CPS Technologies Corp. CPSH Form 10-Q filing Q2 FY2026

ITEM 1 FINANCIAL STATEMENTS (Unaudited)

See accompanying notes to condensed financial statements.

See accompanying notes to condensed financial statements.

CPS TECHNOLOGIES CORP.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 27, 2026 AND JUNE 28, 2025

See accompanying notes to condensed financial statements.

See accompanying notes to condensed financial statements.

CPS TECHNOLOGIES CORP.
Notes to Financial Statements
(Unaudited)

*(1)*Nature of Business

CPS Technologies Corporation (the “Company” or “CPS”) provides advanced material solutions to the electronics, power generation, automotive, defense and other industries. The Company’s primary advanced material solution is metal-matrix composites (“MMC”) 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 also engages in research and development, in some cases government funded and in others internally funded, focused on developing new products in response to customer requirements. These products expand our offerings in existing markets and enable penetration into new markets.

The Company sells into several end markets including the wireless communications infrastructure market, high-performance microprocessor market, motor controller, and other microelectronics and defense 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 and should be read in conjunction with the audited financial statements and related notes included in the 2025 Annual Report.

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 27, 2025 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 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.

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

(3) Future Application of Accounting Standards

Disaggregation of Income Statement Expenses

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"). The standard requires certain details for expenses presented on the face of the Statements of Operations and Comprehensive Income (Loss) as well as selling expenses to be presented in the notes to the financial statements on an interim and annual basis. The provisions of the standard are effective for public companies for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 31, 2027. The amendment can be applied either prospectively or retrospectively, with early adoption permitted. The Company is currently assessing the impact of this standard.

(4) Use of Estimates

The preparation of the Condensed Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

(5) Marketable Securities

Investments consist of U.S. Treasury Bills and US Government Bonds with maturities up to one year. Since it is not currently managements intention to hold these debt securities until the maturity dates, these have been classified as available-for-sale (“AFS”) and are recorded on the balance sheet at fair value, with changes in fair value recorded as a component of other comprehensive income (loss).

(6) Fair value of Marketable Securities

ASC 820, Fair Value Measurements (“ASC 820”) states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. The three-tiered fair value hierarchy, which prioritizes which inputs should be used in measuring fair value, is comprised of: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than quoted prices in active markets that are observable either directly or indirectly and (Level III) unobservable inputs for which there is little or no market data. The fair value hierarchy requires the use of observable market data when available in determining fair value. CPS’s marketable securities consist solely of US Treasury Bills and US Government bonds with a maturity of 12 months or less and which fall under Level II of the fair value hierarchy. The value of these US Treasury Bills and US Government bonds as of June 27, 2026 was $3,801,426 and was $8,769,363 as of December 27, 2025.

(7) 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. Had there been a profit year to date in 2026, the dilutive effect would have been 379,047 shares. 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:

(8) Commitments & Contingencies

Commitments

Operating Leases

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 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 2028 (the “Norton facility lease”) is included as a right-of-use lease asset and corresponding lease liability (current and non-current portions) on the balance sheet. This asset and liability was recognized 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.

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 2028 through February 2032. The Company is not reasonably certain these extensions will be exercised at this time, and therefore are not included in the lease asset or liability. Annual rental payments are $169 thousand through maturity.

The following table presents information about the amount, timing and uncertainty of cash flows arising from the Company’s capitalized operating lease as of June 27, 2026:

Operating Lease Costs and Cash Flows

Operating lease cost and cash paid was $42 thousand during the second quarter of 2026 and $84 thousand for the six months ended June 27, 2026. These costs are related to its long term operating lease. All other short-term leases were immaterial.

Finance Leases

The Company does not have any finance leases.

(9) 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 quarter ended June 27, 2026, 99,600 stock options were granted to employees under the Company’s 2020 Equity Incentive Plan Stock Incentive Plan (the “Plan”) and 37,500 stock options were granted to outside directors. For the six months ended June 27, 2026 a total of 99,600 stock options and 37,500 stock options were granted to employees and directors, respectively. During the quarter ended June 28, 2025, no stock options were granted to employees under the Plan and no stock options were granted to outside directors. For the six months ended June 28, 2025 a total of 115,000 stock options and 75,000 stock options were granted to employees and directors, respectively.

During the three and six months ended June 27, 2026, there were 253,250 and 272,250 options exercised and corresponding shares issued at a weighted average price of $2.37 and $2.28. During the three and six months ended June 28, 2025, there were no options exercised and corresponding shares issued.

During the three and six months ended June 27, 2026, the Company repurchased 72,271 and 72,942 shares for employees to facilitate their exercise of stock options. During the three and six months ended June 28, 2025, the Company did not repurchase any shares for employees to facilitate their exercise of stock options.

There were also 929,900 options outstanding at a weighted average price of $2.80 with a weighted average remaining contractual term of 7.31 years as of June 27, 2026, and there were 476,925 options exercisable at a weighted average price of $2.73 with a weighted average remaining term of 6.67 years. There were 1,083,300 options outstanding at a weighted average price of $2.45 with a weighted average remaining contractual term of 7.6 years as of June 28, 2025 and there were 594,100 shares exercisable at a weighted average price of $2.40 with a weighted average remaining term of 6.49 years. The Plan, as amended, is authorized to issue 1,500,000 shares of common stock. As of June 27, 2026, there were 281,270 shares available for future grants under the 2020 Plan and 49,200 shares outstanding under the 2009 Plan. As of June 28, 2025, there were 421,400 shares available for future grants under the 2020 Plan and 141,900 shares outstanding under the 2009 Plan.

