10-Q

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

(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the period ended September 26, 2020
or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from          to

Commission file number          0-16088

CPS TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	04-2832509
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
111 South Worcester Street
Norton, MA	02766-2102
(Address of principal executive offices)	(Zip Code)

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

CPS Technologies Corporation

111 South Worcester Street

Norton, MA 02766-2102

Former Name, Former Address and Former Fiscal Year if Changed since Last Report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.  [X] Yes   [ ]  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]   Accelerated filer [ ]   Non-accelerated filer [X]   Smaller reporting company [X] Emerging growth company[ ]

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

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

Title of each class                         Trading Symbol(s)       Name of each exchange on which registered

Common Stock, $0.01 par value                        CPSH                           NASDAQ Capital Markets

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Number of shares of common stock outstanding as of October 30, 2020: 13,296,168.

PART I  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORPORATION
Balance Sheets (Unaudited)
(continued on next page)

		September 26,		December 28,
		2020		2019
ASSETS
Current assets:
Cash and cash equivalents	$	112,575	$	133,965
Accounts receivable-trade, net		3,961,606		4,086,945
Inventories, net		4,187,272		3,099,824
Prepaid expenses and other current assets		173,583		147,786
Total current assets		8,435,036		7,468,520
Property and equipment:
Production equipment		10,282,980		9,649,169
Furniture and office equipment		508,423		508,423
Leasehold improvements		934,195		934,195
Total cost		11,725,598		11,091,787
Accumulated depreciation and amortization		(10,478,054)		(10,110,663)
Construction in progress		127,408		255,754
Net property and equipment		1,374,952		1,236,878
Right-of-use lease asset		63,000		171,000
Deferred taxes, net		114,253		147,873
Total assets	$	9,987,241	$	9,024,271

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION
Balance Sheets (Unaudited)
(concluded)

		September 26,		December 28,
		2020		2019
LIABILITIES AND STOCKHOLDERS` EQUITY
Current liabilities:
Borrowings against line of credit		835,123		1,249,588
Note payable, current portion		55,795		—
Accounts payable		1,221,642		1,436,417
Accrued expenses		720,182		815,166
Deferred revenue		358,000		21,110
Lease liability, current portion		63,000		148,000
Total current liabilities		3,253,742		3,670,281
Note payable less current portion		169,388		—
Long term lease liability		—		23,000
Total liabilities		3,423,130		3,693,281
Commitments (note 4)
Stockholders` equity:
Common stock, $0.01 par value,
authorized 20,000,000 shares;
issued 13,716,242 and 13,427,492, respectively;
outstanding 13,296,168 and 13,207,436, respectively;
at September 26, 2020 and December 28, 2019;		137,162		134,275
Additional paid-in capital		36,633,556		36,094,201
Accumulated deficit		(29,248,532)		(30,380,433)
Less cost of 420,074 and 220,056 common shares
repurchased, respectively;
at September 26, 2020 and December 28, 2019		(958,075)		(517,053)
Total stockholders` equity		6,564,111		5,330,990
Total liabilities and stockholders`
equity	$	9,987,241	$	9,024,271

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION
Statements of Operations (Unaudited)

	Fiscal Quarters Ended				Nine Months Ended
		September 26,		September 28,		September 26,			September 28,
		2020		2019		2020			2019
Revenues:
Product sales	$	4,452,387	$	4,387,125	$	16,721,973		$	16,023,615
Total Revenues		4,452,387		4,387,125		16,721,973			16,023,615
Cost of product sales		3,514,813		4,164,187		13,050,860			14,466,266
Gross Margin		937,574		222,938		3,671,113			1,557,349
Selling, general and
administrative expense		684,836		702,413		2,466,198			2,523,178
Operating income (loss)		252,738		(479,475)		1,204,915			(965,829)
Interest income (expense), net		(21,263)		(16,495)		(87,004	)		(23,757)
Other income (expense), net		(3)		—		14,446			—
Net income (loss) before income
tax expense		231,472		(495,970)		1,132,357			(989,586)
Income tax provision		456		—		456			—
Net income (loss)	$	231,016	$	(495,970)	$	1,131,901		$	(989,586)
Net income (loss) per
basic common share	$	0.02	$	(0.04)	$	0.09		$	(0.07)
Weighted average number of
basic common shares
outstanding		13,288,652		13,206,069		13,234,508			13,206,984
Net income (loss) per
diluted common share	$	0.02	$	(0.04)	$	0.09		$	(0.07)
Weighted average number of
diluted common shares
outstanding		13,456,486		13,206,069		13,320,915			13,206,984

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2020 AND SEPTEMBER 28, 2019

	Common Stock
		Number of				Additional			Total
		shares	Par			paid-in	Accumulated	Stock	stockholders’
		issued	Value			capital	deficit	repurchased	equity
Balance at June 27, 2020		13,427,492	$	134,275	$	36,177,264	(29,479,548)	(517,053)	6,314,938
Share-based compensation expense		—		—		17,389	—	—	17,389
Issuance of common stock		500		5		763	--	--	768
Employee option exercises		288,250		2,882		438,140	--	(441,022)	--
Net income		--		--		--	231,016	—	231,016
Balance at September 26, 2020		13,716,242		137,162		36,633,556	(29,248,532)	(958,075)	6,564,111

	Common Stock
	Number of				Additional			Total
	shares		Par		paid-in	Accumulated	Stock	stockholders’
	issued		Value		capital	deficit	repurchased	equity
Balance at December 28, 2019	13,427,492	$	134,275	$	36,094,201	(30,380,433)	(517,053)	5,330,990
Share-based compensation expense	—		—		100,452	—	—	100,452
Issuance of common stock	500		5		763	--	--	768
Employee option exercises	288,250		2,882		438,140	—	(441,022)	--
Net income	—		—		—	1,131,901	—	1,131,901
Balance at September 26, 2020	13,716,242		137,162		36,633,556	(29,248,532)	(958,075)	6,564,111

