[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 or a non-accelerated filer or 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]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act):
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 July 31, 2020:
13,296,168.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Unaudited)
CPS TECHNOLOGIES CORPORATION
Balance Sheets (Unaudited)
|
|
|
June 27,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
116,612
|
|
|
$
|
133,965
|
|
Accounts receivable-trade, net
|
|
|
4,975,842
|
|
|
|
4,086,945
|
|
Inventories, net
|
|
|
3,872,868
|
|
|
|
3,099,824
|
|
Prepaid expenses and other current assets
|
|
|
173,237
|
|
|
|
147,786
|
|
Total current assets
|
|
|
9,138,559
|
|
|
|
7,468,520
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Production equipment
|
|
|
10,008,886
|
|
|
|
9,649,169
|
|
Furniture and office equipment
|
|
|
508,423
|
|
|
|
508,423
|
|
Leasehold improvements
|
|
|
934,195
|
|
|
|
934,195
|
|
Total cost
|
|
|
11,451,504
|
|
|
|
11,091,787
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and amortization
|
|
|
(10,357,620)
|
|
|
|
(10,110,663)
|
|
Construction in progress
|
|
|
320,209
|
|
|
|
255,754
|
|
Net property and equipment
|
|
|
1,414,093
|
|
|
|
1,236,878
|
|
Right-of-use lease asset
|
|
|
100,000
|
|
|
|
171,000
|
|
Deferred taxes, net
|
|
|
147,873
|
|
|
|
147,873
|
|
Total assets
|
|
$
|
10,800,525
|
|
|
$
|
9,024,271
|
|
See accompanying notes to financial statements.
(continued)
CPS TECHNOLOGIES CORPORATION
Balance Sheets (Unaudited)
(concluded)
|
|
|
June 27,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
LIABILITIES AND STOCKHOLDERS` EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Borrowings against line of credit
|
|
|
1,026,765
|
|
|
|
1,249,588
|
|
Note payable, current portion
|
|
|
37,311
|
|
|
|
—
|
|
Accounts payable
|
|
|
1,770,160
|
|
|
|
1,436,417
|
|
Accrued expenses
|
|
|
908,994
|
|
|
|
815,166
|
|
Deferred revenue
|
|
|
482,997
|
|
|
|
21,110
|
|
Lease liability, current portion
|
|
|
100,000
|
|
|
|
148,000
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,326,227
|
|
|
|
3,670,281
|
|
|
|
|
|
|
|
|
|
|
Note payable less current portion
|
|
|
159,360
|
|
|
|
—
|
|
Long term lease liability
|
|
|
—
|
|
|
|
23,000
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
4,485,587
|
|
|
|
3,693,281
|
|
|
|
|
|
|
|
|
|
|
Commitments (note 4)
|
|
|
|
|
|
|
|
|
Stockholders` equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value,
|
|
|
|
|
|
|
|
|
authorized 20,000,000 shares;
|
|
|
|
|
|
|
|
|
issued 13,427,492;
|
|
|
|
|
|
|
|
|
outstanding 13,207,436;
|
|
|
|
|
|
|
|
|
at June 27, 2020 and December 28, 2019;
|
|
|
134,275
|
|
|
|
134,275
|
|
Additional paid-in capital
|
|
|
36,177,264
|
|
|
|
36,094,201
|
|
Accumulated deficit
|
|
|
(29,479,548)
|
|
|
|
(30,380,433)
|
|
Less cost of 220,056 common shares repurchased
|
|
|
|
|
|
|
|
|
at June 27, 2020 and December 28, 2019
|
|
|
(517,053)
|
|
|
|
(517,053)
|
|
|
|
|
|
|
|
|
|
|
Total stockholders` equity
|
|
|
6,314,938
|
|
|
|
5,330,990
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders`
|
|
|
|
|
|
|
|
|
equity
|
|
$
|
10,800,525
|
|
|
$
|
9,024,271
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
Statements of Operations (Unaudited)
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
|
June 27,
|
|
|
|
June 29,
|
|
|
|
June 27,
|
|
|
|
June 29,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
5,758,015
|
|
|
$
|
6,366,951
|
|
|
$
|
12,269,586
|
|
|
$
|
11,636,489
|
|
Total revenues
|
|
|
5,758,015
|
|
|
|
6,366,951
|
|
|
|
12,269,586
|
|
|
|
11,636,489
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
4,574,686
|
|
|
|
5,191,964
|
|
|
|
9,536,047
|
|
|
|
10,302,078
|
|
Gross Margin
|
|
|
1,183,329
|
|
|
|
1,174,987
