CPS TECHNOLOGIES CORP/DE/ — Annual Report 2023

Aug 2, 2024

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark One) ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 30, 2023 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 , for the transition period from to

Commission file number: 0-16088

CPS TECHNOLOGIES CORP. (Exact Name of Registrant as Specified in its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)	04-2832509 (I.R.S. Employer Identification No.)
111 South Worcester Street Norton , MA (Address of principal executive offices)	02766-2102 (Zip Code)

508 - 222-0614

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	CPSH	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒ No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period than the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer," "accelerated filer," "smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐ Yes ☒ No

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):

☐ Yes ☒ No

The aggregate market value of the voting Common Stock held by non-affiliates of the Registrant was $ 34 million based on the average of the reported closing bid and asked prices for the Common Stock as of the last business day of the registrant’s most recently completed fourth fiscal quarter as reported on the NASDAQ Capital Market.

Number of shares of Common Stock outstanding as of February 12, 2024: 14,519,215 shares.

Portions of the Proxy Statement to be filed for the Company’s 2024 meeting of stockholders are incorporated by reference into Part III of this form 10-K.

EXPLANATORY NOTE

CPS Technologies Corp. (the “Company”) is filing this Amendment No. 1 (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 30, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024 (the “Original 10-K”), solely for the purpose of filing revised versions of Exhibits 31.1 and 31.2 filed with the Original 10-K and adding the Independent Registered Public Accounting Firm’s PCAOB number to the Financial Statement index.

The Company is filing revised Exhibits 31.1 and 31.2 solely in order to include certification language that was inadvertently omitted from such exhibits when originally filed and the inadvertently omitted PCAOB number. For reference purposes only, we are also including Item 9A, Exhibit 32.1 and the financial statements which remain unchanged from the original filing. The Amendment does not reflect events occurring after the date of the filing of the Original 10-K or modify or update any of the other disclosures contained therein in any way. Accordingly, the Amendment should be read in conjunction with the Original 10-K.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 30, 2023.

Changes in Internal Control over Financial Reporting

There were no material changes in the Company’s internal control over financial reporting during fiscal 2023.

Management ’ s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2023. In making this assessment, management used the criteria set forth in the "Internal Control Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 30, 2023.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

CPS TECHNOLOGIES CORP. EXHIBIT INDEX

Exhibit No.	Description
31.1	Certification Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

INDEX TO FINANCIAL STATEMENTS OF CPS TECHNOLOGIES CORP.

Report of Independent Registered Public Accounting Firm (PCAOB ID 392)
Balance Sheets as of December 30, 2023 and December 31, 2022
Statements of Operations for the years ended December 30, 2023 and December 31, 2022
Statements of Stockholders’ Equity for the years ended December 30, 2023 and December 31, 2022
Statements of Cash Flows for the years ended December 30, 2023 and December 31, 2022
Notes to Financial Statements

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of CPS Technologies Corporation

Opinion on the Financial Statements

We have audited the accompanying balance sheets of CPS Technologies Corporation (the Company) as of December 30, 2023 and December 31, 2022, the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates.

Reserves for product sales returns

Description of the Matter

As described in Notes 2 and 6 to the financial statements, reserves for product sales returns are recorded based on returns history and specific circumstances in which the Company anticipates returns to occur. During 2023, the Company became aware of a quality matter with products sold to a major customer that resulted in product returns and the issuance of credits to the customer.

How We Addressed the Matter in Our Audit

Our audit procedures relating to the Company’s product returns liability included, but were not limited to, the following:

We obtained management’s calculation supporting the product returns liability and performed procedures to address the completeness and accuracy of data applied as well as the reasonableness of assumptions and judgments made by management. Specifically, we performed testing to identify the scope of product sales subject to quality concerns including analysis of the sales of the particular part sold, testing to identify the remaining inventory on hand with potential quality concerns, testing the mathematical accuracy of the calculation as well as performing sensitivity analysis to assess the effect of changes in assumptions.

We also reviewed correspondence between the Company’s management and the customer which the specific quality concern was identified and confirmed accounts receivable balances for a sample of invoices outstanding with the customer.

