CPS TECHNOLOGIES CORPDE

Balance Sheets (Unaudited)

Statements of Operations (Unaudited)

CPS TECHNOLOGIES CORPORATION

STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE MONTHS ENDED March 30, 2024 AND April 1, 2023

Statements of Cash Flows (Unaudited)

Notes to Financial Statements

(Unaudited)

(1) Nature of Business

CPS Technologies Corporation (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 which are a combination of metal and ceramic.

CPS also assembles housings and packages for hybrid circuits. These housings and packages** mayinclude 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 defense markets.

(2) Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to quarterly reports on Form10-Q, these notes are condensed and donot 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 30, 2023has been derived from the audited financial statements at that date, but doesnot** 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 Form10-K for the year ended** December 30, 2023**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.cpstechnologysolutions.com.

The results of operations for interim periods arenot necessarily indicative of the results to be expected for the full year.

(3) Net Income (Loss) Per Common and Common Equivalent 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 options and stock purchase rights. Had there been a profit inQ1 2024, the dilutive effect would have been 74,285 shares. 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:

(4) Commitments & Contingencies

Commitments

Operating Leases

The Company hasone 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 of12** months or fewer.

The real estate lease expiring in2026 (the “Norton facility lease”) is included as a right-of-use lease asset and corresponding lease liability (current and noncurrent portions) on the balance sheet. This asset and liability was recognized on** March 30, 2024based 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 donot** contain any material residual value guarantees or material restrictive covenants.

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 2026through February 2032.The Company isnot** reasonably certain these extensions will be exercised at this time, and therefore arenot included in the lease asset or liability. 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** March 30, 2024**

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $41 thousand during thefirst quarter of2024. This cost is related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The Company doesnot 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 quarters ended** March 30, 2024and April 1, 2023,a total of 135,500 and 0 stock options, respectively, were granted to employees under the Company’s2020** Equity Incentive Plan (the “Plan”) and a total of 75,000 and 50,000 stock options, respectively, were granted to outside directors during the quarters ended** March 30, 2024and April 1, 2023.**

During the quarter ended** March 30, 2024,there were 0 options exercised. During the quarter ended April 1, 2023,**there were 7,001 options exercised and corresponding shares issued at a weighted average price of $1.47.

During the quarter ended** March 30, 2024,the Company repurchased 0 shares for employees to facilitate their exercise of stock options. During the quarter ended April 1, 2023,**the Company repurchased 285 shares for employees to facilitate their exercise of stock options.

There were also 1,097,900 options outstanding at a weighted average price of $2.61 with a weighted average remaining contractual term of 7.06 years as of** March 30, 2024and there were 582,800 shares exercisable at a weighted average price of $2.44 with a weighted average remaining term of 5.3 years. There were 1,004,400 options outstanding at a weighted average price of $2.51 with a weighted average remaining contractual term of 6.10 years as of April 1, 2023.The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of March 30, 2024,**there were 638,300 shares available for future grants.

As of** March 30, 2024,**there was $693 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 2.44 years.

During the quarters ended** March 30, 2024and April 1, 2023,**the Company recognized approximately $161 thousand and $130 thousand, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

(6) Inventories

Inventories consist of the following:

(7) Accrued Expenses

Accrued expenses consist of the following:

(8) Revolving Line of Credit

In** May 2023,the Company terminated its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $3.0 million was entered into with Rockland Trust Company. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal (8.5% at March 30, 2024).On March 30, 2024,**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 LOC remains in effect until terminated per mutual agreement by both parties. Total interest expense forQ1 2024 was $0 and was $0 thousand forQ1 2023.

(9) Note Payable

In** March 2020,**the Company acquired inspection equipment for a price of $208 thousand. The full amount was financed through a 5 year note payable with athird party equipment finance company. The note is collateralized by the equipment and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a fixed rate of 6.47%.

The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:

Total interest expense on notes payable duringQ1 2024 was $825 compared to $1,538 inQ1 2023.

(10) Income Taxes

A valuation allowance against deferred tax assets is required to be established or maintained when it is "more likely thannot" that all or a portion of deferred tax assets willnot be realized.

The Company believes that it is “more likely thannot” that the Company will be able to fully utilize the deferred tax asset. For thefirst quarter of2024 the deferred tax asset was increased $40 for the estimated tax benefit onQ1 net loss.