UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the period ended ~~April~~July 1, 2023

☐ 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:

~~Registrant’s~~CPS ~~Telephone~~Technologies ~~Number, including Area Code:~~Corp.

CPS TECHNOLOGIES CORP.

111 South Worcester Street

Norton, MA 02766-2102

Former Name, Former Address and Former Fiscal Year if Changed since Last Report

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 ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer or a smaller reporting company, or an emerging growth company. See definition 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~~15U.S.C. 7262(b)) by the registered public ~~accounting~~ firm that prepared or issued its audit report.

~~Yes~~ ☐ No Yes ☒ No

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

☐ Yes ☒ No

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~~NASDAQ Capital ~~Market~~Markets

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. Number of shares of common stock outstanding as of ~~April~~July 25, 2023: 14,~~469~~516,~~677~~544.

PART I FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)

	April 1, 2023			December 31, 2022
	July 1,			December 31,
	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	78,~~369~~681,~~863~~225		$	8,266,753
Accounts receivable-trade, net		45,~~714~~074,~~138~~559			3,777,975
Accounts receivable-other		~~700~~74,~~703~~639			685,668
Inventories, net		4,~~692~~813,~~655~~753			4,875,901
Prepaid expenses and other current assets		~~299~~288,~~601~~315			211,242
Total current assets		1718,~~776~~932,~~960~~491			17,817,539
Property and equipment:
Production equipment		1011,~~900~~028,~~344~~500			10,770,427
Furniture and office equipment		952,883			952,883
Leasehold improvements		985,649			985,649
Total cost		12,~~838~~967,~~876~~032			12,708,959
Accumulated depreciation and amortization		(11,~~571~~699,~~509~~870	)		(11,446,901	)
Construction in progress		~~111~~240,~~612~~415			64,910
Net property and equipment		1,~~378~~507,~~979~~578			1,326,968
Right-of-use lease asset (note 4, leases)		433,000			466,000
Right-of-use lease asset		400,000			466,000
Deferred taxes, net		1,~~842~~664,~~992~~032			2,069,436
Total Assets	$	21,431,931			21,679,943
Total assets	$	22,504,101		$	21,679,943
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Note payable, current portion		44,424			43,711
Accounts payable		2,046,893			1,836,865
Accrued expenses		731,454			820,856
Deferred revenue		1,828,068			2,521,128
Lease liability, current portion		157,000			157,000
Total current liabilities		4,807,839			5,379,560
Note payable less current portion		43,439			54,847
Deferred Revenue – Long term		-			231,020
Long term lease liability		276,000			309,000
Total liabilities		5,127,278			5,974,427
Commitments & Contingencies
Stockholders’ equity:
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,467,487 and 14, 460,486 shares; outstanding 14,457,186 and 14, 450,470 shares; at April 1, 2023 and December 31, 2022, respectively		144,675			144,605
Additional paid-in capital		39,867,507			39,726,851
Accumulated deficit		(23,665,891	)		(24,125,092	)
Less cost of 10,301 and 10,016 common shares repurchased at April 1, 2023 and December 31, 2022, respectively		(41,638	)		(40,848	)
Total stockholders’ equity		16,304,653			15,705,516
Total liabilities and stockholders’equity	$	21,431,931		$	21,679,943

See accompanying notes to financial statements.

(continued)

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)

(concluded)

	July 1,			December 31,
	2023			2022
LIABILITIES AND STOCKHOLDERS` EQUITY

Current liabilities:
Note payable, current portion	$	56,681		$	43,711
Accounts payable		2,359,532			1,836,865
Accrued expenses		861,514			820,856
Deferred revenue		1,828,068			2,521,128
Lease liability, current portion		158,000			157,000

Total current liabilities		5,263,795			5,379,560

Note payable less current portion		20,437			54,847
Deferred revenue – long term		31,277			231,020
Long term lease liability		242,000			309,000

Total liabilities		5,557,509			5,974,427

Commitments and contingencies (note 4)

Stockholders` equity:
Common stock, $0.01 par value, authorized 20,000,000 shares; issued 14,546,487 and 14,460,486 shares; outstanding 14,511,544 and 14,450,470 shares; at July 1, 2023 and December 31, 2022, respectively		145,465			144,605
Additional paid-in capital		39,978,453			39,726,851
Accumulated deficit		(23,065,388	)		(24,125,092	)
Less cost of 34,943 and 10,016 common shares repurchased at July 1, 2023 and December 31, 2022, respectively		(111,938	)		(40,848	)

