美國
證券交易委員會
華盛頓，特區。20549
表格
| （標記 一） | |
| 根據1934年證券交易法第13或第15(d)條規定的季度報告。 | |
| 截至2023年9月30日季
度 | |
| 根據1934年證券交易法第13或第15(d)條規定的過渡報告。 | |
| 過渡期從____到____。 |
佣金
文件編號:
（註冊者名稱見章程）
州 或 其他司法管轄區 設立或組織） |
（I.R.S.僱主） (主要 執行人員之地址) |
(總部地址)
（報告人的電話號碼，包括區號）
根據法案第12(b)節註冊的證券:
| 每一類別的名稱 | 交易符號 | 在每個交易所註冊的名稱 | ||
指示
通過複選標記註冊人是否已以電子方式提交了根據規則要求提交的所有交互式數據文件
S-t 法規 405（本章第 232.405 節）在過去 12 個月內（或註冊人所處的較短期限）
必須提交此類文件）。
用複選標記表示註冊申報人是大型加速履行者、加速履行者、非加速履行者、較小的報告公司，或新興增長型企業。請參閱《交易所法》第120億.2條中「大型加速履行者」、「加速履行者」、「較小 的報告公司」和「新興增長型企業」的定義。
| 大型加速歸檔者 ☐ | 加速歸檔者 ☐ | |
| 較小的報告公司 |
新興成長公司 |
如果是新興成長型企業，請打勾，以表明註冊人已選擇不使用遵守《證券交易法》第13(a)條所規定的任何新的或修訂後的財務會計準則的延長過渡期。 ☐
請勾選適用的圓圈，表示註冊登記者是否是空殼公司(根據交易所法案第12b-2條的定義)。是 ☐ 否
請說明在最近實際日期時，每個類別普通股的流通股數目:2024年3月28日由於兩筆私人交易，(i)每股（「股份」） 的計價爲Zhanling International Limited，一家內華達州公司（「公司」）的股份從NingNing Xu轉讓給YongQing Liu； （ii）上海Capital Resources Ltd的實際所有者，是Zhanling International Limited的一家公司股東，持有 公司每股普通股，每股面值爲$的普通股，從NingNing Xu轉讓給YongQing Liu。因此， 買方成爲公司已發行和待發行股本中擁有約的表決權股份的持有者 併成爲實際控股股東。支付股份的代價爲$。支付購買股份的 現金來源於買方個人基金。 面值截止到2024年11月13日。
CVD 設備公司及其子公司
索引
| 第I部分-財務信息 | ||||
| 項目 1 – | 簡明合併財務報表（未經審計） | 3 | ||
| 截止2024年9月30日和2023年12月31日的 壓縮合並資產負債表 | 3 | |||
| 截止2024年和2023年9月30日的三個月及九個月 壓縮合並經營報表 | 4 | |||
| 截止2024年和2023年9月30日的三個月及九個月 壓縮合並股東權益變動表 | 5 | |||
| 截至2024年9月30日和2023年九個月的簡明現金流量表 | 6 | |||
| 基本報表的註解 | 7 | |||
| 項目 2 – | 分銷計劃 | 21 | ||
| 項目 3 – | 有關市場風險的定量和定性披露 | 33 | ||
| 項目 4 – | 控制和程序 | 33 | ||
| 第II部分-其他信息 | ||||
| 項目 1 – | 法律訴訟 | 34 | ||
| 項目 1A - | 風險因素 | 34 | ||
| 項目 2 – | 未註冊的股票股權銷售和籌款用途 | 34 | ||
| 項目 3 – | 對優先證券的違約 | 34 | ||
| 項目 4 – | 礦山安全披露 | 34 | ||
| 項目 5 – | 其他信息 | 34 | ||
| 項目 6 – | 展示資料 | 35 | ||
| 簽名 | 36 | |||
| 2 |
部分 1 - 財務信息
項目 1 – 基本報表
CVD 設備公司及其子公司
簡明合併資產負債表
(以千爲單位，除了分享金額)
(未經審計)
| 2024年9月30日 | 2023年12月31日 | |||||||
| 資產 | ||||||||
| 流動資產 | ||||||||
| 現金及現金等價物 | $ | $ | ||||||
| 應收賬款，淨額 扣除信用損失準備 | ||||||||
| 合同資產 | ||||||||
| 存貨 | ||||||||
| 其他流動資產 | ||||||||
| 總流動資產 | ||||||||
| 物業、廠房和設備，淨值 | ||||||||
| 其他資產 | ||||||||
| 總資產 | $ | $ | ||||||
| 負債和股東權益 | ||||||||
| 流動負債 | ||||||||
| 應付賬款 | $ | $ | ||||||
| 應計費用 | ||||||||
| 長期債務的當前到期部分 | ||||||||
| 合同負債 | ||||||||
| 存入資金 來自MesoScribe資產的購買者-注11 | ||||||||
| 流動負債合計 | ||||||||
| 長期債務，扣除 當前部分 | ||||||||
| 總負債 | ||||||||
| 股東權益: | ||||||||
| 普通股-美元 價值 – 授權股份；已授權；已發行股份 於2024年9月30日及 截至2023年12月31日， | ||||||||
| 其他資本公積 | ||||||||
| 累計虧損 | ( | ) | ( | ) | ||||
| 總股東權益 | ||||||||
| 負債和股東權益總計 | $ | $ | ||||||
附註是這份壓縮合並財務報表的組成部分
| 3 |
CVD 設備公司及其子公司
簡化合並利潤表
(以千爲單位，除每股和分享金額外)
(未經審計)
| 結束的三個月 | 截至九個月 | |||||||||||||||
| 9月30日 | 九月 30， | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 營業收入 | $ | $ | $ | $ | ||||||||||||
| 收入成本 | ||||||||||||||||
| 毛利潤 | ||||||||||||||||
| 運營費用 | ||||||||||||||||
| 研發 | ||||||||||||||||
| 銷售 | ||||||||||||||||
| 一般行政 | ||||||||||||||||
| 設備出售收益-注 11 | ( | ) | ( | ) | ||||||||||||
| 坦塔鈮處置損失 | ||||||||||||||||
| 減值 費用 | ||||||||||||||||
| 淨營業費用 | ||||||||||||||||
| 營業利潤（虧損） | ( | ) | ( | ) | ( | ) | ||||||||||
| 其他收入（費用）： | ||||||||||||||||
| 利息收入 | ||||||||||||||||
| 利息支出 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 匯率期貨收入 | ||||||||||||||||
| 其他收入 | ||||||||||||||||
| 其他總收入，淨額 | ||||||||||||||||
| 所得稅前收益（損失） | ( | ) | ( | ) | ( | ) | ||||||||||
| 所得稅費用 | ||||||||||||||||
| 淨利潤（虧損） | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 每股普通股的收入（損失） - 基本 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 每股普通股的收入（損失） - 攤薄 | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
| 加權平均普通股份 | ||||||||||||||||
| 基本 | ||||||||||||||||
| 稀釋 | ||||||||||||||||
附註是這份壓縮合並財務報表的組成部分
| 4 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)
Three months ended September 30, 2024 and 2023
| Common stock | Additional paid-in | (Accumulated Deficit) Retained | ||||||||||||||||||
| Shares | Par Value | Capital | Earnings | Total | ||||||||||||||||
| Balance at July 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net income | - | |||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Exercise of stock options and issuance of shares | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Nine months ended September 30, 2024 and 2023
| Common stock | Additional paid-in | (Accumulated
Deficit) Retained | ||||||||||||||||||
| Shares | Par Value | Capital | Earnings | Total | ||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Exercise of stock options and issuance of shares | ||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine months ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Gain on sale of equipment | ( | ) | ||||||
| Loss on disposition of Tantaline | ||||||||
| Provision for excess and obsolete inventory | ||||||||
| Impairment charge | ||||||||
| Changes in assets and liabilities, net of effects of disposition of Tantaline and sale of equipment: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Employee retention credit receivable | ||||||||
| Other current assets | ( | ) | ||||||
| Other noncurrent assets | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Contract liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Deposits from purchaser of MesoScribe assets | ||||||||
