In accordance with Section 13 or 15(d) 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.
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2022 and 2021
(in thousands, except share amounts)
|
|
2022
|
|
|
2021
|
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
14,365 |
|
|
$ |
16,651 |
|
Accounts receivable, net
|
|
|
3,788 |
|
|
|
1,446 |
|
Contract assets
|
|
|
2,170 |
|
|
|
2,538 |
|
Inventories, net
|
|
|
2,538 |
|
|
|
1,225 |
|
Income taxes receivable
|
|
|
- |
|
|
|
716 |
|
Other current assets
|
|
|
797 |
|
|
|
494 |
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
23,658 |
|
|
|
23,070 |
|
|
|
|
|
|
|
|
|
|
Employee retention credit receivable
|
|
|
1,529 |
|
|
|
- |
|
Property, plant and equipment, net
|
|
|
12,596 |
|
|
|
12,261 |
|
Intangible assets, net
|
|
|
119 |
|
|
|
183 |
|
Other assets
|
|
|
10 |
|
|
|
10 |
|
Total assets
|
|
$ |
37,912 |
|
|
$ |
35,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable
|
|
$ |
1,454 |
|
|
$ |
1,161 |
|
Accrued expenses
|
|
|
2,591 |
|
|
|
1,759 |
|
Current maturities of long-term debt
|
|
|
77 |
|
|
|
1,766 |
|
Contract liabilities
|
|
|
4,042 |
|
|
|
1.650 |
|
Total current liabilities
|
|
|
8,164 |
|
|
|
6,336 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
349 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
8,513 |
|
|
|
6,336 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (see note 13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,760,938 at December 31, 2022 and 6,723,438 at December 31, 2021
|
|
|
67 |
|
|
|
67 |
|
Additional paid-in capital
|
|
|
27,712 |
|
|
|
27,277 |
|
Retained earnings
|
|
|
1,620 |
|
|
|
1,844 |
|
Total stockholders’ equity
|
|
|
29,399 |
|
|
|
29,188 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$ |
37,912 |
|
|
$ |
35,524 |
|
The accompanying notes are an integral part of the consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 2022 and 2021
(in thousands, except per share amounts)
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
25,813 |
|
|
$ |
16,447 |
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
19,186 |
|
|
|
13,370 |
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,627 |
|
|
|
3,077 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,906 |
|
|
|
1,785 |
|
Selling
|
|
|
1,216 |
|
|
|
864 |
|
General and administrative
|
|
|
5,328 |
|
|
|
5,092 |
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
8,450 |
|
|
|
7,741 |
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(1,823 |
) |
|
|
(4,664 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
Interest income
|
|
|
162 |
|
|
|
6 |
|
Interest expenses
|
|
|
(8 |
) |
|
|
(261 |
) |
Employee retention credits
|
|
|
1,529 |
|
|
|
- |
|
Foreign exchange loss
|
|
|
(95 |
) |
|
|
(143 |
) |
Gain on sale of building
|
|
|
- |
|
|
|
6,894 |
|
Gain on debt extinguishment
|
|
|
- |
|
|
|
2,443 |
|
Other income
|
|
|
15 |
|
|
|
500 |
|
Total other income, net
|
|
|
1,603 |
|
|
|
9,439 |
|
|
|
|
|
|
|
|
|
|
(Loss) income before income tax
|
|
|
(220 |
) |
|
|
4,775 |
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
4 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(224 |
) |
|
$ |
4,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(0.03 |
) |
|
$ |
0.71 |
|
Diluted
|
|
$ |
(0.03 |
) |
|
$ |
0.71 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
6,734 |
|
|
|
6,688 |
|
Diluted
|
|
|
6,734 |
|
|
|
6,704 |
|
The accompanying notes are an integral part of the consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
Years ended December 31, 2022 and 2021
(in thousands)
|
|
Common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
Additional
paid-in
Capital
|
|
|
Retained
Earnings /
(Accumulated
Deficit)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2021
|
|
|
6,679 |
|
|
$ |
67 |
|
|
$ |
26,962 |
|
|
$ |
(2,903 |
) |
|
$ |
24,126 |
|
Net income
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,747 |
|
|
|
4,747 |
|
Stock-based compensation
|
|
|
44 |
|
|
|
- |
|
|
|
315 |
|
|
|
- |
|
|
|
315 |
|
Balance at December 31, 2021
|
|
|
6,723 |
|
|
$ |
67 |
|
|
$ |
27,277 |
|
|
$ |
1,844 |
|
|
$ |
29,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(224 |
) |
|
|
(224 |
) |
Stock-based compensation
|
|
|
37 |
|
|
|
- |
|
|
|
435 |
|
|
|
- |
|
|
|
435 |
|
Balance at December 31, 2022
|
|
|
6,760 |
|
|
$ |
67 |
|
|
$ |
27,712 |
|
|
$ |
1,620 |
|
|
$ |
29,399 |
|
The accompanying notes are an integral part of the consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2022 and 2021
(in thousands)
|
|
2022
|
|
|
2021
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$ |
(224 |
) |
|
$ |
4,747 |
|
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities |
|
|
|
|
|
|
|
|
Gain on sale of building
|
|
|
- |
|
|
|
(6,894 |
) |
Gain on debt extinguishment
|
|
|
- |
|
|
|
(2,443 |
) |
Stock-based compensation
|
|
|
435 |
|
|
|
315 |
|
Depreciation and amortization
|
|
|
867 |
|
|
|
742 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,342 |
) |
|
|
(399 |
) |
Contract assets
|
|
|
368 |
|
|
|
(2,044 |
) |
Inventories
|
|
|
(1,313 |
) |
|
|
(101 |
) |
Income tax receivable
|
|
|
716 |
|
|
|
- |
|
Employee retention credit receivable
|
|
|
(1,529 |
) |
|
|
- |
|
Other current assets
|
|
|
(301 |
) |
|
|
220 |
|
Accounts payable
|
|
|
293 |
|
|
|
343 |
|
Accrued expenses
|
|
|
832 |
|
|
|
377 |
|
Contract liabilities
|
|
|
2,392 |
|
|
|
864 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
194 |
|
|
|
(4,273 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Net proceeds from sale of building
|
|
|
- |
|
|
|
23,076 |
|
Net proceeds from sale of equipment
|
|
|
10 |
|
|
|
- |
|
Capital expenditures
|
|
|
(665 |
) |
|
|
(236 |
) |
Capitalized patent costs
|
|
|
(53 |
) |
|
|
- |
|
Net cash (used in) provided by investing activities
|
|
|
(708 |
) |
|
|
22,840 |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(1,772 |
) |
|
|
(9,615 |
) |
Net cash used in financing activities
|
|
|
(1,772 |
) |
|
|
(9,615 |
) |
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(2,286 |
