Amendment: SEC Form 10-K/A filed by CPS Technologies Corp.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
or
Commission file number:
CPS TECHNOLOGIES CORP.
(Exact Name of Registrant as Specified in its Charter)
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| (Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer," "smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):
The aggregate market value of the voting Common Stock held by non-affiliates of the Registrant was $
Number of shares of Common Stock outstanding as of February 12, 2024:
Portions of the Proxy Statement to be filed for the Company’s 2024 meeting of stockholders are incorporated by reference into Part III of this form 10-K.
EXPLANATORY NOTE
CPS Technologies Corp. (the “Company”) is filing this Amendment No. 1 (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 30, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024 (the “Original 10-K”), solely for the purpose of filing revised versions of Exhibits 31.1 and 31.2 filed with the Original 10-K and adding the Independent Registered Public Accounting Firm’s PCAOB number to the Financial Statement index.
The Company is filing revised Exhibits 31.1 and 31.2 solely in order to include certification language that was inadvertently omitted from such exhibits when originally filed and the inadvertently omitted PCAOB number. For reference purposes only, we are also including Item 9A, Exhibit 32.1 and the financial statements which remain unchanged from the original filing. The Amendment does not reflect events occurring after the date of the filing of the Original 10-K or modify or update any of the other disclosures contained therein in any way. Accordingly, the Amendment should be read in conjunction with the Original 10-K.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 30, 2023.
Changes in Internal Control over Financial Reporting
There were no material changes in the Company’s internal control over financial reporting during fiscal 2023.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
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 30, 2023. In making this assessment, management used the criteria set forth in the "Internal Control Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 30, 2023.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
CPS TECHNOLOGIES CORP.
EXHIBIT INDEX
| Exhibit No. |
Description |
| 31.1 |
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| 31.2 |
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| 32.1 |
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| 101.INS |
Inline XBRL Instance Document |
| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
INDEX TO FINANCIAL STATEMENTS
OF
CPS TECHNOLOGIES CORP.
| Report of Independent Registered Public Accounting Firm (PCAOB ID 392) | |
| Balance Sheets as of December 30, 2023 and December 31, 2022 | |
| Statements of Operations for the years ended December 30, 2023 and December 31, 2022 | |
| Statements of Stockholders’ Equity for the years ended December 30, 2023 and December 31, 2022 | |
| Statements of Cash Flows for the years ended December 30, 2023 and December 31, 2022 | |
| Notes to Financial Statements |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of CPS Technologies Corporation
Opinion on the Financial Statements
We have audited the accompanying balance sheets of CPS Technologies Corporation (the Company) as of December 30, 2023 and December 31, 2022, the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter 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 matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates.
Reserves for product sales returns
Description of the Matter
As described in Notes 2 and 6 to the financial statements, reserves for product sales returns are recorded based on returns history and specific circumstances in which the Company anticipates returns to occur. During 2023, the Company became aware of a quality matter with products sold to a major customer that resulted in product returns and the issuance of credits to the customer.
How We Addressed the Matter in Our Audit
Our audit procedures relating to the Company’s product returns liability included, but were not limited to, the following:
We obtained management’s calculation supporting the product returns liability and performed procedures to address the completeness and accuracy of data applied as well as the reasonableness of assumptions and judgments made by management. Specifically, we performed testing to identify the scope of product sales subject to quality concerns including analysis of the sales of the particular part sold, testing to identify the remaining inventory on hand with potential quality concerns, testing the mathematical accuracy of the calculation as well as performing sensitivity analysis to assess the effect of changes in assumptions.
We also reviewed correspondence between the Company’s management and the customer which the specific quality concern was identified and confirmed accounts receivable balances for a sample of invoices outstanding with the customer.
We have served as the Company's auditor since 2005.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 13, 2024
CPS TECHNOLOGIES CORP.
