Item 1A. Risk Factors.
An investment in our common stock involves significant risks. The following risk factors should be read together with the other information included in this report, including our financial statements and related notes. The risks described below may not be the only risks that we face. Additional risks and uncertainties that we are unaware of, or that we currently consider immaterial, may also become important factors that could adversely affect our business, financial condition, results of operations, liquidity, or future prospects. Many of these risks are beyond our control and could materially and adversely impact our business, financial condition, operating results, cash flow, and stock price.
Our customer base is highly concentrated, and any significant changes in ordering patterns, delays, or order cancellations could materially and adversely affect our business and results of operations.
In 2025, three customers accounted for approximately 64% of our revenue, compared to 58% in 2024. While we maintain positive relationships with these customers, which we believe may support ongoing business sustainability, the loss of any large customer could be difficult to replace. Our inability to replace significant customer business may have a material adverse effect on our financial condition and results of operations.
We expect that a relatively small number of customers will continue to account for a substantial portion of our business. The composition of our customer base and the volume of sales to any single customer may vary significantly from quarter to quarter and year to year. If any of our significant customers reduce, delay, or cancel orders, we may not be able to replace the lost business in a timely manner or at all, potentially materially affecting our financial results. Additionally, major customers may seek, and occasionally receive, pricing, payment, or other commercial terms that are less favorable to us, which could negatively impact our competitive position and profitability.
Our lengthy and variable sales cycle makes it difficult to accurately forecast financial results.
The sales cycle for our products is often prolonged, ranging from several months to several years. Prospective customers typically conduct extensive evaluations of our products relative to their existing solutions. In many cases, customers must also redesign other components of their end products to fully realize the benefits of our offerings. As a result, the extended sales cycle makes it difficult to predict the timing and volume of sales and increases the risk that customers may delay or cancel the launch of their end products, which could adversely affect demand for our products. The duration of the sales cycle varies based on the size and complexity of the project and the level of evaluation required by the customer.
Fluctuations in foreign exchange rates could negatively affect our competitiveness against foreign-based competitors.
Several of our major competitors are located outside the United States. Changes in the value of the U.S. dollar relative to these competitors’ local currencies can make our products more expensive for customers compared to competing products. To maintain or grow our business, we may need to reduce product pricing, which could negatively impact profitability. If we are unable or unwilling to adjust prices sufficiently, we could experience a reduction in overall revenue.
We rely on outside vendors for certain steps in our manufacturing process, and any inability or unwillingness of these vendors to provide services at a reasonable cost could negatively affect our business.
Some of our major customers require that we use only customer-approved vendors for specific manufacturing steps, typically plating, before the finished product can be shipped and revenue recognized. In certain cases, these vendors are sole-sourced, meaning only one vendor is approved for that process. If a sole-sourced vendor raises their prices, we may be unable to pass the increase on to our customer, which would erode our margins. Even if we can pass along the increase, higher costs could reduce sales volumes if the customer shifts some purchases to lower-priced competitors. Additionally, if a sole-sourced vendor cannot process our products quickly enough to meet customer demand, or is unable to process them at all, our expected revenue could be adversely impacted, even if we have sufficient internal production capacity.
Our success depends heavily on the contributions of key executives and employees, and we may be unable to retain them or recruit suitable replacements.
We rely on senior executives, key managers, and specialized personnel in engineering, research and development, sales, marketing, and manufacturing who are critical to our business. Although some executives have employment agreements, none prevent them from leaving the Company. Larger competitors may offer more attractive compensation, creating a risk of losing key personnel. Losing such individuals, or failing to attract and train qualified employees, could negatively impact our engineering, product development, manufacturing, and sales efforts.
Our MMC business is niche, with few competitors located within the U.S., making it essential to develop key engineering and production talent internally. Experienced employees can be difficult to replace, particularly skilled engineers with the qualifications necessary to support our growth strategy. Our success depends on our ability to identify, hire, train, and retain qualified engineering personnel, including product development, materials, and manufacturing engineers who work with our sales force to qualify new opportunities, execute orders, and demonstrate our products.
Additionally, losing key personnel may increase operating expenses and require senior executives to focus on recruiting, while the integration of new personnel could temporarily disrupt ongoing operations.