) |
|
|
8,952 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
16,651 |
|
|
|
7,699 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$ |
14,365 |
|
|
$ |
16,651 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$ |
1 |
|
|
$ |
28 |
|
Interest paid
|
|
$ |
8 |
|
|
$ |
261 |
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Loan obtained for new equipment
|
|
$ |
432 |
|
|
$ |
- |
|
The accompanying notes are an integral part of the consolidated financial statements
F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 1 – Business Description
CVD Equipment Corporation and its subsidiaries (the “Company”) is a New York corporation. Its principal business activities include designing, developing, and manufacturing a broad range of chemical vapor deposition, physical vapor transport, gas control, and other equipment and process solutions used to develop and manufacture materials and coatings for industrial applications and research. Its products are used in production environments as well as research and development centers, both academic and corporate.
We conduct our business through three reportable operating segments: i) CVD Equipment that supplies chemical vapor deposition, physical vapor transport and thermal process equipment; ii) SDC that designs and manufactures ultra-high purity gas and chemical delivery control systems; and iii) CVD Materials that provide products related to advanced materials and coatings.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Liquidity
At December 31, 2022, the Company had $14.4 million in cash and cash equivalents. The Company anticipates that the existing cash and cash equivalents balance together with future income from operations, collections of existing accounts receivable, revenue from its existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet its working capital and capital equipment requirements, and its anticipated cash needs over the next 12 months from the date of issuance of the accompanying Form 10-K.
Reclassifications
In addition, certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net (loss) income.
Principles of Consolidation
The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company’s significant estimates are the accounting for certain items such as revenues on long-term contracts recognized on the input method, valuation of inventories at the lower of cost or net realizable value; allowance for doubtful accounts receivable; valuation allowances for deferred tax assets, estimated lives and impairment considerations of long-lived assets and valuation of stock-based compensation.
Revenue Recognition
In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 specialized chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within three to twelve months from commencement of order acceptance. The Company recognizes revenue from system sales over time by using an input method based on costs incurred as it depicts the Company’s 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 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 no material impairment losses recognized on contract assets during the years ended December 31, 2022 and 2021.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
The timing of revenue recognition, billings and collections results in receivables, unbilled receivables (referred to as 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.
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 order 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”.
Inventories
Inventories are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
Income Taxes
Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statements and tax bases of assets and liabilities, as measured by using the future enacted tax rates. Deferred tax expense (benefit) is the result of changes in the deferred tax assets and liabilities. The Company records a valuation allowance against deferred tax assets when it is more likely than not that future tax benefits will not be utilized based on a lack of sufficient positive evidence.
Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statements and tax bases of assets and liabilities, as measured by using the future enacted tax rates. Deferred tax expense (benefit) is the result of changes in the deferred tax assets and liabilities. The Company records a valuation allowance against deferred tax assets when it is more likely than not that future tax benefits will not be utilized based on a lack of sufficient positive evidence.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not the tax position will be sustained on examination by taxing authorities based on the technical merits of the position and (2) for those positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.
The Company’s policy for global intangible low taxed income (“GILTI”) is to treat such amounts as a period cost when incurred.
Impairment of Long-Lived Assets and Intangibles
Long-lived assets consist primarily of property, plant, and equipment. Intangibles consist of patents, copyrights and intellectual property, licensing agreements and certifications. 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 the FASB 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 its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for buildings and building improvements over 5 to 39 years and for machinery and equipment over 5 to 8 years. Depreciation and amortization of assets used in manufacturing are recorded in cost of revenue. Depreciation and amortization of all other assets are recorded as operating expenses.
Intangible Assets
The cost of intangible assets is being amortized on a straight-line basis over their estimated initial useful lives which ranged from 5 to 20 years.
Research and development
Research and development costs are expensed as incurred and include charges for the development of new technology and transition of existing technology into new products.