BALANCE SHEETS
| December 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable-trade, net | ||||||||
| Accounts receivable-other | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment: | ||||||||
| Production equipment | ||||||||
| Furniture and office equipment | ||||||||
| Leasehold improvements | ||||||||
| Total cost | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Construction in progress | ||||||||
| Net property and equipment | ||||||||
| Right-of-use lease asset | ||||||||
| Deferred taxes, net | ||||||||
| Total assets | $ | $ | ||||||
(continued)
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
BALANCE SHEETS
| December 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Notes payable, current portion | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue | ||||||||
| Lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Notes payable less current portion | ||||||||
| Deferred revenue – long term | ||||||||
| Long term lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments & Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Common stock, $ par value, authorized shares; issued and shares; outstanding and ; at December 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less cost of and common shares repurchased at December 30, 2023 and December 31, 2022, respectively | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
| 2023 |
2022 |
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| Product sales |
$ | $ | ||||||
| Cost of product sales |
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| Gross margin |
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| Selling, general, and administrative expenses |
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| Income from operations |
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| Interest income (expense) |
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| Other income (expense) |
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| Income before income tax |
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| Income tax provision (benefit) |
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| Net income |
$ | $ | ||||||
| Net income (loss) per basic common share |
$ | $ | ||||||
| Weighted average number of basic common shares outstanding |
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| Net income (loss) per diluted common share |
$ | $ | ||||||
| Weighted average number of diluted common shares outstanding |
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See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
| Common stock |
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| Additional |
Stock- |
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| Number of |
Par |
Paid-in |
Accumulated |
Stock |
holders’ |
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| shares issued |
Value |
capital |
deficit |
repurchased |
equity |
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| Balance at December 25, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Share-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Employee option exercises |
— | ( |
) | |||||||||||||||||||||
| Net income |
— | — | — | — | ||||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Share-based compensation expense |
— | |||||||||||||||||||||||
| Employee option exercises |
( |
) | ||||||||||||||||||||||
| Net income |
— | |||||||||||||||||||||||
| Balance at December 30, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
See accompanying notes to financial statements.
CPS TECHNOLOGIES CORP.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022
| 2023 |
2022 |
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| Cash flows from operating activities: |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to cash provided by operating activities: |
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| Share-based compensation |
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| Depreciation and amortization |
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| Deferred taxes |
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| Gain on sale of property and equipment |
( |
) | ||||||
| Changes in operating assets and liabilities: |
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| Accounts receivable – trade |
( |
) | ||||||
| Accounts receivable – other |
( |
) | ||||||
| Inventories |
( |
) | ||||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Accounts payable |
( |
) | ||||||
| Accrued expenses |
( |
) | ||||||
| Deferred revenue |
( |
) | ||||||
| Net cash provided by operating activities |
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| Cash flows from investing activities: |
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| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Proceeds from sale of property and equipment |
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| Net cash used by investing activities |
( |
) | ( |
) | ||||
| Cash flows from financing activities: |
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| Proceeds from employee stock options |
||||||||
| Payment on notes payable |
( |
) | ( |
) | ||||
| Net cash provided (used) by financing activities |
( |
) | ||||||
| Net increase in cash and cash equivalents |
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| Cash and cash equivalents at beginning of year |
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| Cash and cash equivalents at end of year |
$ | $ | ||||||
| Supplemental cash flow information: |
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| Cash paid for income taxes |
$ | $ | ||||||
| Cash paid for interest |
$ | $ | ||||||
| Supplemental disclosures of non-cash activity: |
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| Net exercise of stock options |
$ | |||||||
See accompanying notes to financial statements.
CPS Technologies Corp.
Years Ended December 30, 2023 and December 31, 2022
Notes to Financial Statements
(1) Nature of Business
CPS Technologies Corp. (the ‘Company’ or ‘CPS’) provides advanced material solutions to the transportation, automotive, energy, computing/internet, telecommunications, aerospace, defense and oil and gas end markets.
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
(2)(a) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.
(2)(b) Accounts Receivable
The Company reports its accounts receivable at the invoiced amount less an allowance for credit losses. The Company’s management provides appropriate provisions for uncollectible accounts based upon factors surrounding the credit risk and activity of specific customers, historical trends, economic conditions and other information to estimate future expected losses. Adjustments to the allowance are charged to operations in the period in which information becomes available that may affect the allowance. The Company maintains an allowance for credit losses of $
(2)(b)(1) Accounts Receivable-Other
As of December 30, 2023 this amount was primarily VAT paid by CPS, but due to be repaid by its European customers with future shipments. In 2022 the Company filed for the Employee Retention Tax Credit (ERTC) in the amount of $
(2)(c) Inventories
Inventories are stated at the lower of cost (cost is based on standard costs which approximate actual costs), as determined under the first-in, first-out method (FIFO), or net realizable value. A reserve for obsolete inventories is based on factors regarding the sales and usage of such inventories, including inventories manufactured for specific customers. The Company’s general obsolescence policy is to reserve against obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no expected customer orders.
