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, 2023. 38 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. 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, 2023. 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, 2023, our internal control over financial reporting was effective based on the criteria established by the COSO Internal Control Framework. This Annual Report on Form 10-K 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 on Form 10-K. Item 9B. Other Information. Not applicable. Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections. Not applicable. 39 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. 40 Legal Proceedings Involving Directors None. Board Leadership 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 scheduled 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 appointment of Mr. Waldman as Chairman properly facilitates better communication between the Independent Directors on the one hand and the non-Independent Director 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 of implementing our corporate strategy, we believe he is best suited for leading discussions with input from the Chairman, 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. The following table sets forth the names, ages and positions with the Company of each of our directors and executive officers, as of March 25, 2024. Name Age Position(s) with the Company Emmanuel Lakios 62 Chief Executive Officer, President, Director Lawrence J. Waldman 77 Chairman of the Board of Directors, Chairman-Audit Committee Raymond A. Nielsen 73 Director, Chairman - Nominating, Governance and Compliance Committee Robert M. Brill 77 Director, Chairman - Strategic Planning Committee Debra Wasser 59 Director Ashraf Lotfi 63 Director Richard A. Catalano 64 Chief Financial Officer, Vice President, Secretary and Treasurer Kevin R. Collins 58 Vice President and General Manager of SDC Jeffrey A. Brogan 54 Vice President of Sales and Marketing Maxim S. Shatalov 53 Vice President of Engineering and Technology Warren D. Cheesman 51 Vice President of Manufacturing Operations 41 Emmanuel Lakios Emmanuel Lakios was appointed to serve as President and Chief Executive Officer of the Company on January 22, 2021, and on July 15, 2021 was elected by the shareholders as a member of the Board of Directors. Mr. Lakios joined the Company as Vice President Sales and Marketing in February 2017. Mr. Lakios has over 30 years of experience serving the aerospace, 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. 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. Mr. Waldman has over 40 years of experience in public accounting. Mr. Waldman is a member of the board of directors of Comtech Telecommunications Corporation since August 2015 and Lead Independent Director since December 2021. He serves as the chairperson of Comtech’s Audit Committee. Mr. Waldman is a member of the board of directors and Lead Independent Director and Audit Committee Chairperson at APYX Medical Corporation, a Nasdaq-listed advanced energy medical technology company. Mr. Waldman serves as a Senior Advisor at First Long Island Investors, LLC since 2016 and was previously an Advisor to the accounting firm of EisnerAmper LLP following his role as Partner-in-Charge of Commercial Audit Practice Development for Long Island. Mr. Waldman served as 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. During his tenure at KPMG, Mr. Waldman served as audit partner to a number of public and privately held technology companies. 42 Mr. Waldman is currently Chairman of the Board of Directors of the Long Island Association and a member of the boards of directors of the Long Island Angel Network and the Advanced Energy Research Center at Stony Brook University. Through October 21, 2018, Mr. Waldman was a member of the board of directors of Northstar/RXR Metro Income, Inc., an SEC registered non-traded real estate investment trust. Mr. Waldman is the current Chairman of the Supervisory Committee of Bethpage Federal Credit Union and previously served as the Chairman of the Audit Committee of the State University of New York’s (“SUNY”) Board of Trustees, the largest state university system in the United States. Mr. Waldman previously served as Chairman of the Audit and Finance Committee Board of Trustees of the Long Island Power Authority (“LIPA”), the second largest government utility in the United States, and as the Chairman of the Board. Mr. Waldman also served as an adjunct professor at Hofstra University, teaching graduate courses in advanced accounting theory and advanced auditing. Mr. Waldman is a certified public accountant in New York State. He is a member of the American Institute of Certified Public Accountants and the New York State Society of CPAs. Mr. Waldman holds a Bachelor of Science and a Master of Business Administration from Hofstra University in Hempstead, New York. Mr. Waldman qualifies to serve as a director, Audit Committee Chairman and Lead Independent Director because of his significant experience leading public company boards, his extensive relevant industry and financial and accounting expertise. Ashraf Lotfi Dr. Ashraf Lotfi is currently a venture partner with Deep Sciences Ventures and serves on the board of Lotus Microsystems, ApS, Xonia Ltd., HyperCIM Ltd. Dr. Lotfi previously served as Vice President and a Fellow at Intel Corporation. Prior to Intel, he was Power Chief Technology Officer for Altera Corporation serving its Enpirion Power Business as well as the broader Field Programmable Gate Array community. Altera was acquired by Intel in 2015. Prior to Altera, he served as President and Chief Executive Officer of Enpirion, Inc., which he founded in 2002. From Enpirion’s inception, Dr. Lotfi led its strategic direction with a unique industry-first vision to create the ultimate power converter-on-chip creating ubiquitous DC-DC conversion at the silicon level. In 2013, he led Enpirion’s merger into Altera to realize his vision of highly integrated power management closely coupled to leading-edge digital silicon loads. Prior to founding Enpirion, he was Director of Advanced Power Research at Bell Laboratories. Dr. Lotfi has a B.S. in Electrical Engineering from Cairo University and an M.S. and PhD. in Electrical Engineering from Virginia Tech. Dr. Lotfi currently serves on the boards of Lotus Microsystems ApS, Xonai Ltd., HyperCIM Ltd. and his extensive experience in high power electronics provide a valuable resource to the Board of Directors and Executive Management. 