CPS Technologies Corp: Form 10-Q for the period ended Mar 28, 2026

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 27, 2025 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, the war in Iran and other conflicts and potential conflicts, including economic conflicts, throughout the world, 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 27, 2025, 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 27, 2025.

Overview

The Company’s products contribute to the electrification of the green economy. The products we provide include baseplates for motor controllers used in high-speed electric trains, subway cars, wind turbines, hybrid and electric vehicles and the transmission of High Voltage Direct Current (HVDC). We provide hermetic packages used in radar, satellite and avionics applications. We provide lids and heat spreaders used with high performance integrated circuits in internet switches and routers. We provide armor for naval and other military applications.

We provide baseplates and housings used in modules built with Wide Band Gap Semiconductors like SiC and GaN. 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, and others.

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 MMCs 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 First Fiscal Quarter of 2026 (Q1 2026) Compared to the First Fiscal Quarter of 2025 (Q1 2025); (all $ in 000’s)

Revenues totaled $7,029 in Q1 2026 compared with $7,506 in Q1 2025, a decrease of 6%. The major factor contributing to this decrease is the reduction in demand from one of our major customers. As announced in Q4 2025, CPS received a large order from this customer covering the twelve month period beginning October 2025. Through Q1 the customer has taken well less than half of the quantities ordered. CPS has continued to produce their products at the higher rate, both so we can meet there needs if their demand increases without putting undue stress on our production line, and in anticipation of our potential move to a larger facility, allowing us to continue to meet their needs during the move.

Gross margin in Q1 2026 totaled $607 or 9% of sales. This compares with gross margin in Q1 2025 totaled $1,231 or 16% of sales. This decrease was primarily due to the impact of lower sales volumes on fixed costs, the impact of the price of gold, billed at $1,019 at approximately a 0% margin, and increased R&D spending on our margins.

Selling, general and administrative (SG&A) expenses totaled $1,130 in Q1 2026 compared with SG&A expenses of $1,101 in Q1 2025, a 3% increase year over year. This increase was primarily due to fees associated with the Company’s CFO search, in anticipation of the future retirement of the current CFO, and higher foreign exchange costs this year as compared to last year.

The Company had an operating loss of $523 in Q1 2026 compared with operating income of $130 in Q1 2025. This decrease was a result of the decreased gross margin discussed above. The net after tax loss was $294 in Q1 2026 compared to after tax income of $96 in Q1 2025.

CPS does not rely on raw materials from Ukraine, Russia, Iran, Israel or Gaza. As a result, we do not believe that the Russian invasion of Ukraine or the conflicts in Middle East will have a direct impact on our results. Most of our raw materials are sourced domestically. In some cases, our suppliers may be sourcing these materials from a foreign source. To date, we have not seen any significant cost increases that we believe are attributable to tariffs, however this could change in the future.

Inflation has had an impact on our costs. Thus far, we have largely 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. Wages have also been impacted by inflation. We have instituted a combination of wage increases as well as more competitive benefits in order to retain the personnel making up our workforce.

The factors mentioned above, including inflation and tariffs, create elevated uncertainty regarding future financial performance.

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

The Company’s cash and cash equivalents at March 28, 2026 totaled $5,724, with marketable securities of $6,798. This compares to cash and cash equivalents at December 27, 2025 of $4,466 and marketable securities of $8,769. The change in cash and securities is predominantly due to our increased inventory, purchases of fixed assets and reduction of accrued expenses, offset by a reduction in accounts receivable.

Trade accounts receivable at March 28, 2026 totaled $3,789 compared with $5,245 at December 27, 2025. Days Sales Outstanding (DSO) decreased from 61 days at the end of 2025 to 51 days at the end of Q1 2026. The reason for this decrease is that one of our major customers who historically pays monthly the first week of each month made their April payment early, at the end of March. The accounts receivable balances at December 27, 2025, and March 28, 2026 were both net of an allowance for credit losses of $10.

Inventories totaled $7,144 at March 28, 2026 compared with inventory totaling $5,598 at December 27, 2025. The inventory turnover in the most recent four quarters ending Q1 2026 was 4.9 times (based on a 5 quarter end average) compared with 5.4 times averaged during the four quarters of 2025. Due to reduced demand from a major customer and the pending move, the Company has been increasing its inventory levels.

The Company expects it will continue to be able to fund its operations for the remainder of 2026 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 maintains a $3.0 million revolving line of credit (LOC) 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. On March 28, 2026, the Company had $0 of borrowings under this LOC and its borrowing base at the time would have permitted the full $2.7 million to have been borrowed. The LOC remains in effect until terminated per mutual agreement by both parties.

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, Commitments and Contingencies)

The Company is not significantly exposed to the impact of interest rate changes. The Company has not used derivative financial instruments. As one of our major competitors is located in Japan, currency fluctuations can have an impact on how we price our product in order to remain competitive.

Although CPS has not been directly impacted by the war in Ukraine or by the conflict in the Middle East, 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 price increases in commodity raw materials, 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.

As of the date of this document, we are not aware of any material negative impacts that tariffs have on our business. Nevertheless, this issue is currently in flux. We could be negatively impacted in the sourcing of raw materials, or, reciprocal tariffs on CPS product could make it more difficult for us to sell profitably to foreign customers.

(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.