The Company ’ s reliance on aging equipment and capital-intensive processes may require significant ongoing investment and expose it to operational and financial risks.
The Company’s operations depend on specialized equipment and facilities, some of which may be aging or nearing the end of their useful lives. As equipment ages, the risk of breakdowns, unplanned downtime, safety incidents, and reduced efficiency increases, which could disrupt operations and result in higher maintenance and repair costs.
Maintaining and upgrading equipment and facilities can require substantial capital expenditures. We may need to make significant investments to modernize operations, comply with regulatory or environmental requirements, or remain competitive. If we are unable to fund these investments through cash flows, financing, or other sources on acceptable terms, our operational performance and long-term growth prospects could be adversely affected.
We are considering moving to a larger facility, and the relocation and transition process could be costly, disruptive to our operations, and may adversely affect our ability to manufacture products and achieve expected financial and operational benefits, which could hurt our short-term and long-term results.
We are considering a move to a larger facility near our current location in order to support anticipated growth and improve our operational capabilities. The actual costs associated with the relocation may exceed our estimates. These costs may include build-out expenses, equipment relocation, infrastructure upgrades, and other unanticipated expenditures, any of which could place additional strain on our financial resources and adversely affect our results of operations.
The relocation process could disrupt our manufacturing operations and business activities. During the transition period, we may experience temporary reductions in production capacity, inefficiencies, delays in order fulfillment, quality issues, or increased scrap and rework as equipment is moved, installed, calibrated, and validated. We may also be required to demonstrate to customers that we can successfully manufacture products at the new facility. Any delays or difficulties in qualifying the new facility or manufacturing processes could negatively impact customer confidence or result in lost or delayed orders.
In addition, the anticipated benefits of the larger facility may not be realized on the timeline we expect, or at all. If the revenue growth or demand levels that underlie the need for a larger facility do not materialize, we could be left with higher fixed operating costs and reduced operating margins without a corresponding increase in revenue. The move could also divert management’s attention and resources from other strategic or operational priorities.
Any of these factors, individually or in combination, could materially and adversely affect our business, financial condition, results of operations, and cash flows, particularly in the periods immediately following the relocation.
Fluctuations in the prices and availability of raw materials may adversely affect margins, operating results, and cash flows.
We rely on various raw materials and components whose prices may be subject to volatility due to market conditions, geopolitical events, supply disruptions, and broader macroeconomic factors. Significant or sustained increases in raw material costs could increase production expenses and negatively impact profitability, particularly if we are unable to pass these increased costs on to customers through pricing adjustments.
Additionally, shortages or delays in the supply of critical raw materials could disrupt production schedules and increase lead times. Efforts to mitigate these risks, such as long-term supply agreements or the sourcing of alternative materials, may not be fully effective or may introduce additional costs and complexities.
Broad economic disruptions or global health concerns could materially harm our business.
Widespread economic instability and global health events can adversely affect demand for our products and our overall operations. For example, the COVID‑19 pandemic significantly disrupted businesses worldwide, and the possibility of future resurgences of COVID‑19 or similar health crises remains a risk that could slow economic activity and disrupt supply chains.
In addition, ongoing geopolitical conflicts, such as the Russia‑Ukraine war and tensions in the Middle East, continue to contribute to uncertainty in global markets, supply chains, and trade flows, even for companies without substantial direct exposure to the affected regions.
We cannot predict the duration, severity, or full effects of future economic, health, or geopolitical events. Extended shutdowns or disruptions affecting our operations, or those of our customers, suppliers, or other third parties on whom we rely, could materially and adversely affect our business, financial condition, and operating results.
Changes in trade policy could materially affect our business.
Some of our raw materials originate from other countries. If tariffs are imposed on these materials, our suppliers may increase prices, which we may not be able to pass on to customers quickly, potentially reducing our profit margins. Additionally, a significant portion of our products are exported. If foreign countries impose tariffs on U.S. goods, including ours, we could face a competitive disadvantage compared with companies located outside the United States, which could adversely impact our business and financial results.
Acquisitions may increase our operating costs, divert management ’ s attention from other priorities, and expose us to additional risks.
