PART I FINANCIAL INFORMATION

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

CPS TECHNOLOGIES CORP.

Balance Sheets (Unaudited)
(continued on next page)

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
Balance Sheets (Unaudited)
(concluded)

See accompanying notes to financial statements.(continued)

CPS TECHNOLOGIES CORP.
Statements of Operations

Balance Sheets (Unaudited)

(concluded)

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.
STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 25, 2021 AND SEPTEMBER 26, 2020

Statements of Operations (Unaudited)

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.CORPORATION
Statements of Cash Flows (Unaudited)STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 2, 2022 AND MARCH 27, 2021

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Statements of Cash Flows (Unaudited)

See accompanying notes to financial statements.

CPS TECHNOLOGIES CORP.

Notes to Financial Statements
Statement

(Unaudited)

(1)      Nature of Business

CPS Technologies Corp.Corporation (the “Company” or “CPS”) provides advanced material solutions to the electronics, power generation, automotive and other industries. The Company’s primary advanced material solution is metal-matrix composites (MMC’s) which are a combination of metal and ceramic.

CPS also assembles housings and packages for hybrid circuits. These housings and packages may include components made of metal-matrix composites or they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.

Using its proprietary MMC technology, the Company also produces light-weight armor, particularly for extreme environments and heavy threat levels.

The Company sells into several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor controller market, and other microelectronic and structural markets.

(2)      Summary of Significant Accounting Policies

As permitted by the rules of the Securities and Exchange Commission applicable to quarterly reports on Form 10-Q, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles.

The accompanying financial statements are unaudited. In the opinion of management, the unaudited financial statements of CPS reflect all normal recurring adjustments which are necessary to present fairly the financial position and results of operations for such periods.

The Company’s balance sheet at December 26, 202025, 2021 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

For further information, refer to the financial statements and footnotes thereto included in the Registrant’s Annual Report on Form 10-K for the year ended December 26, 202025, 2021 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.alsic.com.www.cpstechnologysolutions.com.

The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

(3)      Net Income (loss) Per Common and Common Equivalent Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the sum of the weighted average number of common shares plus additional common shares that would have been outstanding if potential dilutive common shares had been issued for granted stock 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.

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

(4)      Commitments & Contingencies

Commitments

Leases

The Company has one real estate lease 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 was recognized on April 2, 2022 based on the present value of lease payments over the lease term using the Company’s incremental borrowing rate at commencement date. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Operating Leases

The Norton facility lease comprises approximately 38 thousand square feet. The lease is 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 renew the lease starting in March 2026 through February 2032. Annual rental payments range from $152 thousand to $165 thousand through maturity.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating leases as of September 25, 2021April 2, 2022

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $38$39 thousand during the thirdfirst quarter of 20212022. and $114 thousand for the nine months ended September 25, 2021. These costs areThis cost is related to its long-term operating lease. All other short-term leases were immaterial.

Finance Leases

The company does not have any finance leases.

(5)      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. Reductions in compensation expense associated with the forfeited options are estimated at the date of grant, 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 the stock options granted.

During the quarterquarters ended September 25,April 2, 2022 and March 27, 2021, there were 5,000a total of 170,000 and 200,000 stock options, respectively, were granted to employees under the Plan. There were Company’s 2020 Equity Incentive Plan (the “Plan”) and a total of 38,000 and 0 stock options, respectively, were granted underto outside directors during the Plan during quarterquarters ended September 26, 2020.April 2, 2022

and March 27, 2021.

During the quarter ended September 25, 2021,April 2, 2022, 500there were 72,700 options were exercised and corresponding shares issued at a weighted average price of $1.49.$2.08.  During the quarter ended SeptemberMarch 27, 2021, 25,2021, 32,200there were 613,800 options were forfeitedexercised and none expired. During the quarter ended September 26, 2020, 288,250 options were exercisedcorresponding shares issued at a weighted average price of $1.53, and 261,355 options expired at a weighted average price of $1.53. Also during the quarter ended September 26, 2020, 500 shares were gifted to an employee for completing 20 years of service to the company.$1.98. 

During the quarter ended September 25, 2021,April 2, 2022, the Company repurchased 112840 shares for employees to facilitate their exercise of stock options. During the quarter ended September 26, 2020March 27, 2021, the Company repurchased 200,018120,196 shares for employees to facilitate their exercise of stock options.

