What changed in this filing

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Item 9A. Controls and Procedures

2022-03-10 compared with 2021-03-17 · 625 added, 544 removed, 220 unchanged (84% of the section changed)

Controls and Procedures

Evaluation of Disclosure Controls and

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 26, 2020.

Changes in Internal Control over Financial

There were no material changes in the Company’s

internal control over financial reporting during fiscal 2020.

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 26, 2020.

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 26, 2020.

This annual report does not include an attestation

report of the Company’s registered public accounting firm regarding internal control over financial reporting.

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.

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 25, 2021.

Changes in Internal Control over Financial Reporting

There were no material changes in the Company’s internal control over financial reporting during fiscal 2021.

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 25, 2021.

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 25, 2021.

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.

Other Information

The Company had no information required to

be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Form 10-K that has not been so reported.

The Company had no information required to be disclosed in a report on Form 8-K during the fourth quarter of the year covered by this Form 10-K that has not been so reported.

Directors, Executive Officer and Corporate Governance

The information required by this Item 10 is incorporated herein by

reference to our Definitive Proxy Statement, under the captions “Members of the Board of Directors, Nominees and Executive

Officers,” “Certain Relationships and Related Person Transactions;

Legal Proceedings,” “Section 16(a) Beneficial

Ownership Reporting Compliance,” “Code of Conduct” and “Corporate Governance” and with respect to

our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the

end of the Company’s 2020 fiscal year.

The Company has adopted the CPS Code of Conduct, which applies to

all directors, officers (including the principal executive officer, principal financial officer and treasurer) and employees.

A copy of this code can be found on the Company’s website at www.alsic.com/investor-relations.

The information required by this Item 10 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Members of the Board of Directors, Nominees and Executive Officers,”

“Certain Relationships and Related Person Transactions;

Legal Proceedings,”

“Section 16(a) Beneficial Ownership Reporting Compliance,”

“Code of Conduct”

and “Corporate Governance”

and with respect to our 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2021 fiscal year.

The Company has adopted the CPS Code of Conduct, which applies to all directors, officers (including the principal executive officer, principal financial officer and treasurer) and employees. 

A copy of this code can be found on the Company’s website at www.alsic.com/investor-relations.

Executive Compensation

The information required by this Item 11 is incorporated herein by

reference to our Definitive Proxy Statement, under the captions “Compensation” and “Compensation Discussion and

Analysis” with respect to our 2021 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission

not later than 120 days after the end of the Company’s 2020 fiscal year.

The information required by this Item 11 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Compensation”

and “Compensation Discussion and Analysis”

with respect to our 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2021 fiscal year.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item 12 is incorporated herein by

reference to our Definitive Proxy Statement, under the caption “Equity Compensation Plan Information” and “Security

Ownership of Certain Beneficial Owners and Management” with respect to our 2021 Annual Meeting of Stockholders to be filed

with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

The information required by this Item 12 is incorporated herein by reference to our Definitive Proxy Statement, under the caption “Equity Compensation Plan Information”

and “Security Ownership of Certain Beneficial Owners and Management”

with respect to our 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2021 fiscal year.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item 13 is incorporated herein by

reference to our Definitive Proxy Statement, under the captions “ Certain Relationships and Related Person Transactions;

Legal Proceedings” and “Corporate Governance” with respect to our 2021 Annual Meeting of Stockholders to be filed

with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2020 fiscal year.

The information required by this Item 13 is incorporated herein by reference to our Definitive Proxy Statement, under the captions “Certain Relationships and Related Person Transactions;

Legal Proceedings”

and “Corporate Governance”

with respect to our 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2021 fiscal year.

Principal Accountant Fees and Services

The information required by this Item 14 is incorporated herein by

reference to our Definitive Proxy Statement, under the caption “Accounting Matters” with respect to our 2021 Annual

Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s

2020 fiscal year.

The information required by this Item 14 is incorporated herein by reference to our Definitive Proxy Statement, under the caption “Accounting Matters”

with respect to our 2022 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission not later than 120 days after the end of the Company’s 2021 fiscal year.

Exhibits, Financial Statement Schedules.

3 unchanged sentences

The exhibits to this Form 10-K are listed on the Exhibit Index of this Form 10-K.