	Common Stock
	Number of				Additional			Total
	shares		Par		paid-in	Accumulated	Stock	stockholders’
	issued		Value		capital	deficit	repurchased	equity
Balance at June 29, 2019	13,427,492	$	134,275	$	36,048,177	(30,235,847)	(517,053)	5,429,552
Share-based compensation expense	—		—		28,000	—	—	28,000
Net (loss)	—		—		—	(495,970)	—	(495,970)
Balance at September 28, 2019	13,427,492		134,275		36,076,177	(30,731,817)	(517,053)	4,961,582

	Common Stock
	Number of				Additional			Total
	shares		Par		paid-in	Accumulated	Stock	stockholders’
	issued		Value		capital	deficit	repurchased	equity
Balance at December 29, 2018	13,425,992	$	134,260	$	35,960,545	(29,742,231)	(517,053)	5,835,521
Share-based compensation expense	—		—		113,397	—	—	113,397
Issuance of common stock	1,500		15		2,235	—	—	2,250
Net (loss)	—		—		—	(989,586)	—	(989,586)
Balance at September 28, 2019	13,427,492		134,275		36,076,177	(30,731,817)	(517,053)	4,961,582

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION
Statements of Cash Flows (Unaudited)

		Nine Month Periods Ended
		September 26,		September 28,
		2020		2019
Cash flows from operating activities:
Net income	$	1,131,901	$	(989,586)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities
Depreciation & amortization		382,121		391,156
Share-based compensation		100,452		115,647
Deferred taxes		33,620		—
Gain on sale of property and equipment		(5,000)		—
Changes in:
Accounts receivable-trade		125,339		257,348
Inventories		(1,087,448)		401,822
Prepaid expenses		(25,797)		(16,982)
Accounts payable		(214,775)		(206,204)
Deferred revenue		336,890		—
Accrued expenses		(94,984)		(274,325)
Net cash provided by (used in) operating
activities		682,319		(321,124)
Cash flows from investing activities:
Purchases of property and equipment		(285,909)		(250,128)
Proceeds from sale of property and equipment		5,000		—
Net cash provided by (used in) investing
activities		(280,909)		(250,128)
Cash flows from financing activities:
Net borrowings on line of credit		(414,465)		412,732
Proceeds from employee stock options		768		—
Payments on note payable		(9,103)		—
Net cash provided by (used in)
financing activities		(422,800)		412,732
Net increase (decrease) in cash and cash equivalents		(21,390)		(158,520)
Cash and cash equivalents at beginning of period		133,965		628,804
Cash and cash equivalents at end of period	$	112,575	$	470,284
Supplemental disclosures of cash flows information:
Cash paid for income taxes	$	—	$	485
Cash paid for interest	$	87,004	$	—
Supplemental disclosures of non-cash activity:
Net exercise of stock options	$	441,022	$	--
Issuance of long term debt to finance equipment purchases	$	247,807	$	--

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION
Notes to Financial Statements
(Unaudited)

(1)  Nature of Business

CPS Technologies Corporation (the “Company” or “CPS”) provides advanced material solutions to the electronics, power generation, automotive and other industries.   The Company’s primary advanced material solution is metal-matrix composites (MMC’s) which are a combination of metal and ceramic. 

CPS also assembles housings and packages for hybrid circuits. These housings and packages may include components made of metal-matrix composites or they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.

The Company sells into several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor controller market, and other microelectronic and structural markets.

(2)  Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles.

The accompanying financial statements are unaudited. In the opinion of management, the unaudited financial statements of CPS reflect all normal recurring adjustments which are necessary to present fairly the financial position and results of operations for such periods.

The Company’s balance sheet at December 28, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 28, 2019 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.alsic.com.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

(3)  Net Income (loss) Per Common and Common Equivalent Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss)  per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock options and stock purchase rights.  Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

The following table presents the calculation of both basic and diluted EPS:

	Three Months Ended					Nine Months Ended
			September 26,		September 28,		September 26,		September 28,
			2020		2019		2020		2019
Basic EPS Computation:
Numerator:
Net income (loss)		$	231,016	$	(495,970)	$	1,131,901	$	(989,586)
Denominator:
Weighted average
Common shares
Outstanding			13,288,652		13,206,069		13,234,508		13,206,984
Basic EPS		$	0.02	$	(0.04)	$	0.09	$	(0.07)
Diluted EPS Computation:
Numerator:
Net income (loss)		$	231,016	$	(495,970)	$	1,131,901	$	(989,586)
Denominator:
Weighted average
Common shares
Outstanding			13,288,652		13,206,069		13,234,508		13,206,984
Dilutive effect of stock options			167,834		—		87,217		—
Total Shares			13,456,486		13,206,069		13,320,915		13,206,984
Diluted EPS		$	0.02	$	(0.04)	$	0.09	$	(0.07)

(4)  Commitments & Contingencies

Commitments

Leases

The Company has two real estate leases—one expiring in February 2021 and one with an 11 month duration expiring December 2020. The latter is not expected to be renewed and has not been recorded on the balance sheet in accordance with Accounting Standards Codification (ASC) 842 for leases. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized.

The lease expiring in 2021 (the “Norton facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This asset and liability was recognized on December 30, 2018 based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at date of adoption. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is allocated between Cost of Product Sales and Selling, General and Administrative Expense in the income statement

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of September 26, 2020

(Dollars in Thousands)		Sept 26, 2020
Maturity of capitalized lease liabilities		Lease payments
2020 (remaining)		39
2021		26
Total undiscounted operating lease payments	$	65
Less: Imputed interest		(2)
Present value of operating lease liability	$	63

Balance Sheet Classification
Current lease liability	$	63
Long-term lease liability		—
Total operating lease liability	$	63
Other Information
Weighted-average remaining lease term for capitalized operating leases		5 months
Weighted-average discount rate for capitalized operating leases		6.5%

Cash Flows

An initial right-of-use asset of $310 thousand was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on December 30, 2018. Cash paid for the amounts included in the present value of operating lease liabilities was $114 thousand during the first nine months of 2020 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $114 thousand during the first nine months of 2020. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

(5)  Share-Based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The company uses the Black-Scholes option pricing model to determine the fair value of the stock options granted.

