CVD EQUIPMENT CORP 10-K

Item 9A. Controls and Procedures. 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, management of the Company, 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 December 31, 2020. 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-K, 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. 46 Management ’ s Annual Report on Internal Control Over Financial Reporting. Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a – 15(f) of the Exchange Act). There are inherent limitations to the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time. We have assessed the effectiveness of our internal controls over financial reporting (as defined in Rule 13a -15(f) of the Exchange Act) as of December 31, 2020. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework (2013)”. Management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on the criteria established by the COSO Internal Control Framework. This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report. Item 9B. Other Information. None. 47 PART III Item 10. Directors, Executive Officers, and Corporate Governance. Background and Experience of Directors When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, the Nominating, Governance and Compliance Committee focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth immediately below. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. As more specifically described in such person’s individual biographies set forth below, our directors possess relevant and industry-specific experience and knowledge in the engineering financial and business fields, as the case may be, which we believe enhances the Board’s ability to oversee, evaluate and direct our overall corporate strategy. The Nominating, Governance and Compliance Committee annually reviews and makes recommendations to the Board regarding the composition and size of the Board so that the Board consists of members with the proper expertise, skills, attributes, and personal and professional backgrounds needed by the Board, consistent with applicable regulatory requirements. The Nominating, Governance and Compliance Committee believes that all directors, including nominees, should possess the highest personal and professional ethics, integrity, and values, and be committed to representing the long-term interests of our shareholders. The Nominating, Governance and Compliance Committee will consider criteria including the nominee’s current or recent experience as a senior executive officer, whether the nominee is independent, as that term is defined in existing independence requirements of the NASDAQ Capital Market and the Securities and Exchange Commission, the business, scientific or engineering experience currently desired on the Board, geography, the nominee’s industry experience, and the nominee’s general ability to enhance the overall composition of the Board. The Nominating, Governance and Compliance Committee does not have a formal policy on diversity; however, in recommending directors, the Board and the Committee consider the specific background and experience of the Board members and other personal attributes in an effort to provide a diverse mix of capabilities, contributions and viewpoints which the Board believes enables it to function effectively as the Board of Directors of a company with our size and the nature of our business. Legal Proceedings Involving Directors None. 48 Board Leadership In January 2021, the Board appointed Lawrence J. Waldman to serve as the Chairman, which separated the positions of Chairman and CEO. Mr. Waldman also continues to serve as the Lead Independent Director. The Lead Independent Director is appointed by the Board and is responsible for coordinating the activities of the independent directors and the Chief Executive Officer of the Company to set agendas for Board meetings and chair executive sessions of the independent directors. The Lead Independent Director is also responsible for meeting, from time to time, with our Compensation Committee to discuss the Chief Executive Officer’s performance. Our Corporate Governance practices contain several features which we believe will ensure that the Board maintains effective and independent oversight of management, including the following: ● Executive sessions without management and non-independent directors present are a standing Board agenda item. Executive sessions of the independent directors are held at any time requested by an independent director and, in any event, are held in connection with at least 100% of regularly schedule Board meetings. ● The Board regularly meets in executive session with the CEO without other members of management present. ● All Board committee members are independent directors. The committee chairs have authority to hold executive sessions with management and non-independent directors present. While our Board has no formal policy with respect to separation of the positions of Chairman and CEO or with respect to whether the Chairman should be a member of management or an independent director, we believe that the creation of the position of Lead Independent Director properly facilitates better communication between the Independent Directors on the one hand and the non-Independent Directors and members of management on the other hand and leads to improved oversight and discussions by the Board as a whole. The Chief Executive Officer of the Company, Emmanuel Lakios, is tasked with the responsibility or implementing our corporate strategy, we believe he is best suited for leading discussions with input from the Lead Independent Director, at the Board level, regarding performance relative to our corporate strategy and this discussion accounts for a significant portion of the time devoted at the Board meetings. Our Certificate of Incorporation and Bylaws provide for our Company to be managed by or under the direction of the Board of Directors. Under our Certificate of Incorporation and Bylaws, the number of directors is fixed from time to time by the Board of Directors. The Board of Directors currently consists of six members. Directors are elected for a period of one year and thereafter serve, subject to the Bylaws, until the next annual meeting at which their successors are duly elected by the shareholders. 49 The following table sets for the names, ages and positions with the Company of each of our directors and executive officers, as of March 24, 2021. Name Age Position(s) with the Company Emmanuel Lakios 59 Chief Executive Officer, President Lawrence J. Waldman 74 Chairman of the Board of Directors, Lead Independent Director, Chairperson-Audit Committee Conrad J. Gunther 74 Director, Chairperson-Compensation Committee Raymond A. Nielsen 70 Director, Chairperson-Nominating, Governance and Compliance Committee Robert M Brill 74 Director Leonard A. Rosenbaum 75 Director Martin J. Teitelbaum 70 Director Thomas McNeill 58 Chief Financial Officer, Secretary and Treasurer Steven Aragon 59 Chief Operating Officer Kevin R. Collins 55 Vice President and General Manager-SDC Division Jeffrey A. Brogan 51 Vice President of Sales and Marketing Maxim Shatalov 50 Vice President of Engineering and Technology Karlheinz Strobl 61 Vice President of Business Development Emmanuel Lakios Emmanuel Lakios was appointed to President and Chief Executive Officer of the Company on January 22, 2021. Mr. Lakios joined the Company as Vice President Sales and Marketing in February 2017. Mr. Lakios has over thirty (30) years of experience serving the semiconductor, data storage and optical device industries and is the holder of several patents in the field of process equipment and device structure. From January 2015 through February 2017, Mr. Lakios was the President and Chief Executive Officer at Sensor Electronic Technology, Inc., overseeing that company’s transition from R&D to a leading global commercial UV LED supplier. From 2003 to 2011 he was the Executive Vice President of Field Operations and President and Chief Operating Officer at Imago Scientific, bringing it from pre-revenue to a commercial leadership position in the 3D atomic scale tomography field. Mr. Lakios was previously employed at Veeco Instruments Inc. from 1984 until 2003, where he held several positions, including President of the Process Equipment Group and Executive Vice President of Field Operations. He has been involved in several acquisitions and numerous product line launches. He received his BE in Mechanical Engineering with focus in Material Science from SUNY Stony Brook in 1984. 50 Lawrence J. Waldman Lawrence J. Waldman was appointed a member of the Board of Directors on October 5, 2016 and currently serves as Chairman of the Board and Chairman of the Audit Committee as well as the Lead Independent Director. Mr. Waldman has over forty years of experience in public accounting. He joined First Long Island Investors LLC, an investment and wealth management firm, as a Senior Advisor in May 2016. Prior to that Mr. Waldman served as an advisor to the accounting firm of EisnerAmper LLP, where he was previously the Partner-in-Charge of Commercial Audit Practice Development for Long Island since September 2011. Prior to joining EisnerAmper LLP, Mr. Waldman was the Partner-in-Charge of Commercial Audit Practice Development for Holtz Rubenstein Reminick, LLP from July 2006 to August 2011. Mr. Waldman was the Managing Partner of the Long Island office of KPMG LLP from 1994 through 2006, the accounting firm where he began his career in 1972. Mr. Waldman serves as a director of Apyx Medical Corporation, formerly Bovie Medical Corporation, since 2011 and he is currently the Chair of the Audit Committee and Lead Independent Director of the Board. Mr. Waldman has served as a member of the Board of Directors of Northstar/RXR Metro Income Fund, a non-traded Real Estate Investment Trust, and has served as a member of its audit committee from 2014 until October of 2018. Mr. Waldman was elected to the Board of Directors of Comtech Telecommunications Corp. in August of 2015, and since December 2015, serves as Chair of its Audit Committee. Mr. Waldman is also the Chair of the Supervisory Committee of Bethpage Federal Credit Union. Mr. Waldman previously served as a member