Pursuant to the requirements of Section 13

or 15(d) 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 CORP.

President and Chief Executive Officer

March 16, 2021

Pursuant to the Requirements of the Securities

Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the

dates indicated.

and Chief Executive Officer

Financial Officer

/s/ Francis J.

March 16, 2021

/s/ Daniel C.

March 16, 2021

/s/ Thomas M.

March 16, 2021

CPS TECHNOLOGIES CORP.

EXHIBIT INDEX

Restated Certificate of Incorporation of the Company, as amended, is incorporated herein by reference to Exhibit 3 to the Company’s Registration Statement on Form 8-A (File No.

By-laws of the Company, as amended, are incorporated herein by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No.

33-14616)(the ‘1987 S-1Registration Statement’)

Certificate of Amendment

of Restated Certificate of Incorporation of the Company dated May 14, 2014

Certificate of Ownership

and Merger Merging CPS Superconductor Corporation into Ceramics Process Systems Corporation dated March 15, 2007

Specimen certificate for shares of Common Stock of the Company is incorporated herein by reference to Exhibit 4 to the 1987 S-1 Registration Statement

Description of Capital Stock contained in the Restated Certificate of Incorporation of the Company, as amended, filed as Exhibit 3.1

Amendment dated May 12,

2020 to Credit and Security Agreement by and between CPS Technologies Corp.

and The Massachusetts Business Development Corporation

dated September 25, 2019

Restated Certificate of Incorporation of the Company, as amended, is incorporated herein by reference to Exhibit 3.1 to the Company’s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

By-laws of the Company, as amended, are incorporated herein by reference to Exhibit 3.2 to the Company’s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

Certificate of Amendment of Restated Certificate of Incorporation of the Company dated May 14, 2014 is incorporated herein by reference to Exhibit 3.4 to the Company’s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

Certificate of Ownership and Merger Merging CPS Superconductor Corporation into Ceramics Process Systems Corporation dated March 15, 2007 is incorporated herein by reference to Exhibit 3.2 to the Company’s annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021

Specimen certificate for shares of Common Stock of the Company is incorporated herein by reference to Exhibit 4.2 to the Registration Statement on Form S-3 (Registration Statement No.

333-255373) filed with the Securities and Exchange Commission on April 20, 2021

Description of the Company’s securities is incorporated by reference to Exhibit 4.2 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Amendment dated May 12, 2020 to Credit and Security Agreement by and between CPS Technologies Corp.

and The Massachusetts Business Development Corporation dated September 25, 2019

Amendment dated May 17, 2021 to Credit and Security Agreement by and between CPS Technologies Corp.

and The Massachusetts Business Development Corporation dated September 25, 2019

CNC Associates, Inc.

Notification of Approval of Financing dated May 26, 2020.

Credit and Security Agreement

by and between CPS Technologies Corp.

Credit and Security Agreement by and between CPS Technologies Corp.

and The Massachusetts Business Development September 25, 2019

Amendment dated September 8, 2021 to Credit and Security Agreement by and between CPS Technologies Corp.

and The Massachusetts Business Development Corporation dated September 25, 2019

Amendment No.

November 7, 2008 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and Ceramics Process

Systems Corporation dated July 19, 2006

Retirement Savings Plan, effective September 1, 1987 is incorporated by reference to Exhibit 10.35 to the Company’s 1989 S-1 Registration Statement

1 dated November 7, 2008 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and Ceramics Process Systems Corporation dated July 19, 2006 is incorporated by reference to Exhibit 10.2 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Retirement Savings Plan, effective September 1, 1987 is incorporated by reference to Exhibit 10.35 to the Company’s 1989 S-1 Registration Statement

Amendment No.

May 7, 2009 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and Ceramics Process Systems

dated July 19, 2006.

Third Amendment dated

January 6, 2015 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and CPS Technologies Corp.

dated July 19, 2006

Fourth Amendment dated

February 28, 2018 to Standard Form Commercial Lease by and between Gifford Investments, Inc.

2 dated May 7, 2009 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and Ceramics Process Systems dated July 19, 2006 is incorporated by reference to Exhibit 10.6 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021).