As of June 27, 2026, there was $582 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 2.30 years.

During the three and six months ended June 27, 2026, the Company recognized $174,845 and $223,094, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

During the three and six months ended June 28, 2025, the Company recognized $49,354 and $171,540, respectively, as shared-based compensation expense related to previously granted shares under the Plan.

(10) Inventories

Inventories consist of the following:

(11) Accrued Expenses

Accrued expenses consist of the following:

(12) Line of Credit

The Company has 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 (6.75% at June 27, 2026). On June 27, 2026 and December 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. The line of credit remains in effect until terminated per mutual agreement by both parties. Total interest expense in Q1 and Q2 of 2026 was $0 and it was $0 for Q1 and Q2 of 2025.

(13) Segment Reporting

The Company views its operations and manages its business as one segment. The Company produces and sells advanced material solutions, primarily metal matrix composites, to assemblers of high density electronics and other specialty components and subassemblies. The Company also assembles housings and packages for hybrid circuits, selling to the same customers mentioned above. These customers represent a single market or segment with similar stringent and well-defined requirements. The Company’s customers, in turn, sell the components and subassemblies which incorporate the products into many different end markets, however, these end markets are two to three levels removed from the Company. The Company also sells armor strike faces to armor manufacturers, using the same manufacturing process used in its other product solutions. The Company makes operating decisions and assesses financial performance only for the Company as a whole and does not make operating decisions or assess financial performance by the end markets which ultimately use the products. Our chief operating decision maker (CODM) is Brian Mackey, our President and CEO. The Company's CODM regularly reviews financial information presented and does not evaluate the Company's operating segment using asset or liability information. Instead, the CODM uses revenue, gross margin, and net income or loss to allocate operating and capital resources and assess performance by comparing actual results to historical results and previously forecasted financial information.

The following table presents segment information for the Company's single reporting segment:

(14) 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. Management has determined that a valuation allowance is not needed as it expects that the deferred tax asset will be fully utilized.

For the three and six months ended June 27, 2026 the deferred tax asset increased by $150,106 and $232,812 for the estimated tax benefit on Q2 and year to date net operating losses, respectively.

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act (Public Law 119-21), which includes significant modifications to the Internal Revenue Code. The legislation permanently extends and modifies key provisions of the Tax Cuts and Jobs Act of 2017 and introduces new deductions and credits applicable to both individuals and businesses.

Key provisions relevant to the Company include:

Restoration of Immediate Expensing for Domestic Research and Experimental (“R&E”) Expenditures: Effective for tax years beginning after December 31, 2024, domestic R&E expenditures may be immediately expensed under new Section 174A, reversing the prior capitalization and amortization requirement. This change may materially impact the Company’s deferred tax assets and current tax expense depending on the volume of qualifying expenditures.

It is anticipated that the unamortized Section 174 R&E expenditures at Q2 2026 will be expensed as follows (subject to further analyses and discussions):

Enhancement of Section 179 Expensing: The maximum Section 179 deduction is increased to $2.5 million, with a phase-out threshold beginning at $4 million. This expansion is expected to accelerate tax deductions for qualifying property and benefit capital investment strategies.

Permanent Reinstatement of 100% Bonus Depreciation: For qualified property acquired and placed in service after January 19, 2025, the Company may elect full expensing under Section 168(k), which is expected to accelerate tax deductions and reduce taxable income in applicable periods.

Modifications to FDII (now FDDEI): The deduction under Section 250 for foreign-derived intangible income is reduced to 33.34%, and eligibility criteria are narrowed. These changes may impact export-related tax incentives and deferred tax projections tied to U.S.-held IP.

The Company is currently evaluating the impact of these provisions on its financial statements and tax positions. While the changes are not expected to materially affect prior period results, they may influence future effective tax rates, deferred tax balances, and cash tax obligations. The Company incorporated these changes into its tax planning and provision calculations for fiscal year 2025 and beyond. However, the full effect of these provisions will depend on the Company's future capital expenditures, R&E activities, financing arrangements, and international operations.

(15) Equity Capital Raise

On May 27, 2026, the Company filed with the Secretary of State of Delaware a Certificate of Amendment of the Company’s Restated Certificate of Incorporation, effective as the same date. The amendment increased the number of shares of common stock that the Company is authorized to issue from 20,000,000 to 25,000,000.

On May 27, 2026, the Company entered into securities purchase agreements with certain institutional investors for the sale by the Company of 1,200,000 shares of common stock, par value $0.01 per share, in a registered direct offering (the “Offering”), at a purchase price of $8.00 per share. The Offering was priced at-the-market under Nasdaq rules. The closing of the Offering occurred on May 29, 2026. The net proceeds to the Company were $8,977,000.

ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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.

ITEM 4 CONTROLS AND PROCEDURES

(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 1 LEGAL PROCEEDINGS

None.

ITEM 1A RISK FACTORS

There have been no material changes to the risk factors as discussed in our 2025 Form 10-K.

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

None.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 OTHER INFORMATION

Not applicable.

ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K:

(a) Exhibits:

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

Exhibit 31.2 Certification Of Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 302 Of 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 Of 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)