of the State University of New York's Board of Trustees and as chair of its audit committee. He also previously served as the Chairman of the Board of Trustees of the Long Island Power Authority and as Chair and a member of the finance and audit committee of its Board of Trustees. Mr. Waldman is a Certified Public Accountant. Mr. Waldman qualifies to serve as a director, Audit Committee Chairman and Lead Independent Director because of his more than 35 years’ experience in public accounting and his service on various boards. Conrad J. Gunther Conrad J. Gunther has served as a member of our Board of Directors since 2000. Mr. Gunther has extensive experience in mergers and acquisitions and in raising capital through both public and private means. He has been an executive officer and director of several banks, both public and private, and has served on the boards of two other public companies. Since December 2016, Mr. Gunther has served as an Executive Vice President and Chief Lending Officer for Dime Community Bank, a Long Island, New York based commercial bank, where he is responsible for all lending. From July 2015 to December 2016, Mr. Gunther served as an Executive Vice President and Senior Loan Officer for First Federal Savings Bank, a Long Island, New York based Thrift. Mr. Gunther qualifies to serve on our board of directors as a result of his experience and expertise in the financial community. Raymond Nielsen Raymond Nielsen was appointed a member of the Board of Directors on October 5, 2016. Mr. Nielsen was the Director of Finance for The Beechwood Organization until January 2019 and has been responsible for Project and Corporate Finance including Strategic Planning Initiatives since 2014. He has been a member of the Board of Directors of Bridgehampton National Bank and Bridge Bancorp Inc., its Parent holding company since 2013, serving on the Compensation Committee, Corporate Governance & Nominating Committee, ALCO, Loan, and the Compliance, BSA & CRA Committees. Mr. Nielsen is the former CEO of Reliance Federal Savings Bank and Herald National Bank, and a 45-year veteran of the banking industry. Mr. Nielsen also served as a Director of North Fork Bancorporation and its subsidiary North Fork Bank for 6 years where he chaired both the Compensation Committee and Audit Committee as well as having served as Lead Independent Director. Mr. Nielsen’s extensive public company, banking and real estate development experience will provide a valuable resource to the Board of Directors and Executive Management. 51 Robert M. Brill Dr. Brill was appointed a Director of the Company on March 5, 2021. Dr. Brill was co-founder and managing partner of Newlight Management from 1997-2019, which managed venture capital funds that focused on early stage technology companies. Prior to co-founding Newlight, Dr. Brill was a general partner of Poly Ventures, a Long Island based venture capital fund. Dr. Brill is a member of the Board of Directors of the L.I. Angel Network, the L.I. High Tech Incubator and several private companies. Dr. Brill has also previously served on the Board of Directors of multiple public and private companies. Dr. Brill served as General Manager of Harris Corporation’s CMOS Semiconductor Division. He also held various technical and management positions at IBM’s semiconductor operation. Dr. Brill holds a Ph.D in nuclear physics from Brown University and a B.A. and a B.S. in Engineering Physics from Lehigh University. Dr. Brill had previously served on the Company’s Board from April 2018 until October 2019. Leonard A. Rosenbaum Leonard A. Rosenbaum founded the Company in 1982 and served as our Chairman of the Board, President and Chief Executive Officer until January 22, 2021. Mr. Rosenbaum continues as a Director. From 1971 until 1982, Mr. Rosenbaum was president, director and a principal stockholder of Nav-Tec Industries, a manufacturer of semiconductor processing equipment similar to the type of equipment we manufacture. From 1966 to 1971, Mr. Rosenbaum was employed by a division of General Instrument, a manufacturer of semiconductor materials and equipment. Martin J. Teitelbaum, Esq. Martin J. Teitelbaum is a director and has served as a member of our Board of Directors since 1985 and as our in-house General Counsel from May 16, 2011 until January 22, 2021. Mr. Teitelbaum is an attorney, who prior to May 16, 2011, conducted his own private practice, the Law Offices of Martin J. Teitelbaum. Prior to establishing his own firm in 1988, Mr. Teitelbaum was a partner at Guberman and Teitelbaum from 1977 to 1987. Mr. Teitelbaum earned a B.A. in Political Science from the State University of New York at Buffalo and a Juris Doctor from Brooklyn Law School. Mr. Teitelbaum has served as our outside General Counsel for many years and his legal expertise makes him an asset to the Company’s board of directors. 52 Thomas McNeill Thomas McNeill was appointed as the Company’s Chief Financial Officer, Secretary and Treasurer effective as of March 4, 2019. Mr. McNeill has been a Chief Financial Officer ("CFO") since 1996 and has nineteen years' of SEC reporting experience with two public companies, as well as a full range of financial and operational experience. Since April 2015, he has been CFO at Century Direct, LLC, a printing and mailing company serving the direct mail marketing industry. From November 2014 to April 2015, he was a consultant at Mailmen Inc. until its assets were purchased by Century Direct, LLC. Mr. McNeill was CFO/COO at Nina McLemore from July 2013 to June 2014, a woman's retail apparel Company. On the Public reporting side, he was CFO at DineWise, Inc. from April 2006 to April 2013, a direct to consumer prepared frozen foods company, and from October 1996 to April 2006, was CFO at Global Payment Technologies, Inc, a hi-tech manufacturing and engineering company. Mr. McNeill is a Certified Public Accountant who began his career at KPMG, achieving the position of audit manager. Mr. McNeill holds a BBA in accounting from Hofstra University. Steven Aragon Dr. Steven Aragon was appointed Chief Operating Officer by the Board of Directors on October 20, 2014. Dr. Aragon has over 25 years of thin-film process, materials, and system expertise applied to photovoltaic, optical, electronic, and magnetic device fabrication. He received his Ph.D. in Physical Chemistry from the University of California, Santa Cruz, in 1990 and his MBA from Santa Clara University in 1996. He is the holder of five process equipment design patents. Dr. Aragon was a co-founder of Optimus Energy Systems International Inc. and served as its Chief Technical Officer and Senior Vice-President – Engineering from November 2011 to October 2014. From June 2008 to October 2011, He has also served as Vice-President – Engineering at Stion Corp of San Jose, California, a maker of nanostructure-based CIGS (copper indium gallium sulphur-diselenide) thin-film photovoltaic panels and as the Vice President – Engineering at Day Star Technologies Inc. from June 2001 to June 2008. Kevin R. Collins Prior to his appointment as Vice President and General Manager-SDC Division, Mr. Collins served as the General Manager of CVD’s SDC Division since 1999. From 1990 to 1999 he was employed by Stainless Design Corp. as Manager of Field Operations and Product Development Advisor. Mr. Collins attended Columbia University School of Engineering and Applied Science. Jeffrey A. Brogan Dr. Jeffrey Brogan was appointed as Vice President Sales and Marketing for CVD Equipment on March 23, 2021. Previously he was Director of Sales and Marketing for CVD Materials Corporation since November 2017 with General Management responsibilities of CVD MesoScribe Technologies Corporation. Dr. Brogan served as the President and CEO of MesoScribe Technologies, Inc., spearheading its sale to CVD in 2017. He has over 20 years of experience in strategic sales & marketing, technology management, and advanced research & development. Dr. Brogan has led the development of innovative sensor products, transitioning high performance products to manufacturing using the Company’s Direct Write MesoPlasma™ printing technology. He received his PhD in Materials Science and Engineering from Stony Brook University in 1996. 53 Maxim Shatalov Dr. Shatalov joined CVD as Vice President of Engineering and Technology in April 2018. Prior to CVD Mr. Shatalov was employed by Sensor Electronic Technology Inc. (SETi) a LED company where he held multiple technical and management positions from 2006 thru 2018. In 2017 Dr. Shatalov became Vice President of Technology responsible for UV LED technology and LED application development at SETi. Dr. Shatalov has over twenty years of experience in semiconductor research and devices and holds more than 12 U.S. patents. Karlheinz Strobl Dr. Karlheinz Strobl has been the Vice President of Business Development since October 2007. From 1997 to 2007, he was the founder and President of eele Laboratories, LLC, a technology and manufacturing solutions development company for a novel Light Engine for the video and data projection display market. Dr. Strobl holds over 14 patents and earned an MBA from Boston University, a PhD from the University of Innsbruck and an MS from both the University of Innsbruck and the University of Padova. He has also worked at the Max Planck Institute and at Los Alamos National Laboratory. Code Of Ethics We have adopted a Corporate Code of Conduct and Ethics that applies to our employees, senior management and Board of Directors, including the Chief Executive Officer and Chief Financial Officer. The Corporate Code of Conduct and Ethics is available on our website, http://www.cvdequipment.com, by clicking on “About Us” and then clicking on “Corporate Overview.” Audit Committee Our Board of Directors has an Audit Committee that currently consists of, Lawrence J. Waldman, Chairman, Conrad J. Gunther and Raymond A. Nielsen. During the fiscal year ended December 31, 2020, the Audit Committee held six meetings. Pursuant to the Audit Committee Charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of any independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us, and each such independent auditor shall report directly to the Committee. The Audit Committee also reviews with management and the independent auditors, our annual audited financial statements (including the disclosures under “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), the scope and results of annual audits and the audit and non-audit fees of the independent registered public accounting firm. Messrs. Gunther, Waldman and Nielsen are “independent” under the requirements of the NASDAQ Stock Market. 