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 September 30, 2023
or

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

Commission file number            0-16088

CPS TECHNOLOGIES CORP.

(Exact Name of Registrant as Specified in its Charter)

Delaware (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
Registrants Telephone Number, including Area Code:

CPS Technologies Corp.

111 South Worcester Street

Norton, MA 02766-2102

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, 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 ☒ Smaller reporting company ☒ Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15U.S.C. 7262(b)) by the registered firm that prepared or issued its audit report.

☐ Yes ☒ No

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	CPSH	NASDAQ Capital Markets

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Number of shares of common stock outstanding as of October 20, 2023: 14,519,215.

PART I FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(continued on next page)

	September 30,			December 31,
	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	8,778,856		$	8,266,753
Accounts receivable-trade, net		5,006,451			3,777,975
Accounts receivable-other		17,043			685,668
Inventories, net		4,827,957			4,875,901
Prepaid expenses and other current assets		337,476			211,242
Total current assets		18,967,783			17,817,539
Property and equipment:
Production equipment		11,195,993			10,770,427
Furniture and office equipment		952,883			952,883
Leasehold improvements		985,649			985,649
Total cost		13,134,525			12,708,959
Accumulated depreciation and amortization		(11,810,209	)		(11,446,901	)
Construction in progress		206,693			64,910
Net property and equipment		1,531,009			1,326,968
Right-of-use lease asset		367,000			466,000
Deferred taxes, net		1,645,467			2,069,436
Total assets	$	22,511,259		$	21,679,943

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(concluded)

	September 30,			December 31,
	2023			2022
LIABILITIES AND STOCKHOLDERS` EQUITY
Current liabilities:
Note payable, current portion		57,457			43,711
Accounts payable		2,151,127			1,836,865
Accrued expenses		1,067,293			820,856
Deferred revenue		1,675,086			2,521,128
Lease liability, current portion		159,000			157,000
Total current liabilities		5,109,963			5,379,560
Note payable less current portion		8,655			54,847
Deferred revenue-long term		31,277			231,020
Lease liability less current portion		208,000			309,000
Total liabilities		5,357,895			5,974,427
Commitments (note 4)
Stockholders` equity:
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,601,487 and 14,460,486, respectively; outstanding 14,519,215 and 14,450,470, respectively; at September 30, 2023 and December 31, 2022		146,015			144,605
Additional paid-in capital		40,151,794			39,726,851
Accumulated deficit		(22,894,307	)		(24,125,092	)
Less cost of 82,272 and 10,016 common shares repurchased, respectively; at September 30, 2023 and December 31, 2022		(250,138	)		(40,848	)
Total stockholders` equity		17,153,364			15,705,516
Total liabilities and stockholders` equity	$	22,511,259		$	21,679,943

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Statements of Operations (Unaudited)

	Fiscal Quarters Ended						Nine Months Ended
	September 30,			October 1,			September 30,			October 1,
	2023			2022			2023			2022
Revenues:
Product sales	$	6,285,041		$	6,748,117		$	20,803,447		$	20,471,574
Total Revenues		6,285,041			6,748,117			20,803,447			20,471,574
Cost of product sales		5,049,177			4,864,876			15,126,621			14,796,206
Gross Profit		1,235,864			1,883,241			5,676,826			5,675,368
Selling, general and administrative expense		1,105,227			1,174,581			4,121,099			3,750,131
Operating income		130,637			708,660			1,555,727			1,925,237
Interest income (expense), net		78,181			(1,892	)		176,325			(6,245	)
Other income (expense), net		(1,228	)		645,594			(4,130	)		649,628
Net income before income tax expense		207,590			1,352,362			1,727,922			2,568,620
Income tax provision		36,509			364,497			497,137			706,211
Net income	$	171,081		$	987,865		$	1,230,785		$	1,862,409
Net income per basic common share	$	0.01		$	0.07		$	0.08		$	0.13
Weighted average number of basic common shares outstanding		14,517,364			14,434,468			14,487,873			14,417,995
Net income per diluted common share	$	0.01		$	0.07		$	0.08		$	0.13
Weighted average number of diluted common shares outstanding		14,636,241			14,686,476			14,632,591			14,683,632

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND OCTOBER 1, 2022

	Common Stock
	Number of				Additional								Total
	shares				paid-in		Accumulated			Stock			stockholders'
	issued		Par Value		capital		deficit			repurchased			equity
Balance at July 1, 2023		14,546,487		145,465		39,978,453		(23,065,388	)		(111,938	)		16,946,592
Share-based compensation expense		-		-		27,941		-			-			27,941
Employee option exercises		55,000		550		145,400		-			(138,200	)		7,750
Net income		-		-		-		171,081			-			171,081
Balance at September 30, 2023		14,601,487		146,015		40,151,794		(22,894,307	)		(250,138	)		17,153,364

