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What changed in CPS TECHNOLOGIES CORP/DE/'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CPS TECHNOLOGIES CORP/DE/'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+109 added−94 removedSource: 10-K (2025-03-17) vs 10-K (2024-03-14)

Top changes in CPS TECHNOLOGIES CORP/DE/'s 2024 10-K

109 paragraphs added · 94 removed · 77 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeModules using SiC chips run at higher temperatures, increasing the need for improved thermal management, a need which the Company’s products meet. Armor Market Overview Armor has traditionally been comprised of steel panels. As threat levels have increased, the amount of steel required to provide sufficient ballistic protection has become unacceptably detrimental to a vehicle’s performance.
Biggest changeArmor Market Overview Armor has traditionally been comprised of steel panels. As threat levels have increased, the amount of steel required to provide sufficient ballistic protection has become unacceptably heavy and therefore detrimental to a vehicle’s performance. The U.S. military has increasingly used ceramic armor in weight sensitive applications. However, ceramic armor has several limitations, including limited multi-hit capability.
Power semiconductors are a very significant portion of the cost of variable speed drives, and the cost of the module housing and thermal management system are also significant; cost reductions of all these components are driving increased use of variable speed drives. We provide baseplates and heat spreaders on which power semiconductors are mounted to produce modules for motor control.
Power semiconductors are a significant portion of the cost of variable speed drives, and the cost of the module housing and thermal management system are also significant; cost reductions of all these components are driving increased use of variable speed drives. We provide baseplates and heat spreaders on which power semiconductors are mounted to produce modules for motor control.
CPS continues to expand its technical competence to increase its offerings in areas in which we previously did not participate. Based on these increased offerings, combined with our emphasis on quality and customer service, we expect to see continued growth in our hermetic package product line.
CPS continues to expand our technical competence to increase our offerings in areas in which we previously did not participate. Based on these increased offerings, combined with our emphasis on quality and customer service, we expect to see continued growth in our hermetic package product line.
This growth is the result of several factors including emerging high-power applications which demand power controllers such as trains, subways and certain industrial equipment, and cost reductions in power modules which increasingly make variable speed drives cost effective.
This growth is the result of several factors including emerging high-power applications which demand power modules such as trains, subways and certain industrial equipment, and cost reductions in power modules which increasingly make variable speed drives cost effective.
The ceramic is silicon carbide (SiC), the metal is aluminum (Al), and the composite is aluminum silicon carbide (AlSiC), a metal-matrix composite. CPS can adjust the thermal expansion rate of AlSiC components to match the specific application by modifying the amount of SiC compared to the amount of Al in the component.
Typically the ceramic is silicon carbide (SiC), the metal is aluminum (Al), and the composite is aluminum silicon carbide (AlSiC), a metal-matrix composite. CPS can adjust the thermal expansion rate of AlSiC components to match the specific application by modifying the amount of SiC compared to the amount of Al in the component.
Currently, HEV/EV manufacturers who want to save on short term costs are using power modules with copper baseplates, while those who want longer term reliability, such as those in the luxury vehicle market, will use power modules with an MMC (AlSiC) baseplate. Of particular interest is the move to using Silicon Carbide (SiC) semiconductors instead of silicon semiconductors.
Currently, HEV/EV manufacturers who want to save on short term costs are using power modules with copper baseplates, while those who want longer term reliability, such as those in the luxury vehicle market, may use power modules with an MMC (AlSiC) baseplate. Of particular interest is the move to using Silicon Carbide (SiC) semiconductors instead of silicon semiconductors.
The Company’s products are used in high-speed trains, mass transit, hybrid and electric cars, wind-turbines for electricity generation, routers, switches and fiber optic components for internet infrastructure. The Company’s products are used in high reliability communications and power modules for avionics and satellite applications such as the current generation of GPS satellites.
The Company’s products are used in high-speed trains, mass transit, hybrid and electric cars, wind-turbines for electricity generation, routers, switches and fiber optic components for internet infrastructure. The Company’s Hermetic Packaging products are used in high reliability communications and power modules for avionics and satellite applications such as the current generation of GPS satellites.
Major customers typically give the Company a non-binding forecast of demand for a one-year period and then negotiate a pricing agreement with the Company valid for that one-year period. These and other customers typically issue purchase orders to be shipped on a particular date, or to be drawn against and shipped under releases.
Some large customers typically give the Company a non-binding forecast of demand for a one-year period and then negotiate a pricing agreement with the Company valid for that one-year period. These and other customers typically issue purchase orders to be shipped on a particular date, or to be drawn against and shipped under releases.
The raw materials we use are available from domestic and foreign sources and none is believed to be scarce or restricted for national security reasons. We use no conflict metals. Patents and Trade Secrets As of December 30, 2023, the Company had 9 United States patents.
The raw materials we use are available from domestic and foreign sources and none is believed to be scarce or restricted for national security reasons. We use no conflict metals. Patents and Trade Secrets As of December 28, 2024, the Company had 9 United States patents.
Some of these changes may be significant, which would reduce this backlog. Competition We have developed and expect to continue to develop products for a number of different end markets, and we will encounter competition from different producers of MMCs, hermetic packages, armor, and other competing materials.
Some of these changes may be significant, which would reduce this backlog or extend the timing of these shipments. Competition We have developed and expect to continue to develop products for a number of different end markets, and we will encounter competition from different producers of MMCs, hermetic packages, armor, and other competing materials.
The Company has a backlog of $20 million as of December 30, 2023. This backlog consists of orders received from customers which are, for the most part, scheduled to ship in 2024. Under certain circumstances, customers may be able to cancel existing orders or extend the period over which orders may be shipped.
