UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended July 1,September 30, 2023
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 CORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 04-2832509 |
111 South Worcester Street | 02766-2102 (Zip Code) |
(508) 222-0614Registrant’sRegistrants 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. ☒ 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). ☒ 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,” “smallersmaller reporting company,” and “emerging growth company”” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐company☐
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 public 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):
☐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 |
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 July 25,2023: 14,516,544.October 20, 2023: 14,519,215.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Unaudited)
CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(continued on next page)
July 1, | December 31, | September 30, | December 31, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 8,681,225 | $ | 8,266,753 | $ | 8,778,856 | $ | 8,266,753 | ||||||||
Accounts receivable-trade, net | 5,074,559 | 3,777,975 | 5,006,451 | 3,777,975 | ||||||||||||
Accounts receivable-other | 74,639 | 685,668 | 17,043 | 685,668 | ||||||||||||
Inventories, net | 4,813,753 | 4,875,901 | 4,827,957 | 4,875,901 | ||||||||||||
Prepaid expenses and other current assets | 288,315 | 211,242 | 337,476 | 211,242 | ||||||||||||
Total current assets | 18,932,491 | 17,817,539 | 18,967,783 | 17,817,539 | ||||||||||||
Property and equipment: | ||||||||||||||||
Production equipment | 11,028,500 | 10,770,427 | 11,195,993 | 10,770,427 | ||||||||||||
Furniture and office equipment | 952,883 | 952,883 | 952,883 | 952,883 | ||||||||||||
Leasehold improvements | 985,649 | 985,649 | 985,649 | 985,649 | ||||||||||||
Total cost | 12,967,032 | 12,708,959 | 13,134,525 | 12,708,959 | ||||||||||||
Accumulated depreciation and amortization | (11,699,870 | ) | (11,446,901 | ) | (11,810,209 | ) | (11,446,901 | ) | ||||||||
Construction in progress | 240,415 | 64,910 | 206,693 | 64,910 | ||||||||||||
Net property and equipment | 1,507,578 | 1,326,968 | 1,531,009 | 1,326,968 | ||||||||||||
Right-of-use lease asset | 400,000 | 466,000 | 367,000 | 466,000 | ||||||||||||
Deferred taxes, net | 1,664,032 | 2,069,436 | 1,645,467 | 2,069,436 | ||||||||||||
Total assets | $ | 22,504,101 | $ | 21,679,943 | $ | 22,511,259 | $ | 21,679,943 | ||||||||
See accompanying notes to financial statements.
(continued)
CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(concluded)
July 1, | December 31, | September 30, | December 31, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
LIABILITIES AND STOCKHOLDERS` EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Note payable, current portion | $ | 56,681 | $ | 43,711 | 57,457 | 43,711 | ||||||||||
Accounts payable | 2,359,532 | 1,836,865 | 2,151,127 | 1,836,865 | ||||||||||||
Accrued expenses | 861,514 | 820,856 | 1,067,293 | 820,856 | ||||||||||||
Deferred revenue | 1,828,068 | 2,521,128 | 1,675,086 | 2,521,128 | ||||||||||||
Lease liability, current portion | 158,000 | 157,000 | 159,000 | 157,000 | ||||||||||||
Total current liabilities | 5,263,795 | 5,379,560 | 5,109,963 | 5,379,560 | ||||||||||||
Note payable less current portion | 20,437 | 54,847 | 8,655 | 54,847 | ||||||||||||
Deferred revenue – long term | 31,277 | 231,020 | ||||||||||||||
Long term lease liability | 242,000 | 309,000 | ||||||||||||||
Deferred revenue-long term | 31,277 | 231,020 | ||||||||||||||
Lease liability less current portion | 208,000 | 309,000 | ||||||||||||||
Total liabilities | 5,557,509 | 5,974,427 | 5,357,895 | 5,974,427 | ||||||||||||
Commitments and contingencies (note 4) | ||||||||||||||||
Commitments (note 4) | ||||||||||||||||
Stockholders` equity: | ||||||||||||||||
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,546,487 and 14,460,486 shares; outstanding 14,511,544 and 14,450,470 shares; at July 1, 2023 and December 31, 2022, respectively | 145,465 | 144,605 | ||||||||||||||
