[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Former Name, Former Address and Former Fiscal
Year if Changed since Last Report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period than the registrant was required to file such reports), and (2) has been subject to the filing requirements for
the past 90 days. [X] Yes [ ] No
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition
of “large accelerated filer,” “accelerated filer,” smaller reporting company,” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [X] Emerging growth company[ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act):
[ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer’s
classes of common stock, as of the latest practicable date. Number of shares of common stock outstanding as of October 30,
2020: 13,296,168.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Unaudited)
CPS TECHNOLOGIES CORPORATION
Balance Sheets (Unaudited)
(continued on next page)
|
|
|
September 26,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
112,575
|
|
|
$
|
133,965
|
|
Accounts receivable-trade, net
|
|
|
3,961,606
|
|
|
|
4,086,945
|
|
Inventories, net
|
|
|
4,187,272
|
|
|
|
3,099,824
|
|
Prepaid expenses and other current assets
|
|
|
173,583
|
|
|
|
147,786
|
|
Total current assets
|
|
|
8,435,036
|
|
|
|
7,468,520
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Production equipment
|
|
|
10,282,980
|
|
|
|
9,649,169
|
|
Furniture and office equipment
|
|
|
508,423
|
|
|
|
508,423
|
|
Leasehold improvements
|
|
|
934,195
|
|
|
|
934,195
|
|
Total cost
|
|
|
11,725,598
|
|
|
|
11,091,787
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(10,478,054)
|
|
|
|
(10,110,663)
|
|
Construction in progress
|
|
|
127,408
|
|
|
|
255,754
|
|
Net property and equipment
|
|
|
1,374,952
|
|
|
|
1,236,878
|
|
Right-of-use lease asset
|
|
|
63,000
|
|
|
|
171,000
|
|
Deferred taxes, net
|
|
|
114,253
|
|
|
|
147,873
|
|
Total assets
|
|
$
|
9,987,241
|
|
|
$
|
9,024,271
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
Balance Sheets (Unaudited)
(concluded)
|
|
|
September 26,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
LIABILITIES AND STOCKHOLDERS` EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Borrowings against line of credit
|
|
|
835,123
|
|
|
|
1,249,588
|
|
Note payable, current portion
|
|
|
55,795
|
|
|
|
—
|
|
Accounts payable
|
|
|
1,221,642
|
|
|
|
1,436,417
|
|
Accrued expenses
|
|
|
720,182
|
|
|
|
815,166
|
|
Deferred revenue
|
|
|
358,000
|
|
|
|
21,110
|
|
Lease liability, current portion
|
|
|
63,000
|
|
|
|
148,000
|
|
Total current liabilities
|
|
|
3,253,742
|
|
|
|
3,670,281
|
|
Note payable less current portion
|
|
|
169,388
|
|
|
|
—
|
|
Long term lease liability
|
|
|
—
|
|
|
|
23,000
|
|
Total liabilities
|
|
|
3,423,130
|
|
|
|
3,693,281
|
|
|
|
|
|
|
|
|
|
|
Commitments (note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders` equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value,
|
|
|
|
|
|
|
|
|
authorized 20,000,000 shares;
|
|
|
|
|
|
|
|
|
issued 13,716,242 and 13,427,492, respectively;
|
|
|
|
|
|
|
|
|
outstanding 13,296,168 and 13,207,436, respectively;
|
|
|
|
|
|
|
|
|
at September 26, 2020 and December 28, 2019;
|
|
|
137,162
|
|
|
|
134,275
|
|
Additional paid-in capital
|
|
|
36,633,556
|
|
|
|
36,094,201
|
|
Accumulated deficit
|
|
|
(29,248,532)
|
|
|
|
(30,380,433)
|
|
Less cost of 420,074 and 220,056 common shares