The Company has a backlog of $26 million as of December 28, 2024. This backlog consists of orders received from customers which are, for the most part, scheduled to ship in 2025. Under certain circumstances, customers may be able to cancel existing orders or extend the period over which orders may be shipped.
In 2023, approximately 52% of our revenues were derived from commercial applications and 48% from defense-related applications. Availability of Raw Materials We use a variety of raw materials from numerous domestic and foreign suppliers. These materials are primarily aluminum ingots, ceramic powders, chemicals and hermetic assembly components.
In 2024, approximately 70% of our revenues were derived from commercial applications and 30% from defense-related applications. Availability of Raw Materials We use a variety of raw materials from numerous domestic and foreign suppliers. These materials are primarily aluminum ingots, ceramic powders, chemicals and hermetic assembly components.
In addition, the Company had several international patents covering the same subject matter as the U.S. patents. We intend to continue to apply for domestic and foreign patent protection in appropriate cases. In other cases, we believe we are better served by reliance on trade secret protection.
In addition, the Company had several international patents covering the same subject matter as the U.S. patents. In addition, CPS has applied for patent protection for its nuclear shielding solution. We intend to continue to apply for domestic and foreign patent protection in appropriate cases. In other cases, we believe we are better served by reliance on trade secret protection.
Customers We sell primarily to major microelectronics systems houses in the United States, Europe and Asia. Our customers typically purchase prototype and evaluation quantities of our products over a one to three year period before purchasing production volumes. In 2023, our three largest customers accounted for 33%, 18%, and 9% of revenues, respectively.
Customers We sell primarily to major microelectronics systems houses in the United States, Europe and Asia. Our customers typically purchase prototype and evaluation quantities of our products over a one to three year period before purchasing production volumes. In 2024, our three largest customers accounted for 32%, 15%, and 11% of revenues, respectively.
The designer must resolve the thermal management issues or the system will fail. For every 10 degree Celsius rise in temperature above a threshold level, the reliability of an integrated circuit is decreased by approximately half. In addition, heat usually causes changes in parameters which degrade the performance of both active and passive electronic components.
For every 10 degree Celsius rise in temperature above a threshold level, the reliability of an integrated circuit is decreased by approximately half. In addition, heat usually causes changes in parameters which degrade the performance of both active and passive electronic components.
CPS is a fully qualified manufacturer for many of the world’s largest electronics OEMs. In 2022 CPS resumed its participation in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, sponsored by the US Small Business Administration. These programs provide funding for innovative research and development to domestic small businesses, who maintain certain intellectual property rights.
In 2022 CPS resumed its participation in the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, sponsored by the US Small Business Administration. These programs provide funding for innovative research and development to domestic small businesses, who maintain certain intellectual property rights.
The technologies developed by the Company during these programs will further enhance CPS’ intellectual property portfolio. CPS management believes our business model of providing advanced material solutions to a portfolio of high growth end markets in various stages of the technology adoption lifecycle provides CPS with the opportunity for sustained growth and a diversified customer base.
CPS management believes our business model of providing advanced material solutions to a portfolio of high growth end markets in various stages of the technology adoption lifecycle provides CPS with the opportunity for sustained growth and a diversified customer base.
We also have approximately 20 manufacturing people working with us through temporary employment agencies. During 2023, the Company continued its efforts to increase factory efficiency both in terms of employee training as well as increased automation. None of our employees is covered by a collective bargaining agreement. We consider our relations with our employees to be excellent.
During 2024, the Company continued its efforts to increase factory efficiency both in terms of employee training as well as increased automation. None of our employees is covered by a collective bargaining agreement. We consider our relations with our employees to be excellent.
The Company also produces housings and heat spreaders for high-performance microprocessors, graphics processing chips, and application-specific integrated circuits. All of these applications involve electrical energy use or energy generation; the Company’s products allow higher performance and improved energy efficiency. Using its proprietary MMC technology, the Company also produces light-weight armor.
The Company also produces housings and heat spreaders for high-performance microprocessors, graphics processing chips, and application-specific integrated circuits. All of these applications involve electrical energy use or energy generation. The Company’s products allow higher performance and improved energy efficiency, particularly in applications in which there is a high cost of failure.
The disposal of such waste is governed by state and federal regulations. Various customers, vendors, and collaborative development agreement partners of CPS may reside abroad, thereby possibly requiring export and import by CPS of raw materials, intermediate products, and finished products, as well as potential technology transfer abroad under collaborative development agreements.
Various customers, vendors, and collaborative development agreement partners of CPS may reside abroad, thereby possibly requiring export and import by CPS of raw materials, intermediate products, and finished products, as well as potential technology transfer abroad under collaborative development agreements. These types of activities are regulated by bureaus within the Departments of Commerce, State and Treasury.
Our competition in this area consists of alternatives to our HybridTech Armor® which involve tradeoffs regarding cost, weight, anti-ballistic properties, etc. As CPS expands its armor capabilities, we could begin to see more direct competition from more established armor producers. Government Regulation We produce non-nuclear, non-medical hazardous waste in our development and manufacturing operations.
To our knowledge, we do not have any direct competitors who produce encapsulated armor. Our competition in this area consists of alternatives to our HybridTech Armor® which involve tradeoffs regarding cost, weight, anti-ballistic properties, etc. As CPS expands its armor capabilities, we could begin to see more direct competition from more established armor producers.
Specific Markets and Products Motor Controller Applications (Insulated Gate Bipolar Transistor ("IGBT") Applications) The electrification of the economy – particularly the use of electric motors and power modules to control electric motors of all sizes – is growing.