|
|
|
|
2,733,539
|
|
|
|
1,334,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general, and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
administrative expense
|
|
|
852,773
|
|
|
|
917,079
|
|
|
|
1,781,362
|
|
|
|
1,820,765
|
|
Income (loss) from operations
|
|
|
330,556
|
|
|
|
257,908
|
|
|
|
952,176
|
|
|
|
(486,354)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense), net
|
|
|
(31,325)
|
|
|
|
(7,310)
|
|
|
|
(51,291)
|
|
|
|
(7,261)
|
|
Net income (loss) before
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income tax
|
|
|
299,231
|
|
|
|
250,598
|
|
|
|
900,885
|
|
|
|
(493,615)
|
|
Income tax provision (benefit)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income (loss)
|
|
$
|
299,231
|
|
|
$
|
250,598
|
|
|
$
|
900,885
|
|
|
$
|
(493,615)
|
|
Net income (loss) per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic common share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
(0.04)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,207,436
|
|
|
|
13,206,069
|
|
|
|
13,207,436
|
|
|
|
13,206,756
|
|
Net income (loss) per
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted common share
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
(0.04)
|
|
Weighted average number of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
diluted common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
|
|
|
13,259,783
|
|
|
|
13,260,261
|
|
|
|
13,253,457
|
|
|
|
13,206,756
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 27, 2020 AND JUNE 29, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
paid-in
|
|
Accumulated
|
|
Stock
|
|
stockholders'
|
|
|
shares issued
|
|
Par Value
|
|
capital
|
|
deficit
|
|
repurchased
|
|
equity
|
Balance at March 28, 2020
|
|
|
|
13,427,492
|
|
|
$
|
134,275
|
|
|
$
|
36,159,874
|
|
|
|
(29,778,779)
|
|
|
|
(517,053)
|
|
|
|
5,998,317
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
17,390
|
|
|
|
—
|
|
|
|
—
|
|
|
|
17,390
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299,231
|
|
|
|
—
|
|
|
|
299,231
|
|
Balance at June 27, 2020
|
|
|
13,427,492
|
|
|
|
134,275
|
|
|
|
36,177,264
|
|
|
|
(29,479,548)
|
|
|
|
(517,053)
|
|
|
|
6,314,938
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
paid-in
|
|
Accumulated
|
|
Stock
|
|
stockholders'
|
|
|
shares issued
|
|
Par 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
|
|
|
—
|
|
|
|
—
|
|
|
|
83,063
|
|
|
|
—
|
|
|
|
—
|
|
|
|
83,063
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
900,885
|
|
|
|
—
|
|
|
|
900,885
|
|
Balance at June 27, 2020
|
|
|
13,427,492
|
|
|
|
134,275
|
|
|
|
36,177,264
|
|
|
|
(29,479,548)
|
|
|
|
(517,053)
|
|
|
|
6,314,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
paid-in
|
|
Accumulated
|
|
Stock
|
|
stockholders'
|
|
|
shares issued
|
|
Par Value
|
|
capital
|
|
deficit
|
|
repurchased
|
|
equity
|
Balance at March 30, 2019
|
|
|
13,427,492
|
|
|
$
|
134,275
|
|
|
$
|
36,021,766
|
|
|
|
(30,486,445)
|
|
|
|
(517,053)
|
|
|
|
5,152,543
|
|
Share-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
26,411
|
|
|
|
—
|
|
|
|
—
|
|
|
|
26,411
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,599
|
|
|
|
—
|
|
|
|
250,599
|
|
Balance at June 29, 2019
|
|
|
13,427,492
|
|
|
|
134,275
|
|
|
|
36,048,177
|
|
|
|
(30,235,846)
|
|
|
|
(517,053)
|
|
|
|
5,429,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
Number of
|
|
|
|
paid-in
|
|
Accumulated
|
|
Stock
|
|
stockholders'
|
|
|
shares issued
|
|
Par 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
|
|
|
—
|
|
|
|
—
|
|
|
|
85,397
|
|
|
|
—
|
|
|
|
—
|
|
|
|
85,397
|
|
Issuance of common stock
|
|
|
1,500
|
|
|
|
15
|
|
|
|
2,235
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,250
|
|
Net (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(493,615)
|
