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CPS Technologies Corp./DE – ‘10-Q’ for 9/30/23

On: Friday, 11/3/23, at 11:42am ET · For: 9/30/23 · Accession #: 1437749-23-30150 · File #: 1-36807

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/03/23  CPS Technologies Corp./DE         10-Q        9/30/23   46:2.7M                                   RDG Filings/FA

Quarterly Report — Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    510K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     17K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     17K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     14K 
10: R1          Document And Entity Information                     HTML     67K 
11: R2          Balance Sheets (Unaudited)                          HTML     65K 
12: R3          Balance Sheets (Unaudited)                          HTML     74K 
13: R4          Balance Sheets (Unaudited) (Parentheticals)         HTML     24K 
14: R5          Statements of Operations (Unaudited)                HTML     87K 
15: R6          Statements of Stockholders' Equity (Unaudited)      HTML     58K 
16: R7          Statements of Cash Flows (Unaudited)                HTML     88K 
17: R8          Note 1 - Nature of Business                         HTML     19K 
18: R9          Note 2 - Summary of Significant Accounting          HTML     19K 
                Policies                                                         
19: R10         Note 3 - Net Income Per Common and Common           HTML     48K 
                Equivalent Share                                                 
20: R11         Note 4 - Commitments & Contingencies                HTML     33K 
21: R12         Note 5 - Share-based Payments                       HTML     22K 
22: R13         Note 6 - Inventories                                HTML     26K 
23: R14         Note 7 - Accrued Expenses                           HTML     23K 
24: R15         Note 8 - Line of Credit                             HTML     21K 
25: R16         Note 9 - Notes Payable                              HTML     21K 
26: R17         Note 10 - Income Taxes                              HTML     20K 
27: R18         Note 3 - Net Income Per Common and Common           HTML     46K 
                Equivalent Share (Tables)                                        
28: R19         Note 4 - Commitments & Contingencies (Tables)       HTML     28K 
29: R20         Note 6 - Inventories (Tables)                       HTML     26K 
30: R21         Note 7 - Accrued Expenses (Tables)                  HTML     22K 
31: R22         Note 9 - Notes Payable (Tables)                     HTML     19K 
32: R23         Note 3 - Net Income (Loss) Per Common and Common    HTML     49K 
                Equivalent Share - Table of Both Basic and Diluted               
                EPS (Details)                                                    
33: R24         Note 4 - Commitments & Contingencies (Details       HTML     22K 
                Textual)                                                         
34: R25         Note 4 - Commitments & Contingencies - Maturity of  HTML     37K 
                Capitalized Lease Liabilities (Details)                          
35: R26         Note 5 - Share-based Payments (Details Textual)     HTML     54K 
36: R27         Note 6 - Inventories - Inventories (Details)        HTML     25K 
37: R28         Note 7 - Accrued Expenses - Accrued Expenses        HTML     21K 
                (Details)                                                        
38: R29         Note 8 - Line of Credit (Details Textual)           HTML     25K 
39: R30         Note 9 - Notes Payable (Details Textual)            HTML     28K 
40: R31         Note 9 - Note Payable - Note Payable Maturities     HTML     24K 
                (Details)                                                        
41: R32         Note 10 - Income Taxes (Details Textual)            HTML     19K 
44: XML         IDEA XML File -- Filing Summary                      XML     76K 
42: XML         XBRL Instance -- cpsh20230929_10q_htm                XML    463K 
43: EXCEL       IDEA Workbook of Financial Report Info              XLSX     52K 
 6: EX-101.CAL  XBRL Calculations -- cpsh-20230930_cal               XML    110K 
 7: EX-101.DEF  XBRL Definitions -- cpsh-20230930_def                XML    497K 
 8: EX-101.LAB  XBRL Labels -- cpsh-20230930_lab                     XML    453K 
 9: EX-101.PRE  XBRL Presentations -- cpsh-20230930_pre              XML    531K 
 5: EX-101.SCH  XBRL Schema -- cpsh-20230930                         XSD     77K 
45: JSON        XBRL Instance as JSON Data -- MetaLinks              233±   352K 
46: ZIP         XBRL Zipped Folder -- 0001437749-23-030150-xbrl      Zip    102K

‘10-Q’ — Quarterly Report

This is an HTML Document rendered as filed. [ Alternative Formats ]

iX: C:

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM i 10-Q

(Mark One)
i ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended i September 30, 2023
or

i ☐ 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 i 0-16088

CPS TECHNOLOGIES CORP.

