CPS TECHNOLOGIES CORPDE

Balance Sheets (Unaudited)

(continued)

Balance Sheets (Unaudited)

(concluded)

Statements of Operations and Other Comprehensive Income ** (Unaudited)**

CPS TECHNOLOGIES CORP.

STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE AND SIX MONTHS ENDED JUNE 29, 2024 AND JULY 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 also engages in research and development, in some cases government funded and in others internally funded, focused on developing new products in response to customer requirements. These products expand our offerings in existing markets and enable penetration into new markets.

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)*Marketable Securities

Investments consist of U.S. Treasury Bills with maturities up toone year. Since it isnot management’s intention to hold these debt securities until the maturity dates, these have been classified as available-for-sale (“AFS”) and are recorded on the balance sheet at fair value, with changes in fair value recorded as a component of other comprehensive income.

(4) Fair value of Marketable Securities

ASC820, Fair Value Measurements (“ASC820”) states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. Thethree-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little orno market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. CPS’ marketable securities consist solely of US Government bonds with a maturity of12 months or less and which fall under level II of the fair value hierarchy. The value of these bonds as of* June 29, 2024was $758,701. CPS heldno* investments in marketable securities as of* December 30, 2023.*

(5) Net Income Per Common and Common Equivalent 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 options 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. Had there been a profit inQ2 2024, the dilutive effect would have been 29,254 shares.

The following table presents the calculation of both basic and diluted EPS:

(6) 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 on the balance sheet. This asset and liability was recognized based 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.**Annual rental payments range from $160 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 lease as of** June 29, 2024:**

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $41 thousand during thesecond quarter of2024 and $82 thousand for thesix months ended** June 29, 2024.**These costs are related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company doesnot have any finance leases.

(7) 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 quarter ended** June 29, 2024,no stock options were granted to employees under the Company’s2020** Equity Incentive Plan Stock Incentive Plan (the “Plan”) andno stock options were granted to outside directors during the quarter ended** June 29, 2024**. During the quarter ended** July 1, 2023,a total of 60,000 stock options were granted to employees under the Company’s2020** Equity Incentive Plan Stock Incentive Plan (the “Plan”) andno stock options were granted to outside directors during the quarter ended** July 1, 2023,**issued at a weighted average price of $2.66 per share.

During thethree andsix months ended** June 29, 2024,there wereno options exercised and corresponding shares issued. During thethree** andsix months ended** July 1, 2023,** there were 79,000 and 86,001 options exercised and corresponding shares issued at a weighted average price of $1.20 and $1.22, respectively.

During thethree andsix months ended** June 29, 2024,the Company didnot repurchase any shares for employees to facilitate their exercise of stock options. During thethree** andsix months ended** July 1, 2023,**the Company repurchased 24,642 and 24,927 shares, respectively, 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 term of 6.81 years as of** June 29, 2024,and there were 610,000 options exercisable at a weighted average price of $2.45 with a weighted average remaining term of 5.09 years as of June 29, 2024.The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of June 29, 2024,**there were 638,300 shares available for future grants under the2020 Plan and 236,200 shares outstanding under the2009 Plan.

As of** June 29, 2024,**there was $648 thousand of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan; that cost is expected to be recognized over a weighted average period of 2.93 years.

During thethree andsix months ended** June 29, 2024,**the Company recognized $44,480 and $205,442, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

During thethree andsix months ended** July 1, 2023,** the Company recognized $17,316 and $147,757, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

*(8) * Inventories

Inventories consist of the following:

(9) Accrued Expenses

Accrued expenses consist of the following:

(10) 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 June 29, 2024). On June 29, 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 line of credit remains in effect until terminated by mutual agreement of both parties.

(11) 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 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 during2024 was $1,465.

(12) 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. Management has determined that a valuation allowance isnot needed as it expects that the deferred tax asset will be fully utilized.

For thethree* andsix months ended* June 29, 2024 the deferred tax asset was increased $40,256 and $307,576 for the estimated tax benefit onQ2 and year to date net losses, respectively