What changed in this filing

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Item 1. Financial Statements

2021-08-13 compared with 2021-05-11 · 254 added, 186 removed, 280 unchanged (61% of the section changed)

15 unchanged sentences

Net property and equipment

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

Right-of-use lease asset

Deferred taxes, net

2 unchanged sentences

Balance Sheets (Unaudited)

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS` EQUITY

Current liabilities:

Borrowings against line of credit

Note payable, current portion

7 unchanged sentences

Total liabilities

Commitments & Contingencies

Stockholders’

Commitments and contingencies (note 4)

Stockholders` equity:

Common stock, $0.01 par value,

authorized 20,000,000 shares;

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

issued 14,300,771 and 13,746,242;

outstanding 14,300,548 and 13,313,790;

at June 26, 2021 and December 26, 2020;

Additional paid-in capital

1 unchanged sentence

Less cost of 223 and 432,452 common shares repurchased

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

Total stockholders’

Total liabilities and stockholders’

at June 26, 2021 and December 26, 2020

Total stockholders` equity

Total liabilities and stockholders`

See accompanying notes to financial statements.

1 unchanged sentence

Statements of Operations (Unaudited)

Fiscal Quarters Ended

Three Months Ended

Six Months Ended

Product sales

4 unchanged sentences

Income from operations

Other income (expense), net

Income before taxes

Interest income (expense), net

Net income before

Income tax provision

8 unchanged sentences

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORPORATION

CPS TECHNOLOGIES CORP.

STATEMENTS OF STOCKHOLDERS’

EQUITY (UNAUDITED)

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

stockholders’

FOR THE THREE AND SIX MONTHS ENDED JUNE 26, 2021 AND JUNE 27, 2020

stockholders'

shares issued

Balance at March 27, 2021

Share-based compensation expense

Issuance of common stock

Employee option exercises

Treasury shares retired

Balance at June 26, 2021

stockholders'

shares issued

Balance at December 26, 2020

Share-based compensation expense

Employee options exercises

Issuance of common stock

Employee options Exercised

Treasury shares retired

Balance at June 26, 2021

(29,202,268 )

stockholders'

shares issued

Balance at March 28, 2020

Share-based compensation expense

Issuance of common stock

Balance at June 27, 2020

stockholders'

shares issued

Balance at December 28, 2019

(30,380,433 )

Share-based compensation expense

Balance at March 28, 2020

Issuance of common stock

Balance at June 27, 2020

(29,479,548 )

See accompanying notes to financial statements.

1 unchanged sentence

Statements of Cash Flows (Unaudited)

Fiscal Quarters Ended

Six Months Ended

Cash flows from operating activities:

Adjustments to reconcile net income

to cash used in operating activities:

to cash provided by (used in) operating activities:

Depreciation and amortization

6 unchanged sentences

Deferred revenue

Net cash used in operating activities

Net cash provided by (used in) operating

Cash flows from investing activities:

4 unchanged sentences

Net borrowings on line of credit

Proceeds from exercise of employee stock options

Proceeds from exercise of employee stock options, net of repurchases

Proceeds from issuance of common stock

Payments on note payable

Net cash provided by

Net cash provided by (used in)

financing activities

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of period

3 unchanged sentences

Supplemental disclosures of non-cash activity:

Net exercise of stock options

Issuance of note payable to finance equipment purchase

Net exercise of stock options

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Notes to Financial Statement

Notes to Financial Statements

(1) Nature of Business

CPS Technologies Corporation (the “Company”

or “CPS”) provides advanced material solutions to the electronics, power generation, automotive and other industries.

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.

CPS Technologies Corp.

(the “Company”

“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

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

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

(3) Net Income Per Common and

Common Equivalent Share

(3) Net Income Per Common and Common Equivalent Share

Basic net income per common share is calculated by dividing

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Three Months Ended

Six Months Ended

Basic EPS Computation:

Net income (loss)

Weighted average

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Dilutive effect of stock options

(4) Commitments &

Contingencies

(4) Commitments & Contingencies

The Company has one real estate lease

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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

timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of June 26, 2021

(Dollars in Thousands)

March 27, 2021

June 26, 2021

Maturity of capitalized lease liabilities

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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.

during the second quarter of 2021 and $76 thousand for the six months ended June 26, 2021.

These costs are related to its long-term operating

All other short-term leases were immaterial.

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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.

During the quarter ended June 26, 2021 a total of 26,000

stock options were granted to employees under the Company’s 2020 Equity Incentive Plan Stock Incentive Plan (the “Plan”)

and a total of 22,000 were granted to outside directors during the quarter ended June 26, 2021 issued at a weighted average price of $5.81

There were no stock options granted for the quarter ended June 27, 2020.