We have served as the Company's auditor since 2005.

/s/ Wolf & Company, P.C.

Boston, Massachusetts

March 13, 2024

CPS TECHNOLOGIES CORP. BALANCE SHEETS

	December 30, — 2023	2022
ASSETS
Current assets:
Cash and cash equivalents	$ 8,813,626	$	8,266,753
Accounts receivable-trade, net	4,389,155		3,777,975
Accounts receivable-other	83,191		685,668
Inventories	4,581,930		4,875,901
Prepaid expenses and other current assets	276,349		211,242
Total current assets	18,144,251		17,817,539
Property and equipment:
Production equipment	11,271,982		10,770,427
Furniture and office equipment	952,883		952,883
Leasehold improvements	985,649		985,649
Total cost	13,210,514		12,708,959
Accumulated depreciation and amortization	( 11,936,004	)	( 11,446,901	)
Construction in progress	281,629		64,910
Net property and equipment	1,556,139		1,326,968
Right-of-use lease asset	332,000		466,000
Deferred taxes, net	1,569,726		2,069,436
Total assets	$ 21,602,116	$	21,679,943

(continued)

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP. BALANCE SHEETS

	December 30, — 2023	2022
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Notes payable, current portion	$ 46,797	$	43,711
Accounts payable	2,535,086		1,836,865
Accrued expenses	1,075,137		820,856
Deferred revenue	251,755		2,521,128
Lease liability, current portion	160,000		157,000
Total current liabilities	4,068,775		5,379,560
Notes payable less current portion	8,090		54,847
Deferred revenue – long term	31,277		231,020
Long term lease liability	172,000		309,000
Total liabilities	4,280,142		5,974,427
Commitments & Contingencies
Stockholders’ Equity:
Common stock, $ 0.01 par value, authorized 20,000,000 shares; issued 14,601,487 and 14,460,486 shares; outstanding 14,519,215 and 14,450,470 ; at December 30, 2023 and December 31, 2022, respectively	146,015		144,605
Additional paid-in capital	40,180,893		39,726,851
Accumulated deficit	( 22,754,796	)	( 24,125,092	)
Less cost of 82,272 and 10,016 common shares repurchased at December 30, 2023 and December 31, 2022, respectively	( 250,138	)	( 40,848	)
Total stockholders’ equity	17,321,974		15,705,516
Total liabilities and stockholders’ equity	$ 21,602,116	$	21,679,943

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022

	2023	2022
Product sales	$ 27,550,646	$ 26,586,926
Cost of product sales	20,725,237	19,285,846
Gross margin	6,825,409	7,301,080
Selling, general, and administrative expenses	5,126,046	5,066,660
Income from operations	1,699,363	2,234,420
Interest income (expense)	225,757	12,015
Other income (expense)	27,261	641,233
Income before income tax	1,952,381	2,887,668
Income tax provision (benefit)	582,085	756,268
Net income	$ 1,370,296	$ 2,131,400
Net income (loss) per basic common share	$ 0.09	$ 0.15
Weighted average number of basic common shares outstanding	14,495,709	14,424,381
Net income (loss) per diluted common share	$ 0.09	$ 0.15
Weighted average number of diluted common shares outstanding	14,628,811	14,675,646

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP. STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022

			Additional					Stock-
Number of		Par	Paid-in	Accumulated		Stock		holders ’
shares issued		Value	capital	deficit		repurchased		equity
Balance at December 25, 2021	14,350,786	$ 143,508	$ 39,281,810	$ ( 26,256,492	)	$ ( 2,515	)	$ 13,166,311
Share-based compensation expense	—	—	250,359	—		—		250,359
Employee option exercises	109,700	1,097	194,682	—		( 38,333	)	157,446
Net income	—	—	—	2,131,400		—		2,131,400
Balance at December 31, 2022	14,460,486	$ 144,605	$ 39,726,851	$ ( 24,125,092	)	$ ( 40,848	)	$ 15,705,516
Share-based compensation expense	—	—	204,797	—		—		204,797
Employee option exercises	141,001	1,410	249,245	—		( 209,290	)	41,365
Net income	—	—	—	1,370,296		—		1,370,296
Balance at December 30, 2023	14,601,487	$ 146,015	$ 40,180,893	$ ( 22,754,796	)	$ ( 250,138	)	$ 17,321,974