Product Warranty
The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance or fifteen months from the date of shipment by providing labor and parts necessary to repair the systems during the warranty period. The Company records the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of revenue” in the Consolidated Statements of Operations. The estimated warranty cost is based on the Company’s historical cost. The Company updates its warranty estimates based on actual costs incurred.
Earnings Per Share
Basic earnings per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during each period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be adjusted upon exercise of common stock options, unvested restricted shares and warrants.
Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
Cash and Cash Equivalents
The Company had cash and cash equivalents of $14.4 million and $16.7 million at December 31, 2022 and 2021, respectively. The Company invests excess cash in treasury bills, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents were $11.7 million and $7.0 million at December 31, 2022 and 2021, respectively.
The Company places most of its temporary cash investments with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount in excess of the limit at December 31, 2022 and 2021 was $1.5 million and $8.6 million respectively. The Company’s cash in our Denmark subsidiary exceeded the government guarantee limit by approximately $0.5 million and $0.4 million at December 31, 2022 and 2021, respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company places its cash equivalents with financial institutions and invests its excess cash primarily in treasury bills, certificates of deposit or deposit accounts. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity.
The Company routinely assesses the financial strength of its customers and maintains allowances for anticipated losses based upon historical experience.
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. The Company has accounts receivables from certain customers that exceed 10%. As of December 31, 2022, the accounts receivable balance includes amounts from two customers that totals 66% of total accounts receivable, and as of December 31, 2021, two customers totaled 50% of total accounts receivable.
Accounts receivable is presented net of an allowance for doubtful accounts of $36,000 and $59,000 as of December 31, 2022 and 2021, respectively. The allowance is based on historical experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may fluctuate based on changes in economic and customer conditions. The Company does not require collateral from its customers.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
Sales Concentrations
Revenue to a single customer in any one year can exceed 10% of our total sales. There was one customer in the year ended December 31, 2022 that represented 29.2% of our revenues, while there were no customers that exceed 10% of total sales in the year ended December 31, 2021. The loss of a large customer could have a material adverse effect on the Company’s business and financial condition.
Export sales to customers represented approximately 17% and 26% of sales for the years ended December 31, 2022 and 2021, respectively. Export sales in both 2022 and 2021 were primarily to customers in Europe and Asia. All contracts except those entered into by the Company’s subsidiary in Denmark are denominated in U.S. dollars. The Company has not entered into any foreign exchange contracts.
Supplier Risk
The Company relies on suppliers to manufacture many of the components and subassemblies used in its products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a material and adverse effect on its business and operating results. Some of the components and technologies used in the Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and delivery of its products or cause it to carry excess or obsolete inventory and could cause it to redesign its products.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable, contract assets and contract liabilities approximate fair value due to the relatively short-term maturity of these instruments. The carrying value of long-term debt approximates fair value based on prevailing borrowing rates currently available for loans with similar terms and maturities.
Stock-Based Compensation
The Company records stock-based compensation in accordance with the provisions set forth in ASC 718, “Stock Compensation”. ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards over the vesting period. The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and includes assumptions regarding expected volatility, expected option term, dividend yields and risk-free interest rates.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 2 - Summary of Significant Accounting Policies (continued)
Shipping and Handling
It is the Company’s policy to include freight charges billed to customers in total revenue. The amount included in revenue was $87,000 and $30,000 for the years ended December 31, 2022 and 2021, respectively.
Recently Issued Accounting Standards
In June 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. On November 15, 2019, the FASB delayed the effective date for smaller reporting companies. The amendments in this update are now effective for fiscal years beginning after December 15, 2022 and interim periods within those annual periods. Management believes that the adoption of this new standard will not have a material impact on the Company’s financial position or results of operations.
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.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 3 – Revenue
The following table represents a disaggregation of revenue from contracts by end markets for the years ended December 31, 2022 and 2021 (in thousands):
|
|
Year Ended December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over time
|
|
|
Point in time
|
|
|
Total
|
|
Energy
|
|
$ |
9,094 |
|
|
$ |
58 |
|
|
$ |
9,152 |
|
Aerospace
|
|
|
95 |
|
|
|
1,527 |
|
|
|
1,622 |
|
Industrial
|
|
|
5,961 |
|
|
|
4,856 |
|
|
|
10,817 |
|
Research
|
|
|
2,807 |
|
|
|
1,415 |
|
|
|
4,222 |
|
Total
|
|
$ |
17,957 |
|
|
$ |
7,856 |
|
|
$ |
25,813 |
|
|
|
Year Ended December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Over time
|
|
|
Point in time
|
|
|
Total
|
|
Energy
|
|
$ |
1,141 |
|
|
$ |
- |
|
|
$ |
1,141 |
|
Aerospace
|
|
|
386 |
|
|
|
2,214 |
|
|
|
2,600 |
|
Industrial
|
|
|
4,989 |
|
|
|
3,863 |
|
|
|
8,852 |
|
Research
|
|
|
2,294 |
|
|
|
1,560 |
|
|
|
3,854 |
|
Total
|
|
$ |
8,810 |
|
|
$ |
7,637 |
|
|
$ |
16,447 |
|
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 that are universities and other research institutions.
