CPS TECHNOLOGIES CORP/DE/ 10-Q

ITEM 1 FINANCIAL STATEMENTS (Unaudited) CPS TECHNOLOGIES CORP. Balance Sheets (Unaudited) June 26, December 26, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 3,015,760 $ 195,203 Accounts receivable-trade, net 4,432,310 2,914,800 Inventories, net 3,989,435 3,709,471 Prepaid expenses and other current assets 273,523 71,506 Total current assets 11,711,028 6,890,980 Property and equipment: Production equipment 10,343,553 10,265,471 Furniture and office equipment 568,846 568,846 Leasehold improvements 951,384 951,384 Total cost 11,863,783 11,785,701 Accumulated depreciation and amortization (10,831,191) (10,558,816) Construction in progress 140,270 61,062 Net property and equipment 1,172,862 1,287,947 Right-of-use lease asset 638,000 25,000 Deferred taxes, net 117,000 117,000 Total assets $ 13,638,890 $ 8,320,927 See accompanying notes to financial statements. (continued) CPS TECHNOLOGIES CORP. Balance Sheets (Unaudited) (concluded) June 26, December 26, 2021 2020 LIABILITIES AND STOCKHOLDERS` EQUITY Current liabilities: Note payable, current portion $ 59,438 $ 58,134 Accounts payable 1,522,336 909,291 Accrued expenses 997,755 804,091 Deferred revenue 400,874 12,177 Lease liability, current portion 151,000 25,000 Total current liabilities 3,131,403 1,808,693 Note payable less current portion 124,566 154,570 Long term lease liability 487,000 — Total liabilities 3,742,969 1,963,263 Commitments and contingencies (note 4) Stockholders` equity: Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,300,771 and 13,746,242; outstanding 14,300,548 and 13,313,790; at June 26, 2021 and December 26, 2020; 143,007 137,462 Additional paid-in capital 38,956,952 36,688,894 Accumulated deficit (29,202,268) (29,472,369) Less cost of 223 and 432,452 common shares repurchased at June 26, 2021 and December 26, 2020 (1,770) (996,323) Total stockholders` equity 9,895,921 6,357,664 Total liabilities and stockholders` equity $ 13,638,890 $ 8,320,927 See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. Statements of Operations (Unaudited) Three Months Ended Six Months Ended June 26, June 27, June 26, June 27, 2021 2020 2021 2020 Revenues: Product sales $ 5,862,183 $ 5,758,015 $ 10,727,890 $ 12,269,586 Total revenues 5,862,183 5,758,015 10,727,890 12,269,586 Cost of product sales 4,510,600 4,574,686 8,432,168 9,536,047 Gross Margin 1,351,583 1,183,329 2,295,722 2,733,539 Selling, general, and administrative expense 1,098,616 852,773 2,007,087 1,781,362 Income from operations 252,967 330,556 288,635 952,176 Interest income (expense), net (13,769) (31,325) (18,079) (51,291) Net income before income tax 239,198 299,231 270,556 900,885 Income tax provision — — 456 — Net income $ 239,198 $ 299,231 $ 270,101 $ 900,885 Net income per basic common share $ 0.02 $ 0.02 $ 0.02 $ 0.07 Weighted average number of basic common shares outstanding 13,982,177 13,207,436 13,783,276 13,207,436 Net income per diluted common share $ 0.02 $ 0.02 $ 0.02 $ 0.07 Weighted average number of diluted common shares outstanding 14,550,918 13,259,783 14,407,904 13,253,457 See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED JUNE 26, 2021 AND JUNE 27, 2020 Common Stock Additiona l Total Number of paid-in Accumulated Stock stockholders' shares issued Par Value capital deficit repurchased equity Balance at March 27, 2021 14,360,042 $ 143,600 $ 37,925,674 (29,441,466) (2,201,509) 6,426,299 Share-based compensation expense — — 92,113 — — 92,113 Issuance of common stock 479,289 4,793 3,132,599 — — 3,137,392 Employee option exercises 16,100 161 25,272 — (24,514) 919 Treasury shares retired (554,660 ) (5,547 ) (2,218,706 ) — 2,224,253 — Net income — — — 239,198 — 239,198 Balance at June 26, 2021 14,300,771 143,007 38,956,952 (29,202,268) (1,770) 9,895,921 Common Stock Additional Total Number of paid-in Accumulated Stock stockholders' shares issued Par Value capital deficit repurchased equity Balance at December 26, 2020 13,746,242 $ 137,462 $ 36,688,894 (29,472,369) (996,323) 6,357,664 Share-based compensation expense — — 119,535 — — 119,535 Issuance of common stock 479,900 4,793 3,132,599 — — 3,137,392 Employee options Exercised 629,900 6,299 1,234,630 — (1,229,700) 11,229 Treasury shares retired (554,660) (5,547) (2,218,706) — 2,224,253 Net income 270,101 — 270,101 Balance at June 26, 2021 14,300,771 143,007 38,956,952 (29,202,268 ) (1,770) 9,895,921 Common Stock Additional Total Number of paid-in Accumulated Stock stockholders' shares issued Par Value capital deficit repurchased equity Balance at March 28, 2020 13,427,492 $ 134,275 $ 36,159,874 (29,778,779) (517,053) 5,998,317 Share-based compensation expense — — 17,390 — — 17,390 Issuance of common stock — — — — — — Net income 299,231 — 299,231 Balance at June 27, 2020 13,427,492 134,275 36,177,264 (29,479,548) (517,053) 6,314,938 Common Stock Additional Total Number of paid-in Accumulated Stock stockholders' shares issued Par Value capital deficit repurchased equity Balance at December 28, 2019 13,427,492 $ 134,275 $ 36,094,201 (30,380,433 ) (517,053 ) 5,330,990 Share-based compensation expense — — 