CPS TECHNOLOGIES CORP/DE/ 10-Q

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   The Company is not significantly exposed to the impact of interest rate changes or foreign currency fluctuations. The Company has not used derivative financial instruments.   The COVID-19 pandemic presents several risks for the Company. The Company is part of the Defense Industrial Base and thus has remained open and operating throughout the pandemic. The primary risks resulting from the pandemic are potential declines in customer demand due to government-mandated business closures and increased operating costs resulting from pandemic-related factors such as increased freight costs and increased employee absenteeism causing labor inefficiencies and increased use of overtime.   The COVID-19 pandemic had a minimal impact on financial results for the quarter ended April 2, 2022. There were several COVID related absences during the quarter which required the use of overtime in order to meet production needs. The Company expects these mild disruptions to continue as COVID becomes more endemic. Nevertheless the possibility of a more dangerous variant could result in a negative impact on the Company’s business in the future.   Although CPS has not been directly impacted by the war in Ukraine, potential supply chain disruptions and its impact on energy costs are areas where we could be impacted in the future.   Inflation is an area where we have seen some impact on our business. We have seen significant price increases in commodity raw materials, such as aluminum, as well as increases in other costs of doing business. As we receive new orders we have been able to pass on most of these costs to our customers. In the case of longer term pricing agreements, we have been able to pass on some of these costs through surcharges and in other ways to mitigate the impact on our profit. As inflation continues, our ability to continue to absorb higher costs by raising customer prices cannot be guaranteed.