The Company has unrecognized contract revenue of approximately $16.2 million at December 31, 2022, which it expects to recognize as revenue within the next twelve months.
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.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 3 – Revenue (continued)
Changes in estimates for sales of systems 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 consolidated financial position and results of operations.
Contract assets and contract liabilities on input method type contracts in progress are summarized at December 31 as follows (in thousands):
|
|
2022
|
|
|
2021
|
|
Costs incurred on contracts in progress
|
|
$ |
14,390 |
|
|
$ |
7,419 |
|
Estimated earnings
|
|
|
10,926 |
|
|
|
5,071 |
|
|
|
|
25,316 |
|
|
|
12,490 |
|
Billings to date
|
|
|
(26,925 |
) |
|
|
(11,409 |
) |
|
|
|
(1,609 |
) |
|
|
1,081 |
|
Deferred revenue related to non-systems contracts
|
|
|
(263 |
) |
|
|
(193 |
) |
|
|
$ |
(1,872 |
) |
|
$ |
888 |
|
Included in accompanying consolidated balance sheets under the following captions (in thousands): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract assets
|
|
$ |
2,170 |
|
|
$ |
2,538 |
|
Contract liabilities
|
|
$ |
4,042 |
|
|
$ |
1,650 |
|
Of the contract liability balances at December 31, 2021 and December 31, 2020, $1.7 million and $0.8 million was recognized as revenue during the years ended December 31, 2022 and 2021, respectively.
Note 4 - Inventories
Inventories as of December 31 consist of (in thousands):
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$ |
2,165 |
|
|
$ |
1,031 |
|
Work-in-process
|
|
|
373 |
|
|
|
194 |
|
Total
|
|
$ |
2,538 |
|
|
$ |
1,225 |
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 5 – Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following as of December 31 (in thousands):
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$ |
2,220 |
|
|
$ |
2,220 |
|
Buildings and improvements
|
|
|
12,530 |
|
|
|
12,477 |
|
Machinery and equipment
|
|
|
7,810 |
|
|
|
6,879 |
|
Construction in progress
|
|
|
12 |
|
|
|
127 |
|
Totals at cost
|
|
|
22,572 |
|
|
|
21,703 |
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(9,976 |
) |
|
|
(9,441 |
) |
Property, plant and equipment, net
|
|
$ |
12,596 |
|
|
$ |
12,261 |
|
Machinery and equipment also includes furniture and fixtures and software.
Depreciation expense was $0.8 million and $0.6 million for the years ended December 31, 2022 and 2021, respectively.
On March 29, 2021, the Company entered into an agreement with a third party for the sale of its facility located at 555 S. Technology Drive in Central Islip, New York (the “555 Building”), and on July 26, 2021, the Company closed on the sale. The sale price was $24.4 million, subject to adjustment for apportionments, adjustments, and credits. A portion of the sale proceeds was used to satisfy the existing mortgage debt on the 555 Building, including interest and fees, in the amount of $9.4 million, as well as various costs related to the closing of the transaction. The Company recognized a gain on the sale of the building in the amount of $6.9 million and received approximately $14.0 million in net proceeds.
Management had determined the 555 Building was not needed for business operations, and the remaining elements of the CVD Materials business located in the 555 Building were consolidated into the 355 Building.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 6 – Intangible Assets
Intangible assets consisted of the following (in thousands):
December 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
$ |
565 |
|
|
$ |
446 |
|
|
$ |
119 |
|
Certifications
|
|
|
54 |
|
|
|
54 |
|
|
|
- |
|
Totals
|
|
$ |
619 |
|
|
$ |
500 |
|
|
$ |
119 |
|
December 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Patents
|
|
$ |
602 |
|
|
$ |
422 |
|
|
$ |
180 |
|
Certifications
|
|
|
54 |
|
|
|
51 |
|
|
|
3 |
|
Totals
|
|
$ |
656 |
|
|
$ |
473 |
|
|
$ |
183 |
|
Amortization expense was $0.1 million in both years ended December 31, 2022 and 2021.
The estimated amortization expense related to intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2022 is as follows (in thousands):
Year Ended
|
|
|
|
|
2023 |
|
$ |
17 |
|
2024 |
|
|
13 |
|
2025 |
|
|
13 |
|
2026 |
|
|
5 |
|
2027 |
|
|
5 |
|
Thereafter |
|
|
66 |
|
Total |
|
$ |
119 |
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 7 – Accrued expenses
Accrued expenses consist of the following as of December 31 (in thousands):
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Accrued wages and benefits
|
|
$ |
995 |
|
|
$ |
577 |
|
Accrued vacation
|
|
|
905 |
|
|
|
749 |
|
Other
|
|
|
691 |
|
|
|
433 |
|
Total accrued expenses
|
|
$ |
2,591 |
|
|
$ |
1,759 |
|
Note 8 – Long-term Debt
Long-term debt as of December 31 consist of the following (in thousands, except percentages and amounts in notes):
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Equipment loan payable in monthly repayments of $8 including interest at 6% per annum (1)
|
|
$ |
426 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Mortgage loan secured by building payable in monthly repayments of $25 plus interest at LIBOR plus 1.75% or bank’s prime rate minus 0.5% (2)
|
|
|
- |
|
|
|
1,766 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
426 |
|
|
|
1,766 |
|
Less: current maturities
|
|
|
77 |
|
|
|
1,766 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current maturities
|
|
$ |
349 |
|
|
$ |
- |
|
Future maturities of long-term debt as of December 31, 2022 are as follows (in thousands):
|
2023 |
|
$ |
77 |
|
2024 |
|
|
81 |
|
2025 |
|
|
87 |
|
2026 |
|
|
92 |
|
2027 |
|
|
89 |
|
|
|
|
|
|
Total
|
|
$ |
426 |
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 8 – Long-term Debt (continued)
|
(1)
|
In September 2022, the Company entered into a loan agreement to fund the acquisition of machinery equipment. The loan amount of $432,000 is payable in 60 equal monthly installments of $8,352 and secured by equipment. The interest rate is 6%.
