10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended April 2, 2022

or

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 0-16088

CPS TECHNOLOGIES CORP.

(Exact Name of Registrant as Specified in its Charter)

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

(508) 222-0614

Registrant’s Telephone Number, including Area Code:

CPS TECHNOLOGIES CORP.

111 South Worcester Street

Norton, MA 02766-2102

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

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

Indicate by check mark whether the registrant has submitted electronically 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). ☒ Yes ☐ No

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

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

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 ☒ 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 April 24, 2022: 14,429,009.

PART I FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)

	April 2, 2022			December 25, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	4,699,694		$	5,050,312
Accounts receivable-trade, net		4,902,518			4,870,021
Inventories, net		4,705,526			3,911,602
Prepaid expenses and other current assets		334,963			225,873
Total current assets		14,642,701			14,057,808
Property and equipment:
Production equipment		10,526,008			10,489,729
Furniture and office equipment		738,205			673,305
Leasehold improvements		968,509			951,384
Total cost		12,232,722			12,114,418
Accumulated depreciation and amortization		(11,133,276	)		(11,028,154	)
Construction in progress		223,048			246,669
Net property and equipment		1,322,494			1,332,933
Right-of-use lease asset (note 4, leases)		558,000			586,000
Deferred taxes, net		2,698,686			2,823,978
Total Assets	$	19,221,881		$	18,800,719

See accompanying notes to financial statements.

(continued)

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)

(concluded)

	April 2, 2022			December 25, 2021
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Note payable, current portion		51,620			55,906
Accounts payable		2,251,122			2,100,251
Accrued expenses		717,482			1,086,429
Deferred revenue		1,707,138			1,707,138
Lease liability, current portion		157,000			155,000
Total current liabilities		4,884,362			5,104,724
Note payable less current portion		87,988			98,684
Long term lease liability		401,000			431,000
Total liabilities		5,373,350			5,634,408
Commitments & Contingencies
Stockholders’ equity:
Common stock, $0.01 par value,authorized 20,000,000 shares; issued 14,423,486 and 14,350,786 shares; outstanding 14,422,311 and 14,350,451 shares; at April 2, 2022 and December 25, 2021, respectively		144,235			143,508
Additional paid-in capital		39,546,975			39,281,810
Accumulated deficit		(25,837,056	)		(26,256,492	)
Less cost of 1,175 and 335 common shares repurchased at April 2, 2022 and December 25, 2021, respectively		(5,623	)		(2,515	)
Total stockholders’ equity		13,848,531			13,166,311
Total liabilities and stockholders’equity	$	19,221,881		$	18,800,719

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Statements of Operations (Unaudited)

	Fiscal Quarters Ended
	April 2, 2022			March 27, 2021
Revenues:
Product sales	$	6,652,714		$	4,865,708
Total revenues		6,652,714			4,865,708
Cost of product sales		4,689,224			3,921,568
Gross Margin		1,963,490			944,140
Selling, general, and administrative expense		1,416,393			908,471
Income from operations		547,097			35,669
Other income (expense), net		(1,913	)		(4,310	)
Income before taxes		545,184			31,359
Income tax provision		125,748			456
Net income	$	419,436		$	30,903
Net income per basic common share	$	0.03		$	0.00
Weighted average number of basic common shares outstanding		14,389,857			13,584,376
Net income per diluted common share	$	0.03		$	0.00
Weighted average number ofdiluted common sharesoutstanding		14,657,939			14,264,890

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 2, 2022 AND MARCH 27, 2021

	Common Stock
	Number of shares issued		Par Value		Additional paid-in capital			Accumulated deficit			Stock repurchased			Total stockholders’ equity
Balance at December 25, 2021		14,350,786	$	143,508	$	39,281,810			(26,256,492	)		(2,515	)		13,166,311
Share-based compensation expense		—		—		124,471			—			—			124,471
Issuance of Common Stock		—		—		(9,614	)		—			—			(9,614	)
Employee options exercises		72,700		727		150,308			—			(3,108	)		147,927
Net income		—		—		—			419,436			—			419,436
Balance at April 2, 2022		14,423,486		144,235		39,546,975			(25,837,056	)		(5,623	)		13,848,531
Balance at December 26, 2020		13,746,242	$	137,462	$	36,688,894			(29,472,369	)		(996,323	)		6,357,664
Share-based compensation expense		—		—		27,422			—			—			27,422
Employee options exercises		613,800		6,138		1,209,358			—			(1,205,186	)		10,310
Net income		—		—		—			30,903			—			30,903
Balance at March 27, 2021		14,360,042		143,600		37,925,674			(29,441,466	)		(2,201,509	)		6,426,299

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Statements of Cash Flows (Unaudited)