(2)(d) Property and Equipment
Property and equipment are stated at cost. Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally years for production equipment and to years for furniture and office equipment. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from their respective accounts. Any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur.
(2)(e) Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of December 30, 2023 and December 31, 2022, the Company believes that there has been
(2)(f) Revenue Recognition
Revenue is recognized in accordance with the five-step method under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.”
Identifying the Contract with the Customer
The Company identifies contracts with customers as agreements that create enforceable rights and obligations. In the case of a few large customers the Company has executed long-term Master Sales Agreements (“MSA”). These are umbrella agreements which typically define the terms and conditions under which a customer can order goods from CPS. 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.
In cases without an MSA, the customer submits a blueprint for a product, the Company provides a quote and the customer responds with a purchase order. In these cases the Company’s acceptance of the purchase order constitutes an enforceable contract.
Identifying the Performance Obligations in the Contract
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, generally 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. Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.
The Company provides an assurance-type warranty. This guarantees that the product functions as promised and meets specifications. Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products. The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product. This assurance type warranty is not considered to be a distinct performance obligation.
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 or services to the customer. Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices. Product sales are recorded net of trade discounts and sales returns. The Company will establish a reserve for product returns when necessary based on returns history and specific circumstances in which the Company anticipates returns to occur. Such product return reserves are recorded as a reduction to revenue.
If a contract includes a variable amount, such as a rebate, then the Company estimates the transaction price using either the expected value or the most likely amount of consideration to be received, depending upon the specific facts and circumstances. The Company includes estimated variable consideration in the transaction price only to the extent it is probable that a significant reversal of revenue will not occur when the uncertainty is resolved. The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes in facts and circumstances. As of December 30, 2023 there are
When credit is granted to customers, payment is typically due 30 to 90 days from billing and accordingly our contracts with customers do not include a significant financing component.
Allocating the Transaction Price to the Performance Obligations
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 or the service has been performed. Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment. In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties. As of December 30, 2023 there are
The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. The costs are recorded within, selling, general and administrative expenses.
The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
(2)(g) Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in affect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.
The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 30, 2023 and December 31, 2022, the Company has
(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.
(2)(i) Reclassification
Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.
(2)(j) Recent Accounting Pronouncements
In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). Effective January 1, 2023, the Company adopted FASB Accounting Standards Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments, which changed the way entities recognize credit losses of most financial assets. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. The adoption of this standard had an immaterial impact on our financial statements. Management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s financial statements.
(2)(k) Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses recorded during the reporting period. Such estimates are adjusted by management periodically as a result of existing or anticipated economic changes which effect, or may effect, the Company’s financial statements. Actual results could differ from these estimates.
(2)(l) Fiscal Year-End
The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year. Fiscal year 2023 consisted of 52 weeks and 2022 consisted of 53 weeks.
(2)(m) 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, 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 stock options granted.
(2)(n) Segment Reporting
The Company views its operations and manages its business as segment. The Company produces and sells advanced material solutions, primarily metal matrix composites, to assemblers of high density electronics and other specialty components and subassemblies. The Company also assembles housings and packages for hybrid circuits, selling to the same customers mentioned above. These customers represent a single market or segment with similar stringent and well-defined requirements. The Company’s customers, in turn, sell the components and subassemblies which incorporate the products into many different end markets, however, these end markets are two to three levels removed from the Company. The Company also sells armor strike faces to armor manufacturers, using the same manufacturing process used in its other product solutions. The Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products.
(3) Inventories
As of December 30, 2023 and December 31, 2022 inventories consisted of the following:
| 2023 |
2022 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
||||||||
| Gross Inventory |
||||||||
| Reserve for obsolescence |
( |
) | ( |
) | ||||
| Total |
$ | $ | ||||||
(4) Leases
The Company had real estate lease in 2023 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 are based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at the commencement date of the lease. The Company does not separate lease components from non-lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Norton facility lease comprises approximately thousand square feet. The lease is a 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 buy the property and a first right of refusal during the term of the lease. Annual rental payments are through maturity are reflected in the table below.