|
|
(2)
|
The Company had a loan agreement with a bank that was secured by a mortgage against its Central Islip, New York facility. The loan was payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment due upon maturity on March 1, 2022. The interest rate, at the Company’s option, was the variable rate of LIBOR plus 1.75% or the bank’s prime less 0.5% (1.86% at December 31, 2021). This loan was satisfied on March 1, 2022.
|
In November 2017, the Company purchased the premises located at 555 North Research Place, Central Islip, New York. The purchase price of the building was $13.9 million exclusive of closing costs. The Company entered into a loan agreement with a bank in the amount of $10.4 million to finance a portion of the purchase price. The loan was payable in 60 consecutive equal monthly installments of $62,481 including interest at the fixed rate of 3.92%, and a final balloon payment upon maturity in December 2022. On July 26, 2021, the Company closed on the sale of the 555 Building and satisfied the loan (Note 5).
On April 2020, the Company entered into a loan agreement with a bank pursuant to which the Company was granted a loan (the “PPP loan”) in the principal amount of $2.4 million, pursuant to the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), which was enacted by the U.S. Congress in March 2020. The PPP loan was to mature on April 21, 2022 and bore interest at a rate of 1% per annum. Under the terms of the PPP loan program, all or a portion of the PPP loan could be forgiven, based upon payments made in the first 24 weeks following receipt of the proceeds, related to payroll costs, continued payment of group health care benefits, utilities and mortgage interest on other debt obligations incurred before February 15, 2020. The Company filed an application for forgiveness in April 2021 and in June 2021 the Company received a notification from its bank that the U.S. Small Business Administration had approved the Company’s PPP loan forgiveness application and remitted payment to the lender for the entire principal amount of the PPP Loan and accrued interest. The Company has recognized a gain on debt extinguishment of $2.4 million in the year ended December 31, 2021.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 9 – Earnings per Share
The calculation of basic and diluted weighted average common shares outstanding as of December 31 is as follows (in thousands):
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
|
|
6,734 |
|
|
|
6,688 |
|
Effect of potentially dilutive share-based awards
|
|
|
- |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
|
|
6,734 |
|
|
|
6,704 |
|
At December 31, 2022, stock options to purchase 673,000 shares of common stock were outstanding and 265,500 were exercisable. At December 31, 2021, stock options to purchase 618,500 shares of common stock were outstanding and 265,000 were exercisable.
At December 31, 2022 and 2021, 673,000 and 287,000, stock options, respectively, were not included in the computation of diluted earnings per share because their effect was antidilutive.
Note 10 – Income Taxes
The expense/(benefit) for income taxes for the years ended December 31 includes the following (in thousands):
|
|
2022
|
|
|
2021
|
|
Current: |
|
|
|
|
|
|
|
|
Federal
|
|
$ |
1 |
|
|
$ |
15 |
|
State
|
|
|
3 |
|
|
|
13 |
|
Total current tax provision
|
|
|
4 |
|
|
|
28 |
|
Deferred: |
|
|
|
|
|
|
|
|
Federal
|
|
|
- |
|
|
|
- |
|
State
|
|
|
- |
|
|
|
- |
|
Total deferred tax provision
|
|
|
- |
|
|
|
- |
|
Income tax expense
|
|
$ |
4 |
|
|
$ |
28 |
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 10 – Income Taxes (continued)
The reconciliation of the federal statutory income tax rate to our effective tax rate for the years ended December 31 is as follows (in thousands):
|
|
2022
|
|
|
2021
|
|
Expected provision at federal statutory tax rate at 21%
|
|
$ |
(46 |
) |
|
$ |
1,003 |
|
PPP loan forgiveness
|
|
|
- |
|
|
|
(513 |
) |
Decrease in valuation allowance
|
|
|
(33 |
) |
|
|
(346 |
) |
State and local taxes
|
|
|
84 |
|
|
|
6 |
|
Foreign tax rate differential
|
|
|
4 |
|
|
|
(116 |
) |
US taxation of foreign operations
|
|
|
80 |
|
|
|
- |
|
Federal research and development credits
|
|
|
(55 |
) |
|
|
(57 |
) |
Change in tax rates
|
|
|
10 |
|
|
|
- |
|
Non-deductible expenses
|
|
|
62 |
|
|
|
51 |
|
Other
|
|
|
(102 |
) |
|
|
- |
|
Income tax expense
|
|
$ |
4 |
|
|
$ |
28 |
|
The tax effects of temporary differences giving rise to significant portions of the net deferred taxes as of December 31 are as follows (in thousands):
|
|
2022
|
|
|
2021
|
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$ |
482 |
|
|
$ |
808 |
|
R&D tax credit carryforwards
|
|
|
1,723 |
|
|
|
1,672 |
|
Impairment charges
|
|
|
- |
|
|
|
723 |
|
Compensation costs
|
|
|
10 |
|
|
|
149 |
|
Vacation accrual
|
|
|
174 |
|
|
|
141 |
|
Intangible assets
|
|
|
27 |
|
|
|
- |
|
Capitalized research and development
|
|
|
356 |
|
|
|
- |
|
Other items
|
|
|
263 |
|
|
|
114 |
|
Deferred income tax assets
|
|
|
3,035 |
|
|
|
3,607 |
|
Less: valuation allowance
|
|
|
(2,957 |
) |
|
|
(2,990 |
) |
Deferred income tax assets, net of valuation allowance
|
|
|
78 |
|
|
|
617 |
|
Deferred incomes tax liability:
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
(11 |
) |
|
|
(617 |
) |
Prepaid expenses
|
|
|
(67 |
) |
|
|
- |
|
Deferred income tax asset, net
|
|
$ |
- |
|
|
$ |
- |
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 10 – Income Taxes (continued)
In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. A significant piece of objective negative evidence evaluated was cumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. Based on the weight of available evidence, the Company determined that its U.S. deferred tax assets are not realizable on a more-likely-than-not basis and has recorded a valuation allowance against its net U.S. deferred tax assets. The Company’s valuation allowance decreased by $33,000 during 2022. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly.