| Net cash used in connection with disposition of Tantaline | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that can be expected for the year ending December 31, 2024.
The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 28, 2024, but does not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with that report.
All material intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the prior period condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net loss.
Liquidity
At
September 30, 2024, the Company had $
| 7 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
In accordance with FASB ASC 606 - Revenue from Contracts with Customers (“ASC 606”), the Company records revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services promised to its customers. Under ASC 606, the Company follows a five-step model to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price for the contract; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue using one of the following two methods:
Over time
The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within two to eighteen months from order acceptance. For systems sales that meet the criteria to recognize revenue over time, the Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. For system sales that do not meet the criteria to recognize revenue over time based on the contract provisions, the Company recognizes revenue based on point in time as discussed below.
Under
this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date
to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs
and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. Contract material
costs are included in incurred costs when the project materials have been purchased or moved to work in process, and installed, as required
by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs
to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to
complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than
the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably
estimated. There were
The timing of revenue recognition, billings and collections results in accounts receivables, unbilled receivables or contract assets and contract liabilities on our consolidated balance sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones.
| 8 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Under ASC 606, payments received from customers in excess of revenue recognized to-date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract.
Contract assets include unbilled amounts typically resulting from system sales under contracts and represents revenue recognized that exceeds the amount billed to the customer.
Contract liabilities include advance payments and billings in excess of revenue recognized. The Company typically receives down payments upon receipt of orders and progress payments as the system is manufactured.
Contract assets and contract liabilities are classified as current as these contracts in progress are expected to be substantially completed within the next twelve months.
Point in time
For non-system sales of products and services, revenue is recognized at the point in time when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606, “Revenue from Contracts with Customers”.
For
any system equipment sales where the equipment would have an alternative use or where the contract provisions of the contract preclude
the use of over time revenue recognition, revenue is recognized at the point in time when control of the equipment is transferred to
the customer. For the three and nine months ended September 30, 2024 and 2023, all system equipment sales were recorded over time by
using an input method except for one PVT200 system that was recorded at the point in time when the equipment was transferred to the customer
during the third quarter of 2024. There was one system equipment contract in 2023 where the revenue was to be recognized based on point
in time. This contract was modified during the three months ended September 30, 2023 such that the revenue under this contract will be
recognized over time using an input method based on the revised contract provisions. Revenues for the three months ended September 30,
2023 includes $
| 9 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories (raw materials, work-in-process and finished goods) are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. Work-in-process and finished goods inventory reflect all accumulated production costs, which are comprised of direct production costs and overhead, and is reduced by amounts recorded in cost of sales as the related revenue is recognized. Indirect costs relating to long-term contracts, which include expenses such as general and administrative, are charged to expense as incurred and are not included in our cost of sales or work-in-process and finished goods inventory.
Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of inventory, which would be reflected in cost of sales in the period the revision is made.
Product Warranty
Recent Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments in this update expand annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. This update is effective for our annual report for fiscal year 2025, and interim periods thereafter, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of this ASU on our Consolidated Financial Statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures. The amendments further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This ASU is effective for our annual report for fiscal year 2026, with early adoption permitted, and should be applied either prospectively or retrospectively. We are currently evaluating the timing of adoption and impact of this ASU on our Consolidated Financial Statements and related disclosures.
The Company believes there is no additional new accounting guidance adopted, but not yet effective, that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.
| 10 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3: CONCENTRATION OF CREDIT RISK
Cash and cash equivalents
The
Company had cash and cash equivalents of $
The
Company places most of its temporary cash investments in the United States with financial institutions, which from time to time may exceed
the Federal Deposit Insurance Corporation limit. The amount at risk at September 30, 2024 and December 31, 2023 was $
Accounts receivable
The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers.
Accounts
receivables are presented net of an allowance for credit losses of approximately $
| 11 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 3: CONCENTRATION OF CREDIT RISK (continued)
At
September 30, 2024, the accounts receivable balance included amounts from one customer that represented
Sales concentration
Revenue
from a single customer in any one period can exceed 10% of our total revenues. During the three months ended September 30, 2024, two
customers represented
During
the three months ended September 30, 2023, two customers represented
NOTE 4: REVENUE RECOGNITION
The following table represents a disaggregation of revenue for the three and nine months ended September 30, 2024, and 2023 (in thousands):
| Three months ended September 30, 2024 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Three months ended September 30, 2023 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
| 12 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4: REVENUE RECOGNITION (continued)
| Nine months ended September 30, 2024 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Nine months ended September 30, 2023 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
The energy market includes customers involved in the manufacture of silicon carbide wafers and batteries. Aerospace market includes customers that manufacture aircraft engines. Industrial end market consists of various end customers in diverse industries. Research market principally represents customers such as universities and other research institutions.
The
Company has unrecognized contract revenue of approximately $
Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.
Changes in estimates for sales of systems may occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s condensed consolidated statements of operations.
| 13 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4: REVENUE RECOGNITION (continued)
Contract assets and liabilities
Contract assets and contract liabilities on input method type contracts in progress are summarized as follows as of September 30, 2024 (in thousands):
| Costs incurred on contracts in progress | $ | |||
| Estimated earnings | ||||
| Billings to date | ( | ) | ||
| ( | ) | |||
| Deferred revenue related to non-system contracts | ( | ) | ||
| $ | ( | ) | ||
| Included in accompanying condensed consolidated balance sheet as of September 30, 2024 under the following captions (in thousands): | ||||
| Contract assets | $ | |||
| Contract liabilities | $ |
Of
the contract liability balances at December 31, 2023 and 2022 of $
NOTE 5: INVENTORIES
Inventories consist of:
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
| 14 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 5: INVENTORIES (continued)
Included
in our inventories are finished goods and raw materials related to PVT 150 systems that were purchased and built, respectively, in anticipation
of future orders. During the three months ended September 30, 2024, the Company recorded a non-cash charge to reduce the net realizable
value of such inventory by approximately $
As
of September 30, 2024, the net amount of PVT 150 systems inventory is approximately $
NOTE 6: LONG-TERM DEBT
In
September 2022, the Company entered into a loan agreement to fund the acquisition of machinery. The loan amount of $
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Dilutive effect of unvested restricted stock | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
At September 30, 2024, stock options to purchase shares of common stock were outstanding and were exercisable.
For the three and nine months ended September 30, 2024 and the three and nine months ended September 30, 2023, all stock options were excluded in the computation of diluted earnings per share because their effect was antidilutive.
| 15 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Company recorded stock-based compensation for the three and nine months ended September 30, 2024 and 2023, that were included in the following line items in our condensed consolidated statements of operations (in thousands):
| Three months ended Sept. 30, | Nine months ended Sept. 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Stock-based compensation expense for three months ended September 30, 2024 and 2023 included $ and $, respectively, and for the nine month periods ended September 30, 2024 and 2023 included $ and $, respectively, related to restricted stock awards that directors are entitled to receive pursuant to the Director Compensation Plan. Under this plan each of the Company’s independent directors is entitled to an Annual Equity Retainer in the amount of $, to be granted on the date of the Company’s annual meeting of shareholders.
For the nine months ended September 30, 2024, the Company granted stock options, vesting % per year over four years, with a life. The Company determined the weighted average fair value of stock options granted was $ and is based upon weighted average assumptions below.
| Stock price | $ | |||
| Exercise price | $ | |||
| Dividend yield | % | |||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) |
| Weighted | ||||||||
| Stock Option | Average | |||||||
| Awards | Exercise | |||||||
| (in shares) | Price | |||||||
| Outstanding at January 1, 2024 | ||||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Outstanding at September 30, 2024 | $ | |||||||
| 16 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||
| Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||||||||||
| Exercise | Number | Remaining | Exercise | Intrinsic | Number | Exercise | Intrinsic | |||||||||||||||||||||||
| Price Range | Outstanding | Contractual | Price | Value | Exercisable | Price | Value | |||||||||||||||||||||||
| $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||
| $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||
| $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||
| $ | - | $ | $ | $ | $ | |||||||||||||||||||||||||
As of September 30, 2024, there was $ million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of years.