During the three and six months ended June 26, 2021

there were 16,100 and 629,900 options exercised and corresponding shares issued at a weighted average price of $1.58 and $1.97, respectively.

During the three and six months ended June 27, 2020 there were no shares exercised or issued.

During the three and six months ended June 26, 2021,

the Company repurchased 2,235 and 122,431 shares, respectively, for employees to facilitate their exercise of stock options.

three and six months ended June 27, 2020 there were no shares repurchased.

There were also 869,600 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

average price of $2.14 with a weighted average remaining term of 6.67 years as of June 26, 2021, and there were 472,200 shares exercisable

at a weighted average price of $2.14 with a weighted average remaining term of 4.95 years as of June 27, 2020.

The Plan, as amended, is

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

As of June 26, 2021, there were 1,138,000 shares available for future grants.

As of June 26, 2021, there was $445 thousand of total

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

1 unchanged sentence

to be recognized over a weighted average period of 2.02 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.

During the three and six months ended June 26, 2021,

the Company recognized $92,113 and $119,535, respectively, as shared-based compensation expense related to previously granted shares under

During the three and six months ended June 27, 2020,

the Company recognized $17,390 and $83,063, respectively, as shared-based compensation expense related to previously granted shares under

(6) 2021 At-the-Market Offering

On April 26, 2021, the Company entered into a sales

agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC (“C-H”) pursuant to which the Company may

issue and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $25.0 million

in at-the-market offerings (“ATM”) sales.

On the same day, the Company filed a prospectus supplement under a shelf registration

relating to the Sales Agreement.

C-H will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement.

The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary.

From date of inception until June 26, 2021, the Company sold 479,289 shares of common stock under the Sales Agreement, for gross proceeds

of $3,356,342, fees to C-H of $100,690, other fees of $118,140 for net proceeds of $3,137,512.

Subsequent to June 26, 2021, and as of

August 6, 2021, the Company has sold 25,267 additional shares for gross proceeds of $153,659.

(7) Inventories

Inventories consist of the following:

December , 26

Raw materials

1 unchanged sentence

Finished goods

Gross inventory

Total inventory

Reserve for obsolescence

5 unchanged sentences

Accrued other

Total Accrued Expenses

(9) Line of Credit

6 unchanged sentences

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.

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

In May of 2021 the interest rate was reduced to LIBOR plus 550

basis points.

On June 26, 2021 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 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 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 third party equipment finance

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

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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.

Company recorded a reduction of the valuation allowance reserve of $8 thousand and $69, respectively during the three and six months

ended June 26, 2021 to account for the utilization of deferred tax assets to reduce the current tax liability

for the three and six months ended June 26, 2021 .

As a result of the utilization of deferred tax

assets, the Company did not record a provision for income taxes for the three months ended June 26, 2021, and less than $1 thousand

for the six months so ended .

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.

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’

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

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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.

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

4 unchanged sentences

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

Products we provide include baseplates for

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

We provide baseplates

and housings used in radar, satellite and avionics applications.

We provide lids and heat spreaders used with high performance integrated

circuits for use in internet switches and routers.

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

like SiC and GaN.

CPS also assembles housings and packages for hybrid circuits.

These housings and packages may include MMC components;

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 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 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.

growth is dependent upon the level of demand for those products already in production,

as well as its success in achieving new "design wins"

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.

As a manufacturer of highly technical

and custom products, the Company incurs fixed costs needed to support the business, but which do not vary significantly with changes in

sales volume.

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

Accordingly, particularly given our current size, changes in sales volume generally result in even greater changes in financial performance

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

Sales volume is therefore a key financial metric used by

The Company believes the underlying

demand for metal matrix composites is growing as the electronics and other industries seek higher performance, higher reliability, and

reduced costs.

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

Our products are manufactured by proprietary processes

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

Process (‘QuickCast Process’).

CPS was incorporated in Massachusetts in 1984 as Ceramics

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

for purposes of the reincorporation.

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

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.

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

Results of Operations for the Second Fiscal Quarter of 2021 (Q2 2021)

Compared to the Second Fiscal Quarter of 2020 (Q2 2020);

(all $ in 000s)

Total revenue was $5,862 in Q2 2021, a 2% increase compared

with total revenue of $5,758 in Q2 2020.

This increase was due primarily to the initial shipments of armor panels and increased sales

of hermetic packages, offset by a decrease in the sale of baseplates to a major customer.

Gross margin in Q2 2021 totaled $1,352 or 23% 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.