There were also 841,900971,600 shares outstanding at a weighted average price of $2.19$2.37 with a weighted average remaining term of 6.46.67 years as of September 25, 2021,April 2, 2022, and there were 471,700837,700 shares exercisableoutstanding at a weighted average price of $1.89$1.92 with a weighted average remaining term of 4.76.74 years as of September 25,March 27, 2021. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of September 25, 2021,April 2, 2022, there were 1,147,000941,000 shares available for future grants. 513,700 grants remain exercisable under the Company’s Equity Incentive Plans.

As of April 2, 2022, there was $622 thousand of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan; that cost is expected to be recognized over a weighted average period of 1.79 years.

During the quarters ended threeApril 2, 2022 and nine months ended September 25,March 27, 2021, the Company recognized approximately $28$124 thousand and $148$27 thousand, respectively, as share-basedshared-based compensation expense related to share and option grants. These amounts are included as a component of selling, general and administrative expenses inpreviously granted shares under the statement of operations.

During the three and nine months ended September 26, 2020 the Company recognized approximately $17 thousand and $100 thousand, respectively as share-based compensation expense related to share and option grants. These amounts are included as a component of selling, general and administrative expenses in the statement of operations.Plan. 

(6)      2021 At-the-Market Offering

On April 26, 2021, the Company entered into a sales agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC (“C-H”) pursuant to which the Company may issue and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $25.0 million in at-the-market offerings (“ATM”) sales. On the same day, the Company filed a prospectus supplement under a shelf registration relating to the Sales Agreement. C-H will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary. For the quarter ended September 25, 2021, the Company sold approximately 48 thousand shares of common stock under the Sales Agreement, for gross proceeds of approximately $295 thousand. From date of inception until September 25, 2021, the Company sold approximately 527 thousand shares of common stock under the Sales Agreement, for gross proceeds of approximately $3.7 million. Subsequent to September 25, 2021, the Company has not sold any additional shares.

(7)   Inventories

Inventories consist of the following:

(87)      Accrued Expenses

Accrued expenses consist of the following:

(98)      Line of Credit

In September 2019, the Company entered into a revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million. The agreement includes a demand note allowing the Lender to call the loan at any time. The Company may terminate the agreement without a termination fee after 3 years. In May of 2020 this credit line was increased to $3.0 million. The LOC is secured by the accounts receivable and other assets of the Company and hadhas an interest rate of LIBOR plus 650 basis points. In May of 2021 the interest rate was reduced to LIBOR plus 550 basis points. On September 25, 2021,April 2, 2022, the Company had $0 thousand of borrowings under this LOC and its borrowing base at the time would have permitted an additional $2.6$3.0 million to have been borrowed.

The line of credit is subject to certain financial covenants, all of which have been met or waived.met.

(109)      Note Payable

In March 2020, the companyCompany acquired a Sonoscan ultrasound microscopeinspection equipment for a price of $208 thousand. The full amount was financed through a 5 year note payable with Crest Capital Corporation.a third party equipment finance company.   The note is collateralized by the microscopeequipment and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%.

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed with the machine’s vendor.  The equipment cost of $40 thousand will be paid at the rate of $2 thousand per month over 2 years, resulting in an implied interest rate of 1.90%.

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

Total interest expense on notes payable during 20212022 was $8,434.$2,269.

(1110)    Income Taxes

A valuation allowance against deferred tax assets is required to be established or maintained when it is "more likely than not" that all or a portion of deferred tax assets will not be realized. In December 2018, the Company established a valuation allowance reserve, as it wasis judged more likely than not that all or a portion of its deferred tax assets will not be utilized before they expire. This decision was reached after giving greater weight to the Company’s losses from 2016 - 2018in recent years as compared to its forecasts.

In September 2021 the Company evaluated the valuation allowance against deferred tax assets. As a resultthis decision was reevaluated in light of the Company’s profitability in recent yearsprofitability and its forecasts for future profitability. The Company believesconcluded that it is “more likely than not” that the Company will be able to fully utilize the deferred tax asset before the assets begin to expire.asset. This reversal of the valuation allowance was made net of the expected tax liability for 2021.2021. For the first quarter of 2022 a charge against the reserve of $125,748 for the estimated tax liability on Q1 income was made.

