CPS TECHNOLOGIES CORP/DE/ 10-K

Item 9A. Controls and Procedures   Evaluation of Disclosure Controls and Procedures   The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.         Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 31, 2022.   Changes in Internal Control over Financial Reporting   There were no material changes in the Company’s internal control over financial reporting during fiscal 2022.   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 31, 2022. 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 31, 2022.   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.   Item 9B. 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.   Part III   Item 10.       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 2023 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 2022 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 https://cpstechnologysolutions.com/investor-overview/.   Item 11.       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 2023 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 2022 fiscal year.   Item 12.       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 2023 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 2022 fiscal year.   Item 13.       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 2023 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 2022 fiscal year.   Item 14.       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 2023 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 2022 fiscal year.         Part IV   Item 15.            Exhibits, Financial Statement Schedules. (a) Documents filed as part of this Form 10-K.   1. Financial Statements The financial statements filed as part of this Form 10-K are listed on the Index to Financial Statements of this Form 10-K.   2. Exhibits The exhibits to this Form 10-K are listed on the Exhibit Index of this Form 10-K.         CPS TECHNOLOGIES CORP. EXHIBIT INDEX   Exhibit No. Description     3.1* 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     3.2* 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     3.3* 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     3.4* 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     4.1* 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     4.2* 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)     4.3 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     4.4 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     4.5 CNC Associates, Inc. Notification of Approval of Financing dated May 26, 2020.     4.6 Credit and Security Agreement by and between CPS Technologies Corp. and The Massachusetts Business Development September 25, 2019     4.7 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     10.2* Amendment No. 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)     10.5*(1) Retirement Savings Plan, effective September 1, 1987 is incorporated by reference to Exhibit 10.35 to the Company’s 1989 S-1 Registration Statement     10.6* Amendment No. 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).         Exhibit No. Description     10.7* 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)     10.8* Fourth Amendment dated February 28, 2018 to Standard Form Commercial Lease by and between Gifford Investments, Inc. and CPS Technologies Corp. 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)     10.9* Fifth Amendment dated January 25, 2021 to Standard Form Commercial Lease by and between Gifford Investments, Inc. and CPS Technologies Corp. 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)     10.21* 1999 Stock Incentive Plan adopted by the Company’s Board of Directors on January 22, 1999     10.22* 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)     10.23*(1) 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)     10.24*(1) 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)     10.26*(1) 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)     23.1 Consent of Wolf & Company, P.C.     31.1 Certification Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.     31.2 Certification Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 .     32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.     101.INS Inline XBRL Instance Document     101.SCH Inline XBRL Taxonomy Extension Schema Document     101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document     101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document     101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document     101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document     104 Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)   * 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.         SIGNATURES   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.   By: /s/ Michael McCormack   President and Chief Executive Officer March 16, 2023     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.   Signature Title Date       /s/ Michael McCormack President  and Chief Executive Officer March 16, 2023 Michael McCormack           /s/ Charles K. Griffith Jr. Chief Financial Officer March 16, 2023 Charles K. Griffith Jr.           /s/ Francis J. Hughes, Jr. Director March 16, 2023 Francis J. Hughes           /s/ Daniel C. Snow Director March 16, 2023 Daniel C. Snow           /s/ Thomas M. Culligan Director March 16, 2023 Thomas M. Culligan            /s/ Ralph M. Norwood Director March 16, 2023 Ralph M. Norwood           /s/ Grant C. Bennett Director March 16, 2023 Grant C. Bennett                 INDEX TO FINANCIAL STATEMENTS OF CPS TECHNOLOGIES CORP.   