In Q2 2020, gross margin was $1,183 or 21% of sales.

This increase in margin was primarily due to moderate price increases

and product mix.

Selling, general and administrative expenses (SG&A)

were $1,099 in Q2 2021, up 28% when compared with SG&A expenses of $853 in Q2 2020.

This increase in SG&A expense was due

to increased compensation expense as a result of the addition of our new COO and the delay in certain Director’s compensation from

In Q2, 2021, the Company incurred interest expense of

$14 due to bank borrowings.

This compares with interest expense of $32 in Q2 of 2020.

The decrease in interest is due to decreased borrowings

as a result of the At-the-Market offering

The Company experienced operating income of $253 compared

with an operating income of $331 in the same quarter last year.

This decrease in operating income is due primarily to the increase in

SG&A expense, discussed above.

The net income for Q2 2021 totaled $239 versus $299 in Q2 2020.

Results of Operations for the First Six Months of 2021 Compared to the

First Six Months of 2020 (all $ in 000s)

Total revenue was $10,728 in the first half of 2021,

a 13% decrease compared with total revenue of $12,270 in the first six months of 2020.

This decrease was due primarily to the impact on

the Covid-19 pandemic on Q1 2021 compared to the lack of impact of the pandemic on Q1 2020.

Gross margin in the first six months of 2021 totaled

$2,296 or 21% of sales.

In the first six months of 2020 gross margin totaled $2,734 or 22% of sales.

This decrease was due to the decrease

in revenue and the reduced coverage of our fixed costs.

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

were $2,007 during the first six months of 2021, up 13% compared with SG&A expenses of $1,781 in the first six months of 2020.

hiring of our new Chief Operating Officer and increased costs associated with printing and distributing our proxy statement were the primary

reasons for this increase.

During the first half of 2021, the Company incurred

interest expense of $18 due to bank borrowings.

This compares with interest expense of $66 incurred during the first half of 2020.

decrease in interest is due to decreased borrowings as the result of our move to profitability from 2019 to 2020 and the At-the-Market

offering in Q2 2021.

In the first six months of 2021 the Company had operating

income of $289 compared with $952 in the same period last year.

The net income for the first six months of 2021 totaled $270 versus $901

in the first six months of 2020.

This decrease was due primarily to the impact on the Covid-19 pandemic on Q1 2021 compared to the lack

of impact of the pandemic on Q1 2020.

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

The Company’s cash and cash equivalents at June

26, 2021 totaled $3,016 .

This compares to cash and cash equivalents at December 26, 2020 of $195 .

The improvement in cash and net cash

was primarily due to equity raised through the At the Market offering (“ATM”) discussed below.

Accounts receivable at June 26, 2021 totaled $4,432

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

Days Sales Outstanding (DSO) increased from 62 days

at the end of 2020 to 69 days at the end of Q2 2021.

The increase in DSO was due to higher sales to two large customers with longer payment

The accounts receivable balances at December 26, 2020, and June 26, 2021 were both net of an allowance for doubtful accounts of

Inventories totaled $3,989 at June 26, 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.

This increase was due to the buildup of inventory for our armor order.

The inventory

turnover in the most recent four quarters ending Q2 2021 was 4.0 times, down from 4.5 times averaged during the four quarters of 2020

(based on a 5 point average).

On April 26, 2021, we entered into a sales agreement

(the “Sales Agreement”) with Craig-Hallum Capital Group LLC (“C-H”) pursuant to which the Company may issue and

sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $25.0 million in at-the-market

offerings (“ATM”).

On the same day, the Company filed a prospectus supplement under a shelf registration relating to the Sales

C-H will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement.

The Company’s common

stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary.

From date of inception until

June 26, 2021, the Company sold approximately 479 thousand shares of common stock under the Sales Agreement, for gross proceeds of approximately

$3.4 million.

Subsequent to June 26, 2021, the Company has not sold any additional shares.

The Company financed its increase in working capital

in Q2 2021 from its profit and the ATM offering.

The Company expects it will continue to be able to fund its operations for the remainder

of 2021 from existing cash balances.

The Company continues to sell to a limited number of

8 unchanged sentences

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

Contractual Obligations

In September 2019, the Company entered into revolving

5 unchanged sentences

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.

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

In May of 2021 the interest rate was reduced to LIBOR plus

550 basis points.

On June 26, 2021 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.

In March 2020, the company acquired a scanning acoustic

7 unchanged sentences

per month over 2 years with an interest rate of 1.9%.

The Company has one real estate lease expiring in February

The Company has one real estate lease

expiring in February 2026.

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

None of these

have been capitalized.

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