The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the financial statements of the Company and notes thereto included in this report and the Company’s Annual Report on Form 10-K for the year ended December 26, 2020.25, 2021 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov and the Company’s website at www.cpstechnologysolutions.com.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties. There are a number of factors that could cause the Company’s actual results to differ materially from those forecasted or projected in such forward-looking statements. This includes the impact of the COVID-19 pandemic and the Russian invasion of Ukraine, which are discussed in Item 3 of this report. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or changed circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Critical Accounting Policies

The critical accounting policies utilized by the Company in preparation of the accompanying financial statements are set forth in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 26, 2020,25, 2021, under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. There have been no material changes to these policies since December 26, 2020.

25, 2021.

Overview

Products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, and hybrid and electric vehicles. We provide baseplates and housings used in radar, satellite and avionics applications. We provide lids and heat spreaders used with high performance integrated circuits for use in internet switches and routers. We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like SiCSilicon Carbide (“SiC”) and GaN.Gallium Nitride (“GaN”), collectively Metal Matrix Composites (“MMC”). CPS also assembles housings and packages for hybrid circuits. These housings and packages may include MMC components; they may include components made of more traditional materials such as aluminum, copper-tungsten, etc.cold rolled steel and Kovar. Using its proprietary MMC technology, the Company also produces light-weight vehicle armor, particularly for extreme environments and heavy threat levels.

CPS’s products are custom rather than catalog items. They are made to customers’ designs and are used as components in systems built and sold by our customers. At any point in time our product mix will consist of some products with on-going production demand, and some products which are in the prototyping or evaluation stages at our customers. The Company seeks to have a portfolio of products which include products in every stage of the technology adoption lifecycle at our customers. CPS’ growth is dependent upon the level of demand for those products already in production, as well as its success in achieving new "design wins" for future products.

The manufacturing process for MMCs (infusing ceramic materials with molten metals) is complicated and results in varying yields, which poses challenges to profitability for less developed manufacturers.

As a manufacturer of highly technical and custom products, the Company incurs fixed costs needed to support the business, but which do not vary significantly with changes in sales volume. These costs include the fixed costs of applications such as engineering, tooling design and fabrication, process engineering, etc.and others. Accordingly, particularly given our current size, changes in sales volume generally result in even greater changes in financial performance on a percentage basis as fixed costs are spread over a larger or smaller base. Sales volume is therefore a key financial metric used by management.

The Company believes the underlying demand for metal matrix compositesMMC, housings for hybrid circuits and our proprietary armor solution is growing as the electronics and other industries seek higher performance, higher reliability, and reduced costs. CPS believes that the Company is well positioned to offer our solutions to current and new customers as these demands grow.

Our products are manufactured by proprietary processes we have developed including the QuicksetTM Injection Molding Process (‘Quickset Process’) and the QuickCastTM Pressure Infiltration Process (‘QuickCast Process’).

CPS was incorporated in Massachusetts in 1984 as Ceramics Process Systems Corporation and reincorporated in Delaware in April 1987 through a merger into a wholly-owned Delaware subsidiary organized for purposes of the reincorporation. In July 1987, CPS completed our initial public offering of 1.5 million shares of our Common Stock. In March 2007, we changed our name from Ceramics Process Systems Corporation to CPS Technologies Corp.Corporation.

Results of Operations for the ThirdFirst Fiscal Quarter of 2022 (Q1 2022) Compared to the First Fiscal Quarter of 2021 (Q3(Q1 2021) Compared to the Third Fiscal Quarter of 2020 (Q3 2020); (all $ in 000s)000’s)

Total revenue was $5,515Revenues totaled $6,653 in Q3 2021, a 24% increaseQ1 2022 compared with total revenue$4,866 generated in Q1 2021, an increase of $4,45237%. Two factors in Q3 2020. This increase wasparticular contributed to this growth. In Q1 of 2021 we were just beginning to see a turnaround in reduced sales due primarily to the Company’s firstCOVID-19 pandemic. We saw significant sales growth from each of our top 5 customers from Q1 2021 to Q1 2022. Our shipments of armor production order whichfor the US Navy did not startbegin until Q2 of 2021, as well as increases in salesalso giving rise to other customers ina portion of the aerospace and defense markets.increase from Q1 2021 to Q1 2022.

