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
☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended SeptemberMarch 30, 2017
2024
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number0-16088
CPS TECHNOLOGIES CORPORATIONCORP.
(Exact Name of Registrant as Specified in its Charter)
Delaware (State or Other Jurisdiction of Incorporation or | 04-2832509 (I.R.S. Employer Identification No.) |
111 South Worcester Street NortonMA (Address of principal executive offices) | 02766-2102
(Zip Code) |
(508) 222-0614Registrants
Registrant’s Telephone Number, including Area Code:
CPS Technologies CorporationTECHNOLOGIES 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. [X]☒ Yes [ ]☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X]☒ Yes [ ]☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.filer or a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and large accelerated filer”“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]☐ Accelerated filer [ ]☐ Non-accelerated filer [ ]☒ Smaller reporting company [X]☒
Emerging growth 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 (15 U.S.C. 7262(b)) by the registered public accounting 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 [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 Market |
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 OctoberApril 30, 2017: 13,203,436.2024: 14,519,215.
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (Unaudited)
CPS TECHNOLOGIES CORPORATION
CORP.
Balance Sheets (Unaudited)(continued on next page)
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 1,689,610 | $ | 3,407,760 | ||||
| Accounts receivable-trade, net | 3,034,175 | 1,959,606 | ||||||
| Inventories, net | 1,675,338 | 1,970,961 | ||||||
| Prepaid expenses and other current assets | 79,579 | 88,443 | ||||||
| Total current assets | 6,478,702 | 7,426,770 | ||||||
| Property and equipment: | ||||||||
| Production equipment | 9,081,157 | 9,046,846 | ||||||
| Furniture and office equipment | 493,152 | 412,412 | ||||||
| Leasehold improvements | 886,582 | 886,582 | ||||||
| Total cost | 10,460,891 | 10,345,840 | ||||||
| Accumulated depreciation | ||||||||
| and amortization | (9,133,201) | (8,720,219) | ||||||
| Construction in progress | 172,343 | 158,006 | ||||||
| Net property and equipment | 1,500,033 | 1,783,627 | ||||||
| Deferred taxes, | 3,450,349 | 2,827,349 | ||||||
| Total assets | $ | 11,429,084 | $ | 12,037,746 | ||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATIONBalance Sheets (Unaudited)(concluded)
| LIABILITIES AND STOCKHOLDERS’ | September 30, | December 31, | ||||||
| EQUITY | 2017 | 2016 | ||||||
| Current liabilities: | ||||||||
| Accounts payable | 837,217 | 662,482 | ||||||
| Accrued expenses | 615,883 | 623,959 | ||||||
| Total current liabilities | 1,453,100 | 1,286,441 | ||||||
| Commitments (note 9) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $0.01 par value, | ||||||||
| authorized 20,000,000 shares; | ||||||||
| issued 13,423,492; | ||||||||
| outstanding 13,203,436; | ||||||||
| at September 30, 2017 and December 31, 2016, | 134,235 | 134,235 | ||||||
| Additional paid-in capital | 35,601,753 | 35,452,685 | ||||||
| Accumulated deficit | (25,242,951) | (24,318,562) | ||||||
| Less cost of 220,056 common shares repurchased | ||||||||
| at September 30, 2017 and December 31, 2016, | (517,053) | (517,053) | ||||||
| Total stockholders’ equity | 9,975,984 | 10,751,305 | ||||||
| Total liabilities and stockholders’ | ||||||||
| equity | $ | 11,429,084 | $ | 12,037,746 | ||||
March 30, 2024 | December 30, 2023 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,667,728 | $ | 8,813,626 | ||||
Accounts receivable-trade, net | 3,848,635 | 4,389,155 | ||||||
Accounts receivable-other | 27,490 | 83,191 | ||||||
Inventories, net | 4,611,460 | 4,581,930 | ||||||
Prepaid expenses and other current assets | 391,953 | 276,349 | ||||||
Total current assets | 17,547,266 | 18,144,251 | ||||||
Property and equipment: | ||||||||
Production equipment | 11,155,183 | 11,271,982 | ||||||
Furniture and office equipment | 952,883 | 952,883 | ||||||
Leasehold improvements | 985,649 | 985,649 | ||||||
Total cost | 13,093,715 | 13,210,514 | ||||||
Accumulated depreciation and amortization | (11,581,885 | ) | (11,936,004 | ) | ||||
Construction in progress | 206,250 | 281,629 | ||||||
Net property and equipment | 1,718,080 | 1,556,139 | ||||||
Right-of-use lease asset (note 4, leases) | 297,000 | 332,000 | ||||||
Deferred taxes | 1,609,982 | 1,569,726 | ||||||
Total Assets | $ | 21,172,328 | 21,602,116 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Note payable, current portion | 43,478 | 46,797 | ||||||
Accounts payable | 2,409,773 | 2,535,086 | ||||||
Accrued expenses | 843,770 | 1,075,137 | ||||||
Deferred revenue | 207,247 | 251,755 | ||||||
Lease liability, current portion | 160,000 | 160,000 | ||||||
Total current liabilities | 3,664,268 | 4,068,775 | ||||||
Note payable less current portion | - | 8,090 | ||||||
Deferred revenue – long term | 31,277 | 31,277 | ||||||
Long term lease liability | 137,000 | 172,000 | ||||||
Total liabilities | 3,832,545 | 4,280,142 | ||||||
Commitments & Contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,601,487 shares; outstanding 14,519,215 shares at each March 30, 2024 and December 30, 2023 | 146,015 | 146,015 | ||||||
Additional paid-in capital | 40,341,855 | 40,180,893 | ||||||
Accumulated deficit | (22,897,949 | ) | (22,754,796 | ) | ||||
Less cost of 82,272 common shares repurchased at each March 30, 2024 and December 30, 2023 | (250,138 | ) | (250,138 | ) | ||||
Total stockholders’ equity | 17,339,783 | 17,321,974 | ||||||
Total liabilities and stockholders’ equity | $ | 21,172,328 | $ | 21,602,116 | ||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
CORP.
