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 28, 2024. Changes in Internal Control over Financial Reporting There were no material changes in the Company’s internal control over financial reporting during fiscal 2024. 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 28, 2024. 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 28, 2024. 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 2025 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 2024 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 2025 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 2024 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 2025 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 2024 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 2025 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 2024 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 2025 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 2024 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's Form 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 PKF O’Connor Davies LLP 23.2 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. 97 Policy for the Recovery of Erroneously Awarded Compensation adopted by the Board of Directors July 12, 2023. 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/ Brian Mackey President and Chief Executive Officer March 17, 2025 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/ Brian Mackey President and Chief Executive Officer March 17, 2025 Brian Mackey /s/ Charles K. Griffith Jr. Chief Financial Officer March 17, 2025 Charles K. Griffith Jr. /s/ Francis J. Hughes, Jr. Director March 17, 2025 Francis J. Hughes /s/ Daniel C. Snow Director March 17, 2025 Daniel C. Snow /s/ I. James Cavoli Director March 17, 2025 I. James Cavoli /s/ Ralph M. Norwood Director March 17, 2025 Ralph M. Norwood /s/ Grant C. Bennett Director March 17, 2025 Grant C. Bennett INDEX TO FINANCIAL STATEMENTS OF CPS TECHNOLOGIES CORP. Report of Independent Registered Public Accounting Firm Balance Sheets as of December 28, 2024 and December 30, 2023 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 Statements of Cash Flows for the years ended December 28, 2024 and December 30, 2023 Notes to Financial Statements Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of CPS Technologies Corp. Opinion on the Financial Statements We have audited the accompanying balance 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 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 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 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 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 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 PCAOB ID No. 127 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. 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 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. BALANCE SHEETS December 28, December 30, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 3,280,687 $ 8,813,626 Marketable securities, at fair value 1,031,001 – Accounts receivable-trade, net 4,858,208 4,389,155 Accounts receivable-other 177,068 83,191 Inventories, net 4,331,066 4,581,930 Prepaid expenses and other current assets 480,986 276,349 Total current assets 14,159,016 18,144,251 Property and equipment: Production equipment 10,382,379 11,271,982 Furniture and office equipment 891,921 952,883 Leasehold improvements 997,830 985,649 Total cost 12,272,130 13,210,514 Accumulated depreciation and amortization ( 10,377,756 ) ( 11,936,004 ) Construction in progress 108,874 281,629 Net property and equipment 2,003,248 1,556,139 Right-of-use lease asset 186,000 332,000 Deferred taxes, net 2,528,682 1,569,726 Total assets $ 18,876,946 $ 21,602,116 (continued) See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. BALANCE SHEETS December 28, December 30, 2024 2023 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Notes payable, current portion $ 8,130 $ 46,797 Accounts payable 3,053,712 2,535,086 Accrued expenses 913,279 1,075,137 Deferred revenue 172,429 251,755 Lease liability, current portion 160,000 160,000 Total current liabilities 4,307,550 4,068,775 Notes payable less current portion - 8,090 Deferred revenue – long term 31,277 31,277 Long term lease liability 26,000 172,000 Total liabilities 4,364,827 4,280,142 Commitments & Contingencies Stockholders’ Equity: Common stock, $ 0.01 par value, authorized 20,000,000 shares; issued 14,661,487 and 14,601,487 