	Fiscal Quarters Ended
	April 2, 2022			March 27, 2021
Cash flows from operating activities:
Net income	$	419,436		$	30,903
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization		105,121			148,743
Share-based compensation		124,471			27,422
Gain on sale of property and equipment		--			(12,000	)
Changes in:
Accounts receivable-trade		(32,497	)		(863,403	)
Inventories		(793,924	)		78,319
Prepaid expenses and other current assets		(109,090	)		(221,769	)
Accounts payable		150,871			594,037
Accrued expenses		(368,947	)		(272,543	)
Deferred Taxes		125,292
Deferred revenue		--			307,039
Net cash used in operating activities		(379,267	)		(183,252	)
Cash flows from investing activities:
Purchases of property and equipment		(94,683	)		(42,488	)
Proceeds from sale of property and equipment		--			12,000
Net cash used in investing activities		(94,683	)		(30,488	)
Cash flows from financing activities:
Net borrowings on line of credit		--			193,395
Proceeds from exercise of employee stock options		138,313			10,310
Payments on note payable		(14,981	)		(17,250	)
Net cash provided by financing activities		123,332			186,455
Net decrease in cash and cash equivalents		(350,618	)		(27,285	)
Cash and cash equivalents at beginning of period		5,050,312			195,203
Cash and cash equivalents at end of period	$	4,699,694		$	167,918
Supplemental disclosures of cash flows information:
Cash paid for interest	$	2,269		$	14,831
Supplemental disclosures of non-cash activity:
Net exercise of stock options	$	3,108		$	1,205,186

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Notes to Financial Statement

(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 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 25, 2021 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 25, 2021 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.cpstechnologysolutions.com.

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

(3)      Net Income Per Common and Common Equivalent Share

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

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

	Three Months Ended
	April 2 2022		March 27, 2021
Basic EPS Computation:
Numerator:
Net income	$	419,436	$	30,903
Denominator:
Weighted average
Common shares
Outstanding		14,389,857		13,584,376
Basic EPS	$	0.03	$	0.00
Diluted EPS Computation:
Numerator:
Net income (loss)	$	419,436	$	30,903
Denominator:
Weighted average
Common shares
Outstanding		14,389,857		13,584,376
Dilutive effect of stock options		268,082		680,514
Total Shares		14,657,939		14,264,890
Diluted EPS	$	0.03	$	0.00

(4)      Commitments & Contingencies

Commitments

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 on the balance sheet. This asset and liability was recognized on April 2, 2022 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

 

Operating Leases

The Norton facility lease comprises approximately 38 thousand square feet. The lease is triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities. The Company also has an option to renew the lease starting in March 2026 through February 2032. Annual rental payments range from $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 April 2, 2022

(Dollars in Thousands)	April 2, 2022
Maturity of capitalized lease liabilities	Lease payments
2022		122
2023		162
2024		165
2025		165
2026		28
Total undiscounted operating lease payments	$	642
Less: Imputed interest		(84	)
Present value of operating lease liability	$	558
Balance Sheet Classification
Current lease liability	$	157
Long-term lease liability		401
Total operating lease liability	$	558
Other Information
Weighted-average remaining lease term for capitalized operating leases (in months)		47
Weighted-average discount rate for capitalized operating leases		6.6	%

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $39 thousand during the first quarter of 2022. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

(5)      Share-Based Payments

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

During the quarters ended April 2, 2022 and March 27, 2021, a total of 170,000 and 200,000 stock options, respectively, were granted to employees under the Company’s 2020 Equity Incentive Plan (the “Plan”) and a total of 38,000 and 0 stock options, respectively, were granted to outside directors during the quarters ended April 2, 2022 and March 27, 2021.

 

During the quarter ended April 2, 2022, there were 72,700 options exercised and corresponding shares issued at a weighted average price of $2.08.  During the quarter ended March 27, 2021, there were 613,800 options exercised and corresponding shares issued at a weighted average price of $1.98. 

During the quarter ended April 2, 2022, the Company repurchased 840 shares for employees to facilitate their exercise of stock options. During the quarter ended March 27, 2021, the Company repurchased 120,196 shares for employees to facilitate their exercise of stock options.

There were also 971,600 shares outstanding at a weighted average price of $2.37 with a weighted average remaining term of 6.67 years as of April 2, 2022, and there were 837,700 shares outstanding at a weighted average price of $1.92 with a weighted average remaining term of 6.74 years as of March 27, 2021. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of April 2, 2022, there were 941,000 shares available for future grants. 513,700 grants remain exercisable under the Company’s Equity Incentive Plans.

As of April 2, 2022, there was $622 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.

During the quarters ended April 2, 2022 and March 27, 2021, the Company recognized approximately $124 thousand and $27 thousand, respectively, as shared-based compensation expense related to previously granted shares under the Plan. 

