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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 December 30, 1995
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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
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(Exact name of registrant as specified in its charter)
Delaware 04-2832509
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(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
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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.
[ ] Yes [X] 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 $2,157,614 based on the average of the reported closing bid
and asked prices for the Common Stock on January 23, 1997 as reported on the OTC
Bulletin Board.
Number of shares of Common Stock outstanding as of January 23, 1997: 7,917,504
shares.
Documents incorporated by reference.
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PART I
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ITEM 1. BUSINESS.
Ceramics Process Systems Corporation (the "Company" or "CPS") develops,
manufactures, and markets advanced metal-matrix composite and ceramic components
used to house and interconnect microelectronic devices. These components are
typically in the form of housings, packages, lids, substrates, thermal planes,
or heat sinks. The Company's products are used in applications where thermal
management is important such as power amplifiers for wireless communications,
power modules for motor controllers, and transmit and receive modules for radar
and electronic warfare.
The Company's products are manufactured by proprietary processes the
Company has developed such as the Quickset(TM) Injection Molding Process
("Quickset Process") and the QuickCast(TM) Pressure Infiltration Process
("QuickCast Process").
Although the Company's focus is the microelectronics market, the
Company participates in other markets through licensing its technology to
corporations who manufacture and sell products in these other markets.
In fiscal 1995, more than 99% of the Company's total revenue was
derived from manufactured products, and less than 1% from licensing fees, versus
fiscal 1994 and fiscal 1993 in which 97%, 3%, and less than 1%, and 72%, 12%,
and 16%, respectively, of total revenues was derived from manufactured products,
research contracts, and licensing fees, respectively.
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.
Markets and Products
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The manufacture of microelectronic systems is comprised of three key
steps: (1) the integration of transistors into integrated circuits ("ICs"), (2)
the integration of ICs on boards or modules, and (3) the integration of boards
and modules into systems. The Company produces products for the second and third
steps described above - products used to integrate ICs on boards, and used to
integrate boards and modules into systems.
The Company believes that as the complexity, speed, and density of
electronic devices continues to increase, the market will grow for advanced
packaging and interconnecting products which have a thermal coefficient of
expansion match to ICs, and which provide for the efficient removal of heat from
the system while providing the necessary mechanical and electrical properties.
The metal-matrix composite aluminum silicon carbide ("Al-SiC"),
manufactured using the Company's proprietary processes, is a material system
which meets all these requirements and which is finding acceptance in the
marketplace as a replacement for copper, copper-tungsten, copper-moly, and
graphite. The Company's aluminum nitride ("AlN") ceramic components, and
high-purity aluminum oxide ("Al2O3") ceramic components are used in applications
where high thermal conductivity and high circuit density are required,
respectively.
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In fiscal 1995, Motorola Corporation, Texas Instruments, and Hughes
Corporation accounted for 27%, 21%, and 11% of total revenues, respectively. In
fiscal 1994 and fiscal 1993, these same companies accounted for 1%, 23%, and
19%, and less than 1%, 2%, and 11% respectively, of total revenue. In fiscal
1995, 54% of the Company's total revenue resulted from defense-related business
and 46% was from commercial or non-defense related business.
Strategic Partnerships In Other Market Areas
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In addition to its primary focus in the microelectronics market, the
Company participates in other markets through licensing its technology to
corporations who manufacture and sell products in these other markets.
Companies who are licensees of CPS technology include Carpenter
Technology Corporation ("CarTech"), Aluminum Corporation of America ("Alcoa"),
and Vesuvius International ("Vesuvius"). In fiscal 1995, CPS recognized no
income from license agreements with these companies.
In 1991, CPS and Sopretac, a subsidiary of Vallourec of Boulogne,
France, established a joint venture, Metals Process Systems ("MPS"), to market
on a worldwide basis, licenses to use the Quickset Process for metal injection
molding. At December 30, 1995 the Company owned 40% of the voting stock in MPS
(see Patents and Trade Secrets), and Sopretac owned 60%. The Company accounted
for its investment in MPS under the equity method and did not recognize any
income or dividends from the joint venture in 1995. In 1996, the Company's
ownership interest in MPS was reduced to less than 1%, based on additional
investment in MPS by Sopretac.
Research and Development
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All of the research, development and engineering costs incurred for the
years 1993 through 1995 pertained to partially externally funded research and
development contracts. In fiscal 1995, the Company did not incur any costs for
research and development. In fiscal 1994 and 1993, the Company incurred
research, development and engineering costs in the amounts of $0.04 million, and
$0.3 million, respectively.
Availability of Raw Materials
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The Company uses a variety of raw materials from numerous domestic and
foreign suppliers. These materials are primarily ceramic and metal powders and
chemicals. Other than certain precious metals, of which little is used by the
Company, 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
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As of December 30, 1995 the Company had 17 United States patents. The
Company also had several international patent applications pending. 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 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
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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
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As of December 30, 1995, the Company had a product backlog of $0.9
million, compared with a product backlog of $1.1 million at December 31, 1994.
The Company shipped 54% of the year-end 1995 product backlog in 1996.
Competition
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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 ceramic and non-ceramic products. PCC Composites, Lanxide
Electronic Products, and Alcoa are the Company's primary competitors in the
metal matrix composite business. Kyocera Corporation and Toshiba Corporation of
Japan are the primary competitors in the aluminum nitride component business.
Kyocera Corporation and ACX Corporation are the primary competitors in the
aluminum oxide component business.
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 products for the advanced ceramic market
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 the respective collaborative
development agreements. These types of activities are regulated by the Bureau of
Export Administration of the United States Department of Commerce.
The Company performs and solicits various contracts from the United
States government agencies and also sells to other government contractors.
Employees
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As of year-end 1995, the Company and its wholly-owned subsidiary, CPS
Superconductor Corporation ("CPSS"), had 18 full-time employees, of whom 14 were
engaged in manufacturing and engineering, and 4 in 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.
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ITEM 2. PROPERTIES.
In February, 1994, the Company relocated its corporate headquarters,
manufacturing operations, engineering activities, and research and development
laboratories to a leased facility in Chartley, Massachusetts. The Company is
operating at the Chartley facility as a tenant at will. Prior to its relocation
to Chartley, the Company was headquartered in a leased facility in Milford,
Massachusetts.
During 1993, the Company also entered into a five year lease for a
facility in Hopkinton, Massachusetts. In 1994, the Company used the Hopkinton
facility for storage and warehousing. In 1995, the Company reached an agreement
with the lessor to terminate the lease effective January 31, 1995.
The Company's rental expenses for operating leases was $68 thousand,
$147 thousand and $217 thousand in 1995, 1994 and 1993, 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 December 30, 1995.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
On January 23, 1997, the Company had 301 shareholders of record. The
high and low closing bid prices of the Company's common stock for each quarter
during the years ended December 30, 1995, and December 31, 1994, are shown
below.