83,063 — — 83,063 Issuance of common stock — — — — — — Net Income 900,885 — 900,885 Balance at June 27, 2020 13,427,492 134,275 36,177,264 (29,479,548 ) (517,053 ) 6,314,938 See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. Statements of Cash Flows (Unaudited) Six Months Ended June 26, June 27, 2021 2020 Cash flows from operating activities: Net income $ 270,101 $ 900,885 Adjustments to reconcile net income to cash provided by (used in) operating activities: Depreciation and amortization 284,408 261,688 Share-based compensation 119,535 83,063 Gain on sale of property and equipment — (5,000) Changes in: Accounts receivable-trade (1,517,511) (888,897) Inventories (279,963) (773,044) Prepaid expenses and other current assets (202,018) (25,451) Accounts payable 613,046 333,743 Accrued expenses 193,665 93,828 Deferred revenue 388,697 461,887 Net cash provided by (used in) operating activities (130,040) 442,702 Cash flows from investing activities: Purchases of property and equipment (163,524) (233,270 ) Proceeds from sale of property and equipment — 5,000 Net cash used in investing activities (163,524) (228,270) Cash flows from financing activities: Net borrowings on line of credit — (222,823) Proceeds from exercise of employee stock options, net of repurchases 11,229 — Proceeds from issuance of common stock 3,137,392 — Payments on note payable (34,500) (8,962) Net cash provided by (used in) financing activities 3,114,121 (231,785) Net increase (decrease) in cash and cash equivalents 2,820,557 (17,353) Cash and cash equivalents at beginning of period 195,203 133,965 Cash and cash equivalents at end of period $ 3,015,760 $ 116,612 Supplemental disclosures of cash flows information: Cash paid for interest 18,079 65,741 Supplemental disclosures of non-cash activity: Issuance of note payable to finance equipment purchase — 208,583 Net exercise of stock options 24,514 — 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 threat levels. The Company sells into several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor controller market, and other microelectronic and structural markets. (2) Summary of Significant Accounting Policies As permitted by the rules of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles. The accompanying financial statements are unaudited. In the opinion of management, the unaudited financial statements of CPS reflect all normal recurring adjustments which are necessary to present fairly the financial position and results of operations for such periods. The Company’s balance sheet at December 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 Six Months Ended June 26, June 27, June 26, June 27, 2021 2020 2021 2020 Basic EPS Computation: Numerator: Net income (loss) $ 239,198 $ 299,231 $ 270,101 $ 900,885 Denominator: Weighted average Common shares Outstanding 13,982,177 13,207,436 13,783,276 13,207,436 Basic EPS $ 0.02 $ 0.02 $ 0.02 $ 0.07 Diluted EPS Computation: Numerator: Net income (loss) $ 239,198 $ 299,231 $ 270,101 $ 900,885 Denominator: Weighted average Common shares Outstanding 13,982,177 13,207,436 13,783,276 13,207,436 Dilutive effect of stock options 568,741 52,347 624,628 46,021 Total Shares 14,550,918 13,259,783 14,407,904 13,253,457 Diluted EPS $ 0.02 $ 0.02 $ 0.02 $ 0.07 (4) Commitments & Contingencies Commitments Leases The Company has one real estate lease expiring in February 2026. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these equipment leases have been capitalized as the Company elected an accounting policy for short-term leases, which allows lessees to avoid recognizing right-of-use assets and liabilities for leases with terms of 12 months or fewer. The real estate lease expiring in 2026 (the “Norton facility lease”) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet. This asset and liability was recognized on March 1, 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 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 June 26, 2021 (Dollars in Thousands) June 26, 2021 Maturity of capitalized lease liabilities Lease payments 2021 76 2022 2023 2024 2025 2026 160 162 165 165 28 Total undiscounted operating lease payments $ 756 Less: Imputed interest (118) Present value of operating lease liability $ 638 Balance Sheet Classification Current lease liability $ 151 Long-term lease liability 487 Total operating lease liability $ 638 Other Information Weighted-average remaining lease term for capitalized operating leases 56 months Weighted-average discount rate for capitalized operating leases 6.6% Operating Lease Costs and Cash Flows Operating lease cost and cash paid was $38 thousand 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 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 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 per share. 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. During the 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 $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; that cost is expected to be recognized over a weighted average period of 2.02 years. 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 the Plan. 