Statements of Operations (Unaudited)
| Fiscal Quarters Ended | Nine month Periods Ended | |||||||||||||||
| September 30, | October 1, | September 30, | October 1, | |||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenues: | ||||||||||||||||
| Product sales | $ | 4,211,962 | $ | 3,326,930 | $ | 10,781,175 | $ | 12,477,543 | ||||||||
| Total Revenues | 4,211,962 | 3,326,930 | 10,781,175 | 12,477,543 | ||||||||||||
| Cost of product sales | 3,450,915 | 2,941,098 | 9,686,103 | 10,399,236 | ||||||||||||
| Gross Margin | 761,047 | 385,832 | 1,095,072 | 2,078,307 | ||||||||||||
| Selling, general and | ||||||||||||||||
| administrative expense | 743,634 | 763,260 | 2,650,526 | 2,563,906 | ||||||||||||
| Operating income (loss) | 17,413 | (377,428) | (1,555,454) | (485,599) | ||||||||||||
| Interest income | 2,815 | 1,742 | 8,065 | 6,980 | ||||||||||||
| Other income | — | 40,000 | — | 41,225 | ||||||||||||
| Net income (loss) before income | ||||||||||||||||
| tax expense | 20,228 | (335,686) | (1,547,389) | (437,395) | ||||||||||||
| Income tax (benefit) expense | 7,000 | (196,900) | (623,000) | (237,000) | ||||||||||||
| Net income (loss) | $ | 13,228 | $ | (138,786) | $ | (924,389) | $ | (200,395) | ||||||||
| Net income (loss) per | ||||||||||||||||
| basic common share | $ | 0.00 | $ | (0.01) | $ | (0.07) | $ | (0.02) | ||||||||
| Weighted average number of | ||||||||||||||||
| basic common shares | ||||||||||||||||
| outstanding | 13,203,436 | 13,203,436 | 13,203,436 | 13,200,584 | ||||||||||||
| Net income (loss) per | ||||||||||||||||
| diluted common share | $ | 0.00 | $ | (0.01) | $ | (0.07) | $ | (0.02) | ||||||||
| Weighted average number of | ||||||||||||||||
| diluted common shares | ||||||||||||||||
| outstanding | 13,229,868 | 13,203,436 | 13,203,436 | 13,200,584 | ||||||||||||
Fiscal Quarters Ended | ||||||||
March 30, 2024 | April 1, 2023 | |||||||
Revenues: | ||||||||
Product sales | $ | 5,912,634 | $ | 7,100,267 | ||||
Total revenues | 5,912,634 | 7,100,267 | ||||||
Cost of product sales | 5,006,324 | 4,855,564 | ||||||
Gross Margin | 906,310 | 2,244,703 | ||||||
Selling, general, and administrative expense | 1,165,922 | 1,550,522 | ||||||
Operating income (loss) | (259,612 | ) | 694,181 | |||||
Other income, net | 79,171 | 15,590 | ||||||
Income (loss) before taxes | (180,441 | ) | 709,771 | |||||
Income tax provision (benefit) | (37,288 | ) | 250,570 | |||||
Net income (loss) | $ | (143,153 | ) | $ | 459,201 | |||
Net income (loss) per basic common share | $ | (0.01 | ) | $ | 0.03 | |||
Weighted average number of basic common shares outstanding | 14,519,215 | 14,452,284 | ||||||
Net income (loss) per diluted common share | $ | (0.01 | ) | $ | 0.03 | |||
Weighted average number of diluted common shares outstanding | 14,519,215 | 14,639,600 | ||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATIONStatements of Cash Flows (Unaudited)
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED March 30, 2024 AND April 1, 2023
| Nine Month Periods Ended | ||||||||
| September 30, | October 1, | |||||||
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | (924,389) | $ | (200,395) | ||||
| Adjustments to reconcile net income (loss) | ||||||||
| to cash provided by (used in) operating activities | ||||||||
| Depreciation & amortization | 412,982 | 380,901 | ||||||
| Share-based compensation | 149,068 | 153,557 | ||||||
| Deferred taxes | (623,000) | (237,000) | ||||||
| Excess tax benefit from stock options exercised | — | (2,814) | ||||||
| Gain on sale of property and equipment | — | (40,000) | ||||||
| Changes in: | ||||||||
| Accounts receivable-trade, net | (1,074,569) | 1,116,298 | ||||||
| Inventories | 295,623 | 490,523 | ||||||
| Prepaid expenses | 8,864 | (11,500) | ||||||
| Accounts payable | 174,735 | (804,996) | ||||||
| Accrued expenses | (8,075) | (322,968) | ||||||
| Net cash provided by (used in) operating | ||||||||
| activities | (1,588,761) | 521,606 | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (129,389) | (520,430) | ||||||
| Proceeds from sale of property and equipment | — | 40,000 | ||||||
| Net cash used in investing | ||||||||
| activities | (129,389) | (480,430) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common stock | — | 11,836 | ||||||
