ITEM 1 FINANCIAL STATEMENTS (Unaudited)
CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
|
|
|
April 1,
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,875,613
|
|
|
$
|
3,407,760
|
|
Accounts receivable-trade, net
|
|
|
1,753,119
|
|
|
|
1,959,606
|
|
Inventories, net
|
|
|
1,947,851
|
|
|
|
1,970,961
|
|
Prepaid expenses and other current assets
|
|
|
124,827
|
|
|
|
88,443
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
6,701,410
|
|
|
|
7,426,770
|
|
|
|
|
|
|
|
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Production equipment
|
|
|
9,046,846
|
|
|
|
9,046,846
|
|
Furniture and office equipment
|
|
|
412,412
|
|
|
|
412,412
|
|
Leasehold improvements
|
|
|
886,582
|
|
|
|
886,582
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
10,345,840
|
|
|
|
10,345,840
|
|
Accumulated depreciation and amortization
|
|
|
(8,861,595)
|
|
|
|
(8,720,219)
|
|
Construction in progress
|
|
|
191,265
|
|
|
|
158,006
|
|
|
|
Net property and equipment
|
|
|
1,675,510
|
|
|
|
1,783,627
|
|
|
|
Deferred taxes
|
|
|
3,274,141
|
|
|
|
2,827,349
|
|
|
|
Total Assets
|
|
$
|
11,651,061
|
|
|
$
|
12,037,746
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
(continued)
CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(concluded)
LIABILITIES AND STOCKHOLDERS’
|
|
|
April 1,
|
|
|
|
December 31,
|
|
EQUITY
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
884,420
|
|
|
|
662,482
|
|
Accrued expenses
|
|
|
545,325
|
|
|
|
623,959
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,429,745
|
|
|
|
1,286,441
|
|
|
|
Commitments (note 9)
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value,
|
|
|
|
|
|
|
|
|
authorized 20,000,000 shares;
|
|
|
|
|
|
|
|
|
issued 13,423,492 shares;
|
|
|
|
|
|
|
|
|
outstanding 13,203,436;
|
|
|
|
|
|
|
|
|
at April 1, 2017 and December 31, 2016,
|
|
|
134,235
|
|
|
|
134,235
|
|
Additional paid-in capital
|
|
|
35,527,098
|
|
|
|
35,452,685
|
|
Accumulated deficit
|
|
|
(24,922,964)
|
|
|
|
(24,318,562)
|
|
Less cost of 220,056 common shares repurchased
|
|
|
|
|
|
|
|
|
at April 1, 2017 and December 31, 2016
|
|
|
(517,053)
|
|
|
|
(517,053)
|
|
|
|
Total stockholders’ equity
|
|
|
10,221,316
|
|
|
|
10,751,305
|
|
|
|
Total liabilities and stockholders’
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
11,651,061
|
|
|
$
|
12,037,746
|
|
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
Statements of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
April 1,
|
|
|
|
April 2,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
2,845,299
|
|
|
$
|
5,215,617
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,845,299
|
|
|
|
5,215,617
|
|
Cost of product sales
|
|
|
2,925,691
|
|
|
|
4,084,060
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
(80,392)
|
|
|
|
1,131,557
|
|
Selling, general, and
|
|
|
|
|
|
|
|
|
administrative expense
|
|
|
973,430
|
|
|
|
908,169
|
|
|
|
Income (loss) from operations
|
|
|
(1,053,822)
|
|
|
|
223,388
|
|
Other income, net
|
|
|
2,628
|
|
|
|
3,740
|
|
|
|
Income (loss) before taxes
|
|
|
(1,051,194)
|
|
|
|
227,128
|
|
Income tax provision (benefit)
|
|
|
(446,792)
|
|
|
|
30,000
|
|
|
|
Net income (loss)
|
|
$
|
(604,402)
|
|
|
$
|
197,128
|
|
|
|
Net income (loss) per
|
|
|
|
|
|
|
|
|
basic common share
|
|
$
|
(0.05)
|
|
|
$
|
0.01
|
|
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
basic common shares
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,203,436
|
|
|
|
13,198,236
|
|
|
|
Net income (loss) per
|
|
|
|
|
|
|
|
|
diluted common share
|
|
$
|
(0.05)
|
|
|
$
|
0.01
|
|
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
diluted common shares
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,203,436
|
|
|
|
13,503,656
|
|
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
Statements of Cash Flows (Unaudited)
|
|
Fiscal Quarters Ended
|
|
|
|
|
April 1,
|
|
|
|
April 2,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(604,402)
|
|
|
$
|
197,128
|
|
Adjustments to reconcile net income (loss)
|
|
|
|
|
|
|
|
|
to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
141,376
|
|
|
|
135,264
|
|
Share-based compensation
|
|
|
74,413
|
|
|
|
78,612
|
|
Deferred taxes
|
|
|
(446,792)
|
|
|
|
30,000
|
|
Excess tax benefit from stock options exercised
|
|
|
—
|
|
|
|
(57)
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable-trade
|
|
|
206,487
|
|
|
|
871,033
|
|
Inventories
|
|
|
23,110
|
|
|
|
5,745
|
|
Prepaid expenses and other current assets
|
|
|
(36,384)
|
|
|
|
(41,922)
|
|
Accounts payable
|
|
|
221,938
|
|
|
|
