What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-10 · 360 added, 222 removed, 106 unchanged (85% of the section changed)

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORPORATION

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)

(continued on next page)

September 26,

Current assets:

11 unchanged sentences

Net property and equipment

Right-of-use lease asset

Right-of-use lease asset (note 4, leases)

Deferred taxes, net

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)

September 26,

LIABILITIES AND STOCKHOLDERS` EQUITY

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

9 unchanged sentences

Total liabilities

Commitments (note 4)

Stockholders` equity:

Commitments & Contingencies

Stockholders’

Common stock, $0.01 par value,

authorized 20,000,000 shares;

issued 13,716,242 and 13,427,492, respectively;

outstanding 13,296,168 and 13,207,436, respectively;

at September 26, 2020 and December 28, 2019;

issued 14,360,042 and 13,746,242 shares;

outstanding 13,807,394 and 13,313,790 shares;

at March 27, 2021 and December 26, 2020, respectively

Additional paid-in capital

Accumulated deficit

Less cost of 420,074 and 220,056 common shares

repurchased, respectively;

at September 26, 2020 and December 28, 2019

Total stockholders` equity

Total liabilities and stockholders`

Less cost of 552,648 and 432,452 common shares repurchased

at March 27, 2021 and December 26, 2020, respectively

Total stockholders’

Total liabilities and stockholders’

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION

CPS TECHNOLOGIES CORP.

Statements of Operations (Unaudited)

Fiscal Quarters Ended

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

Product sales

3 unchanged sentences

administrative expense

Operating income (loss)

Interest income (expense), net

Income from operations

Other income (expense), net

Net income (loss) before income

Income before taxes

Income tax provision

Net income (loss)

Net income (loss) per

Net income per

basic common share

1 unchanged sentence

basic common shares

Net income (loss) per

Net income per

diluted common share

5 unchanged sentences

EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 26, 2020 AND SEPTEMBER 28, 2019

stockholders’

Balance at June 27,

compensation expense

of common stock

Employee option exercises

at September 26, 2020

FOR THE THREE MONTHS ENDED MARCH 27, 2021 AND MARCH 28, 2020

stockholders’

1 unchanged sentence

Share-based compensation expense

Issuance of common stock

Employee option exercises

Balance at September 26, 2020

stockholders’

Balance at June 29, 2019

Employee options exercises

Balance at March 27, 2021

Balance at December 28, 2019

Share-based compensation expense

Balance at September 28, 2019

stockholders’

at December 29, 2018

compensation expense

of common stock

at September 28, 2019

Balance at March 28, 2020

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION

CPS TECHNOLOGIES CORP.

Statements of Cash Flows (Unaudited)

Month Periods Ended

September 26,

flows from operating activities:

to reconcile net income (loss)

cash provided by (used in) operating activities

& amortization

on sale of property and equipment

receivable-trade

cash provided by (used in) operating

flows from investing activities:

of property and equipment

from sale of property and equipment

cash provided by (used in) investing

flows from financing activities:

borrowings on line of credit

Proceeds from employee stock options

on note payable

cash provided by (used in)

increase (decrease) in cash and cash equivalents

and cash equivalents at beginning of period

and cash equivalents at end of period

disclosures of cash flows information:

paid for income taxes

paid for interest

disclosures of non-cash activity:

exercise of stock options

Issuance of long term debt to finance equipment purchases

accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION

Notes to Financial Statements

Fiscal Quarters Ended

Cash flows from operating activities:

Adjustments to reconcile net income

to cash used in operating activities:

Depreciation and amortization

Share-based compensation

Gain on sale of property and equipment

Accounts receivable-trade

Prepaid expenses and other current assets

Accounts payable

Accrued expenses

Deferred revenue

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Proceeds from sale of property and equipment

Net cash used in investing

Cash flows from financing activities:

Net borrowings on line of credit

Proceeds from exercise of employee stock options

Payments on note payable

Net cash provided by

financing activities

Net decrease in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Supplemental disclosures of cash flows information:

Cash paid for interest

Supplemental disclosures of non-cash activity:

Net exercise of stock options

Issuance of note payable to finance equipment purchase

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Notes to Financial Statement

(1) Nature of Business

1 unchanged sentence

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

CPS also assembles housings and packages for

hybrid circuits.

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.

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.

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

As permitted by the rules of the Securities and Exchange

Commission applicable to quarterly reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally

accepted accounting principles.

The accompanying financial statements are unaudited.

In the opinion of management, the unaudited financial statements of CPS reflect all normal recurring adjustments which are necessary

to present fairly the financial position and results of operations for such periods.

The Company’s balance

sheet at December 28, 2019 has been derived from the audited financial statements at that date, but does not include all of the

information and footnotes required by accounting principles generally accepted in the United States of America for complete financial

For further information,

refer to the financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year

ended December 28, 2019 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and

the Company’s website at www.alsic.com.