	Common Stock
	Number of				Additional								Total
	shares				paid-in		Accumulated			Stock			stockholders'
	issued		Par Value		capital		deficit			repurchased			equity
Balance at December 31, 2022		14,460,486	$	144,605	$	39,726,851		(24,125,092	)		(40,848	)		15,705,516
Share-based compensation expense		-		-		175,698		-			-			175,698
Employee options exercised		141,001		1,410		249,245		-			(209,290	)		41,365
Net income		-		-		-		1,230,785			-			1,230,785
Balance at September 30, 2023		14,601,487		146,015		40,151,794		(22,894,307	)		(250,138	)		17,153,364

	Common Stock
	Number of				Additional									Total
	shares				paid-in			Accumulated			Stock			stockholders'
	issued		Par Value		capital			deficit			repurchased			equity
Balance at July 2, 2022		14,438,786	$	144,388	$	39,600,085			(25,381,948	)		(20,849	)		14,341,676
Share-based compensation expense		-		-		43,422			-			-			43,422
Issuance of common stock (net of costs)		-		-		(23,135	)		-			-			(23,135
Employee option exercises		-		-		-						-			-
Net income									987,865			-			987,865
Balance at October 1, 2022		14,438,786		144,388		39,620,372			(24,394,083	)		(20,849	)		15,349,828

	Common Stock
	Number of				Additional									Total
	shares				paid-in			Accumulated			Stock			stockholders'
	issued		Par Value		capital			deficit			repurchased			equity
Balance at December 25, 2021		14,350,786	$	143,508	$	39,281,810			(26,256,492	)		(2,515	)		13,166,311
Share-based compensation expense		-		-		207,277			-			-			207,277
Issuance of common stock (net of costs)		-		-		(40,893	)		-			-			(40,893	)
Employee options exercised		88,000		880		172,178						(18,334	)		154,724
Treasury shares retired		-		-		-			-			-			-
Net income									1,862,409			-			1,862,409
Balance at October 1, 2022		14,438,786		144,388		39,620,372			(24,394,083	)		(20,849	)		15,349,828

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Statements of Cash Flows (Unaudited)

	Nine Month Periods Ended
	September 30,			October 1,
	2023			2022
Cash flows from operating activities:
Net income	$	1,230,785		$	1,862,409
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization		363,308			316,469
Share-based compensation		175,698			207,277
Deferred taxes		423,969			705,755
Changes in:
Accounts receivable-trade		(1,228,476	)		(965,717	)
Accounts receivable-other		668,625			-
Inventories		47,944			(956,948	)
Prepaid expenses		(126,234	)		(20,807	)
Accounts payable		314,262			(55,394
Deferred revenue		(1,045,785	)		-
Accrued expenses		246,437			(220,891	)
Net cash provided by operating activities		1,070,533			872,153
Cash flows from investing activities:
Purchases of property and equipment		(567,349	)		(392,286	)
Net cash provided by (used in) investing activities		(567,349	)		(392,286	)
Cash flows from financing activities:
Proceeds from employee stock options		41,365			154,724
Stock issuance costs in excess of proceeds		-			(40,893	)
Payments on note payable		(32,446	)		(45,507	)
Net cash provided by financing activities		8,918			68,324
Net increase in cash and cash equivalents		512,103			548,191
Cash and cash equivalents at beginning of period		8,266,753			5,050,312
Cash and cash equivalents at end of period	$	8,778,856		$	5,598,503
Supplemental disclosures of cash flows information:
Cash paid for income taxes	$	109,456		$	456
Cash paid for interest		4,130			6,243
Supplemental disclosures of non-cash activity:
Share repurchases as a reduction of stock option exercise proceeds		209,290			18,334

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Notes to Financial Statements
(Unaudited)

(1)          Nature of Business

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

CPS also assembles housings and packages for hybrid circuits. These housings and packages 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 ballistic threat levels.

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

(2)        Summary of Significant Accounting Policies

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

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

The Company’s balance sheet at December 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.cpstechnologysolutions.com.

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

(3)         Net Income Per Common and Common Equivalent Share

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

 

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

	Three Months Ended				Nine Months Ended
	September 30,		October 1,		September 30,		October 1,
	2023		2022		2023		2022
Basic EPS Computation:
Numerator:
Net income	$	171,081	$	987,865	$	1,230,785	$	1,862,409
Denominator:
Weighted average Common shares Outstanding		14,517,364		14,434,468		14,487,873		14,417,995
Basic EPS	$	0.01	$	0.07	$	0.08	$	0.13
Diluted EPS Computation:
Numerator:
Net income	$	171,081	$	987,865	$	1,230,785	$	1,862,409
Denominator:
Weighted average Common shares Outstanding		14,517,364		14,434,468		14,487,873		14,417,995
Dilutive effect of stock options		118,877		252,008		144,718		265,637
Total Shares		14,636,241		14,686,476		14,632,591		14,683,632
Diluted EPS	$	0.01	$	0.07	$	0.08	$	0.13

(4)   Commitments & Contingencies

Commitments

Operating Leases

The Company has one real estate lease expiring in February 2026. CPS also has a few operating leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases has 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 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately 38 thousand square feet. The lease is triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities. The Company also has an option to renew the lease starting in March 2026 through February 2032. Annual rental payments range from $160 thousand to $165 thousand through maturity.