Third Amendment dated January 6, 2015 to Standard Form Commercial Lease by and between Gifford Investments, Inc.(lessor) and CPS Technologies Corp.

dated July 19, 2006 is incorporated by reference to Exhibit 10.7 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Fourth Amendment dated February 28, 2018 to Standard Form Commercial Lease by and between Gifford Investments, Inc.

and CPS Technologies Corp.

July 19, 2006

Fifth Amendment dated

January 25, 2021 to Standard Form Commercial Lease by and between Gifford Investments, Inc.

dated July 19, 2006 is incorporated by reference to Exhibit 10.8 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Fifth Amendment dated January 25, 2021 to Standard Form Commercial Lease by and between Gifford Investments, Inc.

and CPS Technologies Corp.

July 19, 2006

1999 Stock Incentive

Plan adopted by the Company’s Board of Directors on January 22, 1999

2009 Stock Incentive Plan ("2009

Plan") on December 10, 2009.

2020 Stock Incentive

Plan (“2020 Plan”) on March 3, 2020

Amended and Restated

2009 Stock Incentive Plan

Form of Stock Option

Agreement for 2020 Equity Incentive Plan and Amended and Restated 2009 Stock Option Plan

Consent of Wolf &

Company, P.C.

Certification Pursuant

to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification Pursuant

dated July 19, 2006 is incorporated by reference to Exhibit 10.9 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

1999 Stock Incentive Plan adopted by the Company’s Board of Directors on January 22, 1999

2009 Stock Incentive Plan ("2009 Plan") on December 10, 2009 is incorporated by reference to Exhibit 99.1 of the Company'sForm S-8 (File No.

333-163553) filed with the Securities and Exchange Commission on December 8, 2009)

2020 Stock Incentive Plan (“2020 Plan”) on March 3, 2020 is incorporated by reference to Exhibit 10.23 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Amended and Restated 2009 Stock Incentive Plan is incorporated by reference to Exhibit 10.24 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Form of Stock Option Agreement for 2020 Equity Incentive Plan and Amended and Restated 2009 Stock Option Plan is incorporated by reference to Exhibit 10.26 of the Company's annual report on Form 10-K (File No.

001-36807) filed with the Securities and Exchange Commission on March 17, 2021)

Consent of Wolf & Company, P.C.

Certification Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

* Incorporated herein by reference.

(1) Management Contract or compensatory plan

or arrangement filed as an exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

(1) Management Contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

Pursuant to the requirements of Section 13 or 15(d) 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 CORP.

/s/ Michael McCormack

President and Chief Executive Officer

March 9, 2022

Pursuant to the Requirements of the Securities Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Michael McCormack

President  and Chief Executive Officer

March 9, 2022

Michael McCormack

/s/ Charles K.

Chief Financial Officer

March 9, 2022

/s/ Francis J.

March 9, 2022

/s/ Daniel C.

March 9, 2022

/s/ Thomas M.

March 9, 2022

Culligan 

March 9, 2022

Bennett  

INDEX TO FINANCIAL STATEMENTS

CPS TECHNOLOGIES CORP.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 392 )

Balance Sheets as of December 25, 2021 and December 26, 2020

Statements of Operations for the years ended December 25, 2021 and December 26, 2020

Statements of Stockholders’ Equity for the years ended December 26, 2020 and December 28, 2019

Statements of Stockholders’ Equity for the years ended December 25, 2021 and December 26, 2020

Statements of Cash Flows for the years ended December 25, 2021 and December 26, 2020

Notes to Financial Statements

Report of Independent Registered Public

Accounting Firm

To the Board of Directors and Stockholders of CPS Technologies

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of CPS Technologies Corp.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of CPS Technologies

(the "Company") as of December 26, 2020 and December 28, 2019, the related statements of operations, stockholders’

equity and cash flows for each of the two years in the period ended December 26, 2020, 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 26, 2020 and December 28, 2019, and the results of its operations and its

cash flows for each of the two years in the period ended December 26, 2020, in conformity with accounting principles generally

accepted in the United States of America.

We have audited the accompanying balance sheets of CPS Technologies Corporation (the "Company") as of December 25, 2021 and December 26, 2020, 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 25, 2021 and December 26, 2020, 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

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

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.

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

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial

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.

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 Matters

Critical audit matters are matters arising from the current

period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective, or complex judgments.