54 The Board of Directors has determined that each of Messrs. Gunther and Waldman is an “audit committee financial expert” as that term is defined in the rules and regulations of the Securities and Exchange Commission. Section 16(a) Beneficial Ownership Reporting Compliance The rules of the Securities and Exchange Commission require us to disclose late filings of reports of stock ownership and changes in stock ownership by our directors, officers and ten percent shareholders. To our knowledge, based solely on our review of (a) the copies of such reports and amendments thereto furnished to us and (b) written representations that no other reports were required, during our fiscal year ended December 31, 2020, all of the filings for our officers, directors and ten percent shareholders were made on a timely basis. Item 11. Executive Compensation. Summary Compensation Table The following table sets forth the compensation of our chief executive officer and chief financial officer, and our “named executive officers,” for the years ended December 31, 2020 and 2019. Name and principal position Year Salary ($) Bonus ($) Option Awards ($) (1) Stock Awards ($) (1) All Other Compensation Total ($) Leonard A. Rosenbaum President and Chief Executive Officer (4) 2020 2019 310,000 310,000 1,000 - - - - - 5,962(2) 11,923(2) 316,962 321,923 Thomas McNeill (3) Secretary and Chief Financial Officer 2020 2019 228,000 184,154 1,000 - - - - 41,500 - - 229,000 225,654 Martin J. Teitelbaum General Counsel and Assistant Secretary (5) 2020 2019 280,000 269,231 1,000 - - - - - - - 281,000 269,231 (1) Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown reflect the total remaining compensation on restricted stock and option awards granted, that have not previously been shown, as determined pursuant to ASC 718. The assumptions used to calculate the value of stock and option awards are set forth under Note 10 of the Notes to Consolidated Financial Statements. This column represents the grant date fair value of the awards as calculated in accordance with FASB ASC 718 (Stock Compensation). Pursuant to SEC rule changes effective February 28, 2010, we are required to reflect the total grant date fair values of the option grants in the year of grant, rather than the portion of this amount that was recognized for financial statement reporting purposes in a given fiscal year which was required under the prior SEC rules, resulting in a change to the amounts reported in prior Annual Reports, which was valued utilizing the grant date fair value in the year granted. 55 (2) Represents payment for accrued and unused vacation time. (3) Effective March 4, 2019, Thomas McNeill was appointed CFO, Secretary and Treasurer. (4) Effective January 22, 2021, Leonard A. Rosenbaum’s employment with the Company terminated and Emmanuel Lakios was then appointed as President and Chief Executive Officer. (5) Effective January 22, 2021, Martin J. Teitelbaum’s employment with the Company was terminated. Employment Agreements and Potential Payments Upon Termination or Change in Control There are no arrangements for compensation of directors and there are no employment contracts between the company and its directors or any change in control arrangements. Outstanding Equity Awards at December 31, 2020 The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2020. OPTION AWARDS STOCK AWARDS Name Number of Securities Underlying Options Exercisable Number of Securities Options Unexercisable Exercise Price Option Expiration Date Number of shares or units of stock that have not vested Market value of shares or units of stock that have not vested Equity Incentive Plan Awards: Number of unearned shares or units that not vested Equity Incentive Plan Awards: Market or payout value of unearned shares or units that have not vested Leonard A. Rosenbaum (3) - - $ - Thomas McNeill (2) - 7,500 (1) $ 26,675 Martin J. Teitelbaum (4) 1,400 $ 7.90 1/15/2021 - $ - 56 (1) Restricted stock units vest as to 2,500 shares respectively on March 4, 2021 and 5,000 shares on March 4, 2022. (2) Effective March 4, 2019, Thomas McNeill was appointed CFO, Secretary and Treasurer. (3) Effective January 22, 2021, Mr. Rosenbaum’s employment with the Company was terminated and Emmanuel Lakios was then appointed as President and CEO. (4) Effective January 22, 2021, Mr. Teitelbaum’s employment with the Company was terminated. 2020 Director Compensation The following table sets forth a summary of the compensation we paid to our non-employee directors in 2020. Fees Earned or Restricted Stock Name Paid in Cash Option Awards (1) Awards (1) Total Conrad J. Gunther $ 22,000 - $ 30,173 $ 52,173 Lawrence J. Waldman 60,000 - 40,901 100,901 Raymond A. Nielsen 22,000 - 30,173 52,173 (1) Amounts shown do not necessarily reflect compensation actually received by the named director. Instead, the amounts shown are the compensation costs recognized by CVD in fiscal 2019 for awards as determined pursuant to ASC 718. The assumptions used to calculate the value of option awards are set forth under Note 11 of the Notes to Consolidated Financial Statements. On May 9, 2016, the Board of Directors adopted a Director Compensation Plan for all non-employee directors, which retroactively from January 1, 2016, provided for annual compensation of approximately fifty thousand dollars ($50,000) to each non-employee director in a combination of 40% cash and 60% stock grant. On December 14, 2018, the Board of Directors approved a new Director Compensation Plan for all non-employee directors which is effective January 1, 2019 and provides for additional compensation to Committee Chairs as well as for the Independent Lead Director. The independent Lead Director receives $30,000 in cash, the Audit Chairman receives $25,000 in combination of cash and stock grants, and the other Committee Chairs receive amounts ranging from $5,000-$10,000 in a combination of cash and stock grants. 57 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth, as of March 24, 2021, information regarding the beneficial ownership of our common stock by (a) each person who is known to us to be the owner of more than five percent (5%) of our common stock, (b) each of our directors, (c) each of the named executive officers, and (d) all directors and executive officers and executive employees as a group. For purposes of the table, a person or group of persons is deemed to have beneficial ownership of any shares that such person has the right to acquire within 60 days of March 24, 2021. Name and Address of Beneficial Owner (1) Amounts and Nature of Beneficial Ownership (2) Percent of Class (%) Leonard A. Rosenbaum 832,168 (3) 12.5 Leviticus Partners, L.P. 500,000 7.5 Karlheinz Strobl 123,521 1.9 Steven Aragon 108,755 1.6 Kevin R. Collins 91,660 1.4 Emmanuel Lakios 86,368 (4) 1.3 Conrad J. Gunther 84,378 (5) 1.3 Martin J. Teitelbaum 72,997 (6) 1.1 Lawrence J. Waldman 45,400 (7) * Raymond A. Nielsen 39,200 (8) * Robert M. Brill - (9) * Thomas McNeill 5,000 (10) * Maxim Shatalov 20,000 * Jeffrey A Brogan 24,519 * All directors and executive officers and executive employees as a group (thirteen persons) 1,533,966 23.0 *Less than 1% of the outstanding common stock or less than 1% of the voting power (1) The address of Messrs. Rosenbaum, Teitelbaum, Gunther, Waldman, Nielsen, Brill, McNeill, Strobl, Aragon, Strobl, Shatalov, Lakios and Brogan is c/o CVD Equipment Corporation, 355 South Technology Drive, Central Islip, New York 11722. The address of Mr. Collins is c/o Stainless Design Concepts, 1117 Old Kings Highway, Saugerties, NY 12477. The address of Leviticus Partners, L.P. is 200 Park Avenue, Suite 1700, New York, NY 10166 58 (2) All of such shares are owned directly with sole voting and investment power, unless otherwise noted below. (3) Does not include 4,800 shares of unvested restricted common stock. (4) Does not include unvested options to purchase 20,000 shares of our common stock. (5) Does not include 7,100 shares of unvested restricted common stock. (6) Includes 2,000 shares held by Mr. Teitelbaum’s wife as to which beneficial ownership thereof is disclaimed by Mr. Teitelbaum. Does not include 4,800 shares of unvested restricted common stock. (7) Does not include 9,600 shares of unvested restricted common stock. (8) Does not include 7,100 shares of unvested restricted common stock. (9) Does not include 5,800 shares of unvested restricted common stock. (10) Does not include 5,000 shares of unvested restricted common stock. See Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities under the heading “Equity Compensation Plan Information” for information regarding our securities authorized for issuance under equity compensation plans. Item 13. Certain Relationships and Related Transactions, and Director Independence. Transactions with related persons, promoters and certain control persons. None. Director Independence The current members of our Board of Directors are Lawrence J. Waldman, Conrad J. Gunther, Raymond A. Nielsen, Robert M. Brill, Leonard A. Rosenbaum and Martin J. Teitelbaum. Messrs. Waldman, Gunther, Nielsen and Brill have been determined to be “independent” as defined under Rule 4200 of the Nasdaq Stock Market. 59 Item 14. Principal Accountant Fees and Services. Effective September 20, 2019, the Company authorized the engagement of Marcum, LLP, Certified Public Accountants (“Marcum”) to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2019. Marcum also performed the review of the Company’s interim quarterly period ending September 30, 2019. Previously MSPC, Certified Public Accountants and Advisors (“MSPC) were the Company’s independent registered public accounting firm. The following presents fees for professional audit services rendered by Marcum, for the year ended December 31, 2020 and 2019, and MSPC, for the first two quarters of 2019. 