CVD EQUIPMENT CORP 10-Q

Item 1 – Financial Statements CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands, except share amounts) (Unaudited) September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 14,285 $ 14,365 Accounts receivable, net 2,585 3,788 Contract assets 2,895 2,170 Inventories, net 4,290 2,538 Other current assets 848 797 Total current assets 24,903 23,658 Employee retention credit receivable - 1,529 Property, plant and equipment, net 12,207 12,596 Intangible assets, net 107 119 Other assets 10 10 Total assets $ 37,227 $ 37,912 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,477 $ 1,454 Accrued expenses 1,711 2,591 Current maturities of long-term debt 80 77 Deposits from purchaser of MesoScribe assets – note 11 597 - Contract liabilities 4,858 4,042 Total current liabilities 8,723 8,164 Long-term debt, net of current portion 288 349 Total liabilities 9,011 8,513 Stockholders’ equity: Common stock - $ 0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,820,665 at September 30, 2023 and 6,760,938 at December 31, 2022 68 67 Additional paid-in capital 28,434 27,712 Retained earnings (accumulated deficit) ( 286 ) 1,620 Total stockholders’ equity 28,216 29,399 Total liabilities and stockholders’ equity $ 37,227 $ 37,912 The accompanying notes are an integral part of these condensed consolidated financial statements 3 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share and share amounts) (Unaudited) 2023 2022 2023 2022 Three months ended Nine months ended September 30, September 30, 2023 2022 2023 2022 Revenue $ 6,234 $ 8,119 $ 19,998 $ 18,579 Cost of revenue 4,636 5,699 14,579 13,952 Gross profit 1,598 2,420 5,419 4,627 Operating expenses: Research and development 704 518 1,865 1,397 Selling 434 290 1,281 895 General and administrative 1,450 1,490 4,410 3,937 Loss on disposition of Tantaline - - 162 - Impairment charge - - 111 - Total operating expenses 2,588 2,298 7,829 6,229 Operating income (loss) ( 990 ) 122 ( 2,410 ) ( 1,602 ) Other income (expense): Interest income 173 43 400 74 Interest expense ( 6 ) - ( 18 ) ( 5 ) Foreign exchange income (expense) - ( 107 ) 42 ( 250 ) Other income 70 5 91 11 Total other income (expense), net 237 ( 59 ) 515 ( 170 ) Income (loss) before income tax ( 753 ) 63 ( 1,895 ) ( 1,772 ) Income tax expense - - 11 1 Net income (loss) $ ( 753 ) $ 63 $ ( 1,906 ) $ ( 1,773 ) Income (loss) per common share - basic $ ( 0.11 ) $ 0.01 $ ( 0.28 ) $ ( 0.26 ) Income (loss) per common share - diluted $ ( 0.11 ) $ 0.01 $ ( 0.28 ) $ ( 0.26 ) Weighted average common shares Basic 6,789,487 6,736,764 6,787,415 6,730,263 Diluted 6,789,487 6,740,692 6,787,415 6,730,263 The accompanying notes are an integral part of these condensed consolidated financial statements 4 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except share amounts) (Unaudited) Three months ended September 30, 2023 and 2022 Shares Par Value Capital Earnings Total Common stock Additional paid-in Retained Shares Par Value Capital Earnings Total Balance at July 1, 2023 6,779,063 $ 67 $ 28,185 $ 467 $ 28,719 Balance 6,779,063 $ 67 $ 28,185 $ 467 $ 28,719 Net loss - - - ( 753 ) ( 753 ) Stock-based compensation 41,320 1 249 - 250 Exercise of stock options and issuance of shares 272 - - - - Balance at September 30, 2023 6,820,655 $ 68 $ 28,434 $ ( 286 ) $ 28,216 Balance at July 1, 2022 6,728,938 $ 67 $ 27,466 $ 7 $ 27,540 Net income - - - 63 63 Stock-based compensation 32,000 1 118 - 119 Balance at September 30, 2022 6,760,938 $ 68 $ 27,584 $ 70 $ 27,722 Nine months ended September 30, 2023 and 2022 Shares Par Value Capital Earnings Total Common stock Additional paid-in Retained Shares Par Value Capital Earnings Total Balance at January 1, 2023 6,760,938 $ 67 $ 27,712 $ 1,620 $ 29,399 Net loss - - - ( 1,906 ) ( 1,906 ) Stock-based compensation 41,320 1 646 - 647 Exercise of stock options and issuance of shares 18,397 - 76 - 76 Balance at September 30, 2023 6,820,655 $ 68 $ 28,434 $ ( 286 ) $ 28,216 Balance at January 1, 2022 6,723,438 $ 67 $ 27,277 $ 1,843 $ 29,187 Balance 6,723,438 $ 67 $ 27,277 $ 1,843 $ 29,187 Net loss - - - ( 1,773 ) ( 1,773 ) Stock-based compensation 37,500 1 307 - 308 Balance at September 30, 2022 6,760,938 $ 68 $ 27,584 $ 70 $ 27,722 Balance 6,760,938 $ 68 $ 27,584 $ 70 $ 27,722 The accompanying notes are an integral part of these condensed