NOTE 9: INCOME TAXES
As of September 30, 2024 and December 31, 2023, the Company has provided a full valuation allowance against its net deferred tax assets. This was based on management’s assessment, including the last six years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future. Management continues to evaluate for potential utilization of the Company’s net deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections of future operating results.
NOTE 10: SEGMENT REPORTING
The
Company operates through
The Company’s corporate administration activities are reported in the “Corporate” column. These activities primarily include expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for options and shares of restricted stock granted to corporate administration employees and board members, certain consulting expenses, investor and shareholder relations activities, and all the Company’s legal, auditing and professional fees.
| 17 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 10: SEGMENT REPORTING (continued)
Elimination
entries included in the “Eliminations” column represent intersegment revenues and cost of revenues that are eliminated
in consolidation. Intersegment sales by the SDC segment to the CVD Equipment segment for the three months ended September 2024 and
2023 were $
The following table presents certain information regarding the Company’s segments as of and for the three months ended September 30, 2024 and 2023 (in thousands):
2024
| CVD Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Assets | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | *( | ) | ** | ( | ) | |||||||||||||||||||
| Pretax (loss) income | *( | ) | ** | ( | ) | |||||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2023
| CVD Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Assets | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Pretax (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| * |
| ** |
| 18 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 10: SEGMENT REPORTING (continued)
The following table presents certain information regarding the Company’s segments as of and for the nine months ended September 30, 2024 and 2023 (in thousands):
2024
| CVD Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | *( | ) | ** | ( | ) | ( | ) | |||||||||||||||||
| Pretax (loss) Income | *( | ) | ** | ( | ) | ( | ) | |||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2023
| CVD Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | ( | ) | ***( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Pretax (loss) Income | ( | ) | ***( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| * |
| ** |
| *** |
| 19 |
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 11: MESOSCRIBE SUBSIDIARY
On
August 8, 2023, the Company entered into a Purchase and License Agreement (the “Agreement”) with a third-party. Pursuant
to the Agreement, the Company would sell certain proprietary assets relating to its plasma spray technology and material deposition system
and grant a non-exclusive license to use certain of the Company’s related intellectual property as more fully described in the
Agreement, for an aggregate purchase price of $
The
Company received payments under the Agreement in the amount of $
During
the three months ended September 30, 2024, the Company and the purchaser amended the agreement to reduce the purchase price to $
The
Company fulfilled its final orders for MesoScribe products during the three months ended September 30, 2024 and recorded revenues of
$
The
revenue and net income (loss) of MesoScribe were $
The
total assets and total liabilities of the MesoScribe subsidiary were $
During
the nine months ended September 30, 2023, the Company recorded an impairment charge of $
| 20 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. These statements involve known and unknown risks and uncertainties that may cause our actual results or outcomes to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on various factors and are derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:
| ● | uncertainty as to our future profitability; | |
| ● | uncertainty as to the general state of the silicon carbibe wafer end market; | |
| ● | competition in our existing and potential future product lines of business, including our PVT150 / PVT200 systems; | |
| ● | uncertainty as to our ability to identify and develop new products for growth markets; | |
| ● | our ability to obtain financing on acceptable terms if and when needed; | |
| ● | our ability to attract and retain key personnel and employees; and | |
| ● | uncertainty as to our ability to adequately obtain raw materials and on commercially reasonable terms. |
Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. We assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements. Past performance is no guaranty of future results.
You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used with this Report, the words “believes” “anticipates”, “expects”, “estimates”, “plans”, “intends”, “will” and similar expressions are intended to identify forward-looking statements.
| 21 |
Executive Summary
We have served the advanced materials markets with chemical vapor and thermal process equipment for over 40 years. CVD designs, develops, and manufactures a broad range of chemical vapor deposition, gas control, and other state-of-the-art equipment and process solutions used to develop, produce and grow materials and coatings for commercial applications and research. To learn more about CVD’s systems and offerings, visit www.cvdequipment.com.
During the three and nine months ended September 30, 2024 and 2023:
| ●· | Revenue increased by $2.0 million or 31.4% for the third quarter as compared to the prior year period due to increases in revenues from aerospace contracts in progress, our SDC segment and final sales by our MesoScribe subsidiary partially offset by lower revenues of spare parts. |
| ● | Gross margin increased by $0.2 million or 14.8% in the third quarter as compared to the prior period quarter due to higher revenues and improved margins on contracts in process offset by a $1.0 million non-cash charge to reduce certain PVT inventory to net realizable value. |
| ● | Total bookings for the third quarter of 2024 were approximately $4.1 million as compared to $4.4 million in the prior year period. |
| ● | Total bookings for the nine months ended September 30, 2024 were $21.0 million as compared to $15.8 million in the prior year period. |
| ● | Bookings in 2024 included a $10.0 million multisystem order from an industrial customer that will be used to deposit a silicon carbide protective coating on OEM components. |
| ● | Bookings in 2023 included $8.7 million of multiple systems orders from an aerospace customer and a battery nanomaterial production system of $1.8 million. |
| ● | During the first quarter of 2024, we received an order from an additional customer for our new PVT200 system that will be used to grow silicon carbide crystals for the manufacture of 200 mm wafers. This unit was shipped to the customer in the third quarter of 2024. |
| ● | Our backlog increased from $18.4 million at December 31, 2023 to $19.8 million at September 30, 2024. |
| ● | Cash balance at September 30, 2024 was $10.0 million as compared to $14.0 million at December 31, 2023 |
Business Update
Our core strategy is to focus on growth end markets in applications related to aerospace, the “electrification of everything,” and industrial applications. With respect to aerospace, our systems are being used by our customers to produce ceramic matrix composite materials (“CMCs”) that will be used in next generation gas turbine jet engines with the objective of reducing jet fuel consumption and to produce specialty coatings for advanced high temperature environments.