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022

	2023
Cash flows from operating activities:
Net income	$ 1,370,296	$	2,131,400
Adjustments to reconcile net income to cash provided by operating activities:
Share-based compensation	204,797		250,359
Depreciation and amortization	489,103		445,739
Deferred taxes	499,710		754,542
Gain on sale of property and equipment	-		( 3,400	)
Changes in operating assets and liabilities:
Accounts receivable – trade	( 611,180	)	1,092,046
Accounts receivable – other	602,477		( 685,668	)
Inventories	293,971		( 964,299	)
Prepaid expenses and other current assets	( 65,107	)	14,631
Accounts payable	698,221		( 263,386	)
Accrued expenses	254,281		( 265,575	)
Deferred revenue	( 2,469,116	)	1,045,010
Net cash provided by operating activities	1,267,453		3,551,399
Cash flows from investing activities:
Purchases of property and equipment	( 718,274	)	( 439,772	)
Proceeds from sale of property and equipment	-		3,400
Net cash used by investing activities	( 718,274	)	( 436,372	)
Cash flows from financing activities:
Proceeds from employee stock options	41,365		157,446
Payment on notes payable	( 43,671	)	( 56,032	)
Net cash provided (used) by financing activities	( 2,306	)	101,414
Net increase in cash and cash equivalents	546,873		3,216,441
Cash and cash equivalents at beginning of year	8,266,753		5,050,312
Cash and cash equivalents at end of year	$ 8,813,626	$	8,266,753
Supplemental cash flow information:
Cash paid for income taxes	$ 111,456	$	456
Cash paid for interest	$ 5,096	$	7,954
Supplemental disclosures of non-cash activity:
Net exercise of stock options	$ 209,290		38,333

See accompanying notes to financial statements.

CPS Technologies Corp . Years Ended December 30, 2023 and December 31, 2022 Notes to Financial Statements

( 1 ) Nature of Business

CPS Technologies Corp. (the ‘Company’ or ‘CPS’) provides advanced material solutions to the transportation, automotive, energy, computing/internet, telecommunications, aerospace, defense and oil and gas end markets.

Our primary material solution is metal matrix composites. We design, manufacture and sell custom metal matrix composite components which improve the performance and reliability of systems in these end markets.

( 2 ) Summary of Significant Accounting Policies

( 2 )(a) Cash and Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.

( 2 )(b) Accounts Receivable

The Company reports its accounts receivable at the invoiced amount less an allowance for credit losses. The Company’s management provides appropriate provisions for uncollectible accounts based upon factors surrounding the credit risk and activity of specific customers, historical trends, economic conditions and other information to estimate future expected losses. Adjustments to the allowance are charged to operations in the period in which information becomes available that may affect the allowance. The Company maintains an allowance for credit losses of $ 10,000 as of December 30, 2023 and December 31, 2022.

( 2 )(b)( 1 ) Accounts Receivable-Other

As of December 30, 2023 this amount was primarily VAT paid by CPS, but due to be repaid by its European customers with future shipments. In 2022 the Company filed for the Employee Retention Tax Credit (ERTC) in the amount of $ 641,086 . This credit was still due from the Internal Revenue Service (“IRS”) on December 31, 2022 however was collected in 2023.

( 2 )(c) Inventories

Inventories are stated at the lower of cost (cost is based on standard costs which approximate actual costs), as determined under the first -in, first -out method (FIFO), or net realizable value. A reserve for obsolete inventories is based on factors regarding the sales and usage of such inventories, including inventories manufactured for specific customers. The Company’s general obsolescence policy is to reserve against obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no expected customer orders.

( 2 )(d) Property and Equipment

Property and equipment are stated at cost. Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally five years for production equipment and three to five years for furniture and office equipment. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from their respective accounts. Any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur.

