The following discussion and analysis of financial condition and results of operations is based upon and should be read in conjunction with the consolidated 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 29, 2007.

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. 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 consolidated 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 29, 2007, 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 29, 2007.

Overview
CPS Technologies Corporation (the `Company` or `CPS`) (formerly Ceramics Process Systems Corporation) provides advanced material solutions to the electronics, robotics, automotive and other industries. Our primary advanced material solution is metal matrix composites, a new class of materials which are a combination of metal and ceramic. CPS has a leading, proprietary position in metal matrix composites. Metal matrix composites have several superior properties compared to conventional materials - improved thermal conductivity, thermal expansion matching, stiffness and light weight - which enable higher performance and higher reliability in our customers` products.

Like plastics many years ago, this new class of materials will penetrate many end markets over many years. CPS management believes our business model of providing advanced material solutions to a portfolio of high growth end markets which are, at any point in time, in various stages of the technology adoption lifecycle, provides CPS with the opportunity for sustained growth and a diversified customer base. We believe we have validated this model as we are now supplying customers at all stages of the technology adoption lifecycle.

CPS is the leader in supplying metal matrix composites to certain high growth electronics end markets which are well along in the adoption lifecycle and therefore generating significant demand. These end markets include high-performance integrated circuits and circuit boards used in internet switches and routers, as well as motor controllers used in high-speed electric trains, subway cars and wind turbines. CPS supplies heat spreaders, lids and baseplates to customers in these end markets. CPS is a fully qualified manufacturer for many of the world`s largest electronics OEMs.

Concurrently, CPS is participating in certain end markets that are at an earlier stage of the adoption lifecycle. Management believes these end markets will generate additional growth longer-term. An example of such an end market is motor controllers for hybrid automotives and trucks; CPS has been supplying prototypes into this end market for several years. Management believes that several of the programs for which we are selling prototypes will enter volume production in the future.

We are also actively working with customers in end markets at the beginning stages of the adoption lifecycle. An example is CPS`s HybridTech armor technology which has the potential for greater multi-hit capability, lighter weight and lower costs than conventional armor.

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, Ceramics Process Systems Corporation was renamed CPS Technologies Corporation.

Results of Operations for the Second Fiscal Quarter of 2008 (Q2 2008) Compared to the Second Fiscal Quarter of 2007 (Q2 2007)

Total revenue was $4,472 thousand in Q2 2008, a 46% increase from revenue of $3,067 thousand in Q2 2007. The increase in revenues came from all product families except baseplates for cellular telephone basestations which continued to decline as these specific products near their end of life. We supply components to OEMs; each of our products has a specific life cycle. The revenue growth in Q2 came primarily from products introduced 1-2 years ago which have now entered the growth phase of their product life cycles; this is particularly the case for specific flip-chip heat spreaders used in high-performance switches and routers which generated the greatest growth in Q2. Demand for baseplates used in motor controllers also increased as did demand for hermetic metal packages.

Total operating expenses in Q2 2008 were $3,824 thousand, a 31% increase from total operating expenses in Q2 2007 of $2,917 thousand. Cost of product sales in Q2 2008 were $3,102 thousand, a 28% increase from cost of product sales in Q2 2007 of $2,424 thousand. Cost of product sales increased primarily as a result of increased unit shipments. The gross profit on product sales in Q2 2008 was 31% compared to gross profit on product sales in Q2 2007 of 21%. The increase in gross profit is primarily the result of improved labor utilization and fixed costs being spread over increased unit shipments; overhead increased at a much lower rate than did unit shipments.

Selling, general and administrative (SG&A) expenses were $722 thousand in Q2 2008, a 46% increase from SG&A expenses of $493 thousand in Q2 2007. The increase in SG&A expenses is primarily the result of higher commissions paid to sales representatives, higher sales promotion expenses, and higher fees for external professional services.

Results of Operations for First Six Months 2008 Compared to First Six Months of 2007

Total revenue was $7,888 thousand in the first six months of 2008, a 27% increase from total revenue of $6,207 thousand in the first six months of 2007. The increase in revenues came from all product families except baseplates for cellular telephone basestations which continued to decline as these specific products near their end of life. Demand was up in the first six months of 2008 compared to the same period a year ago for flip-chip heat spreaders used in high-performance switches and routers, baseplates used in motor control modules, and hermetic metal packages.