We periodically evaluate potential acquisitions of businesses or technologies and view targeted acquisitions that expand our core competencies as an important part of our growth strategy. While acquisitions may offer synergies in products, services, and technologies, they involve risks, including:
challenges and higher costs in integrating personnel, operations, technologies, products, and services
diversion of management’s focus from other operational matters
failure to successfully commercialize acquired technology
loss of key employees from acquired companies
inability to achieve expected synergies
potential dilution of existing shareholders if our common stock is issued as part of a transaction
difficulties in obtaining or protecting intellectual property rights, and
impairment of acquired assets due to technological advances or underperformance.
These risks could materially and adversely affect our business, financial condition, and results of operations.
Market conditions in the industries in which we operate are volatile, and the demand for our products and their profitability can fluctuate significantly.
The industries we serve are subject to constant change, driven by factors such as:
the availability of funding for research and development
global and regional economic conditions
government budgetary and political constraints, and
technological advancements
As a result, our historical operating results may not be indicative of future performance, and periods of lower demand or profitability could materially affect our business.
Volatile and cyclical demand for our products may make it difficult to accurately budget expenses, which are partially based on projected revenues.
Demand for our products can fluctuate significantly due to cyclical industry trends. When revenue falls below expectations, our operating results may be materially affected, and cost reduction measures may be required to maintain competitiveness and financial stability. Conversely, periods of rapid growth may require us to expand manufacturing capacity and hire additional personnel, which could strain liquidity. There is no assurance that we can adjust our cost structure or scale operations quickly enough to respond effectively to these market cycles.
We generally do not have long-term production contracts with our customers and cannot control the timing, volume, or mix of their orders. Lower-than-expected orders can lead to underutilized facilities and infrastructure, which would negatively affect our financial position and results of operations.
We operate in highly competitive markets, have fewer resources than some competitors, and may be subject to future import duties that could adversely affect our business.
We operate in highly competitive global markets, and some competitors have significantly greater financial and operational resources. These competitors may be able to develop more advanced products or reduce prices, which could place us at a competitive disadvantage. If we are unable to compete effectively, our business and results of operations could be adversely affected.
In addition, our MMC products are currently exported into the European Union (EU) on a duty-free basis. If a European manufacturer begins producing similar products, import duties could be imposed, increasing costs for our EU customers and potentially reducing demand for our products.
We may face increasing price pressure, which could adversely affect our margins.
Historically, our strategy has emphasized product performance and customer service rather than competing primarily on price. However, many of our customers are highly price sensitive, and inflationary pressures may further intensify pricing competition. If we are unable to continue differentiating our products based on performance and service, we may be required to reduce prices to remain competitive, which could result in lower profit margins and adversely affect our financial results.
Manufacturing interruptions or delays could impair our ability to meet customer demand and increase operating costs.
Our manufacturing operations may be subject to interruptions, delays, increased costs, or customer order cancellations due to a variety of factors, including:
the failure or inability of suppliers to deliver materials and components in sufficient quantities or on a timely and cost-effective basis,
volatility in the availability or cost of raw materials and components,
unexpected equipment failures requiring production delays or the outsourcing of certain manufacturing processes,
difficulties or delays in obtaining required import or export licenses, permits, or approvals,
information technology, systems, or infrastructure failures,
natural disasters or other events beyond our control, such as earthquakes, floods, severe weather, regional economic downturns, pandemics, social unrest, political instability, terrorism, or acts of war, and
the effects of pandemics or public health emergencies on our employees, suppliers, logistics providers, and other third parties on whom we rely.
Any of these events could disrupt our operations, delay product deliveries, increase costs, or harm customer relationships, which could materially and adversely affect our business, financial condition, and results of operations.
Our investments in proprietary technologies may lose value if we are unable to adequately protect our intellectual property or if we are accused of infringing the intellectual property rights of third parties, which could result in costly litigation.
Our success depends in part on our proprietary technologies and related intellectual property rights. We use a combination of patents, trademarks, confidentiality agreements, and internal controls to protect our intellectual property; however, these measures may be inadequate or unenforceable. Patent protection is costly and time-consuming, and there is no assurance that our patent applications will result in issued patents or provide meaningful protection. In addition, competitors or other third parties may develop similar or superior technologies or design around our intellectual property.