|
|
|
|
|
|
|
|
|
repurchased, respectively;
|
|
|
|
|
|
|
|
|
at September 26, 2020 and December 28, 2019
|
|
|
(958,075)
|
|
|
|
(517,053)
|
|
Total stockholders` equity
|
|
|
6,564,111
|
|
|
|
5,330,990
|
|
Total liabilities and stockholders`
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
9,987,241
|
|
|
$
|
9,024,271
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
Statements of Operations (Unaudited)
|
|
Fiscal Quarters Ended
|
|
Nine Months Ended
|
|
|
|
September 26,
|
|
|
|
September 28,
|
|
|
|
September 26,
|
|
|
|
September 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
4,452,387
|
|
|
$
|
4,387,125
|
|
|
$
|
16,721,973
|
|
|
$
|
16,023,615
|
|
Total Revenues
|
|
|
4,452,387
|
|
|
|
4,387,125
|
|
|
|
16,721,973
|
|
|
|
16,023,615
|
|
Cost of product sales
|
|
|
3,514,813
|
|
|
|
4,164,187
|
|
|
|
13,050,860
|
|
|
|
14,466,266
|
|
Gross Margin
|
|
|
937,574
|
|
|
|
222,938
|
|
|
|
3,671,113
|
|
|
|
1,557,349
|
|
Selling, general and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative expense
|
|
|
684,836
|
|
|
|
702,413
|
|
|
|
2,466,198
|
|
|
|
2,523,178
|
|
Operating income (loss)
|
|
|
252,738
|
|
|
|
(479,475)
|
|
|
|
1,204,915
|
|
|
|
(965,829)
|
|
Interest income (expense), net
|
|
|
(21,263)
|
|
|
|
(16,495)
|
|
|
|
(87,004
|
)
|
|
|
(23,757)
|
|
Other income (expense), net
|
|
|
(3)
|
|
|
|
—
|
|
|
|
14,446
|
|
|
|
—
|
|
Net income (loss) before income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
tax expense
|
|
|
231,472
|
|
|
|
(495,970)
|
|
|
|
1,132,357
|
|
|
|
(989,586)
|
|
Income tax provision
|
|
|
456
|
|
|
|
—
|
|
|
|
456
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
231,016
|
|
|
$
|
(495,970)
|
|
|
$
|
1,131,901
|
|
|
$
|
(989,586)
|
|
Net income (loss) per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic common share
|
|
$
|
0.02
|
|
|
$
|
(0.04)
|
|
|
$
|
0.09
|
|
|
$
|
(0.07)
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,288,652
|
|
|
|
13,206,069
|
|
|
|
13,234,508
|
|
|
|
13,206,984
|
|
Net income (loss) per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted common share
|
|
$
|
0.02
|
|
|
$
|
(0.04)
|
|
|
$
|
0.09
|
|
|
$
|
(0.07)
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,456,486
|
|
|
|
13,206,069
|
|
|
|
13,320,915
|
|
|
|
13,206,984
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2020 AND SEPTEMBER 28, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
shares
|
|
|
Par
|
|
|
paid-in
|
|
|
|
Accumulated
|
|
|
|
Stock
|
|
|
stockholders’
|
|
|
|
|
issued
|
|
|
Value
|
|
|
capital
|
|
|
|
deficit
|
|
|
|
repurchased
|
|
|
equity
|
|
Balance at June 27,
2020
|
|
|
13,427,492
|
|
|
$
|
134,275
|
|
$
|
36,177,264
|
|
|
|
(29,479,548)
|
|
|
|
(517,053)
|
|
|
6,314,938
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
17,389
|
|
|
|
—
|
|
|
|
—
|
|
|
17,389
|
|
Issuance
of common stock
|
|
|
500
|
|
|
|
5
|
|
|
763
|
|
|
|
--
|
|
|
|
--
|
|
|
768
|
|
Employee option exercises
|
|
|
288,250
|
|
|
|
2,882
|
|
|
438,140
|
|
|
|
--
|
|
|
|
(441,022)
|
|
|
--
|
|
Net
income
|
|
|
--
|
|
|
|
--
|
|
|
--
|
|
|
|
231,016
|
|
|
|
—
|
|
|
231,016
|
|
Balance
at September 26, 2020
|
|
|
13,716,242
|
|
|
|
137,162
|
|
|
|
36,633,556
|
|
|
|
(29,248,532)
|
|
|
|
(958,075)
|
|
|
6,564,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
shares
|
|
|
|
Par
|
|
|
|
paid-in
|
|
|
|
Accumulated
|
|
|
|
Stock
|
|
|
|
stockholders’
|
|
|
|
|
issued
|
|
|
|
