What changed in this filing

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Item 9A. Controls and Procedures

2023-03-16 compared with 2022-03-10 · 69 added, 168 removed, 677 unchanged (26% of the section changed)

13 unchanged sentences

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.

15 unchanged sentences

The Company has adopted the CPS Code of Conduct, which applies to all directors, officers (including the principal executive officer, principal financial officer and treasurer) and employees. 

A copy of this code can be found on the Company’s website at www.alsic.com/investor-relations.

A copy of this code can be found on the Company’s website at https://cpstechnologysolutions.com/investor-overview/.

26 unchanged sentences

EXHIBIT INDEX

Restated Certificate of Incorporation of the Company, as amended, is incorporated herein by reference to Exhibit 3.1 to the Company’s annual report on Form 10-K (File No.

Restated Certificate of Incorporation of the Company, as amended, is incorporated herein by reference to Exhibit 3.1 to the Company ’

s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

By-laws of the Company, as amended, are incorporated herein by reference to Exhibit 3.2 to the Company’s annual report on Form 10-K (File No.

By-laws of the Company, as amended, are incorporated herein by reference to Exhibit 3.2 to the Company ’

s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

Certificate of Amendment of Restated Certificate of Incorporation of the Company dated May 14, 2014 is incorporated herein by reference to Exhibit 3.4 to the Company’s annual report on Form 10-K (File No.

Certificate of Amendment of Restated Certificate of Incorporation of the Company dated May 14, 2014 is incorporated herein by reference to Exhibit 3.4 to the Company ’

s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

Certificate of Ownership and Merger Merging CPS Superconductor Corporation into Ceramics Process Systems Corporation dated March 15, 2007 is incorporated herein by reference to Exhibit 3.2 to the Company’s annual report on Form 10-K (File No.

s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

1 unchanged sentence

333-255373) filed with the Securities and Exchange Commission on April 20, 2021

Description of the Company’s securities is incorporated by reference to Exhibit 4.2 of the Company's annual report on Form 10-K (File No.

Description of the Company ’

s securities is incorporated by reference to Exhibit 4.2 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

30 unchanged sentences

333-163553) filed with the Securities and Exchange Commission on December 8, 2009)

2020 Stock Incentive Plan (“2020 Plan”) on March 3, 2020 is incorporated by reference to Exhibit 10.23 of the Company's annual report on Form 10-K (File No.

2020 Stock Incentive Plan ( “

2020 Plan ”

) on March 3, 2020 is incorporated by reference to Exhibit 10.23 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

49 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of CPS Technologies Corp.

To the Board of Directors and Stockholders of CPS Technologies Corporation

Opinion on the Financial Statements

19 unchanged sentences

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of recoverability of deferred tax assets

As discussed in Note 9 to the financial statements, as of December 25, 2021 the Company recorded deferred tax assets of $2,824,000 relating to tax losses incurred and temporary differences.

The assessment of the recoverability of these deferred tax assets is dependent on the generation of future taxable income.

Significant judgment and estimation is required to assess the sufficiency of future taxable income to utilize the deferred tax assets.

The Company uses projections of future taxable income in order to assess the probability that the deferred tax assets will be realized.

Predicting future taxable income is dependent on assumptions and judgments regarding future market conditions, production rates, and sales.

The Company determined that the realization of these deferred tax assets is more-likely-than-not.

We identified the assessment of the recoverability of deferred tax assets as a critical audit matter due to the high degree of judgment required in auditing the significant assumptions and judgments that are reflected in the projections of future taxable income.

Addressing the matter involved performing procedures and evaluating the audit evidence in connection with forming our overall opinion on the financial statements. 

These procedures included, among others (i) assessing the Company’s ability to estimate future taxable income by comparing the Company’s previous forecasts to actual results;

(ii) assessing the Company’s estimate of future taxable income by evaluating key assumptions in the Company’s future projections by comparing (a) forecast sales to historical trends and committed sales, including to committed sales contracts, and (b) forecast sales volumes to historical data.

We involved income tax professionals with specialized skills and knowledge in assessing the Company’s application of the tax regulations in relevant jurisdictions.

We determined that there are no critical audit matters.

We have served as the Company's auditor since 2005.