shares; outstanding 14,525,960 and 14,519,215 ; at December 28, 2024 and December 30, 2023, respectively 146,615 146,015 Preferred stock, no shares issued or outstanding – – Additional paid-in capital 40,580,387 40,180,893 Accumulated other comprehensive income 15,500 – Accumulated deficit ( 25,890,245 ) ( 22,754,796 ) Less cost of 135,527 and 82,272 common shares repurchased at December 28, 2024 and December 30, 2023, respectively ( 340,138 ) ( 250,138 ) Total stockholders’ equity 14,512,119 17,321,974 Total liabilities and stockholders’ equity $ 18,876,946 $ 21,602,116 See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 28, 2024 AND DECEMBER 30, 2023 2024 2023 Product sales $ 21,123,346 $ 27,550,646 Cost of product sales 21,241,984 20,725,237 Gross margin ( 118,638 ) 6,825,409 Selling, general, and administrative expenses 4,262,290 5,126,046 Income (loss) from operations ( 4,380,928 ) 1,699,363 Interest income 285,322 225,757 Other income 1,657 27,261 Income (loss) before income tax ( 4,093,949 ) 1,952,381 Income tax provision (benefit) ( 958,500 ) 582,085 Net income (loss) $ ( 3,135,449 ) $ 1,370,296 Other comprehensive income Net unrealized gains on available for sale securities 15,500 - Total other comprehensive income 15,500 - Comprehensive income (loss) $ ( 3,119,949 ) $ 1,370,296 Net income (loss) per basic common share $ ( 0.22 ) $ 0.09 Weighted average number of basic common shares outstanding 14,522,513 14,495,709 Net income (loss) per diluted common share $ ( 0.22 ) $ 0.09 Weighted average number of diluted common shares outstanding 14,522,513 14,628,811 See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 28, 2024 AND DECEMBER 30, 2023 Common stock Number of shares issued Par Value Additional Paid-in Accumulated deficit Accumulated other comprehensive income Stock repurchased Stockholders equity Balance at December 31, 2022 14,460,486 $ 144,605 $ 39,726,851 $ ( 24,125,092 ) $ — ( 40,848 ) $ 15,705,516 Share-based compensation expense — — 204,797 — — — 204,797 Employee option exercises 141,001 1,410 249,245 — — ( 209,290 ) 41,365 Net income — — — 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 Share-based compensation expense — — 310,094 — — — 310,094 Employee option exercises 60,000 600 89,400 — — ( 90,000 ) — Other comprehensive income 15,500 Net loss — — — ( 3,135,449 ) — ( 3,135,449 ) Balance at December 28, 2024 14,661,487 $ 146,615 $ 40,580,387 $ ( 25,890,245 ) $ 15,500 ( 340,138 ) $ 14,512,119 See accompanying notes to financial statements. CPS TECHNOLOGIES CORP. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 28, 2024 AND DECEMBER 30, 2023 2024 2023 Cash flows from operating activities: Net income $ ( 3,135,449 ) $ 1,370,296 Adjustments to reconcile net income (loss) to cash provided by operating activities: Share-based compensation 310,094 204,797 Depreciation and amortization 547,152 489,103 Deferred taxes ( 958,956 ) 499,710 Changes in operating assets and liabilities: Accounts receivable – trade ( 469,053 ) ( 611,180 ) Accounts receivable – other ( 93,877 ) 602,477 Inventories, net 250,864 293,971 Prepaid expenses and other current assets ( 204,637 ) ( 65,107 ) Accounts payable 518,626 698,221 Accrued expenses ( 161,858 ) 254,281 Deferred revenue ( 79,327 ) ( 2,469,116 ) Net cash provided (used) by operating activities ( 3,476,421 ) 1,267,453 Cash flows from investing activities: Purchases of property and equipment ( 994,261 ) ( 718,274 ) Purchase of marketable securities ( 1,015,501 ) - Net cash used by investing activities ( 2,009,761 ) ( 718,274 ) Cash flows from financing activities: Proceeds from employee stock options - 41,365 Payment on notes payable ( 46,757 ) ( 43,671 ) Net cash used by financing activities ( 46,757 ) ( 2,306 ) Net increase (decrease) in cash and cash equivalents ( 5,532,939 ) 546,873 Cash and cash equivalents at beginning of year 8,813,626 8,266,753 Cash and cash equivalents at end of year $ 3,280,687 $ 8,813,626 Supplemental cash flow information: Cash paid for income taxes $ 432 $ 111,456 Cash paid for interest $ 2,177 $ 5,096 Supplemental disclosures of non-cash activity: Net exercise of stock options $ 90,000 209,290 See accompanying notes to financial statements. CPS Technologies Corp . Years Ended December 28, 2024 and December 30, 2023 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 credit losses. 