CPS also has a number of other product development initiatives which may or may not lead to additional business in the future. Specific Markets and Products Motor Controller Applications (Insulated Gate Bipolar Transistor ("IGBT") Applications) The electrification of the economy – particularly the use of electric motors and power modules to control electric motors of all sizes – is growing.
Due to its ability to withstand extreme environments and high threat levels, CPS armor has been selected as the solution for the U.S. Navy’s crew served weapons station program. Its light weight also makes it an ideal solution for aircraft and other vehicles requiring a high strength to weight ratio.
Using its proprietary MMC technology, the Company also produces light-weight armor. Due to its ability to withstand extreme environments and high threat levels, CPS armor has been selected as the solution for crew served weapons stations on the U.S. Navy’s aircraft carriers.
The Company also has the capability of encapsulating pyrolytic graphite inserts to enhance the thermal conductivity of the AlSiC composite. CPS produces products made of AlSiC in the shapes and configurations required for each application, for example, in the form of lids, substrates, housings, etc. Every product is made to a customer’s specifications.
CPS produces products made of AlSiC in the shapes and configurations required for each application, for example, in the form of lids, substrates, housings, etc. Every product is made to a customer’s specifications. The CPS process technology allows most products to be made to net shape, requiring little or no final machining.
The CPS process technology allows most products to be made to net shape, requiring little or no final machining. The Company primarily manufactures MMC components comprised of AlSiC. Nevertheless, its proprietary Quickset- Quickcast process technology can be used to produce other MMCs to meet market requirements.
The Company primarily manufactures MMC components comprised of AlSiC. Nevertheless, its proprietary Quickset- Quickcast process technology can be used to produce other MMCs to meet market requirements. For example, CPS combines aluminum with other ceramic or metal components such as ceramic fibers, tungsten and boron carbide.
Our main domestic competitors in this arena include Egide, Ametek, and Qnnect (formerly Hermetic Solutions Group). The company currently has orders to produce its HybridTech Armor® panels. To our knowledge, we do not have any direct competitors who produce encapsulated armor.
Our main domestic competitors in this arena include Egide, Ametek, and Qnnect (formerly Hermetic Solutions Group). The company does not currently have orders to produce its HybridTech Armor® panels as the aircraft carrier order has been completed. We continue to work with Kinetic Protection, the Navy’s prime contractor, to get new orders for other classes of Navy ships.
For example, CPS is able to combine aluminum with other ceramic fillers such as graphite and fibers. An important development in power processing is the emergence of wide-band gap semiconductors, particularly SiC semiconductors. SiC chips are more efficient than Si chips and are being used more frequently in power applications.
An important development in power processing is the emergence of wide-band gap semiconductors, particularly SiC semiconductors. SiC chips are more efficient than Si chips and are being used more frequently in power applications. Modules using SiC chips run at higher temperatures, increasing the need for improved thermal management, a need which the Company’s products meet.
The U.S. military has increasingly used ceramic armor in weight sensitive applications. However, ceramic armor has several limitations, including limited multi-hit capability. By embedding ceramic armor tiles in a metal matrix, these problems are overcome; the result is armor that is light-weight, has excellent ballistic protection, and environmental durability.
By embedding ceramic armor tiles in a metal matrix, these problems are overcome; the result is armor that is light-weight, has excellent ballistic protection, and environmental durability. The Company’s HybridTech Armor® panels are particularly well suited for extreme environments – the panels do not degrade in salt spray or extreme heat.
MMCs are a class of materials consisting of a combination of metals and ceramics. Compared to conventional materials, MMCs provide superior thermal conductivity, improved thermal expansion matching, greater stiffness and lighter weight. These factors, in particular the lighter weight, are among the reasons CPS parts are on the last two Mars Rovers as well as many satellites.
Its light weight also makes it an ideal solution for aircraft and other vehicles requiring a high strength to weight ratio. MMCs are a class of materials consisting of a combination of metals and ceramics. Compared to conventional materials, MMCs provide superior thermal conductivity, improved thermal expansion matching, greater stiffness and lighter weight.
These types of activities are regulated by bureaus within the Departments of Commerce, State and Treasury. Employees As of December 30, 2023, we had 100 permanent full-time employees. 90 were engaged in manufacturing and engineering and 10 in sales and administration, including finance, human resources and general management.
Employees As of December 28, 2024, we had 92 permanent full-time employees. 82 were engaged in manufacturing and engineering and 10 in sales and administration, including finance, human resources and general management. We also have approximately 48 manufacturing people working with us through temporary employment agencies.
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The Company’s HybridTech Armor® panels are particularly well suited for extreme environments – the panels do not degrade in salt spray or extreme heat. The Company is producing armor panel strikefaces for the U.S. Navy and believes it will increasingly be used in these and other surface vessel applications.
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This makes CPS products very useful for applications in which there is a high cost of failure. These factors, in particular the lighter weight and durability, are among the reasons CPS parts are on the last two Mars Rovers as well as many satellites. CPS is a fully qualified manufacturer for many of the world’s largest electronics OEMs.
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The Company is working with multiple tier one and tier two suppliers to the automobile industry on several new designs, including SiC modules, for future introduction. The Company believes the HEV and EV markets may be the source of significant and long-term growth for the Company.
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The technologies developed by the Company during these programs will further enhance CPS’ intellectual property portfolio. In 2024 CPS received funding for its first two Phase II SBIRs confirming its decision to participate in these programs and further advancing this portfolio.