The results of operations

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

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

Basic net income (loss) per common share is calculated

by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common

shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted

stock options and stock purchase rights.

Common stock equivalents are excluded from the diluted calculations when a net loss

is incurred as they would be anti-dilutive.

The following table presents the calculation of both basic and diluted

Nine Months Ended

September 26,

September 28,

September 26,

September 28,

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 26, 2020 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

26, 2020 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s

website at www.alsic.com.

The results of operations for interim

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

(3) Net Income 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

Basic EPS Computation:

Net income (loss)

Weighted average

5 unchanged sentences

Dilutive effect of stock options

(4) Commitments & Contingencies

The Company has two real estate leases—one

expiring in February 2021 and one with an 11 month duration expiring December 2020.

The latter is not expected to be renewed and

has not been recorded on the balance sheet in accordance with Accounting Standards Codification (ASC) 842 for leases.

has a few other leases for equipment which are minor in nature and are generally short-term in duration.

None of these have been

The lease expiring in 2021 (the “Norton

facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet.

asset and liability was recognized on December 30, 2018 based on the present value of remaining lease payments over the remaining

lease term using the Company’s incremental borrowing rate at date of adoption.

The Company’s lease agreements do not

contain any material residual value guarantees or material restrictive covenants.

(4) Commitments &

Contingencies

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 March 27, 2021 based on the present value of lease payments over the lease term using the Company’s

incremental borrowing rate at commencement date.

The Company’s lease agreements do not contain any material residual value guarantees

or material restrictive covenants.

Operating Leases

Lease expense for operating leases is recognized

on a straight-line basis over the lease term.

Lease expense is allocated between Cost of Product Sales and Selling, General and

Administrative Expense in the income statement

The following table presents information about

the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of September

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 March 27, 2021

(Dollars in Thousands)

Sept 26, 2020

March 27, 2021

Maturity of capitalized lease liabilities

Lease payments

2020 (remaining)

Total undiscounted operating lease payments

8 unchanged sentences

Weighted-average discount rate for capitalized operating leases

An initial right-of-use asset of $310 thousand

was recognized as a non-cash asset addition with the adoption of the new lease accounting standard on December 30, 2018.

for the amounts included in the present value of operating lease liabilities was $114 thousand during the first nine months of

2020 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $114 thousand during

the first nine months of 2020.

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $38 thousand

during the first quarter of 2021.

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 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

The Company provides an estimate of forfeitures at initial grant date.

Reductions in compensation

expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted

periodically based on actual forfeiture experience.

The company uses the Black-Scholes option pricing model to determine the fair

value of the stock options granted.

There were no stock options granted or issued

under the Plan during the quarters ended September 26, 2020 and September 28, 2019.

During the quarter ended September 26,

2020, 288,250 options were exercised at a weighted average price of $1.53, and 261,355 options expired at a weighted average

price of $1.53.

Also, during the quarter 500 shares were gifted to an employee for completing 20 years of service to

During the quarter ended September 28, 2019, 24,000 options were forfeited and 16,000 options expired.

During the quarter ended September 26, 2020 the

Company repurchased 200,018 shares for employees to facilitate their exercise of stock options.

During the quarter ended September

28, 2019 there were no shares repurchased.

During the three and nine months ended September

26, 2020 the Company recognized approximately $17 thousand and $100 thousand, respectively as share-based compensation expense

related to share and option grants.

These amounts are included as a component of selling, general and administrative expenses

in the statement of operations.

During the three and nine months ended September

28, 2019 the Company recognized approximately $28 thousand and $113 thousand, respectively as share-based compensation expense

related to share and option grants.

These amounts are included as a component of selling, general and administrative expenses in

the statement of operations.

As of September 26, 2020, there was $163 thousand

of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan;

cost is expected to be recognized over a weighted average period of 1.79 years.

There were also 1,286,500 shares outstanding at

a weighted average price of $1.81 with a weighted average remaining term of 5.35 years, and there were 1,022,400 shares exercisable

at a weighted average price of $1.88 with a weighted average remaining term of 4.66 years.

The Plan, as amended, is authorized

to issue 3,000,000 shares of common stock.

As of September 26, 2020, there were 1,392,350 shares available for future grants

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

The company uses the Black-Scholes option pricing model to determine the fair value of the stock options granted.

During the quarters ended March 27, 2021 and March 28,

2020 a total of 200,000 and 59,000 stock options, respectively, were granted to employees under the Company’s 2020 Equity Incentive

Plan (the “Plan”) and a total of 0 and 60,000 stock options, respectively, were granted to outside directors during the quarters

ended March 27, 2021 and March 28, 2020.