(6)      Inventories

Inventories consist of the following:

	April 2, 2022			December 25, 2021
Raw materials	$	2,166,385		$	2,080,778
Work in process		1,880,465			1,309,572
Finished goods		987,076			805,159
Gross inventory		5,033,926			4,195,509
Reserve for obsolescence		(328,400	)		(283,907	)
Inventories, net	$	4,705,526		$	3,911,602

(7)      Accrued Expenses

Accrued expenses consist of the following:

	April 2, 2022		December 25, 2021
Accrued legal and accounting	$	44,724	$	79,917
Accrued payroll and related expenses		526,128		905,698
Accrued other		146,630		100,814
Total Accrued Expenses	$	717,482	$	1,086,429

(8)      Line of Credit

In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 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. In May of 2020 this credit line was increased to $3.0 million. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 550 basis points. On April 2, 2022, the Company had $0 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $3.0 million to have been borrowed.

The line of credit is subject to certain financial covenants, all of which have been met.

(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 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 aggregate maturities of the notes payable based on the payment terms of the agreement are as follows: 

Remaining in:	Payments due by period
FY 2022	$	41,050
FY 2023	$	43,837
FY 2024	$	46,757
FY 2025	$	8,090
Total		139,734

Total interest expense on notes payable during 2022 was $2,269.

(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.

In September 2021 this decision was reevaluated in light of the Company’s recent profitability and its forecasts for future profitability. The Company concluded that it is “more likely than not” that the Company will be able to fully utilize the deferred tax asset. This reversal of the valuation allowance was made net of the expected tax liability for 2021. For the first quarter of 2022 a charge against the reserve of $125,748 for the estimated tax liability on Q1 income was made.

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 25, 2021 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.cpstechnologysolutions.com.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. There are a number of factors that could cause the Company’s actual results to differ materially from those forecasted or projected in such forward-looking statements. This includes the impact of the COVID-19 pandemic and the Russian invasion of Ukraine, which are 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 25, 2021, 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 25, 2021.

Overview

Products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles. We provide baseplates and housings used in radar, satellite and avionics applications. We provide lids and heat spreaders used with high performance integrated circuits for use in internet switches and routers. We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like Silicon Carbide (“SiC”) and Gallium Nitride (“GaN”), collectively Metal Matrix Composites (“MMC”). CPS also assembles housings and packages for hybrid circuits. These housings and packages may include MMC components; they may include components made of more traditional materials such as aluminum, cold rolled steel and Kovar. Using its proprietary MMC technology, the Company also produces light-weight vehicle armor, particularly for extreme environments and heavy threat levels.

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

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

The Company believes the underlying demand for MMC, housings for hybrid circuits and our proprietary armor solution is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow.

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

Results of Operations for the First Fiscal Quarter of 2022 (Q1 2022) Compared to the First Fiscal Quarter of 2021 (Q1 2021); (all $ in 000’s)

Revenues totaled $6,653 in Q1 2022 compared with $4,866 generated in Q1 2021, an increase of 37%. Two factors in particular contributed to this growth. In Q1 of 2021 we were just beginning to see a turnaround in reduced sales due to the COVID-19 pandemic. We saw significant sales growth from each of our top 5 customers from Q1 2021 to Q1 2022. Our shipments of armor for the US Navy did not begin until Q2 of 2021, also giving rise to a portion of the increase from Q1 2021 to Q1 2022.

Gross margin in Q1 2022 totaled $1,963 or 30% of sales. This compares with gross margin in Q1 2021 of $944 or 19% of sales. Both increased manufacturing efficiencies and the impact of increased sales volumes on fixed costs, which do not vary with increased sales volumes, were the predominate reason for this increase.

Selling, general and administrative (SG&A) expenses totaled $1,416 in Q1 2022 compared with SG&A expenses of $908 in Q1 2021. Compensation costs made up a little over half of this increase. In particular, increased accruals for variable compensation due to the better results in Q1 2022 as compared to Q1 2021 and 3 additional members of our sales team hired subsequent to Q1 2021, made up part of the compensation differential.  In addition, issuance of immediately vested stock options to directors was delayed in Q1 2021 due to market uncertainty. The Company reverted back to its standard practice of issuing these immediately vested options in Q1 2022 as the market stabilized. The other significant portion of this increase was due to commission expenses incurred as a result of the increased sales.

The Company experienced an operating profit of $547 in Q1 2022 compared with an operating profit of $36 in Q1 2021 as a result of the increased gross margin, partially offset by the increase in SG&A expenses.

The Company is part of the Defense Industrial Base and thus has been open and operating throughout the COVID-19 pandemic. The Company believes the worst of the pandemic is now behind us and expects to show continued improvement in upcoming quarters.

The Company has had extremely minimal sales to both Russia and Ukraine over the last several years, the loss of which would likely not even be noticeable to a reader of these financial statements. Neither does CPS rely on raw materials from that part of the world. As a result, we do not believe that the Russian invasion of Ukraine will have a direct impact on our results. Nevertheless, there could be an indirect impact regarding supply chain and inflationary issues as a result of this war.