There were no stock options granted or issued under the Plan during the quarters ended September 26, 2020 and September 28, 2019.

During the quarter ended September 26, 2020, 288,250 options were exercised at a weighted average price of $1.53, and 261,355 options expired at a weighted average price of $1.53.  Also, during the quarter 500 shares were gifted to an employee for completing 20 years of service to the company. During the quarter ended September 28, 2019, 24,000 options were forfeited and 16,000 options expired.

During the quarter ended September 26, 2020 the Company repurchased 200,018 shares for employees to facilitate their exercise of stock options. During the quarter ended September 28, 2019 there were no shares repurchased.

During the three and nine months ended September 26, 2020 the Company recognized approximately $17 thousand and $100 thousand, respectively as share-based compensation expense related to share and option grants. These amounts are included as a component of selling, general and administrative expenses in the statement of operations.

During the three and nine months ended September 28, 2019 the Company recognized approximately $28 thousand and $113 thousand, respectively as share-based compensation expense related to share and option grants. These amounts are included as a component of selling, general and administrative expenses in the statement of operations.

As of September 26, 2020, there was $163 thousand of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan; that cost is expected to be recognized over a weighted average period of 1.79 years. There were also 1,286,500 shares outstanding at a weighted average price of $1.81 with a weighted average remaining term of 5.35 years, and there were 1,022,400 shares exercisable at a weighted average price of $1.88 with a weighted average remaining term of 4.66 years. The Plan, as amended, is authorized to issue 3,000,000 shares of common stock. As of September 26, 2020, there were 1,392,350 shares available for future grants

(6)  Inventories

Inventories consist of the following:

		September 26,		December 28,
		2020		2019
Raw materials	$	968,182	$	778,409
Work in process		1,865,505		1,898,916
Finished goods		1,789,740		871,861
Total inventory		4,623,427		3,549,186
Reserve for obsolescence		(436,155)		(449,362)
Inventories, net	$	4,187,272	$	3,099,824

(7)  Accrued Expenses

Accrued expenses consist of the following:

		September 26,		December 28,
		2020		2019
Accrued legal and accounting	$	73,171	$	62,725
Accrued payroll		552,272		518,015
Accrued other		94,739		234,426
	$	720,182	$	815,166

(8)  Line of Credit 

In September 2019, the Company entered into revolving line of credit with The Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.  In May of 2020 this credit line was increased to $3.0 million.  The agreement includes a demand note allowing the Lender to call the loan at any time.  CPS may terminate the agreement without a termination fee after 3 years.  The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points. At September 26, 2020 the Company had $835 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $1.835 million to have been borrowed. 

The line of credit is subject to certain financial covenants.

(9)        Note Payable 

In March 2020, the company acquired a Sonoscan ultrasound microscope for a price of $208 thousand.  The full amount was financed through a 5 year note payable with Crest Capital Corporation.  The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%.

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor.  The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%. 

The Company’s obligations including interest at September 26, 2020 consist of the following:

Remaining in:	Payments due by period
FY 2020	$	17,250
FY 2021	$	69,000
FY 2022	$	63,984
FY 2023	$	48,934
FY 2024 and thereafter	$	57,089
Total	$	256,257

(10)  Income Taxes

A valuation allowance against deferred tax assets is required to be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. In December 2018, the Company established a valuation allowance reserve, as it is judged more likely than not that all or a portion of its deferred tax assets will not be utilized before they expire. This decision was reached after giving greater weight to the Company’s losses in recent years as compared to its forecasts.

No provision for income taxes was provided during the quarter and nine months ended September 26, 2020, as the Company continues to maintain a full valuation allowance against the majority of its deferred tax assets and no current tax is forecasted for the year.

ITEM 2       MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the financial statements of the Company and notes thereto included in this report and the Company’s Annual Report on Form 10-K for the year ended December 28, 2019.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. There are a number of factors that could cause the Company’s actual results to differ materially from those forecasted or projected in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.  The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or changed circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

The critical accounting policies utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 28, 2019, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.  There have been no material changes to these policies since December 28, 2019.

Overview

Products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles.  We provide baseplates and housings used in radar, satellite and avionics applications.  We provide lids and heat spreaders used with high performance integrated circuits for use in internet switches and routers.   We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like SiC and GaN. CPS also assembles housings and packages for hybrid circuits. These housings and packages may include MMC components; they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.

CPS’s products are custom rather than catalog items. They are made to customers’ designs and are used as components in systems built and sold by our customers. At any point in time our product mix will consist of some products with on-going production demand, and some products which are in the prototyping or evaluation stages at our customers. The Company seeks to have a portfolio of products which include products in every stage of the technology adoption lifecycle at our customers. CPS’ growth is dependent upon the level of demand for those products already in production, as well as its success in achieving new "design wins" for future products.

The manufacturing process for MMCs (infusing ceramic materials with molten metals) is complicated and results in varying yields, which poses challenges to profitability for less developed manufacturers.

As a manufacturer of highly technical and custom products, the Company incurs fixed costs needed to support the business, but which do not vary significantly with changes in sales volume. These costs include the fixed costs of applications engineering, tooling design and fabrication, process engineering, etc. Accordingly, particularly given our current size, changes in sales volume generally result in even greater changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base. Sales volume is therefore a key financial metric used by management.

The Company believes the underlying demand for metal matrix composites is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow.

Our products are manufactured by proprietary processes we have developed including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM Pressure Infiltration Process (‘QuickCast Process’).

CPS was incorporated in Massachusetts in 1984 as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock. In March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies Corporation.

COVID-19 Pandemic

 As a provider of “essential services”, CPS continues to be open and operating during the novel coronavirus pandemic. To date most of our customers remain open and operational. In Q3 we saw a significant increased volatility on the part of some of our customers, while for others it has been business as usual. We expect that this volatility will continue for at least the next several quarters. Unexpected reductions in demand on the part of two of our major customers led to a reduction in third quarter revenue. As these reductions were unexpected, by both CPS and our customers, inventory built to meet expected Q3 demand remains in inventory. We expect this inventory will be reduced over time, but will probably remain somewhat inflated over the next quarter or two.