11 unchanged sentences

4,870,021  

Accounts receivable-other

685,668  

4,875,901  

3,911,602  

Prepaid expenses and other current assets

17 unchanged sentences

Accumulated depreciation and amortization

( 11,028,154 )  

( 11,446,901 )

( 11,028,154 )

Construction in progress

17 unchanged sentences

Current liabilities:

Borrowings against line of credit

Notes payable, current portion

19 unchanged sentences

98,684  

Deferred revenue –

231,020  

Long term lease liability

309,000  

431,000  

Total liabilities

13 unchanged sentences

Accumulated deficit

( 26,256,492 )  

( 24,125,092 )

( 26,256,492 )

Less cost of 10,016 and 335 common shares repurchased at December 31, 2022 and December 25, 2021, respectively

( 2,515 )  

Total stockholders’

9 unchanged sentences

Product sales

$ 22,449,065  

$ 20,872,611  

Cost of product sales

17,659,347  

16,702,848  

4,789,718  

4,169,763  

Selling, general, and Administrative expenses

4,276,751  

3,255,527  

Income from operations

512,967  

914,236  

Other income (expense)

( 4,068 )  

Income before income tax

508,899  

899,516  

Income tax provision (benefit)

(2,706,978 )  

$ 3,215,877  

$ 908,064  

Net income (loss) per basic common share

$ 0.23  

$ 0.07  

Weighted average number of basic common shares outstanding

14,061,320  

13,251,521  

Net income (loss) per diluted common share

$ 0.22  

$ 0.07  

Weighted average number of diluted common shares outstanding

14,590,725  

13,348,582  

See accompanying notes to financial statements.

5 unchanged sentences

Balance at December 26, 2020

13,427,492  

$ 134,275  

36,094,201  

$ ( 30,380,433 )

$ ( 517,053 )  

$ 5,330,990  

Share-based compensation expense

117,842  

Issuance of Common Stock

Employee option exercises

318,250  

476,080  

( 479,270 )  

908,064  

Treasury Shares Retired

Balance at December 25, 2021

13,746,242  

$ 137,462  

36,688,894  

$ ( 29,472,369 )

$ ( 996,323 )  

$ 6,357,664  

Share-based compensation expense

174,124  

Issuance of common stock

528,804  

3,402,128  

3,407,417  

Employee option exercises

630,400  

1,235,370  

( 1,230,445 )  

11,229  

Treasury Shares Retired

( 554,660 )  

( 5,547 )  

( 2,218,706 )  

2,224,253  

3,215,877  

Balance at December 31, 2022

14,350,786  

$ 143,508  

39,281,810  

$ ( 26,256,492 )  

$ ( 2,515 )  

$ 13,166,311  

See accompanying notes to financial statements.

3 unchanged sentences

Cash flows from operating activities:

Net income (loss)

$ 2,131,400  

9 unchanged sentences

754,542  

30,873  

( 2,706,978 )

Gain on sale of property and equipment

(2,047 )  

Changes in operating assets and liabilities:

1 unchanged sentence

1,092,046  

1,172,145  

(202,131 )  

( 1,955,221 )

Accounts receivable –

Prepaid expenses and other current assets

14,631  

76,280  

Accounts payable

4 unchanged sentences

1,045,010  

1,694,961  

Net cash provided by operating activities

3 unchanged sentences

Purchases of property and equipment

( 514,322 )  

Proceeds from sale of property and equipment

11,000  

Net cash used by investing activities

( 512,275 )  

Cash flows from financing activities:

Net borrowings (repayments) on line of credit

Proceeds from employee stock options

157,446  

11,229  

Proceeds from issuance of common stock

1 unchanged sentence

Payment on notes payable

( 58,114 )  

Net cash provided by financing activities

101,414  

Net increase (decrease) in cash and cash equivalents

3,360,531  

Net increase in cash and cash equivalents

3,216,441  

4,855,109  

Cash and cash equivalents at beginning of year

5 unchanged sentences

Supplemental cash flow information:

Cash paid (refunded) for income taxes

Cash paid for income taxes

Cash paid for interest

5 unchanged sentences

1,230,445  

Issuance of long term debt to finance equipment purchases

247,807  

See accompanying notes to financial statements.