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We have a number of significant production orders generating revenue, but also have many significant opportunities for new products which could lead to significant production orders in new product lines in the future. Some of these opportunities may come to fruition as early as the next year or two, while others will take longer to develop.
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Silicon carbide chips are slowly replacing silicon chips due to their higher efficiency. Silicon carbide chips run at higher temperatures than silicon chips, furthering the need for proper thermal management. The designer must resolve the thermal management issues or the system will fail.
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The Company has produced armor panel strikefaces for the U.S. Navy aircraft carrier fleet and expects it will be used in other surface vessel applications in the future. Product Development Overview Since our reengagement in the SBIR/STTR programs, CPS has added significant resources for developing new products.
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Many of these new product initiatives are for markets not currently served by CPS, and they involve the utilization of our current materials science and manufacturing expertise to address well-defined customer requirements. Our Phase II SBIR for the US Navy involves using our aluminum infiltration process with nitinol for use in thermal energy storage.
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Nitinol allows for significantly better storage than the Navy’s current solution. Similarly, our Phase II SBIR for the Department of Energy to create radiation shielding for the transportation of nuclear micro-reactors involves the infiltration of boron carbide and tungsten with aluminum to create a lightweight solution to this problem, allowing for their safe transportation.
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CPS also self-funds a number of product development efforts. In March 2024 we announced our worldwide, exclusive licensing agreement with Triton Systems for their Fiber Reinforced Aluminum (FRA). FRA is stronger and more durable than neat aluminum, especially at high temperatures, at only a marginally higher weight.
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Target applications for FRA include helicopter bearing liners, with FRA serving as a replacement for much heavier steel, providing a lighter weight solution that allows for more cargo weight. While this could lead to large production orders to CPS, it will likely take several years of testing before this comes to fruition.
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Based on customer interest, we anticipate other potential applications for this material, which could result in a faster move into regular production. We continue to work on broadening our armor offerings. The development of STANAG 6 ballistic protection remains a priority. If successful this could lead to the incorporation of CPS armor into ground vehicles.
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Similarly, we continue to work on lightweight armor for helicopter flooring which came out of a Phase I SBIR funded by the US Army.
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Although the US Army did not allocate any Phase II for this program, due to interest from certain helicopter OEMs, CPS has successfully performed ballistic testing on the flooring, which was not part of the funded Phase I effort.
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Government Regulation We produce non-nuclear, non-medical hazardous waste in our development and manufacturing operations. The disposal of such waste is governed by state and federal regulations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe depend on our senior executives and certain key managers as well as engineering, research and development, sales, marketing and manufacturing personnel, who are critical to our business. While we have employment agreements with certain executives, none of these agreements would prevent any such person from leaving the Company.
Biggest changeOur success is highly dependent on managerial contributions of key individuals and we may be unable to retain these individuals or recruit others. We depend on our senior executives and certain key managers as well as engineering, research and development, sales, marketing and manufacturing personnel, who are critical to our business.
We believe that our relationships with these customers are positive and may provide us with ongoing continuous sustainability for years to come, however a large customer, if lost, would be difficult to be replace, and our inability to do so may have a material adverse effect on our business and financial condition.
We believe that our relationships with these customers are positive and may provide us with ongoing continuous sustainability for years to come. However, a large customer, if lost, would be difficult to replace, and our inability to do so may have a material adverse effect on our business and financial condition.
We do not have long-term volume production contracts with our customers, and we do not control the timing or volume of orders placed by our customers. Whether and to what extent our customers place orders for any specific products, and the mix and quantities of products included in those orders are factors beyond our control.
We do not typically have long-term volume production contracts with our customers, and we do not control the timing or volume of orders placed by our customers. Whether and to what extent our customers place orders for any specific products, and the mix and quantities of products included in those orders are factors beyond our control.
The process of seeking patent protection is lengthy and expensive, and we cannot be certain that applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us.
The process of seeking patent protection is lengthy and expensive, and we cannot be certain that applications will result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us.
Broad-based business, economic disruptions or global health concerns could adversely affect our business and the sale of our products. For example, in December 2019 an outbreak of a novel strain of the coronavirus disease (COVID-19) originated in Wuhan, China, and has since spread to a number of other countries, including the United States.
Broad-based business, economic disruptions or global health concerns could adversely affect our business and the sale of our products. For example, in December 2019 an outbreak of a novel strain of the coronavirus disease (COVID-19) originated in Wuhan, China, and spread to a number of other countries, including the United States.
Significant price and value fluctuations have occurred with respect to our publicly traded securities. The price of our common shares is likely to be volatile in the future. In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities.
Significant price fluctuations have occurred with respect to our publicly traded securities. The price of our common shares is likely to be volatile in the future. In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities.
Other companies and individuals, including our competitors, may develop technologies that are similar or superior to our technology, or design around the intellectual property that we own or license. Our failure to adequately protect our intellectual property, could result in the reduction or extinguishment of our rights to such intellectual property.
Other companies and individuals, including our competitors, may develop technologies that are similar or superior to our technology, or design around the intellectual property that we own or license. Our failure to adequately protect our intellectual property could result in the reduction or elimination of our rights to such intellectual property.
Continued growth could result in the need to move or expand our facilities. The costs of such a move or expansion could be significant to our profitability. Our ability to meet our customer’s needs including the on-time shipment of products, is paramount to our success.
Continued growth could result in the need to move or expand our facilities. The costs of such a move or expansion could be significant to our profitability. Our ability to meet our customers’ needs including the on-time shipment of products, is paramount to our success.