Total stockholders` equity		16,946,592			15,705,516

Total liabilities and stockholders` equity	$	22,504,101		$	21,679,943

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Statements of Operations (Unaudited)

	Fiscal Quarters Ended
	Three Months Ended					Six Months Ended
	April 1, 2023		April 2, 2022
	July 1,		July 2,			July 1,		July 2,
Revenues:
	2023		2022			2023		2022
Product sales	$	7,100,267	$	6,652,714
Revenues:
Total revenues		7,100,267		6,652,714
Product sales	$	7,418,138	$	7,070,743		$	14,518,405	$	13,723,457
Cost of product sales		4,855,564		4,689,224
Total revenues		7,418,138		7,070,743			14,518,405		13,723,457
Gross Margin		2,244,703		1,963,490
Cost of product sales		5,221,880		5,242,106			10,077,444		9,931,330
Selling, general, and administrative expense		1,550,522		1,416,393
Gross Margin		2,196,259		1,828,637			4,440,961		3,792,127
Income from operations		694,181		547,097
Selling, general, and administrative expense		1,465,349		1,159,157			3,015,871		2,575,550
Other income (expense), net		15,590		(1,913	)
Income from operations		730,910		669,480			1,425,090		1,216,577
Income before taxes		709,771		545,184
Interest income (expense), net		79,652		1,594			95,242		(319	)
Income tax provision		250,570		125,748
Net income before income tax		810,562		671,074			1,520,332		1,216,258
Net income	$	459,201	$	419,436
Income tax provision		210,058		215,966			460,628		341,714
Net income per basic common share	$	0.03	$	0.03
Net income	$	600,503	$	455,108		$	1,059,704	$	874,544
Weighted average number of basic common shares outstanding		14,452,284		14,389,857
Net income per basic common share	$	0.04	$	0.03		$	0.07	$	0.06
Net income per diluted common share	$	0.03	$	0.03
Weighted average number of basic common shares outstanding		14,493,970		14,431,825			14,473,128		14,410,064
Weighted average number of diluted common shares outstanding		14,639,600		14,657,939
Net income per diluted common share	$	0.04	$	0.03		$	0.07	$	0.06
Weighted average number of diluted common shares outstanding		14,621,929		14,708,646			14,630,765		14,682,516

See accompanying notes to financial statements.

CPS TECHNOLOGIES ~~CORPORATION~~CORP. STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) FOR THE THREE AND SIX MONTHS ENDED ~~APRIL~~JULY 1, 2023 AND ~~April~~JULY 2, 2022

	Common Stock				Additional						Total
	Number of shares issued		Par Value		Additional paid-in capital			Accumulated deficit			Stock repurchased			Total stockholders’ equity
	Number of				paid-in			Accumulated			Stock			stockholders'
Balance at December 31, 2022		14,460,486	$	144,605		39,726,851		$	(24,125,092	)	$	(40,848	)	$	15,705,516
	shares issued		Par Value		capital			deficit			repurchased			equity
Share-based compensation expense		—		—		130,441			—			—			130,441
Balance at April 1, 2023		14,467,487	$	144,675	$	39,867,507			(23,665,891	)		(41,638	)		16,304,653
Employee options exercises		7,001		70		10,215			—			(790	)		9,495
Share-based compensation expense		--		--		17,316			--			--			17,316
Net income		—		—		—			459,201			—			459,201
Issuance of common stock		--		--		--			--			--			--
Balance at April 1, 2023		14,467,487		144,675		39,867,507			(23,665,891	)		(41,638	)		16,304,653
Employee option exercises		79,000		790		93,630			--			(70,300	)		24,120
Balance at December 25, 2021		14,350,786	$	143,508	$	39,281,810			(26,256,492	)		(2,515	)		13,166,311
Net income		--		--		--			600,503			--			600,503
Share-based compensation expense		—		—		124,471			—			—			124,471
Balance at July 1, 2023		14,546,487		145,465		39,978,453			(23,065,388	)		(111,938	)		16,946,592
Issuance of Common Stock		—		—		(9,614	)		—			—			(9,614	)
Employee options exercises		72,700		727		150,308			—			(3,108	)		147,927
Net income		—		—		—			419,436			—			419,436
Balance at April 2, 2022		14,423,486		144,235		39,546,975			(25,837,056	)		(5,623	)		13,848,531

