CPS Technologies Corp: Form 10-Q for the period ended Sep 27, 2025

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 28, 2024 and in CPS’s other SEC reports, which are accessible on the SEC’s website at www.sec.gov (http://www.sec.gov) and the Company’s website at www.cpstechnologysolutions.com (http://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 Russian invasion of Ukraine and other conflicts and potential conflicts throughout the world and the impact of a strong dollar on the prices the Company charges to foreign customers, 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 28, 2024, 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 28, 2024.

On July 4, 2025, the One Big Beautiful Bill Act (Public Law 119-21) was enacted, introducing significant changes to the Internal Revenue Code that affect the Company’s tax accounting estimates. These changes involve a high degree of estimation uncertainty and are reasonably likely to have a material impact on the Company’s financial condition and results of operations.

Key areas of estimation affected include:

Deferred Tax Asset Realizability: The restoration of immediate expensing for domestic R&E expenditures under new Section 174A and enhanced Section 179 limits may materially alter the timing and magnitude of deductible expenses. The Company is reassessing the realizability of deferred tax assets tied to prior capitalization regimes and evaluating the sensitivity of future reversals.

International Tax Provisions (NeCTIe and FDDEI): The restructuring of GILTI and FDII regimes introduces new deduction rates, foreign tax credit limitations, and eligibility criteria. These changes affect the Company’s assumptions regarding foreign income inclusions, expense allocations, and valuation allowances. Estimation uncertainty arises from forecasting foreign earnings, tax credit utilization, and jurisdictional tax rates.

Bonus Depreciation and Enhancement of Section 179 Expensing: The reinstatement of 100% bonus depreciation and enhancement of Section 179 requires updated modeling of book-tax differences and deferred balances. The Company is evaluating the impact on capital expenditure forecasts and financing strategies, which may materially affect deferred tax liabilities and effective tax rate projections.

The Company’s critical accounting estimates related to income taxes are subject to change as further guidance is issued and as the Company refines its tax planning strategies. Management continues to monitor developments and will update assumptions and disclosures as necessary.

Overview

Products we provide include baseplates for power electronics 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 Silicon Carbide (“SiC”) and 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, cold rolled steel and Kovar. Using its proprietary MMC technology, the Company also produces lightweight 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.

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, and others. Accordingly, particularly given our 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 MMC, 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.

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 Corporation.

Results of Operations for the Third Fiscal Quarter of 2025 (Q3 2025) Compared to the Third Fiscal Quarter of 2024 (Q3 2024); (all $ in 000’s)

Revenues totaled $8,804 in Q3 2025 compared with $4,247 generated in Q3 2024, an increase of 107%. Growing demand in our MMC and hermetic packages product lines has significantly increased compared to last year. In September 2024 the Company added a third shift in order to meet this growing demand. In addition, the company received significantly more funding under the federal government’s Small Business Innovation Research ("SBIR") program in Q3 of 2025 as compared to Q3 2024. Lastly, significant increases in the price of gold, which costs are billed to our customers, also contributed to this increase.

Gross profit in Q3 2025 totaled $1,503 or 17% of sales. This compares with a gross loss in Q3 2024 of $523 or -12% of sales. This percentage increase was due to several factors including the impact of fixed costs on significantly higher revenues, as well as training costs for our new third shift employees during Q3 of 2024.

Selling, general and administrative (SG&A) expenses totaled $1,226 in Q3 2025 compared with SG&A expenses of $963 in Q3 2024. This increase was due to several factors including, the increase in variable compensation as a result of stronger results from operations in Q3 2025 as compared to Q3 2024, the weakening of the U.S. dollar relative to the Euro and its impact on our costs with European vendors, and increased commission costs due to higher revenue.

The Company experienced an operating profit of $276 in Q3 2025 compared with an operating loss of $1,486 in Q3 2024. This increase was a result of the increased gross margin, partially offset by the increase in SG&A expenses. Net after tax income was $208 in Q3 2025 compared to an after tax loss of $1,043 in Q3 2024.

Results of Operations for the First Nine Months of 2025 Compared to the First Nine Months of 2024 (all $ in 000s)

Total revenue was $24,388 in the first nine months of 2025, a 61% increase compared with total revenue of $15,190 in the first nine months of 2024. In spite of the completion of our armor order for the U.S. Navy during 2024, growing demand in our other product lines has significantly increased in 2025 compared to last year. In September 2024 the Company added a third shift in order to meet this growing demand. In addition, the company received significantly more funding under the federal government’s SBIR program in 2025 as compared to 2024. Lastly, significant increases in the price of gold, which costs are billed to our customers, also contributed to this increase.

Gross profit in the first nine months of 2025 totaled $4,070 or 17% of sales. In the first nine months of 2024 gross margin totaled $153 or 1% of sales. This percentage increase was due to several factors including the impact of fixed costs on significantly higher revenues, as well as abnormally low production yield levels in some of our hermetic package products during 2024.