| Excess tax benefit from stock options exercised | — | 2,814 | ||||||
| Repurchase of common stock | — | (10,000) | ||||||
| Net cash provided by | ||||||||
| financing activities | — | 4,650 | ||||||
| Net change in cash and cash equivalents | (1,718,150) | 45,826 | ||||||
| Cash and cash equivalents at beginning of period | 3,407,760 | 3,412,649 | ||||||
| Cash and cash equivalents at end of period | $ | 1,689,610 | $ | 3,458,475 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for taxes, net of refunds | $ | — | $ | 8,000 | ||||
Common Stock | ||||||||||||||||||||||||
Number of shares issued | Par Value | Additional paid-in capital | Accumulated deficit | Stock repurchased | Total stockholders’ equity | |||||||||||||||||||
Balance at December 30, 2023 | 14,601,487 | $ | 146,015 | $ | 40,180,893 | $ | (22,754,796 | ) | $ | (250,138 | ) | $ | 17,321,974 | |||||||||||
Share-based compensation expense | — | — | 160,962 | — | — | 160,962 | ||||||||||||||||||
Net loss | — | — | — | (143,153 | ) | — | (143,153 | ) | ||||||||||||||||
Balance at March 30, 2024 | 14,601,487 | 146,015 | $ | 40,341,855 | $ | (22,897,949 | ) | $ | (250,138 | ) | $ | 17,339,783 | ||||||||||||
Balance at December 31, 2022 | 14,460,486 | $ | 144,605 | $ | 39,726,851 | $ | (24,125,092 | ) | $ | (40,848 | ) | $ | 15,705,516 | |||||||||||
Share-based compensation expense | — | — | 130,441 | — | — | 130,441 | ||||||||||||||||||
Employee options exercises | 7,001 | 70 | 10,215 | — | (790 | ) | 9,495 | |||||||||||||||||
Net income | — | — | — | 459,201 | — | 459,201 | ||||||||||||||||||
Balance at April 1, 2023 | 14,467,487 | 144,675 | $ | 39,867,507 | $ | (23,665,891 | ) | $ | (41,638 | ) | $ | 16,304,653 | ||||||||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORPORATION
CORP.
Statements of Cash Flows (Unaudited)
Fiscal Quarters Ended | ||||||||
March 30, 2024 | April 1, 2023 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (143,153 | ) | $ | 459,201 | |||
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 101,405 | 124,608 | ||||||
Share-based compensation | 160,962 | 130,441 | ||||||
Changes in: | ||||||||
Accounts receivable - trade | 540,520 | (936,163 | ) | |||||
Accounts receivable - other | 55,701 | (15,035 | ) | |||||
Inventories | (29,530 | ) | 183,246 | |||||
Prepaid expenses and other current assets | (115,604 | ) | (88,359 | ) | ||||
Accounts payable | (125,313 | ) | 210,028 | |||||
Accrued expenses | (231,367 | ) | (89,402 | ) | ||||
Deferred taxes | (40,256 | ) | 226,444 | |||||
Deferred revenue | (44,508 | ) | (924,080 | ) | ||||
Net cash provided by (used in) operating activities | 128,857 | (719,071 | ) | |||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment | (263,346 | ) | (176,618 | ) | ||||
Net cash used in investing activities | (263,346 | ) | (176,618 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of employee stock options | - | 9,495 | ||||||
Payments on note payable | (11,409 | ) | (10,696 | ) | ||||
Net cash used in financing activities | (11,409 | ) | (1,201 | ) | ||||
Net decrease in cash and cash equivalents | (145,898 | ) | (896,890 | ) | ||||
Cash and cash equivalents at beginning of period | 8,813,626 | 8,266,753 | ||||||
Cash and cash equivalents at end of period | $ | 8,667,728 | $ | 7,369,863 | ||||
Supplemental disclosures of cash flows information: | ||||||||
Cash paid for interest | $ | 825 | $ | 1,538 | ||||
Supplemental disclosures of non-cash activity: | ||||||||
Net exercise of stock options | $ | - | $ | 790 | ||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
Notes to Financial Statements(Unaudited)
(1)(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 which are a combination of metal and ceramic.
CPS also assembles housings and packages for hybrid circuits. These housings and packages may include components made of metal-matrix composites or they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.
Using its proprietary MMC technology, the Company also produces light-weight armor, particularly for extreme environments and heavy threat levels.
The Company sells into several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor controller market, and other microelectronic and structuraldefense markets.