(260,456)
|
|
Accrued expenses
|
|
|
(78,634)
|
|
|
|
(353,242)
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
(498,888)
|
|
|
|
662,105
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(33,259)
|
|
|
|
(366,987)
|
|
|
|
Net cash used in investing
|
|
|
|
|
|
|
|
|
activities
|
|
|
(33,259)
|
|
|
|
(366,987)
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Excess tax benefit from stock options exercised
|
|
|
—
|
|
|
|
57
|
|
Proceeds from issuance of common stock
|
|
|
—
|
|
|
|
1,836
|
|
|
|
Net cash provided by
|
|
|
|
|
|
|
|
|
financing activities
|
|
|
—
|
|
|
|
1,893
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(532,147)
|
|
|
|
297,011
|
|
Cash and cash equivalents at beginning of period
|
|
|
3,407,760
|
|
|
|
3,412,649
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
2,875,613
|
|
|
$
|
3,709,660
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for taxes, net of refunds
|
|
$
|
—
|
|
|
$
|
8,000
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
Notes to Financial Statement
(Unaudited)
(1) Nature of Business
CPS Technologies Corporation (the “Company”
or “CPS”) provides advanced material solutions to the electronics, power generation, automotive and other industries.
The Company’s primary advanced material solution is metal-matrix composites which are a combination of metal and ceramic.
CPS also assembles housings
and packages for hybrid circuits. These housings and packages may include components made of metal-matrix composites or they may
include components made of more traditional materials such as aluminum, copper-tungsten, etc.
The Company sells into
several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor
controller market, and other microelectronic and structural markets.
(2) Interim 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 are unaudited.
In the opinion of management, the unaudited financial statements of CPS reflect all normal recurring adjustments which are necessary
to present fairly the financial position and results of operations for such periods.
The Company’s balance sheet at December
31, 2016 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes
required by accounting principles generally accepted in the United States of America for complete financial statements.
For further information, refer to the financial
statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 31,
2016.
The results of operations for interim periods
are not necessarily indicative of the results to be expected for the full year.
(3) Net Income (Loss)
Per Common and Common Equivalent Share
Basic net income (loss) per common share is calculated
by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income
(loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares
plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted
stock options and stock purchase rights. Common stock equivalents are excluded from the diluted calculations when a net loss is
incurred as they would be anti-dilutive.
The following table presents the calculation
of both basic and diluted earnings per share (“EPS”):
|
|
For periods ended
|
|
|
|
|
April 1,
|
|
|
|
April 2,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Basic EPS Computation:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(604,402)
|
|
|
$
|
197,128
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
common shares
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
13,203,436
|
|
|
|
13,198,236
|
|
Basic EPS
|
|
$
|
(0.05)
|
|
|
$
|
0.01
|
|
Diluted EPS Computation:
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(604,402)
|
|
|
$
|
197,128
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
common shares
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
13,203,436
|
|
|
|
13,198,236
|
|
Dilutive effect stock options
|
|
|
—
|
|
|
|
305,420
|
|
Total Shares
|
|
|
13,203,436
|
|
|
|
13,503,656
|
|
Diluted EPS
|
|
$
|
(0.05)
|
|
|
$
|
0.01
|
|
(4) Share-Based Payments
The Company measures the cost of employee services
received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized
over the period during which an employee is required to provide services in exchange for the award, the requisite service period
(usually the vesting period). The Company provides an estimate of forfeitures at initial grant date. Reductions in compensation
expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted
periodically based on actual forfeiture experience. The company uses the Black-Scholes option pricing model to determine the fair
value of the stock options granted.