CPS continues to follow CDC and OSHA guidance in our workplace. Employees’ temperatures are taken at the beginning of each shift, shift have been staggered to reduce employee overlap, workstations have been rearranged to ensure social distancing, all employees are using facemasks, et. The pandemic has had very little impact on our ability to produce and ship customer orders.

Results of Operations for the Third Fiscal Quarter of 2020 (Q3 2020) Compared to the Third Fiscal Quarter of 2019 (Q3 2019); (all $ in 000s)

Total revenue was $4,452 in Q3 2020, a 1% increase compared with total revenue of $4,387 in Q3 2019. This increase was due primarily to price increases of 6% offset by a reduction in sales volume of 5%. These price changes were implemented in Q4 2019 and Q1 2020.  In addition, the company was able to offset a $120 thousand reserve, increasing revenue, set up for potential quality issues at one customer.  This was a negotiated settlement against that customer’s reduction in purchases below the amount of their contractual obligation.

Gross margin in Q3 2020 totaled $938 or 21% of sales.  In Q3 2019, gross margin was $223 or 5% of sales.   This increase in margin was due to product mix, the aforementioned price increases, and increased operating efficiencies.

Selling, general and administrative expenses (SG&A) were $684 in Q3 2020, down 3% when compared with SG&A expenses of $702 in Q3 2019.  This decrease was primarily due to reduced travel as a result of the Covid-19 pandemic.

In Q3, 2020, the Company incurred interest expense of $21 due primarily to bank borrowings.  This compares with interest expense of $17 in Q3 of 2019.

The Company generated operating income of $253 compared with an operating loss of $479 in the same quarter last year. This increase in operating income is due primarily to the increase in pricing, discussed above. The net income for Q3 2020 totaled $231 versus a net loss of $496 in Q3 2019.

Results of Operations for the First Nine Months of 2020 Compared to the First Nine Months of 2019 (all $ in 000s)

Total revenue was $16,722 in the first nine months of 2020, a 4% increase compared with total revenue of $16,024 in the first nine months of 2019. This increase was due primarily to a 10% increase in pricing during the first nine months of 2020 compared with the first nine months of 2019.

Gross margin in the first nine months of 2020 totaled $3,671 or 22% of sales.  In the first nine months of 2019 gross margin totaled $1,557 or 10% of sales.  This increase was due to price increases, a change in product mix and increased operating efficiencies. 

Selling, general and administrative (SG&A) expenses were $2,466 during the first nine months of 2020, down 2% compared with SG&A expenses of $2,523 in the first nine months of 2019.  This small decrease was primarily due to reduced travel as a result of the Covid-19 pandemic.

During the first nine months of 2020, the Company incurred interest expense of $87 due primarily to bank borrowings.  This compares with interest expense of $24 incurred during the first nine months of 2019.

In the first nine months of 2020 the Company generated operating income of $1,205 compared with an operating loss of $966 in the same period last year.  The net income for the first nine months of 2020 totaled $1,132 versus a net loss of $990 in the first nine months of 2019. 

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

The Company’s cash and cash equivalents at September 26, 2020 totaled $113.  The Company’s net cash, which considers the $835 of bank borrowings, totaled a negative $722 at the end of the third quarter. This compares to cash and cash equivalents at December 28, 2019 of $134 and a net cash of negative $1,116. The increase in net cash was due to the income from operations offset by an increase in working capital.

Accounts receivable at September 26, 2020 totaled $3,962 compared with $4,087 at December 28, 2019.

Days Sales Outstanding (DSO) increased from 67 days at the end of 2019 to 80 days at the end of Q3 2020.  DSO’s at the end of 2019 were due to low sales during Q4 2019 to our European customers having extended payment terms compared to higher sales in Q3 2020. The accounts receivable balances at December 28, 2019, and September 26, 2020 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $4,187 at September 26, 2020 compared with inventory totaling $3,100 at December 28, 2019. This increase was a result of an inventory build up due to expected increase in customer sales volume in Q3. Unexpectedly reduced demand by their customers caused them to reduce their buying from CPS.  The inventory turnover in the most recent four quarters ending Q3 2020 was 4.9 times, down from 6.2 times averaged during the four quarters of 2019 (based on a 5 point average).

The Company financed its working capital during the first nine months of 2020 from a combination of its net profit during the period and bank borrowings.  The Company expects it will continue to be able to fund its working capital requirements for the remainder of 2020 from existing cash balances and bank borrowings.

The Company continues to sell to a limited number of customers and the loss of any one of these customers could cause the Company to require additional external financing. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its business objectives.

Contractual Obligations

In September 2019, the Company entered into revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.  This agreement was amended in May 2020 to increase the line to $3.0 million.  The agreement includes a demand note allowing the Lender to call the loan at any time.  The Company may terminate the agreement without a termination fee after 3 years.  The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points.  At September 26, 2020 the Company had $835 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $1.835 million to have been borrowed.  The increased availability has allowed the Company to end its policy of allowing prompt pay discounts to certain customers. This has and should continue to have a positive effect on the Company’s earnings going forward.

In March 2020, the company acquired an ultrasound microscope for a price of $208.  The full amount was financed through a 5 year note payable with a financing company.  The note is collateralized by the microscope and is being paid in monthly installments of $4, consisting of principal plus interest at a rate of 6.47%

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed through a capital lease with the machine’s vendor.  The original lease amount was $40 thousand and will be paid at the rate of $2 thousand per month over 2 years with an interest rate of 1.9%. 

As of September 26, 2020, the Company had $127 of construction in progress and no outstanding commitments to purchase production equipment.

The Company has two real estate leases—one expiring in February 2021 and one expiring December 31, 2020. Since the latter is not expected to be renewed, it has not been recorded on the balance sheet. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized. (Note 4, Leases)

Management believes that a combination of existing cash balances and borrowings, if necessary, will be sufficient to fund our cash requirements for the foreseeable future. However, there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational goals are not met such that we will be able to meet our obligations as they become due.