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 April 2, 2022 totaled $4,700. This compares to cash and cash equivalents at December 25, 2021 of $5,050. The decrease in cash was due primarily to increases in inventory and reductions in accrued expenses offset by net profit.

Accounts receivable at April 2, 2022 totaled $4,903 compared with $4,870 at December 25, 2021. Days Sales Outstanding (DSO) decreased from 72 days at the end of 2021 to 66 days at the end of Q1 2022. The decrease in DSO was due to the inclusion of deferred revenue of $0.6M in the year end accounts receivable balance, which was collected during Q1 2022. The accounts receivable balances at December 25, 2021, and April 2, 2022 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $4,706 at April 2, 2022 compared with inventory totaling $3,912 at December 25, 2021. The inventory turnover in the most recent four quarters ending Q1 2022 was 4.6 times (based on a 5 point average) compared with 4.7 times averaged during the four quarters of 2021.

The Company financed its increase in working capital in Q1 2022 from its profit and usage of cash on hand. The Company expects it will continue to be able to fund its operations for the remainder of 2022 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.

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

Contractual Obligations (all $ in 000’s unless otherwise noted)

In 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 550 basis points. The Company was in compliance with all debt covenants as of April 2, 2022, had $0 borrowings under this LOC and its borrowing base at the time would have permitted $3.0 to have been borrowed.

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

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 with an interest rate of 1.9%.

The Company has one real estate lease expiring in February 2026. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized. (Note 4, Leases)  

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The COVID-19 pandemic presents several risks for the Company. The Company is part of the Defense Industrial Base and thus has remained open and operating throughout the pandemic. The primary risks resulting from the pandemic are potential declines in customer demand due to government-mandated business closures and increased operating costs resulting from pandemic-related factors such as increased freight costs and increased employee absenteeism causing labor inefficiencies and increased use of overtime.

The COVID-19 pandemic had a minimal impact on financial results for the quarter ended April 2, 2022. There were several COVID related absences during the quarter which required the use of overtime in order to meet production needs. The Company expects these mild disruptions to continue as COVID becomes more endemic. Nevertheless the possibility of a more dangerous variant could result in a negative impact on the Company’s business in the future.

Although CPS has not been directly impacted by the war in Ukraine, potential supply chain disruptions and its impact on energy costs are areas where we could be impacted in the future.

Inflation is an area where we have seen some impact on our business. We have seen significant price increases in commodity raw materials, such as aluminum, as well as increases in other costs of doing business. As we receive new orders we have been able to pass on most of these costs to our customers. In the case of longer term pricing agreements, we have been able to pass on some of these costs through surcharges and in other ways to mitigate the impact on our profit. As inflation continues, our ability to continue to absorb higher costs by raising customer prices cannot be guaranteed.

ITEM 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 2021 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 AND REPORTS ON FORM 8-K:

(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

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

(b) Reports on Form 8-K:

On March 7, 2022 the Company filed a report on Form 8-K relating to the announcement of its financial results for the year ended December 25, 2021 as presented in a press release dated March 3, 2022.

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: May 9, 2022

/s/ Michael E. McCormack

Michael E. McCormack

Chief Executive Officer

Date: May 9, 2022

/s/ Charles K. Griffith Jr.

Charles K. Griffith Jr.

Chief Financial Officer

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, Michael E. McCormack, 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: May 9, 2022
/s/ Michael E. McCormack
Michael E. McCormack
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: May 9, 2022
/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 three month period ended April 2, 2022 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael E. McCormack, 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: May 9, 2022
/s/ Michael E. McCormack
Michael E. McCormack
President and Chief Executive Officer

Date: May 9, 2022
/s/ Charles K. Griffith Jr.
Charles K. Griffith Jr.
Chief Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Apr. 02, 2022	Apr. 24, 2022
Document Information [Line Items]
Entity Central Index Key	0000814676
Entity Registrant Name	CPS TECHNOLOGIES CORP/DE/
Amendment Flag	false
Current Fiscal Year End Date	--12-25
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2022
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Apr. 02, 2022
Document Transition Report	false
Entity File Number	0-16088
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	04-2832509
Entity Address, Address Line One	111 South Worcester Street
Entity Address, City or Town	Norton
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	02766-2102
City Area Code	508
Local Phone Number	222-0614
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
Title of 12(b) Security	Common Stock, $0.01 par value
Trading Symbol	CPSH
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		14,429,009