43 Debra Wasser Ms. Wasser currently serves as Vice President of Investor Relations and ESG Engagement for Etsy, Inc. (Nasdaq: ETSY), the global marketplace for unique and creative goods. She is responsible for Etsy’s external shareholder relationships, with a focus on corporate and financial reporting, driving increased analyst coverage and investor connectivity, effective corporate messaging, strategic investor targeting, and elevating the company’s ESG messaging with the financial community. Ms. Wasser has led investor and broad internal and external communications strategies on multiple financial transactions and offerings, and a host of product and technology launches and marketing initiatives. Prior to joining Etsy in April 2018, Ms. Wasser led Edelman’s Investor Relations practice in the U.S., and advised boards of directors and senior managements of public companies on strategic communications including investor relations, financial and corporate public relations, transaction communications, crisis communications and leadership positioning. Prior to joining Edelman in 2015, Ms. Wasser was Senior Vice President, Investor Relations & Corporate Communications for Veeco Instruments, Inc. (Nasdaq: VECO) for over 15 years. While at Veeco, Ms. Wasser created and implemented a global investor relations program to raise visibility and deepen ownership to reflect business trends. She led effective communications strategy through positive periods of growth, over a dozen merger and acquisition transactions, a highly successful secondary equity offering, and new market opportunities. Prior to joining Veeco, Ms. Wasser was Vice President of Dewe Rogerson Inc. where she ran the firm’s U.S. investor relations client base, focused on healthcare/biotech, high-tech, consumer products, financial services, publishing, and general industry. During her tenure at the firm, Ms. Wasser serviced clients across the globe and helped grow the firm from four to 80 employees. Debra has a B.S. in Communications and Business from The State University of New York at Albany. Ms. Wasser has provided business and communications advice to Boards of Directors of publicly traded and privately held companies for over three decades. She has served on the Board of Directors of NIRI, the Association of Investor Relations Professionals, including the maximum service of four years on the National Chapter Board, as well as earlier as a Board member of the organizations New York Chapter. Raymond A. Nielsen Raymond A. 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 had been responsible for Project and Corporate Finance including Strategic Planning Initiatives since 2014. He has been a member of the Board of Directors of Dime Community Bank since its merger on February 1, 2021 with Bridge Bancorp Inc. In addition, he is Chairman of the Credit Risk Committee and a member of the Audit and Compliance Committees. Prior to the merger, he was a member of the Board of Directors of Bridgehampton National Bank and Bridge Bancorp Inc., its Parent holding company since 2013, and served on the Audit Committee, Compensation Committee, Corporate Governance & Nominating Committee, as well as on the ALCO and Loan Committees and the Compliance BSA & CRA Committee. Mr. Nielsen also served as a Director of North Fork Bancorporation and its subsidiary North Fork Bank from 2000 to 2006 where he chaired both the Compensation Committee and Audit Committee as well as having served as Lead Independent Director. 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’s extensive public company, banking and real estate development experience provides a valuable resource to the Board of Directors and Executive Management. 44 Dr. 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 to 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 Long Island Angel Network and one private company. Dr. Brill has also previously served on the Board of Directors of multiple public and private companies. Dr. Brill has been the CEO of both 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. Richard A. Catalano Richard Catalano was appointed as the Company’s Vice President and Chief Financial Officer effective as of August 30, 2022. Mr. Catalano began his career at KPMG LLP and became an audit partner in 1993. Throughout his over 35 years as an audit professional at KPMG LLP, Mr. Catalano advised a diverse array of clients through private equity financed transactions, merger-related accounting, and filings with the U.S. Securities and Exchange Commission. Towards the later part of his tenure, Mr. Catalano served as the leader of KPMG LLP’s Metro New York Healthcare and Life Sciences Practice and then co-led KPMG’s Global Audit Methodology Group. Mr. Catalano is a Certified Public Accountant in New York State and received a Bachelor of Business Administration in accounting from Hofstra University. Kevin R. Collins Prior to his appointment as Vice President and General Manager of SDC, Mr. Collins served as the General Manager of SDC 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. 45 Jeffrey A. Brogan Dr. Jeffrey Brogan was appointed as Vice President Sales and Marketing for the Company 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 and 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. Maxim S. Shatalov Dr. Shatalov was appointed 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. Warren D. Cheesman Warren Cheesman was appointed Vice President of Manufacturing Operations in October 2022. He has over 25 years of management experience in the semiconductor, medical device and defense equipment sectors. Mr. Cheesman has held roles of increasing responsibility in engineering, operations, quality and strategic sourcing, at equipment manufacturers including Veeco Instruments, Air Techniques, and Kongsberg Defense & Aerospace. Mr. Cheesman provides strategic leadership across all divisions related to manufacturing, quality, and continuous improvement initiatives, with emphasis on process improvement, lean manufacturing, risk management, and collaboration. He holds two master of science degrees from Stony Brook University in Technology Management and Materials Science & Engineering, and a Bachelor of Science degree in Mechanical Engineering from Virginia Tech. His academic and professional experience is also complemented by a Six Sigma Black Belt certification. 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, www.cvdequipment.com , by clicking on “About Us” and then clicking on “Governance.” 46 Audit Committee Our Board of Directors has an Audit Committee that currently consists of Lawrence J. Waldman, Chairman, Raymond A. Nielsen, Robert M. Brill, Debra Wasser (effective July 13, 2023), Ashraf Lotfi (effective August 18, 2023) and Conrad J. Gunther (until July 13, 2023). During the fiscal year ended December 31, 2023, the Audit Committee held four 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. Waldman, Gunther, Nielsen and Brill and Ms. Wasser are “independent” under the requirements of the NASDAQ Stock Market. The Board of Directors has determined that Mr. 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, 2023, all of the filings for our officers, directors and ten percent shareholders were made on a timely basis, with the exception of: (i) a delinquent Form 4 disclosing a single transaction for each of Mr. Lakios, Mr. Catalano, Dr. Brogan, Dr. Shatalov, Mr. Collins, and Mr. Cheesman; and (ii) a delinquent Form 4 disclosing one transaction for Mr. Africk. 