consolidated financial statements 5 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) 2023 2022 Nine months ended September 30, 2023 2022 Cash flows from operating activities: Net loss $ ( 1,906 ) $ ( 1,773 ) Adjustments to reconcile net loss to net cash used in operating activities: Loss on disposition of Tantaline 162 - Impairment charge 111 - Stock-based compensation 647 307 Depreciation and amortization 545 538 Changes in assets and liabilities, net of effects of disposition of Tantaline: Accounts receivable 1,163 ( 1,404 ) Contract assets ( 725 ) ( 614 ) Inventories ( 1,756 ) ( 909 ) Tax receivable - 716 Employee retention credit receivable 1,529 - Other current assets ( 46 ) ( 66 ) Accounts payable 113 363 Accrued expenses ( 729 ) 687 Contract liabilities 816 ( 173 ) Net cash used in operating activities ( 76 ) ( 2,328 ) Cash flows from investing activities: Net cash used in connection with disposition of Tantaline ( 312 ) - Deposits from purchaser of MesoScribe assets 597 - Purchases of property and equipment ( 308 ) ( 638 ) Capitalized patents costs - ( 53 ) Net proceeds from sale of assets - 10 Net cash used in investing activities ( 23 ) ( 681 ) Cash flows from financing activities Proceeds from exercise of stock options 76 - Payments of long-term debt ( 57 ) ( 1,766 ) Net cash provided by (used in) financing activities 19 ( 1,766 ) Net decrease in cash and cash equivalents ( 80 ) ( 4,775 ) Cash and cash equivalents at beginning of period 14,365 16,651 Cash and cash equivalents at end of period $ 14,285 $ 11,876 Supplemental disclosure of cash flow information: Income taxes paid $ 11 $ 1 Interest paid $ 18 $ 8 Non-cash investing and financing activities: Loan obtained for new equipment $ - $ 432 The accompanying notes are an integral part of these condensed consolidated financial statements 6 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (unaudited) NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that can be expected for the year ending December 31, 2023. The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 27, 2023, but does not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with that report. All material intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the prior period condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net income (loss). Liquidity At September 30, 2023, the Company had $ 14.3 million in cash and cash equivalents. The Company anticipates that the existing cash and cash equivalents balance together with potential future income from operations, collections of existing accounts receivable, revenue from its existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet its working capital and capital equipment requirements, and its anticipated cash needs over the next 12 months from the date of issuance of the accompanying Form 10-Q. 7 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition In accordance with FASB ASC 606 - Revenue from Contracts with Customers (“ASC 606”), the Company records revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services promised to its customers. Under ASC 606, the Company follows a five-step model to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price for the contract; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue using one of the following two methods: Over time The Company designs, manufactures and sells custom chemical vapor deposition, thermal process equipment and other equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within two to eighteen months from commencement of order acceptance. For systems sales that meet the criteria to recognize revenue over time, the Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. For system sales that do not meet the criteria to recognize revenue over time based on the contract provisions, the Company recognize revenue based on point in time. Under the over time method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process, and installed, as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. There were no material impairment losses recognized on contract assets during the three and nine months ended September 30, 2023 and 2022 . The timing of revenue recognition, billings and collections results in accounts receivables, unbilled receivables or contract assets and contract liabilities on our consolidated balance sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. 