If any of our significant customers do not place orders, or they substantially reduce, delay or cancel orders, we may not be able to replace the business in a timely manner or at all, which can and has had a material adverse effect on our results of operations and financial condition.
If any of our significant customers do not place orders, or they substantially reduce, delay or cancel orders, we may not be able to replace the business in a timely manner or at all, which can have a material adverse effect on our results of operations and financial condition.
Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or our products, or that otherwise exploit any security vulnerabilities. The costs to address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant.
Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or our products, or that otherwise exploit any security vulnerabilities. The costs of addressing the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant.
Our historical business strategy for many of our products has focused on product performance and customer service rather than on price. As a result of budgetary constraints, many of our customers are extremely price sensitive when purchasing our products. Recent inflationary trends could further exacerbate this issue.
Our historical business strategy for many of our products has focused on product performance and customer service rather than on offering the lowest price. As a result of budgetary constraints, many of our customers are extremely price sensitive when purchasing our products. Recent inflationary trends could further exacerbate this issue.
The length of the sales cycle depends on the size and complexity of the project, and the depth of the evaluation of our products conducted by the customers. Because a significant portion of our operating expenses is fixed, we have and may continue to incur substantial expense before we earn associated revenue.
The length of the sales cycle depends on the size and complexity of the project, and the depth of the evaluation of our products conducted by the customers. Because a significant portion of our operating expenses is fixed, we may incur substantial expense before we earn associated revenue.
We have a highly concentrated customer base so that changes in ordering patterns, delays or order cancellations could have a material adverse effect on our business and results of operations. Three customers accounted for 60% of revenue in 2023 and 53% of revenue in 2022.
We have a highly concentrated customer base so that changes in ordering patterns, delays or order cancellations could have a material adverse effect on our business and results of operations. Three customers accounted for 58% of revenue in 2024 and 60% of revenue in 2023.
The stock market has at times over the last 15 years experienced periods of high and extreme volatility. If these market fluctuations continue, the trading price of our common shares could decline significantly independent of the overall market, and stockholders could lose all or a substantial part of their investment.
The stock market has at times over the last 15 years experienced periods of high and extreme volatility. If these market fluctuations continue or for other factors, including those listed below, the trading price of our common shares could decline significantly independent of the overall market, and stockholders could lose all or a substantial part of their investment.
Although the Company has remained open throughout the COVID-19 pandemic, complete or partial government shutdowns of many businesses, schools, bars and restaurants have occurred. The Russian invasion of Ukraine and the conflict in Israel and Gaza could also adversely affect our business in spite of the immaterial amount of direct business we have done in this region in the past.
Although the Company remained open throughout the COVID-19 pandemic, complete or partial government shutdowns of many businesses, schools, bars and restaurants did occur. The Russian invasion of Ukraine and the conflict in Israel and Gaza could also adversely affect our business in spite of the immaterial amount of direct business we have done in these regions in the past.
Item 1A. Risk Factors. The risks set forth below may not be the only risk factors relating to the Company. Any of these factors, many of which are beyond our control, could materially adversely affect our business, financial condition, operating results, cash flow and stock price. Business or economic disruptions or global health concerns could seriously harm our business.
Item 1A. Risk Factors. The risks set forth below may not be the only risk factors relating to the Company. Any of these factors, many of which are beyond our control, could materially adversely affect our business, financial condition, operating results, cash flow and stock price.
In many cases potential customers must evaluate the properties of our product against their current solution, which may not be as robust as the CPS solution, but is often less expensive. In many cases potential customers must redesign other components of the end product they are making to realize the full benefits of using our products.
In many cases potential customers must evaluate the properties of our product against their current solution. In many cases potential customers must redesign other components of the end product they are making to realize the full benefits of using our products.
In addition, the laws of certain territories in which we sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States.
However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. In addition, the laws of certain territories in which we sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States.
Furthermore, larger competitors may be able to offer more generous compensation packages to our executives and key employees, and therefore we risk losing key personnel to those competitors.
While we have employment agreements with certain executives, none of these agreements would prevent any such person from leaving the Company. Furthermore, larger competitors may be able to offer more generous compensation packages to our executives and key employees, and therefore we risk losing key personnel to those competitors.
From time to time, we evaluate potential acquisitions of businesses and technologies, and we consider targeted acquisitions that expand our core competencies to be an important part of our future growth strategy. We expect that any acquisitions of other businesses will have synergistic products, services and technologies.
Acquisitions can result in an increase in our operating costs, divert management ’ s attention away from other operational matters and expose us to other associated risks. From time to time, we evaluate potential acquisitions of businesses and technologies, and we consider targeted acquisitions that expand our core competencies to be an important part of our future growth strategy.
We may also incur increased operating expenses and be required to divert the attention of our senior executives to search for replacements. The integration of any new personnel could disrupt our ongoing operations. Acquisitions can result in an increase in our operating costs, divert management ’ s attention away from other operational matters and expose us to other associated risks.
We may also incur increased operating expenses and be required to divert the attention of our senior executives to search for replacements. The integration of any new personnel could disrupt our ongoing operations. Business or economic disruptions or global health concerns could seriously harm our business.
We attempt to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers, employees and consultants, and through other internal security measures. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing.
We also assert rights to certain trademarks relating to certain of our products and product lines. We attempt to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers, employees and consultants, and through other internal security measures.
If customer cancellations occur, they could result in the loss of anticipated sales without allowing us sufficient time to reduce our operating expenses. Our success is highly dependent on managerial contributions of key individuals and we may be unable to retain these individuals or recruit others.