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 | 146,015 | 144,605 | ||||||||||||||
Additional paid-in capital | 39,978,453 | 39,726,851 | 40,151,794 | 39,726,851 | ||||||||||||
Accumulated deficit | (23,065,388 | ) | (24,125,092 | ) | (22,894,307 | ) | (24,125,092 | ) | ||||||||
Less cost of 34,943 and 10,016 common shares repurchased at July 1, 2023 and December 31, 2022, respectively | (111,938 | ) | (40,848 | ) | ||||||||||||
Less cost of 82,272 and 10,016 common shares repurchased, respectively; at September 30, 2023 and December 31, 2022 | (250,138 | ) | (40,848 | ) | ||||||||||||
Total stockholders` equity | 16,946,592 | 15,705,516 | 17,153,364 | 15,705,516 | ||||||||||||
Total liabilities and stockholders` equity | $ | 22,504,101 | $ | 21,679,943 | $ | 22,511,259 | $ | 21,679,943 | ||||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
Statements of Operations (Unaudited)
Three Months Ended | Six Months Ended | Fiscal Quarters Ended | Nine Months Ended | |||||||||||||||||||||||||||||
July 1, | July 2, | July 1, | July 2, | September 30, | October 1, | September 30, | October 1, | |||||||||||||||||||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||||||||||
Product sales | $ | 7,418,138 | $ | 7,070,743 | $ | 14,518,405 | $ | 13,723,457 | $ | 6,285,041 | $ | 6,748,117 | $ | 20,803,447 | $ | 20,471,574 | ||||||||||||||||
Total revenues | 7,418,138 | 7,070,743 | 14,518,405 | 13,723,457 | ||||||||||||||||||||||||||||
Total Revenues | 6,285,041 | 6,748,117 | 20,803,447 | 20,471,574 | ||||||||||||||||||||||||||||
Cost of product sales | 5,221,880 | 5,242,106 | 10,077,444 | 9,931,330 | 5,049,177 | 4,864,876 | 15,126,621 | 14,796,206 | ||||||||||||||||||||||||
Gross Profit | 1,235,864 | 1,883,241 | 5,676,826 | 5,675,368 | ||||||||||||||||||||||||||||
Gross Margin | 2,196,259 | 1,828,637 | 4,440,961 | 3,792,127 | ||||||||||||||||||||||||||||
Selling, general, and administrative expense | 1,465,349 | 1,159,157 | 3,015,871 | 2,575,550 | ||||||||||||||||||||||||||||
Income from operations | 730,910 | 669,480 | 1,425,090 | 1,216,577 | ||||||||||||||||||||||||||||
Selling, general and administrative expense | 1,105,227 | 1,174,581 | 4,121,099 | 3,750,131 | ||||||||||||||||||||||||||||
Operating income | 130,637 | 708,660 | 1,555,727 | 1,925,237 | ||||||||||||||||||||||||||||
Interest income (expense), net | 79,652 | 1,594 | 95,242 | (319 | ) | 78,181 | (1,892 | ) | 176,325 | (6,245 | ) | |||||||||||||||||||||
Net income before income tax | 810,562 | 671,074 | 1,520,332 | 1,216,258 | ||||||||||||||||||||||||||||
Other income (expense), net | (1,228 | ) | 645,594 | (4,130 | ) | 649,628 | ||||||||||||||||||||||||||
Net income before income tax expense | 207,590 | 1,352,362 | 1,727,922 | 2,568,620 | ||||||||||||||||||||||||||||
Income tax provision | 210,058 | 215,966 | 460,628 | 341,714 | 36,509 | 364,497 | 497,137 | 706,211 |
| |||||||||||||||||||||||
Net income | $ | 600,503 | $ | 455,108 | $ | 1,059,704 | $ | 874,544 | $ | 171,081 | $ | 987,865 | $ | 1,230,785 | $ | 1,862,409 | ||||||||||||||||
Net income per basic common share | $ | 0.04 | $ | 0.03 | $ | 0.07 | $ | 0.06 | $ | 0.01 | $ | 0.07 | $ | 0.08 | $ | 0.13 | ||||||||||||||||
Weighted average number of basic common shares outstanding | 14,493,970 | 14,431,825 | 14,473,128 | 14,410,064 | 14,517,364 | 14,434,468 | 14,487,873 | 14,417,995 | ||||||||||||||||||||||||
Net income per diluted common share | $ | 0.04 | $ | 0.03 | $ | 0.07 | $ | 0.06 | $ | 0.01 | $ | 0.07 | $ | 0.08 | $ | 0.13 | ||||||||||||||||
Weighted average number of diluted common shares outstanding | 14,621,929 | 14,708,646 | 14,630,765 | 14,682,516 | 14,636,241 | 14,686,476 | 14,632,591 | 14,683,632 | ||||||||||||||||||||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND SIXNINE MONTHS ENDED JULY 1,SEPTEMBER 30, 2023 AND JULY 2,OCTOBER 1, 2022
Common Stock | Additional | Total | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
Number of | paid-in | Accumulated | Stock | stockholders' | Number of | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
shares issued | Par Value | capital | deficit | repurchased | equity | shares | paid-in | Accumulated | Stock | stockholders' | ||||||||||||||||||||||||||||||||||||||