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, 2023 and 2022. Name and principal position Year Salary ($) Bonus ($) (1) Option Awards ($) (2) Stock Awards ($) (2) All Other Compensation ($) (3) Total ($) Emmanuel Lakios President and Chief Executive 2023 388,600 - 699,990 - 19,522 1,108,112 Officer 2022 316,800 191,600 236,704 - 13,830 758,934 Richard Catalano (4) Secretary, Chief Financial 2023 274,700 - 233,330 - 27,201 533,231 Officer and Executive Vice President 2022 80,769 31,250 68,151 - 288 180,458 Thomas McNeill (5) Secretary, Chief Financial Officer 2023 - - - - - and Executive Vice President 2022 187,425 29,988 - - 137,689 355,102 Jeffrey A. Brogan Vice 2023 203,300 - 139,998 - 7,863 351,161 President Sales & Marketing 2022 196,000 58,800 47,341 - 3,053 305,194 47 (1) Reflects cash bonuses under the Company’s Management Bonus Plan. Bonuses listed for a particular year represents amounts earned with respect to such year even though all or part of such amounts have been paid during the following year. (2) These columns represent the grant date fair value of the stock awards as calculated in accordance with FASB ASC 718 (Stock Compensation). The stock options granted in 2022 and 2023 vest 25% per year over four years and have a ten-year life. (3) All other compensation consists of 1) 401(k) match in 2023 and 2022 of $9,900 and $8,895 for Emmanuel Lakios, $9,179 and $288 for Richard Catalano, $0 and $4,094 for Thomas McNeill and $7,863 and $3,053 for Jeffrey Brogan, respectively; 2) severance in 2022 of $104,125 and accrued and used vacation time in 2022 of $29,470 for Thomas McNeill; and 3) health insurance premiums in 2023 and 2022 of 9,622 and $8,895 for Emmanuel Lakios and $18,022 and $0 for Richard Catalano. (4) Effective August 30, 2022, Richard Catalano was appointed Vice President and Chief Financial Officer. (5) Effective August 30, 2022, Thomas McNeill resigned as Executive Vice President and Chief Financial Officer. Employment Agreements and Potential Payments Upon Termination or Change in Control Emmanuel Lakios Employment Agreement On June 1, 2021, the Company entered into an Employment Agreement with Emmanuel Lakios, the Company’s President and Chief Executive Officer (the “Lakios Agreement”). The term of Mr. Lakios’s employment under the Lakios Agreement commenced as of the effective date thereof and shall continue until terminated in accordance with the terms of the Lakios Agreement. Under the Lakios Agreement, Mr. Lakios will receive an initial annual base salary of $288,000, which shall be reviewed from time to time and may be increased, but not decreased, by the Compensation Committee of the Board of Directors (the “Committee”) in its sole and exclusive discretion. Mr. Lakios shall be entitled to participate in any bonus or incentive plan available to the Company’s senior executives generally, on such terms as the Committee may determine in its discretion. In the event of the termination of the Lakios Agreement and Mr. Lakios’s employment thereunder, Mr. Lakios or his estate (in the event of his death) shall be entitled to (A) receive any unpaid base salary earned and accrued under the Lakios Agreement prior to the date of termination (and reimbursement for expenses incurred prior to the date of termination), (B) indemnification in accordance with any applicable indemnification plan, program, corporate governance document or other arrangement, and any vested rights pursuant to any insurance plan, benefit plan or retirement plan, and, except in the event of Mr. Lakios’s termination by the Company for Cause (as defined in the Lakios Agreement, (C) treatment of his stock option grants in accordance with the terms of the applicable plan and award agreement. 48 In the event Mr. Lakios’s employment is terminated as a result of death or disability, Mr. Lakios shall also be entitled to receive a pro rata bonus payment under the Company’s bonus Plan for the year of termination, if applicable. In the event Mr. Lakios’s employment is terminated by the Company for Cause, Mr. Lakios’s stock option grants, whether vested or unvested, shall immediately terminate and be null and void. In the event Mr. Lakios’s employment is terminated by the Company without Cause, or by Mr. Lakios for Good Reason (as defined in the Lakios Agreement), Mr. Lakios shall also be entitled to (A) a pro rata bonus for the year of termination, and (B) continued payment of his base salary and the Company’s portion of Mr. Lakios’s then existing medical benefits for the nine (9) month period following the date of termination. The Lakios Agreement contains customary non-competition, non-solicitation, and confidentiality provisions in favor of the Company. Other then as set forth above, there are no arrangements for compensation of directors or Named Executive Officers and there are no employment contracts between the Company and its directors or any change in control arrangements. Outstanding Equity Awards at December 31, 2023 The following table sets forth the outstanding equity awards held by our named executive officers as of December 31, 2023. 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 Emmanuel Lakios - 100,000 $ 14.11 3/23/2033 - - - $ - 18,750 56,250 $ 5.02 8/17/2032 50,000 50,000 $ 4.26 6/1/2023 100,000 - $ 10.30 2/6/2027 - - Richard Catalano - 25,000 $ 14.11 3/23/2033 - - - $ - 5,000 15,000 $ 5.42 8/30/2032 Jeffrey A. Brogan - 15,000 $ 14.11 3/23/2033 - - - $ - 3,750 11,250 $ 5.02 8/17/2032 10,000 10,000 $ 4.01 7/15/2021 20,000 - $ 11.61 10/31/2027 49 2023 Director Compensation The following table sets forth a summary of the compensation we paid to our non-employee directors in 2023. Name Fees Earned or Paid in Cash Option Awards Restricted Stock Awards Total Lawrence J. Waldman $ 113,000 - $ 40,000 $ 153,000 Raymond A. Nielsen 50,000 - 40,000 90,000 Robert M. Brill 50,000 - 40,000 90,000 Debra Wasser 18,696 - 40,000 38,696 Ashraf Lotfi 14,783 - 14,783 29,566 Conrad J. Gunther 26,766 - 20,000 46,766 On October 11, 2021, the Board of Directors, following the unanimous recommendation of the Board’s Compensation Committee, unanimously approved a director compensation plan, effective October 1, 2021 (the “Plan”). The Plan is based on the recommendations of an independent compensation consultant engaged by the Board’s Compensation Committee. Pursuant to the Plan, each director is entitled to Director Compensation, divided into the following pay components: (i) Annual Board Cash Compensation in the amount of $40,000 and (ii) an Annual Equity Retainer in the amount of $40,000, to be automatically granted on the date of the Company’s annual meeting of shareholders. Additionally, a director serving as a chairman for the Board’s Compensation Committee, Nominating & Governance Committee, or Strategic Planning Committee is entitled to Chair Compensation in the amount of $10,000. The director serving as the chairman for the Board’s Audit Committee is entitled to Chair Compensation in the amount of $25,000. Furthermore, the director serving as the Non-Executive Chairman is entitled to Board Leadership Compensation in the amount of $48,000. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The following table sets forth, as of March 25, 2024, 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 25, 2024. Name and Address of Beneficial Owner (1) Amounts and Nature of Beneficial Ownership (2) Percent of Class (%) Andrew Africk / ADA Partners LP Leviticus Partners, L.P. 1,076,834 660,000 15.9 9.7 Emmanuel Lakios 200,108 (3) 3.0 Kevin R. Collins 92,437 (3) 1.4 Lawrence J. Waldman 70,288 (4) 1.0 Raymond A. Nielsen 61,588 (4) * Jeffrey A. Brogan 42,019 (3) * Robert M. Brill 23,073 (4) * Maxim Shatalov 17,500 (3) * Richard Catalano 11,250 (3) * Warren Cheesman 7,500 (3) * Ashraf Lotfi 4,514 (4) * Debra Wasser 4,373 (4) * All directors and executive officers and executive employees as a group (nine persons) 534,650 7.9 * Less than 1% of the outstanding common stock or less than 1% of the voting power (1) The address of Messrs. Lakios, Waldman, Nielsen, Brogan, Brill, Shatalov, Catalano, Cheesman. Lotfi and Ms. Wasser 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 Andrew Africk / ADA Partners is c/o Searay Capital, 111 West 67 th Street, New York, NY 10023. The address of Leviticus Partners, L.P. is 200 Park Avenue, Suite 1700, New York, NY 10166. 50 (2) All of such shares are owned directly with sole voting and investment power, unless otherwise noted below. (3) Does not include unvested options to purchase the following shares of our common stock: Lakios – 181,250; Collins – 27,500; Brogan – 32,500; Shatalov – 32,500; Catalano – 33,750; and Cheesman – 22,500 (4) Does not include unvested restricted shares of our common stock: Waldman – 1,458; Nielsen – 1,458; Brill – 1,458; Lotfi – 1,822 and Wasser – 1,438 Does not include shares to be issued per Director compensation agreement related to the Annual Equity Retainer in the amount of $40,000, to be determined at the 2024 Annual Meeting of Shareholders. 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, 2023. 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 846,875 $ 8.20 335,375 Equity compensation plans not approved by security holders — N/A — Total 846,875 $ 8.20 335,375 (1) Reflects aggregate options outstanding under our 2007 Share Incentive Plan, 2016 Equity Incentive Plan and 2022 Equity Incentive Plan. (2) Calculation is exclusive of the value of any unvested restricted stock awards. 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, Emmanuel Lakios, Raymond A. Nielsen, Robert M. Brill, Debra Wasser and Ashraf Lotfi. Messrs. Waldman, Nielsen, Brill and Lotfi and Ms. Wasser have been determined to be “independent” as defined under Rule 4200 of the Nasdaq Stock Market. 51 Item 14. Principal Accountant Fees and Services. The following presents fees for professional audit services rendered by Marcum, LLP, Certified Public Accountants, the Company’s independent registered public accounting firm for the years ended December 31, 2023 and 2022. 2023 2022 Audit fees $ 198,275 $ 181,500 Audit-related fees 55,002 20,500 All other fees - - Total fees $ 253,277 $ 202,000 Audit Fees Audit fees consisted of the review of the first three quarters and audit of the year-end. Audit-related Fees Consisted of the audit of the Company’s defined contribution 401(k) plan and fees associated with registration statements and comfort letter. 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. 52 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 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). 10.2 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). 10.3 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). 10.4 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). 10.5 Agreement to Purchase and Sale, the building and real estate property located at 555 N Research Place, Central Islip, NY, dated March 29, 2021, by and between 555 N Research Corporation, a wholly-owned subsidiary of the Company, and Steel K, LLC. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 13, 2021). 10.6 Employment Agreement, dated June 1, 2021, by and between Emmanuel Lakios, the Company’s President and Chief Executive Officer, and the Company. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 16, 2021). 10.7 Employment Agreement, dated June 1, 2021, by and between Thomas McNeill, the Company’s Executive Vice President and Chief Financial Officer, and the Company. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 16, 2021). 53 10.8 Assignment, Assumption and Amendment Agreement dated as of July 26, 2021, by and between Town of Islip Industrial Development Agency, 555N Research Corporation and Steel 555 NRP, LLC. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A filed with the Commission on March 1, 2022). 10.9 Second Amended and Restated Lease and Project Agreement, dated as of July 1, 2021, by and between Town of Islip Industrial Development Agency and FAE HOLDINGS 411519R, LLC. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A filed with the Commission on March 1, 2022). 10.10 Agency Compliance Agreement, dated as of July 1, 2021, by and between Town of Islip Industrial Development Agency, CVD Equipment Corporation and CVD Materials Corporation. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A filed with the Commission on March 1, 2022). 10.11 Amended and Restated Sublease Agreement, dated as of July 26, 2021, by and between FAE HOLDINGS 411519R, LLC, CVD Equipment Corporation and CVD Materials Corporation. (Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A filed with the Commission on March 1, 2022). 21.1 List of Subsidiaries 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. 97 ** CVD Equipment Corporation Executive Compensation Clawback Policy 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. 54 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 28, 2024 CVD EQUIPMENT CORPORATION By: /s/ Emmanuel Lakios Name: Emmanuel Lakios Title: President and Chief Executive Officer By: /s/ Richard Catalano Name: Richard Catalano Title: Vice President, 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 3/28/2024 Emmanuel Lakios (Principal Executive Officer) /s/ Lawrence J. Waldman Director, Chairman of the Board 3/28/2024 Lawrence J. Waldman /s/ Raymond A. Nielsen Director 3/28/2024 Raymond A. Nielsen /s/ Robert M. Brill Director 3/28/2024 Robert M. Brill /s/ Debra Wasser Director 3/28/2024 Debra Wasser /s/ Ashraf Lotfi Director 3/28/2024 Ashraf Lotfi 55 CVD EQUIPMENT CORPORATION AND SUBSIDIARies INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. Report of Independent Registered Public Accounting Firm (PCAOB ID Number 688 ) F-1 Financial Statements: Consolidated Balance Sheets as of December 31, 2023 and 2022 F-2 Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 F-3 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 2022 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 F-5 Notes to Consolidated Financial Statements F-6 56 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, 2023 and 2022, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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. 