What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-14 compared with 2023-03-16 · 243 added, 329 removed, 417 unchanged (58% of the section changed)

1 unchanged sentence

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").

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

Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 30, 2023.

Changes in Internal Control over Financial Reporting

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

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

Management ’ s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) of the Exchange Act.

Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 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.

Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 30, 2023.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting.

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.

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/.

Legal Proceedings,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Code of Conduct” and “Corporate Governance” and with respect to our 2024 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 2023 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/.

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.

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 2024 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 2023 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 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 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 2024 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 2023 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 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 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 2024 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 2023 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 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 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 2024 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 2023 fiscal year.

Exhibits, Financial Statement Schedules.

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EXHIBIT INDEX

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.

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.

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.

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

1 unchanged sentence

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.

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)

12 unchanged sentences

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.

12 unchanged sentences

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.

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's Form 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.

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)

8 unchanged sentences

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

Policy for the Recovery of Erroneously Awarded Compensation adopted by the Board of Directors July 12, 2023.

Inline XBRL Instance Document

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CPS TECHNOLOGIES CORP.

/s/ Michael McCormack

/s/ Brian Mackey

President and Chief Executive Officer

1 unchanged sentence

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

/s/ Brian Mackey

President and Chief Executive Officer

March 13, 2024

Michael McCormack

/s/ Charles K.

7 unchanged sentences

March 13, 2024

Culligan 

March 13, 2024

Bennett  

INDEX TO FINANCIAL STATEMENTS

CPS TECHNOLOGIES CORP.

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

Report of Independent Registered Public Accounting Firm

Balance Sheets as of December 30, 2023 and December 31, 2022

Statements of Operations for the years ended December 30, 2023 and December 31, 2022

Statements of Stockholders’ Equity for the years ended December 31, 2022 and December 25, 2021

Statements of Stockholders’ Equity for the years ended December 30, 2023 and December 31, 2022

Statements of Cash Flows for the years ended December 30, 2023 and December 31, 2022

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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").

We have audited the accompanying balance sheets of CPS Technologies Corporation (the Company) as of December 30, 2023 and December 31, 2022, the related statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2023 and December 31, 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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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. 

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

Accordingly, we express no such opinion.

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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 Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

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

The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which it relates.

Reserves for product sales returns

Description of the Matter

As described in Notes 2 and 6 to the financial statements, reserves for product sales returns are recorded based on returns history and specific circumstances in which the Company anticipates returns to occur.

During 2023, the Company became aware of a quality matter with products sold to a major customer that resulted in product returns and the issuance of credits to the customer.

How We Addressed the Matter in Our Audit

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

We obtained management’s calculation supporting the product returns liability and performed procedures to address the completeness and accuracy of data applied as well as the reasonableness of assumptions and judgments made by management.

Specifically, we performed testing to identify the scope of product sales subject to quality concerns including analysis of the sales of the particular part sold, testing to identify the remaining inventory on hand with potential quality concerns, testing the mathematical accuracy of the calculation as well as performing sensitivity analysis to assess the effect of changes in assumptions.

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

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

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Cash and cash equivalents

$ 8,266,753  

$ 5,050,312  

$ 8,813,626 $ 8,266,753

Accounts receivable-trade, net

3,777,975  

4,870,021  

4,389,155 3,777,975

Accounts receivable-other

685,668  

4,875,901  

3,911,602  

83,191 685,668

4,581,930 4,875,901

Prepaid expenses and other current assets

211,242  

225,873  

276,349 211,242

Total current assets

17,817,539  

14,057,808  

18,144,251 17,817,539

Property and equipment:

Production equipment

10,770,427  

10,489,729  

11,271,982 10,770,427

Furniture and office equipment

952,883  

673,305  

952,883 952,883

Leasehold improvements

985,649  

951,384  

12,708,959  

12,114,418  

Accumulated depreciation and amortization

985,649 985,649

13,210,514 12,708,959

Accumulated depreciation and amortization

( 11,936,004 ) ( 11,446,901 )

Construction in progress

64,910  

246,669  

281,629 64,910

Net property and equipment

1,326,968  

1,332,933  

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

466,000  

586,000  

1,556,139 1,326,968

Right-of-use lease asset

332,000 466,000

Deferred taxes, net

2,069,436  

2,823,978  

$ 21,679,943  

$ 18,800,719  

1,569,726 2,069,436

$ 21,602,116 $ 21,679,943

See accompanying notes to financial statements.

1 unchanged sentence

BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Notes payable, current portion

43,711  

55,906  

$ 46,797 $ 43,711

Accounts payable

1,836,865  

2,100,251  

2,535,086 1,836,865

Accrued expenses

820,856  

1,086,429  

1,075,137 820,856

Deferred revenue

2,521,128  

1,707,138  

251,755 2,521,128

Lease liability, current portion

157,000  

155,000  

160,000 157,000

Total current liabilities

5,379,560  

5,104,724  

4,068,775 5,379,560

Notes payable less current portion

54,847  

98,684  

Deferred revenue –

231,020  

Deferred revenue – long term

31,277 231,020

Long term lease liability

309,000  

431,000  

172,000 309,000

Total liabilities

5,974,427  

5,634,408  

4,280,142 5,974,427

Commitments & Contingencies

Stockholders’

Stockholders’ Equity:

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

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at December 30, 2023 and December 31, 2022, respectively

144,605  

143,508  

146,015 144,605

Additional paid-in capital

39,726,851  

39,281,810  

Accumulated deficit

40,180,893 39,726,851

Accumulated deficit

( 22,754,796 ) ( 24,125,092 )

Less cost of 82,272 and 10,016 common shares repurchased at December 30, 2023 and December 31, 2022, respectively

Total stockholders’

15,705,516  

13,166,311  

Total liabilities and stockholders’

$ 21,679,943  

$ 18,800,719  

( 250,138 ) ( 40,848 )

Total stockholders’ equity

17,321,974 15,705,516

Total liabilities and stockholders’ equity

$ 21,602,116 $ 21,679,943

See accompanying notes to financial statements.

3 unchanged sentences

Product sales

$ 27,550,646 $ 26,586,926

Cost of product sales

20,725,237 19,285,846

6,825,409 7,301,080

Selling, general, and administrative expenses

5,126,046 5,066,660

Income from operations

1,699,363 2,234,420

Interest income (expense)

225,757 12,015

Other income (expense)

27,261 641,233

Income before income tax

1,952,381 2,887,668

Income tax provision (benefit)

582,085 756,268

$ 1,370,296 $ 2,131,400

Net income (loss) per basic common share

$ 0.09 $ 0.15

Weighted average number of basic common shares outstanding

14,495,709 14,424,381

Net income (loss) per diluted common share

$ 0.09 $ 0.15

Weighted average number of diluted common shares outstanding

14,628,811 14,675,646

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

STATEMENTS OF STOCKHOLDERS’

STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 30, 2023 AND DECEMBER 31, 2022

holders ’

shares issued

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

Issuance of Common Stock

— — 250,359 — — 250,359

Employee option exercises

Treasury Shares Retired

109,700 1,097 194,682 — ( 38,333 ) 157,446

— — — 2,131,400 — 2,131,400

Balance at December 31, 2022

14,460,486 $ 144,605 $ 39,726,851 $ ( 24,125,092 ) $ ( 40,848 ) $ 15,705,516

Share-based compensation expense

— — 204,797 — — 204,797

Employee option exercises

141,001 1,410 249,245 — ( 209,290 ) 41,365

— — — 1,370,296 — 1,370,296

Balance at December 30, 2023

14,601,487 $ 146,015 $ 40,180,893 $ ( 22,754,796 ) $ ( 250,138 ) $ 17,321,974

See accompanying notes to financial statements.

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Cash flows from operating activities:

$ 2,131,400  

$ 3,215,877  

$ 1,370,296 $ 2,131,400

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

Share-based compensation

250,357  

174,124  

204,797 250,359

Depreciation and amortization

445,739  

469,337  

489,103 445,739

Deferred taxes

754,542  

499,710 754,542

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Changes in operating assets and liabilities:

Accounts receivable –

1,092,046  

Accounts receivable – trade

( 611,180 ) 1,092,046

Accounts receivable –

Accounts receivable – other

602,477 ( 685,668 )

293,971 ( 964,299 )

Prepaid expenses and other current assets

14,631  

( 65,107 ) 14,631

Accounts payable

1,190,960  

698,221 ( 263,386 )

Accrued expenses

282,338  

254,281 ( 265,575 )

Deferred revenue

1,045,010  

1,694,961  

( 2,469,116 ) 1,045,010

Net cash provided by operating activities

3,551,399  

2,006,853  

1,267,453 3,551,399

Cash flows from investing activities:

Purchases of property and equipment

( 718,274 ) ( 439,772 )

Proceeds from sale of property and equipment

Net cash used by investing activities

( 718,274 ) ( 436,372 )

Cash flows from financing activities:

Proceeds from employee stock options

157,446  

11,229  

Proceeds from issuance of common stock

3,407,416  

41,365 157,446

Payment on notes payable

Net cash provided by financing activities

101,414  

3,360,531  

( 43,671 ) ( 56,032 )

Net cash provided (used) by financing activities

( 2,306 ) 101,414

Net increase in cash and cash equivalents

3,216,441  

4,855,109  

546,873 3,216,441

Cash and cash equivalents at beginning of year

5,050,312  

195,203  

8,266,753 5,050,312

Cash and cash equivalents at end of year

$ 8,266,753  

$ 5,050,312  

$ 8,813,626 $ 8,266,753

Supplemental cash flow information:

Cash paid for income taxes

$ 111,456 $ 456

Cash paid for interest

$ 7,954  

$ 35,229  

$ 5,096 $ 7,954

Supplemental disclosures of non-cash activity:

Net exercise of stock options

$ 38,333  

1,230,445  

$ 209,290 38,333

See accompanying notes to financial statements.

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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.  

(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

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( 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.

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

Adjustments to the allowance are charged to operations in the period in which information becomes available that may affect the allowance.

  The Company maintains an allowance for doubtful accounts of $ 10,000 as of December 31, 2022 and December 25, 2021.

The Company maintains an allowance for credit losses of $ 10,000 as of December 30, 2023 and December 31, 2022.

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

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. 

As of December 30, 2023 this amount was primarily VAT paid by CPS, but due to be repaid by its European customers with future shipments.

In 2022 the Company filed for the Employee Retention Tax Credit (ERTC) in the amount of $ 641,086 .

This credit was still due from the Internal Revenue Service (“IRS”) on December 31, 2022 however was collected in 2023.

( 2 )(c) Inventories

Inventories are stated at the lower of cost, as determined under the first -in, first -out method (FIFO), or net realizable value.

Inventories are stated at the lower of cost (cost is based on standard costs which approximate actual costs), as determined under the first -in, first -out method (FIFO), or net realizable value.

A reserve for obsolete inventories is based on factors regarding the sales and usage of such inventories, including inventories manufactured for specific customers.

The Company’s general obsolescence policy is to reserve against obsolete inventory when there has been no activity on a particular part for a twelve month period and there are no expected customer orders.

( 2 )(d) Property and Equipment

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( 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. 

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.

1 unchanged sentence

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.

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.

For SBIRs the Company is obligated to provide certain services over the life of the agreement and the customer is obligated to pay for those services, generally monthly, as they are performed.

Shipping and handling activities for which the Company is responsible are not a separate promised service but instead are activities to fulfill the entity’s promise to transfer goods.

Shipping and handling fees will be recognized at the same time as the related performance obligations are satisfied.

The Company provides an assurance-type warranty. 

This guarantees that the product functions as promised and meets specifications. 

Under its terms and conditions the Company offers a 30 day warranty and replaces defective or non-conforming products. 

The expense of replacement is recorded at the time the Company agrees to replace a defective or non-conforming product. 

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.

3 unchanged sentences

Product sales are recorded net of trade discounts and sales returns.

The Company will establish a reserve for product returns when necessary based on returns history and specific circumstances in which the Company anticipates returns to occur.

Such product return reserves are recorded as a reduction to revenue.

If a contract includes a variable amount, such as a rebate, then the Company estimates the transaction price using either the expected value or the most likely amount of consideration to be received, depending upon the specific facts and circumstances.

8 unchanged sentences

Occasionally, for the purpose of ensuring a steady flow of product, the Company ships products on consignment.

In these instances, delivery is deemed to have occurred when the customer pulls inventory out of the warehouse for use in their production, or upon a specified period of time as agreed upon by both parties. 

As of December 30, 2023 there are no products on consignment.

3 unchanged sentences

( 2 )(g) Income Taxes

The Company uses the liability method of accounting for income taxes.

The Company uses the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are recorded for the expected future tax consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in affect when the differences reverse.

A valuation allowance is established to reduce net deferred tax assets to the amount expected to be realized.

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

As of December 30, 2023 and December 31, 2022, the Company has no accruals for interest or penalties related to income tax matters.

5 unchanged sentences

( 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.

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

Effective January 1, 2023, the Company adopted FASB Accounting Standards Update (“ASU”) 2016 - 13, Measurement of Credit Losses on Financial Instruments , which changed the way entities recognize credit losses of most financial assets.

Short-term and long-term financial assets, as defined by the standard, are impacted by immediate recognition of estimated credit losses in the financial statements, reflecting the net amount expected to be collected.

The adoption of this standard had an immaterial impact on our financial statements.

Management does not expect any of the recently issued accounting pronouncements, which have not already been adopted, to have a material impact on the Company’s financial statements.

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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses recorded during the reporting period.

Such estimates are adjusted by management periodically as a result of existing or anticipated economic changes which effect, or may effect, the Company’s financial statements.

Actual results could differ from these estimates.

( 2 )(l) Fiscal Year-End

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

Fiscal year 2023 consisted of 52 weeks and 2022 consisted of 53 weeks.

9 unchanged sentences

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.

3 unchanged sentences

Raw materials

$ 2,645,442  

$ 2,080,778  

$ 2,861,333 $ 2,645,442

Work in process

1,863,512  

1,309,572  

1,493,582 1,863,512

Finished goods

525,872  

805,159  

537,975 525,872

Gross Inventory

5,034,826  

4,195,509  

4,892,890 5,034,826

Reserve for obsolescence

$ 4,875,901  

$ 3,911,602  

( 310,960 ) ( 158,925 )

$ 4,581,930 $ 4,875,901

The Company had one real estate lease in 2023 expiring in February 2026.

1 unchanged sentence

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 real estate lease expiring in 2026 (the “Norton facility lease’) is included as a right-of-use lease asset and corresponding lease liability on the balance sheet.

This asset and liability are based on the present value of remaining lease payments over the remaining lease term using the Company’s incremental borrowing rate at the commencement date of the lease.

The Company does not separate lease components from non-lease components.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Norton facility lease comprises approximately 38 thousand square feet.

The lease is a triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities. 

The Company also has an option to buy the property and a first right of refusal during the term of the lease. 

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:

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

(Dollars in Thousands

December 30, 2023

Maturity of capitalized lease liabilities

Maturity of capitalized lease liability

Lease payments

16 unchanged sentences

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.

1 unchanged sentence

The options granted to directors generally vest immediately on date of grant.

Certain options also remain issued and outstanding under the 2009 Stock Incentive Plan.

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

1 unchanged sentence

Outstanding at beginning of year

839,400  

$ 2.20  

248,000  

$ 3.11  

$ 1.78  

$ 2.88  

$ 1.68  

Outstanding at end of year

961,400  

$ 2.47  

$ 2,375,619  

Options exercisable at year-end

498,300  

$ 2.08  

$ 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.

1 unchanged sentence

Risk-free interest rate

1.55% - 2.84%  

50 % - 1.34 %  

Expected life in years

2 unchanged sentences

Weighted average fair value of grants

 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 $ 204,797 and $ 250,359 as stock based compensation expense in 2023 and 2022, 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;

As of December 30, 2023, there was $ 560,815 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plan;

that cost is expected to be recognized over a weighted average period of 2.55 years.

2 unchanged sentences

Accrued legal and accounting

$ 35,398  

$ 79,917  

$ 86,000 $ 35,398

Accrued payroll and related costs

760,305  

905,698  

649,201 760,305

Accrued other

25,153  

100,814  

$ 820,856  

$ 1,086,429  

339,936 25,153

$ 1,075,137 $ 820,856

Included in Accrued other is $ 288,000 as a reserve for potential credits to be issued as part of the quality issue described above.

In addition to this reserve, the Company increased its sales returns in the amount of $ 104,126 for parts for which a credit was issued in January 2024.

( 7 ) Revolving Line of Credit

In 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.

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. 

In May 2023, the Company terminated its $ 3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC).

A new LOC in the amount of $ 3.0 million was entered into with Rockland Trust Company.

The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of the National Prime Rate as published by the Wall Street Journal ( 8.5 % at December 30, 2023).

On December 30, 2023, the Company had $ 0 of borrowings under this LOC and its borrowing base at the time would have permitted an additional $ 3.0 million to have been borrowed.

The LOC remains in effect until terminated per mutual agreement by both parties.

Total Interest Expense for 2023 was $ 0 and was $ 0 thousand for 2022.

( 8 ) Notes Payable

In March 2020, the Company acquired a Sonoscan ultrasound microscope for a price of $ 208 thousand.

The full amount was financed through a 5 year note payable with a third party equipment finance company.

The note is collateralized by the microscope and is being paid in monthly installments of $ 4 thousand, consisting of principal plus interest at a rate of 6.47 %.

2 unchanged sentences

Payments due by period

$ 48,934  

$ 8,155  

Less Interest

Total Principal Payments

$ 98,684  

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

1 unchanged sentence

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

$ 1,270  

11,967  

$ 81,919 $ 1,270

Current income tax provision (benefit):

11,967  

577,866  

357,507 577,866

176,676  

142,203 176,676

Deferred income tax provision (benefit), net

754,542  

499,710 754,542

$ 756,268  

$ 582,085 $ 756,268

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

December 31, 2022

December 25, 2021

Deferred Tax Assets:

Net operating loss carryforwards

$ 132,632  

$ 1,050,449  

$ - $ 132,632

Stock compensation

209,092  

157,845  

209,609 209,092

Credit carryforwards

1,253,956  

1,285,119  

80,628  

77,563  

865,928 1,253,956

84,955 80,628

Accrued liabilities

12,390  

179,481  

237,880  

143,081 179,481

Capitalized R&D, net

205,878  

263,421 205,878

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.

$ 1,569,726 $ 2,069,436

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

Gross deferred tax balance at beginning of year

$ 2,069,436 $ 2,823,978

Deferred tax benefit (provision)

Valuation allowance

( 499,710 ) ( 754,542 )

Balance at end of year, net

$ 1,569,726 $ 2,069,436

Income tax expense is different from the amounts computed by applying the U.S.

1 unchanged sentence

Tax at statutory rate

$ 416,663 $ 578,214

State tax, net of federal benefit

Net operating loss and credit carryforwards

Valuation allowance

The Company’s income tax filings are subject to review and examination by federal and state taxing authorities.

142,562 177,036

$ 582,085 $ 756,268

The Company’s income tax filings are subject to review and examination by federal and state taxing authorities.

The Company is currently open to audit under the applicable statutes of limitations for the years 2020 through 2023.

( 10 ) Retirement Savings Plan

The Company sponsors a Retirement Savings Plan (the ‘Plan’) under the provisions of Section 401 of the Internal Revenue Code.

Employees, as defined in the Plan, are eligible to participate in the Plan after 30 days of employment.

Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan 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.

Under the terms of the Plan, the Company may match employee contributions under such method as described in the Plan.

During 2023 the Company elected to match 1% of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 232 thousand.

In 2022 the Company elected to match ½% of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 94 thousand .

( 11 ) Concentrations of Credit Risk, Significant Customers and Geographic Information

Financial instruments which subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable.

The Company maintains such cash deposits in a high credit quality financial institution.

The Company maintains cash deposits in a sweep account, whereby funds are automatically moved in increments of $250,000 to various FDIC insured financial institutions on a nightly basis.

The Company extends credit to customers who consist principally of microelectronics systems companies in the United States, Europe and Asia.

6 unchanged sentences

As of December 30, 2023, the Company had trade accounts receivable due from these three customers that accounted for 50 % of total trade accounts receivable as of that date.

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:

The Company’s revenue was derived from the following countries in 2023 and 2022:

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.

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.

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

( 12 ) Net Income Per Share

1 unchanged sentence

Basic EPS Computation:

$ 2,131,400  

$ 3,215,877  

$ 1,370,296 $ 2,131,400

Weighted average

Common shares

14,424,381  

14,061,320  

$ 0.15  

$ 0.23  

14,495,709 14,424,381

$ 0.09 $ 0.15

Diluted EPS Computation:

$ 2,131,400  

$ 3,215,877  

$ 1,370,296 $ 2,131,400

Weighted average

Common shares

14,424,381  

14,061,320  

14,495,709 14,424,381

Dilutive effect of stock options

251,265  

529,405  

14,675,646  

14,590,725  

133,102 251,265

14,628,811 14,675,646

Diluted net income per share

$ 0.15  

$ 0.22  

$ 0.09 $ 0.15

( 13 ) Commitments and Contingencies

7 unchanged sentences

It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of our control.

Notwithstanding the above, the Company has received a letter from an attorney representing a former European sales representative alleging that under European law the representative is entitled to compensation as a result of his termination.

The Company completely disagrees with the claims.

Should this result in litigation the Company will defend itself to the fullest extent of the law and estimates any losses incurred to be immaterial.

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