	Common Stock				Additional								Total
	Number of				paid-in		Accumulated			Stock			stockholders'
	shares issued		Par Value		capital		deficit			repurchased			equity
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		--		--		147,757		--			--			147,757
Issuance of common stock		--		--		--		--			--			--
Employee options Exercised		86,001		860		103,845		--			(71,090	)		33,615
Net income		--		--		--		1,059,704			--			1,059,704
Balance at July 1, 2023		14,546,487		145,465		39,978,453		(23,065,388	)		(111,938	)		16,946,592

	Common Stock				Additional									Total
	Number of				paid-in			Accumulated			Stock			stockholders'
	shares issued		Par Value		capital			deficit			repurchased			equity
Balance at April 2, 2022		14,423,486	$	144,235	$	39,546,975			(25,837,056	)		(5,623	)		13,848,531
Share-based compensation expense		--		--		39,384			--			--			39,384
Issuance of common stock		--		--		(8,144	)		--			--			(8,144	)
Employee option exercises		15,300		153		21,870			--			(15,226	)		6,797
Net income		--		--		--			455,108			--			455,108
Balance at July 2, 2022		14,438,786		144,388		39,600,085			(25,381,948	)		(20,849	)		14,341,676

	Common Stock				Additional									Total
	Number of				paid-in			Accumulated			Stock			stockholders'
	shares issued		Par 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		--		--		163,855			--			--			163,855
Issuance of common stock		--		--		(17,758	)		--			--			(17,758	)
Employee options Exercised		88,000		880		172,178			--			(18,334	)		154,724
Net income		--		--		--			874,544			--			874,544
Balance at July 2, 2022		14,438,786		144,388		39,600,085			(25,381,948	)		(20,849	)		14,341,676

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Statements of Cash Flows (Unaudited)

	Fiscal Quarters Ended
	Six Months Ended
	April 1, 2023			April 2, 2022
	July 1,			July 2,
	2023			2022
Cash flows from operating activities:
Net income	$	~~459~~1,~~201~~059,704		$	~~419~~874,~~436~~544
Adjustments to reconcile net income to cash used in operating activities:
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		~~124~~252,~~608~~969			~~105~~211,~~121~~641
Share-based compensation		~~130~~147,~~441~~757			~~124~~163,~~471~~855
Changes in:
Accounts receivable - trade		(936,163	)		(32,497	)
Accounts receivable-trade		(1,296,584	)		333,048
Accounts receivable - other		(15,035	)		--
Accounts receivable-other		611,028			--
Inventories		~~183~~62,~~246~~148			(~~793~~754,~~924~~117	)
Prepaid expenses and other current assets		(8877,~~359~~073	)		(~~109~~87,~~090~~628	)
Accounts payable		~~210~~522,~~028~~667			~~150~~(478,~~871~~973	)
Accrued expenses		~~(89~~40,~~402~~658	)		(~~368~~438,~~947~~249	)
Deferred Taxes		226,444			125,292
Deferred taxes		405,404			341,258
Deferred revenue		(~~924~~892,~~080~~803	)		--45,405
Net cash used in operating activities		(719,071	)		(379,267	)
Net cash provided by operating activities		835,875			210,784
Cash flows from investing activities:
Purchases of property and equipment		(~~176~~433,~~618~~579	)		(94291,~~683~~631	)
Proceeds from sale of property and equipment		--			--
Net cash used in investing activities		(433,579	)		(291,631	)
Net cash used in investing activities		(176,618	)		(94,683	)
Cash flows from financing activities:
Net borrowings on line of credit		--			--
Proceeds from exercise of employee stock options, net of repurchases		33,615			154,724
Proceeds from exercise of employee stock options		9,495			138,313
Proceeds from issuance of common stock, net of expenses		--			(17,758	)
Payments on note payable		(1021,~~696~~439	)		(1430,~~981~~149	)
Net cash provided by financing activities		(112,~~201~~176	)		~~123~~106,~~332~~817
Net decrease in cash and cash equivalents		(896,890	)		(350,618	)
Net increase in cash and cash equivalents		414,472			25,970
Cash and cash equivalents at beginning of period		8,266,753			5,050,312
Cash and cash equivalents at end of period	$	78,~~369~~681,~~863~~225		$	45,~~699~~076,~~694~~282
Supplemental disclosures of cash flows information:
Cash paid for interest	$	12,~~538~~902		$	24,~~269~~353
Cash paid for taxes		79,456			79,456
Supplemental disclosures of non-cash activity:
Net exercise of stock options	$	~~790~~71,090		$	318,~~108~~334