If customer cancellations occur, they could result in the loss of anticipated sales without allowing us sufficient time to reduce our operating expenses. Fluctuations in foreign exchange rates can negatively impact our ability to compete against foreign based competitors. Several of our major competitors are located outside of the United States.
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A pandemic, epidemic or outbreak of an infectious disease in the United States or worldwide may adversely affect our business. Our operations expose us to risks associated with pandemics, epidemics or other public health emergencies, such as the outbreak of coronavirus disease (COVID-19) that subsequently spread around the world.
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The relative strength of the U.S. dollar compared to such competitors’ respective local currencies makes our products more expensive to our customers relative to our competitors’ prices. Such circumstances could result in a reduction in product pricing (and profitability) in order to maintain or grow our current levels of business.
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Outbreaks such as these have resulted, and can continue to result, in governments around the world implementing increasingly stringent measures to help control the spread, including quarantines, "shelter in place" and "stay at home" orders, travel restrictions, business curtailments, school closures, and other measures.
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If we are unable or unwilling to reduce pricing of our products to the level necessary to maintain current business levels, we could see an overall reduction in revenue.
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Government imposed requirements regarding vaccines, testing etc., could negatively impact the Company’s ability to hire or retain certain employees who are important to our business operations. These actions with respect to the COVID-19 outbreak have negatively impacted, and could continue to have negative impacts on, our operations, supply chain, transportation networks, customers and employees.
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Our dependence on outside vendors to perform particular steps in our manufacturing process could negatively impact us should those vendors be unable or unwilling to provide such service at a reasonable cost.
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Any continuing economic downturn as a result of this pandemic could adversely affect, demand for our products, and negatively impact our business or results of operations through the temporary closure of our operating locations or those of our customers or suppliers.
Added
Several of our major customers require that we use only vendors approved by them for certain steps, typically plating, of our manufacturing process before the finished product can be shipped to the customer and recognized as revenue. In some cases these vendors are sole sourced, i.e., one vendor is the only vendor approved for that process.
Removed
The extent to which a COVID-19 resurgence may adversely impact our business depends on future developments, which are highly uncertain and unpredictable, including new information concerning the severity of an outbreak and the effectiveness of actions globally to contain or mitigate its effects, including the deployment and efficacy of vaccines.
Added
If that vendor raises their price to us, we may not be able to pass that increase on to our customer, eroding our margins. If we are able to pass along these increases, that could negatively impact our sales volumes if our customer shifts some of their purchases to a lower priced competitor.
Removed
We also assert rights to certain trademarks relating to certain of our products and product lines. While patent, copyright and trademark protection for our intellectual property may be important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel.
Added
If a sole sourced vendor is unable to process our product fast enough to meet our customer’s demand, or if they do not process our product at all, our expected revenue could be negatively affected despite our ability to produce enough to meet that demand.
Added
Changes in trade policy could seriously impact our business. Most of our raw materials are domestically sourced by CPS. However, some of those raw materials may originate in countries other than the United States.
Added
Should tariffs be imposed on any of these countries of origin, our vendors would likely increase their price to us to cover the cost of these tariffs. We may not be able to pass these cost increases on to our customers in a timely manner, therefore eroding our margins.
Added
A significant portion of our business is exported to customers outside the United States. Should their countries impose tariffs on US goods, including ours, we could find ourselves at a competitive disadvantage in relation to our competitors, some of whom are located outside the United States.
Added
We expect that any acquisitions of other businesses will have synergistic products, services and technologies.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties As of December 30, 2023, all of our manufacturing, engineering, sales and administrative operations were located in leased facilities in Norton, Massachusetts. In February 2021, the Company extended the lease for the Norton facility through February 2026. The leased facilities comprise approximately 38 thousand square feet.
Biggest changeItem 2. Properties As of December 28, 2024, all of our manufacturing, engineering, sales and administrative operations were located in leased facilities in Norton, Massachusetts. In February 2021, the Company extended the lease for the Norton facility through February 2026. The leased facilities comprise approximately 38 thousand square feet.
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 for 2023 were $162 thousand.
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 for 2024 were $165 thousand.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities. CPS Technologies Corp. shares trade on The Nasdaq Capital Market, under the symbol “CPSH”. On December 30, 2023, we had approximately 80 shareholders of record. We have never paid cash dividends on our Common Stock.
Biggest changeItem 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities. CPS Technologies Corp. shares trade on The Nasdaq Capital Market under the symbol “CPSH”. On December 28, 2024, we had approximately 70 shareholders of record.
Added
A substantially greater number of holders of CPS common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions. We have never paid cash dividends on our Common Stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe Company continues to sell to a limited number of customers and the loss of any one of these customers or vendors 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.
Biggest changeFailure 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 May 2023 a line of credit (LOC) in the amount of $3.0 million was entered into with Rockland Trust Company.
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.
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’ products are custom rather than catalog items.
Inventories decreased to $4.6 at December 30, 2023 from $4.9 at December 31, 2022. The inventory turnover in the four quarters ending 2023 was 4.3 times, up from 4.2 times averaged during the four quarters of 2022 (each based on a 5 point average).
Inventories decreased to $4.3 at December 28, 2024 from $4.6 at December 30, 2023. The inventory turnover in the four quarters ending 2024 was 4.8 times, up from 4.3 times averaged during the four quarters of 2023 (each based on a 5 point average).
At December 30, 2023, the Company’s deferred tax asset and other temporary differences will require taxable income of approximately $7.6 million and reversals of existing temporary differences to fully utilize the deferred tax asset, assuming a statutory corporate tax rate of 21%.