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 revenue from the sale of systems (“System Projects”) 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 such 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, 2023, the Company recognized approximately $18.2 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; ● Obtain and review contracts to ensure that the recognition of revenue over time was appropriate; ● 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 by obtaining the original estimates, comparing the actual costs and profit margins to the original estimates and investigating significant changes; and ● Tested the estimated costs to complete Systems Projects that were not completed during the year ended December 31, 2023 by comparing the estimated cost to complete at December 31, 2023 to actual cost incurred subsequent to December 31, 2023. /s/ Marcum llp Marcum LLP We have served as the Company’s auditor since 2019. Melville, NY March 28, 2024 F- 1 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets As of December 31, 2023 and 2022 (in thousands, except share amounts) 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 14,025 $ 14,365 Accounts receivable, net 1,906 3,788 Contract assets 1,604 2,170 Inventories, net 4,454 2,538 Other current assets 852 797 Total current assets 22,841 23,658 Employee retention credit receivable - 1,529 Property, plant and equipment, net 12,166 12,596 Intangible assets, net 9 119 Other assets 9 10 Total assets $ 35,025 $ 37,912 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,203 $ 1,454 Accrued expenses 1,765 2,591 Current maturities of long-term debt 81 77 Deposits from purchasers of MesoScribe assets – note 15 597 - Contract liabilities 4,908 4,042 Total current liabilities 8,554 8,164 Long-term debt, net of current portion 268 349 Total liabilities 8,822 8,513 Commitments and contingencies (see note 13) - - Stockholders’ equity: Common stock - $ 0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,824,511 at December 31, 2023 and 6,760,938 at December 31, 2022 68 67 Additional paid-in capital 28,695 27,712 (Accumulated deficit) retained earnings ( 2,560 ) 1,620 Total stockholders’ equity 26,203 29,399 Total liabilities and stockholders’ equity $ 35,025 $ 37,912 The accompanying notes are an integral part of the consolidated financial statements F- 2 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 2023 and 2022 (in thousands, except per share amounts) 2023 2022 Revenue $ 24,109 $ 25,813 Cost of revenue 19,038 19,186 Gross profit 5,071 6,627 Operating expenses: Research and development 2,596 1,906 Selling 1,632 1,216 General and administrative 5,451 5,328 Loss on disposition of Tantaline 162 - Impairment charge 111 - Total operating expenses 9,952 8,450 Operating loss ( 4,881 ) ( 1,823 ) Other income (expense): Interest income 577 162 Interest expenses ( 23 ) ( 8 ) Employee retention credits - 1,529 Foreign exchange income (loss) 42 ( 95 ) Other income 91 15 Total other income, net 687 1,603 Loss before income tax ( 4,194 ) ( 220 ) Income tax (benefit) expense ( 14 ) 4 Net loss $ ( 4,180 ) $ ( 224 ) Loss per common share: Basic $ ( 0.62 ) $ ( 0.03 ) Diluted $ ( 0.62 ) $ ( 0.03 ) Weighted average number of shares: Basic 6,788 6,734 Diluted 6,788 6,734 The accompanying notes are an integral part of the consolidated financial statements F- 3 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Changes in Stockholders’ Equity Years ended December 31, 2023 and 2022 (in thousands, except share amounts) Common stock Additional paid-in (Accumulated Deficit) / Retained Shares Par Value Capital Earnings Total Balance at January 1, 2022 6,723,438 $ 67 $ 27,277 $ 1,844 $ 29,188 Net loss - - - ( 224 ) ( 224 ) Stock-based compensation 37,500 - 435 - 435 Balance at December 31, 2022 6,760,938 $ 67 $ 27,712 $ 1,620 $ 29,399 Balance 6,760,938 $ 67 $ 27,712 $ 1,620 $ 29,399 Net loss - - - ( 4,180 ) ( 4,180 ) Stock-based compensation 41,320 1 907 - 908 Exercise of stock options and issuance of shares 22,253 - 76 - 76 Balance at December 31, 2023 6,824,511 $ 68 $ 28,695 $ ( 2,560 ) $ 26,203 Balance 6,824,511 $ 68 $ 28,695 $ ( 2,560 ) $ 26,203 The accompanying notes are an integral part of the consolidated financial statements F- 4 C VD EQUIPMENT CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2023 and 2022 (in thousands) 2023 2022 Cash flows from operating activities: Net loss $ ( 4,180 ) $ ( 224 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Loss on disposition of Tantaline 162 - Impairment charge 111 - Stock-based compensation 908 435 Depreciation and amortization 792 867 Changes in operating assets and liabilities, net of effects of disposition of Tantaline: Accounts receivable 1,841 ( 2,342 ) Contract assets 566 368 Inventories ( 1,921 ) ( 1,313 ) Income tax receivable - 716 Employee retention credit receivable 1,529 ( 1,529 ) Other current assets ( 47 ) ( 301 ) Accounts payable ( 154 ) 293 Accrued expenses ( 679 ) 832 Contract liabilities 866 2,392 Net cash (used in) provided by operating activities ( 206 ) 194 Cash flows from investing activities: Net cash used in disposition of Tantaline ( 312 ) - Deposits from purchaser of MesoScribe assets 597 - Purchases of property and equipment ( 418 ) ( 665 ) Capitalized patent costs - ( 53 ) Net proceeds from sale of assets - 10 Net cash used in investing activities ( 133 ) ( 708 ) Cash flows from financing activities: Proceeds from exercise of stock options 76 - Payments of long-term debt ( 77 ) ( 1,772 ) Net cash used in financing activities ( 1 ) ( 1,772 ) Net decrease in cash and cash equivalents ( 340 ) ( 2,286 ) Cash and cash equivalents at beginning of year 14,365 16,651 Cash and cash equivalents at end of year $ 14,025 $ 14,365 Supplemental disclosure of cash flow information: Income taxes paid $ 8 $ 1 Interest paid $ 24 $ 8 Non-cash investing and financing activities: Loan obtained for new equipment $ - $ 432 The accompanying notes are an integral part of the consolidated financial statements F- 5 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 1 – Business Description CVD Equipment Corporation and its subsidiaries (the “Company”) is a New York corporation. Its principal business activities include designing, developing, and manufacturing a broad range of chemical vapor deposition, physical vapor transport, gas control, and other equipment and process solutions used to develop and manufacture materials and coatings for industrial applications and research. Its products are used in production environments as well as research and development centers, both academic and corporate. We conduct our business through three reportable operating segments: i) CVD Equipment that supplies chemical vapor deposition, physical vapor transport and thermal process equipment; ii) SDC that designs and manufactures ultra-high purity gas and chemical delivery control systems; and iii) CVD Materials that provide products related to advanced materials and coatings. Note 2 - Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Liquidity At December 31, 2023, the Company had $ 14.0 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-K. Reclassifications In addition, certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net (loss). Principles of Consolidation The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. F- 6 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates are the accounting for certain items such as revenues on long-term contracts recognized on the input method, valuation of inventories at the lower of cost or net realizable value; allowance for credit losses; valuation allowances for deferred tax assets, estimated lives and impairment considerations of long-lived assets and valuation of stock-based compensation. Revenue Recognition In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606 - Revenue from Contracts with Customers (“ASC 606 ” ), the Company records revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services promised to its customers. Under ASC 606 , the Company follows a five-step model to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price for the contract; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue using one of the following two methods: Over time The Company designs, manufactures and sells 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 recognizes 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 F- 7 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) 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 year ended December 31, 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. 