Gross margin in Q3 2021Q1 2022 totaled $1,139$1,963 or 21% of sales. In Q3 2019, gross margin was $938 or 21%30% of sales. This increasecompares with gross margin in margin directly correlates toQ1 2021 of $944 or 19% of sales. Both increased manufacturing efficiencies and the impact of increased revenue.sales volumes on fixed costs, which do not vary with increased sales volumes, were the predominate reason for this increase.

Selling, general and administrative expenses (SG&A) were $1,227expenses totaled $1,416 in Q3 2021, up 79% whenQ1 2022 compared with SG&A expenses of $684$908 in Q3 2020. This increase was primarilyQ1 2021. Compensation costs made up a little over half of this increase. In particular, increased accruals for variable compensation due to non-recurring restructuring costs of $327. The Company executed a planthe better results in Q1 2022 as compared to streamline its operations in Q3Q1 2021 and incurred one time severance and other costs under3 additional members of our sales team hired subsequent to Q1 2021, made up part of the plan.compensation differential.  In addition, issuance of immediately vested stock options to the restructuring costs commission expensedirectors was increased from Q3 2020 to Q3delayed in Q1 2021 due to higher revenue.

In Q3, 2021,market uncertainty. The Company reverted back to its standard practice of issuing these immediately vested options in Q1 2022 as the Company incurred interest expensemarket stabilized. The other significant portion of $3this increase was due to equipment financing. This compares with interest expensecommission expenses incurred as a result of $21 in Q3 of 2020 which was primarily due to bank borrowings.the increased sales.

The Company incurredexperienced an operating profit of $547 in Q1 2022 compared with an operating profit of $36 in Q1 2021 as a result of the increased gross margin, partially offset by the increase in SG&A expenses.

The Company is part of the Defense Industrial Base and thus has been open and operating throughout the COVID-19 pandemic. The Company believes the worst of the pandemic is now behind us and expects to show continued improvement in upcoming quarters.

The Company has had extremely minimal sales to both Russia and Ukraine over the last several years, the loss of $88which would likely not even be noticeable to a reader of these financial statements. Neither does CPS rely on raw materials from that part of the world. As a result, we do not believe that the Russian invasion of Ukraine will have a direct impact on our results. Nevertheless, there could be an indirect impact regarding supply chain and inflationary issues as a result of this war.

These factors combine to create a higher degree of uncertainty regarding future financial performance.

Liquidity and Capital Resources (all $ in 000’s unless noted)

The Company’s cash and cash equivalents at April 2, 2022 totaled $4,700. This compares to cash and cash equivalents at December 25, 2021 of $5,050. The decrease in cash was due primarily to increases in inventory and reductions in accrued expenses offset by net profit.

Accounts receivable at April 2, 2022 totaled $4,903 compared with operating income$4,870 at December 25, 2021. Days Sales Outstanding (DSO) decreased from 72 days at the end of $254 in2021 to 66 days at the same quarter last year. Thisend of Q1 2022. The decrease in operating income is due almost entirely to the non-recurring restructuring costs, discussed above. The net income for Q3 2021 totaled $2,728 versus net profit of $231 in Q3 2020. 

This differential in net income isDSO was due to the reversalinclusion of deferred revenue of $0.6M in the deferred tax asset valuationyear end accounts receivable balance, which was collected during Q1 2022. The accounts receivable balances at December 25, 2021, and April 2, 2022 were both net of an allowance discussed in footnote 10, above.  The pre-tax net loss was $72.for doubtful accounts of $10.

Results of Operations for the First Nine Months of 2021 Compared to the First Nine Months of 2020 (all $ in 000s)

Total revenue was $16,243 in the first nine months of 2021, a 3% decrease compared with total revenue of $16,722 in the first nine months of 2020. This decrease was due primarily to the impact of the non-Covid quarter of Q1 2020, compared to the impact of Covid on Q1 2021.

Gross margin in the first nine months of 2021 totaled $3,435 or 21% of sales. In the first nine months of 2020 gross margin totaled $3,671 or 22% of sales. This small decrease was due to differences in product mix.