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1995 1994
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High Low High Low
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1st Quarter 1/2 3/8 15/16 9/16
2nd Quarter 1/2 3/8 7/8 11/16
3rd Quarter 1/2 3/8 11/16 3/8
4th Quarter 7/16 5/16 11/16 1/2
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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 the Over-the-Counter Bulletin
Board under the symbol CPSX.
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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: 1995 1994 1993 1992 1991
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Summary of Operations
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Revenue $ 1,387 $ 1,192 $4,164 $ 5,002 $ 5,167
Operating Expenses 2,221 3,071 4,113 7,809 6,494
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Operating Income (Loss) (834) (1,879) 51 (2,807) (1,327)
Net Other Income (Expense) (274) (38) 0 48 140
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Net Income (Loss) $(1,108) $(1,917) $ 51 $(2,759) $(1,187)
======= ======= ====== ======= =======
Net Income (Loss)
Per Common Share $ (0.14) $ (0.25) $ 0.01 $ (0.40) $ (0.18)
======= ======= ====== ======= =======
Weighted Average Number
of Common Shares
Outstanding 7,675* 7,581* 7,620 6,982* 6,757*
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Year-end Position
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Working Capital (Deficit) $(2,736) $ (165) $ 51 $ 129 $ 1,265
Total Assets $ 526 $ 932 $1,112 $ 2,121 $ 4,134
Long-term Obligations $ 0 $ 1,620 $ 8 $ 224 $ 208
Stockholders' Equity
(Deficit) $(2,493) $(1,458) $ 449 $ 378 $ 2,308
* Stock options and stock purchase warrants are not included as their effect is
antidilutive.
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
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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.
Responsibility For Financial Statements
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Management has prepared and is responsible for the consolidated
financial statements and information included in this report. These financial
statements were prepared in accordance with generally accepted accounting
principles which are consistently applied. The Company maintains accounting and
control systems to assure its records accurately and appropriately reflect the
operations of the Company, based on management's best available information and
judgment.
The Company's independent accountants, Coopers & Lybrand L.L.P.
("Coopers & Lybrand"), provide an independent, objective assessment of the
degree to which management fulfills it responsibility for fairness in financial
reporting. They evaluate the Company's financial accounting for operations and
apply such tests and procedures as they deem necessary to reach and express an
opinion on the financial statements. The report of Coopers & Lybrand, which
includes an explanatory paragraph, is included in this report.
Risks and Uncertainties
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The Company manufactures its products to customer specifications and
currently sells it products to a limited number of customers and in limited
industries. Generally such customers have not been recurring in recent years. A
significant portion of the Company's revenues has historically been generated
from fewer than three customers and from customers in the defense industry. As
discussed in Notes 2, 7 and 8 to the Company's Consolidated Financial
Statements, the Company has incurred cumulative losses since its inception. In
addition, the Company in 1995 and 1996 defaulted on interest and principal
repayments of certain notes payable that have matured. Although the Company
seeks to modify the original terms of these notes, it is unable to repay the
matured balances at this time and there is no assurance that the notes will be
modified on terms acceptable to the Company.
The Company financed its 1996 recurring working capital requirements in
large part to (1) payments received from a license agreement entered into in
1996 by the Company and a customer; (2) sales to a single customer which
accounted for a substantial portion of the Company's increased product revenues
in 1996; and (3) $0.1 million of capital lease financing obtained by the Company
and used to acquire essential production equipment. However, there is no
assurance that the Company will continue to be able to meet its operating cash
requirements in 1997.
Results of Operations
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Revenue
Total revenue of $1.4 million in 1995 reflects an increase of $0.2
million, or 16%, from 1994 total revenue of $1.2 million. Over 97% of total
revenue in both 1995 and 1994 consisted of sales of manufactured products;
combined revenue earned under collaborative development and license agreements
in 1995 amounted to $2 thousand.
The increase in product sales in 1995 versus the prior year was
attributable to the Company being fully operational in 1995, whereas the Company
was in the process of relocating to Chartley, Massachusetts, over the first nine
months of 1994. The
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relocation resulted in a series of operational inefficiencies and disruptions
which had an adverse effect on product sales and related gross margins in 1994.
Total revenue of $1.2 million in 1994 reflected a decrease of 71% from
1993 total revenue of $4.2 million. The decline in total revenue in 1994
included a $1.8 million decline in product sales, from $3.0 mission in 1993 to
$1.2 million in 1994; a $0.5 million decline in collaborative development
revenue, from $0.5 million in 1993 to $0.03 million in 1994; and a $0.6 million
decline in license revenue, from $0.7 million in 1993 to less than $0.01 million
in 1994.
In addition to the Company's relocation in 1994, the decrease in
product sales in 1994 versus 1993 was attributable to the completion of, or
reductions in, orders from four major customers in 1993 or the first quarter of
1994, which were not replaced by significant orders from these or other
customers. Product sales to these four customers amounted to $2.2 million in
1993; product sales to the same customers amounted to $0.4 million in 1994. The
decrease in collaborative development and license revenue in 1994 versus 1993 is
attributable to the completion of a development program with CarTech in the
first quarter of 1994. Virtually all of the 1993 collaborative development and
license revenues were derived from sales to CarTech.
Operating Costs
Total operating costs were $2.2 million, $3.1 million, and $4.1 million
for the fiscal years 1995, 1994, and 1993, respectively. Other operating
expenses of $0.4 million, incurred in the fit-up of a building in connection
with the Company's relocation to Chartley, Massachusetts in February, 1994, were
included with total operating costs in 1994.
Cost of sales for the years 1995, 1994, and 1993 amounted to $1.6
million, $1.8 million, and $3.0 million, respectively. Research, development and
engineering costs pertaining to collaborative development revenue amounted to no
costs, $.04 million, and $.3 million for the years 1995, 1994, and 1993,
respectively, and selling, general and administrative costs amounted to $0.6
million, $0.8 million, and $0.7 million for these same years respectively.
The $0.2 million reduction in cost of sales in 1995 versus 1994 is
primarily attributable to the Company being fully operational in 1995 as opposed
to 1994, during which time the physical relocation of the Company resulted in a
series of operational inefficiencies and disruptions which had an adverse impact
on the Company's costs.
The decrease in research, development and engineering expenses of $0.04
million from 1994 to 1995, and $0.3 million from 1993 to 1994 reflected reduced
activity under collaborative development agreements over these respective years.
The decrease in selling, general and administrative expenses of $0.2
million from 1994 to 1995 was primarily attributable to a $0.1 million reduction
in accounting and legal costs in 1995 versus 1994. Selling, general and
administrative expenses increased $0.1 million in 1994 compared to 1993,
primarily due to increases in marketing activities and patent costs.