At December 31, 2022, the Company had $1.4 million of U.S. federal net operating loss carryforwards. These net operating losses have an indefinite carryforward period but are only available to offset 80% of future taxable income. The Company also has $1.7 million of federal research and development tax credits which expire in varying amounts in tax years 2028 through 2042. The Company has Denmark net operating losses of $0.7 million which have an indefinite carryforward period.
In connection with the CARES Act, the Company was able to carryback net operating losses generated in 2020 to its 2018 tax year. As of December 31, 2021, the Company has an income tax receivable of $0.7M which was received during the year ended December 31, 2022.
The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2022 and 2021, the Company had no uncertain tax positions. The Company does not expect that its unrecognized tax benefits will significantly increase or decrease within twelve months.
The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions and in Denmark. The federal tax years open to examination are 2019 to 2022. The Company's state and local tax years that are open to tax examination are generally 2018 to 2022.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 10 – Income Taxes (continued)
The Inflation Reduction Act (“IRA”) and Chips and Science Act (“CHIPS Act”) were both enacted in August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities. Both the IRA and CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no impact to the Company’s consolidated financial statements for the year ended December 31, 2022.
Note 11 – Employee Retention Credit
During 2022, the Company conducted an analysis as to whether it was entitled to employee retention credits (“ERC”) under the CARES Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Plan Act of 2021. Based on the analysis, the Company determined that it was entitled to an ERC of approximately $1.5 million related to payroll paid in the first and third quarters of 2021 under the applicable Internal Revenue Service regulations related to ERCs.
As ERCs are not within the scope of ASC 740, Income Taxes, the Company has chosen to account for the ERCs by analogizing to the International Standard IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. Accordingly, the Company recognized a non-current receivable of $1.5 million as of December 31, 2022 and other income of $1.5 million for the year ended December 31, 2022.
Note 12 – Stock-Based Compensation
A summary of the Company’s Share Incentive Plans are as follows:
2007 Share Incentive Plan
On December 12, 2007, shareholders approved the Company’s 2007 Share Incentive Plan (“2017 Incentive Plan”), in connection therewith, 750,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2017 Incentive Plan through December 12, 2017. The Plan expired in December 2017. As of December 31, 2022, there were 120,000 options outstanding under this plan.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 12 – Stock-Based Compensation (continued)
2016 Share Incentive Plan
On December 9, 2016, shareholders approved the Company’s 2016 Share Incentive Plan (“2016 Incentive Plan”), in connection therewith, 750,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2016 Incentive Plan through December 9, 2026. As of December 31, 2022, there were 477,000 options outstanding under this plan.
2022 Share Incentive Plan
On July 14, 2022, shareholders approved the Company’s 2022 Share Incentive Plan (“2022 Incentive Plan”), in connection therewith, 515,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2022 Incentive Plan through July 14, 2032. As of December 31, 2022, there were 76,000 options outstanding under this plan.
Under the 2016 and 2022 Share Incentive Plans, the purchase price of the common stock under each option plan shall be determined by the Committee, provided, however, that such purchase price shall not be less than the fair market value of the shares on the date such option is granted. The stock options generally expire seven to ten years after the date of grant.
As of December 31, 2022, there were 27,698 shares available for grant under the 2016 Equity Incentive Plan and 439,000 shares available for grant under the 2022 Equity Incentive Plan.