Selling, general and administrative (SG&A) expenses were $3,234 during the first nine months of 2021, up 31% compared with SG&A expenses of $2,466 in the first nine months of 2020. This increase was due to the non-recurring restructuring costs discussed above, 6 months of concurrent compensation costs for both the former CEO and his replacement, as well as recruiting, option grants and other up front costs of bringing him on board.

               During the first nine months of 2021, the Company incurred interest expense of $33 due primarily to bank borrowings in Q1 and Q2. This compares with interest expense of $87 incurred during the first nine months of 2020.

In the first nine months of 2021 the Company generated operating income of $201 compared with operating income of $1,205 in the same period last year. Similar to revenue, the difference between the first quarter of 2020, pre-Covid, compared to the first quarter of 2021, plus the non-recurring restructuring costs account for this difference. The net income for the first nine months of 2021 totaled $2,998 versus net income of $1,132 in the first nine months of 2020.

In December 2018 the Company set up a valuation reserve against its deferred tax asset. At the time, following a period of sustained losses, management determined that it was more likely than not that this tax asset would not be used. Management has reevaluated this decision in light of recent profitability and expected future profitability and has determined that it is more likely than not that the Company will be able to fully utilize this tax asset. As a result of releasing the valuation allowance against the deferred tax asset, a tax benefit of $2.8 million has been recorded on the income statement as of September 25, 2021.

Liquidity and Capital Resources (all $ in 000s unless noted)

The Company’s cash and cash equivalents at September 25, 2021 totaled $3,838. This compares to cash and cash equivalents at December 26, 2020 of $195. The improvement in cash was primarily due to equity raised through the At the Market offering (“ATM”) discussed below.

Accounts receivable at September 25, 2021 totaled $5,032 compared with $2,915 at December 26, 2020.

Days Sales Outstanding (DSO) increased from 62 days at the end of 2020 to 82 days at the end of Q3 2021. The increase in DSO was due to advance billings to customers whose orders require CPS to purchase special raw materials in order to fulfill those orders. These billings are currently in accounts receivable, but not yet reflected in revenue. The accounts receivable balances at December 26, 2020, and September 25, 2021 were both net of an allowance for doubtful accounts of $10.

Inventories totaled $3,773$4,706 at September 25, 2021April 2, 2022 compared with inventory totaling $3,709$3,912 at December 26, 2020.25, 2021. The inventory turnover in the most recent four quarters ending Q3 2021Q1 2022 was 4.34.6 times down from 4.5(based on a 5 point average) compared with 4.7 times averaged during the four quarters of 2020 (based on a 5 point average).

On April 26, 2021, the Company entered into a sales agreement (the “Sales Agreement”) with Craig-Hallum Capital Group LLC (“C-H”) pursuant to which the Company may issue and sell, from time to time, shares of the Company’s common stock having an aggregate offering price of up to $25.0 million in at-the-market offerings (“ATM”) sales. On the same day, the Company filed a prospectus supplement under a shelf registration relating to the Sales Agreement. C-H will act as sales agent and will be paid a 3% commission on each sale under the Sales Agreement. The Company’s common stock will be sold at prevailing market prices at the time of the sale, and, as a result, prices will vary. For the quarter ended September 25, 2021, the Company sold approximately 48 thousand shares of common stock under the Sales Agreement, for gross proceeds of approximately $295 thousand. From date of inception until September 25, 2021, the Company sold approximately 527 thousand shares of common stock under the Sales Agreement, for gross proceeds of approximately $3.7 million. Subsequent to September 25, 2021, the Company has not sold any additional shares.2021.

The Company financed its increase in working capital during the first nine months of 2021 from a combination of its net profit during the period and proceedsin Q1 2022 from its ATM offering.profit and usage of cash on hand. The Company expects it will continue to be able to fund its working capital requirementsoperations for the remainder of 20212022 from operations and existing cash balances.

Although the Company’s customer base is expanding, theThe Company continues to sell to a limited number of customers and the loss of any one of these customers could cause the Company to require additional external financing. Failure to generate sufficient revenues, raise additional capital or reduce certain discretionary spending could have a material adverse effect on the Company’s ability to achieve its business objectives.

Management believes that existing cash balances will be sufficient to fund our cash requirements for the foreseeable future. However, there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational goals are not met such that we will be able to meet our obligations as they become due.

