 3,991,408 shares of common stock at July 1, 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 from June 30, 1995 through July 31, 1996, for the purchase of 410,628 shares of the Company's common stock at a price of $0.50 per share. 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 increased $85 thousand, to $258 thousand for the second fiscal quarter of 1995, from total revenue of $173 thousand for the second fiscal quarter of 1994. This increase consisted of a $101 thousand increase in product sales, from $157 thousand for the second fiscal quarter of 1994 to $258 thousand for the second fiscal quarter of 1995, partially offset by a $16 thousand decrease in collaborative development revenue, from $16 thousand for the second fiscal quarter of 1994 to no collaborative development revenue for the second fiscal quarter of 1995. The Company's total revenue increased $125 thousand, to $661 thousand for the six month period ended July 1, 1995, from total revenue of $536 thousand for the six month period ended July 2, 1994. This increase consisted of a $155 thousand increase in product sales, from $504 thousand for the six month period ended July 2, 1994 to $659 thousand for the six month period ended July 1, 1995, partially offset by a $30 thousand decrease in collaborative development revenue, from $30 thousand for the six month period ended July 2, 1994 to no collaborative development revenue for the six month period ended July 1, 1995. The decrease in collaborative development revenue for the fiscal quarter and six month period ended July 1, 1995, versus similar time periods in 1994, resulted from the completion of a funded program in 1994 which comprised the majority of collaborative development revenue during that year. The increase in product sales for the fiscal quarter and six month period ended July 1, 1995, versus similar time periods in 1994, 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 the first six 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 $116 thousand, to a negative $41 thousand gross margin for the second fiscal quarter of 1995, from a negative $157 thousand gross margin for the second fiscal quarter of 1994. The Company's gross margin on product sales for the six months ended July 1, 1995 increased $242 thousand, to a negative $70 thousand, from a negative $312 thousand gross margin for the six months ended July 2, 1994. The Company earned no collaborative development revenue for the fiscal quarter and six month period ended July 1, 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 six month period ended July 2, 1994 were $21 thousand and $32 thousand, respectively. Selling, general and administrative costs increased $24 thousand, from $202 thousand during the second fiscal quarter of 1994 to $226 thousand in the second fiscal quarter of 1995, due to a $66 thousand working capital contribution by the Company to Metals Process Systems ("MPS"), a joint venture company formed in February 1991 by the Company and Sopretac, a Vallourec Group Company. The cumulative effect of these revenues and costs resulted in a net loss of $379 thousand, or $0.05 per share, and $610 thousand, or $0.08 per share, for the fiscal quarter and six month period ended July 1, 1995, respectively, and a net loss of $376 thousand, or $0.05 per share, and $700 thousand, or $0.09 per share, for the fiscal quarter and six month period ended July 2, 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 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Ceramics Process Systems Corporation (Registrant) Date: August 15, 1995 /s/Grant C. Bennett Grant C. Bennett President and Director (Principal Executive Officer) Date: August 15, 1995 /s/Peter F. Valentine Peter F. Valentine Controller and Treasurer (Principal Financial and Accounting Officer)