Value
|
|
|
|
capital
|
|
|
|
deficit
|
|
|
|
repurchased
|
|
|
|
equity
|
|
Balance at December 28, 2019
|
|
|
13,427,492
|
|
|
$
|
134,275
|
|
|
$
|
36,094,201
|
|
|
|
(30,380,433)
|
|
|
|
(517,053)
|
|
|
|
5,330,990
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
100,452
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100,452
|
|
Issuance of common stock
|
|
|
500
|
|
|
|
5
|
|
|
|
763
|
|
|
|
--
|
|
|
|
--
|
|
|
|
768
|
|
Employee option exercises
|
|
|
288,250
|
|
|
|
2,882
|
|
|
|
438,140
|
|
|
|
—
|
|
|
|
(441,022)
|
|
|
|
--
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,131,901
|
|
|
|
—
|
|
|
|
1,131,901
|
|
Balance at September 26, 2020
|
|
|
13,716,242
|
|
|
|
137,162
|
|
|
|
36,633,556
|
|
|
|
(29,248,532)
|
|
|
|
(958,075)
|
|
|
|
6,564,111
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
shares
|
|
|
|
Par
|
|
|
|
paid-in
|
|
|
|
Accumulated
|
|
|
|
Stock
|
|
|
|
stockholders’
|
|
|
|
|
issued
|
|
|
|
Value
|
|
|
|
capital
|
|
|
|
deficit
|
|
|
|
repurchased
|
|
|
|
equity
|
|
Balance at June 29, 2019
|
|
|
13,427,492
|
|
|
$
|
134,275
|
|
|
$
|
36,048,177
|
|
|
|
(30,235,847)
|
|
|
|
(517,053)
|
|
|
|
5,429,552
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
28,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,000
|
|
Net (loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(495,970)
|
|
|
|
—
|
|
|
|
(495,970)
|
|
Balance at September 28, 2019
|
|
|
13,427,492
|
|
|
|
134,275
|
|
|
|
36,076,177
|
|
|
|
(30,731,817)
|
|
|
|
(517,053)
|
|
|
|
4,961,582
|
|
|
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
shares
|
|
|
|
Par
|
|
|
|
paid-in
|
|
|
|
Accumulated
|
|
|
|
Stock
|
|
|
|
stockholders’
|
|
|
|
|
issued
|
|
|
|
Value
|
|
|
|
capital
|
|
|
|
deficit
|
|
|
|
repurchased
|
|
|
|
equity
|
|
Balance
at December 29, 2018
|
|
|
13,425,992
|
|
|
$
|
134,260
|
|
|
$
|
35,960,545
|
|
|
|
(29,742,231)
|
|
|
|
(517,053)
|
|
|
|
5,835,521
|
|
Share-based
compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
113,397
|
|
|
|
—
|
|
|
|
—
|
|
|
|
113,397
|
|
Issuance
of common stock
|
|
|
1,500
|
|
|
|
15
|
|
|
|
2,235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,250
|
|
Net
(loss)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(989,586)
|
|
|
|
—
|
|
|
|
(989,586)
|
|
Balance
at September 28, 2019
|
|
|
13,427,492
|
|
|
|
134,275
|
|
|
|
36,076,177
|
|
|
|
(30,731,817)
|
|
|
|
(517,053)
|
|
|
|
4,961,582
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
Statements of Cash Flows (Unaudited)
|
|
|
Nine
Month Periods Ended
|
|
|
|
|
September 26,
|
|
|
|
September
28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,131,901
|
|
|
$
|
(989,586)
|
|
Adjustments
to reconcile net income (loss)
|
|
|
|
|
|
|
|
|
to
cash provided by (used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation
& amortization
|
|
|
382,121
|
|
|
|
391,156
|
|
Share-based
compensation
|
|
|
100,452
|
|
|
|
115,647
|
|
Deferred
taxes
|
|
|
33,620
|
|
|
|
—
|
|
Gain
on sale of property and equipment
|
|
|
(5,000)
|
|
|
|
—
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
Accounts
receivable-trade
|
|
|
125,339
|
|
|
|
257,348
|
|
Inventories
|
|
|
(1,087,448)
|
|
|
|
401,822
|
|
Prepaid
expenses
|
|
|
(25,797)
|
|
|
|
(16,982)
|
|
Accounts
payable
|
|
|
(214,775)
|
|
|
|
(206,204)
|
|
Deferred
revenue
|
|
|
336,890
|
|
|
|
—
|
|
Accrued
expenses
|
|
|
(94,984)
|
|
|
|
(274,325)
|
|
Net
cash provided by (used in) operating