( 2 )(e) Impairment of Long-Lived Assets

The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of December 30, 2023 and December 31, 2022, the Company believes that there has been no impairment of its long-lived assets.

( 2 )(f) Revenue Recognition

Revenue is recognized in accordance with the five -step method under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.”

Identifying the Contract with the Customer

The Company identifies contracts with customers as agreements that create enforceable rights and obligations. In the case of a few large customers the Company has executed long-term Master Sales Agreements (“MSA”). These are umbrella agreements which typically define the terms and conditions under which a customer can order goods from CPS. These in themselves do not constitute a contract as no products are committed to be transferred and the customer has no obligation to make payments. In the case of SBIRs an enforceable contract is signed by both the customer and CPS.

The Company contract is only enforceable once both parties have approved it and is usually in the form of a written purchase order from a customer combined with acknowledgement from the Company.

In cases without an MSA, the customer submits a blueprint for a product, the Company provides a quote and the customer responds with a purchase order. In these cases the Company’s acceptance of the purchase order constitutes an enforceable contract.

Identifying the Performance Obligations in the Contract

For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations. For SBIRs the Company is obligated to provide certain services over the life of the agreement and the customer is obligated to pay for those services, generally monthly, as they are performed.

Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods. Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.

The Company provides an assurance-type warranty. This guarantees that the product functions as promised and meets specifications. Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products. The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product. This assurance type warranty is not considered to be a distinct performance obligation.

Determining the Transaction Price

The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods or services to the customer. Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices. Product sales are recorded net of trade discounts and sales returns. The Company will establish a reserve for product returns when necessary based on returns history and specific circumstances in which the Company anticipates returns to occur. Such product return reserves are recorded as a reduction to revenue.

If a contract includes a variable amount, such as a rebate, then the Company estimates the transaction price using either the expected value or the most likely amount of consideration to be received, depending upon the specific facts and circumstances. The Company includes estimated variable consideration in the transaction price only to the extent it is probable that a significant reversal of revenue will not occur when the uncertainty is resolved. The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes in facts and circumstances. As of December 30, 2023 there are no contracts with variable consideration.

When credit is granted to customers, payment is typically due 30 to 90 days from billing and accordingly our contracts with customers do not include a significant financing component.

Allocating the Transaction Price to the Performance Obligations

In virtually all cases the transaction price is tied to a specific product or service in the contract obviating the need for any allocation.

Recognizing Revenue When (or as) the Performance Obligations are Satisfied

The Company recognizes revenue at the point in time when it transfers control of the promised goods or services to the customer, which typically occurs once the product has shipped or has been delivered to the customer or the service has been performed. Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment. In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties. As of December 30, 2023 there are no products on consignment.

The Company generally expenses sales commissions when incurred because the amortization period would have been one year or less. The costs are recorded within, selling, general and administrative expenses.

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

( 2 )(g) Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in affect when the differences reverse. A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense. As of December 30, 2023 and December 31, 2022, the Company has no accruals for interest or penalties related to income tax matters. The Company does not have any uncertain tax positions at December 30, 2023 or December 31, 2022 which required accrual or disclosure.

( 2 )(h) Net Income Per Common 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 option 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.

( 2 )(i) Reclassification

Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.

( 2 )(j) Recent Accounting Pronouncements

In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). Effective January 1, 2023, the Company adopted FASB Accounting Standards Update (“ASU”) 2016 - 13, Measurement of Credit Losses on Financial Instruments , which changed the way entities recognize credit losses of most financial assets. Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected. The adoption of this standard had an immaterial impact on our financial statements. Management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s financial statements.

( 2 )(k) Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses recorded during the reporting period. Such estimates are adjusted by management periodically as a result of existing or anticipated economic changes which effect, or may effect, the Company’s financial statements. Actual results could differ from these estimates.

( 2 )(l) Fiscal Year-End

The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year. Fiscal year 2023 consisted of 52 weeks and 2022 consisted of 53 weeks.

( 2 )(m) 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, 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 stock options granted.