(2) Interim Financial Statements(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,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, 2016 30, 2023 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-K10-K for the year ended December 31, 2016.30, 2023 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)(3) Net Income (loss)(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. Had there been a profit in Q12024, the dilutive effect would have been 74,285 shares. Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.
The following table presents the calculation of both basic and diluted EPS:
| Three Months Ended | Nine-Months Ended | ||||||||||||||||
| September 30, | October 1, | September 30, | October 1, | ||||||||||||||
| 2017 | 2016 | 2017 | 2016 | ||||||||||||||
| Basic EPS Computation: | |||||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) | $ | 13,228 | $ | (138,786) | $ | (924,389) | $ | (200,395) | |||||||||
| Denominator: | |||||||||||||||||
| Weighted average | |||||||||||||||||
| Common shares | |||||||||||||||||
| Outstanding | 13,203,436 | 13,203,436 | 13,203,436 | 13,200,584 | |||||||||||||
| Basic EPS | $ | 0.00 | $ | (0.01) | $ | (0.07) | $ | (0.02) | |||||||||
| Diluted EPS Computation: | |||||||||||||||||
| Numerator: | |||||||||||||||||
| Net income (loss) | $ | 13,228 | $ | (138,786) | $ | (924,389) | $ | (200,395) | |||||||||
| Denominator: | |||||||||||||||||
| Weighted average | |||||||||||||||||
| Common shares | |||||||||||||||||
| Outstanding | 13,203,436 | 13,203,436 | 13,203,436 | 13,200,584 | |||||||||||||
| Dilutive effect of stock options | 26,432 | — | — | — | |||||||||||||
| Total Shares | 13,229,868 | 13,203,436 | 13,203,436 | 13,200,584 | |||||||||||||
| Diluted EPS | $ | 0.00 | $ | (0.01) | $ | (0.07) | $ | (0.02) | |||||||||
Three Months Ended | ||||||||
March 30, 2024 | April 1, 2023 | |||||||
Basic EPS Computation: | ||||||||
Numerator: | ||||||||
Net income (loss) | $ | (143,153 | ) | $ | 459,201 | |||
Denominator: | ||||||||
Weighted average common shares outstanding | 14,519,215 | 14,452,284 | ||||||
Basic EPS | $ | (0.01 | ) | $ | 0.03 | |||
Diluted EPS Computation: | ||||||||
Numerator: | ||||||||
Net income (loss) | $ | (143,153 | ) | $ | 459,201 | |||
Denominator: | ||||||||
| Weighted average common shares outstanding | 14,519,215 | 14,452,284 | ||||||
Dilutive effect of stock options | - | 187,316 | ||||||
Total Shares | 14,519,215 | 14,639,600 | ||||||
Diluted EPS | $ | (0.01 | ) | $ | 0.03 | |||
(4) Commitments & Contingencies
(4)Commitments
Operating Leases
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 equipment leases have 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 (current and noncurrent portions) on the balance sheet. This asset and liability was recognized on March 30, 2024 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Norton facility lease comprises approximately 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. The Company is not reasonably certain these extensions will be exercised at this time, and therefore are not included in the lease asset or liability. Annual rental payments range from $152 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 operating leases as of March 30, 2024
(Dollars in Thousands) | ||||
Maturity of capitalized lease liabilities | Lease payments | |||
Remaining 2024 | $ | 124 | ||
2025 | 165 | |||
2026 | 28 | |||
Total undiscounted operating lease payments | $ | 317 | ||
Less: Imputed interest | (20 | ) | ||
Present value of operating lease liability | $ | 297 | ||
Balance Sheet Classification | ||||
Current lease liability | $ | 160 | ||
Long-term lease liability | 137 | |||
Total operating lease liability | $ | 297 | ||
Other Information | ||||
Weighted-average remaining lease term for capitalized operating leases (in months) | 23 | |||
Weighted-average discount rate for capitalized operating leases | 6.6 | % | ||
Operating Lease Costs and Cash Flows
Operating lease cost and cash paid was $41 thousand during the first quarter of 2024. This cost is related to its long-term operating lease. All other short-term leases were immaterial.
Finance Leases
The Company does not have any finance leases.
(5) Share-Based Payments
The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The companyCompany uses the Black-Scholes option pricing model to determine the fair value of the stock options granted.
There were noDuring the quarters ended March 30, 2024 and April 1, 2023, a total of 135,500 and 0 stock options, respectively, were granted or issuedto employees under the Company’s 2020 Equity Incentive Plan (the “Plan”) and a total of 75,000 and 50,000 stock options, respectively, were granted to outside directors during the quarters ended SeptemberMarch 30, 2017 2024 and OctoberApril 1, 2016. 2023.
During the quarter ended SeptemberMarch 30, 2017, 24,0002024, there were 0 options were forfeited and duringexercised. During the quarter ended OctoberApril 1, 2016 1,2002023, there were 7,001 options expired.exercised and corresponding shares issued at a weighted average price of $1.47.
During the quarter ended March 30, 2024, the Company repurchased 0 shares for employees to facilitate their exercise of stock options. During the quarter ended April 1, 2023, the Company repurchased 285 shares for employees to facilitate their exercise of stock options.
