CVD EQUIPMENT CORP 10-K

Item 5. Market for Registrant ’ s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   Our common stock is listed on the NASDAQ Capital Market under the symbol “CVV.” The following table sets forth, for the periods indicated, the high and low prices of our common stock on the NASDAQ Capital Market.       High     Low   Year Ended December 31, 2021:                 1 st Quarter   $ 6.86     $ 3.83   2 nd Quarter     5.11       3.85   3 rd Quarter     5.27       3.96   4 th Quarter     5.85       4.09         High     Low   Year Ended December 31, 2020:                 1 st Quarter   $ 5.59     $ 1.95   2 nd Quarter     4.10       2.20   3 rd Quarter     4.70       2.64   4 th Quarter     7.47       2.85     As of March 15, 2022, there were approximately 80 holders of record and approximately 3,300 beneficial owners of our common stock, and the closing sales price of our common stock as reported on the NASDAQ Capital Market was $3.92.   Dividend Policy   We have never paid dividends on our common stock and we do not anticipate paying dividends on common stock at the present time. We currently intend to retain earnings, if any, for use in our business. There can be no assurance that we will ever pay dividends on our common stock. Our dividend policy with respect to our common stock is within the discretion of the Board of Directors and its policy with respect to dividends in the future will depend on numerous factors, including earnings, financial requirements and general business conditions.   29     Equity Compensation Plan Information Table   The following table provides information about shares of our common stock that may be issued upon the exercise of options under all of our existing compensation plans as of December 31, 2021.       Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)     Weighted-average exercise price of outstanding options, warrants and rights(2)     Number of securities remaining available for future issuance   Plan Category                         Equity compensation plans approved by security holders     618,500     $ 7.32       138,198                             Equity compensation plans not approved by security holders     --       N/A       --                             Total     618,500     $ 7.32       138,198     (1) Reflects aggregate options and restricted stock awards outstanding under our 2001 Stock Option Plan, 2007 Share Incentive Plan and 2016 Equity Incentive Plan.   (2) Calculation is exclusive of the value of any unvested restricted stock awards.   Recent Sales of Unregistered Securities   None.   Issuer Purchases of Equity Securities   None.   Item 6. Reserved.   30     Item 7. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations.   Except for historical information contained herein, this “ Management ’ s Discussion and Analysis of Financial Condition and Results of Operations ” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include but are not limited to: competition in the Company ’ s existing and potential future product lines of business; the Company ’ s ability to attract and retain key personnel and employees; the Company ’ s ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company ’ s future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company, uncertainty as to the Company ’ s ability to adequately obtain raw materials and components from foreign markets in light of geopolitical developments and the effect of the novel coronavirus (COVID-19) on our business and operations (including with respect to supply chain disruptions), and those of our customers, suppliers and other third parties . Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Past results are no guaranty of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used with this Report, the words “ believes ” , “ anticipates ” , “ expects ” , “ estimates ” , “ plans ” , “ intends ” , “ will ” and similar expressions are intended to identify forward-looking statements.   Executive Level Summary   CVD has continued to serve the advanced materials markets with chemical vapor and thermal process equipment for over 38 years. Our products are used in research and development centers as well as in production environments. We develop, design, manufacture and service a broad range of chemical vapor deposition, gas control and other state-of-the-art process equipment and solutions used in advanced materials and coatings. We serve markets ranging from academic/research initiatives to industrial applications. With the adoption of our technology in these markets we see increased usage of our systems across production environments. Major target markets for our business include advanced nanomaterials, batteries and Silicon Carbide for high power electronics; aerospace gas turbine engines and structural components; medical devices (such as implants); advanced semiconductor devices and Silicon for solar cells; and carbon nanotubes and nanowires. Our Application Laboratory supports the development of new material systems and processes. Our CVD Materials group provides material coating services, process development support and process startup assistance with the focus on enabling tomorrow ’ s technologies TM . Our Mesoscribe product line continues to support the aerospace and defense markets with robust direct write instrumentation. Our CVD Tantaline subsidiary which underwent a restructuring and consolidation in 2021 provides chemical-resistant coating services to many industrial applications.   