ITEM 3             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not significantly exposed to the impact of interest rate changes or foreign currency fluctuations.  The Company has not used derivative financial instruments.

ITEM 4             CONTROLS AND PROCEDURES

(a)        The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d - 14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q (the “Evaluation Date”).  Based on such evaluation, such officers have concluded that, as of the Evaluation Date,  1) the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports the Company files under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and 2) the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b)        Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1             LEGAL PROCEEDINGS
            None.

ITEM 1A           RISK FACTORS
            There have been no material changes to the risk factors as discussed in our 2019 Form 10-K

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

ITEM 3             DEFAULTS UPON SENIOR SECURITIES
            None.

ITEM 4             MINE SAFETY DISCLOSURES
            Not applicable.

ITEM 5             OTHER INFORMATION
            Not applicable.

ITEM 6             EXHIBITS
(a)        Exhibits:

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

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

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

(b)        Reports on Form 8-K

            None

SIGNATURES

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

CPS TECHNOLOGIES CORPORATION
(Registrant)

Date:    November 10, 2020
/s/        Grant C. Bennett
Grant C. Bennett
Chief Executive Officer

Date:    November 10, 2020

/s/        Charles K. Griffith Jr.

Charles K. Griffith Jr.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Grant C. Bennett, certify that:

I have reviewed this quarterly report on Form 10-Q;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant`s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant`s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation (the "Evaluation Date"); and

d) Disclosed in this quarterly report any change in the registrant`s internal control over financial reporting that occurred during the registrant`s most recent fiscal quarter that has materially affected or is reasonably like to materially affect, the registrant`s internal control over financial reporting.

The registrant`s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant`s auditors and the audit committee of the registrant`s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant`s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant`s internal control over financial reporting.

Date: November 10, 2020
/s/ Grant C. Bennett
Grant C. Bennett
President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Charles K. Griffith Jr., certify that:

I have reviewed this quarterly report on Form 10-Q;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant`s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant`s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation (the "Evaluation Date"); and

d) Disclosed in this quarterly report any change in the registrant`s internal control over financial reporting that occurred during the registrant`s most recent fiscal quarter that has materially affected or is reasonably like to materially affect, the registrant`s internal control over financial reporting.

The registrant`s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant`s auditors and the audit committee of the registrant`s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant`s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant`s internal control over financial reporting.

Date: Novvember 10, 2020
/s/ Charles K. Griffith Jr.
Charles K. Griffith Jr.
Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CPS Technologies Corporation (the "Company") on Form 10-Q for the nine month period ended September 26, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Grant C. Bennett, President and Chief Executive Officer of the Company, and I, Charles K. Griffith Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2020
/s/ Grant C. Bennett
Grant C. Bennett
President and Chief Executive Officer

Date: November 10, 2020
/s/ Charles K. Griffith Jr.
Charles K. Griffith Jr.
Chief Financial Officer

XML

Cover - shares	9 Months Ended
	Sep. 26, 2020	Nov. 06, 2020
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 26, 2020
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-26
Entity File Number	0-16088
Entity Registrant Name	CPS TECHNOLOGIES CORP/DE/
Entity Central Index Key	0000814676
Entity Incorporation, State or Country Code	DE
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		13,296,168

XML

Balance Sheets (Unaudited) - USD ($)	Sep. 26, 2020	Dec. 28, 2019
Current assets:
Cash and cash equivalents	$ 112,575	$ 133,965
Accounts receivable-trade, net	3,961,606	4,086,945
Inventories, net	4,187,272	3,099,824
Prepaid expenses and other current assets	173,583	147,786
Total current assets	8,435,036	7,468,520
Property and equipment:
Production equipment	10,282,980	9,649,169
Furniture and office equipment	508,423	508,423
Leasehold improvements	934,195	934,195
Total cost	11,725,598	11,091,787
Accumulated depreciation and amortization	(10,478,054)	(10,110,663)
Construction in progress	127,408	255,754
Net property and equipment	1,374,952	1,236,878
Right-of-use lease asset	63,000	171,000
Deferred taxes, net	114,253	147,873
Total assets	9,987,241	9,024,271
Current liabilities:
Borrowings against line of credit	835,123	1,249,588
Note payable, current portion	55,795
Accounts payable	1,221,642	1,436,417
Accrued expenses	720,182	815,166
Deferred revenue	358,000	21,110
Lease liability, current portion	63,000	148,000
Total current liabilities	3,253,742	3,670,281
Note payable less current portion	169,388
Long term lease liability		23,000
Total liabilities	3,423,130	3,693,281
Stockholders` equity:
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 13,716,242 and 13,427,492, respectively; outstanding 13,296,168 and 13,207,436, respectively; at September 26, 2020 and December 28, 2019;	137,162	134,275
Additional paid-in capital	36,633,553	36,094,201
Accumulated deficit	(29,248,532)	(30,380,433)
Less cost of 420,074 and 220,056 common shares repurchased, respectively; at September 26, 2020 and December 28, 2019	(958,072)	(517,053)
Total stockholders` equity	6,564,111	5,330,990
Total liabilities and stockholders` equity	$ 9,987,241	$ 9,024,271

XML

Balance Sheets (Parenthetical) - $ / shares	Sep. 26, 2020	Dec. 28, 2019
Statement of Financial Position [Abstract]
Common stock, authorized shares	20,000,000	20,000,000
Common stock, issued shares	13,716,242	13,427,492
Common stock, outstanding shares	13,296,168	13,207,436
Common stock, par value	$ .01	$ .01