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 March 28, 2020 there were no shares exercised or issued.

During the quarter ended March 27, 2021, the Company

repurchased 120,196 shares for employees to facilitate their exercise of stock options.

During the quarter ended March 28, 2020 there were no shares repurchased.

There were also 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, and there were 450,100 shares exercisable

at a weighted average price of $1.74 with a weighted average remaining term of 4.92 years as of March 28, 2020.

The Plan, as amended,

is authorized to issue 1,500,000 shares of common stock.

As of March 27, 2021, there were 1,186,000 shares available for future grants.

As of March 27, 2021, there was $391 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 March 27, 2021 and March 28,

2020, the Company recognized approximately $27 thousand and $66 thousand, respectively, as shared-based compensation expense related to

previously granted shares under the Plan.

(6) Inventories

Inventories consist of the following:

September 26,

Raw materials

1 unchanged sentence

Finished goods

Total inventory

Gross inventory

Reserve for obsolescence

2 unchanged sentences

Accrued expenses consist of the following:

September 26,

Accrued legal and accounting

Accrued payroll

Accrued payroll and related expenses

Accrued other

Total Accrued Expenses

(8) Line of Credit

In September 2019, the Company entered into revolving

line of credit with The Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.

In May of 2020

this credit line was increased to $3.0 million.

The agreement includes a demand note allowing the Lender to call the loan

CPS may terminate the agreement without a termination fee after 3 years.

The LOC is secured by the accounts

receivable and other assets of the Company and has an interest rate of LIBOR plus 650 basis points.

At September 26, 2020 the Company

had $835 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $1.835 million

to have been borrowed.

The line of credit is subject to certain financial

In March 2020, the company acquired a Sonoscan

ultrasound microscope for a price of $208 thousand.

The full amount was financed through a 5 year note payable with Crest

Capital Corporation.

The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand,

consisting of principal plus interest at a rate of 6.47%.

In July 2020 CPS placed into service a piece

of manufacturing equipment which it financed with the machine’s vendor.

The equipment cost of $40 thousand will be

paid at the rate of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%.

The Company’s obligations including

interest at September 26, 2020 consist of the following:

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

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 650 basis points.

On March 27, 2021

the Company had $193 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $2.6

million to have been borrowed.

The line of credit is subject to certain financial covenants,

all of which have been met.

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 2024 and thereafter

Total interest expense on notes payable during 2021

(10) Income Taxes

A valuation allowance against deferred tax assets

is required to be established or maintained when it is "more likely than not"

that all or a portion of deferred tax assets

will not be realized.

In December 2018, the Company established a valuation allowance reserve, as it is judged more likely than

not that all or a portion of its deferred tax assets will not be utilized before they expire.

This decision was reached after giving

greater weight to the Company’s losses in recent years as compared to its forecasts.

No provision for income taxes was provided during

the quarter and nine months ended September 26, 2020, as the Company continues to maintain a full valuation allowance against the

majority of its deferred tax assets and no current tax is forecasted for the year.

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.

The Coronavirus

Aid, Relief and Economic Security Act (“Act”) became law on March 27, 2020.

The Act contains two provisions that provide a

tax benefit to the Company.

The Act suspends the current 80% limitation on the utilization of net operating losses for taxable years beginning

in 2018, 2019 and 2020.

The Act also allows net operating losses arising in 2018, 2019 and 2020 to be carried back five years.

also accelerates the ability of the Company to recover Federal alternative minimum tax credits.

Company recorded a reduction of the valuation allowance

reserve of $8 thousand during the quarter ended March 27, 2021 to account for the utilization of deferred

tax assets to reduce the current tax liability for the quarter ended March 27, 2021.

As a result of the utilization of deferred tax assets,

the Company did not record a provision for income taxes for the quarter ended March 27, 2021.

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 26, 2020

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

www.alsic.com.

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, which is 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 26, 2020, 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 26, 2020.

Products we provide include baseplates for motor controllers used

in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles.

We provide baseplates and housings used in

radar, satellite and avionics applications.

We provide lids and heat spreaders used with high performance integrated circuits for use

in internet switches and routers.

We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like SiC

CPS also assembles housings and packages for hybrid circuits.

These housings and packages may include MMC components;

include components made of more traditional materials such as aluminum, copper-tungsten, etc.

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

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.

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.

costs include the fixed costs of applications engineering, tooling design and fabrication, process engineering, etc.

Accordingly, particularly

given our current size, changes in sales volume generally result in even greater changes in financial performance on a percentage basis

as fixed costs are spread over a larger or smaller base.

Sales volume is therefore a key financial metric used by management.

The Company believes the underlying demand for metal

matrix composites is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs.

believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow.

Our products are manufactured by proprietary processes we have developed

including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM Pressure Infiltration Process

(‘QuickCast Process’).