|
|
|
|
|
|
|
|
|
activities
|
|
|
682,319
|
|
|
|
(321,124)
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(285,909)
|
|
|
|
(250,128)
|
|
Proceeds
from sale of property and equipment
|
|
|
5,000
|
|
|
|
—
|
|
Net
cash provided by (used in) investing
|
|
|
|
|
|
|
|
|
activities
|
|
|
(280,909)
|
|
|
|
(250,128)
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Net
borrowings on line of credit
|
|
|
(414,465)
|
|
|
|
412,732
|
|
Proceeds from employee stock options
|
|
|
768
|
|
|
|
—
|
|
Payments
on note payable
|
|
|
(9,103)
|
|
|
|
—
|
|
Net
cash provided by (used in)
|
|
|
|
|
|
|
|
|
financing
activities
|
|
|
(422,800)
|
|
|
|
412,732
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(21,390)
|
|
|
|
(158,520)
|
|
Cash
and cash equivalents at beginning of period
|
|
|
133,965
|
|
|
|
628,804
|
|
Cash
and cash equivalents at end of period
|
|
$
|
112,575
|
|
|
$
|
470,284
|
|
Supplemental
disclosures of cash flows information:
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
—
|
|
|
$
|
485
|
|
Cash
paid for interest
|
|
$
|
87,004
|
|
|
$
|
—
|
|
Supplemental
disclosures of non-cash activity:
|
|
|
|
|
|
|
|
|
Net
exercise of stock options
|
|
$
|
441,022
|
|
|
$
|
--
|
|
Issuance of long term debt to finance equipment purchases
|
|
$
|
247,807
|
|
|
$
|
--
|
|
See
accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
Notes to Financial Statements
(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 (MMC’s) 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) Summary of Significant Accounting Policies
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 28, 2019 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 28, 2019 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and
the Company’s website at www.alsic.com.
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
EPS:
|
Three
Months Ended
|
|
|
Nine Months Ended
|
|
|
|
|
September 26,
|
|
|
|
September 28,
|
|
|
|
September 26,
|
|
|
|
September 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
Basic EPS Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
231,016
|
|
|
$
|
(495,970)
|
|
|
$
|
1,131,901
|
|
|
$
|
(989,586)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
13,288,652
|
|
|
|
13,206,069
|
|
|
|
13,234,508
|
|
|
|
13,206,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.02
|
|
|
$
|
(0.04)
|
|
|
$
|
0.09
|
|
|
$
|
(0.07)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
231,016
|
|
|
$
|
(495,970)
|
|
|
$
|
1,131,901
|
|
|
$
|
(989,586)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
13,288,652
|
|
|
|
13,206,069
|
|
|
|
13,234,508
|
|
|
|
13,206,984
|
|
Dilutive effect of stock options
|
|
|
167,834
|
|
|
|
—
|
|
|
|
87,217
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shares
|
|
|
13,456,486
|
|
|
|
13,206,069
|
|
|
|
13,320,915
|
|
|
|
13,206,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
0.02
|
|
|
$
|
(0.04)
|
|
|
$
|
0.09
|
|
|
$
|
(0.07)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) Commitments & Contingencies
Commitments
Leases
The Company has two real estate leases—one
expiring in February 2021 and one with an 11 month duration expiring December 2020. The latter is not expected to be renewed and
has not been recorded on the balance sheet in accordance with Accounting Standards Codification (ASC) 842 for leases. CPS also
has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been
capitalized.