There were also 1,097,900 options outstanding at a weighted average price of $2.61 with a weighted average remaining contractual term of 7.06 years as of March 30, 2024 and there were 582,800 shares exercisable at a weighted average price of $2.44 with a weighted average remaining term of 5.3 years. There were 1,004,400 options outstanding at a weighted average price of $2.51 with a weighted average remaining contractual term of 6.10 years as of April 1, 2023. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of March 30, 2024, there were 638,300 shares available for future grants.
As of March 30, 2024, there was $693 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 2.44 years.
During the quarters ended SeptemberMarch 30, 2017 2024 and OctoberApril 1, 2016 there were no shares repurchased.
During the three and nine months ended September 30, 2017 2023, the Company recognized approximately $37$161 thousand and $149$130 thousand, respectively, as share-basedshared-based compensation expense related to previously granted shares under the Plan. These amounts are included as a component of selling, general and administrative expenses in the statement of operations.
During the three and nine months ended October 1, 2016 the Company recognized approximately $37 thousand and $153 thousand, respectively as share-based compensation expense related to previously granted shares under the Plan. A tax benefit of approximately $3 thousand was recognized as additional paid in capital in the nine months ended October 1, 2016 resulting from the excess tax benefit of option exercises.
(5)(6) Inventories
Inventories consist of the following:
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Raw materials | $ | 515,477 | $ | 398,994 | ||||
| Work in process | 866,402 | 1,089,496 | ||||||
| Finished goods | 679,820 | 1,032,971 | ||||||
| Total inventory | 2,061,699 | 2,521,461 | ||||||
| Reserve for obsolescence | (386,361) | (550,500) | ||||||
| Inventories, net | $ | 1,675,338 | $ | 1,970,961 |
March 30, 2024 | December 30, 2023 | |||||||
Raw materials | $ | 2,745,792 | $ | 2,861,333 | ||||
Work in process | 1,577,574 | 1,493,582 | ||||||
Finished goods | 616,054 | 537,975 | ||||||
Gross inventory | 4,939,420 | 4,892,890 | ||||||
Reserve for obsolescence | (327,960 | ) | (310,960 | ) | ||||
Inventories, net | $ | 4,611,460 | $ | 4,581,930 | ||||
(6)
(7) Accrued Expenses
Accrued expenses consist of the following:
| September 30, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Accrued legal and accounting | $ | 96,109 | $ | 87,690 | ||||
| Accrued payroll | 375,825 | 456,063 | ||||||
| Accrued other | 143,949 | 80,206 | ||||||
| $ | 615,883 | $ | 623,959 |
March 30, 2024 | December 30, 2023 | |||||||
Accrued legal and accounting | $ | 57,460 | $ | 86,000 | ||||
Accrued payroll and related expenses | 387,271 | 649,201 | ||||||
Accrued other | 399,039 | 339,936 | ||||||
Total Accrued Expenses | $ | 843,770 | $ | 1,075,137 | ||||
(7)(8) Revolving Line of Credit
In June 2017, May 2023, the Company renewedterminated its $1,500,000$3.0 million revolving line of credit (“LOC”)(LOC) with Santander Bank. The agreement matures atMassachusetts Business Development Corporation (BDC). A new LOC in the endamount of May 2018.$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 prime plus 100 basis points. Under the terms ofNational Prime Rate as published by the agreement, the Company is required to maintain its operating accounts with Santander Bank. The Company is also subject to certain financial covenants. These include specific earnings levels, targeted current ratios and targeted debt to tangible net worth ratiosWall Street Journal (8.5% at the end of each fiscal quarter. At SeptemberMarch 30, 2017, the Company was in compliance with all existing covenants. Also, at September2024). On March 30, 2017, 2024, the Company had no$0 of borrowings under this LOC and its borrowing base at the time would have permitted $1,500,000an additional $3.0 million to have been borrowed. The LOC remains in effect until terminated per mutual agreement by both parties. Total interest expense for Q12024 was $0 and was $0 thousand for Q12023.
(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 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:
(8)
Remaining in: | ||||
FY 2024 | $ | 35,388 | ||
FY 2025 | $ | 8,090 | ||
Total | $ | 43,478 |
Total interest expense on notes payable during Q12024 was $825 compared to $1,538 in Q12023.
(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.
The Company believes that it is “more likely than not” that the Company will generate sufficient future taxable incomebe able to realize the tax benefits related to the remaining deferred tax assets and as such no valuation allowance has been provided againstfully utilize the deferred tax asset. For the first quarter of 2024 the deferred tax asset was increased $40 for the estimated tax benefit on Q1 net loss.
The Company recorded a tax expense of $5 thousand and tax benefit of $495 thousand for federal income taxes and a tax expense of $2 thousand and a tax benefit of $128 thousand for state income taxes during the three and nine months ended September 30, 2017, respectively.
The Company recorded a tax benefit of $146 thousand and $178 thousand for federal income taxes and a tax benefit of $50 thousand and $59 thousand for state income taxes during the three and nine months ended October 1, 2016, respectively.