During the quarters ended April 1, 2017 and April
2, 2016 a total of 122,500 and 129,000 stock options, respectively, were granted to employees under the Company’s 2009 Stock
Incentive Plan (the “Plan) and a total of 45,000 stock options were granted to outside directors, respectively.
During the quarter ended April 1, 2017 there
were no shares issued. During the quarter ended April 2, 2016 the Company issued 1,200 shares of common stock as a result of employee
option exercises.
As of April 1, 2017, there was $443 thousand
of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan; that
cost is expected to be recognized over a weighted average period of 2.46 years.
During the quarters ended April 1, 2017 and April
2, 2016, the Company recognized approximately $74 thousand and $79 thousand, respectively, as shared-based compensation expense
related to previously granted shares under the Plan.
(5) Inventories
Inventories consist of the following:
|
|
|
April 1,
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
360,450
|
|
|
$
|
398,994
|
|
Work in process
|
|
|
1,082,074
|
|
|
|
1,089,496
|
|
Finished goods
|
|
|
1,041,492
|
|
|
|
1,032,971
|
|
|
|
|
|
|
|
|
|
|
Gross inventory
|
|
|
2,484,016
|
|
|
|
2,521,461
|
|
Reserve for obsolescence
|
|
|
(536,165)
|
|
|
|
(550,500)
|
|
|
|
Inventories, net
|
|
$
|
1,947,851
|
|
|
$
|
1,970,961
|
|
|
|
|
|
|
|
|
|
|
(6) Accrued Expenses
Accrued expenses consist of the following:
|
|
|
April 1,
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Accrued legal and accounting
|
|
$
|
132,617
|
|
|
$
|
87,690
|
|
Accrued payroll and related expenses
|
|
|
338,485
|
|
|
|
456,063
|
|
Accrued other
|
|
|
74,223
|
|
|
|
80,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Accrued Expenses
|
|
$
|
545,325
|
|
|
$
|
623,959
|
|
|
|
|
|
|
|
|
|
|
(7) Income Taxes
In 2016, the Company adopted ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes
. As a result, 100% of the deferred tax asset is classified as non-current
for all periods presented.
A valuation allowance against deferred tax assets
is required to be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets
will not be realized. The Company believes that it will generate sufficient future taxable income to realize the tax benefits related
to the remaining deferred tax assets and as such no valuation allowance has been provided against the deferred tax asset.
The Company recorded a tax benefit of $348 thousand
for federal income taxes and a tax benefit of $99 thousand for state income taxes during the quarter ended April 1, 2017. The Company
recorded a tax expense of $37 thousand for federal taxes and a tax benefit of $7 thousand for state income taxes during the quarter
ended April 2, 2016.
(8) Commitments
The Company entered into a 10-year lease for
the Norton facilities effective on March 1, 2006. The leased facilities comprise approximately 38 thousand square feet. In June
2016 this lease was amended to extended the lease to February 28, 2018. In addition the Company has an option to extend the lease
through February 28, 2019. The lease is a triple net lease wherein the Company is responsible for payment of all real estate taxes,
operating costs and utilities. The Company also has an option to buy the property and a first right of refusal during the term
of the lease. Annual rental payments in 2017 are expected to approximate $152 thousand.
In February 2011, the Company entered into a
lease for an additional 13.8 thousand square feet in Attleboro, MA. The lease term is for one year and has an option to extend
the lease for five additional one-year periods. The Company renewed the lease in 2013 for one additional year and also obtained
two years of additional options which could extend the Company use through February 2019. In 2016, the Company exercised
its option to extend the lease through the end of February 2018. Annual rental payments in 2017 are expected to approximate $83
thousand.
ITEM 2 MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial
condition and results of operations is based upon and should be read in conjunction with the financial statements of the Company
and notes thereto included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
Forward-Looking Statements
This Quarterly Report on Form 10-Q 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 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.
Critical Accounting Policies
The critical accounting policies utilized by
the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual
Report on Form 10-K for the year ended December 31, 2016, under the heading “Management’s Discussion and Analysis of
Financial Condition and Results of Operations”. There have been no material changes to these policies since December
31, 2016.
Overview
CPS Technologies Corporation (the ‘Company’
or ‘CPS’) provides advanced material solutions to the electronics, power generation, automotive and other industries.
The Company’s products are generally used
in high-power, high-reliability applications. These applications always involve energy use or energy generation and the Company’s
products allow higher performance and improved energy efficiency. The Company is an important participant in the growing movement
towards alternative energy and "green" lifestyles. For example, the Company’s products are used in mass transit,
hybrid and electric cars, wind-turbines for electricity generation as well as routers and switches for the internet which in turn
allows telecommuting.
The Company’s primary advanced material
solution is metal matrix composites (MMCs), a new class of materials which are a combination of metal and ceramic. CPS has a leading,
proprietary position in metal matrix composites. Metal matrix composites have several superior properties compared to conventional
materials including improved thermal conductivity, thermal expansion matching, stiffness and light weight which enable higher performance
and higher reliability in our customers’ products.
Like plastics several decades ago, we believe
metal-matrix composites will penetrate many end markets over many years. CPS management believes our business model of providing
advanced material solutions to a portfolio of high growth end markets which are, at any point in time, in various stages of the
technology adoption lifecycle, provides CPS with the opportunity for sustained growth and a diversified customer base. We believe
we have validated this model as we are now supplying customers at all stages of the technology adoption lifecycle.
CPS is the leader in supplying metal matrix composites
to certain high growth electronics end markets which are well along in the adoption lifecycle and therefore generating significant
demand. These end markets include high-performance integrated circuits and circuit boards used in internet switches and routers,
as well as motor controllers used in high-speed electric trains, subway cars and wind turbines. CPS supplies heat spreaders,
lids and baseplates to customers in these end markets. CPS is a fully qualified manufacturer for many of the world’s largest
electronics OEMs.
CPS also assembles housings and packages for
hybrid circuits. These housings and packages may include components made of metal-matrix composites; they may include components
made of more traditional materials such as aluminum, copper-tungsten, etc.
A market at an earlier stage of the adoption
lifecycle is the market for hybrid and electric automobiles. The Company recently announced a multi-year supply agreement
with a major tier one automotive supplier for the supply of AlSiC pin fin baseplates for use in motor controllers for hybrid and
electric automobiles.
We are also actively working with customers in
end markets at the beginning stages of the adoption lifecycle. An example of such a market is the market for armor. In 2008 the
Company entered into a cooperative agreement with the Army Research Laboratory to further develop large hybrid metal matrix composite
modules which integrally combine metal matrix composites and ceramics by enveloping ceramic tiles with MMCs. This system offers
a lighter weight, durable, multi-hit capable and cost competitive alternative to conventional steel, aluminum and ceramic based
armor systems. CPS hybrid hard face armor modules are comprised of multiple materials completely enveloped within and mechanically
and chemically bonded to lightweight and stiff aluminum metal matrix composites.
The Company believes that its hybrid hard face
armor tiles will find application in many military vehicles as well as armored commercial vehicles.
Our products are manufactured by proprietary
processes we have developed including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM
Pressure Infiltration Process (‘QuickCast Process’).
CPS was incorporated in Massachusetts in 1984
as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware
subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million
shares of our Common Stock. In March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies Corporation.
Results of Operations for the First Fiscal Quarter of 2017 (Q1
2017) Compared to the First Fiscal Quarter of 2016 (Q1 2016); (all $ in 000’s)
Revenues totaled $2,845 in Q1 2017 compared with
$5,216 generated in Q1 2016, a reduction of 45%. The decrease was due primarily to a reduction in the sale of baseplates
and, to a lesser degree, lower armor sales. There were no significant price changes in Q1 2017 compared with Q1 2016.