 

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s facility lease as of September 30, 2023.

(Dollars in Thousands)
Maturity of capitalized lease liabilities	Lease payments
2023		41
2024		165
2025		165
2026		27
Total undiscounted operating lease payments	$	398
Less: Imputed interest		(31	)
Present value of operating lease liability	$	367
Balance Sheet Classification
Current lease liability	$	159
Long-term lease liability		208
Total operating lease liability	$	367
Other Information
Remaining lease term for capitalized operating leases (in months)		29
Discount rate		6.6	%

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $41 thousand during the third quarter of 2023 and $122 thousand for the nine months ended September 30, 2023. These costs are related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

(5)   Share-Based Payments

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

During the quarter ended September 30, 2023 there were 229,500 stock options granted under the Plan. There were 25,000 stock options granted under the Plan during the quarter ended October 1 2022.

 

During the quarter ended September 30, 2023, 55,000 options were exercised at a weighted average cost of $2.65 per share. During the quarter ended September 30, 2023, 27,400 options were forfeited and none expired. During the quarter ended October 1, 2022, no options were exercised, 10,000 options were forfeited and none expired.

During the quarter ended September 30, 2023, the Company repurchased 138,200 shares for employees to facilitate their exercise of stock options. During the quarter ended October 1, 2022, the Company did not repurchase any shares for employees to facilitate their exercise of stock options.

There were also 901,900 shares outstanding at a weighted average price of $2.67 with a weighted average remaining term of 6.7 years as of September 30, 2023, and there were 497,000 shares exercisable at a weighted average price of $2.43 with a weighted average remaining term of 4.8 years as of September 30, 2023. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of September 30, 2023, there were 834,300 shares available for future grants.

During the three and nine months ended September 30, 2023, the Company recognized approximately $28 thousand and $176 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 October 1, 2022, the Company recognized approximately $43 thousand and $207 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.

(6)   Inventories

Inventories consist of the following:

	September 30,			December 31,
	2023			2022
Raw materials	$	2,781,188		$	2,645,442
Work in process		1,512,835			1,863,512
Finished goods		729,359			525,872
Total inventory		5,023,382			5,034,826
Reserve for obsolescence		(195,425	)		(158,925	)
Inventories, net	$	4,827,957		$	4,875,901

  

(7)   Accrued Expenses

Accrued expenses consist of the following:

	September 30,		December 31,
	2023		2022
Accrued legal and accounting	$	69,189	$	35,398
Accrued payroll		795,952		760,305
Accrued other		202,152		25,153
	$	1,067,293	$	820,856

(8)   Line of Credit

In May 2023, the Company terminated its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $3.0 million was entered into with Rockland Trust Company. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal. On September 30, 2023, the Company had $0 of borrowings under this LOC and its borrowing base at the time would have permitted an additional $3.0 million to have been borrowed.  The LOC remains in effect until terminated per mutual agreement by both parties.

(9)   Note Payable         

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

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

Year	Payments due by period
2023 (remaining)	$	11,265
2024	$	46,757
2025	$	8,090
Total		66,112

Total interest expense on notes payable during 2023 was $4,130.

  

(10)   Income Taxes

The Company’s current income tax expense and deferred income tax expense are $73 and $424, respectively, for the nine months ended September 30, 2023. The Company’s current income tax expense and deferred income tax expense are $18 and $19, respectively, for the three months ended September 30, 2023.

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 31, 2022 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.cpstechnologysolutions.com.

Forward-Looking Statements

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

Critical Accounting Policies

The critical accounting estimates utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 31, 2022.

Overview

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

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

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

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

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

Results of Operations for the Third Fiscal Quarter of 2023 (Q3 2023) Compared to the Third Fiscal Quarter of 2022 (Q3 2022); (all $ in 000s)

Total revenue was $6,285 in Q3 2023, a 7% decrease compared with total revenue of $6,748 in Q3 2022. This decrease was due primarily to customers moving expected Q3 shipments into Q4. The bulk of the deferrals of these shipments was in armor which did not affect production as we built up our finished goods armor inventory for the Q4 shipments.

Gross profit in Q3 2023 totaled $1,236 or 20% of sales. In Q3 2022, gross profit was $1,883 or 28% of sales. This decrease in profit directly correlates to the decreased revenue and the impact increased revenue has on fixed manufacturing costs. In addition, we are replacing a piece of testing equipment and in the interim are outsourcing the testing, resulting in higher costs.

Selling, general and administrative expenses (SG&A) were $1,105 in Q3 2023, down 6% when compared with SG&A expenses of $1,175 in Q3 2022. This decrease was primarily due to decreased variable compensation in Q3 as a result of the Company’s decreased revenue.

In Q3 2023, the Company incurred interest expense of $1 due to equipment financing. This compares with interest expense of $2 in Q3 of 2022.