XML

Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 26, 2020	Sep. 28, 2019	Sep. 26, 2020	Sep. 28, 2019
Income Statement [Abstract]
Product sales	$ 4,452,387	$ 4,387,125	$ 16,721,973	$ 16,023,615
Total Revenues	4,452,387	4,387,125	16,721,973	16,023,615
Cost of product sales	3,514,813	4,164,187	13,050,860	14,466,266
Gross Margin	937,574	222,938	3,671,113	1,557,349
Selling, general and administrative expense	684,836	702,413	2,466,198	2,523,178
Operating income (loss)	252,738	(479,475)	1,204,915	(965,829)
Interest income (expense), net	(21,263)	(16,495)	(87,004)	(23,757)
Other income (expense), net	(3)		14,446
Net income (loss) before income tax expense	231,472	(495,970)	1,132,357	(989,586)
Income tax provision	456		456
Net income (loss)	$ 231,016	$ (495,970)	$ 1,131,901	$ (989,586)
Net income (loss) per basic common share	$ 0.02	$ (0.04)	$ 0.09	$ (0.07)
Weighted average number of basic common shares outstanding	13,288,652	13,206,069	13,234,508	13,206,984
Net income (loss) per diluted common share	$ 0.02	$ (0.04)	$ 0.09	$ (0.07)
Weighted average number of diluted common shares outstanding	13,456,486	13,206,069	13,320,915	13,206,984

XML

Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 26, 2020	Sep. 28, 2019
Cash flows from operating activities:
Net income	$ 1,131,901	$ (989,586)
Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities
Depreciation & amortization	382,121	391,156
Share-based compensation	100,452	115,647
Deferred taxes	33,620
Gain on sale of property and equipment	(5,000)
Changes in:
Accounts receivable-trade	125,339	257,348
Inventories	(1,087,448)	401,822
Prepaid expenses	(25,797)	(16,982)
Accounts payable	(214,775)	(206,204)
Deferred revenue	336,890
Accrued expenses	(94,984)	(274,325)
Net cash provided by (used in) operating activities	682,319	(321,124)
Cash flows from investing activities:
Purchases of property and equipment	(285,909)	(250,128)
Proceeds from sale of property and equipment	5,000
Net cash provided by (used in) investing activities	(280,909)	(250,128)
Cash flows from financing activities:
Net borrowings on line of credit	(414,465)	412,732
Net proceeds from employee stock options
Payments on note payable	(9,103)
Net cash provided by (used in) financing activities	(422,800)	412,732
Net increase (decrease) in cash and cash equivalents	(21,390)	(158,520)
Cash and cash equivalents at beginning of period	133,965	628,804
Cash and cash equivalents at end of period	112,575	470,284
Supplemental disclosures of cash flows information:
Cash paid for income taxes		485
Cash paid for interest	87,004
Supplemental disclosures of non-cash activity:
Net exercise of stock options	441,022
Issuance of long term debt to finance equipment purchases	$ 247,807

XML

Shareholders Equity (Unaudited) - USD ($)	Common Stock	Additional Paid-In Capital	Retained Earnings / Accumulated Deficit	Total
Beginning balance, stockholders equity at Dec. 29, 2018			$ 5,835,521
Beginning balance, shares at Dec. 29, 2018	13,425,992
Beginning balance, par value of shares issued at Dec. 29, 2018	$ 134,260
Share-based compensation expense		$ 113,397
Issuance of common stock pursuant to exercise of stock options		2,235
Issuance of common stock pursuant to exercise of stock options, number of shares issued	1,500
Issuance of common stock pursuant to exercise of stock options, par value	$ 15
Net income(loss)			989,586	(989,586)
Ending balance, stockholders equity at Sep. 28, 2019				4,961,582
Ending balance, shares at Sep. 28, 2019	13,427,492
Ending balance, par value shares issued at Sep. 28, 2019	$ 134,275
Beginning balance, stockholders equity at Dec. 28, 2019			5,330,990	$ 5,330,990
Beginning balance, shares at Dec. 28, 2019	13,427,492			13,427,492
Beginning balance, par value of shares issued at Dec. 28, 2019	$ 134,275
Share-based compensation expense		100,452
Issuance of common stock pursuant to exercise of stock options		$ 438,903
Issuance of common stock pursuant to exercise of stock options, number of shares issued	288,750
Issuance of common stock pursuant to exercise of stock options, par value	$ 2,887
Net income(loss)			$ 1,131,901	$ 1,131,901
Ending balance, stockholders equity at Sep. 26, 2020				$ 6,564,111
Ending balance, shares at Sep. 26, 2020	13,716,242			13,716,242
Ending balance, par value shares issued at Sep. 26, 2020	$ 137,162

XML

(1) Nature of Business

9 Months Ended

Sep. 26, 2020

Accounting Policies [Abstract]

(1) Nature of Business

(1)  Nature of Business

CPS Technologies Corporation (the “Company” or “CPS”) provides advanced material solutions to the electronics, power generation, automotive and other industries.   The Company’s primary advanced material solution is metal-matrix composites (MMC’s) which are a combination of metal and ceramic. 

CPS also assembles housings and packages for hybrid circuits. These housings and packages may include components made of metal-matrix composites or they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.

The Company sells into several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor controller market, and other microelectronic and structural markets.

XML

(2) Summary of Significant Accounting Policies

9 Months Ended

Sep. 26, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

(2) Summary of Significant Accounting Policies

(2)  Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles.

The accompanying financial statements are unaudited. In the opinion of management, the unaudited financial statements of CPS reflect all normal recurring adjustments which are necessary to present fairly the financial position and results of operations for such periods.

The Company’s balance sheet at December 28, 2019 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 28, 2019 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.alsic.com.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

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(3) Net Income (loss) Per Common and Common Equivalent Share

9 Months Ended

Sep. 26, 2020

Earnings Per Share [Abstract]

(3) Net Income (loss) Per Common and Common Equivalent Share

(3)  Net Income (loss) Per Common and Common Equivalent Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.  Diluted net income (loss)  per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock options and stock purchase rights.  Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

The following table presents the calculation of both basic and diluted EPS:

	Three Months Ended					Nine Months Ended
			September 26,		September 28,		September 26,		September 28,
			2020		2019		2020		2019
Basic EPS Computation:
Numerator:
Net income (loss)		$	231,016	$	(495,970)	$	1,131,901	$	(989,586)
Denominator:
Weighted average
Common shares
Outstanding			13,288,652		13,206,069		13,234,508		13,206,984
Basic EPS		$	0.02	$	(0.04)	$	0.09	$	(0.07)
Diluted EPS Computation:
Numerator:
Net income (loss)		$	231,016	$	(495,970)	$	1,131,901	$	(989,586)
Denominator:
Weighted average
Common shares
Outstanding			13,288,652		13,206,069		13,234,508		13,206,984
Dilutive effect of stock options			167,834		—		87,217		—
Total Shares			13,456,486		13,206,069		13,320,915		13,206,984
Diluted EPS		$	0.02	$	(0.04)	$	0.09	$	(0.07)

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(4) Commitments & Contingencies

9 Months Ended

Sep. 26, 2020

Commitments (note 4)

(4) Commitments & Contingencies

(4)  Commitments & Contingencies

Commitments

Leases

The Company has two real estate leases—one expiring in February 2021 and one with an 11 month duration expiring December 2020. The latter is not expected to be renewed and has not been recorded on the balance sheet in accordance with Accounting Standards Codification (ASC) 842 for leases. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized.