|
|
|
—
|
|
|
|
(493,615)
|
|
Balance at June 29, 2019
|
|
|
13,427,492
|
|
|
|
134,275
|
|
|
|
36,048,177
|
|
|
|
(30,235,846)
|
|
|
|
(517,053)
|
|
|
|
5,429,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
Statements of Cash Flows (Unaudited)
|
|
|
Six Months Ended
|
|
|
|
|
|
June 27,
|
|
|
|
June 29,
|
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
900,885
|
|
|
$
|
(493,615)
|
|
Adjustments to reconcile net income (loss)
|
|
|
|
|
|
|
|
|
|
to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
261,688
|
|
|
|
278,369
|
|
Share-based compensation
|
|
|
|
83,063
|
|
|
|
87,647
|
|
Gain on sale of property and equipment
|
|
|
|
(5,000)
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
Accounts receivable-trade
|
|
|
|
(888,897)
|
|
|
|
(1,057,298)
|
|
Inventories
|
|
|
|
(773,044)
|
|
|
|
292,034
|
|
Prepaid expenses and other current assets
|
|
|
|
(25,451)
|
|
|
|
(64,304)
|
|
Accounts payable
|
|
|
|
333,743
|
|
|
|
4,819
|
|
Accrued expenses
|
|
|
|
93,828
|
|
|
|
(148,844)
|
|
Deferred revenue
|
|
|
|
461,887
|
|
|
|
—
|
|
Net cash provided by (used in) operating
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
|
442,702
|
|
|
|
(1,101,192)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
|
(233,270)
|
|
|
|
(166,011)
|
|
Proceeds from sale of property and equipment
|
|
|
|
5,000
|
|
|
|
—
|
|
Net cash used in investing
|
|
|
|
|
|
|
|
|
|
activities
|
|
|
|
(228,270)
|
|
|
|
(166,011)
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net borrowings on line of credit
|
|
|
|
(222,823)
|
|
|
|
800,000
|
|
Payments on note payable
|
|
|
|
(8,962)
|
|
|
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|
financing activities
|
|
|
|
(231,785)
|
|
|
|
800,000
|
|
Net decrease in cash and cash equivalents
|
|
|
|
(17,353)
|
|
|
|
(467,203)
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
|
133,965
|
|
|
|
628,804
|
|
Cash and cash equivalents at end of period
|
|
|
$
|
116,612
|
|
|
$
|
161,601
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flows information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
|
|
65,741
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash activity:
|
|
|
|
|
|
|
|
|
|
Issuance of note payable to finance equipment purchase
|
|
|
|
208,583
|
|
|
|
—
|
|
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:
|
|
|
June 27,
|
|
|
|
June 29,
|
|
|
|
June 27,
|
|
|
|
June 29,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
299,231
|
|
|
$
|
250,598
|
|
|
$
|
900,885
|
|
|
$
|
(493,615)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
13,207,436
|
|
|
|
13,206,069
|
|
|
|
13,207,436
|
|
|
|
13,206,756
|
|
Basic EPS
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
(0.04)
|
|
Diluted EPS Computation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
299,231
|
|
|
$
|
250,598
|
|
|
$
|
900,885
|
|
|
$
|
(493,615)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
13,207,436
|
|
|
|
13,206,069
|
|
|
|
13,207,436
|
|
|
|
13,206,756
|
|
Dilutive effect of stock options
|
|
|
52,347
|
|
|
|
54,192
|
|
|
|
46,021
|
|
|
|
—
|
|
Total Shares
|
|
|
13,259,783
|
|
|
|
13,260,261
|
|
|
|
13,253,457
|
|
|
|
13,206,756
|
|
Diluted EPS
|
|
$
|
0.02
|
|
|
$
|
0.02
|
|
|
$
|
0.07
|
|
|
$
|
(0.04)
|
|
(4) Commitments & Contingencies
Commitments
Leases
The Company has two real estate leases—one
expiring in February 2021 and one with an 11 month duration with options to extend additional years. Since the latter is not reasonably
certain that any options will be exercised, 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.
The lease expiring in 2021 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 commencement dates. The Company’s lease agreements do not contain any material residual value guarantees
or material restrictive covenants.