The Company generated operating income of $131 compared with operating income of $709 in the same quarter last year. This decrease in operating income is due to the reduction in gross profit, discussed above. The net income for Q3 2023 totaled $171 versus net income of $988 in Q3 2022. This differential in net income is due to the decrease in operating income, discussed above, as well as the Employee Retention Tax Credit ("ERTC") in 2022 which was claimed and recognized in 2022. 

Results of Operations for the First Nine Months of 2023 Compared to the First Nine Months of 2022 (all $ in 000s)

Total revenue was $20,803 in the first nine months of 2023, a 2% increase compared with total revenue of $20,472 in the first nine months of 2022. A reduction in shipments of hermetic packages was more than offset by an increase in MMC shipments.

Gross margin in the first nine months of 2023 totaled $5,677 or 27% of sales. In the first nine months of 2022 gross margin totaled $5,675 or 28% of sales.

Selling, general and administrative (SG&A) expenses were $4,121 during the first nine months of 2023, up 10% compared with SG&A expenses of $3,750 in the first nine months of 2022. There were three major reasons for this increase. First there was a significant increase in travel expenses. In 2022 we were just beginning to come out of the Covid-19 pandemic. Many conferences continued to be virtual and many customers continued to prohibit outside visitors. In 2023 this has changed, thus our business development team, in particular, have been doing significantly more travel than a year ago. Secondly, the Company increased its 401k matching formula in 2023 resulting in increased payroll costs. Lastly, the Company accrued severance to a long-time employee whose service with the Company was terminated.

During the first nine months of 2023, the Company incurred interest expense of $4 on its notes payable. This compares with interest expense of $6 incurred during the first nine months of 2022.

In the first nine months of 2023, the Company generated operating income of $1,556 compared with operating income of $1,925 in the same period last year. This difference is primarily due to the increased SG&A discussed above. The net income for the first nine months of 2023 totaled $1,231 versus net income of $1,862 in the first nine months of 2022. As mentioned above, the ERTC which was recognized in 2022, accounted for this difference.

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

The Company’s cash and cash equivalents at September 30, 2023 totaled $8,779. This compares to cash and cash equivalents at December 31, 2022 of $8,267. The increase in cash was primarily due to our net profit, offset by increased accounts receivable to support higher sales.

Accounts receivable at September 30, 2023 totaled $5,023 compared with $4,464 at December 31, 2022. The 2022 total includes $641 receivable for the ERTC.

Days Sales Outstanding (DSO) increased from 52 days at the end of 2022 to 72 days at the end of Q3 2023, based on trade receivables. This change was due to the reduction of deferred revenue occurring in the 4th quarter of 2022. Prepayments received in 2021 were used to pay for shipments shipped in the 4th quarter thus immediately reducing accounts receivable, rather than the customer paying 30-45 days later.  The accounts receivable balances at September 30, 2023, and December 31, 2022 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $4,828 at September 30, 2023 compared with inventory totaling $4,876 at December 31, 2022. The inventory turnover in the most recent four quarters ending Q3 2023 was 4.1 times, slightly down from 4.2 times averaged during the four quarters of 2022 (based on a 5 point average).

The Company financed its working capital during the first nine months of 2023 from its net profit during the period. The Company expects it will continue to be able to fund its working capital requirements for the remainder of 2023 from existing cash balances.

Although the Company’s customer base is expanding, the Company continues to sell to a limited number of customers and the loss of any one of these customers could have significant negative consequences on future results. Although the Company is in a good cash position today, failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its business objectives.

Contractual Obligations

In May 2023, the Company terminated its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $3.0 million was entered into with Rockland Trust Company. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal. On September 30, 2023, the Company had $0 of borrowings under this LOC and its borrowing base at the time would have permitted an additional $3.0 million to have been borrowed.  The LOC remains in effect until terminated per mutual agreement by both parties.

In March 2020, the 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%

The Company has one real estate lease expiring in February 2026. CPS also has a few 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.

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 2020 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

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

(b)          Reports on Form 8-K

None

SIGNATURES

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

CPS TECHNOLOGIES CORP.
(Registrant)

Date: November 3, 2023

/s/ Brian T. Mackey

Brian T. Mackey
Chief Executive Officer

Date: November 3, 2023

/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, Brian T. Mackey, 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 3, 2023
/s/ Brian T. Mackey
Brian T. Mackey
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: November 3, 2023
/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 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Brian T. Mackey, 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 3, 2023
/s/ Brian T. Mackey
Brian T. Mackey
President and Chief Executive Officer

Date: November 3, 2023
/s/ Charles K. Griffith Jr.
Charles K. Griffith Jr.
Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Oct. 20, 2023
Document Information [Line Items]
Entity Central Index Key	0000814676
Entity Registrant Name	CPS TECHNOLOGIES CORP/DE/
Amendment Flag	false
Current Fiscal Year End Date	--12-30
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
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		14,519,215