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 the Plan. (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: June 26, December , 26 2021 2020 Raw materials $ 1,363,413 $ 752,760 Work in process 2,203,222 2,800,226 Finished goods 858,955 592,640 Total inventory 4,425,590 4,145,626 Reserve for obsolescence (436,155) (436,155) Inventories, net $ 3,989,435 $ 3,709,471 (8) Accrued Expenses Accrued expenses consist of the following: June 26, December 26, 2021 2020 Accrued legal and accounting $ 56,219 $ 71,671 Accrued payroll and related expenses 762,740 626,063 Accrued other 178,796 106,357 $ 997,755 $ 804,091 (9) Line of Credit In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million. The agreement includes a demand note allowing the Lender to call the loan at any time. The Company may terminate the agreement without a termination fee after 3 years. In May of 2020 this credit line was increased to $3.0 million. The LOC is secured by the accounts receivable and other assets of the Company and 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. (10) Note Payable In March 2020, the company acquired a Sonoscan ultrasound microscope for a price of $208 thousand. The full amount was financed through a 5 year note payable with third party equipment finance company. The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%. In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor. The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years, 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 2021 $ 29,414 FY 2022 $ 55,906 FY 2023 $ 43,837 FY 2024 $ 46,757 FY 2025 $ 8,090 Total 184,004 Total interest expense on notes payable during 2021 was $5,800. (11) 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. 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. The Act also accelerates the ability of the Company to recover Federal alternative minimum tax credits. The 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’ 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. 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. Overview Products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles. We provide baseplates and housings used in radar, satellite and avionics applications. We provide lids and heat spreaders used with high performance integrated circuits for use in internet switches and routers. We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like SiC and GaN. CPS also assembles housings and packages for hybrid circuits. These housings and packages may include MMC components; they may include components made of more traditional materials such as aluminum, copper-tungsten, etc. 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 engineering, tooling design and fabrication, process engineering, etc. Accordingly, particularly given our current size, changes in sales volume generally result in even greater changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base. Sales volume is therefore a key financial metric used by management. The Company believes the underlying demand for metal matrix composites is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow. Our products are manufactured by proprietary processes we have developed including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM Pressure Infiltration Process (‘QuickCast Process’). CPS was incorporated in Massachusetts in 1984 as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock. In March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies 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. 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 Q1 to Q2. 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 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. The 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. The 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 69 days at the end of Q2 2021. The increase in DSO was due to higher sales to two large customers with longer payment terms. The accounts receivable balances at December 26, 2020, and June 26, 2021 were both net of an allowance for doubtful accounts of $10. Inventories totaled $3,989 at June 26, 2021 compared with inventory totaling $3,709 at December 26, 2020. 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 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 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 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 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 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 microscope for a price of $208 thousand. The full amount was financed through a 5 year note payable with a financing company. The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47% In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor. The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years with an interest rate of 1.9%. The Company has one real estate lease expiring in February 2026. CPS also has a few other leases for equipment which are minor in nature and are generally short-term in duration. None of these have been capitalized. (Note 4, Leases)