Net Other Expense
The Company had net other expense of less than $1 thousand, $38
thousand, and $274 thousand for the fiscal years 1993, 1994, and 1995,
respectively. The increase in net other expense over this three year period was
primarily due to an increase in
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interest expense accrued on a larger average principal balance of interest
bearing debt agreements over these years.
Income Taxes
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The Company neither paid nor accrued income taxes in 1995, 1994, or
1993 due to its tax losses in those years. The Company's net operating loss
carryforward was approximately $34 million at December 30, 1995.
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.
Liquidity and Cash Reserves
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Cash on hand at December 30, 1995 totaled $32 thousand, a decrease of
$220 thousand from the 1994 year end balance of $253 thousand.
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
fit-up costs (See Notes 7, 8, and 14 to the Notes to Consolidated Financial
Statements). Certain of these notes and convertible notes matured in 1995 and
1996. The Company defaulted on principal and interest repayments of these
obligations, and is currently unable to repay this debt. Although the Company
seeks to modify the original terms of the notes and convertible notes, there is
no assurance that these obligations can be modified on terms acceptable to CPS.
Although the Company was able to finance its operating cash
requirements in 1996, there is no assurance that the Company will be able to
continue to meet its operating cash requirements in 1997.
In November 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation". The Company intends to adopt the disclosure
requirements of SFAS No. 123 for the year ending December 28, 1996; therefore
the adoption will have no impact on the Company's financial position or results
of operation.
Inflation
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Inflation had no material effect on the results of operations or
financial condition during 1995, 1994, or 1993. 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
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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 41 President, Chief Executive
Officer, and Director
Peter F. Valentine 38 Treasurer and Controller
H. Kent Bowen 54 Director
Francis J. Hughes, Jr. 46 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. Peter F. Valentine has held the position of Treasurer since August,
1992, and has served as Controller of the Company since June, 1989. Prior to
joining the Company, Mr. Valentine served as Controller of Martindale
Associates, a distributor of industrial computer systems.
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.
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 (or general partner of the
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) and Hospitality
Technology Fund, L.P. (since June, 1991). Mr. Hughes has served as a Director of
the Company since 1993. Mr. Hughes is also a director of RF Monolithics, Inc.
and Sequoia Systems, Inc.
There are no family relationships between or among any executive
officers or Directors of the Company.
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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 December 30, 1995. No other executive officer of
the Company serving on the last day of fiscal year 1995 received total annual
salary and bonus in excess of $100,000.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Other Options/ LTIP All Other
Salary Bonus Compensation SAR's Payouts Compensation
Name and Principal Position Year ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ------- ----- ------------ -------- ------- ------------
Grant C. Bennett........... 1995 $92,925 $0 $0 0 $0 $0
President and Chief 1994 91,000 0 0 0 0 0
Executive Officer 1993 91,000 0 0 0 0 0
The Company's President and Chief Executive Officer did not receive
option grants during fiscal year 1995. The following table summarizes option
exercises by him and the value of options held by him at the end of the fiscal
year 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
Shares Number of Shares Subject Value of Unexpired
Acquired to Unexercised Options In-The-Money Options
on Value at Fiscal Year-End at Fiscal Year-End
Exercise Realized (Exercisable/Unexercisable) (Exercisable/Unexercisable)
Name (#)(1) ($) (#) ($)(2)
- ---- -------- --------- --------------------------- ---------------------------
Grant C. Bennett..... 0 $0 74,968/149,937 $0/$0
(1) No options were exercised in fiscal 1995 by Mr. Bennett.
(2) Value is based on the closing bid price of the Company's Common Stock on December 29, 1995 ($0.34), the last trading
day of the Company's 1995 fiscal year, less the applicable exercise price.
Directors' Fees
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Under the terms of the Company's 1992 Director Option Plan (the
"Director Plan"), Directors who are neither officers nor employees of the
Company (the "Outside Directors") are entitled to receive stock options as
compensation for their services as Directors. A non-statutory stock option (the
"initial option") to purchase up to 4,000 shares of Common Stock was granted on
May 1, 1992 to each eligible Director who was then serving as a Director, and
shall be granted to each other eligible Director upon his or her initial
election as a Director. Also, each eligible Director is entitled to receive a
non-statutory stock option (the "reelection option") to purchase up to 2,000
shares of Common Stock on each subsequent date that he or she is reelected as a
Director of the Company. In addition, under the terms of the Plan, the Director
serving as Chairman of the Board and each Director serving on a standing
committee of the Board is entitled to receive an option to an additional 500
shares as part of his initial option and each reelection option. Options vest in
12 equal monthly installments beginning one month from the date of grant,
provided that 2,000 shares of each initial option vest immediately. No options
were granted to Directors under the Director Plan in 1994. At December 30, 1995,
options to purchase 35,500 shares of Common Stock were outstanding under the
Director Plan.
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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.
Severance Benefit Program
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Effective June 1, 1989, the Board of Directors adopted the Company's
Severance Benefit Program (the "Severance Program") for certain employees and
officers selected from time to time by the Compensation Committee. The Severance
Program, which extends through May, 1998, provides that upon "Involuntary
Termination" of a participating employee (a "Participant"), such Participant
will (i) continue to receive 50% of his then current annual base salary for a
period of six months from the termination date, (ii) receive a lump sum payment
at the time of termination equal to the Participant's unused vacation pay, and
(iii) for a period not to exceed six months, continue to receive benefits in all
group benefit plans of the Company in which such Participant participated
immediately prior to termination, at a cost to the Participant no greater than
the cost at the time of termination. "Involuntary Termination" is defined in the
Severance Program as the (a) involuntary termination of employment, other than
for "cause" or due to disability or death, or (b) voluntary termination of
employment as a result of reduction in the Participant's salary, other than a
reduction which is related primarily to the economic performance or prospects of
the Company, and which is not applied to an individual Participant. "Cause" is
defined in the Severance Program as willful engaging of a Participant in conduct
that is materially injurious to the Company.
In order to receive benefits under the Severance Program, the
Participant may not (i) become employed by, render any services for, act on
behalf of, or have any interest, direct or indirect, in any business which
competes, directly or indirectly, with the Company, or (ii) recruit or solicit
any employee of the Company to terminate his or her employment or relationship
with the Company.
Mr. Bennett is currently participating in the Severance Program. No
amounts were paid under the Severance Program in 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 23,
1997, 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
- ------------------- ------------ -------------
Ampersand Specialty Materials
Ventures Limited Partnership
("ASMV")
55 William Street, Suite 240
Wellesley, MA 02181 1,668,666(2) 17.4%
Waco Partners
c/o Wechsler & Co., Inc.