Contractual Obligations (all $ in 000’s unless otherwise noted)

In September 2019, the Company entered into revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC) in the amount of $2.5 million. This agreement was amended in May 2020 to increase the line to $3.0 million. The agreement includes a demand note allowing the Lender to call the loan at any time. The Company may terminate the agreement without a termination fee after 3 years. The LOC is secured by the accounts receivable and other assets of the Company and has an interest rate of LIBOR plus 650550 basis points. At September 25, 2021 theThe Company was in compliance with all debt covenants as of April 2, 2022, had $0 of borrowings under this LOC and its borrowing base at the time would have permitted $2.621 million$3.0 to have been borrowed.

In March 2020, the company acquired an ultrasounda scanning acoustic microscope for a price of $208.$208 thousand. The full amount was financed through a 5 year note payable with a financing 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%

In July 2020 CPS placed into service a piece of manufacturing equipment which it financed through a capital lease with the machine’s vendor. The original lease amount wasequipment cost of $40 thousand and will be paid at the rate of $2 thousand per month over 2 years with an interest rate of 1.9%.

As of September 25, 2021, the Company had $249 of construction in progress and no outstanding commitments to purchase production equipment.

The Company has one real estate lease 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 have been capitalized. (Note 4, Leases)

Management believes that a combination of existing cash balances and borrowings, if necessary, will be sufficient to fund our cash requirements for the foreseeable future. However, there is no assurance that we will be able to generate sufficient revenues or reduce certain discretionary spending in the event that planned operational goals are not met such that we will be able to meet our obligations as they become due.

The Company is not significantly exposed to the impact of interest rate changes or foreign currency fluctuations. The Company has not used derivative financial instruments.

The COVID-19 pandemic presents several risks for the Company. The Company is part of the Defense Industrial Base and thus has remained open and operating throughout the pandemic. The primary risks resulting from the pandemic are potential declines in customer demand due to government-mandated business closures and increased operating costs resulting from pandemic-related factors such as increased freight costs and increased employee absenteeism causing labor inefficiencies and increased use of overtime.

The COVID-19 pandemic had a minimal impact on financial results for the quarter ended April 2, 2022. There were several COVID related absences during the quarter which required the use of overtime in order to meet production needs. The Company expects these mild disruptions to continue as COVID becomes more endemic. Nevertheless the possibility of a more dangerous variant could result in a negative impact on the Company’s business in the future.

Although CPS has not been directly impacted by the war in Ukraine, potential supply chain disruptions and its impact on energy costs are areas where we could be impacted in the future.

Inflation is an area where we have seen some impact on our business. We have seen significant price increases in commodity raw materials, such as aluminum, as well as increases in other costs of doing business. As we receive new orders we have been able to pass on most of these costs to our customers. In the case of longer term pricing agreements, we have been able to pass on some of these costs through surcharges and in other ways to mitigate the impact on our profit. As inflation continues, our ability to continue to absorb higher costs by raising customer prices cannot be guaranteed.

(a)       The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14(c) and 15d - 14(c) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, 1) the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports the Company files under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and 2) the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b)       Changes in Internal Controls. There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS
            None.

ITEM 1ARISK FACTORS
             There have been no material changes to the risk factors as discussed in our 20202021 Form 10-K10-K.

ITEM 2UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
            

None.

ITEM 3DEFAULTS UPON SENIOR SECURITIES
             None.

ITEM 4MINE SAFETY DISCLOSURES
             Not applicable.

ITEM 5OTHER INFORMATION
             Not applicable.

ITEM 6EXHIBITS
(a)         Exhibits:

Exhibit 31.1 Certification ofOf Chief Executive Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 302 ofOf The Sarbanes-Oxley Act Of 2002

Exhibit 31.2 Certification ofOf Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 302 ofOf The Sarbanes-Oxley Act Of 2002

Exhibit 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of The Sarbanes-Oxley Act ofOf 2002

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension Schema Document

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

(b)         ReportsOn March 7, 2022 the Company filed a report on Form 8-K

          None relating to the announcement of its financial results for the year ended December 25, 2021 as presented in a press release dated March 3, 2022.

SIGNATURES

Pursuant to the requirements 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.CORPORATION

(Registrant)

Michael E. McCormack

Chief Executive Officer

Charles K. Griffith Jr.

Chief Financial Officer