At December 28, 2024, the Company’s deferred tax asset and other temporary differences will require taxable income of approximately $12 million and reversals of existing temporary differences to fully utilize the deferred tax asset, assuming a statutory corporate tax rate of 21%.
We have been able to pass along many of these price increases to our customers. There can be no assurance that our customers will continue to accept further price increases, that our employees will continue to be satisfied with their wage and benefit increases and that inflation will not affect our operations or business in the future.
There can be no assurance that our customers will continue to accept further price increases, that our employees will continue to be satisfied with their wage and benefit increases and that inflation will not further affect our operations or business in the future.
In 2023 the Company’s top three customers accounted for 60% of revenue and the remaining 40% of revenue was derived from 57 other customers. In 2022 the top three customers accounted for 53% of revenue and the remaining 47% of revenue was derived from approximately 49 customers.
In 2024 the Company’s top three customers accounted for 57% of revenue and the remaining 43% of revenue was derived from 45 other customers. In 2023 the top three customers accounted for 60% of revenue and the remaining 40% of revenue was derived from approximately 57 customers.
The Company recorded net income of $0.1 million in the fourth quarter of 2023 compared to net income of $0.3 million in the fourth quarter of 2022.
The Company recorded an operating loss of $1.3 million in the fourth quarter of 2024 compared to operating income of $0.1 million in the fourth quarter of 2023. The Company recorded a net loss of $1.0 million in the fourth quarter of 2024 compared to net income of $0.1 million in the fourth quarter of 2023.
Results of Operations (all $ in millions unless noted) Results of Operations for the year 2023 ( “ 2023 ” ) compared with the year 2022 ( “ 2022 ” ): Total revenue was $27.6 million in 2023, a 4% increase compared with total revenue of $26.6 million in 2022.
Results of Operations (all $ in millions unless noted) Results of Operations for the year 2024 ( “ 2024 ” ) compared with the year 2023 ( “ 2023 ” ): Total revenue was $21.1 million in 2024, a 24% decrease compared with total revenue of $27.6 million in 2023.
During 2023, our leasing arrangements consisted of the Norton, MA facility lease. The Norton facility lease was renewed in February 2021, expires in February 2026 and is a triple net lease wherein the Company is responsible for payment of all real estate taxes, operating costs and utilities.
The Norton facility lease was renewed in February 2021, expires in February 2026 and 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.
We have had higher than normal wage increases, have implemented other programs to ameliorate the effects of inflation on our employees (for example, we increased the Company share of health insurance premiums and increased the Company 401k match in 2023) and seen price increases from some of our suppliers.
We have had higher than normal wage increases, have implemented other programs to ameliorate the effects of inflation on our employees, such as improvements to our benefit package, and seen price increases from some of our suppliers.
Liquidity and Capital Resources (all $ in millions unless noted) The Company’s cash and cash equivalents at December 30, 2023 totaled $8.8 compared with cash and cash equivalents at December 31, 2022 of $8.3.
Liquidity and Capital Resources (all $ in millions unless noted) The Company’s cash and cash equivalents at December 28, 2024 totaled $3.3, restricted cash of $85 thousand and marketable debt securities with a fair value of $1.0. compared with cash and cash equivalents at December 30, 2023 of $8.8 and no restricted cash or marketable debt securities.
At December 30, 2023 and December 31, 2022 inventory of, $0.5 and $0.8, respectively, was located at vendor locations pursuant to inventory agreements. The Company funded its operations from its profit in 2023. The Company expects it will continue to be able to fund its operations during 2024 from existing cash balances and profits.
The Company had no inventory on consignment at any customers at the end of 2024 or 2023. At December 28, 2024 and December 30, 2023 inventory of, $0.8 and $0.5, respectively, was located at vendor locations pursuant to inventory agreements. The Company funded its operations from its cash balances in 2024.
On December 30, 2023, 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 LOC remains in effect until terminated per mutual agreement by both parties. In March 2020, the Company acquired a scanning acoustic microscope for a price of $208 thousand.
On December 28, 2024, 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 LOC remains in effect until terminated which can be done by either party.
Gross margin decreased in the fourth quarter of 2023 compared with the fourth quarter of 2022 to $1.1 million from $1.6 million. This decrease was due to the quality issue described above. SG&A expenses totaled $1.0 million during the quarter, a decrease of 23% compared to $1.3 million in the same quarter of 2022.
This decrease was due to lower revenue as well as the costs associated with the production ramp up described above. SG&A expenses totaled $1.0 million during the quarter, compared to $1.0 million in the same quarter of 2023.
This increase was primarily due to the Company’s profitability for the year offset primarily by the decrease in deferred revenue from $2.8 at the end of 2022 to $0.3 at the end of 2023. Accounts receivable at December 30, 2023 totaled $4.4 compared to $3.8 at December 31, 2022.
This decrease was primarily due to the Company’s losses for the year as well as the increase in receivables of $0.6. Accounts receivable at December 28, 2024 totaled $4.9 compared to $4.4 at December 30, 2023. Days Sales Outstanding (DSO) increased to 75 days at the end of 2024 compared to 60 days at the end of 2023.
The Company generated operating income of $1.7 million in 2023, compared with an operating income of $2.2 in 2022. This decrease was due almost entirely to the quality problem, discussed above. The Company recorded net income of $1.4M in 2023 compared to $2.1M in 2022.
This decrease was due almost entirely to the reduction in revenue and additional expenses due to end of year sales growth, discussed above. The Company recorded a net loss of $3.1M in 2024 compared to net income of $1.4M in 2023.
The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47% As of December 30, 2023, the Company had $282 thousand of construction in progress and no outstanding commitments to purchase production equipment.