| 22 |
The phrase “electrification of everything” refers to the shift from fossil fuels to the use of electricity to power devices, buildings, electric vehicles (“EVs”), and many other applications.
Our current strategy yielded multisystem orders of PVT150 equipment in 2023 and 2022 that were delivered to one company that manufactures silicon carbide wafers. Although we continue to invest in our vision for the “electrification of everything,” we have observed lower-than-anticipated industrywide electric vehicle adoption rates which may reduce demand for silicon carbide and impact sales of our PVT systems. In addition, the recent global over capacity of 150 mm silicon carbide wafers has reduced the market for 150 mm silicon carbide growth systems.
In February 2024, we received an order from an additional customer for our new PVT200 system used to grow silicon carbide crystals for the manufacture of 200 mm wafers. This represents our second customer for our PVT equipment. This customer plans to evaluate our equipment for potential additional purchases of PVT equipment. We shipped this unit to the customer in the third quarter of 2024.
We have also received orders from OneD Battery Materials in 2023, a company that is engaged in providing battery nanomaterials.
Both technologies are essential for the support of the EV market. These systems should provide us with standard product offerings to continue to support the EV focused market as well as energy storage, power conversion and power transmission. We plan to evaluate opportunities to expand our product offerings in the power electronics market to build off the introduction of the PVT150 and PVT200 systems. We are also evaluating our ability to provide other equipment used in the manufacturing process of silicon carbide wafers.
During 2022, we also received an order from an aerospace company for a production chemical vapor infiltration (CVI) system that will be used to manufacture CMCs for gas turbine jet engines. In 2023, we received an order from the same aerospace company for an additional three CVI systems and in November 2024 we received an order for an additional CVI system.
In February 2024, we received a multisystem order from an industrial customer for approximately $10.0 million that will be used for depositing a silicon carbide protective coating on OEM components.
We have generally gained new customers through our industry reputation, as well as print advertising and trade show attendance. We have increased the number of trade shows and industry conferences we attend.
Historically, our orders have fluctuated based on end user market conditions, adoption of our new products and acceptance of our products. The order rate as well as other factors in our manufacturing process ultimately impacts the timing of revenue recognition, whether accounted for over time or at a point in time. Accordingly, orders received from customers and the corresponding revenue recognized may fluctuate from quarter to quarter. The sales cycle for our equipment is typically six months, but can range up to twelve to eighteen months, depending on the application and product stage of the equipment. The order cycle to manufacture and test a system also will vary from six to eighteen months for our CVD Equipment segment and two to twelve months for our SDC segment, depending on system complexity and magnitude of the system.
| 23 |
Results of Operations
Three Months Ended September 30, 2024 and 2023
The following table presents revenue and expense line items reported in our condensed consolidated statements of operations for the three months ended September 30, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).
Three months ended September 30 | ||||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Revenue | $ | 8,194 | $ | 6,234 | $ | 1,960 | 31.4 | % | ||||||||
| Cost of revenue | 6,359 | 4,636 | 1,723 | 37.2 | % | |||||||||||
| Gross profit | 1,835 | 1,598 | 237 | 14.8 | % | |||||||||||
| Gross profit percentage | 22.4 | % | 25.6 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 644 | 704 | (60 | ) | (8.5 | %) | ||||||||||
| Selling | 423 | 434 | (11 | ) | (2.5 | %) | ||||||||||
| General and administrative | 1,316 | 1,450 | (134 | ) | (9.2 | %) | ||||||||||
| Gain on sale of equipment | (625 | ) | - | (625 | ) | * | ||||||||||
| Total operating expenses | 1,758 | 2,588 | (830 | ) | (32.1 | %) | ||||||||||
| Operating income (loss) | 77 | (990 | ) | 1,067 | * | |||||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 136 | 173 | (37 | ) | (21.4 | %) | ||||||||||
| Interest expense | (5 | ) | (6 | ) | 1 | (16.7 | %) | |||||||||
| Other income | - | 70 | (70 | ) | * | |||||||||||
| Total other income, net | 131 | 237 | (106 | ) | (44.7 | %) | ||||||||||
| Income (loss) before income taxes | 208 | (753 | ) | 961 | * | |||||||||||
| Income tax expense | 5 | - | 5 | * | ||||||||||||
| Net income (loss) | $ | 203 | $ | (753 | ) | $ | 956 | * | ||||||||
* Not meaningful
| 24 |
Three months ended September 30 | ||||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Revenues | ||||||||||||||||
|
CVD Equipment | $ | 5,684 | $ | 4,795 | $ | 889 | 18.5 | % | ||||||||
| SDC | 2,005 | 1,572 | 433 | 27.5 | % | |||||||||||
| CVD Materials | 661 | 90 | 571 | 634.4 | % | |||||||||||
| Intersegment sales elimination | (156 | ) | (223 | ) | 67 | * | ||||||||||
| Total | $ | 8,194 | $ | 6,234 | $ | 1,960 | 31.4 | % | ||||||||
* Not meaningful
Revenue
Our revenue for the three months ended September 30, 2024 was $8.2 million compared to $6.2 million for the three months ended September 30, 2023, an increase of 31.4%.