XML

Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Current assets:
Cash and cash equivalents	$ 8,778,856	$ 8,266,753
Accounts receivable-trade, net	5,006,451	3,777,975
Accounts receivable-other	17,043	685,668
Inventories, net	4,827,957	4,875,901
Prepaid expenses and other current assets	337,476	211,242
Total current assets	18,967,783	17,817,539
Property and equipment:
Production equipment	11,195,993	10,770,427
Furniture and office equipment	952,883	952,883
Leasehold improvements	985,649	985,649
Total cost	13,134,525	12,708,959
Accumulated depreciation and amortization	(11,810,209)	(11,446,901)
Construction in progress	206,693	64,910
Net property and equipment	1,531,009	1,326,968
Right-of-use lease asset	367,000	466,000
Deferred taxes, net	1,645,467	2,069,436
Total assets	$ 22,511,259	$ 21,679,943

XML

Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
LIABILITIES AND STOCKHOLDERS` EQUITY
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,601,487 and 14,460,486, respectively; outstanding 14,519,215 and 14,450,470, respectively; at September 30, 2023 and December 31, 2022	$ 146,015	$ 144,605
Additional paid-in capital	40,151,794	39,726,851
Accumulated deficit	(22,894,307)	(24,125,092)
Less cost of 82,272 and 10,016 common shares repurchased, respectively; at September 30, 2023 and December 31, 2022	(250,138)	(40,848)
Total stockholders` equity	17,153,364	15,705,516
Total liabilities and stockholders` equity	22,511,259	21,679,943
Current liabilities:
Note payable, current portion	57,457	43,711
Accounts payable	2,151,127	1,836,865
Accrued expenses	1,067,293	820,856
Deferred revenue	1,675,086	2,521,128
Lease liability, current portion	159,000	157,000
Total current liabilities	5,109,963	5,379,560
Note payable less current portion	8,655	54,847
Deferred revenue-long term	31,277	231,020
Lease liability less current portion	208,000	309,000
Total liabilities	5,357,895	5,974,427
Commitments (note 4)

XML

Balance Sheets (Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2023	Dec. 31, 2022
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)	14,601,487	14,460,486
Common stock, outstanding shares (in shares)	14,519,215	14,450,470
Treasury stock, shares (in shares)	82,272	10,016

XML

Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Oct. 01, 2022	Sep. 30, 2023	Oct. 01, 2022
Revenues:
Product sales	$ 6,285,041	$ 6,748,117	$ 20,803,447	$ 20,471,574
Total Revenues	6,285,041	6,748,117	20,803,447	20,471,574
Cost of product sales	5,049,177	4,864,876	15,126,621	14,796,206
Gross Profit	1,235,864	1,883,241	5,676,826	5,675,368
Selling, general and administrative expense	1,105,227	1,174,581	4,121,099	3,750,131
Operating income	130,637	708,660	1,555,727	1,925,237
Interest income (expense), net	78,181	(1,892)	176,325	(6,245)
Other income (expense), net	(1,228)	645,594	(4,130)	649,628
Net income before income tax expense	207,590	1,352,362	1,727,922	2,568,620
Income tax provision	36,509	364,497	497,137	706,211
Net income	$ 171,081	$ 987,865	$ 1,230,785	$ 1,862,409
Net income per basic common share (in dollars per share)	$ 0.01	$ 0.07	$ 0.08	$ 0.13
Weighted average number of basic common shares outstanding (in shares)	14,517,364	14,434,468	14,487,873	14,417,995
Net income per diluted common share (in dollars per share)	$ 0.01	$ 0.07	$ 0.08	$ 0.13
Weighted average number of diluted common shares outstanding (in shares)	14,636,241	14,686,476	14,632,591	14,683,632

XML

Statements of Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock, Common [Member]	Total
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		207,277			207,277
Employee option exercises (in shares)	88,000
Employee option exercises	$ 880	172,178		(18,334)	154,724
Net income			1,862,409		1,862,409
Issuance of common stock (net of costs)		(40,893)			(40,893)
Balance (in shares) at Oct. 01, 2022	14,438,786
Balance at Oct. 01, 2022	$ 144,388	39,620,372	(24,394,083)	(20,849)	15,349,828
Balance (in shares) at Jul. 02, 2022	14,438,786
Balance at Jul. 02, 2022	$ 144,388	39,600,085	(25,381,948)	(20,849)	14,341,676
Share-based compensation expense		43,422			$ 43,422
Employee option exercises (in shares)	0				0
Employee option exercises	$ 0	0		0	$ 0
Net income			987,865		987,865
Issuance of common stock (net of costs)		(23,135)			(23,135)
Balance (in shares) at Oct. 01, 2022	14,438,786
Balance at Oct. 01, 2022	$ 144,388	39,620,372	(24,394,083)	(20,849)	15,349,828
Balance (in shares) at Dec. 31, 2022	14,460,486
Balance at Dec. 31, 2022	$ 144,605	39,726,851	(24,125,092)	(40,848)	15,705,516
Share-based compensation expense		175,698			175,698
Employee option exercises (in shares)	141,001
Employee option exercises	$ 1,410	249,245		(209,290)	41,365
Net income			1,230,785		1,230,785
Balance (in shares) at Sep. 30, 2023	14,601,487
Balance at Sep. 30, 2023	$ 146,015	40,151,794	(22,894,307)	(250,138)	17,153,364
Balance (in shares) at Jul. 01, 2023	14,546,487
Balance at Jul. 01, 2023	$ 145,465	39,978,453	(23,065,388)	(111,938)	16,946,592
Share-based compensation expense		27,941			$ 27,941
Employee option exercises (in shares)	55,000				55,000
Employee option exercises	$ 550	145,400		(138,200)	$ 7,750
Net income			171,081		171,081
Balance (in shares) at Sep. 30, 2023	14,601,487
Balance at Sep. 30, 2023	$ 146,015	$ 40,151,794	$ (22,894,307)	$ (250,138)	$ 17,153,364