Gross margin in Q1 2017 totaled a negative $80
or 3% of sales. This compares with a gross margin in Q1 2016 of $1,132 or 22% of sales. The reduction in gross margin was almost
entirely due to lower sales volume.
Selling, general and administrative (SG&A)
expenses totaled $973 in Q1 2017, an increase of 7% compared with SG&A expenses of $908 in Q1 2016. During Q1, 2017 the
Company incurred an additional $100 in legal and other costs associated with preparing for the annual proxy process.
If it had not been for this one-time expenditure, the total SG&A spending would have been down 4% versus the same period last
year. The major changes contributing to the 4% reduction was a decrease in sales commissions, offset in part by an increase in
travel and other marketing spending.
Primarily as a result of lower sales volume,
the Company experienced an operating loss of $1,054 in Q1 2017 compared with an operating profit of $223 in Q1 2016. The net loss
for the quarter totaled $604, compared with net income of $197 in Q1 2016.
Liquidity and Capital Resources (all $ in 000’s unless noted)
The Company’s cash and cash equivalents
at April 1, 2017 totaled $2,876. This compares to cash and cash equivalents at December 31, 2016 of $3,408. The decrease in cash
was due primarily to the loss from operations, offset in part by a decrease in receivables, an increase in payables and depreciation
exceeding capital expenditures.
Accounts receivable at April 1, 2017 totaled
$1,753 compared with $1,960 at December 31, 2016. Days Sales Outstanding (DSO) decreased from 61 days at the end of 2016 to 55
days at the end of Q1 2017. The accounts receivable balances at December 31, 2016, and April 1, 2017 were both net of an allowance
for doubtful accounts of $10.
Inventories totaled $1,948 at April 1, 2017,
virtually flat with inventory levels at December 31, 2016. The inventory turnover in the most recent quarters ending Q1 2017 was
5.4 times (based on a 5 point average), down from 6.4 times averaged during the four quarters of 2016.
All consigned inventory is shipped under existing
purchase orders and per customers’ requests. At April 1, 2017 and December 31, 2016, $785 and $848, respectively, was located
at customers’ locations pursuant to consigned inventory agreements.
The Company financed its working capital during
Q1 2017 with a combination of cash balances and a reduction in receivables and an increase in payables. The Company expects it
will continue to be able to fund its working capital requirements for the remainder of 2017 from existing cash balances and borrowings,
if necessary.
The Company continues to sell to a limited number
of customers and the loss of any one of these customers could cause the Company to require additional external financing. Failure
to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse
effect on the Company’s ability to achieve its business objectives.
Contractual Obligations
Management believes that a combination of existing
cash balances and borrowings, if necessary will be sufficient to fund our cash requirements for the foreseeable future. However,
there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event
that planned operational goals are not met such that we will be able to meet our obligations as they become due.
As of April 1, 2017 the Company had $191 of construction
in progress and no outstanding commitments to purchase production equipment.
The Company entered into a 10-year lease for
the Norton facilities effective on March 1, 2006. The leased facilities comprise approximately 38 thousand square feet. In June
2016 this lease was amended to extend the lease to February 28, 2018. In addition the Company has an option to extend the lease
through February 28, 2019. The lease is a triple net lease wherein the Company is responsible for payment of all real estate taxes,
operating costs and utilities. The Company also has an option to buy the property and a first right of refusal during the term
of the lease. Annual rental payments in 2017 are expected to approximate $152 thousand.
In February 2011, the Company entered into a
lease for an additional 13.8 thousand square feet in Attleboro, MA. The lease term is for one year and has an option to extend
the lease for five additional one-year periods. The Company renewed the lease in 2013 for one additional year and also obtained
two years of additional options which could extend the Company use through February 2019. In 2016, the Company exercised
its option to extend the lease through the end of February 2018. Annual rental payments in 2017 are expected to approximate $83
thousand.
The Company intends to finance production equipment,
construction in progress and outstanding commitments under the lease agreements with existing cash balances.
The Company’s contractual obligations at
April 1, 2017, not including unexercised options to extend, consist of the following:
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Payments Due by Period
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Remaining in
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Total
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FY 2017
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FY 2018
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FY 2019
-
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Operating lease obligation for facilities
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$368,000
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$ 176,400
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$ 166,200
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$ 25,400
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