105 South Bedford Road, Suite 310
12
13
Mount Kisco, NY 10549 1,950,423(3) 20.4%
American Research and Development III, L.P.
("ARD III")
45 Milk Street
Boston, MA 02109 1,181,899(4) 14.3%
American Research and Development I, L.P.
("ARD I")
45 Milk Street
Boston, MA 02109 990,802(5) 12.1%
Techno Venture Management Corp.
("TVM")
101 Arch Street, Suite 1950
Boston, MA 02110 501,726(6) 6.1%
Grant C. Bennett 1,646,167 20.8%
H. Kent Bowen None *
Francis J. Hughes, Jr. 2,177,201(7) 25.4%
All Directors and Officers as a
group (four persons) 3,825,185(8) 44.5%
*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) Includes an aggregate of 1,668,666 shares of Common Stock issuable upon
conversion of the Convertible Notes held by Ampersand Specialty Materials
Ventures Limited Partnership ("ASMV")(including principal and interest thereon),
convertible within 60 days after January 23, 1997 (See "Certain Transactions").
Includes options, exercisable within 60 days after January 23, 1997, to purchase
an aggregate of 15,000 shares held by General Partners of a partnership that
controls ASMV, as to which shares the General partners disclaim beneficial
ownership.
(3) Includes an aggregate of 1,620,822 shares of Common Stock issuable upon
conversion of the Convertible Notes held by Waco Partners (including principal
and interest thereon), convertible within 60 days after January 23, 1997.
(4) Excludes 688,500 shares of Common Stock owned by American Research &
Development I, L.P. ("ARD I"), an entity under common control with American
Research and Development III, L.P. ("ARD III"). Excludes an option to purchase
4,500 shares of Common Stock, exercisable within 60 days after January 23, 1997,
held by Francis J. Hughes, Jr. a Director of the Company and General Partner of
a partnership which controls ARD III. Includes an aggregate of 360,430 shares of
Common Stock issuable upon conversion of the Convertible Notes held by ARD III
(including principal and
13
14
interest thereon), convertible within 60 days after January 23, 1997 (See
"Certain Transactions"). Includes options to purchase 4,800 shares of Common
Stock exercisable within 60 days after January 23, 1997.
(5) Excludes 821,469 shares of Common Stock owned by ARD III, an entity
under common control with ARD I. Excludes an option to purchase 4,500 shares of
Common Stock, exercisable within 60 days after January 23, 1997, held by Mr.
Hughes, a Director of the Company and former General Partner of a partnership
which controls ARD I. Includes an aggregate of 302,302 shares of Common Stock
issuable upon conversion of the Convertible Notes held by ARD I (including
principal and interest thereon), convertible within 60 days after January 23,
1997 (See "Certain Transactions"). Includes options to purchase 4,200 shares of
Common Stock exercisable within 60 days after January 23, 1997.
(6) Includes an aggregate of 251,726 shares of Common Stock issuable upon
conversion of the Convertible Notes held by Techno Venture Management Corp.
("TVM")(including principal and interest thereon), convertible within 60 days
after January 23, 1997 (See "Certain Transactions").
(7) Includes 688,500 shares of Common Stock owned by ARD I and 821,469
shares of Common Stock owned by ARD III, as to which shares Mr. Hughes disclaims
beneficial ownership. Mr. Hughes, a Director of the Company, is a General
Partner of partnerships which control ARD I and ARD III. Includes an aggregate
of 662,732 shares of Common Stock issuable upon conversion of the Convertible
Notes held by ARD I and ARD III (including principal and interest thereon),
convertible within 60 days after January 23, 1997 (See "Certain Transactions");
Mr. Hughes disclaims beneficial ownership of these shares. Includes options to
purchase 4,500 shares of Common Stock held by Mr. Hughes which are exercisable
within 60 days after January 23, 1997. Includes options to purchase an aggregate
of 9,000 shares of Common Stock, exercisable within 60 days after January 23,
1997, held by ARD I and ARD III.
(8) Includes (a) an aggregate of 1,509,969 shares of Common Stock owned by
affiliates of Directors, as to which shares they disclaim beneficial ownership,
(b) includes an aggregate of 662,732 shares of Common Stock issuable upon
conversion of the Convertible Notes held by affiliates of Directors (including
principal and interest thereon), convertible within 60 days January 23, 1997
(See "Certain Transactions"), as to which shares the Directors disclaim
beneficial ownership, and (c) an aggregate of 6,317 shares of Common Stock which
officers and Directors have the right to acquire under outstanding stock options
exercisable within 60 days after January 23, 1997, and (d) an aggregate of 9,000
shares of Common Stock which a Director has the right to acquire under
outstanding stock options exercisable within 60 days after January 23, 1997, as
to which shares the Director disclaims beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February, 1991, the Company transferred to Metals Process
Systems ("MPS"), a French societe anonyme, certain licensing rights and
a co-ownership interest in certain of the Company's patents, for 49% of
the voting stock of MPS. Under the terms of the transfer agreement, MPS
shall have the exclusive right to use such patents in the area of metal
powders and the Company shall have 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. In 1993, this equity position was adjusted to 40%, based
on additional capital contributions to MPS by the Company and Sopretac,
the co-owner of the joint venture. The Company's investment was
recorded under the equity method. To date the Company's
14
15
investments in MPS have been written down to zero as the Company's
share of MPS' losses have exceeded its investment. In 1995 the Company
contributed approximately $60,000 to MPS, which, based on CPS'share of
MPS' losses, was also charged to operations in 1995. In 1996, CPS'
equity interest was reduced to 1% based upon additional investment by
Vallourec in MPS.
In 1994, the Company issued convertible subordinated notes to
affiliates of Directors and other persons known by the Company to beneficially
own more than 5% of the outstanding shares of the Company. Below is a summary of
the notes, including shares of the Company's Common Stock issuable upon
conversion, within 60 days after January 23, 1997, of the note principal and
related interest.
Per
Annum Shares Issuable Upon Conversion
Principal Interest Within 60 Days After
Amount Rate January 23, 1997
-------------------------------
Principal Interest
Noteholder ($) (%) (#) (#)
- ---------- --------- -------- --------- ---------
ASMV $660,000 10% 1,320,000 333,666
Waco Partners $750,000 10% 1,500,000 120,822
ARD III $141,440 10% 282,880 72,750
ARD I $118,560 10% 237,120 60,982
TVM $100,000 10% 200,000 51,726
Affiliates of
Directors as
a group $260,000 10% 520,000 133,732
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 on
page 22 of this Form 10-K.
2.a. Exhibits
--------
15
16
The exhibits to this Form 10-K are listed on the Exhibit Index
on pages 18-20 of this Form 10-K.
2.b. Reports on Form 8-K
-------------------
None.