(9) Commitments
The Company entered into a 10-year lease for the Norton facilities effective on March 1, 2006. The leased facilities comprise approximately 38 thousand square feet. In January 2016 this lease was amended to extend the lease to February 28, 2017. As part of the agreement the Company obtained two, one-year options. In October 2017 the Company exercised its remaining option to extend the lease through February 28, 2019. The lease is a 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 buy the property and a first right of refusal during the term of the lease. Annual rental payments are $100 thousand in year one increasing to $152 thousand at the end of the extended term.
In February 2011, the Company entered into a lease for an additional 13.8 thousand square feet in Attleboro, MA. The lease term is for one year and the Company had an option to extend the lease for five additional one-year periods. In 2013 the Company obtained two years of additional options which could extend the Company’s use through February 2019. In 2016, the Company exercised its option to extend the lease through the end of February 2018. Annual rental payments in 2017 are expected to approximate $83 thousand.
(10) Subsequent Events
Richard Adams, Senior Vice President & Chief Technology Officer, resigned on October 25, 2017. His resignation was included in an 8-K filing dated October 30, 2017.
ITEM 2 | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the financial statements of the Company and notes thereto included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.30, 2023 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 Russian invasion of Ukraine and other conflicts and potential conflicts throughout the world, which are discussed in Item 3 of this report. 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 31, 2016,30, 2023, 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, 2016.30, 2023.
Overview
Overview
CPS Technologies Corporation (the ‘Company’ or ‘CPS’) provides advanced material solutions to the electronics, power generation, automotive and other industries.
The Company’s products are generally used in high-power, high-reliability applications. These applications always involve energy use or energy generation and the Company’s products allow higher performance and improved energy efficiency. The Company is an important participant in the growing movement towards alternative energy and "green" lifestyles. For example, the Company’s products are used in mass transit, hybrid and electric cars, wind-turbinesProducts we provide include baseplates for electricity generation as well as routers and switches for the internet which in turn allows telecommuting.
The Company’s primary advanced material solution is metal matrix composites (MMCs), a new class of materials which are a combination of metal and ceramic. CPS has a leading, proprietary position in metal matrix composites. Metal matrix composites have several superior properties compared to conventional materials including improved thermal conductivity, thermal expansion matching, stiffness and light weight which enable higher performance and higher reliability in our customers’ products.
Like plastics several decades ago, we believe metal-matrix composites will penetrate many end markets over many years. CPS management believes our business model of providing advanced material solutions to a portfolio of high growth end markets which are, at any point in time, in various stages of the technology adoption lifecycle, provides CPS with the opportunity for sustained growth and a diversified customer base. We believe we have validated this model as we are now supplying customers at all stages of the technology adoption lifecycle.
CPS is the leader in supplying metal matrix composites to certain high growth electronics end markets which are well along in the adoption lifecycle and therefore generating significant demand. These end markets include high-performance integrated circuits and circuit boards used in internet switches and routers, as well as motor controllers used in high-speed electric trains, subway cars, wind turbines, and wind turbines. CPS supplieshybrid and electric vehicles. We provide baseplates and housings used in radar, satellite and avionics applications. We provide lids and heat spreaders lidsused with high performance integrated circuits for use in internet switches and routers. We provide baseplates to customersand housings used in these end markets. CPS is a fully qualified manufacturer for many of the world’s largest electronics OEMs.
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 components made of metal-matrix composites;MMC components; they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.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.
A marketCPS’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 an earlierour 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 marketlevel of demand for hybrid and electric automobiles. In 2012 the Company announced a multi-year supply agreement with a major tier one automotive supplierthose products already in production, as well as its success in achieving new "design wins" for the supply of AlSiC pin fin baseplates for use in motor controllers for hybrid and electric automobiles.future products.
WeAs 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 also actively working with customers in end markets at the beginning stages of the adoption lifecycle.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 its hybrid hard face armor tiles will find application in many military vehiclesthe Company is well positioned to offer our solutions to current and new customers as well as armored commercial vehicles.these demands grow.
Our products are manufactured by proprietary processes we have developed including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM Pressure Infiltration Process (‘QuickCast Process’).
CPS was incorporated in Massachusetts in 1984 as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock. In March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies Corporation.
Results of Operations for the ThirdFirst Fiscal Quarter of 2017 (Q3 2017)2024 (Q1 2024) Compared to the ThirdFirst Fiscal Quarter of 2016 (Q3 2016)2023 (Q1 2023); (all $ in 000’s)
Total revenue was $4,212
Revenues totaled $5,913 in Q3 2017, a 27% increaseQ1 2024 compared with total revenue$7,100 generated in Q1 2023, a decrease of $ 3,32717%. Two factors in Q3 2016. This increase wasparticular contributed to this decrease. One of our largest customers in 2023 significantly reduced their purchases due to an increasetheir having excess inventory that they are in the saleprocess of baseplates.working down. Additionally, while we are cautiously optimistic that identified quality issues have been resolved, we continue to run tests which occupy machine time that would otherwise have been spent on production for customers.
Gross margin in Q3 2017Q1 2024 totaled $761$906 or 18% of sales. In Q3 2016, gross margin was $ 386 or 12%15% of sales. This increasecompares with gross margin in marginQ1 2023 of $2,245 or 32% of sales. This decrease was due almost entirely to the increase in revenues.lower sales volumes on fixed costs as well as the aforementioned testing being done on the quality issues.
