Quarterly Report for Quarter Ending September 26, 2026 (Form 10-Q)

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 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 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

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's 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.

Results of Operations for the Third Fiscal Quarter of 2026 (Q3 2026) Compared to the Third Fiscal Quarter of 2025 (Q3 2025); (all $ in 000's)

Revenues totaled $8,900 in Q3 2026 compared with $8,804 generated in Q3 2025, an increase of 1%. The increase was primarily driven by higher demand for components used in the semiconductor capital equipment and defense supply chains. This growth was partially offset by lower order volumes from certain customers that use baseplates in power electronics, following significant growth in demand from those customers in 2025.

Gross profit in Q3 2026 totaled $1,856 or 21% of sales. This compares with a gross profit in Q3 2025 of $1,503 or 17% of sales. The gross profit percentage improvement came from a combination of sales mix and price improvements.

Selling, general and administrative (SG&A) expenses totaled $1,499 in Q3 2026 compared with SG&A expenses of $1,226 in Q3 2025. The increase was primarily due to the operating lease expense associated with the new Attleboro facility, marketing expenses and one-time legal costs.

The Company reported operating income of $358 in Q3 2026, compared to $276 in Q3 2025, primarily reflecting improved gross margins discussed above. Other income, consisting primarily of interest income, increased to $163 during Q3 2026 from $45 during Q3 2025, reflecting higher interest earned on the proceeds from two recent capital issues. After an income tax charge of $174, net income was $347 for Q3 2026, compared with $208 in Q3 2025.

Results of Operations for the First Nine Months of 2026 Compared to the First Nine Months of 2025 (all $ in 000s)

Total revenue was $24,239 in the first nine months of 2026, a $149 decline compared with total revenue of $24,388 in the same period for 2025. This decline happened in Q1 2026 which saw a reduction in demand from one major customer which is recovering as the year progresses.

Gross profit in the first nine months of 2026 totaled $3,692 or 15% of sales, compared with $4,070, or 17% of sales, for the first nine months of 2025. The decrease in gross margin percentage was partly attributable to higher gold prices, which increased 40% compared with 2025. Higher gold costs without a corresponding markup caused the gross profit percentage to decline. We also saw increases in other material costs that were partially offset by improved labor and overhead costs compared with the prior year.

Selling, general and administrative (SG&A) expenses were $4,116 during the first nine months of 2026, up $589 compared with SG&A expenses of $3,527 in the first nine months of 2025. These increases were primarily attributable to operating lease expense associated with the new lease in Attleboro in Q3, the business development and legal costs during Q2 and Q3, as well as the new CFO search and higher foreign exchange costs in Q1.

The higher material and SG&A costs resulted in an operating loss of ($423) in 2026 compared with an operating profit of $543 in 2025.

During the first nine months of 2026, the Company had net other income of $456 from interest income compared with net other income of $115 during the same period in 2025. The increase in net other income was primarily attributable to higher interest income earned on the investment proceeds from the capital raises completed in the fourth quarter of 2025 and May 2026.

In the first nine months of 2026 the Company had net income of $90 compared with net income of $408 in the same period last year.

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 or the conflict in Israel and Gaza 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 impacted 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 be 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 cost 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 26, 2026 consist of cash and cash equivalents of $3,301 and marketable debt securities with a fair value of $15,613. This compares to cash and cash equivalents at December 27, 2025 of $4,466 and $8,769 marketable debt securities. The increase in liquidity came from a capital raise on May 29, 2026 involving the issuance of 1,200,000 shares of common stock for net proceeds of $8,958.

Accounts receivable at September 26, 2026 totaled $4,703 compared with $5,235 at December 27, 2025. Days sales outstanding (DSO) decreased from 61 days at the end of 2025 to 48 days at the end of Q3 2026. The decrease in DSO was primarily due to the timing and mix of sales and related customer collections during the period. The accounts receivable balances at September 26, 2026 and December 27, 2025 are both net of an allowance for credit losses of $10.

Inventories totaled $10,320 at September 26, 2026 compared with inventory totaling $5,598 at December 27, 2025. The inventory turnover in the most recent four quarters ending Q3 2026 was 3.7 times (based on a 5 quarter end average) compared with 5.4 times averaged during the four quarters of 2025. Finished goods inventory increased primarily due to the planned build of inventory for products supported by long-term customer orders. The additional inventory is intended to maintain continuity of customer supply during the Company's planned facility relocation and associated production transition.

The Company expects it will continue to be able to fund its operations for the remainder of 2026 from operations and existing cash balances. In addition, the Company anticipates approximately $10 million in capital expenditures during 2027 related to the build-out of its Attleboro facility, a portion of which is expected to be reimbursable through the $3.2 million tenant improvement allowance provided under the lease. The Company expects to fund these expenditures through existing cash balances, proceeds from the liquidation or maturity of marketable securities, and cash generated from operations.

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 (6.75% on 9/26/2026). On September 26, 2026, 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 currently leases its manufacturing facility in Norton, Massachusetts, under an operating lease expiring in February 2028. During Q3 2026, the Company entered into a lease for an approximately 80,000 square-foot manufacturing facility in Attleboro, Massachusetts, with a lease term extending through March 2039. The Company expects to incur approximately $10 million in costs during 2027 to prepare the new facility for occupancy, of which up to $3.2 million may be reimbursed by the landlord under the terms of the lease. The Company anticipates relocating its operations toward the end of 2027, with base rent payments under the new lease beginning in December 2027.

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 9, Leases)