(Exact Name of Registrant as Specified in its Charter)

i Delaware
(State or Other Jurisdiction
of Incorporation or Organization

i 04-2832509
(I.R.S. Employer
Identification No.)

i 111 South Worcester Street
i Norton i MA
(Address of principal executive offices)

i 02766-2102

(Zip Code)

( i 508) i 222-0614
Registrants Telephone Number, including Area Code:

CPS Technologies Corp.

111 South Worcester Street

Norton, MA 02766-2102

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. ☒ i Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ i 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 ☐ i Non-accelerated filer ☒ Smaller reporting company i ☒ Emerging growth company i ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15U.S.C. 7262(b)) by the registered firm that prepared or issued its audit report.

☐ Yes ☒ No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):
i ☐ Yes ☒ No

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
i Common Stock, $0.01 par value	i CPSH	i NASDAQ Capital Markets

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Number of shares of common stock outstanding as of October 20, 2023: i 14,519,215.

PART I FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(continued on next page)

	September 30,			December 31,
	2023			2022
ASSETS

Current assets:
Cash and cash equivalents	$	i 8,778,856		$	i 8,266,753
Accounts receivable-trade, net		i 5,006,451			i 3,777,975
Accounts receivable-other		i 17,043			i 685,668
Inventories, net		i 4,827,957			i 4,875,901
Prepaid expenses and other current assets		i 337,476			i 211,242
Total current assets		i 18,967,783			i 17,817,539
Property and equipment:
Production equipment		i 11,195,993			i 10,770,427
Furniture and office equipment		i 952,883			i 952,883
Leasehold improvements		i 985,649			i 985,649
Total cost		i 13,134,525			i 12,708,959

Accumulated depreciation and amortization		( i 11,810,209	)		( i 11,446,901	)
Construction in progress		i 206,693			i 64,910
Net property and equipment		i 1,531,009			i 1,326,968
Right-of-use lease asset		i 367,000			i 466,000
Deferred taxes, net		i 1,645,467			i 2,069,436
Total assets	$	i 22,511,259		$	i 21,679,943

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(concluded)

	September 30,			December 31,
	2023			2022
LIABILITIES AND STOCKHOLDERS` EQUITY

Current liabilities:
Note payable, current portion		i 57,457			i 43,711
Accounts payable		i 2,151,127			i 1,836,865
Accrued expenses		i 1,067,293			i 820,856
Deferred revenue		i 1,675,086			i 2,521,128
Lease liability, current portion		i 159,000			i 157,000
Total current liabilities		i 5,109,963			i 5,379,560
Note payable less current portion		i 8,655			i 54,847
Deferred revenue-long term		i 31,277			i 231,020
Lease liability less current portion		i 208,000			i 309,000
Total liabilities		i 5,357,895			i 5,974,427

Commitments (note 4)

Stockholders` equity:
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,601,487 and 14,460,486, respectively; outstanding 14,519,215 and 14,450,470, respectively; at September 30, 2023 and December 31, 2022		i 146,015			i 144,605
Additional paid-in capital		i 40,151,794			i 39,726,851
Accumulated deficit		( i 22,894,307	)		( i 24,125,092	)
Less cost of 82,272 and 10,016 common shares repurchased, respectively; at September 30, 2023 and December 31, 2022		( i 250,138	)		( i 40,848	)
Total stockholders` equity		i 17,153,364			i 15,705,516
Total liabilities and stockholders` equity	$	i 22,511,259		$	i 21,679,943