The increase in revenue versus the prior year period was primarily attributable to higher revenue of $0.9 million from our CVD Equipment segment, a $0.4 million increase in revenue from our SDC segment, and a $0.6 million increase from our CVD Materials segment. Revenue from one aerospace customer for the three months ended September 30, 2024 represented 29.1% of our total revenues and 42.0% of CVD Equipment segment revenues.
The revenue contributed by the CVD Equipment segment for the three months ended September 30, 2024 of $5.7 million represented 69.3% of overall revenue as compared to $4.8 million or 76.3% of overall revenue for the three months ended September 30, 2023. The increase in revenues of $0.9 million or 18.5% resulted principally from increases in revenues from aerospace contracts in progress offset in part by lower revenue for PVT150/200 systems and spare parts.
There were certain customer contracts in 2023 where the revenue was to be recognized at the point in time when the equipment is transferred to the customer based on contract terms. These contracts were modified during the three months ended September 30, 2023 such that the revenue under these contracts is now being recognized over time using the input method. The Company and CVD Equipment segment revenues for the three months ended September 30, 2023 include $0.8 million of revenue that was deferred as of June 30, 2023 and recognized on the date of the contract modification.
The revenue contributed by the SDC segment for the three months ended September 30, 2024 of $2.0 million represented 22.6% of overall revenue as compared to $1.6 million or 22.3% of overall revenue for the three months ended September 30, 2023. Revenue for our SDC segment increased by $0.4 million or 27.5% due to higher demand for gas delivery system products as compared to the prior period.
| 25 |
The revenue contributed by the CVD Materials segment for the three months ended September 30, 2024 of $0.6 represented 8.1% of our overall revenue as compared to $0.1 million or 1.4% of overall revenue for the three months ended September 30, 2023. The increase of $0.6 million was due to the final sales to an aerospace company and MesoScribe ceased operations as of September 30, 2024.
Our order backlog at September 30, 2024 was approximately $19.8 million as compared to December 31, 2023 of $18.4 million. Our backlog at September 30, 2024 consists of approximately $17.0 million related to remaining performance obligations of contracts in progress and not yet started that will be recognized over time with the balance of approximately $2.8 million representing other orders received from customers. Historically, our revenues and orders have fluctuated based on changes in order rate as well as other factors in our manufacturing process that impact the timing of revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter.
Gross Profit
Gross profit for the three months ended September 30, 2024 was $1.8 million, with a gross profit margin of 22.4%, compared to a gross profit of $1.6 million and a gross profit margin of 25.6% for the three months ended September 30, 2023. The increase in gross profit of $0.2 million was primarily due to higher revenues as well as improved margins on CVD contracts in progress and final MesoScribe sales that was partially offset by a $1.0 million non-cash charge to reduce certain PVT inventory to net realizable value.
Research and Development
For the three months ended September 30, 2024, research and development expenses were $0.6 million, or 7.9% of revenue as compared to $0.7 million, or 11.3% of revenue for the three months ended September 30, 2023, a decrease of $0.1 million or 8.5%. The decrease in 2024 was due to more engineering time being charged to cost of revenue based on contracts in progress.
General engineering support and expenses related to the development of more standardized products and value-added development of existing products are reflected as part of research and development expense. General engineering support and expenses are charged to costs of revenue when work is performed directly on a customer order.
Selling
Selling expenses were $0.4 million or 5.2% of the revenue for the three months ended September 30, 2024 as compared to $0.4 million or 7.0% for the three months ended September 30, 2023. There were no significant changes in selling expenses as compared to the prior period quarter.
| 26 |
General and Administrative
General and administrative expenses for the three months ended September 30, 2024 were $1.3 million or 16.1% of revenue compared to $1.4 million or 23.3% of revenue for the three months ended September 30, 2023. The decrease in 2024 was due principally to a reduction of employee compensation and lower professional fees as compared to the prior year quarter.
Gain on Sale of Equipment
During the three months ended September 30, 2024, we recognized a gain of $0.6 million on the sale of equipment related to our MesoScribe subsidiary representing the sale price of $0.8 million less the costs of the equipment sold of $0.2 million.
Other Income (Expense), Net
Other income (expense), net was $0.1 million and $0.2 million for three months ended September 30, 2024 and 2023, respectively. Other income is principally interest income on treasury bills. Interest income was lower than the prior period due to less amounts invested and lower interest rates.
Income Taxes
We continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by reviewing our economic models, including projections of future operating results.
| 27 |
Nine Months Ended September 30, 2024 versus September 30, 2023
The following table presents revenue and expense line items reported in our condensed consolidated statements of operations for the nine months ended September 30, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).