8 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Under ASC 606, payments received from customers in excess of revenue recognized to-date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract. Contract assets include unbilled amounts typically resulting from system sales under contracts and represents revenue recognized that exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized. The Company typically receives down payments upon receipt of order and progress payments as the system is manufactured. Contract assets and contract liabilities are classified as current as these contracts in progress are expected to be substantially completed within the next twelve months. Point in time For non-system sales of products and services, revenue is recognized at the point in time when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606, “Revenue from Contracts with Customers.” For any system equipment sales where the equipment would have an alternative use or where the contract provisions of the contract preclude the use of over time revenue recognition, revenue is recognized at the point in time when control of the equipment is transferred to the customer. For the three and nine months ended September 30, 2023 and 2022, all system equipment sales were recorded over time by using an input method. There was one system equipment contract in 2023 where the revenue was to be recognized at the point in time when the equipment is transferred to the customer. This contract was modified during the three months ended September 30, 2023 such that the revenue under this contract will now be recognized over time using an input method based on the revised contract provisions and the fact that the equipment does not have an alternative use. Revenues for the three months ended September 30, 2023 includes $ 0.8 million of revenue that was deferred as of June 30, 2023 and recognized on the date of the contract modification. Inventories Inventories are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. 9 NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Product Warranty The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance or fifteen months from the date of shipment by providing labor and parts necessary to repair the systems during the warranty period. The Company records the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of revenue” in the condensed consolidated statements of operations. The estimated warranty cost is based on the Company’s historical cost. The Company updates its warranty estimates based on actual costs incurred. Recent 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 decrease 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 effective for fiscal years beginning after December 15, 2022 and interim periods within those annual periods. The adoption of the ASU 2016-3 as of January 1, 2023 did not have a material impact on the Company’s financial position. The Company believes there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of its 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: CONCENTRATION OF CREDIT RISK Cash and cash equivalents The Company had cash and cash equivalents of $ 14.3 million and $ 14.4 million at September 30, 2023 and December 31, 2022, respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents consisting of U.S. treasury bills were $ 13.4 million and $ 11.7 million at September 30, 2023 and December 31, 2022, respectively. 10 NOTE 3: CONCENTRATION OF CREDIT RISK (continued) The Company places most of its temporary cash investments in the United States with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at September 30, 2023 and December 31, 2022 was $ 0.8 million and $ 1.5 million, respectively. The Company’s cash balance at its Tantaline subsidiary based in Denmark exceeded the government guarantee limit by approximately $ 0.5 million at December 31, 2022. Account receivable The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. Accounts receivable are presented net of an allowance for doubtful accounts of approximately $ 36,000 at both September 30, 2023 and December 31, 2022. The allowance is based on prior experience and management’s evaluation of future economic conditions. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition. At September 30, 2023, the accounts receivable balance included amounts from three customers that totaled 53.6 % of total accounts receivable and at December 31, 2022, the accounts receivable balance included amounts from two customers that totaled 66 % of total accounts receivable. Sales concentration Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended September 30, 2023, two customers represented 40.3 % and 10.3 % of revenues, respectively, and during the nine months ended September 30, 2023, three customers represented 16.7 %, 13.9 % and 11.7 % of revenues, respectively. During the three months ended September 30, 2022, one customer represented 44.6 % of revenues, and during the nine months ended September 30, 2022, one customer represented 28.6 % of revenues. 11 NOTE 4: REVENUE RECOGNITION The following table represents a disaggregation of revenue for the three and nine months ended September 30, 2023 and 2022 (in thousands): SCHEDULE OF DISAGGREGATION OF REVENUE Over time Point in time Total Three months ended September 30, 2023 Over time Point in time Total Energy $ 970 $ 136 $ 1,106 Aerospace 2,511 371 2,882 Industrial 695 739 1,434 Research 504 308 812 Total $ 4,680 $ 1,554 $ 6,234 Over time Point in time Total Three months ended September 30, 2022 Over time Point in time Total Energy $ 3,791 $ 25 $ 3,816 Aerospace - 154 154 Industrial 1,653 1,153 2,806 Research 827 516 1,343 Total $ 6,271 $ 1,848 $ 8,119 Over time Point in time Total Nine months ended September 30, 2023 Over time Point in time Total Energy $ 4,246 $ 189 $ 4,435 Aerospace 2,774 1,226 4,000 Industrial 5,450 1,866 7,316 Research 2,960 1,287 4,247 Total $ 15,430 $ 4,568 $ 19,998 Over time Point in time Total Nine months ended September 30, 2022 Over time Point in time Total Energy $ 6,714 $ 49 $ 6,763 Aerospace - 1,375 1,375 Industrial 4,099 3,197 7,296 Research 1,832 1,313 3,145 Total $ 12,645 $ 5,934 $ 18,579 12 NOTE 4: REVENUE RECOGNITION (continued) The energy market includes customers involved in the manufacture of silicon carbide wafers and batteries. Aerospace market includes customers that manufacture aircraft engines. Industrial end market consists of various end customers in diverse industries. Research market principally represents customers that are universities and other research institutions. The Company has unrecognized contract revenue of approximately $ 15.5 million at September 30, 2023, which it expects to substantially recognize as revenue within the next twelve months based on over time revenue recognition. The Company also has orders of approximately $ 1.1 million for contracts that it expects to recognize with the next twelve months based on point in time revenue recognition. Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize. Changes in estimates for sales of systems may occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s condensed consolidated statements of operations. Contract assets and liabilities Contract assets and contract liabilities on input method type contracts in progress are summarized as follows as of September 30, 2023 (in thousands): SCHEDULE OF COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS Costs incurred on contracts in progress $ 16,762 Estimated earnings 11,756 Costs and estimated earnings on uncompleted contracts 28,518 Billings to date ( 30,163 ) Net cost in excess of billings ( 1,645 ) Deferred revenue related to non-system contracts ( 318 ) Contract liability in excess of contract assets $ ( 1,963 ) Included in accompanying condensed consolidated balance sheet as of September 30, 2023 under the following captions (in thousands): Contract assets $ 2,895 Contract liabilities $ ( 4,858 ) 13 NOTE 4: REVENUE RECOGNITION (continued) Of the contract liability balances at December 31, 2022 and 2021 of $ 4.0 million and $ 1.7 million, respectively, $ 3.7 million and $ 1.6 million was recognized as revenue during the nine months ended September 30, 2023 and 2022, respectively. NOTE 5: INVENTORIES, NET Inventories consist of: SCHEDULE OF INVENTORIES NET September 30, 2023 December 31, 2022 Raw materials $ 2,883 $ 2,165 Work-in-process 580 373 Finished goods 827 - Total $ 4,290 $ 2,538 NOTE 6: LONG-TERM DEBT In September 2022, the Company entered into a loan agreement to fund the acquisition of machinery. The loan amount of $ 0.4 million, is payable in 