UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended September 26, 2020
or
[ ]
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
0-16088
CPS TECHNOLOGIES CORPORATION
(Exact Name of Registrant as Specified in its Charter)
|
Delaware |
|
04-2832509 |
| (State
or Other Jurisdiction of Incorporation or Organization) |
|
(I.R.S.
Employer Identification No.) |
| |
|
|
| 111
South Worcester Street |
|
|
| Norton,
MA |
|
02766-2102 |
| (Address
of principal executive offices) |
|
(Zip
Code) |
| |
|
|
(508) 222-0614
Registrants Telephone Number, including
Area Code:
CPS Technologies Corporation
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. [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
Securities registered pursuant to Section 12(b) of the Act:
Title of each
class
Trading Symbol(s)
Name of each exchange on which
registered
Common Stock, $0.01 par
value
CPSH
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 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.
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 2019 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
(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
CORPORATION
(Registrant)
Date: November 10, 2020
/s/ Grant C. Bennett
Grant C. Bennett
Chief Executive Officer
Date: November 10, 2020
/s/
Charles K. Griffith Jr.
Charles K. Griffith Jr.