Nine months ended September 30 | ||||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Revenue | $ | 19,462 | $ | 19,998 | $ | (536 | ) | (2.7 | %) | |||||||
| Cost of revenue | 15,158 | 14,579 | 579 | 4.0 | % | |||||||||||
| Gross profit | 4,304 | 5,419 | (1,115 | ) | (20.6 | %) | ||||||||||
| Gross profit percentage | 22.1 | % | 27.1 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 2,055 | 1,865 | 190 | 10.2 | % | |||||||||||
| Selling | 1,268 | 1,281 | (13 | ) | (1.0 | %) | ||||||||||
| General and administrative | 4,057 | 4,410 | (353 | ) | (8.0 | %) | ||||||||||
| Gain on sale of equipment | (625 | ) | - | (625 | ) | * | ||||||||||
| Loss on disposition of Tantaline | - | 162 | (162 | ) | (100.0 | %) | ||||||||||
| Impairment charge | - | 111 | (111 | ) | (100.0 | %) | ||||||||||
| Total operating expenses | 6,755 | 7,829 | (1,074 | ) | (13.7 | %) | ||||||||||
| Operating loss | (2,451 | ) | (2,410 | ) | (41 | ) | 1.7 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 438 | 400 | 38 | 9.5 | % | |||||||||||
| Interest expense | (14 | ) | (18 | ) | 4 | (22.2 | %) | |||||||||
| Foreign exchange income | - | 42 | (42 | ) | (100.0 | %) | ||||||||||
| Other income | 2 | 91 | (89 | ) | (97.8 | %) | ||||||||||
| Total other income, net | 426 | 515 | (89 | ) | (17.3 | %) | ||||||||||
| Loss before income taxes | (2,025 | ) | (1,895 | ) | (130 | ) | 6.9 | % | ||||||||
| Income tax expense | 5 | 11 | (6 | ) | (54.5 | %) | ||||||||||
| Net loss | $ | (2,030 | ) | $ | (1,906 | ) | $ | (124 | ) | 6.5 | % | |||||
* Not meaningful
| 28 |
Nine months ended September 30 | ||||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Revenue | ||||||||||||||||
| CVD Equipment | $ | 12,738 | $ | 13,774 | $ | (1.036 | ) | (7.5 | %) | |||||||
| SDC | 6,252 | 5,679 | 573 | 10.1 | % | |||||||||||
| CVD Materials | 775 | 1,099 | (324 | ) | (29.5 | %) | ||||||||||
| Intersegment sales elimination | (303 | ) | (554 | ) | 251 | * | ||||||||||
| Total | $ | 19,462 | $ | 19,998 | $ | (536 | ) | (2.7 | %) | |||||||
* Not meaningful
Revenue
Our revenue for the nine months ended September 30, 2024 was $19.5 million compared to $20.0 million for the nine months ended September 30, 2023, a decrease of 2.7%.
The decrease in revenue versus the prior year period was primarily attributable to lower revenues of $1.0 million from our CVD Equipment segment and $0.3 million from our CVD Materials segment, offset in part by a $0.6 million increase in revenue from our SDC segment. Revenue from one aerospace customer for the nine months ended September 30, 2024 represented 31.2% of our total revenues and 47.7% of CVD Equipment segment revenues.
The revenue contributed by the CVD Equipment segment for the nine months ended September 30, 2024 of $12.7 million represented 65.2% of overall revenue as compared to $13.8 million or 68.4% of overall revenue for the nine months ended September 30, 2023. The decrease in revenues of $1.0 million or 7.5% resulted principally from lower PVT150 systems and revenue from spares and parts offset by increases in revenues from aerospace contracts in progress.
The revenue contributed by the SDC segment for the nine months ended September 30, 2024 of $6.3 million represented 30.6% of overall revenue as compared to $5.7 million or 26.1% of overall revenue for the nine months ended September 30, 2023. Revenue for our SDC segment increased by $0.6 million or 10.1% due to higher demand for gas delivery system products as compared to the prior period.
The revenue contributed by the CVD Materials segment for the nine months ended September 30, 2024 of $0.8 million represented 4.0% of our overall revenue as compared to $1.1 million or 5.5% of overall revenue for the nine months ended September 30, 2023. The decrease of $0.3 million was principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.
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Gross Profit
Gross profit for the nine months ended September 30, 2024 was $4.3 million, with a gross profit margin of 22.1%, compared to a gross profit of $5.4 million and a gross profit margin of 27.1% for the nine months ended September 30, 2023. The decrease in gross profit of $1.1 million was primarily the result of lower revenue and lower gross margins on CVD Equipment contracts and a $1.0 million non-cash charge to reduce certain PVT inventory to net realizable value partially offset by improved in gross margins on SDC revenues and final MesoScribe sales.
Research and Development
For the nine months ended September 30, 2024, research and development expenses were $2.1 million, or 10.6% of revenue as compared to $1.9 million, or 9.3% for the nine months ended September 30, 2023, an increase of $0.2 million or 10.2%. The increase in 2024 was the result of lower costs allocated to cost of revenue and a recruitment fee for engineering staff.
General engineering support and expenses related to the development of more standardized products and value-added development of existing products are reflected as part of research and development expense. General engineering support and expenses are charged to costs of goods sold when work is performed directly on a customer order.
Selling
Selling expenses were $1.3 million or 6.5% of revenue for the nine months ended September 30, 2024 as compared to $1.3 million or 6.4% for the nine months ended September 30, 2023. There were no significant changes in selling expenses as compared to the prior period.