Total operating expenses in the first six months of 2008 were $6,752 thousand, a 19% increase from total operating expenses of $5,675 thousand in the first six months of 2007. Cost of product sales in the first six months of 2008 were $5,455 thousand, a 17% increase from cost of product sales of $4,676 thousand in the first six months of 2007. Cost of product sales increased primarily as a result of increased unit shipments. Gross profit on product sales in the first six months of 2008 was 31% compared with gross profit on product sales of 25% in the first six months of 2007. The increase in gross profit on product sales is primarily the result of improved labor utilization in the first months of 2008 compared to the first six months of 2007, and fixed costs being spread over increased unit shipments.

Selling, general and administrative (SG&A) expenses were $1,297 thousand in the first six months of 2008, a 30% increase from SG&A expenses of $999 thousand in the first six months of 2007. The increase in SG&A expenses is primarily the result of accruing for compensation expense for bonuses paid, higher commissions paid to sales representatives and higher sales promotion expenses and higher salary costs associated with increased personnel additions in the sales function.

Liquidity and Capital Resources

The Company`s cash and cash equivalents at June 28, 2008 were $744 thousand compared to cash and cash equivalents at December 29, 2007 of $472 thousand, an increase of $272 thousand or 58%.

Accounts receivable increased to $3,058 thousand at June 28, 2008 from $2,390 thousand at December 29, 2007. This change reflects increased shipments in Q2 2008 compared to Q4 2007, as well as the timing of shipments and collections. The accounts receivable balance at June 28, 2008 and December 29, 2007 is net of allowance for doubtful accounts of $5 thousand.

Inventories increased to $1,570 thousand at June 28, 2008 from $1,416 thousand at December 29, 2007. Raw materials inventory increased primarily due to purchased components used in the Company`s hermetic packaging products; work-in-process inventory increased to support higher unit shipments; finished goods inventory decreased at the Company`s Norton location due to timing of shipments. Of the total finished goods inventory of $848 thousand at June 28, 2008, $567 thousand was located at customers` locations pursuant to consigned inventory agreements. Of the total finished goods inventory of $886 thousand at December 29, 2007, $515 thousand was located at customers` locations pursuant to consigned inventory agreements.

The Company financed its working capital during Q2 2008 and the six months ended June 28, 2008 with existing cash balances and funds generated by operations. The Company expects it will continue to be able to fund its working capital requirements for the remainder of 2008 from these same sources.

The 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.

Contractual Obligations

In April 2005, the Company entered line of credit and equipment lease agreements with Sovereign Bank. The line of credit is a revolving credit facility allowing the Company to borrow up to 80% of eligible accounts receivable, up to a maximum of $1 million, subject to the Company complying with certain covenants. The line of credit has a one-year term and has been renewed each year since 2005. In Q2 2008 the term was extended to May 2009. As of June 28, 2008 there were no borrowings under the line of credit.

The equipment lease facility allows the Company to lease up to $1.5 million of eligible capital equipment. As of June 28, 2008, the Company has leased capital equipment with a carrying value of $719 thousand from Sovereign Bank under the lease facility agreement, and $781 thousand of availability for future use under the lease facility agreement.

As of June 28, 2008 production equipment included $516 thousand of construction in progress, and in addition, the Company had outstanding commitments to purchase $176 thousand of production equipment. The Company intends to finance production equipment in construction in progress and outstanding commitments under the lease agreement with existing cash balances and funds generated by operations.

In July 2006 the Company entered into a lease for its current operating facilities of approximately 37,520 square feet of rentable space located on approximately seven acres at its current site in Norton, MA. The term of the lease is ten years. 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 $100 thousand in year one increasing to $150 thousand in year ten.

The Company`s contractual obligations at June 28, 2008 consist of the following:

                                               Payments Due by Period
                                 Remaining in    FY 2009 -    FY 2012 - FY 2015 and
                           Total      FY 2008      FY 2011      FY 1014       beyond
Capital lease
obligations including
interest               $ 584,176    $ 181,688    $ 402,488         $ --         $ --
Purchase commitments
for production
equipment              $ 176,221    $ 176,221         $ --         $ --         $ --
Operating lease
obligation for
facilities at 111
South Worcester
Street, Norton, MA.   $1,040,000     $ 57,500    $ 368,000    $ 427,000    $ 187,500