16
17
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 7, 1997
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 and Director }
- -------------------------- (Principal Executive Officer) }
Grant C. Bennett }
}
}
/s/ Peter F. Valentine Controller and Treasurer }
- -------------------------- (Principal Financial and }
Accounting Officer) }
}
} March 7, 1997
}
/s/ H. Kent Bowen Director }
- -------------------------- }
H. Kent Bowen }
}
}
/s/ Francis J. Hughes, Jr. Director }
- -------------------------- }
Francis J. Hughes, Jr. }
}
17
18
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-1 Registration
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
18
19
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 --
19
20
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. 38
10.20 Amended and Restated Promissory Note dated July
31, 1996 between the Company and Texas Instruments
Incorporated 48
11.1 Computation of Earnings (Loss) Per Share 50
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 Independent Accountants 51
27 Financial Data Schedule
- ----------------------------------
** 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.
20
21
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
CERAMICS PROCESS SYSTEMS CORPORATION
Page
----
Report of Independent Accountants 22
Consolidated Balance Sheets as of December 30, 1995 and
December 31, 1994 23-24
Consolidated Statements of Operations for the years ended
December 30, 1995, December 31, 1994, and January 1,
1994 25
Consolidated Statements of Stockholders' Deficit for
the years ended December 30, 1995, December 31, 1994, and
January 1, 1994 26
Consolidated Statements of Cash Flows for the years ended
December 30, 1995, December 31, 1994, and January 1, 1994 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.
21
22
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
The Board of Directors and Stockholders
Ceramics Process Systems Corporation
We have audited the consolidated financial statements of Ceramics Process
Systems listed in the index on page 22 of this Form 10-K. 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 in accordance with generally accepted auditing
standards. These standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Ceramics Process
Systems Corporation as of December 30, 1995 and December 31, 1994, and the
consolidated results of its operations and cash flows for each of the three
years in the period ended December 30, 1995, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company's need for additional capital and
its cumulative losses from operations raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
January 17, 1997
22
23
CONSOLIDATED BALANCE SHEETS
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
ASSETS
December 30, December 31,
1995 1994
------------ ------------
Current Assets:
Cash $ 32,127 $ 252,503
Accounts receivable, trade 211,575 243,128
Inventories (Note 2) 29,026 56,126
Prepaid expenses 10,824 28,143
Other current assets 475 24,519
---------- ----------
Total current assets 284,027 604,419
---------- ----------
Property and equipment (Notes 2 and 4):
Production equipment 941,512 1,077,584
Office equipment 65,529 72,926
---------- ----------
1,007,041 1,150,510
Less accumulated depreciation and
amortization 765,635 825,677
---------- ----------
Net property and equipment 241,406 324,833
---------- ----------
Deposits 953 2,623
---------- ----------
Total Assets $ 526,386 $ 931,875
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
23
24
CONSOLIDATED BALANCE SHEETS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 30, December 31,
1995 1994
------------ ------------
Current Liabilities:
Accounts payable $ 176,494 $ 168,623
Accrued expenses (Note 9) 473,257 337,182
Notes payable (Note 7) 500,000
Current portion of convertible notes
payable (Note 8):
Related parties 920,000 125,000
Other 950,000 125,000
Current portion of obligations under
capital leases (Note 4 -- 7,532
Current portion of deferred
revenue -- 6,300
------------ ------------
Total current liabilities 3,019,751 769,637
Convertible notes payable, less current portion (Note 8):
Related parties -- 795,000
Other -- 825,000
------------ ------------
Total Liabilities 3,019,751 2,389,637
------------ ------------
Commitments (Notes 2,4,7 and 8)
Stockholders' Deficit
(Notes 5 and 8):
Common stock, $0.01 par value.
Authorized 15,000,000 shares; issued
7,780,766 shares in 1995 and
7,610,786 shares in 1994 77,808 76,108
Preferred stock, $0.01 par value.
Authorized 5,000,000 shares; no shares
issued and outstanding -- --
Additional paid-in capital 30,457,384 30,387,166
Accumulated deficit (32,967,722) (31,860,201)
------------ ------------
(2,432,530) (1,396,927)
Less treasury stock, at cost,
22,883 common shares (60,835) (60,835)
------------ ------------
Total Stockholders' Deficit (2,493,365) (1,457,762)
------------ ------------
Total Liabilities and Stockholders'
Deficit $ 526,386 $ 931,875
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
24
25
CONSOLIDATED STATEMENTS OF OPERATIONS
CERAMICS PROCESS SYSTEMS CORPORATION
- ----------------------------------------------------------------------------------------------------
Years Ended
-------------------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------ ------------ ----------
Revenue:
Product Sales $ 1,385,022 $ 1,156,912 $3,019,651
Collaborative development
agreements (Note 6) -- 32,143 493,716
License agreements 2,000 2,500 650,932
----------- ----------- ----------
Total Revenue 1,387,022 1,191,555 4,164,299
----------- ----------- ----------
Costs and expenses:
Cost of sales 1,635,592 1,767,300 3,028,207
Research, development and
engineering -- 36,065 337,480
Selling, general and
administrative 585,129 834,337 747,205
Other operating expenses
(Note 14) -- 432,850 --
----------- ----------- ----------
Total costs and expenses 2,220,721 3,070,552 4,112,892
----------- ----------- ----------
Operating income (loss) (833,699) (1,878,997) 51,407
----------- ----------- ----------
Other income (expense):
Interest income 1,289 1,556 4,652
Interest expense (216,347) (89,998) (5,005)
Gain (loss) on disposal of
equipment (666) 50,696 --
Other income (expense) (58,098) -- --
----------- ----------- ----------
Net other income (expense) (273,822) (37,746) (353)
=========== =========== ==========
Net income (loss) $(1,107,521) $(1,916,743) $ 51,054
=========== =========== ==========
Net income (loss) per common
share and common share
equivalent $ (0.14) $ (0.25) $ 0.01
=========== =========== ==========
Weighted average number of
common shares and common
share equivalents outstanding 7,674,534 7,581,000 7,619,749
=========== =========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
25
26
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 30, 1995, DECEMBER 31, 1994 AND
JANUARY 1, 1994
CERAMICS PROCESS SYSTEMS CORPORATION
- ----------------------------------------------------------------------------------------------------------------------
Common stock
-------------------- Additional Total
Number Par paid-in Accumulated Treasury stockholders'
of shares Value capital deficit stock deficit
--------- ------- ----------- ------------ -------- -----------
Balance at January 2,
1993 7,560,595 $75,606 $30,346,809 $(29,994,512) $(49,897) $ 378,006
Shares issued on
behalf of employee
stock purchase
program 2,617 26 3,873 -- -- 3,899
Stock options exercised 26,864 269 26,336 -- -- 26,605
Common stock received
in payment of stock
options exercised -- -- -- -- (10,938) (10,938)
Net income -- -- -- 51,054 -- 51,054
--------- ------- ----------- ------------ -------- -----------
Balance at January 1,
1994 7,590,076 75,901 30,377,018 (29,943,458) (60,835) 448,626
Stock options exercised 20,710 207 10,148 -- -- 10,355
Net loss -- -- -- (1,916,743) -- (1,916,743)
--------- ------- ----------- ------------ -------- -----------
Balance at December 31,
1994 7,610,786 76,108 30,387,166 (31,860,201) (60,835) (1,457,762)
Common stock issued in
settlement of
interest obligation 169,980 1,700 70,218 -- -- 71,918
Net loss -- -- -- (1,107,521) -- (1,107,521)
--------- ------- ----------- ------------ -------- -----------
Balance at December 30,
1995 7,780,766 $77,808 $30,457,384 $(32,967,722) $(60,835) $(2,493,365)
========= ======= =========== ============ ======== ===========
The accompanying notes are an integral part of the consolidated financial
statements.