Selling, general and administrative (SG&A) expenses were $3,527 during the first nine months of 2025, up 10% compared with SG&A expenses of $3,215 in the first nine months of 2024. Increased variable compensation accruals and increased commissions, both due to significantly increased revenue were partially offset by a reduction in accounting and legal fees as well as the cost of a settlement with a former outside consultant in 2024.

During the first nine months of 2025, the Company had net other income of $115. This compares with net other income of $242 realized during the first nine months of 2024. The decrease in net other income is primarily due to reduced cash balances in the first nine months of 2025 as compared to 2024.

In the first nine months of 2025 the Company had operating income of $543 compared with an operating loss $3,062 in the same period last year. The net income for the first nine months of 2025 totaled $408 versus a net loss of $2,140 in the first nine months of 2024.

CPS does not rely on raw materials from Ukraine, Russia, Israel or Gaza. 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 these conflicts.

Inflation has had an impact on our costs. Thus far, we have been able to pass along these increases to our customers, but there is no guarantee that we will be able to continue this in the future. In addition, there is often a lag between when the costs increase and when we can adjust customer prices. Some of our larger customers will have pricing agreements, typically for one year, and we must wait for those agreements to end before making any pricing adjustments. Further, several of our larger customers buy from our major competitor in Japan. The impact of the fluctuation of foreign exchange rates can create situations where our pricing to foreign customers can either more or less competitive as compared to our Japanese competitor.

We are beginning to see an impact of tariffs on our cost structure. While many of our raw materials are sourced domestically, we are seeing instances where the domestic supplier is able to raise prices due to the impact of tariffs on prices charged by their foreign competitors. While the overall impact of these costs increases is relatively small, they are still enough to impact our margins. Given that our major competitor is from outside the U.S., our ability to pass on these cost increases to our foreign customers is somewhat limited.

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 liquid assets at September 27, 2025 consist of cash and cash equivalents of $3,234 and marketable debt securities with a fair value of $1,054. This compares to cash and cash equivalents at December 28, 2024 of $3,281 and $1,031 marketable debt securities held at December 28, 2024. We have recovered from our low cash position near the end of Q1 2025 of $1,930. We expect the trend of cash growth from operations to continue.

Trade accounts receivable at September 27, 2025 totaled $5,400 compared with $4,858 at December 28, 2024. Days Sales Outstanding (DSO) decreased from 75 days at the end of 2024 to 55 days at the end of Q3 2025. The decrease in DSO was due to increasing sales volumes as we neared the end of 2024. As a result our receivables at the end of 2024 were a higher percentage of receivables than if revenue was spread out evenly during the period. The accounts receivable balances at December 28, 2024, and September 27, 2025, are both net of an allowance for doubtful accounts of $10.

Inventories totaled $5,384 at September 27, 2025 compared with inventory totaling $4,331 at December 28, 2024. The inventory turnover in the most recent four quarters ending Q3 2025 was 5.2 times (based on a 5 quarter end average) compared with 4.8 times averaged during the four quarters of 2024.

On October 8, 2025 the Company closed an equity raise underwritten by Roth Capital Partners (“Roth”). Roth acquired 3,450,000 shares of the Company’s common stock at a price of $3.00 per share. The net proceeds to the Company were $9,540,025. Due to increased customer demand for our core products, the potential growth of our new product lines (AlMax ® fiber reinforced aluminum, radiation shielding, and others), possible new armor orders, and expanding product development efforts, the Company is actively searching for a larger facility near our current location which will enable us to meet these demands. The proceeds of our equity raise will enable us to pay for the costs to relocate to a different facility, the fit up of the larger facility, and the capital expenditures for the equipment necessary to accommodate this expected growth.

The Company expects it will continue to be able to fund its operations for the remainder of 2025 from operations and existing cash balances.

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.

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)

The Company has a line of credit (LOC) 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 (7.25% on 9/27/2025). On September 27, 2025, 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.

In March 2020, the company acquired a scanning acoustic microscope for a price of $208 thousand. The full amount was financed through a 5 year note payable with a financing company. This note was paid in full in the first quarter of 2025.

The Company has one real estate lease expiring in February 2028. 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 6, Leases)

The Company is not significantly exposed to the direct impact of interest rate changes or foreign currency fluctuations. Nevertheless, one of the Company’s major competitors is located in Japan. The relative strength of the US dollar versus the Japanese yen can have a negative impact on the Company’s ability to raise prices when necessary to offset increasing costs. The Company has not used derivative financial instruments.

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 and the impact of tariffs on our costs is an area where we have seen some affect on our business. We have seen 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. Fortunately, raw materials make up a smaller portion of our overall costs. While they provide a headwind to our profitability, they are a relatively small factor in that total equation. As inflation continues or new tariffs are put in place, 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.