We determined that there are no critical audit matters.

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Assessment of recoverability of deferred tax assets

As discussed in Note 9 to the financial statements, as of December 25, 2021 the Company recorded deferred tax assets of $2,824,000 relating to tax losses incurred and temporary differences.

The assessment of the recoverability of these deferred tax assets is dependent on the generation of future taxable income.

Significant judgment and estimation is required to assess the sufficiency of future taxable income to utilize the deferred tax assets.

The Company uses projections of future taxable income in order to assess the probability that the deferred tax assets will be realized.

Predicting future taxable income is dependent on assumptions and judgments regarding future market conditions, production rates, and sales.

The Company determined that the realization of these deferred tax assets is more-likely-than-not.

We identified the assessment of the recoverability of deferred tax assets as a critical audit matter due to the high degree of judgment required in auditing the significant assumptions and judgments that are reflected in the projections of future taxable income.

Addressing the matter involved performing procedures and evaluating the audit evidence in connection with forming our overall opinion on the financial statements. 

These procedures included, among others (i) assessing the Company’s ability to estimate future taxable income by comparing the Company’s previous forecasts to actual results;

(ii) assessing the Company’s estimate of future taxable income by evaluating key assumptions in the Company’s future projections by comparing (a) forecast sales to historical trends and committed sales, including to committed sales contracts, and (b) forecast sales volumes to historical data.

We involved income tax professionals with specialized skills and knowledge in assessing the Company’s application of the tax regulations in relevant jurisdictions.

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

/s/ Wolf & Company, P.C.

1 unchanged sentence

March 9, 2022

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

CPS TECHNOLOGIES CORP.

2 unchanged sentences

Cash and cash equivalents

$ 5,050,312  

$ 195,203  

Accounts receivable-trade, net

4,870,021  

2,914,800  

3,911,602  

3,709,471  

Prepaid expenses and other current assets

225,873  

71,506  

Total current assets

14,057,808  

6,890,980  

Property and equipment:

Production equipment

10,489,729  

10,265,471  

Furniture and office equipment

673,305  

568,846  

Leasehold improvements

Accumulated depreciation

and amortization

951,384  

12,114,418  

11,785,701  

Accumulated depreciation and amortization

( 11,028,154 )  

( 10,558,816 )

Construction in progress

246,669  

61,062  

Net property and equipment

1,332,933  

1,287,947  

Right-of-use lease asset (note 4, leases)

586,000  

25,000  

Deferred taxes, net

2,823,978  

117,000  

$ 18,800,719  

$ 8,320,927  

See accompanying notes to financial statements.

1 unchanged sentence

BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

1 unchanged sentence

Notes payable, current portion

55,906  

58,134  

Accounts payable

2,100,251  

909,291  

Accrued expenses

1,086,429  

804,091  

Deferred revenue

1,707,138  

12,177  

Lease liability, current portion

155,000  

25,000  

Total current liabilities

5,104,724  

1,808,693  

Notes payable less current portion

98,684  

154,570  

Long term lease liability

431,000  

Total liabilities

5,634,408  

1,963,263  

Commitments & Contingencies

Stockholders’

Common stock, $0.01 par value,

authorized 20,000,000 shares;

Stockholders’

Common stock, $0.01 par value, authorized 20,000,000 shares;

issued 14,350,786 and 13,746,242 shares;

1 unchanged sentence

at December 25, 2021 and December 26, 2020, respectively

143,508  

137,462  

Additional paid-in capital

39,281,810  

36,688,894  

Accumulated deficit

Less cost of 432,452 and 220,056 common shares repurchased

at December 26, 2020 and December 28, 2019, respectively

Total stockholders’

Total liabilities and stockholders’

( 26,256,492 )  

( 29,472,369 )

Less cost of 335 and 432,452 common shares repurchased at December 25, 2021 and December 26, 2020, respectively

( 2,515 )  

Total stockholders’

13,166,311  

6,357,664  

Total liabilities and stockholders’

$ 18,800,719  

$ 8,320,927  

See accompanying notes to financial statements.