The Company recorded stock-based compensation of $0.4 million and $0.3 million for the years ended December 31, 2022 and 2021, respectively, that were included in the following line items in our Consolidated Statements of Operations (in thousands):
|
|
2022
|
|
|
2021
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$ |
34 |
|
|
$ |
30 |
|
Research and development
|
|
|
57 |
|
|
|
7 |
|
Selling
|
|
|
27 |
|
|
|
10 |
|
General and administrative
|
|
|
317 |
|
|
|
268 |
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$ |
435 |
|
|
$ |
315 |
|
Stock-based compensation expense in both years included approximately $0.16 million related to restricted stock awards pursuant to a Director Compensation plan discussed below. The Company recognizes forfeitures of stock awards as they occur.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 12 – Stock-Based Compensation (continued)
For the year ended December 31, 2022, the Company granted 198,500 stock options, vesting 25% per year over four years, with a ten-year life. The Company determined the fair value of stock options granted during the year ended December 31, 2022 is based upon weighted average assumptions as provided below.
Stock price
|
|
$ |
5.03 |
|
Exercise price
|
|
$ |
5.03 |
|
Dividend yield
|
|
|
0 |
% |
Expected volatility
|
|
|
68 |
% |
Risk-free interest rate
|
|
|
3.09 |
% |
Expected life (in years)
|
|
|
6 |
|
The Company has 673,000 of outstanding stock options under the three plans at December 31, 2022.
The following table summarizes stock options awards for the years ended December 31, 2022 and 2021:
|
|
Awards
(in Shares)
|
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2020
|
|
|
417,000 |
|
|
$ |
11.26 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
333,500 |
|
|
|
4.13 |
|
Expired / cancelled
|
|
|
(132,000 |
) |
|
|
11.73 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
Outstanding at December 31, 2021
|
|
|
618,500 |
|
|
|
7.32 |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
198,500 |
|
|
|
5.04 |
|
Expired / cancelled
|
|
|
(144,000 |
) |
|
|
11.72 |
|
Exercised
|
|
|
- |
|
|
|
- |
|
Outstanding at December 31, 2022
|
|
|
673,000 |
|
|
$ |
5.70 |
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 12 – Stock-Based Compensation (continued)
The following table summarizes information about the outstanding and exercisable options at December 31, 2022:
|
|
|
|
|
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
|
|
$ 4.00 |
- |
7.00 |
|
|
|
533,000 |
|
|
|
8.6 |
|
|
$ |
4.53 |
|
|
$ |
492,765 |
|
|
|
125,500 |
|
|
$ |
4.44 |
|
|
$ |
111,375 |
|
$ 7.01 |
- |
10.00 |
|
|
|
20,000 |
|
|
|
5.3 |
|
|
$ |
8.07 |
|
|
$ |
- |
|
|
|
20,000 |
|
|
$ |
8.07 |
|
|
$ |
- |
|
$ 10.01 |
- |
12.00 |
|
|
|
120,000 |
|
|
|
4.2 |
|
|
$ |
10.52 |
|
|
$ |
- |
|
|
|
120,000 |
|
|
$ |
10.52 |
|
|
$ |
- |
|
As of December 31, 2022, there was $1.1 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 2.9 years.
Restricted Stock Awards
The following table summarizes restricted stock awards for the years ended December 31, 2022 and 2021:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average Grant
|
|
|
|
Shares of
|
|
|
Date Fair
|
|
|
|
Restricted Stock
|
|
|
Value
|
|
Unvested outstanding at January 1, 2021
|
|
|
- |
|
|
$ |
- |
|
Granted
|
|
|
42,800 |
|
|
|
4.65 |
|
Vested
|
|
|
(36,000 |
) |
|
|
4.60 |
|
Forfeited or cancelled
|
|
|
(6,800 |
) |
|
|
4.90 |
|
Unvested outstanding at December 31, 2021
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
32,000 |
|
|
|
5.02 |
|
Vested
|
|
|
(32,000 |
) |
|
|
5.02 |
|
Forfeited or cancelled
|
|
|
- |
|
|
|
- |
|
Unvested outstanding at December 31, 2022
|
|
|
- |
|
|
$ |
- |
|
Pursuant to the Director Compensation plan approved on October 11, 2021, each of the four independent directors is entitled to compensation for an annual equity retainer in the amount of $40,000 per director, to be automatically granted on the date of the Company’s annual meeting of shareholders.
During the year ended December 31, 2022 and 2021, the Company’s directors received 32,000 and 36,000 shares, respectively, of restricted stock.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 12 – Stock-Based Compensation (continued)
The fair value of the restricted stock awards is recorded as stock-based compensation expense over the vesting period and totaled $0.16 million in both years ending December 31, 2022 and 2021.
Restricted Stock Units
The following table summarizes restricted stock units for the years ended December 31, 2022 and December 31, 2021:
|
|
|
|
|
|
Weighted
|
|
|
|
Shares of
|
|
|
Average Grant
|
|
|
|
Restricted
|
|
|
Date Fair
|
|
|
|
Stock Units
|
|
|
Value
|
|
Unvested outstanding at January 1, 2021
|
|
|
8,750 |
|
|
$ |
5.00 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(3,250 |
) |
|
|
5.29 |
|
Forfeited or cancelled
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Unvested outstanding at December 31, 2021
|
|
|
5,500 |
|
|
|
4.82 |
|
Granted
|
|
|
- |
|
|
|
- |
|
Vested
|
|
|
(5,500 |
) |
|
|
4.82 |
|
Forfeited or cancelled
|
|
|
- |
|
|
|
- - |
|
|
|
|
|
|
|
|
|
|
Unvested outstanding at December 31, 2022
|
|
|
- |
|
|
$ |
- |
|
The total intrinsic value related to fully vested restricted stock units was $22,745 and $38,000 respectively for the years ended December 31, 2022 and 2021.