XML

Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2023	Oct. 01, 2022
Cash flows from operating activities:
Net income	$ 1,230,785	$ 1,862,409
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization	363,308	316,469
Share-based compensation	175,698	207,277
Deferred taxes	423,969	705,755
Changes in:
Accounts receivable-trade	(1,228,476)	(965,717)
Accounts receivable-other	668,625
Inventories	47,944	(956,948)
Prepaid expenses	(126,234)	(20,807)
Accounts payable	314,262	(55,394)
Deferred revenue	(1,045,785)
Accrued expenses	246,437	(220,891)
Net cash provided by operating activities	1,070,533	872,153
Cash flows from investing activities:
Purchases of property and equipment	(567,349)	(392,286)
Net cash provided by (used in) investing activities	(567,349)	(392,286)
Cash flows from financing activities:
Proceeds from employee stock options	41,365	154,724
Stock issuance costs in excess of proceeds	0	(40,893)
Payments on note payable	(32,446)	(45,507)
Net cash provided by financing activities	8,918	68,324
Net increase in cash and cash equivalents	512,103	548,191
Cash and cash equivalents at beginning of period	8,266,753	5,050,312
Cash and cash equivalents at end of period	8,778,856	5,598,503
Supplemental disclosures of cash flows information:
Cash paid for income taxes	109,456	456
Cash paid for interest	4,130	6,243
Supplemental disclosures of non-cash activity:
Share repurchases as a reduction of stock option exercise proceeds	$ 209,290	$ 18,334

XML

Note 1 - Nature of Business

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

(1)          Nature of Business

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

CPS also assembles housings and packages for hybrid circuits. These housings and packages 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 ballistic threat levels.

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

XML

Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2023

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 31, 2022 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.cpstechnologysolutions.com.

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

XML

Note 3 - Net Income Per Common and Common Equivalent Share

9 Months Ended

Sep. 30, 2023

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				Nine Months Ended
	September 30,		October 1,		September 30,		October 1,
	2023		2022		2023		2022
Basic EPS Computation:
Numerator:
Net income	$	171,081	$	987,865	$	1,230,785	$	1,862,409
Denominator:
Weighted average Common shares Outstanding		14,517,364		14,434,468		14,487,873		14,417,995
Basic EPS	$	0.01	$	0.07	$	0.08	$	0.13
Diluted EPS Computation:
Numerator:
Net income	$	171,081	$	987,865	$	1,230,785	$	1,862,409
Denominator:
Weighted average Common shares Outstanding		14,517,364		14,434,468		14,487,873		14,417,995
Dilutive effect of stock options		118,877		252,008		144,718		265,637
Total Shares		14,636,241		14,686,476		14,632,591		14,683,632
Diluted EPS	$	0.01	$	0.07	$	0.08	$	0.13

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Note 4 - Commitments & Contingencies

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

(4)   Commitments & Contingencies

Commitments

Operating Leases

The Company has one real estate lease expiring in February 2026. CPS also has a few operating leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases has 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 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately 38 thousand square feet. The lease is triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities. The Company also has an option to renew the lease starting in March 2026 through February 2032. Annual rental payments range from $160 thousand to $165 thousand through maturity.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s facility lease as of September 30, 2023.

(Dollars in Thousands)
Maturity of capitalized lease liabilities	Lease payments
2023		41
2024		165
2025		165
2026		27
Total undiscounted operating lease payments	$	398
Less: Imputed interest		(31	)
Present value of operating lease liability	$	367
Balance Sheet Classification
Current lease liability	$	159
Long-term lease liability		208
Total operating lease liability	$	367
Other Information
Remaining lease term for capitalized operating leases (in months)		29
Discount rate		6.6	%

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $41 thousand during the third quarter of 2023 and $122 thousand for the nine months ended September 30, 2023. These costs are related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

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Note 5 - Share-based Payments

9 Months Ended

Sep. 30, 2023

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 quarter ended September 30, 2023 there were 229,500 stock options granted under the Plan. There were 25,000 stock options granted under the Plan during the quarter ended October 1 2022.

During the quarter ended September 30, 2023, 55,000 options were exercised at a weighted average cost of $2.65 per share. During the quarter ended September 30, 2023, 27,400 options were forfeited and none expired. During the quarter ended October 1, 2022, no options were exercised, 10,000 options were forfeited and none expired.