2020 2019 Audit Fees $ 147,500 $ 145,500 Audit-Related Fees 10,000 10,000 All Other Fees - - Total Fees $ 157,500 $ 155,500 Audit-Fees Audit fees for 2019 consisted of the review of the first and second quarters of 2019 by MSPC and the review of the third quarter and audit of the year-end by Marcum. Audit -related Fees Consisted of the audit of the Company’s Defined Contribution Plan 401(k) by Marcum. Audit Committee Approval The engagement of the Company’s independent registered public accounting firm is pre-approved by the Company’s Audit Committee. The Audit Committee pre-approves all fees billed and all services rendered by the Company’s independent registered public accounting firm. 60 PART IV Item 15. Exhibits, Financial Statement Schedules 3.1 Certificate of Incorporation dated October 12, 1982 (Incorporated herein by reference to the Company’s Form S-1 filed on July 3, 2007). 3.2 Certificate of Amendment of Certificate of Corporation, dated April 25, 1985 (Incorporated herein by reference to the Company’s Form S-1 filed on July 3, 2007). 3.3 Certificate of Amendment of Certificate of Corporation, dated August 12, 1985 (Incorporated herein by reference to the Company’s Form S-1 filed on July 3, 2007). 3.4 Certificate of Amendment of the Certificate of Incorporation, dated December 9, 2016 (Incorporated herein by reference the Company’s Current Report on Form 8-K filed on December 14, 2016). 3.5 Amended and restated By-laws of CVD Equipment Corporation, dated as of October 5, 2016 (Incorporated herein by reference to the Company’s Current Report on Form 8-K filed on October 11, 2016). 4.1 Description of the Company’s Securities (Incorporated herein by reference to the Company’s Annual Report on Form 10-K filed on March 30, 2020). 10.1 CVD Equipment Corporation 2001 Stock Option Plan (Incorporated herein by reference to the Company’s Form S-1 filed on July 3, 2007).* 10.2 Form of Non-Qualified Stock Option Agreement (Incorporated herein by reference to the Company’s Annual Report on Form 10-KSB filed on March 26, 2007).* 10.3 CVD Equipment Corporation 2007 Share Incentive Plan (Incorporated herein by reference to the Company’s Schedule 14A filed on November 5, 2007). * 10.4 Lease Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.5 Assignment Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.6 Qualified Exchange Accommodation Agreement, dated February 9, 2012, by and between FAE Holdings 411519R, LLC and the Company (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.7 Joint and Several Hazardous Material Guaranty and Indemnification Agreement, dated March 15, 2012, by and between FAE Holdings 411519R, LLC and the Company (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 61 10.8 Assignment of Leases and Rents, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.9 Amended and Restated Fee and Leasehold Mortgage, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.10 Amended and Restated Note, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.11 Note and Mortgage Assumption Agreement, dated March 15, 2012, by and among FAE Holdings 411519R, LLC, the Town of Islip Industrial Development Agency and HSBC Bank USA, National Association (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.12 Guaranty of Payment, dated March 15, 2012, by the Company (Incorporated by reference from the Company’s Report on Form 10-Q filed with the Commission on May 15, 2012). 10.13 Asset Purchase Agreement, dated October 31, 2017, by and between MesoScribe Technologies, Inc. and CVD MesoScribe Technologies Corporation (Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 6, 2017). 10.14 ADA and Environmental Indemnity Agreement by 555 N Research Corporation and CVD Equipment Corporation dated November 30, 2017, (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.15 Assignment of Leases and Rents dated November 30, 2017 by and between 555 N Research Corporation and HSBC Bank USA, National Association (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.16 Unlimited Guaranty between CVD Equipment Corporation and HSBC Bank USA, National Association dated November 30, 2017, (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.17 Town of Islip Industrial Development Agency and CVD Equipment Corporation, Agency Compliance Agreement dated as of November 1, 2017 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.18 Town of Islip Industrial Development Agency and CVD Equipment Corporation Amended and Restated Agency Compliance Agreement dated November 30, 2017 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.19 Fee and Leasehold Mortgage and Security Agreement from town of Islip Industrial Development Agency and 555 N Research Corporation to HSBC Bank USA, national Association (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 62 10.20 Town of Islip Industrial Development Agency and FAE Holdings 411519R, LLC Amended and Restated Lease and Project Agreement dated as of November 1, 2017 (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.21 Amended and Restated Note by and between 555 N Research Corporation and HSBC Bank USA, National Association (Incorporated by reference to the Company’s Annual Report on Form 10-K filed with Commission on April 2, 2018). 10.22 Mortgage Modification Agreement, dated as of August 5, 2019, by and between 555 N Research Corporation and HSBC Bank USA, National Association (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 5, 2019). 10.23 Reaffirmation of Unlimited Continuing Guaranty, dated as of August 5, 2019, by and between CVD Equipment Corporation and HSBC Bank USA, National Association (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 5, 2019). 10.24 Note Modification Agreement, dated as of August 5, 2019, by and between FAE Holdings 411519R and HSBC Bank USA, National Association (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Commission on August 5, 2019). 10.25 West side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 13, 2019). 10.26 East side sublease, dated November 23, 2020, by and between the Company and ELM Freight Handlers Inc. ** 23.1 **Consent of MARCUM, Certified Public Accountants and Advisors, A Professional Corporation (S-8). 31.1 **Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. 31.2 **Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. 32.1 **Section 1350 Certification of Principal Executive Officer. 32.2 **Section 1350 Certification of Principal Financial Officer. 101.INS*** XBRL Instance 101.SCH*** XBRL Taxonomy Extension Schema 101.CAL*** XBRL Taxonomy Extension Calculation 101.DEF*** XBRL Taxonomy Extension Definition 101.LAB*** XBRL Taxonomy Extension Labels 101.PRE*** XBRL Taxonomy Extension Presentation * Management contract or compensatory plan or arrangement required ** Filed herewith *** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. 63 SIGNATURES 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. DATE: March 31, 2021 CVD EQUIPMENT CORPORATION By : /s/ Emmanuel Lakios Name: Emmanuel Lakios Title: President and Chief Executive Officer By: /s/ Thomas McNeill Name: Thomas McNeill Title: Chief Financial Officer and Secretary Principal Financial and Accounting Officer 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. NAME POSITION DATE /s/ Emmanuel Lakios President, Chief Executive Officer 3/31/2021 Emmanuel Lakios (Principal Executive Officer) /s/ Lawrence J. Waldman Director, Chairman of the Board 3/31/2021 Lawrence J. Waldman /s/ Conrad J. Gunther Director 3/31/2021 Conrad J. Gunther /s/ Raymond A. Nielsen Director 3/31/2021 Raymond A. Nielsen /s/ Robert M. Brill Director 3/31/2021 Robert M. Brill /s/ Leonard A Rosenbaum Director 3/31/2021 Leonard A. Rosenbaum /s/ Martin J. Teitelbaum Director 3/31/2021 Martin J. Teitelbaum 64 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No . Report of Independent Registered Public Accounting Firms F-1 Financial Statements: Consolidated Balance Sheets as of December 31, 2020 and 2019 F-3 Consolidated Statements of Operations for the years ended December 31, 2020 and 2019 F-4 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019 F-5 Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019 F-6 Notes to Consolidated Financial Statements F-7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of CVD Equipment Corporation and Subsidiaries Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CVD Equipment Corporation and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. F-1 Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Estimated Total Contract Costs Description of the Matter As discussed in Notes 2 and 3 to the consolidated financial statements, the Company recognizes systems revenue over time by using an input method based on costs incurred as it best depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from 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. The estimation of these costs requires judgment by the Company given the unique product specifications and requirements for contracts related to the design, development, and manufacture of the system. During the year ended December 31, 2020, the Company recognized approximately $6.7 million of revenue recognized over time. Subjective judgment is required by management in determining the assumptions in estimating the estimated costs to complete on contracts for which revenue is recognized over time using a cost-to-cost model. Complex auditor judgment was required in evaluating initial cost estimates and expected costs to complete. How We Addressed the Matter in Our Audit The primary procedures we performed to address this critical audit matter included the following: ● Obtaining an understanding of management’s process in developing the cost estimates; ● Evaluating management’s ability to reasonably estimate costs by performing a comparison of the actual costs to prior period estimates, including evaluating the timely identification of circumstances that may warrant a modification to the estimated costs; ● Evaluate management’s methodologies and the consistency of management’s methodologies over the life of the contracts; ● Tested the original estimated costs and profit margins on System projects that were commenced and completed during the year ending December 31, 2020, by obtaining