XML

Balance Sheets (Current Period Unaudited) - USD ($)	Apr. 02, 2022	Dec. 25, 2021
Current assets:
Cash and cash equivalents	$ 4,699,694	$ 5,050,312
Accounts receivable-trade, net	4,902,518	4,870,021
Inventories, net	4,705,526	3,911,602
Prepaid expenses and other current assets	334,963	225,873
Total current assets	14,642,701	14,057,808
Property and equipment:
Production equipment	10,526,008	10,489,729
Furniture and office equipment	738,205	673,305
Leasehold improvements	968,509	951,384
Total cost	12,232,722	12,114,418
Accumulated depreciation and amortization	(11,133,276)	(11,028,154)
Construction in progress	223,048	246,669
Net property and equipment	1,322,494	1,332,933
Right-of-use lease asset (note 4, leases)	558,000	586,000
Deferred taxes, net	2,698,686	2,823,978
Total Assets	19,221,881	18,800,719
Current liabilities:
Note payable, current portion	51,620	55,906
Accounts payable	2,251,122	2,100,251
Accrued expenses	717,482	1,086,429
Deferred revenue	1,707,138	1,707,138
Lease liability, current portion	157,000	155,000
Total current liabilities	4,884,362	5,104,724
Note payable less current portion	87,988	98,684
Long-term lease liability	401,000	431,000
Total liabilities	5,373,350	5,634,408
Commitments & Contingencies
Stockholders’ equity:
Common stock, $0.01 par value,authorized 20,000,000 shares; issued 14,423,486 and 14,350,786 shares; outstanding 14,422,311 and 14,350,451 shares; at April 2, 2022 and December 25, 2021, respectively	144,235	143,508
Additional paid-in capital	39,546,975	39,281,810
Accumulated deficit	(25,837,056)	(26,256,492)
Less cost of 1,175 and 335 common shares repurchased at April 2, 2022 and December 25, 2021, respectively	(5,623)	(2,515)
Total stockholders’ equity	13,848,531	13,166,311
Total liabilities and stockholders’equity	$ 19,221,881	$ 18,800,719

XML

Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Apr. 02, 2022	Dec. 25, 2021
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized shares (in shares)	20,000,000	20,000,000
Common stock, issued shares (in shares)	14,423,486	14,350,786
Common stock, outstanding shares (in shares)	14,422,311	14,350,451
Treasury stock, shares (in shares)	1,175	335

XML

Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Apr. 02, 2022	Mar. 27, 2021
Product sales	$ 6,652,714	$ 4,865,708
Total revenues	6,652,714	4,865,708
Cost of product sales	4,689,224	3,921,568
Gross Margin	1,963,490	944,140
Selling, general, and administrative expense	1,416,393	908,471
Income from operations	547,097	35,669
Other income (expense), net	(1,913)	(4,310)
Income before taxes	545,184	31,359
Income tax provision	125,748	456
Net income	$ 419,436	$ 30,903
Net income per basic common share (in dollars per share)	$ 0.03	$ 0.00
Weighted average number of basic common shares outstanding (in shares)	14,389,857	13,584,376
Net income per diluted common share (in dollars per share)	$ 0.03	$ 0.00
Weighted average number ofdiluted common sharesoutstanding (in shares)	14,657,939	14,264,890

XML

Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Balance (in shares) at Dec. 26, 2020	13,746,242
Balance at Dec. 26, 2020	$ 137,462	$ 36,688,894	$ (29,472,369)	$ (996,323)	$ 6,357,664
Share-based compensation expense		27,422			$ 27,422
Employee options exercises (in shares)	613,800				613,800
Employee options exercises	$ 6,138	1,209,358	0	(1,205,186)	$ 10,310
Net income			30,903		30,903
Balance (in shares) at Mar. 27, 2021	14,360,042
Balance at Mar. 27, 2021	$ 143,600	37,925,674	(29,441,466)	(2,201,509)	6,426,299
Balance (in shares) at Dec. 25, 2021	14,350,786
Balance at Dec. 25, 2021	$ 143,508	39,281,810	(26,256,492)	(2,515)	13,166,311
Share-based compensation expense		124,471			124,471
Issuance of Common Stock	$ 0	(9,614)			$ (9,614)
Employee options exercises (in shares)	72,700				72,700
Employee options exercises	$ 727	150,308	0	(3,108)	$ 147,927
Net income			419,436		419,436
Balance (in shares) at Apr. 02, 2022	14,423,486
Balance at Apr. 02, 2022	$ 144,235	$ 39,546,975	$ (25,837,056)	$ (5,623)	$ 13,848,531