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 year ended December 31, 2023 and 2022, all system equipment sales were recorded over time by using an input method. F- 8 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) Inventories Inventories (raw materials, work-in-process and finished goods) are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. Work-in-process and finished goods inventory reflect all accumulated production costs, which are comprised of direct production costs and overhead, and is reduced by amounts recorded in cost of sales as the related revenue is recognized. Indirect costs relating to long-term contracts, which include expenses such as general and administrative, are charged to expense as incurred and are not included in our cost of sales or work-in-process and finished goods inventory. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of inventory, which would be reflected in cost of sales in the period the revision is made. Product Warranty The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance or fifteen months from the date of shipment by providing labor and parts necessary to repair the systems during the warranty period . The Company records the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of revenue” in the consolidated statements of operations. The estimated warranty cost is based on the Company’s historical cost. The Company updates its warranty estimates based on actual costs incurred. 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. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not the tax position will be sustained on examination by taxing authorities based on the technical merits of the position and (2) for those positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority. F- 9 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) The Company’s policy for global intangible low taxed income (“GILTI”) is to treat such amounts as a period cost when incurred. Impairment of Long-Lived Assets and Intangibles Long-lived assets consist primarily of property, plant, and equipment. Intangibles consist of patents, copyrights and intellectual property, licensing agreements and certifications. Long-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable.When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists.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. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for buildings and building improvements over 5 to 39 years and for machinery and equipment over 5 to 8 years. Depreciation and amortization of assets used in manufacturing are recorded in cost of revenue. Depreciation and amortization of all other assets are recorded as operating expenses. Intangible Assets The cost of intangible assets is being amortized on a straight-line basis over their estimated initial useful lives which ranged from 5 to 20 years. Research and Development Research and development costs are expensed as incurred and include charges for the development of new technology and transition of existing technology into new products. Earnings Per Share Basic earnings per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during each period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be adjusted upon exercise of common stock options, unvested restricted shares, and warrants. F- 10 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 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 $ 14.0 million and $ 14.4 million at December 31, 2023 and 2022, respectively. The Company invests excess cash in treasury bills, certificates of deposit or deposit accounts, all with original maturities of less than three months. Cash equivalents were $ 12.1 million and $ 11.7 million at December 31, 2023 and 2022, respectively. The Company places most of its temporary cash investments with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount in excess of the limit at both December 31, 2023 and 2022 was $ 1.5 million. The Company’s cash in our Denmark subsidiary exceeded the government guarantee limit by approximately $ 0.5 million at December 31, 2022. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company places its cash equivalents with financial institutions and invests its excess cash primarily in treasury bills, certificates of deposit or deposit accounts. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. The Company routinely assesses the financial strength of its customers . In accordance with the “expected credit loss” model, the carrying amount of accounts receivable is reduced by a valuation allowance that reflects the best estimate of the amounts the Company does not expect to collect. In addition to reviewing delinquent accounts receivable, the Company consider many factors in estimating our reserve, including types of customers and their credit worthiness, experience and historical data adjusted for current conditions and reasonable supportable forecasts . The Company records an allowance for credit losses based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided based upon the collection history, current economic trends and reasonable supportable forecasts. The Company has accounts receivables from certain customers that exceed 10 %. As of December 31, 2023, the accounts receivable balance includes amounts from three customers that represented 37.6 %, 13.0 % and 12.8 % of total accounts receivable, and as of December 31, 2022, two customers that represented 35.7 % and 30.3 % of total accounts receivable. F- 11 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) Accounts receivable is presented net of an allowance for credit losses of $ 36,000 as of both December 31, 2023 and 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. Sales Concentrations Revenue to a single customer in any one year can exceed 10 % of our total sales. There were three customers in the year ended December 31, 2023 that represented 14.3 %, 13.5 % and 10.9 % of our revenues, while there was one customer in the year ended December 31, 2022 that represented 29.2 % of our revenues. The loss of a large customer could have a material adverse effect on the Company’s business and financial condition. Export sales to customers represented approximately 17 % of sales for both years ended December 31, 2023 and 2022. Export sales in both 2023 and 2022 were primarily to customers in Europe and Asia. All contracts except those entered into by the Company’s