7 unchanged sentences

Our primary material solution is metal matrix composites. 

We design, manufacture and sell custom metal matrix composite components which improve the performance and reliability of systems in these end markets.

( 2 ) Summary of Significant Accounting Policies

6 unchanged sentences

  The Company maintains an allowance for doubtful accounts of $ 10,000 as of December 31, 2022 and December 25, 2021.

( 2 )(b)( 1 ) Accounts Receivable-Other

In 2022 the Company filed for the Employee Retention Tax Credit (ERTC) in the amount of $ 641,086 . 

This credit was still due from the IRS on 12/31/2022 and is showing as an Other Receivable. 

( 2 )(c) Inventories

20 unchanged sentences

These in themselves do not constitute a contract as no products are committed to be transferred and the customer has no obligation to make payments.

In the case of SBIRs an enforceable contract is signed by both the customer and CPS.

The Company contract is only enforceable once both parties have approved it and is usually in the form of a written purchase order from a customer combined with acknowledgement from the Company.

3 unchanged sentences

For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations.

For SBIRs the Company is obligated to provide certain services over the life of the agreement and the customer is obligated to pay for those services monthly, as they are performed.

Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods.

6 unchanged sentences

Determining the Transaction Price

The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods to the customer.

The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods or services to the customer.

Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices.

6 unchanged sentences

Allocating the Transaction Price to the Performance Obligations

In virtually all cases the transaction price is tied to a specific product in the contract obviating the need for any allocation.

In virtually all cases the transaction price is tied to a specific product or service in the contract obviating the need for any allocation.

Recognizing Revenue When (or as) the Performance Obligations are Satisfied

The Company recognizes revenue at the point in time when it transfers control of the promised goods or services to the customer, which typically occurs once the product has shipped or has been delivered to the customer.

Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment.

11 unchanged sentences

The Company does not have any uncertain tax positions at December 31, 2022 or December 25, 2021 which required accrual or disclosure.

( 2 )(h) Net Income (Loss) Per Common 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.

Diluted net 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 option and stock purchase rights.

( 2 )(h) Net Income Per Common 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 option 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.

10 unchanged sentences

The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year.

Fiscal years 2021 and 2020 each consisted of 52 weeks.

Fiscal year 2022 consisted of 53 weeks and 2021 consisted of 52 weeks.

( 2 )(m) Share-Based Payments

28 unchanged sentences

$ 3,911,602  

$ 3,709,471  

The Company had one real estate lease in 2022 expiring in February 2026.

25 unchanged sentences

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $ 38 thousand during the fourth quarter of 2021 and $ 152 thousand for the twelve months ended December 25, 2021.

Operating lease cost and cash paid was $ 160 thousand for the twelve months ended December 31, 2022 and $ 152 thousand during the year ended December 25, 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.

Estimated monthly payments under the terms of the Norton facility lease, escalate from $ 13 thousand to $ 14 thousand over the lease term

8 unchanged sentences

Under the 2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 979,500 shares remain available for grant as of December 31, 2022.

The Company also administers the 2009 Stock Incentive Plan, which expired in December 2019 but which will remain in effect until all awards outstanding under such plan have been exercised or expire.

As of December 25, 2021, 488,900 remain open under this Plan.

A summary of stock option activity as of December 31, 2022 and changes during the year then ended is presented below:

7 unchanged sentences

$ 1.68  

$ 1.69  

( 3,000 )  

$ 1.49  

Outstanding at end of year

11 unchanged sentences

1.55% - 2.84%  

50 % - 1.34 %  

Expected life in years

2 unchanged sentences

Weighted average fair value of grants

$ 1.72  

 1.72  

All options are granted with an exercise price equal to the fair market value of the underlying common stock on the date of grant.

21 unchanged sentences

The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 550 basis points. 

The Company is subject to certain financial and non-financial covenants, all of which have been waived by BDC for 2021.

The Company is subject to certain financial and non-financial covenants, all of which have been met and/or waived by BDC for 2022.

At December 31, 2022 the Company had $ 0 borrowings under this LOC and its borrowing base at the time would have permitted an additional $ 2.9 to have been borrowed. 

 Total Interest Expense for 2021 was $ 24 thousand.