Balance at April 1, 2023 | 14,467,487 | $ | 144,675 | $ | 39,867,507 | (23,665,891 | ) | (41,638 | ) | 16,304,653 | ||||||||||||||||||||||||||||||||||||||
issued | Par Value | capital | deficit | repurchased | equity | |||||||||||||||||||||||||||||||||||||||||||
Balance at July 1, 2023 | 14,546,487 | 145,465 | 39,978,453 | (23,065,388 | ) | (111,938 | ) | 16,946,592 | ||||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | -- | -- | 17,316 | -- | -- | 17,316 | - | - | 27,941 | - | - | 27,941 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||||||||||||||
Employee option exercises | 79,000 | 790 | 93,630 | -- | (70,300 | ) | 24,120 | 55,000 | 550 | 145,400 | - | (138,200 | ) | 7,750 | ||||||||||||||||||||||||||||||||||
Net income | -- | -- | -- | 600,503 | -- | 600,503 | - | - | - | 171,081 | - | 171,081 | ||||||||||||||||||||||||||||||||||||
Balance at July 1, 2023 | 14,546,487 | 145,465 | 39,978,453 | (23,065,388 | ) | (111,938 | ) | 16,946,592 | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | 14,601,487 | 146,015 | 40,151,794 | (22,894,307 | ) | (250,138 | ) | 17,153,364 | ||||||||||||||||||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Total | Number of | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||
Number of | paid-in | Accumulated | Stock | stockholders' | shares | paid-in | Accumulated | Stock | stockholders' | |||||||||||||||||||||||||||||||||||||||
shares issued | Par Value | capital | deficit | repurchased | equity | issued | Par Value | capital | deficit | repurchased | equity | |||||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 | 14,460,486 | $ | 144,605 | $ | 39,726,851 | (24,125,092 | ) | (40,848 | ) | 15,705,516 | 14,460,486 | $ | 144,605 | $ | 39,726,851 | (24,125,092 | ) | (40,848 | ) | 15,705,516 | ||||||||||||||||||||||||||||
Share-based compensation expense | -- | -- | 147,757 | -- | -- | 147,757 | - | - | 175,698 | - | - | 175,698 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock | -- | -- | -- | -- | -- | -- | ||||||||||||||||||||||||||||||||||||||||||
Employee options Exercised | 86,001 | 860 | 103,845 | -- | (71,090 | ) | 33,615 | |||||||||||||||||||||||||||||||||||||||||
Employee options exercised | 141,001 | 1,410 | 249,245 | - | (209,290 | ) | 41,365 | |||||||||||||||||||||||||||||||||||||||||
Net income | -- | -- | -- | 1,059,704 | -- | 1,059,704 | - | - | - | 1,230,785 | - | 1,230,785 | ||||||||||||||||||||||||||||||||||||
Balance at July 1, 2023 | 14,546,487 | 145,465 | 39,978,453 | (23,065,388 | ) | (111,938 | ) | 16,946,592 | ||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2023 | 14,601,487 | 146,015 | 40,151,794 | (22,894,307 | ) | (250,138 | ) | 17,153,364 | ||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Total | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||
Number of | paid-in | Accumulated | Stock | stockholders' | Number of | Additional | Total | |||||||||||||||||||||||||||||||||||||||||
shares issued | Par Value | capital | deficit | repurchased | equity | shares | paid-in | Accumulated | Stock | stockholders' | ||||||||||||||||||||||||||||||||||||||
Balance at April 2, 2022 | 14,423,486 | $ | 144,235 | $ | 39,546,975 | (25,837,056 | ) | (5,623 | ) | 13,848,531 | ||||||||||||||||||||||||||||||||||||||
issued | Par Value | capital | deficit | repurchased | equity | |||||||||||||||||||||||||||||||||||||||||||
Balance at July 2, 2022 | 14,438,786 | $ | 144,388 | $ | 39,600,085 | (25,381,948 | ) | (20,849 | ) | 14,341,676 | ||||||||||||||||||||||||||||||||||||||
Share-based compensation expense | -- | -- | 39,384 | -- | -- | 39,384 | - | - | 43,422 | - | - | 43,422 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock | -- | -- | (8,144 | ) | -- | -- | (8,144 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance of common stock (net of costs) | - | - | (23,135 | ) | - | - | (23,135 | |||||||||||||||||||||||||||||||||||||||||
Employee option exercises | 15,300 | 153 | 21,870 | -- | (15,226 | ) | 6,797 | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Net income | -- | -- | -- | 455,108 | -- | 455,108 | 987,865 | - | 987,865 | |||||||||||||||||||||||||||||||||||||||
Balance at July 2, 2022 | 14,438,786 | 144,388 | 39,600,085 | (25,381,948 | ) | (20,849 | ) | 14,341,676 | ||||||||||||||||||||||||||||||||||||||||
Balance at October 1, 2022 | 14,438,786 | 144,388 | 39,620,372 | (24,394,083 | ) | (20,849 | ) | 15,349,828 | ||||||||||||||||||||||||||||||||||||||||
Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Total | Number of | Additional | Total | |||||||||||||||||||||||||||||||||||||||||||
Number of | paid-in | Accumulated | Stock | stockholders' | shares | paid-in | Accumulated | Stock | stockholders' | |||||||||||||||||||||||||||||||||||||||
shares issued | Par Value | capital | deficit | repurchased | equity | issued | Par Value | capital | deficit | repurchased | equity | |||||||||||||||||||||||||||||||||||||
Balance at December 25, 2021 | 14,350,786 | $ | 143,508 | $ | 39,281,810 | (26,256,492 | ) | (2,515 | ) | 13,166,311 | 14,350,786 | $ | 143,508 | $ | 39,281,810 | (26,256,492 | ) | (2,515 | ) | 13,166,311 | ||||||||||||||||||||||||||||
Share-based compensation expense | -- | -- | 163,855 | -- | -- | 163,855 | - | - | 207,277 | - | - | 207,277 | ||||||||||||||||||||||||||||||||||||
Issuance of common stock | -- | -- | (17,758 | ) | -- | -- | (17,758 | ) | ||||||||||||||||||||||||||||||||||||||||
Employee options Exercised | 88,000 | 880 | 172,178 | -- | (18,334 | ) | 154,724 | |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock (net of costs) | - | - | (40,893 | ) | - | - | (40,893 | ) | ||||||||||||||||||||||||||||||||||||||||
Employee options exercised | 88,000 | 880 | 172,178 | (18,334 | ) | 154,724 | ||||||||||||||||||||||||||||||||||||||||||
Treasury shares retired | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Net income | -- | -- | -- | 874,544 | -- | 874,544 | 1,862,409 | - | 1,862,409 | |||||||||||||||||||||||||||||||||||||||
Balance at July 2, 2022 | 14,438,786 | 144,388 | 39,600,085 | (25,381,948 | ) | (20,849 | ) | 14,341,676 | ||||||||||||||||||||||||||||||||||||||||
Balance at October 1, 2022 | 14,438,786 | 144,388 | 39,620,372 | (24,394,083 | ) | (20,849 | ) | 15,349,828 | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
Statements of Cash Flows (Unaudited)
Six Months Ended | Nine Month Periods Ended | |||||||||||||||
July 1, | July 2, | September 30, | October 1, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 1,059,704 | $ | 874,544 | $ | 1,230,785 | $ | 1,862,409 | ||||||||
Adjustments to reconcile net income to cash provided by (used in) operating activities: | ||||||||||||||||
Adjustments to reconcile net income to cash provided by operating activities | ||||||||||||||||
Depreciation and amortization | 252,969 | 211,641 | 363,308 | 316,469 | ||||||||||||
Share-based compensation | 147,757 | 163,855 | 175,698 | 207,277 | ||||||||||||
Deferred taxes | 423,969 | 705,755 | ||||||||||||||
Changes in: | ||||||||||||||||
Accounts receivable-trade | (1,296,584 | ) | 333,048 | (1,228,476 | ) | (965,717 | ) | |||||||||
Accounts receivable-other | 611,028 | -- | 668,625 | - | ||||||||||||
Inventories | 62,148 | (754,117 | ) | 47,944 | (956,948 | ) | ||||||||||
Prepaid expenses and other current assets | (77,073 | ) | (87,628 | ) | ||||||||||||
Prepaid expenses | (126,234 | ) | (20,807 | ) | ||||||||||||
Accounts payable | 522,667 | (478,973 | ) | 314,262 | (55,394 | |||||||||||
Deferred revenue | (1,045,785 | ) | - | |||||||||||||
Accrued expenses | 40,658 | (438,249 | ) | 246,437 | (220,891 | ) | ||||||||||
Deferred taxes | 405,404 | 341,258 | ||||||||||||||
Deferred revenue | (892,803 | ) | 45,405 | |||||||||||||
Net cash provided by operating activities | 835,875 | 210,784 | 1,070,533 | 872,153 | ||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Purchases of property and equipment | (433,579 | ) | (291,631 | ) | (567,349 | ) | (392,286 | ) | ||||||||
Net cash used in investing activities | (433,579 | ) | (291,631 | ) | ||||||||||||
Net cash provided by (used in) investing activities | (567,349 | ) | (392,286 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Proceeds from exercise of employee stock options, net of repurchases | 33,615 | 154,724 | ||||||||||||||
Proceeds from issuance of common stock, net of expenses | -- | (17,758 | ) | |||||||||||||
Proceeds from employee stock options | 41,365 | 154,724 | ||||||||||||||
Stock issuance costs in excess of proceeds | - | (40,893 | ) | |||||||||||||
Payments on note payable | (21,439 | ) | (30,149 | ) | (32,446 | ) | (45,507 | ) | ||||||||
Net cash provided by financing activities | 12,176 | 106,817 | 8,918 | 68,324 | ||||||||||||
Net increase in cash and cash equivalents | 414,472 | 25,970 | 512,103 | 548,191 | ||||||||||||
Cash and cash equivalents at beginning of period | 8,266,753 | 5,050,312 | 8,266,753 | 5,050,312 | ||||||||||||
Cash and cash equivalents at end of period | $ | 8,681,225 | $ | 5,076,282 | $ | 8,778,856 | $ | 5,598,503 | ||||||||
Supplemental disclosures of cash flows information: | ||||||||||||||||
Cash paid for income taxes | $ | 109,456 | $ | 456 | ||||||||||||
Cash paid for interest | 2,902 | 4,353 | 4,130 | 6,243 | ||||||||||||
| Cash paid for taxes | 79,456 | 79,456 | ||||||||||||||
Supplemental disclosures of non-cash activity: | ||||||||||||||||
Net exercise of stock options | 71,090 | 18,334 | ||||||||||||||
Share repurchases as a reduction of stock option exercise proceeds | 209,290 | 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 mayinclude components made of metal-matrix composites or they mayinclude 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 | Six Months Ended | |||||||||||||||
July 1, | July 2, | July 1, | July 2, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Basic EPS Computation: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 600,503 | $ | 455,108 | $ | 1,059,704 | $ | 874,544 | ||||||||
Denominator: | ||||||||||||||||
Weighted average | ||||||||||||||||
Common shares | ||||||||||||||||
Outstanding | 14,493,970 | 14,431,825 | 14,473,128 | 14,410,064 | ||||||||||||
Basic EPS | $ | 0.04 | $ | 0.03 | $ | 0.07 | $ | 0.06 | ||||||||
Diluted EPS Computation: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income (loss) | $ | 600,503 | $ | 455,108 | $ | 1,059,704 | $ | 874,544 | ||||||||
Denominator: | ||||||||||||||||
Weighted average | ||||||||||||||||
Common shares | ||||||||||||||||
Outstanding | 14,493,970 | 14,431,825 | 14,473,128 | 14,410,064 | ||||||||||||
Dilutive effect of stock options | 127,959 | 276,821 | 157,637 | 272,452 | ||||||||||||
Total Shares | 14,621,929 | 14,708,646 | 14,630,765 | 14,682,516 | ||||||||||||
Diluted EPS | $ | 0.04 | $ | 0.03 | $ | 0.07 | $ | 0.06 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | October 1, | September 30, | October 1, | |||||||||||||
2023 | 2022 | 2023 | 2022 | |||||||||||||
Basic EPS Computation: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 171,081 | $ | 987,865 | $ | 1,230,785 | $ | 1,862,409 | ||||||||
Denominator: | ||||||||||||||||
Weighted average Common shares Outstanding | 14,517,364 | 14,434,468 | 14,487,873 | 14,417,995 | ||||||||||||
Basic EPS | $ | 0.01 | $ | 0.07 | $ | 0.08 | $ | 0.13 | ||||||||
Diluted EPS Computation: | ||||||||||||||||
Numerator: | ||||||||||||||||
Net income | $ | 171,081 | $ | 987,865 | $ | 1,230,785 | $ | 1,862,409 | ||||||||
Denominator: | ||||||||||||||||
Weighted average Common shares Outstanding | 14,517,364 | 14,434,468 | 14,487,873 | 14,417,995 | ||||||||||||
Dilutive effect of stock options | 118,877 | 252,008 | 144,718 | 265,637 | ||||||||||||
Total Shares | 14,636,241 | 14,686,476 | 14,632,591 | 14,683,632 | ||||||||||||
Diluted EPS | $ | 0.01 | $ | 0.07 | $ | 0.08 | $ | 0.13 | ||||||||
(4) Commitments & Contingencies
Commitments
Operating Leases
The Company has one real estate lease expiring in February 2026. CPS also has a few otheroperating leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases havehas 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 on March 1, 2021 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.
Operating Leases
The Norton facility lease comprises approximately 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 $160 thousand to $165 thousand through maturity.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operatingfacility lease as of July 1, 2023September 30, 2023.