The lease expiring in 2021 (the “Norton
facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This
asset and liability was recognized on December 30, 2018 based on the present value of remaining lease payments over the remaining
lease term using the Company’s incremental borrowing rate at date of adoption. The Company’s lease agreements do not
contain any material residual value guarantees or material restrictive covenants.
Operating Leases
Lease expense for operating leases is recognized
on a straight-line basis over the lease term. Lease expense is allocated between Cost of Product Sales and Selling, General and
Administrative Expense in the income statement
The following table presents information about
the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of September
26, 2020
(Dollars in Thousands)
|
|
|
Sept 26, 2020
|
|
Maturity of capitalized lease liabilities
|
|
|
Lease payments
|
|
2020 (remaining)
|
|
|
39
|
|
2021
|
|
|
26
|
|
Total undiscounted operating lease payments
|
|
$
|
65
|
|
Less: Imputed interest
|
|
|
(2)
|
|
Present value of operating lease liability
|
|
$
|
63
|
|
Balance Sheet Classification
|
|
|
|
|
Current lease liability
|
|
$
|
63
|
|
Long-term lease liability
|
|
|
—
|
|
Total operating lease liability
|
|
$
|
63
|
|
|
|
|
|
|
Other Information
|
|
|
|
|
Weighted-average remaining lease term for capitalized operating leases
|
|
|
5 months
|
|
Weighted-average discount rate for capitalized operating leases
|
|
|
6.5%
|
|
|
|
|
|
|
Cash Flows
An initial right-of-use asset of $310 thousand
was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on December 30, 2018. Cash paid
for the amounts included in the present value of operating lease liabilities was $114 thousand during the first nine months of
2020 and is included in operating cash flows.
Operating Lease Costs
Operating lease cost was $114 thousand during
the first nine months of 2020. This cost is related to its long-term operating lease. All other short-term leases were immaterial.
(5) 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.
There were no stock options granted or issued
under the Plan during the quarters ended September 26, 2020 and September 28, 2019.
During the quarter ended September 26,
2020, 288,250 options were exercised at a weighted average price of $1.53, and 261,355 options expired at a weighted average
price of $1.53. Also, during the quarter 500 shares were gifted to an employee for completing 20 years of service to
the company. During the quarter ended September 28, 2019, 24,000 options were forfeited and 16,000 options expired.
During the quarter ended September 26, 2020 the
Company repurchased 200,018 shares for employees to facilitate their exercise of stock options. During the quarter ended September
28, 2019 there were no shares repurchased.
During the three and nine months ended September
26, 2020 the Company recognized approximately $17 thousand and $100 thousand, respectively as share-based compensation expense
related to share and option grants. These amounts are included as a component of selling, general and administrative expenses
in the statement of operations.
During the three and nine months ended September
28, 2019 the Company recognized approximately $28 thousand and $113 thousand, respectively as share-based compensation expense
related to share and option grants. These amounts are included as a component of selling, general and administrative expenses in
the statement of operations.