Based on more than 38 years of experience, we use our capabilities in process development, engineering and vertical manufacturing to transform new applications into mainstream manufacturing solutions. We have built a significant library of design expertise, know-how and innovative solutions to assist our customers in developing these intricate processes and to accelerate their production and commercialization. This library of equipment design solutions, along with our manufacturing and systems integration facilities, allows us to provide application-specific design, process and manufacturing solutions to our customers.   31     To expand our presence into various growth markets, we are developing a line of proprietary standard use products to complement our customized legacy systems. Historically, we manufactured products for research and development on an application-specific basis to meet an individual customer’s specific research and production requirements. Our proprietary systems leverage the technological expertise that we have developed through designing these custom systems into a broader standardized product line. The standard product line is easily configured from a wide range of available options to meet diverse product and budgetary requirements. Manufacturing these standardized systems in higher volumes provides us the flexibility to reduce both the cost and delivery time of our systems. These systems, which we market and sell under the EasyTube® and CVD product lines, are sold to universities, research laboratories, and production companies in the United States and throughout the world.   Sales of our proprietary standard systems, custom systems and process solutions have been driven by our installed customer base, which includes Fortune 500 companies. The performance and success of our products has historically driven repeat orders from existing customers as well as generated business from new customers. Furthermore, with our proprietary solutions and expanded focus on “ accelerating the commercialization of tomorrow ’ s technologies ” TM we have been developing a new customer base in addition to growing with our existing customers. We have generally gained new customers through our industry reputation, as well as limited print advertising and trade show attendance (which has been negatively impacted by COVID-19 in 2020, 2021 and into 2022).   Our core competencies in equipment and software design, manufacturing and process development are used to engineer our finished products and to accelerate the commercialization path of our customer base. Our proprietary real-time software allows for rapid configuration, and provides our customers with enabling tools to understand, optimize and repeatedly control their processes. These factors significantly reduce cost, improve quality and reduce the time it takes between customers’ orders and the shipment of our products. Our Application Laboratory allows customers the option to bring up their process tools in our Application Laboratory and to work collaboratively with our scientists and engineers to optimize process performance.   In 2021 our focus has been on our growth markets, the development of standard product solutions and being able to provide solutions from gas/liquid storage through process and process by-product treatment. This has allowed us to provide increased value to our customers.   32     2021 Developments   In January 2021, our Board of Directors appointed Emmanuel Lakios as President and Chief Executive Officer (previously our Vice-President, Sales and Marketing) to, among other things, evaluate our business strategy and operations, and set a new course toward growth and profitability. Based on this evaluation, our Board concluded that our primary focus should be on bolstering our core equipment business. Furthermore, due to continued losses and the significant investments required to continue its present operations, we aim to revise the current strategy of our Materials business, potentially reallocating or ceasing existing elements entirely.  Based upon that analysis and planning, which included forecasted losses and negative cash flows for the Tantaline product line, we implemented plans to eliminate further investment in our Tantaline product line. This resulted in a discontinuation of all US Tantaline operations, including the freezing of substantial capital investments and the consolidation of all Tantaline operations into the Denmark Tantaline facility. In addition, we recorded an impairment charge of $3.6 million during the fourth quarter and year ended December 31, 2020, related to the long lived assets of Tantaline. With these actions completed, including the migration of all sales, operations and marketing to Denmark, and our focused customer support and increased demand for the Tantaline coating services, we are pleased with the favorable results achieved in 2021 including achieving profitability and positive cash flow at our Denmark Tantaline operations.   