60 equal monthly installments of $ 8,352 and secured by equipment. The interest rate is 6 %. NOTE 7: EARNINGS PER SHARE The calculation of basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 2023 and 2022 is as follows: SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2023 2022 2023 2022 Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Basic weighted average common shares outstanding 6,789,487 6,736,764 6,787,415 6,730,263 Dilutive effect of options and unvested restricted stock - 3,928 - - Diluted weighted average shares outstanding 6,789,487 6,740,692 6,787,415 6,730,263 At September 30, 2023, stock options to purchase 873,875 shares of common stock were outstanding and 349,375 were exercisable. At September 30, 2022, stock options to purchase 678,000 shares of common stock were outstanding and 290,500 were exercisable. Except for the three months ended September 30, 2022, all stock options were excluded in the computation of diluted earnings per share because their effect was antidilutive. 14 NOTE 8: STOCK-BASED COMPENSATION EXPENSE The Company recorded stock-based compensation for the three and nine months ended September 30, 2023 and 2022, respectively, that were included in the following line items in our condensed consolidated statements of operations (in thousands): SCHEDULE OF STOCK BASED COMPENSATION 2023 2022 2023 2022 Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Cost of revenue $ 22 $ 9 $ 82 $ 26 Research and development 47 16 113 43 Selling 30 8 72 18 General and administrative 150 86 380 220 Total $ 249 $ 119 $ 647 $ 307 Stock-based compensation expense in three-month periods ended September 30, 2023 and 2022 included approximately $ 44,783 and $ 40,000 , respectively, related to restricted stock awards that directors are entitled to receive pursuant to the Director Compensation plan. Stock-based compensation expense in both nine-month periods ended September 30, 2023 and 2022 included approximately $ 0.1 million related to restricted stock awards that directors are entitled to receive pursuant to the Director Compensation plan. Under this plan each of the independent directors is entitled to an Annual Equity Retainer in the amount of $ 40,000 , to be granted on the date of the Company’s annual meeting of shareholders or upon appointment to the board of directors and vest quarterly over the following year. The following table summarizes restricted stock awards through September 30, 2023: SCHEDULE OF RESTRICTED STOCK AWARDS Weighted Restricted Average Awards Exercise (in shares) Price Unvested restricted stock awards at January 1, 2023 - $ - Granted 29,660 6.57 Exercised ( 6,699 ) 6.68 Forfeited - - Unvested restricted stock awards at September 30, 2023 22,961 6.53 For the nine months ended September 30, 2023, the Company granted 254,000 stock options, vesting 25 % per year over four years , with a ten-year life. The Company determined the weighted average fair value of stock options granted was $ 9.27 and is based upon weighted average assumptions below. SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS Stock price $ 14.02 Exercise price $ 14.02 Dividend yield 0 % Expected volatility 72 % Risk-free interest rate 3.39 % Expected life (in years) 6.00 15 NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued) The following table summarizes stock options awards through September 30, 2023: SCHEDULE OF STOCK OPTIONS AWARDS Weighted Stock Option Average Awards Exercise (in shares) Price Outstanding at January 1, 2023 673,000 $ 5.70 Granted 254,000 14.02 Exercised ( 20,625 ) 4.18 Forfeited ( 32,500 ) 6.57 Outstanding at September 30, 2023 873,875 8.12 The following table summarizes information about the outstanding and exercisable options at September 30, 2023 by ranges of exercise prices: SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS RANGES OF EXERCISE PRICES 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 - 7.00 487,375 8.1 $ 4.56 $ 1,020,173 209,375 $ 4.49 $ 451,941 $ 7.01 - 10.00 20,000 4.6 $ 8.07 $ - 20,000 $ 8.07 $ - $ 10.01 - 13.00 130,000 4.3 $ 11.51 $ - 120,000 $ 10.52 $ - $ 13.01 - 16.00 236,500 9.5 $ 14.11 $ - - - $ - As of September 30, 2023, there was $ 2.7 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 2.9 years. NOTE 9: INCOME TAXES As of September 30, 2023 and December 31, 2022, the Company has provided a full valuation allowance against its net deferred tax assets. This was based on management’s assessment, including the last four years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future. Management continues to evaluate for potential utilization of the Company’s net deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections of future operating results. 