XML

Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Apr. 02, 2022	Mar. 27, 2021
Cash flows from operating activities:
Net income	$ 419,436	$ 30,903
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization	105,121	148,743
Share-based compensation	124,471	27,422
Gain on sale of property and equipment		(12,000)
Changes in:
Accounts receivable-trade	(32,497)	(863,403)
Inventories	(793,924)	78,319
Prepaid expenses and other current assets	(109,090)	(221,769)
Accounts payable	150,871	594,037
Accrued expenses	(368,947)	(272,543)
Deferred Taxes	125,292
Deferred revenue		307,039
Net cash used in operating activities	(379,267)	(183,252)
Cash flows from investing activities:
Purchases of property and equipment	(94,683)	(42,488)
Proceeds from sale of property and equipment		12,000
Net cash used in investing activities	(94,683)	(30,488)
Cash flows from financing activities:
Net borrowings on line of credit		193,395
Proceeds from exercise of employee stock options	138,313	10,310
Payments on note payable	(14,981)	(17,250)
Net cash provided by financing activities	123,332	186,455
Net decrease in cash and cash equivalents	(350,618)	(27,285)
Cash and cash equivalents at beginning of period	5,050,312	195,203
Cash and cash equivalents at end of period	4,699,694	167,918
Supplemental disclosures of cash flows information:
Cash paid for interest	2,269	14,831
Supplemental disclosures of non-cash activity:
Net exercise of stock options	$ 3,108	$ 1,205,186

XML

Note 1 - Nature of Business

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

(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 structural markets.

XML

Note 2 - Summary of Significant Accounting Policies

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Significant Accounting Policies [Text Block]

(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 25, 2021 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 25, 2021 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.

XML

Note 3 - Net Income Per Common and Common Equivalent Share

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Earnings Per Share [Text Block]

(3)      Net Income Per Common and Common Equivalent Share

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

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

	Three Months Ended
	April 2 2022		March 27, 2021
Basic EPS Computation:
Numerator:
Net income	$	419,436	$	30,903
Denominator:
Weighted average
Common shares
Outstanding		14,389,857		13,584,376
Basic EPS	$	0.03	$	0.00
Diluted EPS Computation:
Numerator:
Net income (loss)	$	419,436	$	30,903
Denominator:
Weighted average
Common shares
Outstanding		14,389,857		13,584,376
Dilutive effect of stock options		268,082		680,514
Total Shares		14,657,939		14,264,890
Diluted EPS	$	0.03	$	0.00

XML

Note 4 - Commitments & Contingencies

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(4)      Commitments & Contingencies

Commitments

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 on the balance sheet. This asset and liability was recognized on April 2, 2022 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

The Norton facility lease comprises approximately 38 thousand square feet. The lease is triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities. The Company also has an option to renew the lease starting in March 2026 through February 2032. Annual rental payments range from $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 April 2, 2022

(Dollars in Thousands)	April 2, 2022
Maturity of capitalized lease liabilities	Lease payments
2022		122
2023		162
2024		165
2025		165
2026		28
Total undiscounted operating lease payments	$	642
Less: Imputed interest		(84	)
Present value of operating lease liability	$	558
Balance Sheet Classification
Current lease liability	$	157
Long-term lease liability		401
Total operating lease liability	$	558
Other Information
Weighted-average remaining lease term for capitalized operating leases (in months)		47
Weighted-average discount rate for capitalized operating leases		6.6	%

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $39 thousand during the first quarter of 2022. 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.

XML

Note 5 - Share-based Payments

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

(5)      Share-Based Payments

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

During the quarters ended April 2, 2022 and March 27, 2021, a total of 170,000 and 200,000 stock options, respectively, were granted to employees under the Company’s 2020 Equity Incentive Plan (the “Plan”) and a total of 38,000 and 0 stock options, respectively, were granted to outside directors during the quarters ended April 2, 2022 and March 27, 2021.

During the quarter ended April 2, 2022, there were 72,700 options exercised and corresponding shares issued at a weighted average price of $2.08.  During the quarter ended March 27, 2021, there were 613,800 options exercised and corresponding shares issued at a weighted average price of $1.98. 

During the quarter ended April 2, 2022, the Company repurchased 840 shares for employees to facilitate their exercise of stock options. During the quarter ended March 27, 2021, the Company repurchased 120,196 shares for employees to facilitate their exercise of stock options.

There were also 971,600 shares outstanding at a weighted average price of $2.37 with a weighted average remaining term of 6.67 years as of April 2, 2022, and there were 837,700 shares outstanding at a weighted average price of $1.92 with a weighted average remaining term of 6.74 years as of March 27, 2021. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of April 2, 2022, there were 941,000 shares available for future grants. 513,700 grants remain exercisable under the Company’s Equity Incentive Plans.

As of April 2, 2022, there was $622 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.

During the quarters ended April 2, 2022 and March 27, 2021, the Company recognized approximately $124 thousand and $27 thousand, respectively, as shared-based compensation expense related to previously granted shares under the Plan. 