Report of Independent Registered Public Accounting Firm (PCAOB ID 392 )       Balance Sheets as of December 31, 2022 and December 25, 2021       Statements of Operations for the years ended December 31, 2022 and December 25, 2021       Statements of Stockholders’ Equity for the years ended December 31, 2022 and December 25, 2021       Statements of Cash Flows for the years ended December 31, 2022 and December 25, 2021       Notes to Financial Statements            Report of Independent Registered Public Accounting Firm   To the Board of Directors and Stockholders of CPS Technologies Corporation   Opinion on the Financial Statements   We have audited the accompanying balance sheets of CPS Technologies Corporation (the "Company") as of December 31, 2022 and December 25, 2021, 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 31, 2022 and December 25, 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.   Basis for Opinion   These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.   Critical Audit 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.   We have served as the Company's auditor since 2005.   /s/ Wolf & Company, P.C.   Boston, Massachusetts   March 16, 2023                CPS TECHNOLOGIES CORP. BALANCE SHEETS       December 31,     December 25,       2022     2021   ASSETS                                   Current assets:                 Cash and cash equivalents   $ 8,266,753     $ 5,050,312   Accounts receivable-trade, net     3,777,975       4,870,021   Accounts receivable-other     685,668       -   Inventories     4,875,901       3,911,602   Prepaid expenses and other current assets     211,242       225,873   Total current assets     17,817,539       14,057,808   Property and equipment:                 Production equipment     10,770,427       10,489,729   Furniture and office equipment     952,883       673,305   Leasehold improvements     985,649       951,384   Total cost     12,708,959       12,114,418   Accumulated depreciation and amortization     ( 11,446,901 )     ( 11,028,154 ) Construction in progress     64,910       246,669   Net property and equipment     1,326,968       1,332,933   Right-of-use lease asset (note 4, leases)     466,000       586,000   Deferred taxes, net     2,069,436       2,823,978   Total assets   $ 21,679,943     $ 18,800,719     (continued)   See accompanying notes to financial statements.         CPS TECHNOLOGIES CORP. BALANCE SHEETS       December 31,     December 25,       2022     2021   LIABILITIES AND STOCKHOLDERS’ EQUITY                 Current liabilities:                 Notes payable, current portion     43,711       55,906   Accounts payable     1,836,865       2,100,251   Accrued expenses     820,856       1,086,429   Deferred revenue     2,521,128       1,707,138   Lease liability, current portion     157,000       155,000                     Total current liabilities     5,379,560       5,104,724                     Notes payable less current portion     54,847       98,684   Deferred revenue – long term     231,020       -   Long term lease liability     309,000       431,000                     Total liabilities     5,974,427       5,634,408   Commitments & Contingencies                     Stockholders’ Equity:                 Common stock, $ 0.01 par value, authorized 20,000,000 shares; issued 14,460,486 and 14,350,786 shares; outstanding 14,450,470 and 14,350,451 ; at December 31, 2022 and December 25, 2021, respectively     144,605       143,508   Additional paid-in capital     39,726,851       39,281,810   Accumulated deficit     ( 24,125,092 )     ( 26,256,492 ) Less cost of 10,016 and 335 common shares repurchased at December 31, 2022 and December 25, 2021, respectively     ( 40,848 )     ( 2,515 )                   Total stockholders’ equity     15,705,516       13,166,311                     Total liabilities and stockholders’ equity   $ 21,679,943     $ 18,800,719     See accompanying notes to financial statements.           CPS TECHNOLOGIES CORP. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2022 AND DECEMBER 25, 2021       2022     2021   Product sales   $ 26,586,926     $ 22,449,065                     Cost of product sales     19,285,846       17,659,347   Gross margin     7,301,080       4,789,718                     Selling, general, and Administrative expenses     5,066,660       4,276,751   Income from operations     2,234,420       512,967                     Other income (expense)     653,248       ( 4,068 ) Income before income tax     2,887,668       508,899   Income tax provision (benefit)     756,268       ( 2,706,978 ) Net income   $ 2,131,400     $ 3,215,877                     Net income (loss) per basic common share   $ 0.15     $ 0.23   Weighted average number of basic common shares outstanding     14,424,381       14,061,320   Net income (loss) per diluted common share   $ 0.15     $ 0.22   Weighted average number of diluted common shares outstanding     14,675,646       14,590,725     See accompanying notes to financial statements.           CPS TECHNOLOGIES CORP. STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2022 AND DECEMBER 25, 2021       Common stock                                                       Additional                     Stock-       Number of     Par     Paid-in     Accumulated     Stock     holders ’       shares issued     Value     capital     deficit     repurchased     equity   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       —       —       174,124   Issuance of Common Stock     528,804       5,289       3,402,128       —       —       3,407,417   Employee option exercises     630,400       6,304       1,235,370       —       ( 1,230,445 )     11,229   Treasury Shares Retired     ( 554,660 )     ( 5,547 )     ( 2,218,706 )           2,224,253       0   Net income     —       —       —       3,215,877       —       3,215,877   Balance at December 25, 2021     14,350,786     $ 143,508       39,281,810     $ ( 26,256,492 )   $ ( 2,515 )   $ 13,166,311                                                     Share-based compensation expense     —       —       250,359       —       —       250,359   Employee option exercises     109,700       1,097       194,682       —       ( 38,333 )     157,446   Net income     —       —       —       2,131,400       —       2,131,400   Balance at December 31, 2022     14,460,486     $ 144,605       39,726,851     $ ( 24,125,092 )   $ ( 40,848 )   $ 15,705,516     See accompanying notes to financial statements.           CPS TECHNOLOGIES CORP. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2022 AND DECEMBER 25, 2021       2022     2021   Cash flows from operating activities:                 Net income   $ 2,131,400     $ 3,215,877   Adjustments to reconcile net income to cash provided by operating activities:                 Share-based compensation     250,357       174,124   Depreciation and amortization     445,739       469,337   Deferred taxes     754,542       ( 2,706,978 ) Gain on sale of property and equipment     ( 3,400 )     ( 2,047 ) Changes in operating assets and liabilities:                 Accounts receivable – trade     1,092,046       ( 1,955,221 ) Accounts receivable – other     ( 685,668 )     -   Inventories     ( 964,299 )     ( 202,131 ) Prepaid expenses and other current assets     14,631       ( 154,367 ) Accounts payable     ( 263,386 )     1,190,960   Accrued expenses     (265,573 )     282,338   Deferred revenue     1,045,010       1,694,961   Net cash provided by operating activities     3,551,399       2,006,853   Cash flows from investing activities:                 Purchases of property and equipment     ( 439,772 )     ( 514,322 ) Proceeds from sale of property and equipment     3,400       2,047   Net cash used by investing activities     ( 436,372 )     ( 512,275 ) Cash flows from financing activities:                 Proceeds from employee stock options     157,446       11,229   Proceeds from issuance of common stock     0       3,407,416   Payment on notes payable     ( 56,032 )     ( 58,114 ) Net cash provided by financing activities     101,414       3,360,531   Net increase in cash and cash equivalents     3,216,441       4,855,109                     Cash and cash equivalents at beginning of year     5,050,312       195,203   Cash and cash equivalents at end of year   $ 8,266,753     $ 5,050,312   Supplemental cash flow information:                 Cash paid for income taxes   $ 456     $ 456   Cash paid for interest   $ 7,954     $ 35,229   Supplemental disclosures of non-cash activity:                 Net exercise of stock options   $ 38,333       1,230,445     See accompanying notes to financial statements.         CPS Technologies Corp . Years Ended December 31, 2022 and December 25, 2021 Notes to Financial Statements     ( 1 ) Nature of Business   CPS Technologies Corp. (the ‘Company’ or ‘CPS’) provides advanced material solutions to the transportation, automotive, energy, computing/internet, telecommunications, aerospace, defense and oil and gas end markets.   Our primary material solution is metal matrix composites.  We design, manufacture and sell custom metal matrix composite components which improve the performance and reliability of systems in these end markets.       ( 2 ) Summary of Significant Accounting Policies   ( 2 )(a) Cash and Cash Equivalents   The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents.   ( 2 )(b) Accounts Receivable   The Company reports its accounts receivable at the invoiced amount less an allowance for 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 31, 2022 and December 25, 2021.   ( 2 )(b)( 1 ) Accounts Receivable-Other   In 2022 the Company filed for the Employee Retention Tax Credit (ERTC) in the amount of $ 641,086 .  This credit was still due from the IRS on 12/31/2022 and is showing as an Other Receivable.      ( 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 reserve against obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no expected customer orders.   ( 2 )(d) Property and Equipment   Property and equipment are stated at cost. Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally five years for production equipment and three to five years for furniture and office equipment. Leasehold improvements are depreciated over the shorter of the lease term or their useful life. Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost and related accumulated depreciation or amortization are removed from their respective accounts. Any gains or losses on the disposition of property and equipment are included in the results of operations in the period in which they occur.   ( 2 )(e) Impairment of Long-Lived Assets   The Company reviews long-lived assets for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. Recoverability is assessed based on estimated undiscounted future cash flows. As of December 31, 2022 and December 25, 2021, the Company believes that there has been no impairment of its long-lived assets.         ( 2 )(f) Revenue Recognition   Revenue is recognized in accordance with the five -step method under Accounting Standards Codification (ASC) 606, “Revenue from Contracts with Customers.”   Identifying the Contract with the Customer The Company identifies contracts with customers as agreements that create enforceable rights and obligations.  In the case of a few large customers the Company has executed long-term Master Sales Agreements (“MSA”).  These are umbrella agreements which typically define the terms and conditions under which a customer can order goods from CPS.  These in themselves do not constitute a contract as no products are committed to be transferred and the customer has no obligation to make payments. In the case of SBIRs an enforceable contract is signed by both the customer and CPS.   The Company contract is only enforceable once both parties have approved it and is usually in the form of a written purchase order from a customer combined with acknowledgement from the Company.   In cases without an MSA, the customer submits a blueprint for a product, the Company provides a quote and the customer responds with a purchase order.   In these cases the Company’s acceptance of the purchase order constitutes an enforceable contract.   Identifying the Performance Obligations in the Contract For each contract, the Company considers the promise to transfer products, each of which are distinct, to be the identified performance obligations. For SBIRs the Company is obligated to provide certain services over the life of the agreement and the customer is obligated to pay for those services monthly, as they are performed.   Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods. Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.   The Company provides an assurance-type warranty.  This guarantees that the product functions as promised and meets specifications.  Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products.  The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product.  This assurance type warranty is not considered to be a distinct performance obligation.   Determining the Transaction Price The Company determines the transaction price as the amount of consideration specified in the contract that it expects to receive in exchange for transferring promised goods or services to the customer. Amounts collected from customers for sales value added and other taxes are excluded from the transaction prices. Product sales are recorded net of trade discounts and sales returns.   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 31, 2022 there are no contracts with variable consideration.   When credit is granted to customers, payment is typically due 30 to 90 days from billing and accordingly our contracts with customers do not include a significant financing component.         Allocating the Transaction Price to the Performance Obligations In virtually all cases the transaction price is tied to a specific product or service in the contract obviating the need for any allocation.   Recognizing Revenue When (or as) the Performance Obligations are Satisfied The Company recognizes revenue at the point in time when it transfers control of the promised goods or services to the customer, which typically occurs once the product has shipped or has been delivered to the customer or the service has been performed. Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment. In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties.  As of December 31, 2022 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 31, 2022 and December 25, 2021, 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 31, 2022 or December 25, 2021 which required accrual or disclosure.   ( 2 )(h) Net Income Per Common Share   Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock option and stock purchase rights. Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.   ( 2 )(i) Reclassification   Certain amounts in prior year’s financial statements have been reclassified to conform to the current year’s presentation.   ( 2 )(j) Recent Accounting Pronouncements   In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). 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. Actual results could differ from these estimates.   ( 2 )(l) Fiscal Year-End   The Company’s fiscal year end is the last Saturday in December which could result in a 52 or 53 week year. Fiscal year 2022 consisted of 53 weeks and 2021 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.   ( 2 )(n) Segment Reporting   The Company views its operations and manages its business as one segment. The Company produces and sells advanced material solutions, primarily metal matrix composites, to assemblers of high density electronics and other specialty components and subassemblies. The Company also assembles housings and packages for hybrid circuits, selling to the same customers mentioned above. These customers represent a single market or segment with similar stringent and well-defined requirements. The Company’s customers, in turn, sell the components and subassemblies which incorporate the products into many different end markets, however, these end markets are two to three levels removed from the Company. The Company also sells armor strike faces to armor manufacturers, using the same manufacturing process used in its other product solutions. The Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products.      ( 3 ) Inventories   As of December 31, 2022 and December 25, 2021 inventories consisted of the following:       2022     2021   Raw materials   $ 2,645,442     $ 2,080,778   Work in process     1,863,512       1,309,572   Finished goods     525,872       805,159   Gross Inventory     5,034,826       4,195,509   Reserve for obsolescence     ( 158,925 )     ( 283,907 ) Total   $ 4,875,901     $ 3,911,602              ( 4 ) Leases   The Company had one real estate lease in 2022 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 31, 2022:   (Dollars in Thousands)   December 31, 2022   Maturity of capitalized lease liabilities   Lease payments   2023     162   2024     165   2025     165   2026     28   Total undiscounted operating lease payments   $ 520   Less: Imputed interest     ( 54 ) Present value of operating lease liability   $ 466     Balance Sheet Classification         Current lease liability   $ 157   Long-term lease liability     309   Total operating lease liability   $ 466             Other Information         Weighted-average remaining lease term for capitalized operating leases (in months)     38   Weighted-average discount rate for capitalized operating leases     6.6 %         Operating Lease Costs and Cash Flows   Operating lease cost and cash paid was $ 160 thousand for the twelve months ended December 31, 2022 and $ 152 thousand during the year ended December 25, 2021. These costs are related to its long-term operating lease. All other short-term leases were immaterial.   Estimated monthly payments under the terms of the Norton facility lease, escalate from $ 13 thousand to $ 14 thousand over the lease term      ( 5 ) Share-Based Compensation Plans   The Company adopted the 2020 Equity Incentive Plan ( "2020 Plan") on March 3, 2020. Under the terms of the 2020 Plan all of the Company’s employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock awards, or other stock-based awards. Some outstanding options are non-statutory stock options; some are incentive stock options.  All options granted are exercisable at the fair market value of the stock on the date of grant and expire ten years from the date of grant. The options granted to employees generally vest in equal annual installments over a five -year period. The options granted to directors generally vest immediately on date of grant.   Under the 2020 Plan a total of 1,500,000 shares of common stock are available for issuance, of which 979,500 shares remain available for grant as of December 31, 2022.   A summary of stock option activity as of December 31, 2022 and changes during the year then ended is presented below:               Weighted     Weighted                       Average     Remaining     Aggregate               Exercise     Contractual     Intrinsic       Shares     Price     Life (years)     Value   Outstanding at beginning of year     839,400     $ 2.20                   Granted     248,000     $ 3.11                   Exercised     ( 109,700 )   $ 1.78                   Forfeited     ( 15,400 )   $ 2.88                   Expired     ( 900 )   $ 1.68                   Outstanding at end of year     961,400     $ 2.47       6.14     $ 2,375,619                                     Options exercisable at year-end     498,300     $ 2.08       4.18     $ 1,064,670     109,700 options were exercised during fiscal 2022 and 248,000 options were granted during fiscal 2022.         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 2022 and 2021:       2022     2021   Risk-free interest rate     1.55% - 2.84%       . 50 % - 1.34 %   Expected life in years     6 - 7       6 - 7   Expected volatility       54 %           54 %     Expected dividend yield       0           0     Weighted average fair value of grants   $   3.11       $    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 $ 250,359 and $ 174,124 as stock based compensation expense in 2022 and 2021, respectively.  As of December 31, 2022, there was $ 565,977 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 2.31 years.      ( 6 ) Accrued Expenses   Accrued expenses at December 31, 2022 and December 25, 2021 consist of the following:       2022     2021   Accrued legal and accounting   $ 35,398     $ 79,917   Accrued payroll and related costs     760,305       905,698   Accrued other     25,153       100,814                         $ 820,856     $ 1,086,429              ( 7 ) Revolving Line of Credit   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 met and/or waived by BDC for 2022.   At December 31, 2022 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 2022 was $ 0 and was $ 24 thousand for 2021.      ( 8 )   Notes Payable     In March 2020, the Company acquired a Sonoscan ultrasound microscope for a price of $ 208 thousand.  The full amount was financed through a 5 year note payable with a third party equipment finance company.  The note is collateralized by the microscope and is being paid in monthly installments of $ 4 thousand, consisting of principal plus interest at a rate of 6.47 %.   The aggregate maturities of the notes payable based on the payment terms of the agreement are as follows:   Remaining in:   Payments due by period   FY 2023   $ 48,934   FY 2024   $ 48,934   FY 2025   $ 8,155   Less Interest   $ ( 7,339 ) Total Principal Payments   $ 98,684     Total interest expense on notes payable during 2022 was $ 7,954 and during 2021 was $ 10,886 .      ( 9 ) Income Taxes   Components of income tax expense (benefit) for each year are as follows:       2022     2021   Current:                 Federal   $ 1,270     $ --   State     456       11,967                     Current income tax provision (benefit):     1,726       11,967                     Deferred:                 Federal     577,866       ( 2,156,278 ) State     176,676       ( 562,667 )                   Deferred income tax provision (benefit), net     754,542       ( 2,718,945 )                   Total   $ 756,268     $ ( 2,706,978 )         Deferred tax assets as of December 31, 2022 and December 25, 2021 are as follows:       December 31, 2022     December 25, 2021   Deferred Tax Assets:                 Net operating loss carryforwards   $ 132,632     $ 1,050,449   Stock compensation     209,092       157,845   Credit carryforwards     1,253,956       1,285,119   Inventory     80,628       77,563   Accrued liabilities     5,071       12,390   Depreciation     179,481       237,880   Capitalized R&D, net     205,878       -   Other     2,698       2,732   Net deferred tax assets   $ 2,069,436     $ 2,823,978     At December 31, 2022 and December 25, 2021 the Company had net operating loss carryforwards of approximately $ 543,404 and $ 3,768,032 , respectively, available to offset future income for U.S. Federal income tax purposes. These net operating loss carryforwards occurred over several years and do not expire.   The Company has previously established a valuation reserve against deferred income tax assets.  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:       2022     2021                     Gross deferred tax balance at beginning of year   $ 2,823,978     $ 2,966,693                     Deferred tax benefit (provision)     ( 754,542 )     ( 142,715 ) Valuation allowance     0       0   Balance at end of year, net   $ 2,069,436     $ 2,823,978           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:       2022     2021                     Tax at statutory rate   $ 578,214     $ 106,869   State tax, net of federal benefit     177,036       36,301                     Net operating loss and credit carryforwards     --       --                     Valuation allowance     --       ( 2,849,693 )                   Other     1,018       ( 455 )                    Total   $ 756,268     $ ( 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 2019 through 2022.      ( 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 2022 the Company elected to match of ½% of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 94 thousand.  In 2021 the Company accrued a match of ½% of each of the first 2 % of employee contributions amounting to $ 34 thousand, which was paid in 2022.      ( 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. The Company also maintains a credit insurance policy covering most of its non-US customers to further mitigate credit risk. Management conducts on-going credit evaluations of its customers, and historically the Company has not experienced any significant credit-related losses with respect to its trade accounts receivable.   Revenues from significant customers as a percentage of total revenues in 2022 and 2021 were as follows:       Percent of Total Revenues                     Significant Customer   2022     2021   A     21 %     10 % B     17 %     23 % C     15 %     11 %         As of December 31, 2022, the Company had trade accounts receivable due from these three customers that accounted for 46 % of total trade accounts receivable as of that date. One other customer balance constitutes 11 % of accounts receivable at December 31, 2022, 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 2022 and 2021:       Percent of Total Revenues                     Country   2022     2021   United States of America     42 %     40 % Germany     16 %     14 % Other     42 %     46 %   Many of the Company’s customers based in the United States conduct design, purchasing and payable functions in the United States, but manufacture overseas.   All of the Company’s long-lived assets and operations are located in the United States.      ( 12 ) Net Income Per Share   The following reconciles the basic and diluted net income per share calculations.       Dec. 31,     Dec. 25,       2022     2021   Basic EPS Computation:                 Numerator:                 Net income   $ 2,131,400     $ 3,215,877   Denominator:                 Weighted average                 Common shares                 Outstanding     14,424,381       14,061,320   Basic EPS   $ 0.15     $ 0.23   Diluted EPS Computation:                 Numerator:                 Net income   $ 2,131,400     $ 3,215,877   Denominator:                 Weighted average                 Common shares                 Outstanding     14,424,381       14,061,320   Dilutive effect of stock options     251,265       529,405                     Total shares     14,675,646       14,590,725                     Diluted net income per share   $ 0.15     $ 0.22        ( 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.