(Dollars in Thousands) | July 1, 2023 | |||
Maturity of capitalized lease liabilities | Lease payments | |||
2023 | 81 | |||
2024 | 165 | |||
2025 | 165 | |||
2026 | 28 | |||
Total undiscounted operating lease payments | $ | 439 | ||
Less: Imputed interest | (39 | ) | ||
Present value of operating lease liability | $ | 400 | ||
(Dollars in Thousands) |
| |||||||
Maturity of capitalized lease liabilities | Lease payments | |||||||
2023 | 41 | |||||||
2024 | 165 | |||||||
2025 | 165 | |||||||
2026 | 27 | |||||||
Total undiscounted operating lease payments | $ | 398 | ||||||
Less: Imputed interest | (31 | ) | ||||||
Present value of operating lease liability | $ | 367 | ||||||
Balance Sheet Classification | ||||||||
Current lease liability | $ | 158 | $ | 159 | ||||
Long-term lease liability | 242 | 208 | ||||||
Total operating lease liability | $ | 400 | $ | 367 | ||||
Other Information | ||||||||
Remaining lease term for capitalized operating lease (months) | 32 | |||||||
Discount rate for capitalized operating leases | 6.6 | % | ||||||
Remaining lease term for capitalized operating leases (in months) | 29 | |||||||
Discount rate | 6.6 | % | ||||||
Operating Lease Costs and Cash Flows
Operating lease cost and cash paid was $41 thousand during the secondthird quarter of 2023 and $81$122 thousand for the sixnine months ended July 1,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 companyCompany 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 229,500 stock options granted under the Plan. There were 25,000 stock options granted under the Plan during the quarter ended October 1 2022.
During the quarter ended July 1,September 30, 2023, a total of 60,000 stock55,000 options were granted to employees under the Company’s 2020 Equity Incentive Plan Stock Incentive Plan (the “Plan”) and no stock options were granted to outside directors during the quarter ended July 1, 2023, issuedexercised at a weighted average pricecost of $2.66$2.65 per share. During the quarter ended July 2, 2022,September 30, 2023, a total of 15,000 stock27,400 options were granted to employees under the Company’s 2020 Equity Incentive Plan Stock Incentive Plan (the “Plan”)forfeited and no stock options were granted to outside directors duringnone expired. During the quarter ended July 2,October 1, 2022, issued at a weighted average price of $4.41 per share.no options were exercised, 10,000 options were forfeited and none expired.
During the three and six monthsquarter ended July 1, 2023, there were 79,000 and 86,000 options exercised and corresponding shares issued at a weighted average price of $1.20 and $1.22, respectively. During the three and six months ended July 2, 2022, there were 15,300 and 88,000 options exercised and corresponding shares issued at a weighted average price of $1.44 and $1.97, respectively.
During the three and six months ended July 1,September 30, 2023, the Company repurchased 24,642 and 24,927138,200 shares respectively, for employees to facilitate their exercise of stock options. During the three and six monthsquarter ended July 2,October 1, 2022, the Company repurchased 3,143 and 3,983did not repurchase any shares respectively, for employees to facilitate their exercise of stock options.
There were also 754,800901,900 shares outstanding at a weighted average price of $2.61$2.67 with a weighted average remaining term of 5.676.7 years as of July 1,September 30, 2023, and there were 551,000497,000 shares exercisable at a weighted average price of $2.45$2.43 with a weighted average remaining term of 4.754.8 years as of July 1,September 30, 2023. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of July 1,September 30, 2023, there were 1,036,400834,300 shares available for future grants.
As of July 1, 2023, there was $294 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 1.92 years.
During the three and sixnine months ended July 1,September 30, 2023, the Company recognized $17,316approximately $28 thousand and $147,757,$176 thousand, respectively, as shared-basedshare-based compensation expense related to previously granted shares undershare and option grants. These amounts are included as a component of selling, general and administrative expenses in the Plan.statement of operations.
During the three and sixnine months ended July 2,October 1, 2022,the Company recognized $39,384approximately $43 thousand and $163,855,$207 thousand, respectively, as shared-basedshare-based compensation expense related to previously granted shares undershare and option grants. These amounts are included as a component of selling, general and administrative expenses in the Plan.
statement of operations.