During the quarter ended September 30, 2023, the Company repurchased 138,200 shares for employees to facilitate their exercise of stock options. During the quarter ended October 1, 2022, the Company did not repurchase any shares for employees to facilitate their exercise of stock options.

There were also 901,900 shares outstanding at a weighted average price of $2.67 with a weighted average remaining term of 6.7 years as of September 30, 2023, and there were 497,000 shares exercisable at a weighted average price of $2.43 with a weighted average remaining term of 4.8 years as of September 30, 2023. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of September 30, 2023, there were 834,300 shares available for future grants.

During the three and nine months ended September 30, 2023, the Company recognized approximately $28 thousand and $176 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 October 1, 2022, the Company recognized approximately $43 thousand and $207 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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Note 6 - Inventories

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Inventory Disclosure [Text Block]

(6)   Inventories

Inventories consist of the following:

	September 30,			December 31,
	2023			2022
Raw materials	$	2,781,188		$	2,645,442
Work in process		1,512,835			1,863,512
Finished goods		729,359			525,872
Total inventory		5,023,382			5,034,826
Reserve for obsolescence		(195,425	)		(158,925	)
Inventories, net	$	4,827,957		$	4,875,901

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Note 7 - Accrued Expenses

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

(7)   Accrued Expenses

Accrued expenses consist of the following:

	September 30,		December 31,
	2023		2022
Accrued legal and accounting	$	69,189	$	35,398
Accrued payroll		795,952		760,305
Accrued other		202,152		25,153
	$	1,067,293	$	820,856

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Note 8 - Line of Credit

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Debt Disclosure [Text Block]

(8)   Line of Credit

In May 2023, the Company terminated its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $3.0 million was entered into with Rockland Trust Company. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal. On September 30, 2023, the Company had $0 of borrowings under this LOC and its borrowing base at the time would have permitted an additional $3.0 million to have been borrowed.  The LOC remains in effect until terminated per mutual agreement by both parties.

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Note 9 - Notes Payable

9 Months Ended

Sep. 30, 2023

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 fixed rate of 6.47%.

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

Year	Payments due by period
2023 (remaining)	$	11,265
2024	$	46,757
2025	$	8,090
Total		66,112

Total interest expense on notes payable during 2023 was $4,130.

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Note 10 - Income Taxes

9 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Income Tax Disclosure [Text Block]

(10)   Income Taxes

The Company’s current income tax expense and deferred income tax expense are $73 and $424, respectively, for the nine months ended September 30, 2023. The Company’s current income tax expense and deferred income tax expense are $18 and $19, respectively, for the three months ended September 30, 2023.

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

9 Months Ended

Sep. 30, 2023

Notes Tables

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

	Three Months Ended				Nine Months Ended
	September 30,		October 1,		September 30,		October 1,
	2023		2022		2023		2022
Basic EPS Computation:
Numerator:
Net income	$	171,081	$	987,865	$	1,230,785	$	1,862,409
Denominator:
Weighted average Common shares Outstanding		14,517,364		14,434,468		14,487,873		14,417,995
Basic EPS	$	0.01	$	0.07	$	0.08	$	0.13
Diluted EPS Computation:
Numerator:
Net income	$	171,081	$	987,865	$	1,230,785	$	1,862,409
Denominator:
Weighted average Common shares Outstanding		14,517,364		14,434,468		14,487,873		14,417,995
Dilutive effect of stock options		118,877		252,008		144,718		265,637
Total Shares		14,636,241		14,686,476		14,632,591		14,683,632
Diluted EPS	$	0.01	$	0.07	$	0.08	$	0.13

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Note 4 - Commitments & Contingencies (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Lessee, Operating Lease, Liability, to be Paid, Maturity [Table Text Block]

(Dollars in Thousands)
Maturity of capitalized lease liabilities	Lease payments
2023		41
2024		165
2025		165
2026		27
Total undiscounted operating lease payments	$	398
Less: Imputed interest		(31	)
Present value of operating lease liability	$	367
Balance Sheet Classification
Current lease liability	$	159
Long-term lease liability		208
Total operating lease liability	$	367
Other Information
Remaining lease term for capitalized operating leases (in months)		29
Discount rate		6.6	%

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Note 6 - Inventories (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30,			December 31,
	2023			2022
Raw materials	$	2,781,188		$	2,645,442
Work in process		1,512,835			1,863,512
Finished goods		729,359			525,872
Total inventory		5,023,382			5,034,826
Reserve for obsolescence		(195,425	)		(158,925	)
Inventories, net	$	4,827,957		$	4,875,901

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Note 7 - Accrued Expenses (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	September 30,		December 31,
	2023		2022
Accrued legal and accounting	$	69,189	$	35,398
Accrued payroll		795,952		760,305
Accrued other		202,152		25,153
	$	1,067,293	$	820,856

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Note 9 - Notes Payable (Tables)

9 Months Ended

Sep. 30, 2023

Notes Tables

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

Year	Payments due by period
2023 (remaining)	$	11,265
2024	$	46,757
2025	$	8,090
Total		66,112