We may also face claims that our products or technologies infringe the intellectual property rights of others. Resolving such claims may require us to obtain licenses, modify our products, or defend ourselves through litigation, any of which could be expensive, disruptive, and unsuccessful. The laws of certain jurisdictions may offer less protection than those in the United States. Any failure to protect our intellectual property or adverse outcome of an infringement claim could materially and adversely affect our business, financial condition, and results of operations.
The price of our common shares is volatile and could decline significantly.
The stock market has experienced, and may continue to experience, periods of significant volatility. These market fluctuations can directly affect the trading price of our common shares, regardless of our actual operating performance. In addition, factors specific to our Company may cause the market price of our common shares to fluctuate independently of overall market conditions, and stockholders could lose all or a substantial portion of their investment.
The trading price of our common shares may fluctuate significantly in response to various factors, including, among others:
adverse macroeconomic conditions, such as inflation, unfavorable geopolitical events, and general stock market uncertainty, including those associated with global liquidity crises or the failure of large financial institutions,
the receipt, delay, or cancellation of significant customer orders,
issues related to the performance, quality, or reliability of our products,
actual or anticipated variations in our operating results,
announcements regarding financial performance, business developments, or technological innovations,
changes in investment analyst recommendations or financial estimates,
strategic transactions, including acquisitions, divestitures, or spin-offs, and
the occurrence of major catastrophic events, such as the COVID-19 pandemic.
We have experienced significant volatility in the market price of our publicly traded securities in the past, and we expect that the price of our common shares may continue to be volatile in the future. Periods of stock price volatility have historically led to securities class action litigation against public companies. If such litigation were initiated against us, it could result in substantial costs and a diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations, and liquidity.
Claims related to product defects, safety, or performance could result in significant costs, reputational harm, and operational disruption.
We may be subject to product liability, warranty, or recall claims arising from alleged defects, failures to meet specifications, or misuse of its products. Even if products are designed and manufactured in compliance with applicable standards, defects may occur due to design flaws, manufacturing errors, supplier issues, or unforeseen usage conditions. Such claims could lead to litigation, settlements, fines, penalties, or the costs of product recalls and corrective actions.
In addition to direct financial impacts, adverse product liability or warranty claims could damage the Company’s reputation, reduce customer confidence, and negatively affect demand for its products. The Company maintains insurance coverage for certain liabilities, but such coverage may be insufficient to cover all losses or may not be available on commercially reasonable terms in the future.
Cyber-attacks or security breaches could result in substantial costs, significant liabilities, reputational harm, and disruption to our operations.
We manage, store, and transmit proprietary information and sensitive data related to our operations, making us a potential target for cyber-attacks and security breaches. Unauthorized parties may attempt to gain access to our information technology systems to misappropriate or compromise our confidential information or that of third parties, disrupt system functionality, or cause system shutdowns. Such attacks may include the introduction of viruses, worms, ransomware, or other malicious software designed to exploit vulnerabilities in our systems or products.
Addressing cybersecurity incidents and vulnerabilities, whether before or after an attack, may require significant financial and operational resources. Our remediation efforts may be unsuccessful or only partially effective and could result in service interruptions, delays, or temporary cessation of operations, as well as the loss of existing or prospective customers. In addition, any breach of our security measures or unauthorized disclosure of proprietary or sensitive information could expose us or our customers to loss or misuse of data, lead to litigation or regulatory actions, damage our reputation, and adversely affect our business, financial condition, and results of operations.
Compliance with U.S. government requirements for handling controlled unclassified information (CUI) could increase CPS ’ s operating costs.
The U.S. Department of Defense requires government contractors and subcontractors to comply with the Cybersecurity Maturity Model Certification (CMMC). CMMC mandates the implementation and ongoing maintenance of extensive cybersecurity policies, procedures, and controls for the protection of CUI, which can be costly and resource intensive. Some of CPS’s customers are government contractors with whom CPS exchanges CUI. As a result, CPS may be required to achieve and maintain CMMC compliance to continue doing business with these customers. Failure to do so could result in the loss of revenue associated with these relationships, while compliance may increase operating expenses.