We continue to monitor the results of our growth and profitability initiatives, and we will take actions as required to improve our results in line with anticipated revenue levels. The 2021 company strategy to focus on growth market applications has yielded multi system orders in the Silicon Carbide wafer and Battery nanomaterial fields, both fields are essential for the support of the Electric Vehicles (EV) market.  These orders will provide us with standard product to continue to support the EV focused market as well as all energy storage and power transmission. We continue to engage customers in the aerospace market in what we believe will be an eventual recovery in air travel and therefor gas turbine engine components which we provide production solutions and have a considerable installed base of systems.   During 2021, new order bookings exceeded $21 million, representing an increase of approximately 75% compared to 2020. We have achieved order growth in all segments, including a 100% growth in the CVD equipment portion of the business, with 23 system orders in 2021. Our order rate has also increased in the SDC Division and CVD Materials Division which includes the Tantaline and MesoScribe product lines. As a result of increased new orders primarily in the last three quarters of 2021, the result of a recovery in the marketplace, excluding aerospace, as well as our execution of our operating plan, we have achieved four sequential quarters of revenue growth during 2021. Quarterly revenue in 2021 was $3.4 million, $4.0 million, $4.3 million and $4.7 million, during Q1 to Q4, respectively.   Our order rate has benefited from the increased demand for nanotechnology materials including carbon nanotubes (CNTs), Graphene and silicon nanowires (Si-NWs) to support development and manufacturing for battery materials used in electric vehicles. CVD received two system orders in 2021 to deposit coatings onto powders used in silicon-graphite anodes, including a production system and a second for research and material development. Both systems are planned to ship in the middle of 2022.   In addition, demand for Silicon Carbide wafers to support high power electronics for energy storage and transmission/charging has resulted in a multi system order from a US-based, Silicon Carbide wafer provider for approximately $2 million. The systems are scheduled to be delivered in 2022.   33     CVD is also a leading manufacturer of Chemical Vapor Infiltration (CVI) and Tow-Coating Systems to manufacture ceramic composite materials (CMCs) for Aerospace gas turbine engine applications. Even though the aerospace industry has been greatly impacted by the COVID-19 global pandemic, according to industry forecasts, the demand for increased manufacturing is anticipated to recover in 2023.   All of these business growth opportunities are consistent with our strategic plan to address and serve growth production markets.   During February 2021, in order to increase our liquidity and to provide necessary working capital to support our on-going business and operations, the Board decided to sell its facility located at 555 North Research Place, Central Islip, NY (the “555 Building”). On March 29, 2021, we entered into an agreement with Steel K, LLC for the sale of the 555 Building, and on July 26, 2021 we closed on the sale of the 555 Building. The sale price was $24,360,000, subject to adjustment for apportionments, adjustments and credits. A portion of the sale proceeds were used to satisfy the existing mortgage debt on the 555 Building, including interest and fees, in the amount of $9,352,719, as well as various costs related to the closing of the transaction. We recognized a gain on the sale of the building in the amount of $6,894,109 and received approximately $14,000,000 in net proceeds.   Management determined the 555 Building was not needed for its on-going business operations and concluded that any remaining elements of the Materials Business could be consolidated into its remaining facility in Central Islip (the “355 Building”), which we believe can accommodate our growth-related needs for the foreseeable future. In April 2021, we completed the transfer of our United States Tantaline equipment to the 355 Building, while the MesoScribe consolidation into the 355 Building was completed during Q3 2021. All functions of the Tantaline product line have been consolidated into the Denmark facility and, the expenses related to Tantaline operations in the United States have ceased.   In April 2021, we filed an application for forgiveness on our Paycheck Protection Program (the “PPP”) loan and on June 14, 2021 we received a notification from our lender that on June 10, 2021 the SBA approved our PPP Loan forgiveness application and remitted payment to the lender for the entire principal amount of the PPP Loan and accrued interest. As a result, we recognized in the year ended December 31, 2021 a gain on debt extinguishment in the amount of $2,443,418.   