16 NOTE 10: SEGMENT REPORTING The Company operates through three segments: CVD Equipment, Stainless Design Concepts (“SDC”) and CVD Materials. The CVD Equipment segment manufactures and sells chemical vapor deposition, physical vapor transport and similar equipment. The SDC segment designs and manufactures ultra-high purity gas and chemical delivery control systems. The CVD Materials segment provides material coatings for aerospace, medical, electronic and other applications and is not considered a core business of the Company. See Note 11 for the disposition of the Tantaline subsidiary and planned disposition of the MesoScribe subsidiary which comprise the CVD Materials segment. The Company evaluates performance based on several factors, of which the primary financial measure is income (loss) before taxes. The Company’s corporate administration activities are reported in the “Corporate” column. These activities primarily include expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for options and shares of restricted stock granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees. Elimination entries included in the “Eliminations” column represent intersegment revenues and cost of revenues that are eliminated in consolidation. Intersegment sales by the SDC segment to the CVD Equipment segment for the three months ended September 30, 2023 and 2022 were $ 0.2 million and $ 72,000 , respectively, and $ 0.6 million and $ 0.5 million for the nine months ended September 30, 2023 and 2022, respectively. Intersegment sales by the CVD Equipment segment to the SDC segment for the three months and nine months ended September 30, 2023 were $ 39,000 and $ 0.1 million, respectively. There were no intersegment sales by the CVD Equipment segment to the SDC segment in 2022. 17 NOTE 10: SEGMENT REPORTING (continued) The following table presents certain information regarding the Company’s segments as of and for the three months ended September 30, 2023 and 2022 (in thousands): SCHEDULE OF SEGMENTS 2023 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Assets $ 32,915 $ 4,237 $ 177 $ ( 102 ) $ - $ 37,227 Revenue $ 4,795 $ 1,572 $ 90 $ ( 223 ) $ - $ 6,234 Operating (loss) income ( 323 ) 436 ( 35 ) ( 76 ) ( 992 ) ( 990 ) Pretax (loss) income ( 262 ) 434 ( 31 ) ( 76 ) ( 818 ) ( 753 ) Depreciation and amortization $ 137 $ 12 $ 4 $ - $ - $ 153 Purchase of property, plant & equipment $ 83 $ - $ - $ - $ - $ 83 2022 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Assets $ 22,415 $ 8,800 $ 2,345 $ 42 $ - $ 33,602 Revenue $ 5,718 $ 1,663 $ 809 $ ( 71 ) $ - $ 8,119 Operating (loss) income ( 32 ) 448 365 - ( 659 ) 122 Pretax (loss) income ( 27 ) 448 257 - ( 615 ) 63 Depreciation and amortization $ 107 $ 12 $ 17 $ - $ - $ 136 Purchase of property, plant & equipment ** $ 610 $ - $ - $ - $ - $ 610 ** Includes $ 0.4 million of purchased equipment financed with a loan. 18 NOTE 10: SEGMENT REPORTING (continued) The following table presents certain information regarding the Company’s segments as of and for the nine months ended September 30, 2023 and 2022 (in thousands): 2023 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Revenue $ 13,774 $ 5,679 $ 1,099 $ ( 554 ) $ - $ 19,998 Operating (loss) income ( 581 ) 1,430 ( 178 )* ( 104 ) ( 2,977 ) ( 2,410 ) Pretax (loss) income ( 518 ) 1,430 ( 126 )* ( 104 ) ( 2,577 ) ( 1,895 ) Depreciation and amortization $ 404 $ 36 $ 105 $ - $ - $ 545 Purchase of property, plant & equipment $ 298 $ 10 $ - $ - $ - $ 308 2022 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Revenue $ 12,324 $ 4,669 $ 2,083 $ ( 497 ) $ - $ 18,579 Operating (loss) income ( 1,391 ) 1,117 642 - ( 1,970 ) ( 1,602 ) Pretax (loss) income ( 1,380 ) 1,117 394 - ( 1,903 ) ( 1,772 ) Depreciation and amortization $ 439 $ 37 $ 62 $ - $ - $ 538 Purchase of property, plant & equipment ** $ 1,038 $ 2 $ 30 $ - $ - $ 1,070 * Includes loss on sale of Tantaline of $ 0.2 million and an impairment charge related to MesoScribe fixed assets