the original estimates, compare to the actual costs and profit margin for the completed contracts and investigate significant changes; and ● Tested the estimated costs to complete Systems projects that were not completed during the year ended December 31, 2020 by comparing the estimated cost to complete at December 31, 2020 to actual cost incurred subsequent to December 31, 2020. /s/ Marcum llp Marcum llp We have served as the Company’s auditor since 2019. Melville, NY March 31, 2021 F-2 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets As of December 31, 2020 and 2019 December 31, 2020 December 31, 2019 ASSETS Current Assets Cash and cash equivalents $ 7,699,335 $ 8,664,253 Accounts receivable, net 1,047,728 2,545,537 Contract assets 494,281 512,952 Inventories, net 1,123,839 1,709,713 Taxes receivable 715,599 - Other current assets 709,175 733,337 Total Current Assets 11,789,957 14,165,792 Property, plant and equipment, net 28,843,563 32,102,335 Other assets 13,748 13,748 Intangible assets, net 288,657 441,177 Total Assets $ 40,935,925 $ 46,723,052 LIABILITIES AND STOCKHOLDERS ’ EQUITY Current Liabilities Accounts payable $ 817,933 $ 535,394 Accrued expenses 1,409,039 1,902,858 Current maturities of long-term debt 690,667 674,593 Contract liabilities 786,657 2,275,236 Total Current Liabilities 3,704,296 5,388,081 Long-term debt, net of current portion 13,106,057 11,377,126 Total Liabilities 16,810,353 16,765,207 Commitments and contingencies (see note 14) Stockholders’ Equity: Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,678,698 at December 31, 2020 and 6,623,793 at December 31, 2019 66,786 66,237 Additional paid-in capital 26,961,684 26,719,554 (Accumulated deficit) / Retained earnings (2,902,898 ) 3,172,054 Total Stockholders’ Equity 24,125,572 29,957,845 Total Liabilities and Stockholders’ Equity $ 40,935,925 $ 46,723,052 The accompanying notes are an integral part of the consolidated financial statements F-3 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 2020 and 2019 2020 2019 Revenue $ 16,920,219 $ 19,646,652 Cost of revenue 14,037,813 16,850,077 Gross profit 2,882,406 2,796,575 Operating expenses Research and development 372,648 597,456 Selling and shipping 580,468 898,338 Impairment charge 3,599,322 - General and administrative 6,153,925 6,285,496 Total operating expenses 10,706,363 7,781,290 Operating loss (7,823,957 ) (4,984,715 ) Other income (expense): Interest income 62,667 142,579 Interest expense (444,337 ) (482,844 ) Other income 603,320 411,230 Total other income, net 221,650 70,965 Loss before income tax (7,602,307 ) (4,913,750 ) Income tax (benefit) expense (1,527,355 ) 1,413,908 Net loss $ (6,074,952 ) $ (6,327,658 ) Basic loss per common share $ (0.91 ) $ (0.96 ) Diluted loss per common share $ (0.91 ) $ (0.96 ) Weighted average common shares Outstanding-basic 6,640,272 6,562,141 Weighted average common shares Outstanding-diluted 6,640,272 6,562,141 The accompanying notes are an integral part of the consolidated financial statements F-4 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders ’ Equity Years ended December 31, 2020 and 2019 Common stock Shares Par Value Additional paid-in Capital Retained Earnings / (Accumulated Deficit) Total Balance at January 1, 2019 6,535,888 $ 65,358 $ 26,148,256 $ 9,499,712 $ 35,713,326 Net loss - - - (6,327,658 ) (6,327,658 ) Share-Based Compensation 87,905 879 571,298 - 572,177 Balance at December 31, 2019 6,623,793 $ 66,237 $ 26,719,554 $ 3,172,054 $ 29,957,845 Net loss - - - (6,074,952 ) (6,074,952 ) Share-Based Compensation 54,905 549 242,130 - 242,679 Balance at December 31, 2020 6,678,698 66,786 26,961,684 (2,902,898 ) 24,125,572 The accompanying notes are an integral part of the consolidated financial statements F-5 C VD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2020 and 2019 2020 2019 Cash flows from operating activities: Net loss $ (6,074,952 ) $ (6,327,658 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities Impairment charge 3,599,322 - Stock-based compensation 242,679 572,177 Depreciation and amortization 1,389,145 1,042,829 Deferred income tax benefit - 1,425,414 Recovery on contingent earnout - (200,000 ) Bad debt expense 140,044 - (Increase)/decrease in operating assets Accounts receivable 1,357,765 1,519,683 Contract assets 18,671 844,846 Inventories 585,874 152,160 Tax receivable (715,599 ) - Other current assets 24,162 - Other assets - 125,056 Increase/(decrease) in operating liabilities Accounts payable 282,539 (177,801 ) Accrued expenses (493,819 ) 315,195 Contract liabilities (1,488,579 ) 1,278,813 Total adjustments 4,942,204 6,898,372 Net cash (used in) provided by operating activities (1,132,748 ) 570,714 Cash flows from investing activities: Capital expenditures (1,577,175 ) (2,688,231 ) Net cash used in investing activities (1,577,175 ) (2,688,231 ) Cash flows from financing activities Proceeds from Payroll Protection Plan Loan 2,415,970 - Payments of long-term debt (670,965 ) (657,591 ) Net cash provided by (used) in financing activities 1,745,005 (657,591 ) Net decrease in cash and cash equivalents (964,918 ) (2,775,108 ) Cash and cash equivalents at beginning of period 8,664,253 11,439,361 Cash and cash equivalents at end of period $ 7,699,335 $ 8,664,253 Supplemental disclosure of cash flow information: Income taxes paid $ 3,040 $ 2,800 Interest paid $ 445,109 $ 365,254 Supplemental disclosure of non-cash investing and financing activities: Capitalization of right to use Asset $ - $ 84,354 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, 2020 and 2019 Note 1 – Business Description CVD Equipment Corporation and its subsidiaries (the “Company”), a New York corporation, was organized and commenced operations in October 1982. Its principal business activities include the manufacturing of chemical vapor deposition equipment, customized gas control systems, the manufacturing of process equipment suitable for the synthesis of a variety of one-dimensional nanostructures and nanomaterials and a line of furnaces, all of which are used primarily to produce semiconductors and other electronic components. The Company engages in business throughout the United States and internationally. Note 2 - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly owned subsidiaries. The Company has five wholly owned subsidiaries: CVD Materials Corporation, which provides material coatings, process development support and process startup assistance through Tantaline ApS and CVD MesoScribe Technologies Corporation, FAE Holdings 411519R, LLC, a real estate holding company whose sole asset is its interest in the real estate and building housing our corporate headquarters and 555 N Research Corporation whose sole asset is its interest in the real estate and building located at 555 North Research Place, Central Islip, NY. All significant intercompany accounts and transactions have been eliminated in consolidation. 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, depreciation and amortization, valuation of inventories at the lower of cost or net realizable value; allowance for doubtful accounts receivable; valuation allowances for deferred tax assets, impairment considerations of long-lived assets and valuation of stock-based compensation. Reclassification Certain reclassifications have been made to prior year amounts to conform with the current year presentation. F-7 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 2 - Summary of Significant Accounting Policies (continued) Revenue Recognition 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 three to eighteen months from commencement of order acceptance. 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. 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, typically within three months to eighteen months. 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. “Contract assets,” include unbilled amounts typically resulting from system sales under contracts and revenue recognition exceeds the amount billed to the customer. The amount may not exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle. “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 during the manufacturing cycle. Contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect 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. F-8 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 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. Investment tax credits are accounted for by the flow-through method, reducing income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount. The Company recognizes the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The accounting guidance on accounting for uncertainty in income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods. The Company does not believe it has any uncertain tax positions through the year ending December 31, 2020 which would have a material impact on the Company’s consolidated financial statements. The Company and its subsidiaries file combined income tax returns in the U.S. Federal and New York State jurisdiction. In addition, the parent company files standalone tax returns in California, Delaware, Florida, Michigan, Minnesota, New Hampshire and Wisconsin. The Company is no longer subject to U.S. federal and state income tax examinations for tax periods before 2016. 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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. Based upon continued operating losses and negative cash flows from the Tantaline product line and the Company’s updated forecasting, the expected future cash flows of the Tantaline product line is negative and thus management has recorded an impairment charge of $3.6 million in the fourth quarter and year ended December 31, 2020. The Company had no recorded impairment charges in the consolidated statement of operations during the year ended December 31, 2019. F-9 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 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 in Operating Expenses-General and Administrative. 