26
27
CONSOLIDATED STATEMENTS OF CASH FLOWS
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------------------------------------------
Years Ended
--------------------------------------------------------
December 30, December 31, January 1,
1995 1994 1994
------------ ------------ ----------
Cash flows from operating activities:
Net income (loss) $(1,107,521) $(1,916,743) 51,054
Adjustments to reconcile net income
(loss) to cash used in operating
activities:
Depreciation 104,531 105,820 139,665
Amortization 11,517 43,217 27,642
Loss (gain) on disposal of equipment 666 (50,696) --
Loss on investment 65,893
Changes in assets and liabilities:
Accounts receivable, trade 31,553 264,393 (89,278)
Inventories 27,100 27,406 78,631
Prepaid expenses 17,319 (1,513) 21,169
Other current assets 24,044 (24,519) 125,916
Accounts payable 7,871 (34,030) (9,385)
Accrued expenses 257,993 95,027 (393,213)
Due to customer -- (176,528) 176,528
Deferred revenue (6,300) -- (826,058)
----------- ----------- ---------
Net cash used in operating
activities (565,334) (1,668,166) (697,339)
----------- ----------- ---------
Cash flows from investing activities:
Proceeds from sale of assets 8,040 50,696 --
Additions to property and equipment (41,327) (100,995) (88,548)
Investment in joint venture (65,893)
Deposits 1,670 29,971 (10,731)
----------- ----------- ---------
Net cash used in investing
activities (97,510) (20,328) (99,279)
----------- ----------- ---------
Cash flows from financing activities:
Principal payments of capital lease
obligations (7,532) (28,691) (26,522)
Proceeds from issuance of notes
payable 450,000 1,870,000 --
Proceeds from issuance of common
stock -- 10,355 19,566
----------- ----------- ---------
Net cash provided by (used in)
financing activities 442,468 1,851,664 (6,956)
----------- ----------- ---------
Net increase (decrease) in cash (220,376) 163,170 (803,574)
Cash at beginning of year 252,503 89,333 892,907
----------- ----------- ---------
Cash at end of year $ 32,127 $ 252,503 $ 89,333
=========== =========== =========
The accompanying notes are an integral part of the consolidated financial
statements.
27
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(1) Nature of Business
------------------
Ceramics Process Systems Corporation develops, manufactures, and
markets advanced metal-matrix composite and ceramic components used to
house and interconnect microelectronic devices.
(2) Summary of Significant Accounting Policies
------------------------------------------
(a) Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Ceramics Process Systems Corporation and its wholly-owned
subsidiary, CPS Superconductor Corporation ("CPSS"). All
significant intercompany balances and transactions have been
eliminated in consolidation. Certain amounts in the fiscal
1993 financial statements have been reclassified to conform to
the 1995 and 1994 presentation.
(b) Basis of Presentation
---------------------
The accompanying financial statements have been presented on a
going concern basis which contemplates the realization of
assets and the satisfaction of liabilities in the normal
course of business. Although operating income was positive in
1993, the Company has experienced cumulative losses from
operations since its inception.
The Company has continued to incur losses from operations. In
addition, as discussed in Notes 7 and 8, certain of the
Company's notes and convertible notes payable obligations have
matured, and in 1995 and 1996, the Company defaulted on the
related principal repayments and interest obligations.
In 1996, the Company entered into a license agreement which
provides for the use of certain of its patented technology and
the sale of its products. Also, sales to a single customer
contributed to a significant portion of product revenue in
1996. Amounts received from this customer, payments received
under the license agreement, and capital lease financing
obtained by the Company funded working capital requirements in
1996. Additionally, the Company continues to aggressively
market the products it manufactures, and seeks to modify the
original terms of its notes and convertible notes payable.
There is no assurance that revenues from the license agreement
or sales to the significant customer noted above will
continue. Also, there is no assurance that the notes and
convertible notes payable can be modified on terms acceptable
to the Company.
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(2) Summary of Significant Accounting Policies (continued)
(c) 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:
December 30, December 31,
1995 1994
------------ ------------
Raw materials $ 7,399 $ 8,039
Work-in-process 8,970 39,642
Finished goods 12,657 8,445
------- -------
$29,026 $56,126
======= =======
(d) Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation of
equipment is calculated on a straight-line basis over an
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. Upon retirement, 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.
(e) Revenue Recognition
-------------------
The Company recognizes product revenue generally upon
shipment. Revenue related to research and development
contracts is recognized on the percentage-of-completion basis,
which is generally based on the relationship of incurred costs
to total estimated costs on each contract. 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.
(f) Research and Development Costs
------------------------------
Research and development costs are charged to expense as
incurred.
(g) Income Taxes
------------
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109
proscribes 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.
29
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(2) Summary of Significant Accounting Policies (continued)
------------------------------------------------------
(h) Net Income (Loss) Per Share
---------------------------
Net loss per share is calculated based on the weighted average
number of common shares outstanding during the year. Stock
options and stock purchase warrants are not considered in the
calculations of net loss per share since their effect would be
antidilutive. Net income per share is calculated based on the
weighted average number of common and common share equivalents
outstanding during the year, using the treasury stock method.
Primary and fully diluted earnings per share were not
separately stated for 1993, as they were the same.
(i) 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.
(j) Risks and Uncertainties
-----------------------
The Company manufactures its products to customer
specifications and currently sells its products to a limited
number of customers in a limited number of industries.
Generally such customers have not been recurring in recent
years. A significant portion of the Company's revenues has
historically been generated from fewer than three customers
and from customers in the defense industry. Financial
instruments which potentially subject the Company to
concentrations of credit risk consist of trade accounts
receivable. The Company has not incurred significant losses on
its accounts receivable in the past.