subsidiary in Denmark are denominated in U.S. dollars. The Company has not entered into any foreign exchange contracts. Supplier Risk The Company relies on suppliers to manufacture many of the components and subassemblies used in its products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a material and adverse effect on its business and operating results. Some of the components and technologies used in the Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and delivery of its products or cause it to carry excess or obsolete inventory and could cause it to redesign its products. Fair Value of Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable, contract assets and contract liabilities approximate fair value due to the relatively short-term maturity of these instruments. The carrying value of long-term debt approximates fair value based on prevailing borrowing rates currently available for loans with similar terms and maturities. F- 12 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) Stock-Based Compensation The Company records stock-based compensation in accordance with the provisions set forth in ASC 718, “Stock Compensation”. ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards over the vesting period. The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and includes assumptions regarding expected volatility, expected option term, dividend yields and risk-free interest rates. 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 $ 55,000 and $ 87,000 for the years ended December 31, 2023 and 2022, respectively. Recently Adopted 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. The adoption of the ASU 2016-3 as of January 1, 2023 did not have a material impact on the Company’s financial position. Recently Issued Accounting Standards In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “ Income Taxes (Topic 740): Improvements to Income Tax Disclosures ,” which requires public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition to new disclosures associated with the rate reconciliation, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The ASU also describes items that need to be disaggregated based on their nature, which is determined by reference to the item’s fundamental or essential characteristics, such as the transaction or event that triggered the establishment of the reconciling item and the activity with which the reconciling item is associated. The ASU eliminates the historic requirement that entities disclose information concerning unrecognized tax benefits having a reasonable possibility of F- 13 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 2 - Summary of Significant Accounting Policies (continued) significantly increasing or decreasing in the 12 months following the reporting date. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU should be applied on a prospective basis; however, retrospective application is permitted. We are currently evaluating the impact that ASU 2023 – 09 will have on our consolidated financial statements. In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280): Improvements to Reportable Segments ,” which aims to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. Currently, Topic280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain circumstances. The amendments in this ASU do not change or remove those disclosure requirements and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that ASU 2023 – 07 will have on our consolidated financial statements. The Company believes there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting. F- 14 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 3 – Revenue The following table represents a disaggregation of revenue from contracts by end markets for the years ended December 31, 2023 and 2022 (in thousands): Schedule of Disaggregation of Revenue Over time Point in time Total Year Ended December 31, 2023 Over time Point in time Total Energy $ 4,901 $ 189 $ 5,090 Aerospace 3,427 1,469 4,896 Industrial 6,123 2,821 8,944 Research 3,700 1,479 5,179 Total $ 18,151 $ 5,958 $ 24,109 Over time Point in time Total Year Ended December 31, 2022 Over time Point in time Total Energy $ 9,094 $ 58 $ 9,152 Aerospace 95 1,527 1,622 Industrial 5,961 4,856 10,817 Research 2,807 1,415 4,222 Total $ 17,957 $ 7,856 $ 25,813 The energy market includes customers involved in the manufacture of silicon carbide wafers and batteries. Aerospace market includes customers that manufacture aircraft engines. Industrial end market consists of various end customers in diverse industries. Research market principally represents customers that are universities and other research institutions. The Company has unrecognized contract revenue of approximately $ 16.3 million at December 31, 2023, 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 financial position and results of operations. F- 15 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 3 – Revenue (continued) Contract assets and contract liabilities on input method type contracts in progress are summarized at December 31 as follows (in thousands): Schedule of Cost and Estimated Earnings in Excess of Billings 2023 2022 Costs incurred on contracts in progress $ 9,500 $ 14,390 Estimated earnings 5,083 10,926 Costs and estimated earnings on uncompleted contracts 14,583 25,316 Billings to date ( 17,553 ) ( 26,925 ) Net cost in excess of billings ( 2,970 ) ( 1,609 ) Deferred revenue related to non-systems contracts ( 334 ) ( 263 ) Contract liability in excess of contract assets $ ( 3,304 ) $ ( 1,872 ) Included in accompanying consolidated balance sheets under the following captions (in thousands): Contract assets $ 1,604 $ 2,170 Contract liabilities $ 4,908 $ 4,042 Of the contract liability balances at December 31, 2022 and December 31, 2021, $ 3.7 million and $ 1.7 million was recognized as revenue during the years ended December 31, 2023 and 2022, respectively. Contract assets at December 31, 2021 were $ 2.5 million. Note 4 - Inventories Inventories as of December 31 consist of (in thousands): Schedule of Inventories, net 2023 2022 Raw materials $ 2,351 $ 2,165 Work-in-process 1,248 373 Finished goods 855 - Total $ 4,454 $ 2,538 F- 16 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 5 – Property, Plant and Equipment Major classes of property, plant and equipment consist of the following as of December 31 (in thousands): Schedule of Property, Plant and Equipment 2023 2022 Land $ 2,220 $ 2,220 Buildings and improvements 12,798 12,530 Machinery and equipment 7,536 7,810 Construction in progress 167 12 Totals at cost 22,721 22,572 Less: accumulated depreciation ( 10,555 ) ( 9,976 ) Property, plant and equipment, net $ 12,166 $ 12,596 Machinery and equipment also include furniture and fixtures and software. Depreciation expense was $ 0.7 million and $ 0.8 million for the years ended December 31, 2023 and 2022, respectively. The Company entered into an agreement with the Town of Islip Industrial Development Agency (Islip IDA) in July 2021 under which the Company was granted tax incentives whereby the Company agreed to make payments in lieu of all real estate taxes and assessments (PILOT payments). The agreement requires the Company to maintain