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 April 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 May 1, 1995: 7,690,613. CERAMICS PROCESS SYSTEMS CORPORATION Form 10-Q For The Fiscal Quarter Ended April 1, 1995 Index PART I: FINANCIAL INFORMATION Page Item 1: Consolidated Financial Statements 3-6 Consolidated Balance Sheets as of 3-4 April 1, 1995 and April 2, 1994 Consolidated Statements of Operations 5 for the fiscal quarters ended April 1, 1995 and April 2, 1994 Consolidated Statements of Cash Flows 6 for the fiscal quarters ended April 1, 1995 and April 2, 1994 Notes to Consolidated Financial Statements 7-8 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II: OTHER INFORMATION Items 1-6 10 Signatures 11 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 electronics 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 ended April 1, 1995 and April 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 first fiscal quarter of 1995 in the amount of $0.2 million, versus a net loss of $0.3 million in the first fiscal quarter of 1994. The Company's cash balance at April 1, 1995 and at December 31, 1994 was $0.3 million. The improvement in the Company's financial performance in the first fiscal quarter of 1995 versus the first fiscal quarter of 1994 was primarily attributable to the fact that the Company's facilities in Chartley, Massachusetts were fully operational inthe first quarter of 1995, whereas the Company was in the process of relocating in the first quarter 1994. The Company is operating at the Chartley facility as a tenant at will. During 1993, the Company entered into a five-year lease agreement for a facility in Hopkinton, Massachusetts. In 1994, this facility was used for storage and warehousing, and in 1995, the Company reached an agreement with the lessor to terminate the lease effective January 31, 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. The convertible notes are subordinated to all other indebtedness of the Company. In March, 1995 the Company entered into a letter of intent with Aavid Thermal Technologies, Inc. ('Aavid'), whereby subject to certain terms and conditions, the Company will receive proceeds of up to $2.0 million from Aavid through March 31, 1996, in exchange for a combination of shares of the Company's Common Stock and debt agreements with conversion privileges for shares of the Company's Common Stock, the cumulative effect of which would allow Aavid to purchase up to four million shares of the Company's Common Stock. Through May 1, 1995 the Company received proceeds of $250 thousand from Aavid. The total interest cost associated with debt instruments in the first fiscal quarter of 1995 amounted to $47 thousand. 4,397,892 shares of Common Stock at April 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 exercisable as of the date of the notes payable, for the purchase of shares 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 were outstanding at April 1, 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 or on terms acceptable to the Company. Results of Operations The Company's total revenue increased $40 thousand, to $403 thousand in the first fiscal quarter of 1995, from total revenue of $363 in the first fiscal quarter of 1994. This increase consisted of a $54 thousand increase in product sales, from $347 thousand in the first fiscal quarter of 1994 to $401 thousand in the first fiscal quarter of 1995, partially offset by a $14 thousand decrease in collaborative development revenue, from $14 thousand in the first fiscal quarter of 1994, to no collaborative development revenue in the first fiscal quarter of 1995. The increase in product sales in the first fiscal quarter of 1995 versus the first fiscal quarter of 1994 was primarily due to the fact that the Company's facilities in Chartley, Massachusetts were fully operational in the first quarter 1995, whereas the Company was in the process of relocating in the first quarter 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 $126 thousand, to a negative gross margin of $29 thousand in the first fiscal quarter of 1995, from a negative $155 thousand gross margin in the first fiscal quarter of 1994. The decline in collaborative development and license revenue in the first fiscal quarter of 1995 from the first fiscal quarter of 1994 resulted from the completion of a funded program in thefirst quarter of 1994, which comprised all of the collaborative development revenue in that quarter. Research, development, and engineering costs decreased $11 thousand, from $11 thousand in the first fiscal quarter of 1994, to no research, development, and engineering costs in the first fiscal quarter of 1995, the result of a decline in collaborative development revenue. Selling, general, and administrative costs decreased $28 thousand, from $189 thousand in the first fiscal quarter of 1994, to $161 thousand in the first fiscal quarter of 1995, reflecting a continued emphasis on administrative cost controls. The cumulative effect of these revenues and costs resulted in a net loss of $231 thousand, or $0.03 loss per share, in the first fiscal quarter of 1995, versus a net loss of $324 thousand, or $0.04 loss per share, in the first fiscal quarter of 1994. 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: May 22, 1995 /s/Grant C. Bennett Grant C. Bennett President and Director (Principal Executive Officer) Date: May 22, 1995 /s/Peter F. Valentine Peter F. Valentine Controller and Treasurer (Principal Financial and Accounting Officer)