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP. Notes to Financial Statements (Unaudited)

Notes to Financial Statement

(Unaudited)

(1) Nature of Business

CPS Technologies ~~Corporation~~Corp. (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 (MMC’s) which are a combination of metal and ceramic.

CPS also assembles housings and packages for hybrid circuits. These housings and packages may include 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 ballistic threat levels.

The Company sells into several end markets including the aerospace & defense markets, 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 Form 10-Q, these notes are condensed and do not 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 31, 2022 has been derived from the audited financial statements at that date, but does not 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 Form 10-K for the year ended December 31, 2022 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 are not necessarily indicative of the results to be expected for the full year.

(3) 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.

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

	Three Months Ended				Six Months Ended
	April 1, 2023		April 2, 2022
	July 1,		July 2,		July 1,		July 2,
Basic EPS Computation:
	2023		2022		2023		2022
Numerator:
Basic EPS Computation:
Net income	$	459,201	$	419,436
Numerator:
Denominator:
Net income (loss)	$	600,503	$	455,108	$	1,059,704	$	874,544
Weighted average
Denominator:
Common shares
Weighted average
Outstanding		14,452,284		14,389,857
Common shares
Basic EPS	$	0.03	$	0.03
Outstanding		14,493,970		14,431,825		14,473,128		14,410,064
Diluted EPS Computation:
Basic EPS	$	0.04	$	0.03	$	0.07	$	0.06
Numerator:
Diluted EPS Computation:
Net income	$	459,201	$	419,436
Numerator:
Denominator:
Net income (loss)	$	600,503	$	455,108	$	1,059,704	$	874,544
Weighted average
Denominator:
Common shares
Weighted average
Outstanding		14,452,284		14,389,857
Common shares
Dilutive effect of stock options		187,316		268,082
Outstanding		14,493,970		14,431,825		14,473,128		14,410,064
Total Shares		14,639,600		14,657,939
Dilutive effect of stock options		127,959		276,821		157,637		272,452
Diluted EPS	$	0.03	$	0.03
Total Shares		14,621,929		14,708,646		14,630,765		14,682,516
Diluted EPS	$	0.04	$	0.03	$	0.07	$	0.06

(4) Commitments & Contingencies

Commitments

Leases

The Company has one 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 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 was recognized on ~~April~~March 1, ~~2023~~2021 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 do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

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 2026 through February 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 $~~152~~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 ~~leases~~lease as of ~~April~~July 1, 2023

(Dollars in Thousands)	~~April~~July 1, 2023
Maturity of capitalized lease liabilities	Lease payments
Remaining 2023		121
2023		81
2024		165
2025		165
2026		28
Total undiscounted operating lease payments	$	~~479~~439
Less: Imputed interest		(4639	)
Present value of operating lease liability	$	~~433~~400
Balance Sheet Classification
Current lease liability	$	157
Long-term lease liability		276
Total operating lease liability	$	433
Other Information
Weighted-average remaining lease term for capitalized operating leases (in months)		35
Weighted-average discount rate for capitalized operating leases		6.6	%

Balance Sheet Classification
Current lease liability	$	158
Long-term lease liability		242
Total operating lease liability	$	400

Other Information
Remaining lease term for capitalized operating lease (months)		32
Discount rate for capitalized operating leases		6.6	%

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $41 thousand during the ~~first~~second quarter of 2023 and $81 thousand for the six months ended July 1, 2023. ~~This~~These ~~cost~~costs isare related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

(5) Share-Based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. That cost is recognized over the period during which an employee is required to provide services in exchange for the award, the requisite service period (usually the vesting period). The Company provides an estimate of forfeitures at initial grant date. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, and this estimated forfeiture rate is adjusted periodically based on actual forfeiture experience. The company uses the Black-Scholes option pricing model to determine the fair value of the stock options granted.