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Note 6 - Inventories

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Inventory Disclosure [Text Block]

(6)      Inventories

Inventories consist of the following:

	April 2, 2022			December 25, 2021
Raw materials	$	2,166,385		$	2,080,778
Work in process		1,880,465			1,309,572
Finished goods		987,076			805,159
Gross inventory		5,033,926			4,195,509
Reserve for obsolescence		(328,400	)		(283,907	)
Inventories, net	$	4,705,526		$	3,911,602

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Note 7 - Accrued Expenses

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

(7)      Accrued Expenses

Accrued expenses consist of the following:

	April 2, 2022		December 25, 2021
Accrued legal and accounting	$	44,724	$	79,917
Accrued payroll and related expenses		526,128		905,698
Accrued other		146,630		100,814
Total Accrued Expenses	$	717,482	$	1,086,429

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Note 8 - Line of Credit

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Debt Disclosure [Text Block]

(8)      Line of Credit

In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 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. In May of 2020 this credit line was increased to $3.0 million. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 550 basis points. On April 2, 2022, the Company had $0 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $3.0 million to have been borrowed.

The line of credit is subject to certain financial covenants, all of which have been met.

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Note 9 - Note Payable

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Long-Term Debt [Text Block]

(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 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 aggregate maturities of the notes payable based on the payment terms of the agreement are as follows: 

Remaining in:	Payments due by period
FY 2022	$	41,050
FY 2023	$	43,837
FY 2024	$	46,757
FY 2025	$	8,090
Total		139,734

Total interest expense on notes payable during 2022 was $2,269.

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Note 10 - Income Taxes

3 Months Ended

Apr. 02, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(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.

In September 2021 this decision was reevaluated in light of the Company’s recent profitability and its forecasts for future profitability. The Company concluded that it is “more likely than not” that the Company will be able to fully utilize the deferred tax asset. This reversal of the valuation allowance was made net of the expected tax liability for 2021. For the first quarter of 2022 a charge against the reserve of $125,748 for the estimated tax liability on Q1 income was made.

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Note 3 - Net Income Per Common and Common Equivalent Share (Tables)

3 Months Ended

Apr. 02, 2022

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended
	April 2 2022		March 27, 2021
Basic EPS Computation:
Numerator:
Net income	$	419,436	$	30,903
Denominator:
Weighted average
Common shares
Outstanding		14,389,857		13,584,376
Basic EPS	$	0.03	$	0.00
Diluted EPS Computation:
Numerator:
Net income (loss)	$	419,436	$	30,903
Denominator:
Weighted average
Common shares
Outstanding		14,389,857		13,584,376
Dilutive effect of stock options		268,082		680,514
Total Shares		14,657,939		14,264,890
Diluted EPS	$	0.03	$	0.00

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Note 4 - Commitments & Contingencies (Tables)

3 Months Ended

Apr. 02, 2022

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(Dollars in Thousands)	April 2, 2022
Maturity of capitalized lease liabilities	Lease payments
2022		122
2023		162
2024		165
2025		165
2026		28
Total undiscounted operating lease payments	$	642
Less: Imputed interest		(84	)
Present value of operating lease liability	$	558
Balance Sheet Classification
Current lease liability	$	157
Long-term lease liability		401
Total operating lease liability	$	558
Other Information
Weighted-average remaining lease term for capitalized operating leases (in months)		47
Weighted-average discount rate for capitalized operating leases		6.6	%

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Note 6 - Inventories (Tables)

3 Months Ended

Apr. 02, 2022

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	April 2, 2022			December 25, 2021
Raw materials	$	2,166,385		$	2,080,778
Work in process		1,880,465			1,309,572
Finished goods		987,076			805,159
Gross inventory		5,033,926			4,195,509
Reserve for obsolescence		(328,400	)		(283,907	)
Inventories, net	$	4,705,526		$	3,911,602

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Note 7 - Accrued Expenses (Tables)

3 Months Ended

Apr. 02, 2022

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	April 2, 2022		December 25, 2021
Accrued legal and accounting	$	44,724	$	79,917
Accrued payroll and related expenses		526,128		905,698
Accrued other		146,630		100,814
Total Accrued Expenses	$	717,482	$	1,086,429

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Note 9 - Note Payable (Tables)

3 Months Ended

Apr. 02, 2022

Notes Tables

Schedule of Maturities of Long-Term Debt [Table Text Block]

Remaining in:	Payments due by period
FY 2022	$	41,050
FY 2023	$	43,837
FY 2024	$	46,757
FY 2025	$	8,090
Total		139,734

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Note 3 - Net Income Per Common and Common Equivalent Share - Table of Both Basic and Diluted EPS (Details) - USD ($)	3 Months Ended
	Apr. 02, 2022	Mar. 27, 2021
Basic EPS Computation:
Net income	$ 419,436	$ 30,903
Weighted average common shares outstanding (in shares)	14,389,857	13,584,376
Basic EPS (in dollars per share)	$ 0.03	$ 0.00
Diluted EPS Computation:
Net income	$ 419,436	$ 30,903
Weighted average common shares outstanding (in shares)	14,389,857	13,584,376
Dilutive effect of stock options (in shares)	268,082	680,514
Total Shares (in shares)	14,657,939	14,264,890
Diluted EPS (in dollars per share)	$ 0.03	$ 0.00

