CPS TECHNOLOGIES CORP/DE/

Balance Sheets (Unaudited)

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

CPS TECHNOLOGIES CORP.

STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 27, 2025 AND SEPTEMBER 28, 2024

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, defense and other industries. The Company’s primary advanced material solution is metal-matrix composites (“MMC”) which are a combination of metal and ceramic.

CPS also assembles housings and packages for hybrid circuits. These housings and packagesmayinclude components made of metal-matrix composites or theymayinclude components made of more traditional materials such as aluminum.

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.

(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 atDecember 28, 2024has 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 endedDecember 28, 2024and 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 to one year. Since it is not currently managements 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 ofMarketable Securities

ASC 820,Fair Value Measurements (“ASC 820”) 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. The three-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 or no 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 of 12 months or less and which fall under Level II of the fair value hierarchy. The value of these bonds as of September 27, 2025 was $1,054,079 and was $1,031,001 as of December 28, 2024.

(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 in Q3 and year to date in 2024, the dilutive effect would have been 41,471 shares and 25,905 shares, respectively.

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

(6) Commitments & Contingencies

Commitments

Operating Leases

The Company hasone real estate lease now expiring inFebruary 2028. In August 2025 the Company exercised its option to extend the lease term for two additional years.* 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 in2028 (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, for the portion expiring in February 2026, and the option exercise date, for the final two years of the lease. 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 two, two year options to renew the lease inMarch 2028and again inMarch 2030 throughFebruary 2032. The Company is not reasonably certain these extensions will be exercised at this time, and therefore are not included in the lease asset or liability. Annual rental payments range from $165 thousand to $169 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 ofSeptember 27, 2025:

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $41 thousand during thethird quarter of2025 and $124 thousand for thenine months ended*September 27, 2025.*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 endedSeptember 27, 2025,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 endedSeptember 27, 2025. For the nine months endedSeptember 27,2025 a total of 115,000 stock options and 75,000 stock options were granted to employees and directors, respectively. During the quarter endedSeptember 28, 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 endedSeptember 28, 2024. For the nine months endedSeptember 28,2024 a total of 135,500 stock options and 75,000 stock options were granted to employees and directors, respectively.

During thethree andnine months endedSeptember 27, 2025,there were 5,500 options exercised and corresponding shares issued at a weighted average price of $1.44. During thethree andnine months ended*September 28, 2024,*there were 60,000 options exercised and corresponding shares issued at a weighted average price of $1.50.

During thethree andnine months endedSeptember 27, 2025,the Company repurchased 2,183 shares for employees to facilitate their exercise of stock options. During thethree andnine months ended*September 28, 2024,*the Company repurchased 53,255 shares for employees to facilitate their exercise of stock options.

There were also 1,077,800 options outstanding at a weighted average price of $2.45 with a weighted average remaining term of 7.13 years as of*September 27, 2025,and there were 635,500 options exercisable at a weighted average price of $2.45 with a weighted average remaining term of 6.37 years as ofSeptember 27, 2025.The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As ofSeptember 27, 2025,there were 421,400 shares available for future grants under the 2020 Plan and 138,900 shares outstanding under the 2009 Plan. As ofSeptember 28, 2024,*there were 626,400 shares available for future grants under the 2020 Plan and 248,400 shares outstanding under the 2009 Plan.

As of*September 27, 2025,*there was $509 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 2.68 years.

During thethree andnine months ended*September 27, 2025,*the Company recognized $49,354 and $220,894, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

During thethree andnine months ended*September 28, 2024,*the Company recognized $44,480 and $249,922, 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

The Company has a $3.0 million revolving line of credit (LOC) 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 (7.25% atSeptember 27, 2025). On*September 27, 2025,*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 and has been extended to August 5, 2026.

(11)Segment Reporting

The Company views its operations and manages its business asone 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 aretwo tothree 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 doesnot make operating decisions or assess financial performance by the end markets which ultimately use the products. Our chief operating decision maker (CODM) is Brian Mackey, our President and CEO. The Company's CODM regularly reviews financial information presented and does not evaluate the Company's operating segment using asset or liability information. Instead, the CODM uses revenue, gross margin, and net income or loss to allocate operating and capital resources and assess performance by comparing actual results to historical results and previously forecasted financial information.

The following table presents segment information for the Company's single reporting segment:

(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 is not needed as it expects that the deferred tax asset will be fully utilized.

For thethree and nine months ended September 27, 2025 the deferred tax asset was decreased $113,601 and $249,429 for the estimated tax provision for Q3 and year to date net income, respectively.

(13) Enactment of the One Big Beautiful Bill Act

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (Public Law 119-21), which includes significant modifications to the Internal Revenue Code. The legislation permanently extends and modifies key provisions of the Tax Cuts and Jobs Act of 2017 and introduces new deductions and credits applicable to both individuals and businesses.

Key provisions relevant to the Company include:

Restoration of Immediate Expensing for Domestic Research and Experimental (“R&E”***) Expenditures:***Effective for tax years beginning after December 31, 2024, domestic R&E expenditures may be immediately expensed under new Section 174A, reversing the prior capitalization and amortization requirement. This change may materially impact the Company’s deferred tax assets and current tax expense depending on the volume of qualifying expenditures.

During Q3 2025, the Company expensed $899,728 of unamortized Section 174 R&E expenditures.

It is anticipated that the unamortized Section 174 R&E expenditures at Q2 2025 will be expensed as follows (subject to further analyses and discussions):

***Enhancement of Section 179 Expensing:***The maximum Section 179 deduction is increased to $2.5 million, with a phase-out threshold beginning at $4 million. This expansion is expected to accelerate tax deductions for qualifying property and benefit capital investment strategies.

***Permanent Reinstatement of 100% Bonus Depreciation:***For qualified property acquired and placed in service after January 19, 2025, the Company may elect full expensing under Section 168(k), which is expected to accelerate tax deductions and reduce taxable income in applicable periods.

***Modifications to FDII (now FDDEI):***The deduction under Section 250 for foreign-derived intangible income is reduced to 33.34%, and eligibility criteria are narrowed. These changes may impact export-related tax incentives and deferred tax projections tied to U.S.-held IP.

The Company is currently evaluating the impact of these provisions on its financial statements and tax positions. While the changes are not expected to materially affect prior period results, they may influence future effective tax rates, deferred tax balances, and cash tax obligations. The Company will incorporate these changes into its tax planning and provision calculations for fiscal year 2025 and beyond. However, the full effect of these provisions will depend on the Company's future capital expenditures, R&E activities, financing arrangements, and international operations. The Company will incorporate these changes into its tax provision and planning beginning in fiscal year 2025.

(14) Subsequent Events: Equity capital raise

On October 8, 2025 the Company closed an equity raise underwritten by Roth Capital Partners (“Roth”). Roth acquired 3,450,000 shares of the Company’s common stock at a price of $3.00 per share. The net proceeds to the Company were $9,540,025. Had the transaction occurred on the final day of the fiscal quarter, September 27, 2025, the balance sheet would have appeared as follows (changes are italicized):

Balance Sheets (Unaudited)