( 2 )(n) Segment Reporting

The Company views its operations and manages its business as one 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 are two to three 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 does not make operating decisions or assess financial performance by the end markets which ultimately use the products.

( 3 ) Inventories

As of December 30, 2023 and December 31, 2022 inventories consisted of the following:

Raw materials	2023 — $ 2,861,333	$	2,645,442
Work in process	1,493,582		1,863,512
Finished goods	537,975		525,872
Gross Inventory	4,892,890		5,034,826
Reserve for obsolescence	( 310,960	)	( 158,925	)
Total	$ 4,581,930	$	4,875,901

( 4 ) Leases

The Company had one real estate lease in 2023 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 of 12 months or fewer.

The real estate lease expiring in 2026 (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 are based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at the commencement date of the lease. The Company does not separate lease components from non-lease components. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately 38 thousand square feet. The lease is a 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 buy the property and a first right of refusal during the term of the lease. Annual rental payments are through maturity are reflected in the table below.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating lease as of December 30, 2023:

(Dollars in Thousands	December 30, 2023
Maturity of capitalized lease liability	Lease payments
2024	$ 164,700
2025	165,240
2026	27,540
Total undiscounted operating lease payments	$ 357,480
Less: Imputed interest	( 25,480	)
Present value of operating lease liability	$ 332,000

Balance Sheet Classification
Current lease liability	$ 160,000
Long-term lease liability	172,000
Total operating lease liability	$ 332,000
Other Information
Weighted-average remaining lease term for capitalized operating leases (in months)	26
Weighted-average discount rate for capitalized operating leases	6.6 %

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $ 162 thousand for the twelve months ended December 30, 2023 and $ 160 thousand during the year ended December 31, 2022. 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.

( 5 ) Share-Based Compensation Plans

The Company adopted the 2020 Equity Incentive Plan ( "2020 Plan") on March 3, 2020. Under the terms of the 2020 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 expire ten years from the date of grant. The options granted to employees generally vest in equal annual installments over a five -year period. The options granted to directors generally vest immediately on date of grant. Certain options also remain issued and outstanding under the 2009 Stock Incentive Plan.

Under the 2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 832,700 shares remain available for grant as of December 30, 2023.

A summary of stock option activity as of December 30, 2023 and changes during the year then ended is presented below:

			Weighted — Average	Weighted — Remaining	Aggregate
			Exercise	Contractual	Intrinsic
Shares			Price	Life (years)	Value
Outstanding at beginning of year	961,400		$ 2.47
Granted	344,500		$ 2.90
Exercised	( 141,000	)	$ 1.78
Forfeited	( 236,400	)	$ 2.93
Expired	( 25,000	)	$ 1.00
Outstanding at end of year	903,500		$ 2.66	6.51	$ 2,403,762
Options exercisable at year-end	494,600		$ 2.42	4.58	$ 1,199,158

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 during 2023 and 2022:

Risk-free interest rate	2023 — 3.43%	-	4.24%	2022 — 1.55 %	-	2.84 %
Expected life in years	5	-	5.5	6	-	7
Expected volatility		59.7 %			54 %
Expected dividend yield		0			0
Weighted average fair value of grants		$ 2.91			$3.11

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 $ 204,797 and $ 250,359 as stock based compensation expense in 2023 and 2022, respectively. As of December 30, 2023, there was $ 560,815 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 2.55 years.

( 6 ) Accrued Expenses

Accrued expenses at December 30, 2023 and December 31, 2022 consist of the following:

	2023	2022
Accrued legal and accounting	$ 86,000	$ 35,398
Accrued payroll and related costs	649,201	760,305
Accrued other	339,936	25,153
	$ 1,075,137	$ 820,856

Included in Accrued other is $ 288,000 as a reserve for potential credits to be issued as part of the quality issue described above. In addition to this reserve, the Company increased its sales returns in the amount of $ 104,126 for parts for which a credit was issued in January 2024.

( 7 ) 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 December 30, 2023). On December 30, 2023, 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 for 2023 was $ 0 and was $ 0 thousand for 2022.