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Statements of Operations (Unaudited)

Fiscal Quarters Ended

Nine Months Ended

September 30,

October 1,

September 30,

October 1,

2023

2022

2023

2022

Revenues:

Product sales

i 6,285,041

i 6,748,117

i 20,803,447

i 20,471,574

Total Revenues

6,285,041

6,748,117

20,803,447

20,471,574

Cost of product sales

i 5,049,177

i 4,864,876

i 15,126,621

i 14,796,206

Gross Profit

i 1,235,864

i 1,883,241

i 5,676,826

i 5,675,368

Selling, general and administrative expense

i 1,105,227

i 1,174,581

i 4,121,099

i 3,750,131

Operating income

i 130,637

i 708,660

i 1,555,727

i 1,925,237

Interest income (expense), net

i 78,181

( i 1,892

)

i 176,325

( i 6,245

)

Other income (expense), net

( i 1,228

)

i 645,594

( i 4,130

)

i 649,628

Net income before income tax expense

i 207,590

i 1,352,362

i 1,727,922

i 2,568,620

Income tax provision

i 36,509

i 364,497

i 497,137

i 706,211

Net income

i 171,081

i 987,865

i 1,230,785

i 1,862,409

Net income per basic common share

i 0.01

i 0.07

i 0.08

i 0.13

Weighted average number of basic common shares outstanding

i 14,517,364

i 14,434,468

i 14,487,873

i 14,417,995

Net income per diluted common share

i 0.01

i 0.07

i 0.08

i 0.13

Weighted average number of diluted common shares outstanding

i 14,636,241

i 14,686,476

i 14,632,591

i 14,683,632

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022

Common Stock

Number of

Additional

Total

paid-in

Accumulated

Stock

stockholders'

issued

Par Value

capital

deficit

repurchased

equity

Balance at July 1, 2023

i 14,546,487

i 145,465

i 39,978,453

( i 23,065,388

)

( i 111,938

)

i 16,946,592

Share-based compensation expense

i 27,941

Employee option exercises

i 55,000

i 550

i 145,400

( i 138,200

)

i 7,750

Net income

i 171,081

Balance at September 30, 2023

i 14,601,487

i 146,015

i 40,151,794

( i 22,894,307

)

( i 250,138

)

i 17,153,364

Common Stock

Number of

Additional

Total

paid-in

Accumulated

Stock

stockholders'

issued

Par Value

capital

deficit

repurchased

equity

Balance at December 31, 2022

i 14,460,486

i 144,605

i 39,726,851

( i 24,125,092

)

( i 40,848

)

i 15,705,516

Share-based compensation expense

i 175,698

Employee options exercised

i 141,001

i 1,410

i 249,245

( i 209,290

)

i 41,365

Net income

i 1,230,785

Balance at September 30, 2023

i 14,601,487

i 146,015

i 40,151,794

( i 22,894,307

)

( i 250,138

)

i 17,153,364

Common Stock

Number of

Additional

Total

paid-in

Accumulated

Stock

stockholders'

issued

Par Value

capital

deficit

repurchased

equity

Balance at July 2, 2022

i 14,438,786

i 144,388

i 39,600,085

( i 25,381,948

)

( i 20,849

)

i 14,341,676

Share-based compensation expense

i 43,422

Issuance of common stock (net of costs)

( i 23,135

)

( i 23,135

Employee option exercises

i -

Net income

i 987,865

Balance at October 1, 2022

i 14,438,786

i 144,388

i 39,620,372

( i 24,394,083

)

( i 20,849

)

i 15,349,828

Common Stock

Number of

Additional

Total

paid-in

Accumulated

Stock

stockholders'

issued

Par Value

capital

deficit

repurchased

equity

Balance at December 25, 2021

i 14,350,786

i 143,508

i 39,281,810

( i 26,256,492

)

( i 2,515

)

i 13,166,311

Share-based compensation expense

i 207,277

Issuance of common stock (net of costs)