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Note 3 - Net Income (Loss) Per Common and Common Equivalent Share - Table of Both Basic and Diluted EPS (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Oct. 01, 2022	Sep. 30, 2023	Oct. 01, 2022
Basic EPS Computation:
Net income	$ 171,081	$ 987,865	$ 1,230,785	$ 1,862,409
Weighted average number of basic common shares outstanding (in shares)	14,517,364	14,434,468	14,487,873	14,417,995
Basic EPS (in dollars per share)	$ 0.01	$ 0.07	$ 0.08	$ 0.13
Diluted EPS Computation:
Net income	$ 171,081	$ 987,865	$ 1,230,785	$ 1,862,409
Weighted average number of basic common shares outstanding (in shares)	14,517,364	14,434,468	14,487,873	14,417,995
Dilutive effect of stock options (in shares)	118,877	252,008	144,718	265,637
Total Shares (in shares)	14,636,241	14,686,476	14,632,591	14,683,632
Diluted EPS (in dollars per share)	$ 0.01	$ 0.07	$ 0.08	$ 0.13

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Note 4 - Commitments & Contingencies (Details Textual) ft² in Thousands, $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2023 USD ($) ft²	Sep. 30, 2023 USD ($) ft²
Area of Real Estate Property (Square Foot) | ft²	38	38
Norton Facility [Member]
Operating Lease, Expense	$ 41	$ 122
Minimum [Member]
Lessee, Operating Lease, Annual Rent Payments		160
Maximum [Member]
Lessee, Operating Lease, Annual Rent Payments		$ 165

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Note 4 - Commitments & Contingencies - Maturity of Capitalized Lease Liabilities (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
2023	$ 41,000
2024	165,000
2025	165,000
2026	27,000
Total undiscounted operating lease payments	398,000
Less: Imputed interest	(31,000)
Present value of operating lease liability	367,000
Lease liability, current portion	159,000	$ 157,000
Lease liability less current portion	208,000	$ 309,000
Total operating lease liability	$ 367,000
Remaining lease term for capitalized operating leases (in months) (Year)	29 years
Discount rate	6.60%

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Note 5 - Share-based Payments (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Oct. 01, 2022	Sep. 30, 2023	Oct. 01, 2022
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercises in Period (in shares)	55,000	0
Share-Based Compensation Arrangements by Share-Based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price (in dollars per share)	$ 2.65
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Forfeitures in Period (in shares)	27,400	10,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Expirations in Period (in shares)	0	0
Stock Repurchased During Period, Shares (in shares)	138,200	0
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Number (in shares)	901,900		901,900
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Exercise Price (in dollars per share)	$ 2.67		$ 2.67
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Remaining Contractual Term (Year)	6 years 8 months 12 days
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Number (in shares)	497,000		497,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Weighted Average Exercise Price (in dollars per share)	$ 2.43		$ 2.43
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Weighted Average Remaining Contractual Term (Year)	4 years 9 months 18 days
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized (in shares)	1,500,000		1,500,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant (in shares)	834,300		834,300
Share-Based Payment Arrangement, Expensed and Capitalized, Amount	$ 28	$ 43	$ 176	$ 207
Equity Incentive Plan Stock Incentive Plan [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross (in shares)	229,500	25,000

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Note 6 - Inventories - Inventories (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Raw materials	$ 2,781,188	$ 2,645,442
Work in process	1,512,835	1,863,512
Finished goods	729,359	525,872
Total inventory	5,023,382	5,034,826
Reserve for obsolescence	(195,425)	(158,925)
Inventories, net	$ 4,827,957	$ 4,875,901

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Note 7 - Accrued Expenses - Accrued Expenses (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
Accrued legal and accounting	$ 69,189	$ 35,398
Accrued payroll	795,952	760,305
Accrued other	202,152	25,153
Accounts Payable and Accrued Liabilities, Current	$ 1,067,293	$ 820,856

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Note 8 - Line of Credit (Details Textual) - Revolving Credit Facility [Member] - USD ($) $ in Thousands	Jul. 01, 2023	May 01, 2023	May 31, 2020
Massachusetts Business Development Corporation [Member]
Line of Credit Facility, Maximum Borrowing Capacity			$ 3,000
Long-term Line of Credit, Total	$ 0
Line of Credit Facility, Remaining Borrowing Capacity	$ 3,000
Rockland Trust Company [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 3,000

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Note 9 - Notes Payable (Details Textual) - USD ($)	1 Months Ended	9 Months Ended
	Mar. 31, 2020	Sep. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment, Gross, Ending Balance		$ 13,134,525	$ 12,708,959
Interest Expense, Debt		$ 4,130
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%
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)	Sep. 30, 2023 USD ($)
2023 (remaining)	$ 11,265
2024	46,757
2025	8,090
Total	$ 66,112

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Note 10 - Income Taxes (Details Textual) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2023
Current Income Tax Expense (Benefit)	$ 18	$ 73
Deferred Income Tax Expense (Benefit)	$ 19	$ 424