Note 13 – Defined Contribution Plan
The Company maintains a 401(k) Plan for the benefit of all eligible employees. All employees as of the effective date of the 401(k) Plan became eligible. An employee is eligible to become a participant after three months of continuous service.
Participants may elect to contribute from their compensation any amount up to the maximum deferral allowed by the Internal Revenue Code. Employer contributions are optional.
Effective July 1, 2022, the Company implemented a matching contribution of 50% of an employee’s contributions up to 6% of their compensation. The Company recorded compensation expense of $89,622 during the year ended December 31, 2022 for matching contributions to the 401(k) plan.
No discretionary employer contribution has been made for 2022 and 2021.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 14 – Segment Reporting
The Company operates through three segments: CVD Equipment , Stainless Design Concepts (“SDC”) and CVD Materials . The CVD Equipment segment manufactures and sells chemical vapor deposition, physical vapor transport and similar equipment. SDC manufactures ultra-high purity gas control systems. The CVD Materials segment provides material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income (loss) before taxes.
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 shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense.
Elimination entries included in the “Eliminations” column represent intersegment revenues and cost of revenues that are eliminated in consolidation. Intersegment sales for the year ended December 31, 2022 and 2021 by the SDC segment to the CVD Equipment segment were $573,000 and $346,000, respectively.
The following table presents certain information regarding the Company’s segments as of and for the years ended December 31, 2022 and December 31, 2021 (in thousands, including amount in notes):
2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD
Equipment
|
|
|
SDC
|
|
|
CVD
Materials
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
$ |
25,287 |
|
|
$ |
9,679 |
|
|
$ |
2,946 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
37,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
16,674 |
|
|
$ |
6,541 |
|
|
$ |
3,171 |
|
|
$ |
- |
|
|
$ |
(573 |
) |
|
$ |
25,813 |
|
Operating (loss) income
|
|
|
(1,430 |
) |
|
|
1,546 |
|
|
|
1,050 |
|
|
|
(2,989 |
) |
|
|
- |
|
|
|
(1,823 |
) |
Pretax (loss) income (1)
|
|
|
(156 |
) |
|
|
1,849 |
|
|
|
1,076 |
|
|
|
(2,989 |
) |
|
|
- |
|
|
|
(220 |
) |
Depreciation and amortization
|
|
$ |
652 |
|
|
$ |
49 |
|
|
$ |
166 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
867 |
|
Purchases of property, plant & equipment
|
|
$ |
623 |
|
|
$ |
3 |
|
|
$ |
39 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
665 |
|
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD
Equipment
|
|
|
SDC
|
|
|
CVD
Materials
|
|
|
Corporate
|
|
|
Eliminations
|
|
|
Consolidated
|
|
Assets
|
|
$ |
26,360 |
|
|
$ |
7,409 |
|
|
$ |
1,755 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
35,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
8,590 |
|
|
$ |
4,849 |
|
|
$ |
3,354 |
|
|
$ |
- |
|
|
$ |
(346 |
) |
|
$ |
16,447 |
|
Operating (loss) income
|
|
|
(3,454 |
) |
|
|
922 |
|
|
|
1,053 |
|
|
|
(3,185 |
) |
|
|
- |
|
|
|
(4,664 |
) |
Pretax (loss) income
|
|
|
(1,055 |
) (2) |
|
|
922 |
|
|
|
8,093 |
(3) |
|
|
(3,185 |
) |
|
|
- |
|
|
|
4,775 |
|
Depreciation and amortization
|
|
$ |
533 |
|
|
$ |
52 |
|
|
$ |
157 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
742 |
|
Purchases of property, plant & equipment
|
|
$ |
106 |
|
|
$ |
31 |
|
|
$ |
99 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
236 |
|
|
(1)
|
Includes other income related to ERCs of $1,103, $303 and $123 for the CVD, SDC and Materials segments, respectively.
|
|
(2)
|
Includes $2,443 from the gain on debt extinguishment related to the forgiveness of the PPP loan.
|
|
(3)
|
Includes $6,894 from the gain on the sale of building.
|
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 15 – Risks and Uncertainties
The Company currently operates in a challenging economic environment as the global economy continues to confront the remaining impacts from the pandemic, geopolitical conflicts, inflationary pressures, and adverse supply chain disruptions. The specific impacts on the Company have included:
|
●
|
Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have and may continue to restrict the Company’s ability to procure raw materials and components such as nickel and integrated circuits, as well as impact the Company’s ability to sell its products into China, Russia and other Eastern European and Asian regions.
|
|
●
|
Supply chain disruptions have led to much longer lead times to acquire raw materials for production and has led to inflationary pressures in both materials and labor. These supply chain disruptions have impacted the Company’s ability to recognize revenue more timely as it delays the Company’s manufacturing processes.
|
|
●
|
The pandemic’s impact on long distance air travel resulted in a reduction in orders for the Company’s aerospace equipment products that adversely affected the Company’s revenues since the start of the pandemic.
|
While management has initiated actions to mitigate the potential negative impacts to its revenue and profitability, the Company is unable to predict the impact that the above uncertainties may have on its future results of operations and cash flows.
CVD Equipment (NASDAQ:CVV)
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