During the ~~quarters~~quarter ended ~~April~~July 1, 2023 ~~and April 2~~, ~~2022,~~ a total of ~~0 and 170~~60,000 stock options, ~~respectively,~~ were granted to employees under the Company’s 2020 Equity Incentive Plan Stock Incentive Plan (the “Plan”) and no stock options were granted to outside directors during the quarter ended July 1, 2023, issued at a ~~total~~weighted average price of 50$2.66 per share. During the quarter ended July 2,~~000~~ ~~and~~2022, 38a total of 15,000 stock options, ~~respectively,~~were granted to employees under the Company’s 2020 Equity Incentive Plan Stock Incentive Plan (the “Plan”) and no stock options were granted to outside directors during the ~~quarters~~quarter ended ~~April~~July 12, ~~2023~~2022, ~~and April~~issued 2,at ~~2022~~a weighted average price of $4.41 per share.

During the ~~quarter~~three and six months ended ~~April~~July 1, 2023, there were 779,~~001~~000 and 86,000 options exercised and corresponding shares issued at a weighted average price of $1.4720 and $1. 22, respectively. During the ~~quarter~~three and six months ended ~~April~~July 2, 2022, there were 7215,~~700~~300 and 88,000 options exercised and corresponding shares issued at a weighted average price of $21.0844 and $1.97, respectively.

During the ~~quarter~~three and six months ended ~~April~~July 1, 2023, the Company repurchased ~~285~~24,642 and 24,927 shares , respectively, for employees to facilitate their exercise of stock options. During the ~~quarter~~three and six months ended ~~April~~July 2, 2022, the Company repurchased ~~840~~3,143 and 3,983 shares, respectively, for employees to facilitate their exercise of stock options.

There were also 1754,~~004,400~~800 ~~options~~shares outstanding at a weighted average price of $2.5161 with a weighted average remaining term of 65.1067 years as of ~~April~~July 1, 2023, and there were ~~971~~551,~~600~~000 ~~options~~shares ~~outstanding~~exercisable at a weighted average price of $2.3745 with a weighted average remaining term of 64.6775 years as of ~~April~~July 21, ~~2022~~2023. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of ~~April~~July 1, 2023, there were ~~865~~1,~~800~~036,400 shares available for future grants. ~~639,100 grants remain exercisable under the Company’s Equity Incentive Plans.~~

As of ~~April~~July 1, 2023, there was $~~523~~294 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 1.4192 years.

During the ~~quarters~~three and six months ended ~~April~~July 1, 2023 ~~and April 2~~, ~~2022,~~ the Company recognized ~~approximately~~ $~~130~~17,316 ~~thousand~~ and $~~124 thousand~~147,757, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

During the three and six months ended July 2, 2022, the Company recognized $39,384 and $163,855, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

(6) Inventories

Inventories consist of the following:

	April 1, 2023			December 31, 2022
	July 1,			December 31,
Raw materials	$	2,732,661		$	2,645,442
	2023			2022
Work in process		1,726,410			1,863,512
Raw materials	$	2,886,278		$	2,645,442
Finished goods		483,009			525,872
Work in process		1,603,511			1,863,512
Gross inventory		4,942,081			5,034,826
Finished goods		516,889			525,872
Reserve for obsolescence		(249,425	)		(158,925	)
Total inventory		5,006,678			5,034,826
Inventories, net	$	4,692,655		$	4,875,901
Reserve for obsolescence		(192,925	)		(158,925	)
Inventories, net	$	4,813,753		$	4,875,901

(7) Accrued Expenses

Accrued expenses consist of the following:

	April 1, 2023		December 31, 2022
	July 1,		December 31,
Accrued legal and accounting	$	32,500	$	35,398
	2023		2022
Accrued payroll and related expenses		576,532		760,305
Accrued legal and accounting	$	51,489	$	35,398
Accrued other		122,422		25,153
Accrued payroll and related expenses		685,785		760,305
Total Accrued Expenses	$	731,454	$	820,856
Accrued other		124,240		25,153
	$	861,514	$	820,856

(8) Line of Credit

In ~~September~~May ~~2019~~2023, the Company ~~entered~~terminated ~~into~~its a$3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $23.50 million. ~~The~~was ~~agreement~~entered ~~includes~~into awith ~~demand~~Rockland ~~note~~Trust ~~allowing the Lender to call the loan at any time. The~~ Company ~~may terminate the agreement without a termination fee after 3 years~~. ~~In May of 2020 this credit line was increased to $3.0 million.~~ The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of ~~LIBOR~~the ~~plus~~National ~~550~~Prime ~~basis~~Rate ~~points~~as published by the Wall Street Journal. On ~~April~~July 1, 2023, the Company had $0 ~~thousand~~ 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 is subject to certain financial covenants, all of which have been met.