( 8 ) 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 is collateralized by the microscope 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:

Remaining in:	Payments due by period
FY 2024	$ 48,974
FY 2025	$ 8,155
Less Interest	$ ( 2,242	)
Total Principal Payments	$ 54,887

Total interest expense on notes payable during 2023 was $ 5,096 and during 2022 was $ 7,954 .

( 9 ) Income Taxes

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

	2023	2022
Current:
Federal	$ 81,919	$ 1,270
State	456	456
Current income tax provision (benefit):	82,375	1,726
Deferred:
Federal	357,507	577,866
State	142,203	176,676
Deferred income tax provision (benefit), net	499,710	754,542
Total	$ 582,085	$ 756,268

Deferred tax assets as of December 30, 2023 and December 31, 2022 are as follows:

	December 30, 2023	December 31, 2022
Deferred Tax Assets:
Net operating loss carryforwards	$ -	$ 132,632
Stock compensation	209,609	209,092
Credit carryforwards	865,928	1,253,956
Inventory	84,955	80,628
Accrued liabilities	-	5,071
Depreciation	143,081	179,481
Capitalized R&D, net	263,421	205,878
Other	2,732	2,698
Net deferred tax assets	$ 1,569,726	$ 2,069,436

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

Gross deferred tax balance at beginning of year	2023 — $ 2,069,436	$	2,823,978
Deferred tax benefit (provision)	( 499,710	)	( 754,542	)
Balance at end of year, net	$ 1,569,726	$	2,069,436

Income tax expense is different from the amounts computed by applying the U.S. federal statutory income tax rate of 21 percent to pretax income as a result of the following:

	2023	2022
Tax at statutory rate	$ 416,663	$ 578,214
State tax, net of federal benefit	142,562	177,036
Other	22,860	1,018
Total	$ 582,085	$ 756,268

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 years 2020 through 2023.

( 10 ) Retirement Savings Plan

The Company sponsors a Retirement Savings Plan (the ‘Plan’) under the provisions of Section 401 of the Internal Revenue Code. Employees, as defined in the Plan, are eligible to participate in the Plan after 30 days of employment. Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan. During 2023 the Company elected to match 1% of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 232 thousand. In 2022 the Company elected to match ½% of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 94 thousand .

( 11 ) 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 does not 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 has not experienced any significant credit-related losses with respect to its trade accounts receivable.

Revenues from significant customers as a percentage of total revenues in 2023 and 2022 were as follows:

Significant Customer	Percent of Total Revenues — 2023	2022
A	33 %	21 %
B	18 %	15 %
C	9 %	17 %

As of December 30, 2023, the Company had trade accounts receivable due from these three customers that accounted for 50 % 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 in 2023 and 2022:

Country	Percent of Total Revenues — 2023	2022
United States of America	56 %	42 %
Germany	18 %	16 %
Other	26 %	42 %

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.

( 12 ) Net Income Per Share

The following reconciles the basic and diluted net income per share calculations.

	Dec. 30,	Dec. 31,
	2023	2022
Basic EPS Computation:
Numerator:
Net income	$ 1,370,296	$ 2,131,400
Denominator:
Weighted average
Common shares
Outstanding	14,495,709	14,424,381
Basic EPS	$ 0.09	$ 0.15
Diluted EPS Computation:
Numerator:
Net income	$ 1,370,296	$ 2,131,400
Denominator:
Weighted average
Common shares
Outstanding	14,495,709	14,424,381
Dilutive effect of stock options	133,102	251,265
Total shares	14,628,811	14,675,646
Diluted net income per share	$ 0.09	$ 0.15

( 13 ) 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, in excess of amounts provided or covered by insurance, will not 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 particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

Notwithstanding the above, the Company has received a letter from an attorney representing a former European sales representative alleging that under European law the representative is entitled to compensation as a result of his termination. The Company completely disagrees with the claims. Should this result in litigation the Company will defend itself to the fullest extent of the law and estimates any losses incurred to be immaterial.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .

/s/ Brian T. Mackey
Brian T. Mackey President and Chief Executive Officer

/s/ Charles K. Griffith Jr.
Charles K. Griffith Jr. Chief Financial Officer