3 unchanged sentences

Product sales

$ 22,449,065  

$ 20,872,611  

Cost of product sales

Selling, general, and

Administrative expenses

Income (loss) from operations

17,659,347  

16,702,848  

4,789,718  

4,169,763  

Selling, general, and Administrative expenses

4,276,751  

3,255,527  

Income from operations

512,967  

914,236  

Other income (expense)

Income (loss) before income tax

( 4,068 )  

Income before income tax

508,899  

899,516  

Income tax provision (benefit)

Net income (loss)

Net income (loss) per

basic common share

Weighted average number of

basic common shares

Net income (loss) per

diluted common share

Weighted average number of

diluted common shares

(2,706,978 )  

$ 3,215,877  

$ 908,064  

Net income (loss) per basic common share

$ 0.23  

$ 0.07  

Weighted average number of basic common shares outstanding

14,061,320  

13,251,521  

Net income (loss) per diluted common share

$ 0.22  

$ 0.07  

Weighted average number of diluted common shares outstanding

14,590,725  

13,348,582  

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

STATEMENTS OF STOCKHOLDERS’ EQUITY

STATEMENTS OF STOCKHOLDERS’

FOR THE YEARS ENDED DECEMBER 25, 2021 AND DECEMBER 26, 2020

holders’

shares issued

December 29, 2018

Balance at December 28, 2019

13,427,492  

$ 134,275  

36,094,201  

$ ( 30,380,433 )

compensation expense

$ ( 517,053 )  

$ 5,330,990  

Share-based compensation expense

117,842  

Issuance of Common Stock

December 28, 2019

$ (30,380,433 )

compensation expense

Issuance of common

Employee option exercises

December 26, 2020

318,250  

476,080  

( 479,270 )  

908,064  

Balance at December 26, 2020

13,746,242  

$ 137,462  

36,688,894  

$ ( 29,472,369 )

$ ( 996,323 )  

$ 6,357,664  

Share-based compensation expense

174,124  

Issuance of common stock

528,804  

3,402,128  

3,407,417  

Employee option exercises

630,400  

1,235,370  

( 1,230,445 )  

11,229  

Treasury Shares Retired

( 554,660 )  

( 5,547 )  

( 2,218,706 )  

2,224,253  

3,215,877  

Balance at December 25, 2021

14,350,786  

$ 143,508  

39,281,810  

$ ( 26,256,492 )  

$ ( 2,515 )  

$ 13,166,311  

See accompanying notes to financial statements.

4 unchanged sentences

Net income (loss)

Adjustments to reconcile net income (loss)

to cash provided (used) by operating

$ 3,215,877  

$ 908,064  

Adjustments to reconcile net income to cash provided by operating activities:

Share-based compensation

174,124  

117,842  

Depreciation and amortization

469,337  

530,420  

Deferred taxes

(2,706,978 )  

30,873  

Gain on sale of property and equipment

(2,047 )  

Changes in operating assets and liabilities:

Accounts receivable –

(1,955,221 )  

1,172,145  

(202,131 )  

Prepaid expenses and other current assets

( 154,367 )  

76,280  

Accounts payable

1,190,960  

Accrued expenses

282,338  

Deferred revenue

Net cash provided (used) by operating activities

1,694,961  

Net cash provided by operating activities

2,006,853  

1,667,843  

Cash flows from investing activities:

Purchases of property and equipment

( 514,322 )  

Proceeds from sale of property and equipment

Net cash used by

investing activities

11,000  

Net cash used by investing activities

( 512,275 )  

Cash flows from financing activities:

1 unchanged sentence

Proceeds from employee stock options

11,229  

Proceeds from issuance of common stock

3,407,416  

Payment on notes payable

( 58,114 )  

Net cash provided by financing activities

3,360,531  

Net increase (decrease) in cash and cash equivalents

4,855,109  

61,238  

Cash and cash equivalents at beginning of year

195,203  

133,965  

Cash and cash equivalents at end of year

$ 5,050,312  

$ 195,203  

Supplemental cash flow information:

1 unchanged sentence

Cash paid for interest

$ 35,229  

$ 104,488  

Supplemental disclosures of non-cash activity:

Net exercise of stock options

$ 1,230,445  

479,270  

Issuance of long term debt to finance equipment purchases

247,807  

See accompanying notes to financial statements.

4 unchanged sentences

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.

design, manufacture and sell custom metal matrix composite components which improve the performance and reliability of systems

in these end markets.

(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.

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 doubtful accounts.

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.

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 doubtful accounts of $10,000

as of December 26, 2020 and December 28, 2019.

The Company reports its accounts receivable at the invoiced amount less an allowance for doubtful accounts.

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.

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 doubtful accounts of $ 10,000 as of December 25, 2021 and December 26, 2020.

( 2 )(c) Inventories

Inventories are stated at the lower of cost,

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 write off obsolete inventory when there has been no activity on a particular part for a twelve

month period and there are no pending customer orders.

Inventories are stated at the lower of cost, 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.

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.

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 26, 2020 and December 28, 2019, the Company believes

that there has been no impairment of its 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 25, 2021 and December 26, 2020, 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

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.

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.

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.

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.

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.

For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations.

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.

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

to the customer.

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 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.

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

The Company updates its estimate of variable consideration at the end of each reporting period to reflect changes

in facts and circumstances.

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 25, 2021 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 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.

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

26, 2020 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

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 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.

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 25, 2021 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 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 26, 2020 and December 28, 2019, 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 26, 2020 or December 28, 2019 which required accrual or disclosure.

The Company uses the 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 25, 2021 and December 26, 2020, 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 25, 2021 or December 26, 2020 which required accrual or disclosure.

( 2 )(h) Net Income (Loss) Per Common Share

Basic net income (loss) per common share is

calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

net income (loss) per common share is calculated by dividing net income (loss) 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.

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per common share is calculated by dividing net income (loss) 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.

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”).

Based upon this review, 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.

In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”).

Based upon this review, 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.

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.

The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year.

Fiscal years 2021 and 2020 each consisted of 52 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.

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 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.

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 26, 2020 and December 28, 2019

inventories consisted of the following:

As of December 25, 2021 and December 26, 2020 inventories consisted of the following:

Raw materials

$ 2,080,778  

$ 752,760  

Work in process

1,309,572  

2,800,226  

Finished goods

805,159  

592,640  

Gross Inventory

4,195,509  

4,145,626  

Reserve for obsolescence

The Company had two real estate leases in 2020—one expiring

in February 2021 and one expiring December 2020.

The latter lease was not renewed.

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 2021 (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 date of adoption of the lease guidance.

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

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 $152 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 as of December 26, 2020

(283,907 )  

$ 3,911,602  

$ 3,709,471  

The Company had one real estate lease in 2021 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 date of the current 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 leases as of December 25, 2021:

(Dollars in Thousands)

December 25, 2021

capitalized lease payments

Maturity of capitalized lease liabilities

Lease payments

7 unchanged sentences

Other Information

Weighted-average remaining lease term for capitalized operating leases

Weighted-average remaining lease term for capitalized operating leases (in months)

Weighted-average discount rate for capitalized operating leases

Cash paid for the amounts included in the present

value of operating lease liabilities was $152 thousand during 2020 and is included in operating cash flows.

Operating Lease Costs

Operating lease cost was $152 thousand

This cost is related to its long-term operating lease.

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $ 38 thousand during the fourth quarter of 2021 and $ 152 thousand for the twelve months ended December 25, 2021.

These costs are related to its long-term operating lease.

All other short-term leases were immaterial.

1 unchanged sentence

The Company does not have any finance leases.

that qualify for capitalization.

Subsequent to year end, the Company renewed the Norton facility lease

for an additional 5 years.

Estimated monthly payments under the terms of the renewed lease, which is not reflected in the

2020 lease asset or liability escalate from approximately $12 thousand to $16 thousand over the lease term

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.

outstanding options are nonstatutory 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.

Under the 2020 Plan a total of 1,500,000 shares

of common stock are available for issuance, of which 1,386,000 shares remain available for grant as of December 26, 2020.

A summary of stock option activity as of December

26, 2020 and changes during the year then ended is presented below:

Outstanding at

beginning of year

Outstanding at

Options exercisable

No options were exercised during fiscal 2019

and 199,500 options were granted during fiscal 2019.

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 2020 and 2019:

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.

Under the 2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 1,149,500 shares remain available for grant as of December 25, 2021.

The Company also administers the 2009 Stock Incentive Plan, which expired in December 2019 but which will remain in effect until all awards outstanding under such plan have been exercised or expire.

As of December 25, 2021, 488,900 remain open under this Plan.

A summary of stock option activity as of December 25, 2021 and changes during the year then ended is presented below:

Outstanding at beginning of year

1,251,500  

$ 1.82  

258,000  

$ 3.39  

( 630,400 )  

$ 1.97  

( 36,700 )  

$ 1.69  

( 3,000 )  

$ 1.49  

Outstanding at end of year

839,400  

$ 2.20  

$ 1,874,111  

Options exercisable at year-end

468,900  

$ 1.90  

$ 1,163,055  

318,250 options were exercised during fiscal 2020 and 119,000 options were granted during fiscal 2020.

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 2021 and 2020:

Risk-free interest rate

.50% - 1.34 %  

Expected life in years

2 unchanged sentences

Weighted average fair value of grants

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 $117,842 and $133,671

as stock based compensation expense in 2020 and 2019, respectively.

As of December 26, 2020, there was $146,017 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 2.05 years.

Accrued expenses at December 26, 2020 and December

28, 2019 consist of the following:

$ 1.72  

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 $ 174,124 and $ 117,842 as stock based compensation expense in 2021 and 2020, respectively.

 As of December 25, 2021, there was $ 383,606 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 2.41 years.

( 6 ) Accrued Expenses

Accrued expenses at December 25, 2021 and December 26, 2020 consist of the following:

Accrued legal and accounting

$ 79,917  

$ 71,671  

Accrued payroll and related costs

905,698  

626,063  

Accrued other

100,814  

106,357  

$ 1,086,429  

$ 804,091  

( 7 ) Revolving Line of Credit

2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the

amount of $2.5 million.

The agreement includes a demand note allowing the Lender to call the loan at any time.

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

plus 650 basis points.

The Company is subject to certain financial and non-financial covenants, all of which have been waived

by BDC for 2020.

At December 26, 2020 the Company had $0 borrowings under this LOC and its borrowing base at the time would

have permitted an additional $2.2 to have been borrowed.

Total Interest Expense for 2020 was $104 thousand.

(8) Notes Payable

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 Crest Capital Corporation.

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%.

In July 2020 CPS placed into service a piece of manufacturing

equipment which it financed with the machine’s vendor.

The equipment cost of $40 thousand will be paid at the rate

of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%.

The aggregate maturities of the notes payable based on the

payment terms of the agreement are as follows:

In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $ 2.5 million. 

The agreement includes a demand note 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 plus 550 basis points. 

The Company is subject to certain financial and non-financial covenants, all of which have been waived by BDC for 2021.

At December 25, 2021 the Company had $ 0 borrowings under this LOC and its borrowing base at the time would have permitted an additional $ 2.9 to have been borrowed. 

 Total Interest Expense for 2021 was $ 24 thousand.

( 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 Crest Capital Corporation. 

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 %.

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor. 

The equipment cost of $ 40 thousand will be paid at the rate of $ 2 thousand per month over 2 years, resulting in an implied interest rate of 1.90 %. 

The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:

Remaining in:

Payments due by period

Total interest expense on notes payable

during 2020 was $10,816.

$ 63,983  

$ 48,934  

$ 8,155  

Interest on the above

$ 154,590  

Total interest expense on notes payable during 2021 was $ 10,886 .

( 9 ) Income Taxes

Components of income tax expense (benefit)

for each year are as follows:

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

11,967  

Current income tax provision (benefit):

11,967  

( 2,156,278 )  

33,873  

( 562,667 )  

Deferred income tax provision (benefit), net

Deferred tax assets as of December 26, 2020

and December 28, 2019 are as follows:

( 2,718,945 )  

30,873  

$ ( 2,706,978 )  

Deferred tax assets as of December 25, 2021 and December 26, 2020 are as follows:

December 25, 2021

1 unchanged sentence

Deferred Tax Assets:

Net operating loss

carryforwards

Net operating loss carryforwards

$ 1,050,449  

$ 746,397  

Stock compensation

157,845  

540,281  

Credit carryforwards

1,285,119  

1,288,897  

77,563  

116,153  

Accrued liabilities

12,390  

22,140  

237,880  

250,093  

Gross deferred tax assets

2,823,978  

2,966,693  

Valuation allowance

( 2,849,693 )

Net deferred tax assets

At December 26, 2020 and December 28, 2019 the Company had net operating

loss carryforwards of approximately $2,754,601 and $3,278,463, respectively, available to offset future income for U.S.

income tax purposes.

$ 2,823,978  

$ 117,000  

At December 25, 2021 and December 26, 2020 the Company had net operating loss carryforwards of approximately $ 3,768,032 and $ 2,754,601 , respectively, available to offset future income for U.S.

Federal income tax purposes.

These net operating loss carryforwards occurred over several years, which begin to expire in the year ended 12/31/2036.

The Company established a valuation reserve

as it is judged more likely than not that all or a portion of the tax credits will not be used before they expire.

This decision

was initially reached in 2018 after giving greater weight to its losses over the last three years compared with its forecast of

A summary of the change in the deferred tax

asset is as follows:

The Company established a valuation reserve as it is judged more likely than not that all or a portion of the tax credits will not be used before they expire.

This decision was initially reached in 2018 after giving greater weight to its losses over the last three years compared with its forecast of the future.

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.

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

Gross deferred tax balance at beginning of year

$ 2,966,693  

$ 3,321,611  

Deferred tax benefit (provision)

( 142,715 )  

Valuation allowance

( 2,849,693 )

Balance at end of year, net

Income tax expense is different from the amounts

computed by applying the U.S.

$ 2,823,978  

$ 117,000  

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:

Tax at statutory rate

State tax, net

of federal benefit

Net operating loss and

credit carryforwards

$ 106,869  

$ 188,899  

State tax, net of federal benefit

36,301  

Net operating loss and credit carryforwards

33,873  

Valuation allowance

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 2017 through 2020.

( 2,849,693 )  

92,365  

$ ( 2,706,978 )  

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 2018 through 2021.

( 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 and as determined each year by the Board of Directors.

During 2020 the Company matched

½% of each of the first 2% of employee contributions amounting to $64 thousand.

In 2019 the Company did not offer

a 401k match.

(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

such cash deposits in a high credit quality financial institution.

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.

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 2020 and 2019 were as follows:

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 and as determined each year by the Board of Directors.

During 2021 the Company accrued a match of ½

% of each of the first 2 % of employee contributions amounting to $ 34 thousand. 

In 2020 the Company accrued a match of ½

% of each of the first 2 % of employee contributions amounting to $ 64 thousand, which was paid in 2021.

( 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 such cash deposits in a high credit quality financial institution.

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.

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 2021 and 2020 were as follows:

Percent of Total Revenues

Significant Customer

As of December 26, 2020, the Company had trade accounts receivable

due from these three customers that accounted for 70% of total trade accounts receivable as of that date.

No other customer balances

constitute 10% or more of accounts receivable at December 26, 2020.

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 2020 and 2019:

As of December 25, 2021, the Company had trade accounts receivable due from these three customers that accounted for 53 % of total trade accounts receivable as of that date.

One other customer balance constitutes 23 % of accounts receivable at December 25, 2021, while no others make up 10% or more of the balance.

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 2021 and 2020:

Percent of Total Revenues

United States of America

Many of the Company’s customers based

in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas.

Revenue generated

from shipments made to customers’ locations outside the United States accounted for 77% and 75% of total revenue in 2020

and 2019, respectively.

All of the Company’s long-lived assets

and operations are located in the United States.

Many of the Company’s customers based in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas.

Revenue generated from shipments made to customers’

locations outside the United States accounted for 60 % and 77 % of total revenue in 2021 and 2020, respectively.

All of the Company’s long-lived assets and operations are located in the United States.

( 12 ) Net Income (Loss) Per Share

The following reconciles the basic and diluted

net income (loss) per share calculations.

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

Basic EPS Computation:

Net income (loss)

$ 3,215,877  

$ 908,064  

Weighted average

Common shares

14,061,320  

13,251,521  

$ 0.23  

$ 0.07  

Diluted EPS Computation:

Net income (loss)

$ 3,215,877  

$ 908,064  

Weighted average

Common shares

14,061,320  

13,251,521  

Dilutive effect of stock options

529,405  

97,061  

14,590,725  

13,348,582  

Diluted net income (loss) per share

$ 0.22  

$ 0.07  

( 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures