CPS TECHNOLOGIES CORP/DE/

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $165 thousand for both thetwelve months endedDecember 27, 2025and*December 28, 2024.*These costs are related to its long-term operating lease. All other short-term leases were immaterial.

Estimated monthly payments under the terms of the Norton facility lease, escalate from $13 thousand to $14 thousand over the lease term.

(8) Share-Based Compensation Plans

The Company adopted the2020 Equity Incentive Plan ("2020 Plan") onMarch 3, 2020.Under the terms of the2020 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 expireten years from the date of grant. The options granted to employees generally vest in equal annual installments over a four orfive-year period. The options granted to directors generally vest immediately on date of grant. Certain options also remain issued and outstanding under the2009 Stock Incentive Plan.

Under the2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 415,620 shares remain available for grant as ofDecember 27, 2025.

A summary of stock option activity as ofDecember 27, 2025and changes during the year then ended is presented below:

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 during2025 and2024:

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 $273,028 and $310,094 as stock based compensation expense in2025 and2024, respectively. As of*December 27, 2025,*there was $468,773 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 1.87 years.

(9) Accrued Expenses

Accrued expenses atDecember 27, 2025andDecember 28, 2024consist of the following:

Included in 2024 Accrued other is $288,000 as a reserve for potential credits to be issued as part of a quality issue with a major customer which was set up at the end of 2023. These credits were issued in 2025.

(10) Revolving Line of Credit

InMay 2023,the Company entered into a line of credit (LOC) agreement in the amount of $3.0 million 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 (6.75% atDecember 27, 2025).OnDecember 27, 2025 and December 28, 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 was $0 for 2025 and2024.

(11) Notes Payable

In March 2020, the Company acquired a Sonoscan ultrasound microscope for a price of $208 thousand. The full amount was financed through a 5 year note payable with a third party equipment finance company. The note was collateralized by the microscope and was paid in full in 2025.

(12) Income Taxes

Components of income tax expense (benefit) for each year are as follows:

Deferred tax assets as ofDecember 27, 2025andDecember 28, 2024are as follows:

Net operating loss carryforwards are the result of federal net operating losses as of 12/272025 and 12/28/2024 are $2,624,214 and 2,805,819, respectively. Under current tax law, these federal losses were incurred subsequent to 2018 and can be carried forward indefinitely. State net operating loss carryforwards expire in 2044.

A summary of the change in the deferred tax asset is as follows:

Income tax expense is different from the amounts computed by applying the U.S. federal statutory income tax rate of 21 percent and the Massachusetts statutory income tax rate (net of federal benefit) of 6.32 percent

to pretax income as a result of the following:

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 concluded that it is “more likely thannot” that the Company will be able to fully utilize the deferred tax asset.

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 years2021 through2024.

(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 2025, the Company expensed $867,657 of unamortized Section 174 R&E expenditures

It is anticipated that the unamortized Section 174 R&E expenditures at Q4 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 incorporated 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.

(14) Retirement Savings Plan

The Company sponsors a Retirement Savings Plan (the ‘Plan’) under the provisions of Section401 of the Internal Revenue Code. Employees, as defined in the Plan, are eligible to participate in the Plan after30 days of employment. Under the terms of the Plan, the Companymaymatch employee contributions under such method as described in the Plan. During2025 the Company elected to match1% of each of thefirst 4% of employee contributions paid proportionally each pay period amounting to $249 thousand. In2024 the Company elected to match 1% of each of thefirst 4% of employee contributions paid proportionally each pay period amounting to $239 thousand*.*

(15) 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 doesnot 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 hasnot experienced any significant credit-related losses with respect to its trade accounts receivable.

Revenues from significant customers as a percentage of total revenues in2025 and2024 were as follows:

As of*December 27, 2025,*the Company had trade accounts receivable due from these three customers that accounted for 69% of total trade accounts receivable as of that date. To further mitigate the potential for credit losses the Company has acquired a credit insurance policy covering most of our sales to non-US accounts. Management believes that any credit risks have been properly provided for in the accompanying financial statements.

The Company’s revenue was derived from the following countries in2025 and2024:

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.

(16) Net Income Per 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 2024, the dilutive effect would have been 25,905 shares.

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

(17) 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.

(18) 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, more than amounts provided or covered by insurance, willnot 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 future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

(19) Subsequent Events

The Company has evaluated subsequent events through March 3, 2026 the date the financial statements were approved and authorized for issuance by management and determined that there have been no subsequent events that would require recognition in the financial statements or disclosure in the notes to the financial statements.