34     Statements of Operations       2021     2020                     Revenue   $ 16,446,813     $ 16,920,219                     Cost of revenue     13,907,974       14,037,813                     Gross profit     2,538,839       2,882,406                     Operating expenses                 Research and development     481,186       372,648   Selling and shipping     810,074       580,468   Impairment Charge     -       3,599,322   General and administrative     6,054,832       6,153,925                     Total operating expenses     7,346,092       10,706,363                     Operating loss     (4,807,253 )     (7,823,957 )                   Other income (expense):                 Interest income     5,994       62,667   Interest expense     (261,377 )     (444,337 ) Gain on Sale of Building     6,894,109       -   Gain on Debt extinguishment     2,443,418       -   Other Income     499,971       603,320   Total other income, net     9,582,115       221,650                     Income (loss) before income tax     4,774,862       (7,602,307 )                   Income tax expense (benefit)     28,377       (1,527,355 )                   Net income (loss)   $ 4,746,485     $ (6,074,952 )   35     Revenue     2021     2020     Change     %Change   CVD Equipment   $ 8,588,541     $ 10,385,107     $ (1,796,566 )     (17.3 %) SDC     4,524,767       4,207,182       317,585       7.5 % CVD Materials     3,333,505       2,327,930       1,005,575       43.2 % Total   $ 16,446,813     $ 16,920,219     $ (473,406 )     (2.8 %)     Our revenue for the year ended December 31, 2021 was $16.4 million compared to $16.9 million for the year ended December 31, 2020, resulting in a decrease of 2.8%. This was primarily attributable to decreased revenue of $1.8 million from our CVD Equipment segment related to spare parts and equipment sales, offset, in part by, an increase of $1.0 million in our CVD Materials segment and an increase of $.3 million in our SDC segment. Contributing to and compounding this decline, is the negative effect the COVID-19 crisis has had initially in 2020, during 2021 and into 2022 on the aerospace industry, which resulted from reduced travel and reduction of industry gas turbine engine sales. While aerospace sales had represented as much as 60% of our total revenue, during 2021 and 2020 it represented approximately 15.8% and 45.0%, respectively. Further, the impacts of COVID-19 which significantly reduced the Company’s orders commencing in the first quarter of 2020, for the year ended December 31, 2020 and into the first quarter of 2021, has in turn significantly decreased our revenues in the subsequent quarters. In addition, we have had delays, and continue to experience delays in our supply chain delivery of components which hampers our ability to recognize revenue more timely. However, as a result of increased new orders, primarily in the last three quarters of 2021, the result of a recovery in the marketplace, exclusive of aerospace, as well as the execution of our operating plan, we have achieved four sequential quarters of revenue increases during 2021. Quarterly revenue in 2021 was $3.4 million, $4.0 million, $4.3 million and $4.7 million, during Q1 to Q4, respectively.   The revenue contributed for the year ended December 31, 2021, by the CVD Equipment segment, was $8.6 million, or 52.2% of our overall revenue. This represented a decrease of 17.3% or $1.8 million, as compared to $10.4 million in the prior year, which totaled 61.4% of our overall revenue. This revenue decrease is the result of a decrease of $3.5 million from spare parts to support aerospace customers, which was an industry which was negatively affected by the COVID-19 pandemic. This decrease in spare part sales were offset, in part by, increased equipment sales of $1.7 million for industrial / commercial applications. For year end December 31, 2021 and 2020, sales for spares parts were $3.1 million and $6.6 million, respectively and equipment sales were $5.5 million and $3.7 million, respectively.   Revenue for our SDC segment increased to $4.5 million in 2021 for the year ended December 31, 2021 as compared to $4.2 million in 2020, an increase $.3 million or 7.5%. The SDC segment represented 27.5% and 24.9% of our total revenue during the years ended December 31, 2021 and December 31, 2020, respectively.   Revenues for our CVD Materials segment were $3.3 million in the year ended December 31, 2021 as compared to $2.3 million for 2020. The increase of $1.0 million was due to increased Tantaline® related revenue from our Denmark operations of $.5 million and increased MesoScribe revenue of $.5 million, both the result of improvement in new order rates.   36     Gross Profit   Gross profit for the year ended December 31, 2021 amounted to $2.5 million, with a gross profit margin of 15.4 %, compared to a gross profit of $2.9 million and a gross profit margin of 17.0% for the year ended December 31, 2020. The reduction in gross profit and gross profit margin, was the result of the impact of $.5 million in decreased sales as a result of the impact of COVID-19, increased costs on certain components in the second half of the year, and supply chain delays impacting our manufacturing efficiencies, and the impact of fixed costs and payroll to support anticipated higher sales levels in the future, offset in part by reduced employee payroll and related costs commencing in the year ended December 31, 2020 as a result of the COVID-19 mandates imposed. In late 2021, we initiated price increases on new quotations which will attempt to mitigate our cost increases and we anticipate will benefit margins during 2022.   