As of September 26, 2020, there was $163 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 1.79 years. There were also 1,286,500 shares outstanding at
a weighted average price of $1.81 with a weighted average remaining term of 5.35 years, and there were 1,022,400 shares exercisable
at a weighted average price of $1.88 with a weighted average remaining term of 4.66 years. The Plan, as amended, is authorized
to issue 3,000,000 shares of common stock. As of September 26, 2020, there were 1,392,350 shares available for future grants
(6) Inventories
Inventories consist of the following:
|
|
|
September 26,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Raw materials
|
|
$
|
968,182
|
|
|
$
|
778,409
|
|
Work in process
|
|
|
1,865,505
|
|
|
|
1,898,916
|
|
Finished goods
|
|
|
1,789,740
|
|
|
|
871,861
|
|
Total inventory
|
|
|
4,623,427
|
|
|
|
3,549,186
|
|
|
|
|
|
|
|
|
|
|
Reserve for obsolescence
|
|
|
(436,155)
|
|
|
|
(449,362)
|
|
Inventories, net
|
|
$
|
4,187,272
|
|
|
$
|
3,099,824
|
|
(7) Accrued Expenses
Accrued expenses consist of the following:
|
|
|
September 26,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Accrued legal and accounting
|
|
$
|
73,171
|
|
|
$
|
62,725
|
|
Accrued payroll
|
|
|
552,272
|
|
|
|
518,015
|
|
Accrued other
|
|
|
94,739
|
|
|
|
234,426
|
|
|
|
$
|
720,182
|
|
|
$
|
815,166
|
|
(8) Line of Credit
In September 2019, the Company entered into revolving
line of credit with The Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million. In May of 2020
this credit line was increased to $3.0 million. The agreement includes a demand note allowing the Lender to call the loan
at any time. CPS may terminate the agreement without a termination fee after 3 years. The LOC is secured by the accounts
receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points. At September 26, 2020 the Company
had $835 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $1.835 million
to have been borrowed.
The line of credit is subject to certain financial
covenants.
(9)
Note Payable
In March 2020, the company acquired a Sonoscan
ultrasound microscope for a price of $208 thousand. The full amount was financed through a 5 year note payable with Crest
Capital Corporation. The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand,
consisting of principal plus interest at a rate of 6.47%.
In July 2020 CPS placed into service a piece
of manufacturing equipment which it financed with the machine’s vendor. The equipment cost of $40 thousand will be
paid at the rate of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%.
The Company’s obligations including
interest at September 26, 2020 consist of the following:
Remaining in:
|
|
Payments due by period
|
|
FY 2020
|
|
$
|
17,250
|
|
FY 2021
|
|
$
|
69,000
|
|
FY 2022
|
|
$
|
63,984
|
|
FY 2023
|
|
$
|
48,934
|
|
FY 2024 and thereafter
|
|
$
|
57,089
|
|
Total
|
|
$
|
256,257
|
|
(10) Income Taxes
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. In December 2018, the Company established a valuation allowance reserve, as it is judged more likely than
not that all or a portion of its deferred tax assets will not be utilized before they expire. This decision was reached after giving
greater weight to the Company’s losses in recent years as compared to its forecasts.
No provision for income taxes was provided during
the quarter and nine months ended September 26, 2020, as the Company continues to maintain a full valuation allowance against the
majority of its deferred tax assets and no current tax is forecasted for the year.
ITEM 2 MANAGEMENTS 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 28, 2019.
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 28, 2019, 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
28, 2019.
Overview
Products we provide include baseplates for motor
controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles. We provide
baseplates and housings used in radar, satellite and avionics applications. We provide lids and heat spreaders used with
high performance integrated circuits for use in internet switches and routers. We provide baseplates and housings used
in modules built with Wide Band Gap Semiconductors like SiC and GaN. CPS also assembles housings and packages for hybrid circuits.
These housings and packages may include MMC components; they may include components made of more traditional materials such as
aluminum, copper-tungsten, etc.
CPS’s products are
custom rather than catalog items. They are made to customers’ designs and are used as components in systems built and sold
by our customers. At any point in time our product mix will consist of some products with on-going production demand, and some
products which are in the prototyping or evaluation stages at our customers. The Company seeks to have a portfolio of products
which include products in every stage of the technology adoption lifecycle at our customers. CPS’ growth is dependent upon
the level of demand for those products already in production, as well as its success in achieving new "design wins" for
future products.
The manufacturing process
for MMCs (infusing ceramic materials with molten metals) is complicated and results in varying yields, which poses challenges to
profitability for less developed manufacturers.