(9) Note Payable

In March 2020, the Company acquired inspection equipment for a price of $208 thousand. The full amount was financed through a 5 year note payable with a third -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:

Remaining in:	Payments due by period
FY 2023	$	3322,~~016~~272
FY 2024	$	46,757
FY 2025	$	8,090
Total		8777,~~863~~119

Total interest expense on notes payable during Q1 2023 was $~~1,538 compared to $~~2,~~269 in Q1 2022~~902.

(10) Income Taxes

AFor ~~valuation~~the ~~allowance~~three ~~against~~and ~~deferred~~six ~~tax~~months ~~assets is required to be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. In~~ended ~~December~~July ~~2018~~1, ~~the~~2023 ~~Company~~there ~~established~~were acharges ~~valuation~~against ~~allowance~~the ~~reserve, as it is judged more likely than not that all or a portion of its~~ deferred tax ~~assets~~asset ~~will~~of ~~not~~$179 beand ~~utilized~~$405, ~~before they expire~~respectively. ~~This decision was reached after giving greater weight to the Company’s losses in recent years as compared to its forecasts.~~

In September 2021 this decision was reevaluated in light of the Company’s recent profitability and its forecasts for future profitability. The Company concluded that it is “more likely than not” that the Company will be able to fully utilize the deferred tax asset. This reversal of the valuation allowance was made net of the expected tax liability for 2021. For the first quarter of 2023 a charge against the deferred tax asset of $226 for the estimated tax liability on Q1 income was made.

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the financial statements of the Company and notes thereto included in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 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.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. There are a number of factors that could cause the Company’s actual results to differ materially from those forecasted or projected in such forward-looking statements. This includes the impact of the COVID-19 pandemic and the Russian invasion of Ukraine, which are discussed in Item 3 of this report. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or changed circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

The critical accounting policies utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 31, 2022.

Overview

Products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles. We provide baseplates and housings used in radar, satellite and avionics applications. We provide lids and heat spreaders used with high performance integrated circuits for use in internet switches and routers. We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like Silicon Carbide (“SiC”) and Gallium Nitride (“GaN”), collectively Metal Matrix Composites (“MMC”). CPS also assembles housings and packages for hybrid circuits. These housings and packages may include MMC components; they may include components made of more traditional materials such as aluminum, cold rolled steel and Kovar. Using its proprietary MMC technology, the Company also produces light-weight vehicle armor, particularly for extreme environments and heavy threat levels.

CPS’s products are custom rather than catalog items. They are made to customers’ designs and are used as components in systems built and sold by our customers. At any point in time our product mix will consist of some products with on-going production demand, and some products which are in the prototyping or evaluation stages at our customers. The Company seeks to have a portfolio of products which include products in every stage of the technology adoption lifecycle at our customers. CPS’ growth is dependent upon the level of demand for those products already in production, as well as its success in achieving new "design wins" for future products.

As a manufacturer of highly technical and custom products, the Company incurs fixed costs needed to support the business, but which do not vary significantly with changes in sales volume. These costs include the fixed costs of applications such as engineering, tooling design and fabrication, process engineering, and others. Accordingly, particularly given our current size, changes in sales volume generally result in even greater changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base. Sales volume is therefore a key financial metric used by management.

The Company believes the underlying demand for MMC, housings for hybrid circuits and our proprietary armor solution is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow.

CPS was incorporated in Massachusetts in 1984 as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock. In March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies Corporation.