( i 40,893

)

( i 40,893

)

Employee options exercised

i 88,000

i 880

i 172,178

( i 18,334

)

i 154,724

Treasury shares retired

Net income

i 1,862,409

Balance at October 1, 2022

i 14,438,786

i 144,388

i 39,620,372

( i 24,394,083

)

( i 20,849

)

i 15,349,828

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Statements of Cash Flows (Unaudited)

	Nine Month Periods Ended
	September 30,			October 1,
	2023			2022

Cash flows from operating activities:
Net income	$	i 1,230,785		$	i 1,862,409
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		i 363,308			i 316,469
Share-based compensation		i 175,698			i 207,277
Deferred taxes		i 423,969			i 705,755

Changes in:
Accounts receivable-trade		( i 1,228,476	)		( i 965,717	)
Accounts receivable-other		i 668,625			-
Inventories		i 47,944			( i 956,948	)
Prepaid expenses		( i 126,234	)		( i 20,807	)
Accounts payable		i 314,262			( i 55,394
Deferred revenue		( i 1,045,785	)		-
Accrued expenses		i 246,437			( i 220,891	)
Net cash provided by operating activities		i 1,070,533			i 872,153
Cash flows from investing activities:
Purchases of property and equipment		( i 567,349	)		( i 392,286	)
Net cash provided by (used in) investing activities		( i 567,349	)		( i 392,286	)

Cash flows from financing activities:
Proceeds from employee stock options		i 41,365			i 154,724
Stock issuance costs in excess of proceeds		i -			( i 40,893	)
Payments on note payable		( i 32,446	)		( i 45,507	)
Net cash provided by financing activities		i 8,918			i 68,324
Net increase in cash and cash equivalents		i 512,103			i 548,191
Cash and cash equivalents at beginning of period		i 8,266,753			i 5,050,312
Cash and cash equivalents at end of period	$	i 8,778,856		$	i 5,598,503
Supplemental disclosures of cash flows information:
Cash paid for income taxes	$	i 109,456		$	i 456
Cash paid for interest		i 4,130			i 6,243

Supplemental disclosures of non-cash activity:

Share repurchases as a reduction of stock option exercise proceeds		i 209,290			i 18,334

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Notes to Financial Statements
(Unaudited)

(1) Nature of Business

CPS Technologies Corp. (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.

Using its proprietary MMC technology, the Company also produces light-weight armor, particularly for extreme environments and heavy ballistic threat levels.

The Company sells into several end markets including the aerospace & defense markets, wireless communications infrastructure market, high-performance microprocessor market, motor controller market, and other microelectronic 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 31, 2022 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, 2022 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.cpstechnologysolutions.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 Per Common and Common Equivalent Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income 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 30,

October 1,

September 30,

October 1,

2023

2022

2023

2022

Basic EPS Computation:

Numerator:

Net income

i 171,081

i 987,865

i 1,230,785

i 1,862,409

Denominator:

Weighted average Common shares Outstanding

i 14,517,364

i 14,434,468

i 14,487,873

i 14,417,995

Basic EPS

i 0.01

i 0.07

i 0.08

i 0.13

Diluted EPS Computation:

Numerator:

Net income

i 171,081

i 987,865

i 1,230,785

i 1,862,409

Denominator:

Weighted average Common shares Outstanding

i 14,517,364

i 14,434,468

i 14,487,873

i 14,417,995

Dilutive effect of stock options

i 118,877

i 252,008

i 144,718

i 265,637

Total Shares

i 14,636,241

i 14,686,476

i 14,632,591

i 14,683,632

Diluted EPS

i 0.01

i 0.07

i 0.08

i 0.13

(4) Commitments & Contingencies

Commitments

Operating Leases

The Company has one real estate lease expiring in February 2026. CPS also has a few operating leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases has been capitalized as the Company elected an accounting policy for short-term leases, which allows lessees to avoid recognizing right-of-use assets and liabilities for leases with terms of 12 months or fewer.