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 to estimate future expected 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 credit losses of $ 10,000 as of December 28, 2024 and December 30, 2023. ( 2 )(b)( 1 ) Accounts Receivable-Other 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 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 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 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. 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 28, 2024 and December 30, 2023, 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 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. 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, 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. 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. 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. 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 28, 2024 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 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. 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 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 28, 2024 and December 30, 2023, 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 28, 2024 or December 30, 2023 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) Recent Accounting Pronouncements In the normal course of business, management evaluates all the new accounting pronouncements issued by the Financial Accounting Standard Board (“FASB”). 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. 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 )(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 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. 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 )(m) 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. 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: 2024 2023 Product sales $ 21,123,346 $ 27,550,646 Cost of product sales 21,241,984 20,725,237 Gross margin ( 118,638 ) 6,825,409 Selling, general, and administrative expenses 4,262,290 5,126,046 Income (loss) from operations ( 4,380,928 ) 1,699,363 Interest income 285,322 225,757 Other income 1,657 27,261 Income (loss) before income tax ( 4,093,949 ) 1,952,381 Income tax provision (benefit) ( 958,500 ) 582,085 Net income (loss) $ ( 3,135,449 ) $ 1,370,296 (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. December 28, 2024 December 30, 2023 Cash and cash equivalents $ 3,280,687 $ 8,813,626 Restricted cash 1 $ 84,715 – Total cash, cash equivalents and restricted cash $ 3,365,402 $ 8,813,626 (1) 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. December 28, 2024 December 30, 2023 Cost basis $ 1,015,501 – Unrealized gain $ 15,500 – Total fair value $ 1,031,001 – ( 6 ) Inventories As of December 28, 2024 and December 30, 2023 inventories consisted of the following: 2024 2023 Raw materials $ 2,625,305 $ 2,861,333 Work in process 1,880,396 1,493,582 Finished goods 343,722 537,975 Gross Inventory 4,849,423 4,892,890 Reserve for obsolescence ( 518,357 ) ( 310,960 ) Total $ 4,331,066 $ 4,581,930 ( 7 ) Leases The Company had one real estate lease in 2024 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 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. 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 lease as of December 28, 2024: December 28, 2024 Lease payments Maturity of capitalized lease liability 2025 165,240 2026 27,540 Total undiscounted operating lease payments $ 192,780 Less: Imputed interest ( 6,780 ) Present value of operating lease liability $ 186,000 Balance Sheet Classification Current lease liability $ 160,000 Long-term lease liability 26,000 Total operating lease liability $ 186,000 Other Information Weighted-average remaining lease term for capitalized operating leases (in months) 14 Weighted-average discount rate for capitalized operating leases 6.6 % Operating Lease Costs and Cash Flows Operating lease cost and cash paid was $ 165 thousand for the twelve months ended December 28, 2024 and $ 162 thousand during the year ended December 30, 2023. 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. ( 8 ) 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. 