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 June 27, 2020
(Dollars in Thousands)
|
|
|
June 27, 2020
|
|
Maturity of capitalized lease liabilities
|
|
|
Lease payments
|
|
2020
|
|
$
|
76
|
|
2021
|
|
|
26
|
|
Total undiscounted operating lease payments
|
|
$
|
102
|
|
Less: Imputed interest
|
|
|
(2)
|
|
Present value of operating lease liability
|
|
$
|
100
|
|
Additionally, the Company has short-term lease commitments not reflected
in the schedule above and not recorded as a right-of-use asset in accordance with the Company’s accounting policy.
Balance Sheet Classification
|
|
|
|
|
Current lease liability (recorded in other current liabilities)
|
|
$
|
100
|
|
Total operating lease liability
|
|
$
|
100
|
|
Other Information
|
|
|
|
|
Weighted-average remaining lease term for capitalized operating leases
|
|
|
8 months
|
|
Weighted-average discount rate for capitalized operating leases
|
|
|
6.5%
|
|
|
|
|
|
|
Operating Lease Costs and Cash Flows
Operating lease cost and cash paid was $76 thousand
during the first half year of 2020. This cost is 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 quarters ended June 27, 2020 and June
29, 2019 a total of 0 and 75,000 stock options, respectively, were granted to employees under the Company’s 2020 Equity Incentive
Plan and 2009 Stock Incentive Plan, respectively (collectively the “Plan”)
During the quarters ended June 27, 2020 and June
29, 2019 there were no shares issued.
During the three and six months ended June 27,
2020, the Company recognized $17,390 and $83,063, respectively, as shared-based compensation expense related to previously granted
shares under the Plan.
During the three and six months ended June 29,
2019, the Company recognized $26,411 and $85,397, respectively, as shared-based compensation expense related to previously granted
shares under the Plan.
(6) Inventories
Inventories consist of the following:
|
|
|
June 27,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Raw materials
|
|
$
|
941,757
|
|
|
$
|
778,409
|
|
Work in process
|
|
|
1,997,260
|
|
|
|
1,898,916
|
|
Finished goods
|
|
|
1,383,213
|
|
|
|
871,861
|
|
Total inventory
|
|
|
4,322,230
|
|
|
|
3,549,186
|
|
|
|
|
|
|
|
|
|
|
Reserve for obsolescence
|
|
|
(449,362)
|
|
|
|
(449,362)
|
|
Inventories, net
|
|
$
|
3,872,868
|
|
|
$
|
3,099,824
|
|
(7) Accrued Expenses
Accrued expenses consist of the following:
|
|
|
June 27,
|
|
|
|
December 28,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Accrued legal and accounting
|
|
$
|
42,255
|
|
|
$
|
62,725
|
|
Accrued payroll and related expenses
|
|
|
755,148
|
|
|
|
518,015
|
|
Accrued other
|
|
|
111,591
|
|
|
|
234,426
|
|
|
|
|
|
$
|
908,994
|
|
|
$
|
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 June 27, 2020 the Company
had $1.027 million of borrowings under this LOC and its borrowing base at the time would have permitted an additional $1.973 million
to have been borrowed.
The line of credit is subject to certain financial
covenants, all of which have been met or waived.
(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%.
(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 six months ended June 27, 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 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 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.
Results of Operations for the Second Fiscal Quarter of 2020 (Q2
2020) Compared to the Second Fiscal Quarter of 2019 (Q2 2019); (all $ in 000s)
Total revenue was $5,758 in Q2 2020, a 10% decrease
compared with total revenue of $6,367 in Q2 2019. This decrease was due primarily to a decrease in the sale of baseplates and the
shipment of a large infrequent order in Q2 2019. Price increases of 10% offset the overall revenue decrease in Q2 2020 revenue
compared with Q2 2019.
Gross margin in Q2 2020 totaled $1,183 or 21%
of sales. In Q2 2019, gross margin was $1,175 or 18% of sales. This increase in margin was primarily due to increased
pricing and product mix.
Selling, general and administrative expenses
(SG&A) were $853 in Q2 2020, down 7% when compared with SG&A expenses of $917 in Q2 2019. This reduction in SG&A
expense was due, almost equally, to reduced sales commissions on reduced revenue, and reduced travel expenses, as virtually all
company travel was shut down due to the Covid-19 pandemic.