( 8 ) Notes Payable 

 Total Interest Expense for 2022 was $ 0 and was $ 24 thousand for 2021.

Notes 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 Crest Capital Corporation. 

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

4 unchanged sentences

$ 8,155  

Interest on the above

Less Interest

Total Principal Payments

$ 98,684  

Total interest expense on notes payable during 2021 was $ 10,886 .

Total interest expense on notes payable during 2022 was $ 7,954 and during 2021 was $ 10,886 .

( 9 ) Income Taxes

1 unchanged sentence

$ 1,270  

Current income tax provision (benefit):

11,967  

Current income tax provision (benefit):

11,967  

577,866  

( 2,156,278 )

176,676  

1 unchanged sentence

754,542  

30,873  

( 2,718,945 )

$ 756,268  

$ ( 2,706,978 )

Deferred tax assets as of December 31, 2022 and December 25, 2021 are as follows:

17 unchanged sentences

237,880  

250,093  

Gross deferred tax assets

2,823,978  

Capitalized R&D, net

205,878  

Valuation allowance

( 2,849,693 )

Net deferred tax assets

3 unchanged sentences

Federal income tax purposes.

These net operating loss carryforwards occurred over several years, which begin to expire in the year ended 12/31/2036.

The Company established a valuation reserve as it is judged more likely than not that all or a portion of the tax credits will not be used before they expire.

This decision was initially reached in 2018 after giving greater weight to its losses over the last three years compared with its forecast of the future.

These net operating loss carryforwards occurred over several years and do not expire.

The Company has previously established a valuation reserve against deferred income tax assets. 

In September 2021 this decision was reevaluated in light of the Company’s recent profitability and its forecasts for future profitability.

4 unchanged sentences

Gross deferred tax balance at beginning of year

$ 2,966,693  

$ 3,321,611  

Deferred tax benefit (provision)

( 142,715 )  

Valuation allowance

( 2,849,693 )

Balance at end of year, net

$ 2,823,978  

$ 117,000  

Income tax expense is different from the amounts computed by applying the U.S.

1 unchanged sentence

Tax at statutory rate

$ 106,869  

$ 188,899  

State tax, net of federal benefit

36,301  

Net operating loss and credit carryforwards

33,873  

Valuation allowance

( 2,849,693 )  

92,365  

$ ( 2,706,978 )  

The Company’s income tax filings are subject to review and examination by federal and state taxing authorities.

4 unchanged sentences

Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan and as determined each year by the Board of Directors.

During 2021 the Company accrued a match of ½

% of each of the first 2 % of employee contributions amounting to $ 34 thousand. 

In 2020 the Company accrued a match of ½

% of each of the first 2 % of employee contributions amounting to $ 64 thousand, which was paid in 2021.

During 2022 the Company elected to match of ½% of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 94 thousand. 

In 2021 the Company accrued a match of ½% of each of the first 2 % of employee contributions amounting to $ 34 thousand, which was paid in 2022.

( 11 ) Concentrations of Credit Risk, Significant Customers and Geographic Information

3 unchanged sentences

The Company generally does not require collateral or other security as a condition of sale rather relying on credit approval, balance limitation and monitoring procedures to control credit risk of trade accounts receivable.

The Company also maintains a credit insurance policy covering most of its non-US customers to further mitigate credit risk.

Management conducts on-going credit evaluations of its customers, and historically the Company has not experienced any significant credit-related losses with respect to its trade accounts receivable.

10 unchanged sentences

Many of the Company’s customers based in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas.

Revenue generated from shipments made to customers’

locations outside the United States accounted for 60 % and 77 % of total revenue in 2021 and 2020, respectively.

All of the Company’s long-lived assets and operations are located in the United States.

( 12 ) Net Income (Loss) Per Share

The following reconciles the basic and diluted net income (loss) per share calculations.

( 12 ) Net Income Per Share

The following reconciles the basic and diluted net income per share calculations.

Basic EPS Computation:

Net income (loss)

$ 2,131,400  

7 unchanged sentences

Diluted EPS Computation:

Net income (loss)

$ 2,131,400  

9 unchanged sentences

14,590,725  

Diluted net income (loss) per share

Diluted net income per share

$ 0.15  

10 unchanged sentences

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-K

Item 9A. Controls and Procedures