The lease expiring in 2021 (the “Norton facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This asset and liability was recognized on December 30, 2018 based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at date of adoption. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

Lease expense for operating leases is recognized on a straight-line basis over the lease term. Lease expense is allocated between Cost of Product Sales and Selling, General and Administrative Expense in the income statement

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of September 26, 2020

(Dollars in Thousands)		Sept 26, 2020
Maturity of capitalized lease liabilities		Lease payments
2020 (remaining)		39
2021		26
Total undiscounted operating lease payments	$	65
Less: Imputed interest		(2)
Present value of operating lease liability	$	63

Balance Sheet Classification
Current lease liability	$	63
Long-term lease liability		—
Total operating lease liability	$	63
Other Information
Weighted-average remaining lease term for capitalized operating leases		5 months
Weighted-average discount rate for capitalized operating leases		6.5%

Cash Flows

An initial right-of-use asset of $310 thousand was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on December 30, 2018. Cash paid for the amounts included in the present value of operating lease liabilities was $114 thousand during the first nine months of 2020 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $114 thousand during the first nine months of 2020. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

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(5) Share-Based Payments

9 Months Ended

Sep. 26, 2020

Share-based Payment Arrangement [Abstract]

(5) Share-Based Payments

(5)  Share-Based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The company uses the Black-Scholes option pricing model to determine the fair value of the stock options granted.

There were no stock options granted or issued under the Plan during the quarters ended September 26, 2020 and September 28, 2019.

During the quarter ended September 26, 2020, 288,250 options were exercised and 261,355 options expired.  Also, during the quarter 500 shares were gifted to an employee for completing 20 years of service to the company. During the quarter ended September 28, 2019, 24,000 options were forfeited and 16,000 options expired.

During the quarter ended September 26, 2020 the Company repurchased 200,018 shares for employees to facilitate their exercise of stock options. During the quarter ended September 28, 2019 there were no shares repurchased.

During the three and nine months ended September 26, 2020 the Company recognized approximately $17 thousand and $100 thousand, respectively as share-based compensation expense related to share and option grants. These amounts are included as a component of selling, general and administrative expenses in the statement of operations.

During the three and nine months ended September 28, 2019 the Company recognized approximately $28 thousand and $113 thousand, respectively as share-based compensation expense related to share and option grants. These amounts are included as a component of selling, general and administrative expenses in the statement of operations.

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(6) Inventories

9 Months Ended

Sep. 26, 2020

Inventory Disclosure [Abstract]

(6) Inventories

(6)  Inventories

Inventories consist of the following:

		September 26,		December 28,
		2020		2019
Raw materials	$	968,182	$	778,409
Work in process		1,865,505		1,898,916
Finished goods		1,789,740		871,861
Total inventory		4,623,427		3,549,186
Reserve for obsolescence		(436,155)		(449,362)
Inventories, net	$	4,187,272	$	3,099,824

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(7) Accrued Expenses

9 Months Ended

Sep. 26, 2020

Payables and Accruals [Abstract]

(7) Accrued Expenses

(7)  Accrued Expenses

Accrued expenses consist of the following:

		September 26,		December 28,
		2020		2019
Accrued legal and accounting	$	73,171	$	62,725
Accrued payroll		552,272		518,015
Accrued other		94,737		234,426
	$	720,182	$	815,166

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(8) Line of Credit

9 Months Ended

Sep. 26, 2020

Commitments (note 4)

(8) Line of Credit

(8)  Line of Credit 

In September 2019, the Company entered into revolving line of credit with The Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.  In May of 2020 this credit line was increased to $3.0 million.  The agreement includes a demand note allowing the Lender to call the loan at any time.  CPS may terminate the agreement without a termination fee after 3 years.  The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points. At September 26, 2020 the Company had $835 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $1.835 million to have been borrowed. 

The line of credit is subject to certain financial covenants.

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(9) Note Payable

9 Months Ended

Sep. 26, 2020

Debt Disclosure [Abstract]

(9) Note Payable

(9)        Note Payable 

In March 2020, the company acquired a Sonoscan ultrasound microscope for a price of $208 thousand.  The full amount was financed through a 5 year note payable with Crest Capital Corporation.  The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%.

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor.  The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%. 

The Company’s obligations including interest at September 26, 2020 consist of the following:

Remaining in:	Payments due by period
FY 2020	$	17,250
FY 2021	$	69,000
FY 2022	$	63,984
FY 2023	$	48,934
FY 2024 and thereafter	$	57,089
Total	$	256,257

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(10) Income Taxes

9 Months Ended

Sep. 26, 2020

Income Tax Disclosure [Abstract]

(10) Income Taxes

(10)  Income Taxes

A valuation allowance against deferred tax assets is required to be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. In December 2018, the Company established a valuation allowance reserve, as it is judged more likely than not that all or a portion of its deferred tax assets will not be utilized before they expire. This decision was reached after giving greater weight to the Company’s losses in recent years as compared to its forecasts.

No provision for income taxes was provided during the quarter and nine months ended September 26, 2020, as the Company continues to maintain a full valuation allowance against the majority of its deferred tax assets and no current tax is forecasted for the year.