In Q2, 2020, the Company incurred interest expense
of $32 due to bank borrowings. This compares with interest expense of $7 in Q2 of 2019. The increase in interest is
due to increased borrowings to finance the growth of accounts receivable and inventory
The Company experienced operating income of $331
compared with an operating income of $258 in the same quarter last year. This increase in operating income is due primarily to
the decrease in SG&A expense, discussed above. The net income for Q2 2020 totaled $299 versus $251 in Q2 2019.
Results of Operations for the First Six Months of 2020 Compared
to the First Six Months of 2019 (all $ in 000s)
Total revenue was $12,270 in the first half of
2020, a 5% increase compared with total revenue of $11,636 in the first six months of 2019. This increase was due primarily to
a 12% increase in pricing during the first half of 2020 compared with the first half of 2019.
Gross margin in the first six months of 2020
totaled $2,734 or 22% of sales. In the first six months of 2019 gross margin totaled $1,334 or 11% of sales. This increase
was due to the increase in revenues, pricing, and product mix.
Selling, general and administrative (SG&A)
expenses were $1,781 during the first six months of 2020, down 2% compared with SG&A expenses of $1,821 in the first six months
of 2019 This reduction is due primarily to reductions in travel due to the Covid-19 pandemic.
During the first half of 2020, the Company incurred
interest expense of $66 due to bank borrowings. This compares with interest expense of $7 incurred during the first half
of 2019. The increase in interest is due to increased borrowings to finance the growth of accounts receivable and inventory
In the first six months of 2020 the Company had
operating income of $952 compared with an operating loss of $486 in the same period last year. The net income for the first
six months of 2020 totaled $901 versus a net loss of $494 in the first six months of 2019.
Liquidity and Capital Resources (all $ in 000s unless noted)
The Company’s cash and cash equivalents
at June 27, 2020 totaled $117. The Company’s net cash, which considers the $1,027 of bank borrowings, totaled a negative
$910 at the end of the second quarter. This compares to cash and cash equivalents at December 28, 2019 of $134 and net cash of
negative $1,116. The improvement in net cash was due to the gains from operations.
Accounts receivable at June 27, 2020 totaled
$4,976 compared with $4,087 at December 28, 2019.
Days Sales Outstanding (DSO) increased from 67
days at the end of 2019 to 78 days at the end of Q2 2020. The increase in DSO was due to higher sales to one large customer
with longer payment terms. The accounts receivable balances at December 29, 2019, and June 27, 2020 were both net of an allowance
for doubtful accounts of $10.
Inventories totaled $3,873 at June 27, 2020 compared
with inventory totaling $3,100 at December 28, 2019. This increase was due to increased finished goods awaiting outside plating
services for our two largest customers. The inventory turnover in the most recent four quarters ending Q2 2020 was 5.5 times,
down from 6.2 times averaged during the four quarters of 2019 (based on a 5 point average).
The Company financed its increase in working
capital in Q2 2020 from its profit. The Company expects it will continue to be able to fund its operations 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 June 27, 2020 the Company had $1.03 million of borrowings under this LOC and its borrowing base at the time would have permitted
an additional $1.97 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 a Sonoscan
ultrasound microscope for a price of $208. 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, consisting of
principal plus interest at a rate of 6.47%
As of June 27, 2020 the Company had $320
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 with an 11 month duration with options to extend additional years. Since the latter is not reasonably
certain that any options will be exercised, 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.
The COVID-19 pandemic presents several risks
for the Company. The Company is part of the Defense Industrial Base and thus has remained open and operating throughout the
pandemic. The primary risks resulting from the pandemic are potential declines in customer demand and increased operating
costs resulting from pandemic-related factors such as increased freight costs and increased employee absenteeism causing labor
inefficiencies and increased use of overtime.
The COVID-19 pandemic did affect financial
results for the quarter ended June 27, 2020. One of our major customers increased inventory above normal levels in Q1 to
protect against the risk that their suppliers, including CPS, would be unable to meet their demands due to the pandemic.
In addition, demand from their customers has declined. This has resulted in this customer reducing Q2 purchases, and
most likely will result in reduced Q3 and Q4 purchases. The Company believes there will continue to be negative effects on
financial results, at least modestly, in upcoming quarters, due to the risks described above.
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.