The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating lease as of December 30, 2023:
| (Dollars in Thousands | December 30, 2023 | |||
| Maturity of capitalized lease liability | Lease payments | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total undiscounted operating lease payments | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liability | $ | |||
| Balance Sheet Classification | ||||
| Current lease liability | $ | |||
| Long-term lease liability | ||||
| Total operating lease liability | $ | |||
| Other Information | ||||
| Weighted-average remaining lease term for capitalized operating leases (in months) | ||||
| Weighted-average discount rate for capitalized operating leases | % |
Operating Lease Costs and Cash Flows
Operating lease cost and cash paid was $
Estimated monthly payments under the terms of the Norton facility lease, escalate from $
(5) Share-Based Compensation Plans
The Company adopted the 2020 Equity Incentive Plan ("2020 Plan") on March 3, 2020. Under the terms of the 2020 Plan all of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock awards, or other stock-based awards. Some outstanding options are non-statutory stock options; some are incentive stock options. All options granted are exercisable at the fair market value of the stock on the date of grant and expire years from the date of grant. The options granted to employees generally vest in equal annual installments over a -year period. The options granted to directors generally vest immediately on date of grant. Certain options also remain issued and outstanding under the 2009 Stock Incentive Plan.
Under the 2020 Plan a total of
A summary of stock option activity as of December 30, 2023 and changes during the year then ended is presented below:
| Weighted | Weighted | |||||||||||||||
| Average | Remaining | Aggregate | ||||||||||||||
| Exercise | Contractual | Intrinsic | ||||||||||||||
| Shares | Price | Life (years) | Value | |||||||||||||
| Outstanding at beginning of year | $ | |||||||||||||||
| Granted | $ | |||||||||||||||
| Exercised | ( | ) | $ | |||||||||||||
| Forfeited | ( | ) | $ | |||||||||||||
| Expired | ( | ) | $ | |||||||||||||
| Outstanding at end of year | $ | $ | ||||||||||||||
| Options exercisable at year-end | $ | $ | ||||||||||||||
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The following table presents the annualized weighted average values of the significant assumptions used to estimate the fair values of the options granted during 2023 and 2022:
| 2023 | 2022 | |||||||||
| Risk-free interest rate | - | - | ||||||||
| Expected life in years | | - | - | |||||||
| Expected volatility | ||||||||||
| Expected dividend yield | ||||||||||
| Weighted average fair value of grants | $ | |||||||||
All options are granted with an exercise price equal to the fair market value of the underlying common stock on the date of grant.
The Company recognized $
(6) Accrued Expenses
Accrued expenses at December 30, 2023 and December 31, 2022 consist of the following:
| 2023 | 2022 | |||||||
| Accrued legal and accounting | $ | $ | ||||||
| Accrued payroll and related costs | ||||||||
| Accrued other | ||||||||
| $ | $ | |||||||
Included in Accrued other is $
(7) Revolving Line of Credit
In May 2023, the Company terminated its $
(8) Notes Payable
In March 2020, the Company acquired a Sonoscan ultrasound microscope for a price of $
The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:
| Remaining in: | Payments due by period | |||
| FY 2024 | $ | |||
| FY 2025 | $ | |||
| Less Interest | $ | ( | ) | |
| Total Principal Payments | $ | |||
Total interest expense on notes payable during 2023 was $
(9) Income Taxes
Components of income tax expense (benefit) for each year are as follows:
| 2023 | 2022 | |||||||
| Current: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Current income tax provision (benefit): | ||||||||
| Deferred: | ||||||||
| Federal | ||||||||
| State | ||||||||
| Deferred income tax provision (benefit), net | ||||||||
| Total | $ | $ | ||||||
Deferred tax assets as of December 30, 2023 and December 31, 2022 are as follows:
| December 30, 2023 | December 31, 2022 | |||||||
| Deferred Tax Assets: | ||||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Stock compensation | ||||||||
| Credit carryforwards | ||||||||
| Inventory | ||||||||
| Accrued liabilities | ||||||||
| Depreciation | ||||||||
| Capitalized R&D, net | ||||||||
| Other | ||||||||
| Net deferred tax assets | $ | $ | ||||||
A summary of the change in the deferred tax asset is as follows:
| 2023 | 2022 | |||||||
| Gross deferred tax balance at beginning of year | $ | $ | ||||||
| Deferred tax benefit (provision) | ( | ) | ( | ) | ||||
| Balance at end of year, net | $ | $ | ||||||
Income tax expense is different from the amounts computed by applying the U.S. federal statutory income tax rate of
| 2023 | 2022 | |||||||
| Tax at statutory rate | $ | $ | ||||||
| State tax, net of federal benefit | ||||||||
| Other | ||||||||
| Total | $ | $ | ||||||
The Company’s income tax filings are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit under the applicable statutes of limitations for the years 2020 through 2023.