Selling, general and administrative (SG&A) expenses were $744totaled $1,166 in Q3 2017, 3% less than SG&A expenses of $763 in Q3 2016. This change was due to lower marketing expenses in China, where the Company altered its selling approach and, to a lesser degree, the absence of a 401K match. These reductions in spending were offset in part by an increase in sales commissions due to higher volume.
The operating income for Q3 2017 totaled $18 compared with an operating loss of $377 in Q3 2016. This improvement was primarily due to the increase in revenues.
The company generated $3 of other income in Q3, 2017 compared with $42 in Q3, 2016. In Q3, 2016 $40 was the result of a sale of used equipment in excess of book value.
The company earned net income of $13 in Q3 2017 compared with a net loss of $139 in Q3 2016. The improvement was due primarily to an increase in revenues.
Results of Operations for the First Nine Months of 2017 Compared to the First Nine Months of 2016 (all $ in 000’s)
Total revenue was $10,781 in the first nine months of 2017, a 14% decrease compared with total revenue of $12,478 in the first nine months of 2016. This decrease was due to a reduction in the sales of armor products and baseplates. There were no significant price changes during the first nine months of 2017 compared with the first nine months of 2016.
Gross margin in the first nine months of 2017 totaled $1,095 or 10% of sales. This compares with $2,078, or 17% of sales, generated during the first nine months of 2016. This decline in margin was due to lower revenues, offset in part by reduced spending in factory support costs.
Selling, general and administrative (SG&A) expenses were $2,651 during the first nine months of 2017, an increase of 3%Q1 2024 compared with SG&A expenses of $2,564 incurred during the first nine months of 2016. During 2017 the Company incurred approximately an additional $200$1,551 in legal and other costs associated with the annual proxy process. If it had not been for this one-time additional costs, the total SG&A spending would have been down 4% versus the same nine months last year, primarilyQ1 2023. This decrease was due in part to a reduction in variable compensation as well as lower commission expense due to lower sales commissionsrevenue numbers and reduced marketing spendingtheir impact on profitability. In addition, there are a number of areas in China.which management has been able to reduce SG&A expenses compared to last year.
The Company generated interest and other incomeexperienced an operating loss of $8$260 in Q1 2024 compared with an operating profit of $694 in Q1 2023, a decrease of 137%. This decrease was a result of the first nine months of 2017. This compares with other incomedecreased gross margin, partially offset by the decrease in the first nine months of 2016 of $49, $40 of which was due to the sale of used equipment in excess of book value.SG&A expenses.
PrimarilyCPS does not rely on raw materials from Ukraine, Russia, Israel or Gaza. As a result, we do not believe that the Russian invasion of Ukraine or the conflict in Israel and Gaza 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 lower volume, the Company incurredthese conflicts.
Inflation has had an operating loss of $1,555impact 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 first nine monthsfuture. In addition, there is often a lag between when the costs increase and when we can adjust customer prices. Some of 2017,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, in order to retain the folks making up our workforce.
These factors combine to create a higher degree of uncertainty regarding future financial performance.
Liquidity and Capital Resources (all $ in 000’s unless noted)
The Company’s cash and cash equivalents at March 30, 2024 totaled $8,668. This compares to cash and cash equivalents at December 30, 2023 of $8,814. The Company has invested in new equipment to enable us to be more cost effective as well as improving our quality department’s ability to ensure we are shipping better product, going forward.
Accounts receivable at March 30, 2024 totaled $3,876 compared with $4,472 at December 30, 2023. Days Sales Outstanding (DSO) decreased from 60 days at the end of 2023 to 59 days at the end of Q1 2024. The accounts receivable balances at December 30, 2023, and March 30, 2024 were both net of an operating lossallowance for doubtful accounts of $486$10.
Inventories totaled $4,611 at March 30, 2024 compared with inventory totaling $4,582 at December 30, 2023. The inventory turnover in the same period last year. most recent four quarters ending Q1 2024 was 4.4 times (based on a 5 quarter end average) compared with 4.3 times averaged during the four quarters of 2023.
The net lossCompany expects it will continue to be able to fund its operations for the first nine monthsremainder of 2017 totaled $924 versus a net loss of $200 in the first nine months of 2016.2024 from operations and existing cash balances.
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.
Liquidity and Capital Resources (all $ in 000’s unless noted)
The Company’s cash and cash equivalents at September 30, 2017 totaled $1,690 compared with cash and cash equivalents at December 31, 2016 of $3,408. This decrease was due to operating losses and a decrease in working capital, offset in part by depreciation in excess of capital expenditures.
Accounts receivable at September 30, 2017 totaled $3,034 compared with $1,960 at December 31, 2016. Days Sales Outstanding (DSOs), increased from 61 days at the end of 2016 to 65 days at the end of Q3, 2017. Both of these statistics are consistent with historical patterns.
Inventories totaled $1,971 at December 31, 2016, compared with inventories of $1,675 at September 30, 2017. The inventory turnover in 2016 was 5.9 times (based on a 5 point average) and 6.4 times for the most recent four quarters ending Q3, 2017.