General and Administrative
General and administrative expenses for the nine months ended September 30, 2024 were $4.1 million or 20.8% of revenue compared to $4.4 million or 22.1% of revenue for the nine months ended September 30, 2023, a decrease of $0.4 million. The decrease in expenses was principally due to lower salaries of $0.1 million due to sale of Tantaline, lower bonuses and commissions of $0.1 million and lower professional fees of $0.1 million, offset by higher stock-based compensation expense of $0.1 million.
Gain on Sale of Equipment
During the three months ended September 30, 2024, we recognized a gain of $0.6 million on the sale of equipment related to our MesoScribe subsidiary representing the sale price of $0.8 million less the costs of the equipment sold of $0.2 million.
Loss on disposition of Tantaline
This item represents the net loss on the sale of our Tantaline subsidiary including professional fees.
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Impairment Charge
This item represents the loss on the impairment of certain assets of MesoScribe based on the decision to dispose of the subsidiary.
Other Income (Expense), Net
Other income (expense), net was $0.4 million and $0.5 million for the nine month periods ended September 30, 2024 and 2023, respectively. Other income is principally interest income on treasury bills. The reduction in other income, net was due to foreign exchange gain recorded and interest income on the employee retention credit received in 2023.
Income Taxes
We continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by reviewing our economic models, including projections of future operating results.
Liquidity and Capital Resources
As of September 30, 2024, aggregate working capital was $13.3 million as compared to aggregate working capital of $14.3 million at December 31, 2023. Cash and cash equivalents at September 30, 2024 and December 31, 2023 were $10.0 million and $14.0 million, respectively.
Net cash used in operating activities for the nine months ended September 30, 2024 was $3.7 million. This decrease was principally due to the net loss of $2.0 million, an increase in accounts receivable of $3.2 million, reduction in contract liabilities of $1.6 million offset by a reduction in inventory of $0.6 million and non-cash items of $2.5 million including a provision for excess and obsolete inventory of $1.0 million..
Net cash used in investing activities for the three months ended September 30, 2024 consisted of capital expenditures of $0.2 million related to purchases of equipment, building improvements and software.
Net cash used in financing activities for the three months ended September 30, 2024 consisted of repayments of $0.1 million for an equipment loan.
We believe that our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months from the filing of this Form 10-Q. We will continue to assess our operations and take actions anticipated to maintain our operating cash to support the working capital needs.
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Critical Accounting Estimates
This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
We believe that of our significant accounting policies, which are described in the notes to the consolidated financial statements, the following accounting policies involve a greater degree of judgments, estimates and assumptions and are considered critical accounting estimates.
Revenue Recognition
We design, manufacture, and sell custom chemical vapor deposition equipment through contractual agreements. These system sales require us to deliver functioning equipment that is generally completed within two to eighteen months from commencement of order acceptance. We recognize revenue over time by using an input method based on costs incurred as it depicts our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.
Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work-in-process as required by the project’s engineering design. Cost based input methods of revenue recognition require us to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor, and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated.
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There exist many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or longer-term contracts. Changes in estimates of the total sales, related costs, and progress toward completion on such contracts may significantly impact the estimated gross margins, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.
Inventory Valuation
Inventories (raw materials, work-in-process and finished goods) are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of inventory, which would be reflected in cost of sales in the period the revision is made. Any such charge could be material to our results of operations and financial condition.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment. Long-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists pursuant to the requirements of ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets.” If the asset is determined to be impaired, the impairment loss is measured on the excess of it carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. In the future, if we determine that our long-lived assets are impaired, we would be required to recognize a charge in our financial statements at the time of such determination. Any such charge could be material to our results of operations and financial condition.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
| Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 13d-15(e) under the Exchange Act of 1934, as amended, (the “Exchange Act”)). As required by Rule 13a-15(b) under the Exchange Act, our management, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).
Based on that review and evaluation, our Chief Executive Officer and Chief Financial Officer, along with others in our management, have determined that as of the end of the period covered by this Report on Form 10-Q the disclosure controls and procedures were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosures.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
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CVD EQUIPMENT CORPORATION
PART II
OTHER INFORMATION
| Item 1. | Legal Proceedings. |
None.
|
Item 1A. |
Risk Factors. |
There have been no other material changes to the risk factors disclosed in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 28, 2024.
|
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. |
None.
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| Item 6. | Exhibits |
| 31.1* | Certification of Emmanuel Lakios, Chief Executive Officer, dated November 13, 2024 |
| 31.2* | Certification of Richard Catalano, Chief Financial Officer, dated November 13, 2024 |
| 32.1* | Certification of Emmanuel Lakios, Chief Executive Officer, dated November 13, 2024, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2* | Certification of Richard Catalano, Chief Financial Officer, dated November 13, 2024, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.1** | Inline XBRL Instance. |
| 101.SCH** | Inline XBRL Taxonomy Extension Schema. |
| 101.CAL** | Inline XBRL Taxonomy Extension Calculation. |
| 101.DEF** | Inline XBRL Taxonomy Extension Definition. |
| 101.LAB** | Inline XBRL Taxonomy Extension Labels. |
| 101.PRE** | Inline XBRL Taxonomy Extension Presentation. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 13th day of November 2024.
| CVD EQUIPMENT CORPORATION | ||
| By: | /s/ Emmanuel Lakios | |
| Emmanuel Lakios | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Richard Catalano | |
| Richard Catalano | ||
| Executive Vice President and Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) |
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