(6) Inventories
Inventories consist of the following:
July 1, | December 31, | |||||||||||||||
2023 | 2022 | September 30, | December 31, | |||||||||||||
2023 | 2022 | |||||||||||||||
Raw materials | $ | 2,886,278 | $ | 2,645,442 | $ | 2,781,188 | $ | 2,645,442 | ||||||||
Work in process | 1,603,511 | 1,863,512 | 1,512,835 | 1,863,512 | ||||||||||||
Finished goods | 516,889 | 525,872 | 729,359 | 525,872 | ||||||||||||
Total inventory | 5,006,678 | 5,034,826 | 5,023,382 | 5,034,826 | ||||||||||||
Reserve for obsolescence | (192,925 | ) | (158,925 | ) | (195,425 | ) | (158,925 | ) | ||||||||
Inventories, net | $ | 4,813,753 | $ | 4,875,901 | $ | 4,827,957 | $ | 4,875,901 | ||||||||
(7) Accrued Expenses
Accrued expenses consist of the following:
July 1, | December 31, | |||||||
2023 | 2022 | |||||||
Accrued legal and accounting | $ | 51,489 | $ | 35,398 | ||||
Accrued payroll and related expenses | 685,785 | 760,305 | ||||||
Accrued other | 124,240 | 25,153 | ||||||
| $ | 861,514 | $ | 820,856 | |||||
September 30, | December 31, | |||||||
2023 | 2022 | |||||||
Accrued legal and accounting | $ | 69,189 | $ | 35,398 | ||||
Accrued payroll | 795,952 | 760,305 | ||||||
Accrued other | 202,152 | 25,153 | ||||||
| $ | 1,067,293 | $ | 820,856 | |||||
(8) Line of Credit
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 July 1,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.
(9) Note Payable
In March 2020, the Company acquired inspection equipment for a price of $208 thousand. The full amount was financed through a 5 year note payable with a third-party party equipment finance company. The note is collateralized by the equipment and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a fixed rate of 6.47%.
The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:
Remaining in: | Payments due by period | |||
FY 2023 | $ | 22,272 | ||
FY 2024 | $ | 46,757 | ||
FY 2025 | $ | 8,090 | ||
Total | 77,119 | |||
Year | Payments due by period | |||
2023 (remaining) | $ | 11,265 | ||
2024 | $ | 46,757 | ||
2025 | $ | 8,090 | ||
Total | 66,112 | |||
Total interest expense on notes payable during 2023 was $2,902.$4,130.
(10) Income Taxes
ForThe Company’s current income tax expense and deferred income tax expense are $73 and $424, respectively, for the three and sixnine months ended July 1,September 30, 2023. The Company’s current income tax expense and deferred income tax expense are 2023$18 there were charges against and $19, respectively, for the deferred tax asset of $179 and $405, respectively.three months ended September 30, 2023.
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ITEM 2MANAGEMENTS 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 impact of the COVID-19 pandemic and the Russian invasion of Ukraine, which are discussedthe war in Item 3 of this report.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 policiesestimates 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 SecondThird Fiscal Quarter of 2023 (Q2(Q3 2023) Compared to the SecondThird Fiscal Quarter of 2022 (Q2(Q3 2022); (all $ in 000’s)000s)
Revenues totaled $7,418Total revenue was $6,285 in Q2Q3 2023, a 7% decrease compared with $7,100total 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 Q1the 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 of 4%. This increase was mainly due to increased shipments of armor for the US Navy in 2023 as compared to 2022.MMC shipments.
Gross margin in Q2the first nine months of 2023 totaled $2,196$5,677 or 30%27% of sales. This compares withIn the first nine months of 2022 gross margin in Q2 2022totaled $5,675 or 28% of $1,829 or 26% of sales. This percentage increase was due to the company’s continuing efforts to improve manufacturing efficiencies as well as the impact of higher sales volumes on fixed costs.
Selling, general and administrative (SG&A) expenses totaled $1,465 in Q2were $4,121 during the first nine months of 2023, up 10% compared with SG&A expenses of $1,159$3,750 in Q2the 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 companyCompany increased its 401k matching formula in 2023 resulting in increased payroll costs. Lastly, the Company accrued severance to a long timelong-time employee whose service with the Company was terminatedterminated.
The Company experienced an operating profit of $731 in Q2 2023 compared with an operating profit of $669 in Q2 2022, an increase of 9%. This increase was a result of the increased gross margin, partially offset by the increase in SG&A expenses.
Results of Operations for the First Six Months of 2023 Compared to the First Six Months of 2022 (all $ in 000s)
Total revenue was $14,518 in the first half of 2023, a 6% increase compared with total revenue of $13,723 in the first half of 2022. This increase was mainly due to increased shipments of armor for the US Navy in 2023 as compared to 2022.
Gross margin in the first six months of 2023 totaled $4,441 or 31% of sales. In the first six months of 2022 gross margin totaled $3,792 or 28% of sales. This increase was due to the increase in revenue and the increased coverage of our fixed costs.
Selling, general and administrative (SG&A) expenses were $3,016 during the first six months of 2023, up 17% compared with SG&A expenses of $2,576 in the first six months of 2022. Increased variable compensation accruals due to higher 2023 profitability as well as the travel costs, payroll costs and severance, mentioned above, were the primary reasons for this increase.
During the first halfnine months of 2023, the Company had netincurred interest incomeexpense of $95.$4 on its notes payable. This compares with interest expense of $0$6 incurred during the first halfnine months of 2022. The increase in interest income is due to our strong cash position and higher interest rates.