(10) Retirement Savings Plan
The Company sponsors a Retirement Savings Plan (the ‘Plan’) under the provisions of Section 401 of the Internal Revenue Code. Employees, as defined in the Plan, are eligible to participate in the Plan after 30 days of employment. Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan. During 2023 the Company elected to match 1% of each of the first
(11) Concentrations of Credit Risk, Significant Customers and Geographic Information
Financial instruments which subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. The Company maintains cash deposits in a sweep account, whereby funds are automatically moved in increments of $250,000 to various FDIC insured financial institutions on a nightly basis.
The Company extends credit to customers who consist principally of microelectronics systems companies in the United States, Europe and Asia. 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.
Revenues from significant customers as a percentage of total revenues in 2023 and 2022 were as follows:
| Percent of Total Revenues | ||||||||
| Significant Customer | 2023 | 2022 | ||||||
| A | % | % | ||||||
| B | % | % | ||||||
| C | % | % | ||||||
As of December 30, 2023, the Company had trade accounts receivable due from these customers that accounted for
The Company’s revenue was derived from the following countries in 2023 and 2022:
| Percent of Total Revenues | ||||||||
| Country | 2023 | 2022 | ||||||
| United States of America | % | % | ||||||
| Germany | % | % | ||||||
| Other | % | % | ||||||
Many of the Company’s customers based in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas.
All of the Company’s long-lived assets and operations are located in the United States.
(12) Net Income Per Share
The following reconciles the basic and diluted net income per share calculations.
| Dec. 30, |
Dec. 31, |
|||||||
| 2023 |
2022 |
|||||||
| Basic EPS Computation: |
||||||||
| Numerator: |
||||||||
| Net income |
$ | $ | ||||||
| Denominator: |
||||||||
| Weighted average |
||||||||
| Common shares |
||||||||
| Outstanding |
||||||||
| Basic EPS |
$ | $ | ||||||
| Diluted EPS Computation: |
||||||||
| Numerator: |
||||||||
| Net income |
$ | $ | ||||||
| Denominator: |
||||||||
| Weighted average |
||||||||
| Common shares |
||||||||
| Outstanding |
||||||||
| Dilutive effect of stock options |
||||||||
| Total shares |
||||||||
| Diluted net income per share |
$ | $ | ||||||
(13) Commitments and Contingencies
We are subject to contingencies, including legal proceedings and claims arising in the normal course of business that cover a wide range of matters including, among others, contract and employment claims; workers compensation claims; product liability; warranty and modification; and adjustment or replacement of units sold.
Direct costs associated with the estimated resolution of contingencies are accrued at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, we believe that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations. It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.
Notwithstanding the above, the Company has received a letter from an attorney representing a former European sales representative alleging that under European law the representative is entitled to compensation as a result of his termination. The Company completely disagrees with the claims. Should this result in litigation the Company will defend itself to the fullest extent of the law and estimates any losses incurred to be immaterial.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CPS Technologies Corp. |
||
| Date: August 2, 2024 |
By: |
/s/ Brian T. Mackey |
| Brian T. Mackey |
||
| CPS Technologies Corp. |
||
| Date: August 2, 2024 |
By: |
/s/ Charles K. Griffith Jr. |
| Charles K. Griffith Jr. |
||