The real estate lease expiring in 2026 (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 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately i 38 thousand square feet. The lease is 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 renew the lease starting in March 2026 through February 2032. Annual rental payments range from $ i 160 thousand to $ i 165 thousand through maturity.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s facility lease as of September 30, 2023.

(Dollars in Thousands)
Maturity of capitalized lease liabilities	Lease payments

2023		i 41
2024		i 165
2025		i 165
2026		i 27
Total undiscounted operating lease payments	$	i 398
Less: Imputed interest		( i 31	)
Present value of operating lease liability	$	i 367

Balance Sheet Classification
Current lease liability	$	i 159
Long-term lease liability		i 208
Total operating lease liability	$	i 367

Other Information
Remaining lease term for capitalized operating leases (in months)		i 29
Discount rate		i 6.6	%

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $ i 41 thousand during the third quarter of 2023 and $ i 122 thousand for the nine months ended September 30, 2023. These costs are related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

(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.

During the quarter ended September 30, 2023 there were i 229,500 stock options granted under the Plan. There were i 25,000 stock options granted under the Plan during the quarter ended October 1 2022.

During the quarter ended September 30, 2023, i 55,000 options were exercised at a weighted average cost of $ i 2.65 per share. During the quarter ended September 30, 2023, i 27,400 options were forfeited and i none expired. During the quarter ended October 1, 2022, i no options were exercised, i 10,000 options were forfeited and i none expired.

During the quarter ended September 30, 2023, the Company repurchased i 138,200 shares for employees to facilitate their exercise of stock options. During the quarter ended October 1, 2022, the Company did not repurchase any shares for employees to facilitate their exercise of stock options.

There were also i 901,900 shares outstanding at a weighted average price of $ i 2.67 with a weighted average remaining term of i 6.7 years as of September 30, 2023, and there were i 497,000 shares exercisable at a weighted average price of $ i 2.43 with a weighted average remaining term of i 4.8 years as of September 30, 2023. The Plan, as amended, is authorized to issue i 1,500,000 shares of common stock. As of September 30, 2023, there were i 834,300 shares available for future grants.

During the three and nine months ended September 30, 2023, the Company recognized approximately $ i 28 thousand and $ i 176 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 October 1, 2022, the Company recognized approximately $ i 43 thousand and $ i 207 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.

(6) Inventories

Inventories consist of the following:

	September 30,			December 31,
	2023			2022
Raw materials	$	i 2,781,188		$	i 2,645,442
Work in process		i 1,512,835			i 1,863,512
Finished goods		i 729,359			i 525,872
Total inventory		i 5,023,382			i 5,034,826

Reserve for obsolescence		( i 195,425	)		( i 158,925	)
Inventories, net	$	i 4,827,957		$	i 4,875,901

(7) Accrued Expenses

Accrued expenses consist of the following:

	September 30,		December 31,
	2023		2022

Accrued legal and accounting	$	i 69,189	$	i 35,398
Accrued payroll		i 795,952		i 760,305
Accrued other		i 202,152		i 25,153
	$	i 1,067,293	$	i 820,856

(8) Line of Credit

In May 2023, the Company terminated its $ i 3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $ i 3.0 million was entered into with Rockland Trust Company. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal. On September 30, 2023, the Company had $ i 0 of borrowings under this LOC and its borrowing base at the time would have permitted an additional $ i 3.0 million to have been borrowed. The LOC remains in effect until terminated per mutual agreement by both parties.

(9) Note Payable

In March 2020, the Company acquired inspection equipment for a price of $ i 208 thousand. The full amount was financed through a i 5 year note payable with a third party equipment finance company. The note is collateralized by the equipment and is being paid in monthly installments of $ i 4 thousand, consisting of principal plus interest at a fixed rate of i 6.47%.