In the first sixnine months of 2023, the Company hadgenerated operating income of $1,425$1,556 compared with $1,217operating 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 sixnine months of 2023 totaled $1,060$1,231 versus $875net income of $1,862 in the first sixnine months of 2022.
The Company has had extremely minimal sales to both Russia and Ukraine over the last several years, the loss of which would be immaterial to these financial statements. Neither does CPS rely on raw materials from that part of the world. As a result, we do not believe that the Russian invasion of Ukraine will have a direct impact on our results. Nevertheless, there could be an indirect impact regarding supply chain and inflationary issues as a result of this war.
Inflation has had an impact on our costs. Thus far, we have been able to pass along these increases to our customers, but there is no guarantee that we will be able to continue this in the future. In addition, there is often a lag between when the costs increase and when we can adjust customer prices. Some of our larger customers will have pricing agreements, typically for one year, and we must wait for those agreements to end before making any pricing adjustments. Wage increases are also part of the inflation impact. We have instituted a combination of wage increases as well as richer benefits, such as the increased 401k match mentioned above, the ERTC which was recognized in order to retain the folks making up our workforce.
These factors combine to create a higher degree of uncertainty regarding future financial performance.2022, accounted for this difference.
Liquidity and Capital Resources (all $ in 000’s000s unless noted)
The Company’s cash and cash equivalents at July 1,September 30, 2023 totaled $8,681.$8,779. This compares to cash and cash equivalents at December 31, 2022 of $8,267. The increase in cash was primarily due primarily to the Company’s profitability, partiallyour net profit, offset by increase in working capital required for this growth.increased accounts receivable to support higher sales.
Accounts receivable at July 1,September 30, 2023 totaled $5,148$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 5652 days at the end of 2022 to 6272 days at the end of Q2 2023. The increase in DSOQ3 2023, based on trade receivables. This change was due to the inclusionreduction of deferred revenue of $0.6Moccurring in the year end4th quarter of 2022. Prepayments received in 2021 were used to pay for shipments shipped in the 4th quarter thus immediately reducing accounts receivable, balance, which was collected during Q1 2023.rather than the customer paying 30-45 days later. The accounts receivable balances at September 30, 2023, and December 31, 2022 and July 1, 2023 were both net of an allowance for doubtful accounts of $10.
Inventories totaled $4,814$4,828 at July 1,September 30, 2023 compared with inventory totaling $4,876 at December 31, 2022. The inventory turnover in the most recent four quarters ending Q2Q3 2023 was 4.1 times, (based on a 5 point average) compared withslightly down from 4.2 times averaged during the four quarters of 2022.2022 (based on a 5 point average).
The Company financed its increase in non-cash working capital in Q1during the first nine months of 2023 from its net profit and usage of cash on hand.during the period. The Company expects it will continue to be able to fund its operationsworking capital requirements for the remainder of 2023 from operations and existing cash balances.
TheAlthough 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 causehave significant negative consequences on future results. Although the Company to require additional external financing. Failureis 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.
Management believes that existing cash balances 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.
Contractual Obligations (all $ in 000’s unless otherwise noted)
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 July 1,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 companyCompany 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 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)
ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
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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.
Although CPS has not been directly impacted by the war in Ukraine, potential supply chain disruptions and its impact on energy costs are areas where we could be impacted in the future.
Inflation is an area where we have seen some impact on our business. We have seen significant price increases in commodity raw materials, such as aluminum, as well as increases in other costs of doing business. As we receive new orders we have been able to pass on most of these costs to our customers. In the case of longer term pricing agreements, we have been able to pass on some of these costs through surcharges and in other ways to mitigate the impact on our profit. As inflation continues, our ability to continue to absorb higher costs by raising customer prices cannot be guaranteed.
ITEM 4CONTROLS AND PROCEDURES |
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(a) The Company’s Acting PresidentChief Executive Officer and Chief Financial Officer hashave 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
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ITEM 1LEGAL PROCEEDINGS
None.
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ITEM 1ARISK FACTORS
There have been no material changes to the risk factors as discussed in our 20222020 Form 10-K.10-K
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ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
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ITEM 3DEFAULTS UPON SENIOR SECURITIES
None.
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ITEM 4MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5OTHER INFORMATION
Not applicable.
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| ITEM 6EXHIBITS |
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 Acting President and2002
Exhibit 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act Ofof 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 CORPORATIONCORP.
(Registrant)
Date: | November 3, 2023 |
/s/ | Brian T. Mackey |
Date: August 4, 2023Brian T. Mackey
Chief Executive Officer
/s/
Date: | November 3, 2023 |
/s/ | Charles K. Griffith Jr. |
Charles K. Griffith Jr.
Acting President and Chief Financial Officer