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Note 4 - Commitments & Contingencies (Details Textual) ft² in Thousands, $ in Thousands	3 Months Ended
	Apr. 02, 2022 USD ($) ft²
Area of Real Estate Property (Square Foot) | ft²	38
Norton Facility [Member]
Operating Lease, Expense	$ 39
Minimum [Member]
Lessee, Operating Lease, Annual Rent Payments	152
Maximum [Member]
Lessee, Operating Lease, Annual Rent Payments	$ 165

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Note 4 - Commitments & Contingencies - Maturity of Capitalized Lease Liabilities (Details) - USD ($)	Apr. 02, 2022	Dec. 25, 2021
2022	$ 122,000
2023	162,000
2024	165,000
2025	165,000
2026	28,000
Total undiscounted operating lease payments	642,000
Less: Imputed interest	(84,000)
Present value of operating lease liability	558,000
Current lease liability	157,000	$ 155,000
Long-term lease liability	401,000	$ 431,000
Total operating lease liability	$ 558,000
Weighted-average remaining lease term for capitalized operating leases (in months) (Month)	47 months
Weighted-average discount rate for capitalized operating leases	6.60%

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Note 5 - Share-based Payments (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Apr. 02, 2022	Mar. 27, 2021
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period (in shares)	72,700	613,800
Share-Based Compensation Arrangements by Share-Based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in dollars per share)	$ 2.08	$ 1.98
Stock Repurchased During Period, Shares (in shares)	840	120,196
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Number, Ending Balance (in shares)	971,600	837,700
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Exercise Price, Ending Balance (in dollars per share)	$ 2.37	$ 1.92
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term (Year)	6 years 8 months 1 day	6 years 8 months 26 days
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)	1,500,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)	941,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Number (in shares)	513,700
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 622
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)	1 year 9 months 14 days
Share-Based Payment Arrangement, Expensed and Capitalized, Amount, Total	$ 124	$ 27
Employees [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)	170,000	200,000
Outside Directors [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)	38,000	0

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Note 6 - Inventories - Inventories (Details) - USD ($)	Apr. 02, 2022	Dec. 25, 2021
Raw materials	$ 2,166,385	$ 2,080,778
Work in process	1,880,465	1,309,572
Finished goods	987,076	805,159
Gross inventory	5,033,926	4,195,509
Reserve for obsolescence	(328,400)	(283,907)
Inventories, net	$ 4,705,526	$ 3,911,602

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Note 7 - Accrued Expenses - Accrued Expenses (Details) - USD ($)	Apr. 02, 2022	Dec. 25, 2021
Accrued legal and accounting	$ 44,724	$ 79,917
Accrued payroll and related expenses	526,128	905,698
Accrued other	146,630	100,814
Total Accrued Expenses	$ 717,482	$ 1,086,429

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Note 8 - Line of Credit (Details Textual) - Massachusetts Business Development Corporation [Member] - Revolving Credit Facility [Member] - USD ($) $ in Thousands		1 Months Ended
	Sep. 30, 2019	May 31, 2021	Apr. 02, 2022	May 31, 2020
Line of Credit Facility, Maximum Borrowing Capacity	$ 2,500			$ 3,000
Debt Instrument, Termination Period (Year)	3 years
Long-term Line of Credit, Total			$ 0
Line of Credit Facility, Remaining Borrowing Capacity			$ 3,000
London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		5.50%

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Note 9 - Note Payable (Details Textual) - USD ($)	1 Months Ended		3 Months Ended
	Jul. 31, 2020	Mar. 31, 2020	Apr. 02, 2022	Dec. 25, 2021
Property, Plant and Equipment, Gross, Ending Balance			$ 12,232,722	$ 12,114,418
Interest Expense, Debt, Total			$ 2,269
Microscope Note Payable [Member]
Debt Instrument, Term (Year)		5 years
Debt Instrument, Periodic Payment, Total		$ 4,000
Debt Instrument, Interest Rate, Stated Percentage		6.47%
Machine Vendor Financing [Member]
Debt Instrument, Term (Year)	2 years
Debt Instrument, Periodic Payment, Total	$ 2,000
Debt Instrument, Interest Rate, Stated Percentage	1.90%
Notes Payable, Total	$ 40,000
Sonoscan Ultrasound Microscope [Member]
Property, Plant and Equipment, Gross, Ending Balance		$ 208,000

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Note 9 - Note Payable - Note Payable Maturities (Details)	Apr. 02, 2022 USD ($)
FY 2022	$ 41,050
FY 2023	43,837
FY 2024	46,757
FY 2025	8,090
Total	$ 139,734

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Note 10 - Income Taxes (Details Textual)	3 Months Ended
	Apr. 02, 2022 USD ($)
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ 125,748