(k) Financial Instruments
---------------------
A substantial portion of the Company's borrowings have been
financed by significant stockholders of the Company, some of
which have reduced their ownership interest subsequent to
December 30, 1995. In addition, the Company is in default of a
significant portion of its notes payable and convertible notes
payable. As a result of the Company's defaults and the
uncertainties surrounding the Company's ability to continue as
a going concern, it is not practicable to estimate the fair
value of the Company's notes payable and convertible notes
payable.
(l) 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 years 1995, 1994, and 1993 consisted of
52 weeks.
(m) Dividend Policy
---------------
Dividends are declared at the discretion of the Company's
Board of Directors. To date, no cash dividends have been
declared. Any earnings are reinvested in the Company.
30
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(3) Supplemental Cash Flow Information
----------------------------------
The Company acquired no equipment through capital lease obligations in
1995, 1994, and 1993. Additionally, the Company paid interest amounting
to $3,901, $10,687 and $5,005 in 1995, 1994, and 1993, respectively. In
1995, the Company settled $71,918 of interest cost owed to a noteholder
through issuance of 169,980 shares of common stock. In 1993, the
Company received 6,250 shares of common stock with a fair market value
of $10,938 in exchange for the issuance of common stock under a stock
option plan. The Company paid state income taxes of $951, $1,049 and
$1,254 in 1995, 1994 and 1993, respectively.
(4) Leases
------
At December 30, 1995 the Company had no property under capital leases.
At December 31, 1994, the Company had production equipment with a cost
of $82,927 and accumulated amortization of $71,409 under capital
leases.
In 1989, the Company entered into a ten-year lease for a facility in
Milford, Massachusetts. In 1993, the Company reached an agreement with
the lessor to terminate its lease effective January 31, 1994. In
February, 1994, the Company relocated its operations to Chartley,
Massachusetts (See Note 14). The Company is currently operating at the
Chartley facility as a tenant at will.
During 1993, the Company entered into an operating lease agreement for
an office, manufacturing, and research facility in Hopkinton,
Massachusetts. The Company did not relocate to this facility, but in
1994 used it for purposes of storage and warehousing. In 1995, the
Company reached an agreement with the lessor to terminate the lease
effective January 31, 1995.
Total rental expense for operating leases was $67,500, $146,789, and
$216,923 in 1995, 1994, and 1993.
(5) Stock Options
-------------
In 1995, the Company maintained two stock option plans affording
employees and other persons affiliated with the Company, excluding
non-employee Directors, the opportunity to purchase shares of its
common stock. In August, 1994, one of the stock option plans expired
and no new grants are currently available under it. Under the remaining
plan, the Board of Directors may grant incentive stock options to
officers and other key employees of the Company. Additionally, the
remaining plan permits the Board of Directors to issue non-qualified
stock options to officers and other key employees and consultants of
the Company. All incentive stock options are granted at the fair market
value of the stock or in the case of certain optionees, at 110% of such
fair market value at the time of the grant. Such options are
exercisable in installments following a minimum period of employment
and expire within ten years from the date granted. All non-qualified
stock options are granted a price not less than 50% of the fair market
value at the time of the grant. The difference between the option price
and such fair market value is accounted for as compensation expense and
amortized over the vesting period of the stock, which is determined by
the Board of Directors.
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(5) Stock Options (Continued)
-------------------------
As of December 30, 1995, the total remaining number of remaining shares
authorized for issuance under these stock option plans amounted to
524,032. The following is a summary of stock option activity for the
fiscal years 1993, 1994, and 1995.
Non-qualified Stock
Incentive Stock Options Options
-------------------------- --------------------------
Shares Price Range Shares Price Range
-------- ----------- -------- -----------
Outstanding,
January 2, 1993 264,806 $0.50-1.25 442,894 $0.88-3.75
Granted -- -- 5,000 1.63
Exercised -- -- (26,864) 0.88-1.00
Canceled (46,366) 1.00-1.25 (48,061) .88-2.75
-------- ---------- -------- ----------
Outstanding,
January 1, 1994 218,440 0.50-1.25 372,969 0.88-3.75
Granted -- -- -- --
Exercised (20,710) 0.50 -- --
Canceled (6,920) 1.00-1.25 (34,196) .88-3.75
-------- ---------- -------- ----------
Outstanding,
December 31, 1994 190,810 0.50-1.25 338,773 0.88-3.75
Granted 335,395 0.44 64,995 0.44
Exercised -- -- -- --
Canceled (235,350) 0.44-1.25 (281,773) .88-2.75
-------- ---------- -------- ----------
Outstanding,
December 30, 1995 290,855 $0.44-1.25 121,995 $0.44-3.75
======== ========== ======== ==========
Options exercisable
December 30, 1995 137,285 $0.44-1.25 78,668 $0.44-3.75
======== ========== ======== ==========
In addition, during 1992 the Company adopted the 1992 Director Option
Plan (the "Director Plan") to compensate outside directors for their
services. Under the Director Plan, eligible directors are initially
granted options to purchase up to 4,000 shares of the Company's common
stock, and are granted options to purchase up to 2,000 shares of the
Company's common stock upon re-election as a director. Additionally,
directors serving on standing committees of the Board are granted
options to purchase up to 500 shares of the Company's common stock. No
options to purchase shares of the Company's common stock under the
Director Plan were granted in 1995 or 1994. In 1993, options to
purchase 12,500 shares of the Company's common stock were granted to
outside directors under the Director Plan at a price of $0.75 per
share. At December 30, 1995, options to purchase 35,500 shares of
Common Stock were outstanding under the Director Plan.
32
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(5) Stock Options (Continued)
-------------------------
In June 1995, the Company granted 400,390 options at the current fair
market value of $0.44 with similar terms and conditions to existing
option holders in exchange for the previously issued options.
In November 1995, the financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock-Based Compensation". The Company intends to adopt
the disclosure requirements of SFAS No. 123 for the year ending
December 28, 1996; therefore the adoption will have no impact on the
Company's financial position or results of operations.
(6) Research and Development Agreements
-----------------------------------
In 1995, the Company recognized no revenue or related costs from
research and development agreements. In 1994 and 1993 the Company
maintained research and development agreements with several parties.
For fiscal years 1994 and 1993, the Company recognized revenue from
these agreements in the amounts of $32,143 and $493,716, respectively,
and incurred research and development costs relating to this revenue in
the amounts of $36,065 and $337,480, respectively. Substantially all of
the revenue and costs associated with research and development
agreements in 1994 and 1993 were the result of collaborative
development agreements with The Office of Naval Research ("ONR") and
Carpenter Technology Corporation ("CarTech").