Results of Operations for the ~~First~~Second Fiscal Quarter of 2023 (Q1Q2 2023) Compared to the ~~First~~Second Fiscal Quarter of 2022 (Q1Q2 2022); (all $ in 000’s)

Revenues totaled $7,~~100~~418 in Q1Q2 2023 compared with $67,~~653~~100 generated in Q1 2022, an increase of 74%. ~~Two~~This ~~factors~~increase ~~in particular contributed to this growth. One of our largest customers, which~~ was ~~particularly~~mainly ~~hard~~due ~~hit by the Covid-19 pandemic, has continued~~ to ~~grow~~increased ~~as that pandemic has subsided. Additionally, our~~ shipments of armor for the US Navy ~~also~~in ~~saw~~2023 ~~significant~~as ~~growth~~compared ~~from 2022~~ to ~~2023~~2022.

Gross margin in Q1Q2 2023 totaled $2,~~245~~196 or 3230% of sales. This compares with gross margin in Q1Q2 2022 of $1,~~963~~829 or 3026% of sales. This ~~moderate~~ percentage increase was due to the company’s continuing efforts to improve manufacturing efficiencies as well as the impact of higher sales volumes on fixed costs.

Selling, general and administrative (SG&A) expenses totaled $1,~~551~~465 in Q1Q2 2023 compared with SG&A expenses of $1,~~416~~159 in Q1Q2 2022. There were ~~two~~three ~~primary~~major reasons for this increase. First there was a significant increase in travel expenses. In 2022 we were just beginning to come out of the Covid-19 pandemic. Many conferences continued to be virtual and many customers continued to prohibit outside visitors. In 2023 this has changed, thus our business development team, in particular, have been doing significantly more travel than a year ago. Secondly, the company increased its 401k matching formula in 2023 resulting in increased payroll costs. Lastly, the Company accrued severance to a long time employee whose service with the Company was terminated

The Company experienced an operating profit of $~~694~~731 in Q1Q2 2023 compared with an operating profit of $~~547~~669 in Q1Q2 2022, an increase of 279%. This increase was a result of the increased gross margin, partially offset by the increase in SG&A expenses.

Results of Operations for the First Six Months of 2023 Compared to the First Six Months of 2022 (all $ in 000s)

Total revenue was $14,518 in the first half of 2023, a 6% increase compared with total revenue of $13,723 in the first half of 2022. This increase was mainly due to increased shipments of armor for the US Navy in 2023 as compared to 2022.

Gross margin in the first six months of 2023 totaled $4,441 or 31% of sales. In the first six months of 2022 gross margin totaled $3,792 or 28% of sales. This increase was due to the increase in revenue and the increased coverage of our fixed costs.

Selling, general and administrative (SG&A) expenses were $3,016 during the first six months of 2023, up 17% compared with SG&A expenses of $2,576 in the first six months of 2022. Increased variable compensation accruals due to higher 2023 profitability as well as the travel costs, payroll costs and severance, mentioned above, were the primary reasons for this increase.

During the first half of 2023, the Company had net interest income of $95. This compares with interest expense of $0 incurred during the first half of 2022. The increase in interest income is due to our strong cash position and higher interest rates.

In the first six months of 2023 the Company had operating income of $1,425 compared with $1,217 in the same period last year. The net income for the first six months of 2023 totaled $1,060 versus $875 in the first six months of 2022.

The Company has had extremely minimal sales to both Russia and Ukraine over the last several years, the loss of which would be immaterial to these financial statements. Neither does CPS rely on raw materials from that part of the world. As a result, we do not believe that the Russian invasion of Ukraine will have a direct impact on our results. Nevertheless, there could be an indirect impact regarding supply chain and inflationary issues as a result of this war.

Inflation has had an impact on our costs. Thus far, we have been able to pass along these increases to our customers, but there is no guarantee that we will be able to continue this in the future. In addition, there is often a lag between when the costs increase and when we can adjust customer prices. Some of our larger customers will have pricing agreements, typically for one year, and we must wait for those agreements to end before making any pricing adjustments. Wage increases are also part of the inflation impact. We have instituted a combination of wage increases as well as richer benefits, such as the increased 401k match mentioned above, in order to retain the folks making up our workforce.

These factors combine to create a higher degree of uncertainty regarding future financial performance.