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. Amortization expense recorded by the Company in 2020 and 2019 totaled $124,550 and $120,488, respectively. Research & Development Research and development costs are expensed as incurred. Our laboratory staff conducts research and development independent of customer orders. For the year ended December 31 2020 and 2019, we incurred approximately $373,000 and $598,000, respectively, of research and development expenses. Product Warranty The Company records warranty costs as incurred and does not provide for possible future costs. Management estimates such costs are immaterial, based on historical experience. 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 and warrants. F-10 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 2 - Summary of Significant Accounting Policies (continued) 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. Cash and Cash Equivalents The Company had cash and cash equivalents of $7.7 million and $8.7 million at December 31, 2020 and 2019, respectively. The Company invests excess cash in treasury bills, certificates of deposit or money market accounts, all with maturities of less than three months. Cash equivalents were $1.0 million and $2.1 million for the years ended December 31, 2020 and December 31, 2019, 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 at risk at December 31, 2020 and at December 31, 2019 was $5,822,000 and $5,198,000 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 money market instruments. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company routinely assesses the financial strength of its customers and maintains allowances for anticipated losses based upon historical experience. 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. The Company has accounts receivables from certain customers that exceed 10%. As of December 31, 2020, and 2019, the accounts receivable balance includes amounts from two customers, which totals 35% and three customers which total 61%, respectively. F-11 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 2 - Summary of Significant Accounting Policies (continued) Accounts receivable is presented net of an allowance for doubtful accounts of $164,000 and $24,000 as of December 31, 2020 and 2019, 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 doesn’t require collateral from its customers. Sales Concentrations Revenue to a single customer in any one year can exceed 10.0% of our total sales. Two customers represented 30.5% and two customers represented 39.3%, respectively, of our annual revenues in fiscal years 2020 and 2019. We believe that our relationships with these customers are positive and may provide us with ongoing continuous sustainability for years to come, however the loss of a large customer would have to be replaced by others, and our inability to do so may have a material adverse effect on our business and financial condition. Export sales to customers represented approximately 16.8% and 21.3% of sales for the years ended December 31, 2020 and 2019, respectively. Export sales in both 2020 and 2019 were primarily to customers in Europe and Asia. Primarily all contracts except those entered into by CVD Tantaline ApS are denominated in U.S. dollars. The Company has not entered into any foreign exchange contracts. Fair Value of Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, net, accounts payable, contract liabilities and customer deposits 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. 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 $6,000 and $39,000 for the years ended December 31, 2020 and 2019, respectively. F-12 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 2 - Summary of Significant Accounting Policies (continued) Liquidity and Management’s Plan The Company has incurred recurring losses since 2018, which have resulted in an accumulated deficit of $2.9 million as of December 31, 2020. For the year ended December 31, 2020, the Company incurred a net loss of $6.1 million, which includes a $3.6 million impairment charge related to its Tantaline product line. At December 31, 2020, the Company’s cash and cash equivalents were $7.7 million, and our working capital was $8.1 million. The Company’s current capital resources include cash and cash equivalents ($7.7 million), accounts receivable ($1.0 million), contract assets ($.5 million), inventories ($1.1 million) and a tax receivable ($.7 million). In addition, the Company receives advance deposits on new system orders. In February 2021, the Company initiated a plan approved by the Board of directors to sell its building located at 555 North Research Place, Central Islip, NY, and to consolidate that facility into its building located at 355 South Technology Drive, Central Islip, NY, which houses manufacturing and executive offices. This significant action will monetize a substantial portion of the Company’s long-term assets, generating additional cash proceeds. In addition, the consolidation of the facilities will help lower operating costs (See Note 14). Based upon all the above factors, including the Board approved management plan, utilizing our current operating assets and reducing other operating expenses, the Company estimates that it will have sufficient cash and cash equivalents to fund our operations for the next twelve months from the date of the filing of this annual report. 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. Early adoption for fiscal years beginning after December 15, 2018 is permitted. We are currently evaluating the effect of this update on our consolidated financial statements. F-13 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 2 - Summary of Significant Accounting Policies (continued) In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which is intended to enhance and simplify various aspects of the accounting for income taxes. The amendments in this update remove certain exceptions to the general principles in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also clarifies and amends existing guidance to improve consistent application of the accounting for franchise taxes, enacted changes in tax laws or rates and transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted in any interim period. We believe our adoption of ASU 2019-12 in our first quarter of 2021 will not have a material effect on our consolidated financial statements. We believe 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. Note 3 – Revenue The following table represents a disaggregation of revenue from contracts for the years ended December 31, 2020 and December 31, 2019: Year Ending December 31, 2020 Over time Point in time Total Aerospace $ 1,607 $ 6,013 $ 7,620 Industrial $ 1,849 $ 3,565 $ 5,414 Research $ 3,208 $ 678 $ 3,886 Total $ 6,664 $ 10,256 $ 16,920 Year ending December 31, 2019 Over time Point in time Total Aerospace $ 3,224 $ 5,948 $ 9,172 Industrial $ 3,199 $ 3,994 $ 7,193 Research $ 2,609 $ 673 $ 3,282 Total $ 9,032 $ 10,615 $ 19,647 F-14 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 3 – Revenue (continued) The Company has unrecognized contract revenue of approximately $2.1 million at December 31, 2020, 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. 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 statements of operations. Contract Assets and Liabilities Contract assets consist of (i) retainage which represent the earned, but unbilled, portion for which payment is deferred by the customer until certain contractual milestones are met; and (ii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for long-term contracts. Contract liabilities consist of customer advances and billings in excess of revenue recognized. As of December 31, 2020, 2019 and January 1 2019, contract assets were $.5 million, $.5 million and $1.4 million, respectively. At December 31, 2020, 2019 and January 1, 2019, contract liabilities were $.2 million, $.8 million and $.5 million, respectively, and the ending balance of the contract liabilities are generally recognized as income in the following year. Contract assets and contract liabilities on input method type contracts in progress are summarized as follows: 2020 2019 Costs incurred on contracts in progress $ 4,464,471 $ 6,943,066 Estimated earnings 2,087,396 3,370,032 6,551,867 10,313,098 Billings to date (6,212,229 ) (10,645,800 ) $ 339,638 $ (332,702 ) Deferred revenue related to non-systems contracts (632,014 ) (1,429,582 ) (292,376 ) $ (1,762,284 ) Included in accompanying balance sheets Under the following captions: Contract assets $ 494,281 $ 512,952 Contract liabilities $ (786,657 ) $ (2,275,236 ) F-15 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 4 - Inventories Inventories consist of: 2020 2019 Raw materials $ 928,221 $ 1,281,250 Work-in-process 195,618 428,463 Inventories $ 1,123,839 $ 1,709,713 Note 5 – Property, Plant and Equipment Major classes of property, plant and equipment consist of the following: 2020 2019 Land $ 6,929,000 $ 6,929,000 Buildings 15,917,000 15,917,000 Building improvements 8,141,791 7,864,757 Machinery and equipment 3,340,005 3,592,351 Furniture and fixtures 613,765 613,765 Computer equipment 493,349 487,902 Software 435,593 438,391 Transportation equipment 114,511 114,511 Lab equipment 1,992,179 1,985,179 Construction in Progress 93,936 2,110,875 Totals at cost $ 38,071,129 $ 40,053,731 Less: Accumulated depreciation and amortization (9,227,566 ) (7,951,396 ) Property, plant and equipment, net $ 28,843,563 $ 32,102,335 Depreciation and amortization expense (1) $ 1,389,145 $ 1,042,829 (1) Includes amortization expense of $124,550 and $120,488 for the year ending December 31, 2020 and the year ended December 31, 2019, respectively. Such amortization expense relates to other capitalized and intangibles assets. F-16 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 6 – Intangible Assets Intangible assets consisted of the following: 2020 Intangible Assets Cost Accumulated Amortization Carrying Amount Patents, Copyrights and Intellectual Property $ 792,821 $ 515,665 $ 277,156 Licensing Agreement 10,000 10,000 0 Certifications 85,032 73,531 11,501 Totals $ 887,853 $ 599,196 $ 288,657 2019 Intangible Assets Cost Accumulated Amortization Carrying Amount Patents, Copyrights and Intellectual Property $ 836,544 $ 413,957 $ 422,587 Licensing Agreement 10,000 10,000 0 Certifications 83,272 64,682 18,590 Totals $ 929,816 $ 488,639 $ 441,177 The estimated amortization expense related to intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2020 is as follows: Year Ended 2021 $ 108,344 2022 16,852 2023 14,199 2024 10,658 2025 10,658 Thereafter 127,946 Total $ 288,657 F-17 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 7 – Long-term Debt Long-term debt as of December 31 consists of the following: 2020 2019 HSBC $10,387,500 Mortgage payable secured by real property Buildings and improvements at 555 N Research Drive, Central Islip, NY payable in monthly principal installments of $62,481 including Interest at a rate of 3.9148% maturing on December 1, 2022. $ 9,315,246 $ 9,686,211 PPP Loan $2,415,970, maturing on April 21, 2022, with interest accruing at 1% per annum 2,415,970 - HSBC $6,000,000 Mortgage payable secured by building Buildings and improvements at 355 South Technology Drive, Central Islip, NY payable in monthly principal installments of $25,000 plus interest. Interest presently accrues at our option, at the variable rate of LIBOR plus 1.75% or HSBC’s Prime rate minus 0.50% The loan matures on March 1, 2022. 