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. The note is collateralized by the microscope and is being paid in monthly installments of $4 thousand, consisting of principal plus interest at a rate of 6.47%.
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 were $162 thousand in 2023. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Inflation Thus far inflation has not had a significant impact on our profitability.
Annual rental payments were $165 thousand in 2024. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. Inflation Recent inflationary trends have had an impact on our profitability.
In 2023 the Company had a provision for income taxes of $0.6 million compared to $0.8 million in 2022. In addition, the Company filed for the Employee Retention Tax Credit of $0.7 million in 2022.
In 2024 the Company recorded an income tax benefit of $1.0 million compared to a provision for income taxes $0.6 million in 2023. Significant Fourth Quarter Activity in 2024: Revenues totaled $5.9 million in the fourth quarter of 2024 versus $6.7 million in the fourth quarter of 2023, a decrease of 12%.
Prepayments received in 2021 were used to pay for shipments shipped in the 4 th quarter of 2022 thus immediately reducing accounts receivable, rather than the customer paying 30-45 days later. The accounts receivable balances at December 30, 2023, and December 31, 2022 were both net of an allowance for doubtful accounts of $10 thousand.
This change was due to continued growth of sales throughout the 4 th quarter. This resulted in collections on the earlier lower sales, while the higher later sales remained in receivables. The accounts receivable balances at December 28, 2024, and December 30, 2023 were both net of an allowance for credit losses of $10 thousand.
This decrease was primarily due to the decreased variable compensation costs discussed above. The Company recorded operating income of $0.1 million in the fourth quarter of 2023 compared to operating income of $0.3 million in the fourth quarter of 2022.
This decrease was primarily due to a reduction in variable compensation expense, due to the reduction in revenue and profit year over year, as well as a reduction in salaries paid for selling and administrative personnel. The Company generated an operating loss of $4.4 million in 2024, compared with operating income of $1.7 in 2023.
Removed
This increase was due primarily to an increase in the sales of armor compared to 2022, partially offset by a quality problem with the product for one of our major customers which resulted in significant product returns as well as a reserve for potential future returns.
Added
This decrease was due primarily to the successful completion of the armor contract in April 2024 compared to a full year of revenue from armor production in 2023, partially offset by increased revenue from AlSiC baseplates. Gross profit in 2024 totaled $(0.1) million or (1)% of sales. This compares with $6.8 million, or 25% of sales, generated during 2023.
Removed
Based on information received from the customer subsequent to December 30, 2023, this issue appears to be under control and is not expected to have a material impact on 2024 results. Gross profit in 2023 totaled $6.8 million or 25% of sales. This compares with $7.3 million, or 27% of sales, generated during 2022.
Added
The decrease in margin was primarily due to the impact of the completion of the armor contract described above. As CPS incurs significant fixed costs in its operations, a reduction in revenue has a significant impact on margin.
Removed
The decrease in margin was primarily due to the impact of the quality issue described above. Selling, general and administrative (SG&A) expenses were $5.1 million during 2023, virtually the same as SG&A expenses of $5.1 million incurred during 2022. Several offsetting factors lead to this result.
Added
In addition, then growth of AlSiC baseplate sales in Q4 of 2024 required the hiring and training of new employees as well as the incurring of additional expenses for the ramp up of production. A new employee is trained for 2-3 weeks before even beginning their actual work on the shop floor.
Removed
The Company incurred lower variable compensation costs in 2023 due to its reduction in operating profit compared to 2022. Conversely, travel costs were significantly higher in 2023 as customer and trade show exhibiting continued to recover from the limitations due to the Covid-19 pandemic.
Added
It can then take a few months before they are fully up to speed. Selling, general and administrative (SG&A) expenses were $4.3 million during 2024, down from SG&A expenses of $5.1 million incurred during 2023.
Removed
Significant Fourth Quarter Activity in 2023: Revenues totaled $6.7 million in the fourth quarter of 2023 versus $6.1 million in the fourth quarter of 2022, an increase of 10%. This increase was consistent with our expectations, but was also mitigated by the quality issues described above.
Added
This decrease was the result of the completion of our armor contract earlier in 2024, partially offset by an increase in AlSiC baseplate sales. Gross margin decreased in the fourth quarter of 2024 compared with the fourth quarter of 2023 to $(0.3) million from $1.1 million.
Removed
Days Sales Outstanding (DSO) increased to 60 days at the end of 2023 compared to 52 days at the end of 2022. This change was due to the reduction of deferred revenue occurring in the 4 th quarter of 2022.
Added
The Company expects it will continue to be able to fund its operations during 2025 from existing cash balances and profits. The Company continues to sell to a limited number of customers and the loss of any one of these customers or vendors could cause the Company to require additional external financing.
Removed
In July 2022 CPS implemented a new ERP computer system which, among other things, has enabled the Company to better manage its inventory. The Company had no inventory on consignment at any customers at the end of 2023 or 2022.
Added
As of December 28, 2024, the Company had $109 thousand of construction in progress and no outstanding commitments to purchase production equipment. During 2024, our leasing arrangements consisted of the Norton, MA facility lease.
Removed
Contractual Obligations In May 2023, the Company terminated its $3.0 million revolving line of credit (LOC) with Massachusetts Business Development Corporation (BDC). A new LOC in the amount of $3.0 million was entered into with Rockland Trust Company.
Added
We have been able to pass along many of these price increases to our customers, however in some cases we have had to absorb these price increases for a period of time, before being able to pass them along.
Removed
The full amount was financed through a 5 year note payable with a financing company.

Other CPSH 10-K year-over-year comparisons