Research and Development, Selling and General and Administrative Expenses   Research and Development:   Due to the technical development required on our custom orders, our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project. When they are not working on a customer project, and they work in our Application Laboratory or other research applications, their costs are charged to research and development. For the years ended December 31, 2021 and 2020, we incurred $481,000 and $373,000 respectively of internal research and development costs. This increase is the result of increased efforts on research and development as well as the effects of employee furloughs during the year ended December 31, 2020, as a result of COVID-19 mandates imposed.   Selling:   Selling expenses were $.8 million or 4.9% of the revenue for the year ended December 31, 2021 as compared to $.6 million or 3.4% for the year ended December 31, 2020. During the year ended December 31, 2020, due to COVID-19 related furloughs, selling expenses were impacted by reduced employee and employee related costs and during the year ended December 31, 2021 selling expenses increased due to the comparison to the prior year COVID-19 impacted period. In addition, during 2021 we expanded our focus in customer account engagement which resulted in increased personnel and travel related costs, as well as the transfer of one employee from administration during 2021 to focus on sales and marketing initiatives.     Impairment Charge:   For the year ended December 31, 2020, based upon continued operating losses and negative cash flow for our Tantaline product line and the updated forecasts, the expected future cash flows of the Tantaline business was negative and thus we have recorded an impairment charge related to long-term Tantaline assets of $3.6 million in the fourth quarter and year ended December 31, 2020. We had no recorded impairment charges in the consolidated statement of operations during the year ended December 31, 2021.   37     General and Administrative:   General and administrative expenses for the year ended December 31, 2021 were $6.1 million or 36.8% of revenue compared to $6.2 million or 36.4% of revenue for the year ended December 31, 2020, a decrease of $.1 million. The decrease in these expenses is primarily due to the reduction in employees and employee-related costs of $346,000, recovery of bad debts of $244,000, reduced depreciation and operating costs primarily due to the 555 Building in the amount of $413,000, offset, in part by, costs to vacate the 555 Building and prepare the 355 Building for the consolidation of operations in the amount of $232,000, related to personnel costs and outside services, increased legal costs of $533,000, of which $135,000 related to the preparation of the sale of the 555 Building, and the balance was related to general corporate governance, employee related matters and intellectual property.   Operating Loss   Our operating loss of $4.8 million, in the year ended December 31, 2021, is primarily the result of lower sales and the reduction in gross profit margins, as compared with an operating loss of $7.8 million (which included a $3.6 million impairment charge) in the year ended December 31, 2020.   Other Income / (Expenses)   Other income (expenses) was $9,582,000 and $221,000 for the year ended December 31, 2021 and 2020, respectively. On July 26, 2021, we sold our 555 building and recognized a gain on the sale in the amount of $6,894,000. Gain on debt extinguishment was $2,443,000 and $0 for the year ended December 31, 2021 and 2020, respectively, the result of forgiveness of the Company’s PPP loan during the year ended December 31, 2021. Other income from subleasing a portion of our 555 Building was $500,000 and $603,000 in the year ended December 31, 2021 and 2020, respectively. The decrease of $103,000 was the result of the impact of the sale of the 555 Building which occurred on July 26, 2021. As a result of lower interest rates, interest income decreased $57,000, to $6,000 for the year ended December 31, 2021 as compared to $63,000 in 2020. In addition, interest expense related to our mortgages decreased $183,000 to $261,000 for the year ended December 31, 2021, as compared to $444,000 in 2020, the result of our 555 Building mortgage satisfied on July 26, 2021.   Income Taxes   For the year ended December 31, 2021, there was a $28,000 income tax expense related to the gain on the sale of the building, which was reduced by the benefit of our net operating loss carryforwards, as compared to an income tax benefit of $1.5 million for the year ended December 31, 2020. On March 27, 2020, 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 receivable. We continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, cost containment measures and other factors. For the years ended December 31, 2021 and 2020 our tax rate was primarily affected by permanent differences resulting in an effective tax rate of 0.5% and 20.0%.   38     Net Income (Loss)   As a result of the foregoing factors (including the effect of recognizing a $6.9 million gain on the sale of our 555 Building and $2.4 million in forgiveness of debt income related to our PPP Loan) we reported net income of $4.7 million, or $0.71 per diluted share, for the year ended December 31, 2021, as compared to a net loss of ($6.1 million) (which included the $1.5 million tax benefit as noted above), or $0.91 per diluted share for the year ended December 31, 2020.   Inflation and Supply Chain Matters   During the third and fourth quarters of 2021, and thus far in 2022, we experienced increased costs on certain materials and components as well as delays in supply chain delivery, which may also impact our ability to recognize revenue and reduce our gross profit margins, as well as extend our manufacturing lead times and reduce our manufacturing efficiencies. We have commenced placing orders with more lead time to help mitigate the manufacturing delays, as well as assessing other suppliers or components to attempt to mitigate the potential cost impacts. In addition, we are utilizing our in-house flexible manufacturing to attempt to further mitigate both potential schedule delivery delays and material cost increase. While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability, there can be no assurance of the ultimate impact and the length of time that the supply chain factors may impact our revenues and profitability.   Inflation has also had an impact on salaries and compensation. In an effort to remain competitive in the acquisition and retention of our employees, we have reviewed and adjusted salaries and implemented bonus incentives to mitigate the potential negative impacts of inflation on our employees.   Liquidity and Capital Resources   As of December 31, 2021, we had aggregate working capital of $16.7 million compared to aggregate working capital of $8.1 million at December 31, 2020. Our cash and cash equivalents at December 31, 2021 and 2020 were $16.7 million and $7.7 million, respectively.   Net cash used in operating activities during 2021 was $4.3 million. This is the result of the net income, adjusted for non-cash items (including, gain on sale of building and gain on debt extinguishment), of ($3.5 million). In addition, contract assets increased $2.0 million, accounts receivables increased $.4 million and inventories increased $.1 million, offset, in part by, increased contract liabilities of $.9 million, increased accrued expenses of $.4 million and increase accounts payables of $.3 million and decreased other assets of $.2 million.   In order to increase our liquidity and to provide necessary working capital to support our on-going business and operations, on July 26, 2021 we completed the sale of the 555 Building. The sale price was $24,360,000, subject to adjustment for apportionments, adjustments and credits. A portion of the sale proceeds was used to satisfy the existing mortgage debt on the 555 Building, including interest and fees, in the amount of $9,352,719, as well as various costs related to the closing of the transaction. We recognized a gain on the sale of the building in the amount of $6,894,109 and received approximately $14,000,000 in net proceeds.   39     Long term debt decreased by $9.6 million from principal payments on our mortgages in Central Islip, NY. This included the principal repayment in the amount of approximately $9.1 million, to satisfy our loan at closing of the sale of the 555 Building.   Capital expenditures in the year ended December 31, 2021 were $.2 million related primarily to improvements to the 355 building related to moving the Company’s operations from the 555 Building facility.   We had a loan agreement with HSBC USA, N.A. (the “HSBC”) which was secured by a mortgage on our Central Islip headquarters at 355 South Technology Drive. The loan was 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, 2021 and December 31, 2020 were approximately $1.8 million and $2.1 million, respectively. Interest accrued on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5% (1.86% and 1.89% at December 31, 2021 and 2020, respectively). We were in compliance with our financial covenant under the mortgage at December 31, 2021. On March 1, 2022, according to the terms of the agreement, the loan amount outstanding of approximately $1.7 million was satisfied.   The COVID-19 outbreak has resulted in extended shutdowns of certain businesses in United States and around the world. We have been actively monitoring the COVID-19 outbreak and its impact globally.  Our primary focus to this point has been to ensure the health and safety of our employees.  To that end, we have adopted social distancing where appropriate, implemented travel restrictions, and we have taken actions to ensure that locations and facilities are cleaned and sanitized regularly.  These are novel and challenging times and the magnitude of this crisis is requiring us to consider all options to promote the safety of employees, including, where appropriate, or where required to comply with foreign, national, state or local governmental authority recommendations, guidelines, and/or mandates, the temporary reduction or suspension of work at certain of the Company’s locations and production facilities to protect employees and curb the spread of the coronavirus.  All of these actions have adversely impacted our operating results.  In particular, our 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. Due to the timing of the COVID-19 outbreak, our new order levels during the year ended December 31, 2020, and into 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 2022. While the financial results for our first quarter of 2020 reflected the initial impact of COVID-19, and the years ended December 31, 2020 and 2021 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 the 2022 due to numerous uncertainties, but the impact could be material and adverse during any future period affected either directly or indirectly by this pandemic.  The longer-term impacts from the outbreak are highly uncertain and cannot be predicted. Our return to profitability is dependent upon, among other things, the receipt of new equipment orders, the lessening of the ongoing effects of COVID-19 on our business and the Aerospace market, improvement in the operations of the materials business, as well as managing planned capital expenditures and operating expenses.   40     Due to the effects of the COVID-19 pandemic, on April 21, 2020, we entered into a loan agreement (the “Loan Agreement”) with HSBC Bank USA, National Association pursuant to which we were 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 us, was to mature on April 21, 2022 and bore interest at a rate of 1% per annum. The note may be prepaid 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. The Company filed an application for forgiveness in April 2021 and on June 14, 2021 the Company received a notification from its lender that on June 10, 2021 the SBA approved the Company’s PPP Loan forgiveness application and remitted payment to the lender for the entire principal amount of the PPP Loan and accrued interest. As a result, the Company has recognized in the year ended December 31, 2021 forgiveness of debt income in the amount of $2,443,418.   As a result of the March 27, 2020 CARES Act enactment allowing the carryback of NOL’s five years, the Company recognized a $1.5 million tax benefit. The Company has collected $.8 million in the year ended December 31, 2020 and at December 31, 2021 has a remaining tax receivable in the amount of $.7 million outstanding.   Based upon all of these factors, we believe that our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve to eighteen months from the filing of this Form 10-K. Should the current environment continue longer or worsen, we will continue to assess our operations and take actions anticipated to maintain our operating cash to support the working capital needs.   Critical Accounting Policies   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. Our significant estimates include accounting for certain items such as revenues on long-term contracts recognized on the input method; valuation of inventories at the lower of cost or realizable value; allowance for doubtful accounts receivable; valuation of stock-based compensation; estimated lives and recoverable value of our long-lived assets and certain components of the deferred income tax provisions which are based on estimates of future taxable events.   41     Revenue Recognition   We design, manufacture and sell custom chemical vapor deposition equipment through contractual agreements. These system sales require us to deliver functioning equipment that is generally completed within three to eighteen months from commencement of order acceptance. We recognize revenue over time by using an input method based on costs incurred as it depicts our progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.   Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require us to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated.   We have been engaged in the production and delivery of goods on a continual basis under contractual arrangements for many years. Historically, we have demonstrated an ability to accurately estimate total revenues and total expenses relating to our long-term contracts. However, there exist many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or longer-term contracts. If we do not estimate the total sales, related costs and progress toward completion on such contracts, the estimated gross margins may be significantly impacted or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.     Stock-Based Compensation   We record stock-based compensation in accordance with the provisions set forth in the Financial Accounting Standard Board (“FASB”) Accounting Standards Codification (“ASC”) 718, “Stock Compensation”. ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards over the vesting period. The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and includes assumptions regarding expected volatility, expected option term, dividend yields and risk-free interest rates.   42     Long-Lived Assets and Intangibles   Long-lived assets consist primarily of property, plant and equipment. Intangibles consist of patents, copyrights, 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 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.   Item 7A. Quantitative and Qualitative Disclosures About Market Risk.   Not applicable.   Item 8. Financial Statements and Supplementary Data.   The consolidated financial statements and supplementary data required by this item are included in this annual report beginning on page F-1.   Item 9, Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.   None.