2,065,508 2,365,508 Total long-term debt $ 13,796,724 $ 12,051,719 Less: Current maturities (690,667 ) (674,593 ) Long-term debt $ 13,106,057 $ 11,377,126 Future maturities of long-term debt as of December 31, 2020 are as follows: 2021 $ 690,667 2022 13,106,057 Total long-term debt $ 13,796,724 The Company has a loan agreement with HSBC which is secured by a mortgage against our Central Islip, NY Headquarters. The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022. The balances as of December 31, 2020 and December 31, 2019 were approximately $2.1 million and $2.4 million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5% (1.89% and 3.49% at December 31, 2020 and 2019, respectively). On November 30, 2017, the Company purchased the premises located at 555 North Research Place, Central Islip, NY. The purchase price of the building was $13,850,000 exclusive of closing costs. The Company’s newly formed wholly-owned subsidiary, 555 N Research Corporation (the “Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of $10,387,500, which was used to finance a portion of the purchase price to acquire the premises located at 555 North Research Place, Central Islip, New York. The Loan was evidenced by the certain Note, dated November 30, 2017 (the “Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement (the “Mortgage”), dated November 30, 2017, as well as a collateral Assignment of Leases and Rents. F-18 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 7 – Long-term Debt (continued) The Note is payable in 60 consecutive equal monthly installments of $62,481 including interest and a final balloon payment upon maturity in December 2022. The balance outstanding as of December 31, 2020 and December 31, 2019 were approximately $9.3 million and $9.7 million respectively. The Note bears interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%. As a condition of the Bank making the Loan, the Company was required to guaranty Assignee’s obligations under the Loan pursuant that certain Unlimited Guaranty, dated November 30, 2017 (the “Guaranty”). On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets (“MLC”) covenant, and on October 22, 2020, the Company entered into a Second Mortgage Modification Agreement modifying certain MLC balances. The Company is in compliance with its financial covenant under the mortgage at December 31, 2020. On April 21, 2020, the Company entered into a loan agreement (the “Loan Agreement”) with HSBC Bank USA, National Association pursuant to which the Company was granted a loan in the principal amount of $2,415,970, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted by the United States Congress on March 27, 2020. The PPP loan, the obligation of which is represented by a note issued by the Company, matures on April 21, 2022 and bears interest at a rate of 1% per annum. The note may be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, all or a portion of the Loan may be forgiven, based upon payments made in the first twenty-four weeks following receipt of the proceeds, related to payroll costs, continue group health care benefits, utilities and mortgage interest on other debt obligations incurred before February 15, 2020. F-19 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 8 – Earnings per Share The calculation of basic and diluted weighted average common shares outstanding is as follows: 2020 2019 Weighted average common shares outstanding basic earnings per share 6,640,272 6,562,141 Effect of potential common share issuance: Stock options - - Weighted average common shares outstanding Diluted earnings per share 6,640,272 6,562,141 At December 31, 2020, stock options to purchase 417,000 shares of common stock were outstanding and 377,000 were exercisable. Stock options to purchase 432,930 shares of common stock were outstanding and 307,930 were exercisable at December 31, 2019. At December 31, 2020 and 2019, respectively, 417,000 and 307,930, stock options were not included in the computation of diluted earnings per share because their effect was antidilutive. Note 9 – Income Taxes At December 31, 2020, the Company had approximately $1,719,598 of federal research and development tax credits. If not utilized, the research and development tax credits expire from 2028-2040. For the year ended December 31, 2020 and 2019, the Company has provided a full valuation allowance against all of the net deferred tax assets in the amount of $3,381,133 and $2,497,414, respectively. This was based on management’s assessment, including the last two years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted by the United States Congress. As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) generated in 2018-2020 can now be carried back for five years and resulted in the Company recognizing approximately $1.5 million of a tax benefit, of which $.7 million is a receivable at December 31, 2020. We continue to evaluate for potential utilization of the Company’s deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the CVD Materials segment and cost containment measures. F-20 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 9 – Income Taxes (continued) The expense/(benefit) for income taxes includes the following: 2020 2019 Current: Federal $ (1,528,305 ) $ - State 950 (11,506 ) Total current tax provision (1,527,355 ) (11,506 ) Deferred: Federal - 1,425,414 State --- --- Total deferred tax provision - 1,425,414 Income tax expense / (benefit) $ (1,527,355 ) $ 1,413,908 The tax effects of temporary differences giving rise to significant portions of the net deferred taxes are as follows: 2020 2019 Deferred income tax assets: Allowance for doubtful accounts $ 35,442 $ 5,293 Inventory capitalization 6,969 7,107 Impairment Charge 712,683 - Research & development tax credits 1,719,598 588,096 Compensation costs 211,363 202,287 Vacation accrual 89,626 142,230 Interest expense carryforward 223,768 144,340 Net operating loss carryforward 925,912 1,798,315 Other items 12,248 52,232 Total deferred tax asset 3,937,609 2,939,900 Deferred incomes tax liability: Property and equipment - tax over book depreciation (556,476 ) (442,486 ) Less valuation allowance (3,381,133 ) (2,497,414 Net long-term deferred tax asset $ - $ - F-21 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 9 – Income Taxes (continued) The reconciliation of the federal statutory income tax rate to our effective tax rate is as follows: 2020 2019 Expected provision at federal statutory tax rate (21%) $ (1,596,485 ) $ (1,031,888 ) Provision for valuation allowance 883,796 2,497,414 Foreign tax loss 70,492 57,856 Net operating loss carryback (1,527,355 ) - State taxes, net of federal benefit (36,832 ) (11,506 ) Federal research & development credit (64,266 ) (174,416 ) Other permanent differences 743,295 76,448 Income (benefit) / tax expense $ (1,527,355 ) $ 1,413,908 The Company’s foreign subsidiary, CVD Tantaline ApS incurred a loss of approximately $336,000, which would provide a $74,000 deferred tax asset as of December 31, 2020, based on the standard corporate tax rate of 22% in Denmark. For the year ended December 31, 2019 the Company had a loss of $276,000 which would provide a $61,000 deferred tax asset. However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance has been necessary. Note 10 – Stockholders ’ equity 2001 Non-Qualified Stock Option Plan In November 2006, the Company registered a non-qualified stock option plan that the shareholders had approved in July 2001, covering key employees, officers, directors and other persons that may be considered as service providers to the Company. Options were awarded by the Board of Directors or by a committee appointed by the Board. Under the plan, an aggregate of 300,000 shares of Company common stock, $.01 par value, were reserved for issuance or transfer upon the exercise of options which were granted. Unless otherwise provided in the option agreement, options granted under the plan would vest over a four-year period commencing one year from the anniversary date of the grant. The stock option plan expired on July 22, 2011. As of December 31, 2020 there were 7,000 options outstanding under this plan. F-22 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 10 – Stockholders ’ equity (continued) 2007 Share Incentive Plan On December 12, 2007, shareholders approved the Company’s 2007 Share Incentive Plan (“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 Share Incentive Plan through December 12, 2017. The Plan expired in December, 2017. As of December 31, 2020 there were 345,000 options outstanding under this plan. 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, 2020, there were 65,000 options outstanding under this plan. 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. The Company recorded stock-based compensation of $255,000 and $572,000 for the years ended December 31, 2020 and 2019, respectively. F-23 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 10 – Stockholders ’ equity (continued) A summary of the stock option activity related to the 2001 Stock Option Plans, the 2007 Share Incentive Plan and the 2016 Share Incentive Plan for the period from January 1, 2019 through December 31, 2020 is as follows: 2001 Non-Qualified Stock Option Plan Beginning Granted Exercised Canceled Ending Balance During During During Balance Outstanding Period Period Period Outstanding Exercisable Year ended December 31, 2019 Number of shares 22,930 - - - 22,930 22,930 Weighted average exercise price per share $ 5.36 - - - $ 5.36 $ 5.36 Year ended December 31, 2020 Number of shares 22,930 - - (15,930 ) 7,000 7,000 Weighted average exercise price per share $ 5.36 - - $ 4.25 $ 7.90 $ 7.90 2007 Share Incentive Plan Beginning Granted Exercised Canceled Ending Balance During During During Balance Outstanding Period Period Period Outstanding Exercisable Year ended December 31, 2019 Number of shares 365,000 - - (20,000 ) 345,000 285,000 Weighted average exercise price per share $ 12.35 - - $ 11.61 $ 12.33 $ 12.76 Year ended December 31, 2020 Number of shares 345,000 - - - 345,000 305,000 Weighted average exercise price per share $ 12.33 - - - $ 12.33 $ 12.60 2016 Share Incentive Plan Beginning Granted Exercised Canceled Ending Balance During During During Balance Outstanding Period Period Period Outstanding Exercisable Year ended December 31, 2019 Number of shares 20,000 60,000 - (15,000 ) 65,000 - Weighted average exercise price per share - $ 5.00 - $ 5.00 $ 5.94 - Year ended December 31, 2020 Number of shares 65,000 - - - 65,000 - Weighted average exercise price per share $ 5.94 - - - $ 5.94 - F-24 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 10 – Stockholders ’ equity (continued) The Company has 417,000 of outstanding stock options under the three plans at December 31, 2020. The following table summarizes information about the outstanding and exercisable options at December 31, 2020. 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 45,000 .0 $ 5.00 $ 0 45,000 $ 5.00 $ 0 $7.01 - 10.00 27,000 .0 $ 8.03 $ 0 27,000 $ 8.03 $ 0 $10.01 - 12.00 220,000 .3 $ 10.81 $ 0 180,000 $ 11.05 $ 0 $12.01 - 15.00 125,000 1.5 $ 15.00 $ 0 125,000 $ 15.00 $ 0 No options were exercised for the year ended December 31, 2020 and 2019. As of December 31, 2020, there was $12,000 of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 1.00 years Restricted Stock Awards The following table summarizes restricted stock awards for the years ended December 31, 2020 and 2019: Weighted Average Grant Shares of Date Fair Restricted Stock Value Unvested outstanding at December 31, 2018 0 $ 0 Granted 37,300 $ 3.99 Vested (35,025 ) $ 3.99 Forfeited/Cancelled (2,275 ) $ 3.99 Unvested outstanding at December 31, 2019 0 $ 0 Granted 30,200 $ 3.74 Vested (30,200 ) $ 3.74 Forfeited/Cancelled - - Unvested outstanding at December 31, 2020 0 $ 0 The total fair value of shares of restricted stock awards vested for the years ended December 31, 2020 and 2019 was approximately $113,000 and $140,000 respectively. The fair value of the outstanding restricted stock awards is recorded as stock compensation expense over the vesting period. F-25 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 10 – Stockholders ’ equity (continued) Restricted Stock Units The following table summarizes restricted stock units for the years ended December 31, 2020 and December 31, 2019: Weighted Shares of Average Grant Restricted Date Fair Stock Units Value Unvested outstanding at December 31, 2018 46,063 $ 8.25 Granted 10,500 $ 4.15 Vested (33,988 ) $ 9.08 Forfeited/Cancelled (- ) $ - - Unvested outstanding at December 31, 2019 22,575 $ 4.66 Granted - - Vested (12,825 ) $ 8.81 Forfeited/Cancelled (1,000 ) $ 5.45 - Unvested outstanding at December 31, 2020 8,750 $ 5.00 The total fair value of vested restricted stock units was $91,000 and $309,000 respectively for the years ended December 31, 2020 and 2019. The fair value of the outstanding restricted stock units will be recorded as stock compensation expense over the vesting period. As of December 31, 2020, there was $25,000 of total unrecognized compensation costs related to restricted stock units, which is expected to be recognized over a weighted-average period of 1.0 years. During the years ended December 31, 2020 and 2019, the Company recorded into selling and general administrative expense approximately $255,000 and $572,000 of stock-based compensation expense for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments in accordance with the provisions of ASC 718. Note 11 – 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. No discretionary employer contribution has been made for 2020 and 2019. F-26 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 12 – Segment Reporting The Company operates through three segments, CVD, SDC and CVD Materials. The CVD segment is utilized for silicon, silicon germanium, silicon carbide and gallium arsenide processes. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York. The accounting policies of CVD and SDC are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based on several factors, of which the primary financial measure is earnings before taxes. Included in the CVD Materials segment are our wholly owned subsidiaries, CVD Tantaline Aps and CVD MesoScribe Technologies Corporation. The following table presents certain information regarding the Company’s segments as of December 31, 2020 and December 31, 2019 and for the years then ended: 2020 (In thousands) CVD SDC Materials Corporate Eliminations * Consolidated Assets $ 31,284 $ 6,068 $ 3,593 $ (9 ) $ 40,936 Revenue $ 10,385 $ 4,429 $ 2,556 $ (450 ) $ 16,920 Operating (loss)/income (863 ) 473 (4,283 ) (3,151 ) (7,824 ) Pretax (loss)/income (878 ) 481 (4,054 ) (3,151 ) (7,602 ) 2019 (In thousands) CVD SDC Materials Corporate Eliminations * Consolidated Assets-revised $ 34,374 $ 6,003 $ 6,355 $ (9 ) $ 46,723 Revenue $ 14,065 $ 4,498 $ 1,786 $ (702 ) $ 19,647 Operating (loss)/income (1,811 ) 696 (537 ) (3,333 ) (4,985 ) Pretax (loss)/income (1,782 ) 719 (518 ) (3,333 ) (4,914 ) *All elimination entries represent intersegment transactions eliminated in consolidation for external reporting. 2020 Materials segment includes an impairment charge of $3.6 million related to the Tantaline product line NOTE 13: Significant Events- COVID-19 The Company has been actively monitoring the coronavirus (COVID-19) outbreak and resulting pandemic and its impact on both the global economic and operating environment and specifically on its impact to the Company, its employees, its operations and its financial condition. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations, including complete or partial government shutdowns of many schools and businesses, including our Company, and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak has severely restricted the level of economic activity in many countries, including the United States, and continues to materially and adversely impact global economic activity. In particular, the aerospace sector, for which we rely on a significant part of our business, has been faced with significant reductions to its business due to lack of air travel. The Company’s new order levels during the year ended December 31, 2020 and into the first quarter of 2021 have seen substantial reductions which have materially and adversely affected revenues commencing in our second quarter of 2020, and is anticipated to continue into 2021. While the financial results for the Company’s first quarter of 2020 reflected the initial impact of COVID-19, and the twelve months ended December 31, 2020 reflected a substantial adverse effect, we are unable to predict the extent of the impact the pandemic will have on our financial position and operating results for 2021 due to numerous uncertainties, but the impact could be material during any future period affected either directly or indirectly by this pandemic. The Company intends to continue to evaluate the various government sponsored plans and programs put in place in response to the COVID-19 pandemic and further plans to take advantage of any such government benefits reasonably available to it. Moreover, the Company will continue to monitor developments in that area as new government initiatives are passed. F-27 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 and 2019 Note 14 – Subsequent Events In January 2021, the Board of Directors made a decision to implement a change in direction and new leadership to evaluate the business strategy and operations. As such, they appointed Emmanuel Lakios as President and Chief Executive Officer (previously our Vice-President- Sales and Marketing). A decision was made based on continued losses and significant investments required to continue in the Materials business that our primary focus should be on the core equipment business and that the Materials Business strategy should be revised, with some of its current elements potentially minimized or ceased. Based upon an analysis, including forecasted continued losses and negative cash flows for the Tantaline product line, we have implemented plans to eliminate further investment in our Tantaline product line. In addition, we have recorded an impairment charge of $3.6 million during the fourth quarter and year ended December 31, 2020. In addition, we continue to monitor our costs and will take actions to mitigate expenses in the future. In order to increase our liquidity and to provide necessary working capital to support our on-going business and operations, we have decided to sell the 555 Building in February 2021. We have determined the 555 Building is not needed for present and future business operations. We have concluded that any remaining elements of the Materials Business can be consolidated into the 355 Building, which we believe can accommodate any needs for our growth for the foreseeable future. On March 29, 2021, the Company entered into an agreement with Steel K, LLC for the sale of its 555 Building. The purchase price is $24,360,000, and the closing of the sale is subject to the satisfaction or waiver of certain conditions to closing or contingencies. A portion of the sale proceeds would be used to satisfy the existing mortgage debt on the 555 Building in the approximate amount of $9.3 million at December 31, 2020, and for various costs related to the sale closing in an amount to be determined. Any excess proceeds will be used for general working capital purposes. F-28