of $ 0.1 million. ** Includes $ 0.4 million of purchased equipment financed with a loan. 19 NOTE 11: CVD MATERIALS – TANTALINE AND MESOCRIBE SUBSIDIAIRES Tantaline Subsidiary On May 26, 2023, the Company sold its Tantaline subsidiary located in Nordborg, Denmark in exchange for a nominal amount at closing and an earn-out provision based on any net income that Tantaline may earn during the five-year period ending December 31, 2027. The Company recorded a loss of $ 0.2 million upon the sale. Any earn-out amounts will be recognized when and if any such amounts become probable of receipt. The decision to sell Tantaline was based on the Company’s ongoing strategy to focus on the equipment business consisting of the CVD Equipment and SDC segments and reduce its focus on the non-core CVD Materials business. Including the loss on disposition of $ 0.2 million, the revenues and net income of Tantaline were $ 0.5 million and $ 0.1 million, respectively, for the nine months ended September 30, 2023. The total assets and total liabilities of the Tantaline subsidiary were $ 1.1 million and $ 0.1 million as of December 31, 2022. MesoScribe Subsidiary On August 8, 2023, the Company entered into a Purchase and License Agreement (the “Agreement”) with a third-party. Pursuant to the Agreement, the Company will sell certain proprietary assets relating to its plasma spray technology and material deposition system and grant a non-exclusive license to use certain of the Company’s related intellectual property as more fully described in the Agreement, for an aggregate purchase price of $ 0.9 million. The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones. The Company will continue to fulfill remaining orders for MesoScribe products through the end of 2024 at which time it plans to cease the remaining operations of MesoScribe and dispose of any remaining equipment. During the three and nine months ended September 30, 2023, the Company recorded an impairment charge of none and $ 0.1 million, respectively, for certain equipment of MesoScribe based on its decision to cease the operations of MesoScribe upon fulfillment of remaining orders. There were no impairment charges recorded in 2022. During the three months ended September 30, 2023, the Company received payments under the Agreement in the amount of $ 0.6 million which has been reflected as “deposits from purchaser” in the accompanying condensed consolidated balance sheet. The Company expects to be completed during the next three months with the shipment of the equipment to the purchaser. The revenues and net loss of MesoScribe were $ 90,000 and ($ 30,000 ) for the three months ended September 30, 2023. The revenue and net income were $ 0.6 million and $ 49,000 respectively, for the nine months ended September 30, 2023, including the impairment charge of $ 0.1 million. 20 NOTE 11: CVD MATERIALS – TANTALINE AND MESOCRIBE SUBSIDIAIRES (continued) The total assets and total liabilities of the MesoScribe subsidiary were $ 0.2 million and $ 0.7 million, respectively, as of September 30, 2023 and $ 0.9 million and $ 0.1 million, respectively, as of December 31, 2022. NOTE 12: RISKS AND UNCERTAINTIES The Company currently operates in a challenging economic environment as the global economy continues to confront the impacts from the pandemic, geopolitical conflicts, inflationary pressures and adverse supply chain disruptions. The specific impacts on the Company have included: Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have and may continue to restrict the Company’s ability to procure raw materials and components such as nickel, graphite and integrated circuits, as well as impact the Company’s ability to sell its products into China, Russia and other Eastern European and Asian regions. Supply chain disruptions have led to much longer lead times to acquire raw materials for production and has led to inflationary pressures in both materials and labor. These supply chain disruptions have impacted the Company’s ability to recognize revenue more timely as it delays the Company’s manufacturing processes. While management has initiated actions to mitigate the potential negative impacts to its revenue and profitability, the Company is unable to predict the impact that the above uncertainties will have on its future results of operations and cash flows. 21