Liquidity and Capital Resources (all $ in 000’s unless noted)

The Company’s cash and cash equivalents at ~~April~~July 1, 2023 totaled $78,~~370~~681. This compares to cash and cash equivalents at December 31, 2022 of $8,267. The ~~decrease~~increase in cash was due primarily to ~~increases~~the inCompany’s ~~accounts~~profitability, ~~receivable~~partially ~~and~~offset ~~significant~~by ~~reductions~~increase in ~~deferred~~working ~~revenue~~capital ~~offset~~required byfor ~~net~~this ~~profit~~growth.

Accounts receivable at ~~April~~July 1, 2023 totaled $5,~~415~~148 compared with $4,464 at December 31, 2022. Days Sales Outstanding (DSO) increased from 56 days at the end of 2022 to 6062 days at the end of Q1Q2 2023. The increase in DSO was due to the inclusion of deferred revenue of $0.6M in the year end accounts receivable balance, which was collected during Q1 2023. The accounts receivable balances at December 31, 2022, and ~~April~~July 1, 2023 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $4,~~693~~814 at ~~April~~July 1, 2023 compared with inventory totaling $4,876 at December 31, 2022. The inventory turnover in the most recent four quarters ending Q1Q2 2023 was 4.1 times (based on a 5 point average) compared with 4.2 times averaged during the four quarters of ~~2021~~2022.

The Company financed its increase in non-cash working capital in Q1 2023 from its profit and usage of cash on hand. The Company expects it will continue to be able to fund its operations for the remainder of 2023 from operations and existing cash balances.

The Company continues to sell to a limited number of customers and the loss of any one of these customers could cause the Company to require additional external financing. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its business objectives.

Management believes that existing cash balances will be sufficient to fund our cash requirements for the foreseeable future. However, there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational goals are not met such that we will be able to meet our obligations as they become due.

Contractual Obligations (all $ in 000’s unless otherwise noted)

In ~~September~~May ~~2019~~2023, the Company ~~entered~~terminated ~~into~~its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) ~~in the amount of $2~~.5 ~~million.~~A ~~This~~new ~~agreement~~LOC ~~was amended~~ in ~~May 2020 to increase~~ the ~~line~~amount toof $3.0 million. ~~The~~was ~~agreement~~entered ~~includes~~into awith ~~demand~~Rockland ~~note~~Trust ~~allowing the Lender to call the loan at any time. The~~ Company ~~may terminate the agreement without a termination fee after 3 years~~. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of ~~LIBOR~~the ~~plus~~National ~~550~~Prime ~~basis~~Rate ~~points.~~as ~~The~~published ~~Company~~by ~~was~~the inWall ~~compliance~~Street ~~with~~Journal. ~~all~~On ~~debt~~July ~~covenants as of April~~ 1, 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.

In March 2020, the company acquired a scanning acoustic microscope for a price of $208 thousand. The full amount was financed through a 5 year note payable with a financing 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 Company has one 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 have been capitalized. (Note 4, Leases)

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is not significantly exposed to the impact of interest rate changes or foreign currency fluctuations. The Company has not used derivative financial instruments.

Although CPS has not been directly impacted by the war in Ukraine, potential supply chain disruptions and its impact on energy costs are areas where we could be impacted in the future.

Inflation is an area where we have seen some impact on our business. We have seen significant price increases in commodity raw materials, such as aluminum, as well as increases in other costs of doing business. As we receive new orders we have been able to pass on most of these costs to our customers. In the case of longer term pricing agreements, we have been able to pass on some of these costs through surcharges and in other ways to mitigate the impact on our profit. As inflation continues, our ability to continue to absorb higher costs by raising customer prices cannot be guaranteed.

ITEM 4

CONTROLS AND PROCEDURES

(a) The Company’s Acting President and Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d - 14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, 1) the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports the Company files under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and 2) the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

None.

ITEM 1A

RISK FACTORS

There have been no material changes to the risk factors as discussed in our 2022 Form 10-K.

ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. ~~None.~~

None.

ITEM 3

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5

OTHER INFORMATION

Not applicable.

ITEM 6

EXHIBITS AND REPORTS ON FORM 8-K:

(a)

Exhibits:

Exhibit 31.1 Certification Of Acting President and Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002

Exhibit 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)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CPS TECHNOLOGIES CORPORATION

(Registrant)

Date: ~~May~~August 84, 2023

/s/ Charles K. Griffith Jr.

Charles K. Griffith Jr.

Acting President and Chief Financial Officer

Filing Compare · CPS TECHNOLOGIES CORP/DE/