All consigned inventory is shipped under existing purchase orders and per customers’ requests. Of the inventory of $1,675 at September 30, 2017, $490 was located at customers’ locations pursuant to consigned inventory agreements. Of the total inventory of $1,971 at December 31, 2016, $848 was located at customers’ locations pursuant to consigned inventory agreements.
The Company expects it will continue to be able to fund its working capital requirements for the remainder of 2017 from a combination of operating cash flow,Management believes that existing cash balances and borrowings under its line of credit, if necessary.
Management believes that cash flows from operations, existing cash balances and the credit line in place with Santander Bank 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.
As of September 30, 2017 the Company had $172 of construction in progress and no outstanding commitments to purchase production equipment.
Contractual Obligations (all $ in 000’s unless otherwise noted)
In June 2017,May 2023, the Company renewedterminated its $1,500$3.0 million revolving line of credit line(LOC) with Santander Bank. The agreement matures atMassachusetts Business Development Corporation (BDC). A new LOC in the endamount of May 2018.$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 prime plus 100 basis points. Under the terms ofNational Prime Rate as published by the agreement, the Company is required to maintain its operating accounts with Santander Bank. The Company is also subject to certain financial covenants. These include specific earnings levels, targeted current ratios and targeted debt to tangible net worth ratios at the end of subsequent quarters. At SeptemberWall Street Journal. On March 30, 2017, the Company was in compliance with all existing covenants. Also, at September 30, 2017,2024, the Company had no$0 of borrowings under this LOC and its borrowing base at the time would have permitted $1,500an additional $3.0 million to have been borrowed. The LOC remains in effect until terminated per mutual agreement by both parties.
In March 2020, the Company acquired a scanning acoustic microscope for a price of $208 thousand. The financial covenant requirementfull 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 the enda fixed rate of Q3, 2017 are shown below, together with the actual ratios achieved:
6.47%
The Company entered into a 10-year lease for the Norton facilities effective on March 1, 2006. The leased facilities comprise approximately 38 thousand square feet. In January 2016 this lease was amended to extend the lease to February 28, 2017. As part of the agreement the Company obtained two, one-year options. In October 2017 the Company exercised its remaining option to extend the lease through February 28, 2019. The lease is a triple net lease wherein the Company is responsible for payment of allhas one real estate taxes, operating costs and utilities. The Companylease expiring in February 2026. CPS also has an option to buy the propertya few other leases for equipment which are minor in nature and a first rightare generally short-term in duration. None of refusal during the term of the lease. Annual rental payments are $100 thousand in year one increasing to $152 thousand at the end of the extended term.these have been capitalized. (Note 4, Leases)
In February 2011, the Company entered into a lease for an additional 13.8 thousand square feet in Attleboro, MA. The lease term is for one year and the Company had an option to extend the lease for five additional one-year periods. In 2013 the Company obtained two years of additional options which could extend the Company’s use through February 2019. In 2016, the Company exercised its option to extend the lease through the end of February 2018. Annual rental payments in 2017 are expected to approximate $83 thousand.
The Company intends to finance production equipment, construction in progress and outstanding commitments under the lease agreements with existing cash balances and, if necessary, by utilizing its committed line of credit with Santander Bank.
The Company’s contractual obligations at September 30, 2017, not including unexercised options to extend, consist of the following:
| Payments Due by Period | ||||||||||||||||
| Total | Remaining in FY 2017 | FY 2018 | FY 2019 | |||||||||||||
| Operating lease obligation for facilities | $ | 250,400 | $ | 58,800 | $ | 166,200 | $ | 25,400 | ||||||||
ITEM 3 |
|
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 or by the war between Israel and Gaza, 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 price increases in commodity raw materials, 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 4 |
|
(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 |
ITEM 1 LEGAL PROCEEDINGS None.
We are not a party to any litigation which could have a material adverse effect on us or on our business. The Company has received a letter from the attorney of a former European outside sales representative stating that under European law the representative is entitled to compensation as a result of his termination. The Company completely disagrees with the claims. Should this result in litigation the Company will defend itself to the fullest extent of the law and estimates any losses incurred to be immaterial.
ITEM 1A | RISK FACTORS |
ITEM 1A RISK FACTORS
There have been no material changes to the risk factors as discussed in our 20162023 Form 10-K10-K.
ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3 | DEFAULTS UPON SENIOR SECURITIES |
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 | MINE SAFETY DISCLOSURES |
ITEM 4 MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 | OTHER INFORMATION |
ITEM 5 OTHER INFORMATION
Not applicable.
ITEM 6 | EXHIBITS AND REPORTS ON FORM 8-K: |
ITEM 6 EXHIBITS(a)
(a) | Exhibits: |
(b) Reports on Form 8-K
On August 4, 2017 the Company filed a report on Form 8-K of its earnings report for the fiscal second quarter ended July 1, 2017.
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)
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 14, 2017
May 7, 2024
/s/ Grant C. BennettGrant C. Bennett
Brian T. Mackey
Brian T. Mackey
President and Chief Executive Officer
Date: November 14, 2017May 7, 2024
/s/ Ralph M. NorwoodCharles K. Griffith Jr.
Ralph M. NorwoodCharles K. Griffith Jr.
Chief Financial Officer