As a manufacturer of highly
technical and custom products, the Company incurs fixed costs needed to support the business, but which do not vary significantly
with changes in sales volume. These costs include the fixed costs of applications engineering, tooling design and fabrication,
process engineering, etc. Accordingly, particularly given our current size, changes in sales volume generally result in even greater
changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base. Sales volume is
therefore a key financial metric used by management.
The Company believes the
underlying demand for metal matrix composites is growing as the electronics and other industries seek higher performance, higher
reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers
as these demands grow.
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.
COVID-19 Pandemic
As a provider of “essential services”, CPS continues
to be open and operating during the novel coronavirus pandemic. To date most of our customers remain open and operational. In
Q3 we saw a significant increased volatility on the part of some of our customers, while for others it has been business as usual.
We expect that this volatility will continue for at least the next several quarters. Unexpected reductions in demand on the part
of two of our major customers led to a reduction in third quarter revenue. As these reductions were unexpected, by both CPS and
our customers, inventory built to meet expected Q3 demand remains in inventory. We expect this inventory will be reduced over
time, but will probably remain somewhat inflated over the next quarter or two.
CPS continues to follow CDC and OSHA
guidance in our workplace. Employees’ temperatures are taken at the beginning of each shift, shift have been staggered
to reduce employee overlap, workstations have been rearranged to ensure social distancing, all employees are using facemasks,
et. The pandemic has had very little impact on our ability to produce and ship customer orders.
Results of Operations for the Third Fiscal Quarter of 2020 (Q3
2020) Compared to the Third Fiscal Quarter of 2019 (Q3 2019); (all $ in 000s)
Total revenue was $4,452 in Q3 2020, a 1% increase
compared with total revenue of $4,387 in Q3 2019. This increase was due primarily to price increases of 6% offset by a reduction
in sales volume of 5%. These price changes were implemented in Q4 2019 and Q1 2020. In addition, the company was able to
offset a $120 thousand reserve, increasing revenue, set up for potential quality issues at one customer. This was a negotiated
settlement against that customer’s reduction in purchases below the amount of their contractual obligation.
Gross margin in Q3 2020 totaled $938 or 21% of
sales. In Q3 2019, gross margin was $223 or 5% of sales. This increase in margin was due to product mix, the aforementioned
price increases, and increased operating efficiencies.
Selling, general and administrative expenses
(SG&A) were $684 in Q3 2020, down 3% when compared with SG&A expenses of $702 in Q3 2019. This decrease was
primarily due to reduced travel as a result of the Covid-19 pandemic.
In Q3, 2020, the Company incurred interest expense
of $21 due primarily to bank borrowings. This compares with interest expense of $17 in Q3 of 2019.
The Company generated operating income of $253
compared with an operating loss of $479 in the same quarter last year. This increase in operating income is due primarily to the
increase in pricing, discussed above. The net income for Q3 2020 totaled $231 versus a net loss of $496 in Q3 2019.
Results of Operations for the First Nine Months of 2020 Compared
to the First Nine Months of 2019 (all $ in 000s)
Total revenue was $16,722 in the first nine months
of 2020, a 4% increase compared with total revenue of $16,024 in the first nine months of 2019. This increase was due primarily
to a 10% increase in pricing during the first nine months of 2020 compared with the first nine months of 2019.
Gross margin in the first nine months of 2020
totaled $3,671 or 22% of sales. In the first nine months of 2019 gross margin totaled $1,557 or 10% of sales. This
increase was due to price increases, a change in product mix and increased operating efficiencies.
Selling, general and administrative (SG&A)
expenses were $2,466 during the first nine months of 2020, down 2% compared with SG&A expenses of $2,523 in the first nine
months of 2019. This small decrease was primarily due to reduced travel as a result of the Covid-19 pandemic.
During the first nine months of 2020, the Company
incurred interest expense of $87 due primarily to bank borrowings. This compares with interest expense of $24 incurred during
the first nine months of 2019.
