CPS Technologies(CPSH) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This part presents the company's unaudited financial statements, management's analysis, market risk disclosures, and control procedures Item 1. Financial Statements (Unaudited) The unaudited financial statements show stable assets and lower liabilities alongside a significant year-over-year decline in quarterly net income Balance Sheets Total assets and stockholders' equity increased while total liabilities decreased by the end of Q3 2023 Balance Sheet Summary | Balance Sheet Items | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $18,967,783 | $17,817,539 | | Total Assets | $22,511,259 | $21,679,943 | | Total Current Liabilities | $5,109,963 | $5,379,560 | | Total Liabilities | $5,357,895 | $5,974,427 | | Total Stockholders' Equity | $17,153,364 | $15,705,516 | Statements of Operations Q3 2023 revenues and net income declined year-over-year, though nine-month revenues saw a slight increase Quarterly and Nine-Month Operating Results | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $6,285,041 | $6,748,117 | $20,803,447 | $20,471,574 | | Gross Profit | $1,235,864 | $1,883,241 | $5,676,826 | $5,675,368 | | Operating Income | $130,637 | $708,660 | $1,555,727 | $1,925,237 | | Net Income | $171,081 | $987,865 | $1,230,785 | $1,862,409 | | Diluted EPS | $0.01 | $0.07 | $0.08 | $0.13 | Statements of Stockholders' Equity Stockholders' equity grew to $17.2 million by Q3 2023, driven by net income and share-based compensation - Total stockholders' equity increased by approximately $1.45 million during the first nine months of 2023, reaching $17,153,364[7] Statements of Cash Flows Net cash from operations increased year-over-year, contributing to a higher end-of-period cash balance Cash Flow Summary (Nine Months Ended) | Cash Flow Activity | September 30, 2023 | October 1, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,070,533 | $872,153 | | Net cash used in investing activities | ($567,349) | ($392,286) | | Net cash provided by financing activities | $8,918 | $68,324 | | Net increase in cash | $512,103 | $548,191 | | Cash at end of period | $8,778,856 | $5,598,503 | Notes to Financial Statements Key disclosures cover the company's MMC business, a new undrawn credit line, and stable inventory levels - The company's primary business is providing advanced material solutions, mainly metal-matrix composites (MMCs), to various industries[57] - The company has a real estate lease for its Norton facility expiring in 2026, with total future undiscounted payments of $398,000[13][14] - In May 2023, the company secured a new $3.0 million revolving line of credit, and as of September 30, 2023, there were no borrowings under this line[95][38] Inventory Composition | Inventory Type | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Raw materials | $2,781,188 | $2,645,442 | | Work in process | $1,512,835 | $1,863,512 | | Finished goods | $729,359 | $525,872 | | Inventories, net | $4,827,957 | $4,875,901 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes a Q3 revenue decline to shipment deferrals, impacting margins, while liquidity remains strong Overview The company provides custom metal-matrix composite solutions for high-performance industrial applications - The company's products are custom-made components, not catalog items, used in systems for high-speed electric trains, radar, and internet switches[109][71] - CPS believes the underlying demand for its MMC, housing, and armor solutions is growing as industries seek higher performance and reliability[100] Results of Operations Q3 revenue and gross margin fell due to shipment deferrals, while nine-month SG&A expenses increased 10% - Q3 2023 revenue decreased 7% to $6.3 million compared to Q3 2022, mainly because customers moved expected Q3 shipments into Q4[110] - Q3 2023 gross profit fell to 20% of sales from 28% in Q3 2022, reflecting lower revenue and higher outsourced testing costs[25] - For the first nine months of 2023, SG&A expenses increased by 10% compared to the prior year, driven by increased travel, 401k match, and severance costs[102] - Net income for Q3 2023 was $171k versus $988k in Q3 2022, with the difference largely due to an Employee Retention Tax Credit (ERTC) in 2022[35] Liquidity and Capital Resources The company's liquidity position strengthened with increased cash reserves and a new undrawn credit line - Cash and cash equivalents increased to $8.8 million at the end of Q3 2023, up from $8.3 million at year-end 2022[27] - A new $3.0 million revolving line of credit was established in May 2023, with no borrowings as of September 30, 2023[38] - Days Sales Outstanding (DSO) increased to 72 days at the end of Q3 2023 from 52 days at the end of 2022[37] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company reports no significant exposure to market risks and has not used derivative instruments - The Company is not significantly exposed to interest rate or foreign currency risks and has not used derivative financial instruments[105] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures are effective to ensure timely and accurate reporting[76] - No change in internal control over financial reporting occurred during the most recent fiscal quarter that has materially affected, or is likely to affect, internal controls[115] PART II OTHER INFORMATION This part confirms no new legal proceedings or risk factors and lists exhibits filed with the report Item 1. Legal Proceedings The company reports no current legal proceedings - The company reported no material legal proceedings[106] Item 1A. Risk Factors No material changes to risk factors disclosed in the 2020 Form 10-K have been reported - There have been no material changes to the risk factors as discussed in the 2020 Form 10-K[40] Other Items (Items 2, 3, 4, 5, 6) This section covers other required disclosures, including exhibits filed and confirms no other material events - Item 2: No unregistered sales of equity securities[77] - Item 3: No defaults upon senior securities[116] - Item 4: Mine safety disclosures are not applicable[31] - Item 6: Lists filed exhibits, including CEO/CFO certifications and Inline XBRL documents[117]