CPS Technologies Corp. 10-K Summary (Fiscal Year Ended Dec 30, 1995)
Business Context and Reporting Period
Ceramics Process Systems Corporation (CPS) develops, manufactures, and markets advanced metal-matrix composite and ceramic components for microelectronic thermal management. The reporting period covers the fiscal year ended December 30, 1995. The Company operates in the microelectronics market, supplying products for power amplifiers, motor controllers, and radar systems. In 1995, over 99% of revenue was derived from manufactured products, with less than 1% from licensing. The Company is headquartered in Chartley, Massachusetts, and employs 18 full-time staff.
Key Financial Metrics
| Metric | 1995 | 1994 | 1993 |
|---|---|---|---|
| Revenue | $1.39 million | $1.19 million | $4.16 million |
| Net Income (Loss) | $(1.11 million) | $(1.92 million) | $51 thousand |
| Operating Income (Loss) | $(0.83 million) | $(1.88 million) | $51 thousand |
| Cost of Sales | $1.64 million | $1.77 million | $3.03 million |
| Cash on Hand (Year-End) | $32 thousand | $253 thousand | $89 thousand |
| Working Capital (Deficit) | $(2.74 million) | $(0.17 million) | $51 thousand |
| Total Assets | $0.53 million | $0.93 million | $1.11 million |
| Stockholders' Equity (Deficit) | $(2.49 million) | $(1.46 million) | $0.45 million |
Debt and Liquidity: The Company holds $500,000 in notes payable and $1.87 million in convertible notes payable. As of the filing date, the Company was in default on principal and interest repayments for several matured notes. Cash flow from operations was negative $(0.57) million in 1995.
Material Changes vs. Prior Period
- Revenue Recovery: Revenue increased 16% to $1.39 million in 1995 compared to 1994, reversing a 71% decline seen in 1994. The 1994 decline was attributed to operational disruptions during a facility relocation and the loss of major customer orders.
- Operational Efficiency: The Company was fully operational in 1995, eliminating the inefficiencies that plagued 1994. Consequently, cost of sales decreased by $0.13 million despite higher revenue.
- Customer Concentration: Customer concentration increased significantly. In 1995, Motorola (27%), Texas Instruments (21%), and Hughes Corporation (11%) accounted for 59% of total revenue. In 1994, these same customers accounted for only 43%.
- Loss Reduction: Net loss improved to $(1.11) million from $(1.92) million in 1994, driven by higher sales and lower operating expenses.
Guidance, Risks, and Contingencies
Going Concern Uncertainty: The independent auditors (Coopers & Lybrand) issued a report with an explanatory paragraph stating that the Company's cumulative losses and need for additional capital raise substantial doubt about its ability to continue as a going concern.
Debt Default: The Company defaulted on interest and principal repayments for notes payable in 1995 and 1996. While the Company seeks to modify these terms, there is no assurance of success. The Company is currently unable to repay matured balances.
Liquidity Risks: Cash reserves dropped to $32,000. The Company financed 1996 working capital through a new license agreement, sales to a single customer, and capital lease financing. There is no assurance the Company can meet operating cash requirements in 1997.
Joint Venture: The Company's investment in Metals Process Systems (MPS), a joint venture, has been written down to zero due to losses. The Company's ownership interest was reduced to less than 1% in 1996.
Investor Verification Checklist
- Debt Restructuring Status: Verify if the Company has successfully renegotiated terms for the defaulted notes payable and convertible notes totaling over $2.3 million.
- Cash Runway: Confirm current cash balances and the sustainability of the 1996 revenue sources (single customer sales and license agreements) to fund 1997 operations.
- Customer Dependency: Assess the risk associated with the top three customers (Motorola, Texas Instruments, Hughes) representing nearly 60% of revenue.
- Going Concern Plan: Review management's specific plans for raising capital to address the substantial doubt expressed by auditors.
- Stock Dilution: Note that 4.1 million shares are reserved for conversion of convertible notes, which could significantly dilute existing shareholders if converted.