In the first nine months of 2020 the Company
generated operating income of $1,205 compared with an operating loss of $966 in the same period last year. The net income
for the first nine months of 2020 totaled $1,132 versus a net loss of $990 in the first nine months of 2019.
Liquidity and Capital Resources (all $ in 000s unless noted)
The Company’s cash and cash equivalents
at September 26, 2020 totaled $113. The Company’s net cash, which considers the $835 of bank borrowings, totaled a
negative $722 at the end of the third quarter. This compares to cash and cash equivalents at December 28, 2019 of $134 and a net
cash of negative $1,116. The increase in net cash was due to the income from operations offset by an increase in working capital.
Accounts receivable at September 26, 2020 totaled
$3,962 compared with $4,087 at December 28, 2019.
Days Sales Outstanding (DSO) increased from 67
days at the end of 2019 to 80 days at the end of Q3 2020. DSO’s at the end of 2019 were due to low sales during Q4
2019 to our European customers having extended payment terms compared to higher sales in Q3 2020. The accounts receivable balances
at December 28, 2019, and September 26, 2020 were both net of an allowance for doubtful accounts of $10.
Inventories totaled $4,187 at September 26,
2020 compared with inventory totaling $3,100 at December 28, 2019. This increase was a result of an inventory build up due to
expected increase in customer sales volume in Q3. Unexpectedly reduced demand by their customers caused them to reduce their
buying from CPS. The inventory turnover in the most recent four quarters ending Q3 2020 was 4.9 times, down from 6.2 times
averaged during the four quarters of 2019 (based on a 5 point average).
The Company financed its working capital during
the first nine months of 2020 from a combination of its net profit during the period and bank borrowings. The Company expects
it will continue to be able to fund its working capital requirements for the remainder of 2020 from existing cash balances and
bank borrowings.
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
In September 2019, the Company entered into revolving
line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million. This agreement
was amended in May 2020 to increase the line to $3.0 million. The agreement includes a demand note allowing the Lender to
call the loan at any time. The Company may terminate the agreement without a termination fee after 3 years. The LOC
is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points.
At September 26, 2020 the Company had $835 thousand of borrowings under this LOC and its borrowing base at the time would have
permitted an additional $1.835 million to have been borrowed. The increased availability has allowed the Company to end its
policy of allowing prompt pay discounts to certain customers. This has and should continue to have a positive effect on the Company’s
earnings going forward.
In March 2020, the company acquired an ultrasound
microscope for a price of $208. The full amount was financed through a 5 year note payable with a financing company.
The note is collateralized by the microscope and is being paid in monthly installments of $4, consisting of principal plus interest
at a rate of 6.47%
In July 2020 CPS placed into service a piece
of manufacturing equipment which it financed through a capital lease with the machine’s vendor. The original lease
amount was $40 thousand and will be paid at the rate of $2 thousand per month over 2 years with an interest rate of 1.9%.
As of September 26, 2020, the Company had
$127 of construction in progress and no outstanding commitments to purchase production equipment.
The Company has two real estate leases—one
expiring in February 2021 and one expiring December 31, 2020. Since the latter is not expected to be renewed, it has not been recorded
on the balance sheet. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration.
None of these have been capitalized. (Note 4, Leases)
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.
ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not significantly exposed to the
impact of interest rate changes or foreign currency fluctuations. The Company has not used derivative financial instruments.
ITEM 4
CONTROLS AND PROCEDURES
(a) The Company’s
Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls
and procedures (as such term is defined in Rules 13a-14(c) and 15d - 14(c) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) as of the end of the period covered by this Form 10-Q (the “Evaluation Date”).
Based on such evaluation, such officers have concluded that, as of the Evaluation Date, 1) the Company’s disclosure
controls and procedures are effective to ensure that information required to be disclosed by the Company in reports the Company
files under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the SEC and 2) the Company’s disclosure controls and procedures are effective to ensure that information
required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated
to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required
disclosure.
(b) Changes in Internal
Controls. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal
quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.