The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:

Year	Payments due by period
2023 (remaining)	$	i 11,265
2024	$	i 46,757
2025	$	i 8,090
Total		i 66,112

Total interest expense on notes payable during 2023 was $ i 4,130.

(10) Income Taxes

The Company’s current income tax expense and deferred income tax expense are $ i 73 and $ i 424, respectively, for the nine months ended September 30, 2023. The Company’s current income tax expense and deferred income tax expense are $ i 18 and $ i 19, respectively, for the three months ended September 30, 2023.

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 31, 2022 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.cpstechnologysolutions.com.

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. This includes the Russian invasion of Ukraine, the war in Israel/Gaza and other geopolitical events. 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 estimates 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, 2022, 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, 2022.

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 Silicon Carbide (“SiC”) and Gallium Nitride (“GaN”), collectively Metal Matrix Composites (“MMC”). 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, cold rolled steel and Kovar. Using its proprietary MMC technology, the Company also produces light-weight vehicle armor, particularly for extreme environments and heavy threat levels.

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.

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 such as engineering, tooling design and fabrication, process engineering, and others. 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 MMC, housings for hybrid circuits and our proprietary armor solution 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.

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 Third Fiscal Quarter of 2023 (Q3 2023) Compared to the Third Fiscal Quarter of 2022 (Q3 2022); (all $ in 000s)

Total revenue was $6,285 in Q3 2023, a 7% decrease compared with total revenue of $6,748 in Q3 2022. This decrease was due primarily to customers moving expected Q3 shipments into Q4. The bulk of the deferrals of these shipments was in armor which did not affect production as we built up our finished goods armor inventory for the Q4 shipments.

Gross profit in Q3 2023 totaled $1,236 or 20% of sales. In Q3 2022, gross profit was $1,883 or 28% of sales. This decrease in profit directly correlates to the decreased revenue and the impact increased revenue has on fixed manufacturing costs. In addition, we are replacing a piece of testing equipment and in the interim are outsourcing the testing, resulting in higher costs.

Selling, general and administrative expenses (SG&A) were $1,105 in Q3 2023, down 6% when compared with SG&A expenses of $1,175 in Q3 2022. This decrease was primarily due to decreased variable compensation in Q3 as a result of the Company’s decreased revenue.

In Q3 2023, the Company incurred interest expense of $1 due to equipment financing. This compares with interest expense of $2 in Q3 of 2022.

The Company generated operating income of $131 compared with operating income of $709 in the same quarter last year. This decrease in operating income is due to the reduction in gross profit, discussed above. The net income for Q3 2023 totaled $171 versus net income of $988 in Q3 2022. This differential in net income is due to the decrease in operating income, discussed above, as well as the Employee Retention Tax Credit ("ERTC") in 2022 which was claimed and recognized in 2022.

Results of Operations for the First Nine Months of 2023 Compared to the First Nine Months of 2022 (all $ in 000s)

Total revenue was $20,803 in the first nine months of 2023, a 2% increase compared with total revenue of $20,472 in the first nine months of 2022. A reduction in shipments of hermetic packages was more than offset by an increase in MMC shipments.

Gross margin in the first nine months of 2023 totaled $5,677 or 27% of sales. In the first nine months of 2022 gross margin totaled $5,675 or 28% of sales.

Selling, general and administrative (SG&A) expenses were $4,121 during the first nine months of 2023, up 10% compared with SG&A expenses of $3,750 in the first nine months of 2022. There were three major reasons for this increase. First there was a significant increase in travel expenses. In 2022 we were just beginning to come out of the Covid-19 pandemic. Many conferences continued to be virtual and many customers continued to prohibit outside visitors. In 2023 this has changed, thus our business development team, in particular, have been doing significantly more travel than a year ago. Secondly, the Company increased its 401k matching formula in 2023 resulting in increased payroll costs. Lastly, the Company accrued severance to a long-time employee whose service with the Company was terminated.

During the first nine months of 2023, the Company incurred interest expense of $4 on its notes payable. This compares with interest expense of $6 incurred during the first nine months of 2022.