(7) Notes Payable
-------------
Notes payable consist of the following at December 30, 1995:
In 1995, the Company obtained financing under three agreements with
separate parties, the terms and conditions of which are summarized as
follows:
Note Payable 1
--------------
Note payable dated March 31, 1995 due March 30, 1996,
with interest payable at a rate of 10% per year. The
Company is in default of this note effective March
30, 1996 and is accruing interest from that date at
the default rate of 15% per year. The note is
collateralized by accounts receivable, inventory,
property and equipment. $250,000
Note Payable 2
--------------
Note payable dated July 19, 1995, as amended July 31,
1996, with interest payable at a rate of 10% per year
due in installments on September 27, 1996, December
27, 1996, March 28, 1997 and July 31, 1997. 200,000
33
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(7) Notes Payable (continued)
-------------------------
Note Payable 3
--------------
Note payable dated November 30, 1995 due in
installments commencing December 30, 1995 through
June 30, 1996 with interest at a rate of 12% per year
due June 30, 1996. The note is secured by accounts
receivable, inventory and property and equipment. $ 50,000
--------
$500,000
========
(8) Convertible Notes Payable
-------------------------
Convertible notes payable consist of the following at December 30, 1995
and December 31, 1994:
Note Payable 1
--------------
Unsecured notes payable dated February 16, 1994 with
five parties, due June 30, 1995 plus interest at 10%
per annum $250,000
Note Payable 2
--------------
Unsecured note payable dated April 21, 1994, due
April 21, 2001; interest at 10% per annum is due
semi-annually on September 30 and March 31. 500,000
Note Payable 3
--------------
Unsecured note payable dated July 20, 1994, due
January 31, 1996 plus interest at 10% per annum 120,000
Note Payable 4
--------------
Unsecured notes payable dated October 26, 1994 with
six parties, due April 24, 1996 plus interest at 10%
per annum. $1,000,000
----------
$1,870,000
==========
At December 30, 1995, the Company was in default of Note Payable 1 and
Note Payable 2 and on January 31, 1996 and April 24, 1996, the Company
defaulted on Notes Payable 3 and 4, respectively. $920,000 of the
principal balance of the convertible notes payable represent amounts
due to holders of greater than 10% of the Company's common stock for
which the related accrued interest and interest expense as of and for
the years ended December 30, 1995 and December 31, 1994 amounted to
$120,489 and $28,741, and $92,000 and $28,741, respectively.
Conversion privileges provided in the notes payable allow for the
conversion of any unpaid principal throughout the term of each note, at
the option of the note holders, for one share of the Company's common
stock for each $0.50 of unpaid principal. The convertible notes are
subordinated to all other indebtedness of the Company.
34
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(8) Convertible Notes Payable (continued)
-------------------------------------
Conversion privileges provided in Note Payable 1, Note Payable 3, and
Note Payable 4 allow for the conversion of any unpaid interest
throughout the note terms, at the option of the note holders, for one
share of the Company's common stock for each $0.50 of unpaid principal.
At the option of the Company, interest due under Note Payable 2 may be
paid in shares of the Company's common stock at a conversion price of
the lesser of $0.50 per share or 90% of the average closing bid price
of the Company's common stock during the twenty consecutive trading
days ending five business days immediately preceding the date on which
any interest payment is due (See Note 3). 4,127,761 shares of common
stock at December 30, 1995 are reserved for the conversion of
convertible notes and related interest.
In connection with the issuance of convertible notes payable, the
Company issued warrants for the purchase of shares of the Company's
common stock at a price of $0.50 per common share. Warrants for the
purchase of 410,628 shares of common stock were outstanding at December
30, 1995 of which 315,560 expired on December 31, 1995 and 95,068 were
exercisable from January 31, 1996 through July 30, 1996.
Principal maturities for notes payable and convertible notes payable,
if these were not in default, are as follows:
Currently $ 750,000
1996 1,435,000
1997 185,000
1998 0
1999 0
2000 0
Thereafter 0
----------
$2,370,000
==========
(9) Accrued Expenses
----------------
Accrued expenses consist of the following:
December 30, December 31,
1995 1994
------------ ------------
Accrued legal and accounting $150,549 $174,428
Accrued interest (Note 7) 219,839 79,311
Accrued payroll 67,364 74,029
Accrued other 35,505 9,414
-------- --------
$473,257 $337,182
======== ========
35
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(10) Income Taxes
------------
Deferred tax assets and liabilities are as follows:
December 30, December 31,
1995 1994
------------ ------------
Net operating losses $ 12,000,000 $ 11,840,000
Vacation and other accrued
expenses 11,000 16,000
Depreciation (85,000) (83,000)
------------ ------------
Total 11,926,000 11,773,000
Valuation allowance (11,926,000) (11,773,000)
$ -- $ --
============ ============
Due to the uncertainty related to the realization of the net deferred
tax asset, a full valuation allowance has been provided. At December
30, 1995, the Company had net operating loss carryforwards of
approximately $34,000,000 available to offset future income for U.S.
Federal income tax purposes, and $8,000,000 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 1997 through 2001 for state income tax purposes.
The Tax Reform Act of 1986 limits the amount of operating loss and tax
credit carryforwards that companies may utilize in any one year in the
event of cumulative changes in ownership in excess of 50% over a three
year period.
(11) 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 180 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 December 30, 1995, no employer matching
contributions had been made to the Plan.
(12) Joint Venture
-------------
In February 1991, the Company formed a joint venture company, Metals
Process Systems ("MPS"), headquartered in Boulogne, France, with
Sopretac, a Vallourec Group Company, to market and license jointly-held
technology for use with powdered metals to third parties. The Company
contributed certain proprietary technology to the venture in exchange
for a 49% equity position. The Company's investment was recorded under
the equity method. To date the Company's investments in MPS have been
written down to zero as the Company's share of MPS' losses have
exceeded its investment. In 1995 the Company contributed approximately
$60,000 to MPS, which, based on CPS'share of MPS' losses, was also
charged to operations in 1995. In 1996, CPS' equity interest was
reduced to 1% based upon additional investment by Vallourec in MPS.
36
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CERAMICS PROCESS SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
(13) Significant Customers and Export Sales
--------------------------------------
Significant customers in 1995, 1994, and 1993 were as follows:
Significant Significant
Customer Customer
----------- -----------
Year ended December 30, 1995 A 27%
B 21%
C 11%
Year ended December 31, 1994 B 23%
C 19%
Year ended January 1, 1994 C 11%
D 33%
E 18%
F 16%
G 10%
Export sales were 2%, 4%, and less than 1% of total revenue in 1995,
1994, 1993, respectively, and represented sales to Europe and Japan.
(14) Other Operating Expenses
------------------------
In connection with the Company's relocation to Chartley, Massachusetts
in February, 1994 (See Note 4), costs totaling $432,850 were incurred
in the fitup of the Chartley building. These previously capitalized
costs were expensed in their entirety in the fourth quarter of 1994.
37