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 611,400 shares remain available for grant as of December 28, 2024. A summary of stock option activity as of December 28, 2024 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 903,500 $ 2.66 Granted 225,500 $ 2.29 Exercised ( 60,000 ) $ 1.50 Forfeited ( 69,200 ) $ 2.47 Expired ( 61,500 ) $ 2.90 Outstanding at end of year 938,300 $ 2.64 7.02 $ 17,197 Options exercisable at year-end 499,300 $ 2.51 5.76 $ 16,742 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 2024 and 2023: 2024 2023 Risk-free interest rate 4.16 % - 4.33 % 3.43 % - 4.24 % Expected life in years 5 - 7.6 5 - 5.5 Expected volatility 61.2 % 59.7 % Expected dividend yield 0 0 Weighted average fair value of grants $ 2.29 $ 2.91 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 $ 310,094 and $ 204,797 as stock based compensation expense in 2024 and 2023, respectively. As of December 28, 2024, there was $ 559,242 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 2.64 years. ( 9 ) Accrued Expenses Accrued expenses at December 28, 2024 and December 30, 2023 consist of the following: 2024 2023 Accrued legal and accounting $ 138,600 $ 86,000 Accrued payroll and related costs 254,737 649,201 Accrued other 519,942 339,936 $ 913,279 $ 1,075,137 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 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). On December 28, 2024, 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 2024 was $ 0 and was $ 0 for 2023. (11) 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 2025 $ 8,155 Less Interest $ ( 25 ) Total Principal Payments $ 8,130 Total interest expense on notes payable during 2024 was $ 2,177 and during 2023 was $ 5,096 . ( 12 ) Income Taxes Components of income tax expense (benefit) for each year are as follows: 2024 2023 Current: Federal $ - $ 81,919 State 456 456 Current income tax provision (benefit): 456 82,375 Deferred: Federal ( 727,390 ) 357,507 State ( 231,566 ) 142,203 Deferred income tax provision (benefit), net ( 958,956 ) 499,710 Total $ ( 958,500 ) $ 582,085 Deferred tax assets as of December 28, 2024 and December 30, 2023 are as follows: December 28, 2024 December 30, 2023 Deferred Tax Assets: Net operating loss carryforwards $ 766,023 $ - Stock compensation 117,453 209,609 Credit carryforwards 899,441 865,928 Inventory 141,615 84,955 Accrued liabilities 6,468 - Depreciation 120,452 143,081 Capitalized R&D, net 474,088 263,421 Other 3,142 2,732 Net deferred tax assets $ 2,528,682 $ 1,569,726 A summary of the change in the deferred tax asset is as follows: 2024 2023 Gross deferred tax balance at beginning of year $ 1,569,726 $ 2,069,436 Deferred tax benefit (provision) 958,956 ( 499,710 ) Balance at end of year, net $ 2,528,682 $ 1,569,726 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: 2024 2023 Tax at statutory rate $ ( 857,216 ) $ 416,663 State tax, net of federal benefit ( 231,204 ) 142,562 Other 129,920 22,860 Total $ 958,500 $ 582,085 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. ( 13 ) 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. During 2024 the Company elected to match 1 % of each of the first 4 % of employee contributions paid proportionally each pay period amounting to $ 239 thousand. In 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 . ( 14 ) 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 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. 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 2024 and 2023 were as follows: Percent of Total Revenues Significant Customer 2024 2023 A 32 % 33 % B 15 % 18 % C 11 % 9 % As of December 28, 2024, the Company had trade accounts receivable due from these three customers that accounted for 74 % of total trade accounts receivable as of that date. 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 2024 and 2023: Percent of Total Revenues Country 2024 2023 United States of America 46 % 56 % Germany 32 % 18 % Other 22 % 26 % 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. ( 15 ) Net Income Per Share Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock options and stock purchase rights. Common stock equivalents are excluded from the diluted calculations when a net loss is incurred as they would be anti-dilutive. 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: Dec. 28, Dec. 30, 2024 2023 Basic EPS Computation: Numerator: Net income (loss) $ ( 3,135,449 ) $ 1,370,296 Denominator: Weighted average Common shares Outstanding 14,522,513 14,495,709 Basic EPS $ ( 0.22 ) $ 0.09 Diluted EPS Computation: Numerator: Net income (loss) $ ( 3,135,449 ) $ 1,370,296 Denominator: Weighted average Common shares Outstanding 14,522,513 14,495,709 Dilutive effect of stock options - 133,102 Total shares 14,522,513 14,628,811 Diluted net income per share $ ( 0.22 ) $ 0.09 ( 16 ) 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 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.