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(3) Net Income (loss) Per Common and Common Equivalent Share (Tables)

9 Months Ended

Sep. 26, 2020

Earnings Per Share [Abstract]

Calculation of both basic and diluted EPS

	Three Months Ended					Nine Months Ended
			September 26,		September 28,		September 26,		September 28,
			2020		2019		2020		2019
Basic EPS Computation:
Numerator:
Net income (loss)		$	231,016	$	(495,970)	$	1,131,901	$	(989,586)
Denominator:
Weighted average
Common shares
Outstanding			13,288,652		13,206,069		13,234,508		13,206,984
Basic EPS		$	0.02	$	(0.04)	$	0.09	$	(0.07)
Diluted EPS Computation:
Numerator:
Net income (loss)		$	231,016	$	(495,970)	$	1,131,901	$	(989,586)
Denominator:
Weighted average
Common shares
Outstanding			13,288,652		13,206,069		13,234,508		13,206,984
Dilutive effect of stock options			167,834		—		87,217		—
Total Shares			13,456,486		13,206,069		13,320,915		13,206,984
Diluted EPS		$	0.02	$	(0.04)	$	0.09	$	(0.07)

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(4) Commitments & Contingencies (Tables)

9 Months Ended

Sep. 26, 2020

Commitments (note 4)

Table

(Dollars in Thousands)		Sept 26, 2020
Maturity of capitalized lease liabilities		Lease payments
2020 (remaining)		39
2021		26
Total undiscounted operating lease payments	$	65
Less: Imputed interest		(2)
Present value of operating lease liability	$	63

Balance Sheet Classification
Current lease liability	$	63
Long-term lease liability		—
Total operating lease liability	$	63
Other Information
Weighted-average remaining lease term for capitalized operating leases		5 months
Weighted-average discount rate for capitalized operating leases		6.5%

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(6) Inventories (Tables)

9 Months Ended

Sep. 26, 2020

Inventory Disclosure [Abstract]

Inventories consist of the following

		September 26,		December 28,
		2020		2019
Raw materials	$	968,182	$	778,409
Work in process		1,865,505		1,898,916
Finished goods		1,789,740		871,861
Total inventory		4,623,427		3,549,186
Reserve for obsolescence		(436,155)		(449,362)
Inventories, net	$	4,187,272	$	3,099,824

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(7) Accrued Expenses (Tables)

9 Months Ended

Sep. 26, 2020

Payables and Accruals [Abstract]

Accrued expenses consist of the following

		September 26,		December 28,
		2020		2019
Accrued legal and accounting	$	73,171	$	62,725
Accrued payroll		552,272		518,015
Accrued other		94738		234,426
	$	720,182	$	815,166

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(9) Note Payable (Tables)

9 Months Ended

Sep. 26, 2020

Debt Disclosure [Abstract]

Schedule of remaining obligations

Remaining in:	Payments due by period
FY 2020	$	17,250
FY 2021	$	69,000
FY 2022	$	63,984
FY 2023	$	48,934
FY 2024 and thereafter	$	57,089
Total	$	256,257

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(3) Net Income (loss) Per Common and Common Equivalent Share - Calculation of both basic and diluted EPS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 26, 2020	Sep. 28, 2019	Sep. 26, 2020	Sep. 28, 2019
Basic EPS Computation:
Net income (loss)	$ 231,016	$ (495,970)	$ 1,131,901	$ (989,586)
Weighted average Common shares Outstanding	13,288,652	13,206,069	13,234,508	13,206,984
Basic EPS	$ 0.02	$ (0.04)	$ 0.09	$ (0.07)
Diluted EPS Computation:
Net income (loss)	$ 231,016	$ (495,970)	$ 1,131,901	$ (989,586)
Weighted average Common shares Outstanding	13,288,652	13,206,069	13,234,508	13,206,984
Dilutive effect of stock options	$ 167,834		$ 87,217
Total Shares	13,456,486	13,206,069	13,320,915	13,206,984
Diluted EPS	$ 0.02	$ (0.04)	$ 0.09	$ (0.07)

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(4) Commitments & Contingencies - Table (Details)	Sep. 26, 2020 USD ($)
Commitments (note 4)
2020 (remaining)	$ 39
2021	26
Total undiscounted operating lease payments	65
Less: Imputed interest	(2)
Present value of operating lease liability	63
Current lease liability	63
Total operating lease liability	$ 63
Weighted-average remaining lease term for capitalized operating leases	5 months
Weighted-average discount rate for capitalized operating leases	650.00%

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(5) Share-Based Payments (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 26, 2020	Sep. 28, 2019	Sep. 26, 2020	Sep. 28, 2019
Share-based Payment Arrangement [Abstract]
Stock options exercised in the period	288,250		288,250
Stock options expired in the period	261,355	16,000	261,355
Stock options forfeited in the period	24,000		24,000
Repurchased shares	200,018		200,018
Share-based compensation expense recognized (in thousands)	$ 17	$ 100	$ 28	$ 113

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(6) Inventories - Inventories consist of the following (Details) - USD ($)	Sep. 26, 2020	Dec. 28, 2019
Inventory Disclosure [Abstract]
Raw materials	$ 968,182	$ 778,409
Work in process	1,865,505	1,898,916
Finished goods	1,789,740	871,861
Total inventory	4,623,427	3,549,186
Reserve for obsolescence	(436,155)	(449,362)
Inventories, net	$ 4,187,272	$ 3,099,824

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(7) Accrued Expenses - Accrued expenses consist of the following (Details) - USD ($)	Sep. 26, 2020	Dec. 28, 2019
Payables and Accruals [Abstract]
Accrued legal and accounting	$ 73,171	$ 62,725
Accrued payroll	552,272	518,015
Accrued other	94,739	234,426
Total Accrued Expenses	$ 720,182	$ 815,166

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(8) Line of Credit (Details Narrative)	9 Months Ended
	Sep. 26, 2020 USD ($)
Massachusetts Business Development Corporation (BDC)
Revolving line of credit maximum borrowing capacity	$ 3,000,000
Line of credit agreement length (terms in years)	3 years
Borrowing base available	$ 1,835,000