In the first nine months of 2023, the Company generated operating income of $1,556 compared with operating income of $1,925 in the same period last year. This difference is primarily due to the increased SG&A discussed above. The net income for the first nine months of 2023 totaled $1,231 versus net income of $1,862 in the first nine months of 2022. As mentioned above, the ERTC which was recognized in 2022, accounted for this difference.

Liquidity and Capital Resources (all $ in 000s unless noted)

The Company’s cash and cash equivalents at September 30, 2023 totaled $8,779. This compares to cash and cash equivalents at December 31, 2022 of $8,267. The increase in cash was primarily due to our net profit, offset by increased accounts receivable to support higher sales.

Accounts receivable at September 30, 2023 totaled $5,023 compared with $4,464 at December 31, 2022. The 2022 total includes $641 receivable for the ERTC.

Days Sales Outstanding (DSO) increased from 52 days at the end of 2022 to 72 days at the end of Q3 2023, based on trade receivables. This change was due to the reduction of deferred revenue occurring in the 4th quarter of 2022. Prepayments received in 2021 were used to pay for shipments shipped in the 4th quarter thus immediately reducing accounts receivable, rather than the customer paying 30-45 days later. The accounts receivable balances at September 30, 2023, and December 31, 2022 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $4,828 at September 30, 2023 compared with inventory totaling $4,876 at December 31, 2022. The inventory turnover in the most recent four quarters ending Q3 2023 was 4.1 times, slightly down from 4.2 times averaged during the four quarters of 2022 (based on a 5 point average).

The Company financed its working capital during the first nine months of 2023 from its net profit during the period. The Company expects it will continue to be able to fund its working capital requirements for the remainder of 2023 from existing cash balances.

Although the Company’s customer base is expanding, the Company continues to sell to a limited number of customers and the loss of any one of these customers could have significant negative consequences on future results. Although the Company is in a good cash position today, 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 May 2023, the Company terminated its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $3.0 million was entered into with Rockland Trust Company. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal. On September 30, 2023, the Company had $0 of borrowings under this LOC and its borrowing base at the time would have permitted an additional $3.0 million to have been borrowed. The LOC remains in effect until terminated per mutual agreement by both parties.

In March 2020, the Company acquired a scanning acoustic microscope for a price of $208 thousand. 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 thousand, consisting of principal plus interest at a rate of 6.47%

The Company has one real estate lease expiring in February 2026. CPS also has a few leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized. (Note 4, Leases)

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.

PART II OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS
None.

ITEM 1A RISK FACTORS
There have been no material changes to the risk factors as discussed in our 2020 Form 10-K

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5 OTHER INFORMATION
Not applicable.

ITEM 6 EXHIBITS
(a) Exhibits:

Exhibit 31.1 Certification of Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 302 of The Sarbanes-Oxley Act Of 2002

Exhibit 31.2 Certification of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 302 of The Sarbanes-Oxley Act Of 2002

Exhibit 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act of 2002

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CPS TECHNOLOGIES CORP.
(Registrant)

Date:

November 3, 2023

/s/	Brian T. Mackey

Brian T. Mackey
Chief Executive Officer

Date:

November 3, 2023

/s/	Charles K. Griffith Jr.

Charles K. Griffith Jr.

Chief Financial Officer

Dates Referenced Herein and Documents Incorporated by Reference

This ‘10-Q’ Filing	Date	Other Filings

	12/31/23
Filed on:	11/3/23	8-K
	10/20/23
	10/1/23
For Period end:	9/30/23
	7/1/23	10-Q
	12/31/22	10-K, SD
	10/1/22	10-Q
	7/2/22	10-Q
	12/25/21	10-K, SD
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Filing Submission 0001437749-23-030150 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

CPS Technologies Corp./DE – ‘10-Q’ for 9/30/23

On: Friday, 11/3/23, at 11:42am ET · For: 9/30/23 · Accession #: 1437749-23-30150 · File #: 1-36807

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