CPS was incorporated in Massachusetts in 1984 as Ceramics Process

Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for

purposes of the reincorporation.

In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock.

March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies Corporation.

Results of Operations for the First Fiscal Quarter of 2021 (Q1 2021)

Compared to the First Fiscal Quarter of 2020 (Q1 2020);

(all $ in 000’s)

Revenues totaled $4,866 in Q1 2021 compared with $6,512

generated in Q1 2020, a decrease of 25%.

Reduced demand from our largest customer accounted for more than the total decrease in revenues.

In 2020, in anticipation of potential supply disruptions due to the COVID-19 pandemic, this customer accelerated Q2 2020 purchases into

Mid-year 2020, this customer then experienced a significant reduction in their demand due to the COVID-19 pandemic.

Reduced demand

from this customer has been partially offset by increased business from our aerospace customers.

Gross margin in Q1 2021 totaled $944 or 19% of sales.

This compares with gross margin in Q1 2020 of $1,550 or 24% of sales.

While increased manufacturing efficiencies mitigated the reduction

in gross margin, fixed costs which do not vary with decreased sales volumes were the predominate reason for this reduction.

Selling, general and administrative (SG&A) expenses

totaled $908 in Q1 2021 compared with SG&A expenses of $929 in Q1 2020.

The hiring of our new Chief Operating Officer and increased

costs associated with printing and distributing our proxy statement were offset by reduced variable compensation amounts due to a lower

operating profit.

The Company experienced an operating profit of $36 in

Q1 2021 compared with an operating profit of $622 in Q1 2020 as a result of the reduced gross margin.

The Company is part of the Defense Industrial Base and

thus has been open and operating throughout the COVID-19 pandemic.

The COVID-19 pandemic did affect financial results for the quarter

ended March 27, 2021 primarily by causing reductions in demand from certain customers.

The Company believes the worst of the pandemic

is now behind us and expects to show continued improvement in upcoming quarters.

Since the outbreak of the pandemic, the Company has

aggressively implemented CDC guidelines in the workplace to prevent the spread of COVID-19.

For example, the Company has staggered shifts

to eliminate overlap at shift changes, reorganized workstations to ensure social distancing, implemented daily screening of all employees

by taking employees’

temperatures, etc.

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 net cash and cash equivalents at

March 27, 2021 totaled ($25).

(Net cash is defined as cash and cash equivalents less bank borrowings.) This compares to net cash and cash

equivalents at December 26, 2020 of $195.

Payment terms for customers range from payment in advance to 90 days from shipment and are based

on factors such as credit worthiness, volume of business, etc.

The decrease in net cash was due primarily to increased accounts receivable

offset by lesser increases in accounts payable, accrued expenses and deferred revenue.

Accounts receivable at March 27, 2021 totaled $3,778

compared with $2,915 at December 26, 2020.

Days Sales Outstanding (DSO) increased from 62 days at the end of 2020 to 70 days at the end

The increase in DSO was due to higher sales at the end of the quarter compared to the beginning of the quarter.

receivable balances at December 26, 2020, and March 27, 2021 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $3,631 at March 27, 2021 compared

with inventory totaling $3,709 at December 26, 2020.

The inventory turnover in the most recent four quarters ending Q1 2021 was 4.1 times

(based on a 5 point average) compared with 4.5 times averaged during the four quarters of 2020.

The reduction in inventory turnover was

due primarily to raw material purchases for the Company’s armor contract scheduled to begin shipping in Q2 2021.

The Company financed its decrease

in working capital in Q1 2021 from its profit and increased borrowings of $193 from its line of credit with BDC Capital.

The Company expects

it will continue to be able to fund its operations for the remainder of 2021 from existing cash balances and bank borrowings.

The Company continues to sell to a limited number of

customers and the loss of any one of these customers could cause the Company to require additional external financing.

Failure to generate

sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s

ability to achieve its business objectives.

Management believes that a combination of existing cash

balances and borrowings, if necessary, will be sufficient to fund our cash requirements for the foreseeable future.

However, there is

no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational

goals are not met such that we will be able to meet our obligations as they become due.

Contractual Obligations (all $ in 000’s unless otherwise

In September 2019, the Company entered into revolving

line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million.

This agreement was amended

in May 2020 to increase the line to $3.0 million.

The agreement includes a demand note allowing the Lender to call the loan at any time.

The Company may terminate the agreement without a termination fee after 3 years.

The LOC is secured by the accounts receivable and other

assets of the Company and has an interest rate of LIBOR plus 650 basis points .

was in compliance with all debt covenants as of March 27, 2021, had $193 borrowings under this LOC and its borrowing base at the time

would have permitted an additional $2.6 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.

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

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)

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements