What changed in this filing

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Item 9A. Controls and Procedures

2025-03-17 compared with 2024-03-14 · 129 added, 185 removed, 475 unchanged (40% of the section changed)

90 unchanged sentences

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

Consent of PKF O’Connor Davies LLP

Consent of Wolf & Company, P.C.

29 unchanged sentences

March 17, 2025

/s/ Thomas M.

March 17, 2025

5 unchanged sentences

Balance Sheets as of December 28, 2024 and December 30, 2023

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

Statements of Operations and Comprehensive Income (Loss) for the years ended December 28, 2024 and December 30, 2023

Statements of Stockholders’ Equity for the years ended December 28, 2024 and December 30, 2023

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of CPS Technologies Corporation

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

Opinion on the Financial Statements

We have audited the accompanying balance sheets of CPS Technologies 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.

We have audited the accompanying balance sheet of CPS Technologies Corp.

(the “Company”) as of December 28, 2024, and the related statements of operations and comprehensive income (loss), stockholders' equity, and cash flows for the year then ended, and the related notes to the financial statements (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 28, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the adjustments to the 2023 information in Note (2)(m) to retrospectively apply the change in accounting (resulting from the adoption of Accounting Standards Update 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ), as described in Note (2)(i).

In our opinion, such adjustments are appropriate and have been properly applied.

We were not engaged to audit, review, or apply any procedures to the 2023 financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2023 financial statements taken as a whole.

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.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the Company in accordance with 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.

We conducted our audit 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.

As part of our audit, 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.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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

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

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

Reserves for product sales returns

Description of the Matter

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

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

How We Addressed the Matter in Our Audit

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

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

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

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

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

Our audit 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 audit provides 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 were no critical audit matters.

We have served as the Company’s auditor since October 11, 2024.

/s/ PKF O’Connor Davies, LLP

Boston, Massachusetts

March 17, 2025

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 sheet of CPS Technologies Corporation (the Company) as of December 30, 2023, the related statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively, 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 the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to the changes in segment reporting disclosure described in Note (2)(m), and accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied.

Those adjustments were audited by other auditors.

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 audit.

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 U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit 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.

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

Our audit 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 audit provides a reasonable basis for our opinion.

/s/ Wolf & Company, P.C.

We served as the Company’s auditor from 2005 to October 11, 2024.

Boston, Massachusetts

March 13, 2024

PCAOB ID #392

CPS TECHNOLOGIES CORP.

2 unchanged sentences

Cash and cash equivalents

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

Marketable securities, at fair value

Accounts receivable-trade, net

4,389,155 3,777,975

Accounts receivable-other

83,191 685,668

4,581,930 4,875,901

Inventories, net

Prepaid expenses and other current assets

276,349 211,242

Total current assets

18,144,251 17,817,539

Property and equipment:

Production equipment

11,271,982 10,770,427

Furniture and office equipment

952,883 952,883

Leasehold improvements

985,649 985,649

13,210,514 12,708,959

Accumulated depreciation and amortization

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

Construction in progress

281,629 64,910

Net property and equipment

1,556,139 1,326,968

Right-of-use lease asset

332,000 466,000

Deferred taxes, net

1,569,726 2,069,436

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

See accompanying notes to financial statements.

4 unchanged sentences

Notes payable, current portion

$ 46,797 $ 43,711

Accounts payable

2,535,086 1,836,865

Accrued expenses

1,075,137 820,856

Deferred revenue

251,755 2,521,128

Lease liability, current portion

160,000 157,000

Total current liabilities

4,068,775 5,379,560

Notes payable less current portion

Deferred revenue – long term

31,277 231,020

Long term lease liability

172,000 309,000

Total liabilities

4,280,142 5,974,427

Commitments & Contingencies

4 unchanged sentences

at December 28, 2024 and December 30, 2023, respectively

146,015 144,605

Preferred stock, no shares issued or outstanding

Additional paid-in capital

40,180,893 39,726,851

Accumulated other comprehensive income

Accumulated deficit

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

Less cost of 135,527 and 82,272 common shares repurchased at December 28, 2024 and December 30, 2023, respectively

( 250,138 ) ( 40,848 )

Total stockholders’ equity

17,321,974 15,705,516

Total liabilities and stockholders’ equity

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

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

STATEMENTS OF OPERATIONS

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 28, 2024 AND DECEMBER 30, 2023

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 (loss) from operations

Interest income

Income (loss) before income tax

Income tax provision (benefit)

582,085 756,268

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

Net income (loss)

Other comprehensive income

Net unrealized gains on available for sale securities

Total other comprehensive income

Comprehensive income (loss)

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.

2 unchanged sentences

FOR THE YEARS ENDED DECEMBER 28, 2024 AND DECEMBER 30, 2023

shares issued

comprehensive

Balance at December 31, 2022

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

— — — 2,131,400 — 2,131,400

Balance at December 30, 2023

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

Other comprehensive income

Balance at December 28, 2024

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

See accompanying notes to financial statements.

3 unchanged sentences

Cash flows from operating activities:

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

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

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Share-based compensation

204,797 250,359

Depreciation and amortization

489,103 445,739

Deferred taxes

499,710 754,542

Gain on sale of property and equipment

Changes in operating assets and liabilities:

Accounts receivable – trade

( 611,180 ) 1,092,046

Accounts receivable – other

602,477 ( 685,668 )

293,971 ( 964,299 )

Inventories, net

Prepaid expenses and other current assets

( 65,107 ) 14,631

Accounts payable

698,221 ( 263,386 )

Accrued expenses

254,281 ( 265,575 )

Deferred revenue

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

Net cash provided by operating activities

1,267,453 3,551,399

Net cash provided (used) by operating activities

Cash flows from investing activities:

Purchases of property and equipment

( 718,274 ) ( 439,772 )

Proceeds from sale of property and equipment

Purchase of marketable securities

Net cash used by investing activities

( 718,274 ) ( 436,372 )

Cash flows from financing activities:

Proceeds from employee stock options

41,365 157,446

Payment on notes payable

( 43,671 ) ( 56,032 )

Net cash provided (used) by financing activities

( 2,306 ) 101,414

Net increase in cash and cash equivalents

546,873 3,216,441

Net cash used by financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

8,266,753 5,050,312

Cash and cash equivalents at end of year

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

Supplemental cash flow information:

Cash paid for income taxes

$ 111,456 $ 456

Cash paid for interest

$ 5,096 $ 7,954

Supplemental disclosures of non-cash activity:

Net exercise of stock options

$ 209,290 38,333

See accompanying notes to financial statements.

16 unchanged sentences

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

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

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

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

As of December 28, 2024 and December 30, 2023 this amount was primarily VAT paid by CPS, but due to be either repaid by its European customers with future shipments or refunded by the European tax authorities.

( 2 )(c) Inventories

1 unchanged sentence

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.

The Company’s general obsolescence policy is to reserve against obsolete inventory when there has been no activity for 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.

Depreciation of equipment is calculated on a straight-line basis over the estimated useful life, generally five to seven 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.

15 unchanged sentences

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 cases without an MSA, the customer submits a print 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.

24 unchanged sentences

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.

Occasionally, for the purpose of ensuring a steady flow of products, 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 as agreed upon by both parties.

As of December 28, 2024 there are no products on consignment.

13 unchanged sentences

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

( 2 )(i) Recent Accounting Pronouncements

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

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

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

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

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

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

In November 2023, FASB issued Accounting Standard Update ("ASU") 2023-07, Segment Reporting (Topic 280);

Improvements to Reportable Segment Disclosures requiring public entities to disclose information about their reportable segments' significant expenses and other segment items on an interim and annual basis.

See note (2)(m) for more information.

( 2 )(j) 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.

1 unchanged sentence

Actual results could differ from these estimates.

( 2 )(l) Fiscal Year-End

( 2 )(k) Fiscal Year-End

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

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

( 2 )(m) Share-Based Payments

Fiscal years 2024 and 2023 each consisted of 52 weeks.

( 2 )(l) 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.

2 unchanged sentences

The Company uses the Black-Scholes option pricing model to determine the fair value of stock options granted.

( 2 )(n) Segment Reporting

( 2 )(m) Segment Reporting

The Company views its operations and manages its business as one segment.

5 unchanged sentences

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.

Our chief operating decision maker (CODM) is Brian Mackey our President and CEO.

The Company's CODM regularly reviews financial information presented and does not evaluate the Company's operating segment using asset or liability information.

Instead, the CODM uses revenue, gross margin, and net income or loss to allocate operating and capital resources and assess performance by comparing actual results to historical results and previously forecasted financial information.

The following table presents segment information for the Company's single reporting segment:

Product sales

Cost of product sales

Selling, general, and administrative expenses

Income (loss) from operations

Interest income

Income (loss) before income tax

Income tax provision (benefit)

Net income (loss)

(3) Cash, Cash Equivalents and Restricted Cash

Our cash and cash equivalents are carried at fair value and consist primarily of cash, money market funds, cash deposits with commercial banks, U.S.

government bonds and notes, and highly rated direct short-term instruments with an original maturity of 90 days or less.

The Company has a restricted cash account in the amount of $ 84,715 , as of December 28, 2024 to cover an open letter of credit for overseas purchases.

Upon presentation of documents evidencing shipment of these goods, the issuing bank will draw on this account and make payment to the vendor.

There was no restricted cash as of December 30, 2023.

Cash and cash equivalents

Restricted cash 1

Total cash, cash equivalents and restricted cash

Recognized in prepaid expenses and other current assets on our Balance Sheet.

(4) Marketable Securities

Investments consist of U.S.

Treasury Bills with maturities up to one year.

Since it is not currently managements intention to hold these debt securities until the maturity dates, these have been classified as available-for-sale ( “ AFS ” ) and are recorded on the balance sheet at fair value, with changes in fair value recorded as a component of accumulated other comprehensive income.

(5) Fair value of Marketable Securities

ASC 820, Fair Value Measurements ( “ ASC 820 ” ) states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of:

(Level I) observable inputs such as quoted prices in active markets;

(Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data.

The fair value hierarchy requires the use of observable market data when available in determining fair value.

CPS ’ marketable securities consist solely of US Government bonds with a maturity of 12 months or less and which fall under Level II of the fair value hierarchy.

The fair value of these bonds as of December 28, 2024 was $ 1,031,001 .

CPS held no investments in marketable securities as of December 30, 2023.

Unrealized gain

Total fair value

( 6 ) Inventories

1 unchanged sentence

Raw materials

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

Work in process

1,493,582 1,863,512

Finished goods

537,975 525,872

Gross Inventory

4,892,890 5,034,826

Reserve for obsolescence

( 310,960 ) ( 158,925 )

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

The Company had one real estate lease in 2024 expiring in February 2026.

10 unchanged sentences

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 28, 2024:

(Dollars in Thousands

December 30, 2023

Maturity of capitalized lease liability

Lease payments

Total undiscounted operating lease payments

41 unchanged sentences

Accrued legal and accounting

$ 86,000 $ 35,398

Accrued payroll and related costs

649,201 760,305

Accrued other

339,936 25,153

$ 1,075,137 $ 820,856

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

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

Included in Accrued other is $ 288,000 as a reserve for potential credits to be issued as part of a quality issue with a major customer which was set up at the end of 2023.

( 10 ) Revolving Line of Credit

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

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

In May 2023, the Company entered into a line of credit (LOC) agreement in the amount of $ 3.0 million 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 ( 7.5 % at December 28, 2024).

1 unchanged sentence

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.

Total Interest Expense for 2024 was $ 0 and was $ 0 for 2023.

(11) Notes Payable

4 unchanged sentences

Remaining in:

Payments due by period

Less Interest

3 unchanged sentences

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

$ 81,919 $ 1,270

Current income tax provision (benefit):

357,507 577,866

142,203 176,676

Deferred income tax provision (benefit), net

499,710 754,542

$ 582,085 $ 756,268

Deferred tax assets as of December 28, 2024 and December 30, 2023 are as follows:

1 unchanged sentence

Net operating loss carryforwards

$ - $ 132,632

Stock compensation

209,609 209,092

Credit carryforwards

865,928 1,253,956

84,955 80,628

Accrued liabilities

143,081 179,481

Capitalized R&D, net

263,421 205,878

Net deferred tax assets

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

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

Gross deferred tax balance at beginning of year

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

Deferred tax benefit (provision)

( 499,710 ) ( 754,542 )

Balance at end of year, net

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

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

1 unchanged sentence

Tax at statutory rate

$ 416,663 $ 578,214

State tax, net of federal benefit

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.

25 unchanged sentences

( 15 ) Net Income Per Share

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

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

Diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock options and stock purchase rights.

Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive.

Had there been a profit in 2024, the dilutive effect would have been 25,905 shares.

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

Basic EPS Computation:

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

Net income (loss)

Weighted average

Common shares

14,495,709 14,424,381

$ 0.09 $ 0.15

Diluted EPS Computation:

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

Net income (loss)

Weighted average

Common shares

14,495,709 14,424,381

Dilutive effect of stock options

133,102 251,265

14,628,811 14,675,646

Diluted net income per share

$ 0.09 $ 0.15

( 16 ) Commitments and Contingencies

5 unchanged sentences

Direct costs associated with the estimated resolution of contingencies are accrued at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated.

While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, we believe that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations.

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

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

The Company completely disagrees with the claims.

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

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