certain employment levels at its Central Islip, New York facility. The agreement provides for the Islip IDA to recapture tax incentives provided to the Company in certain circumstances. Any recapture of such tax benefits could have a material adverse effect on the Company’s financial position and future results of operations and cash flows. F- 17 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 6 – Intangible Assets Intangible assets consisted of the following (in thousands): Schedule of Finite Lived Intangible Assets December 31, 2023 Cost Accumulated Amortization Net Patents $ 87 $ 78 $ 9 December 31, 2022 Cost Accumulated Amortization Net Patents $ 565 $ 446 $ 119 Amortization expense was $ 0.1 million and $ 0.1 million in years ended December 31, 2023 and 2022, respectively, including costs of abandoned patent applications. The estimated amortization expense related to intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2023 is approximately $ 1,000 per year. Note 7 – Accrued Expenses Accrued expenses consist of the following as of December 31 (in thousands): Schedule of Accrued Expenses 2023 2022 Accrued wages and benefits $ 358 $ 995 Accrued vacation 729 905 Other 678 691 Total accrued expenses $ 1,765 $ 2,591 F- 18 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 8 – Long-term Debt Long-term debt as of December 31 consist of the following (in thousands, except percentages and amounts in notes): Schedule of Long Term Debt 2023 2022 Equipment loan payable in monthly repayments of $ 8 including interest at 6 % per annum $ 349 $ 426 Less: current maturities 81 77 Long-term debt, net of current maturities $ 268 $ 349 In September 2022 , the Company entered into a loan agreement to fund the acquisition of machinery equipment in the amount of $ 0.4 million. Future maturities of long-term debt as of December 31, 2023 are as follows (in thousands): Schedule of Maturities of Long Term Debt 2024 $ 81 2025 87 2026 92 2027 89 Total $ 349 Note 9 – Earnings per Share The calculation of basic and diluted weighted average common shares outstanding as of December 31 is as follows (in thousands): Schedule of Basic and Diluted Weighted Average Common Shares Outstanding 2023 2022 Basic weighted average shares outstanding 6,788 6,734 Effect of potentially dilutive share-based awards - - Diluted weighted average shares outstanding 6,788 6,734 At December 31, 2023, stock options to purchase 846,875 shares of common stock were outstanding and 335,375 were exercisable. At December 31, 2022, stock options to purchase 673,000 shares of common stock were outstanding and 265,000 were exercisable. At December 31, 2023 and 2022, 846,875 and 673,000 stock options, respectively, were not included in the computation of diluted earnings per share because their effect was antidilutive. F- 19 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 10 – Income Taxes Loss before income taxes are as follows: Schedule of Loss Before Income Taxes 2023 2022 Domestic $ ( 4,073 ) ( 596 ) Foreign ( 121 ) 376 Total $ ( 4,194 ) $ ( 220 ) The expense/(benefit) for income taxes for the years ended December 31 includes the following (in thousands): Schedule of Components of Income Tax Expense (Benefit) 2023 2022 Current: Federal $ ( 16 ) $ 1 State 2 3 Total current tax provision ( 14 ) 4 Deferred: Federal - - State - - Total deferred tax provision - - Income tax (benefit) expense $ ( 14 ) $ 4 The reconciliation of the federal statutory income tax rate to our effective tax rate for the years ended December 31 is as follows (in thousands): Schedule of Effective Income Tax Rate Reconciliation 2023 2022 Expected provision at federal statutory tax rate at 21 % $ ( 881 ) $ ( 46 ) Increase (decrease) in valuation allowance 688 ( 33 ) State and local taxes 21 84 Foreign tax rate differential ( 1 ) 4 US taxation of foreign operations - 80 Federal research and development credits ( 75 ) ( 55 ) Change in tax rates - 10 Non-deductible expenses 37 62 Disposition of Tantaline 193 - Other 4 ( 102 ) Income tax (benefit) expense $ ( 14 ) $ 4 F- 20 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 10 – Income Taxes (continued) The tax effects of temporary differences giving rise to significant portions of the net deferred taxes as of December 31 are as follows (in thousands): Schedule of Deferred Tax Assets and Liabilities 2023 2022 Deferred income tax assets: Net operating loss carryforwards $ 849 $ 482 R&D tax credit carryforwards 1,863 1,723 Compensation costs 113 10 Vacation accrual 153 174 Intangible assets 38 27 Capitalized research and development 759 356 Other items 303 263 Deferred income tax assets 4,078 3,035 Less: valuation allowance ( 3,646 ) ( 2,957 ) Deferred income tax assets, net of valuation allowance 432 78 Deferred incomes tax liability: Property, plant and equipment ( 365 ) ( 11 ) Prepaid expenses ( 67 ) ( 67 ) Deferred income tax asset, net $ - $ - In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is based on the assessment of available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the utilization of existing deferred tax assets. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the prior three-year period ended December 31, 2023. Such objective evidence limits the ability to consider subjective evidence such as our projections for future growth. Based on this assessment, we maintained a full valuation allowance against our net deferred tax assets as of December 31, 2023, and 2022. If these estimates and assumptions change in the future, we may be required to reduce our existing valuation allowance resulting in less income tax expense. For the year ended December 31, 2023, the valuation allowance increased by approximately $ 0.7 million from the prior year primarily from current year operating losses for which no tax benefit was provided. F- 21 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 10 – Income Taxes (continued) At December 31, 2023, the Company had $ 4.0 million of U.S. federal net operating loss carryforwards. These net operating losses have an indefinite carryforward period but are only available to offset 80% of future taxable income . The Company also has $ 1.9 million of federal research and development tax credits which expire in varying amounts in tax years 2028 through 2042 . The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2023 and 2022, the Company had no uncertain tax positions. The Company does not expect that its unrecognized tax benefits will significantly increase or decrease within twelve months. The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions and in Denmark. The federal tax years open to examination are 2020 to 2023. The Company’s state and local tax years that are open to tax examination are generally 2019 to 2023 . The Inflation Reduction Act (“IRA”) and Chips and Science Act (“CHIPS Act”) were both enacted in August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities. Both the IRA and CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no impact to the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022. Note 11 – Employee Retention Credit During 2022, the Company conducted an analysis as to whether it was entitled to employee retention credits (“ERC”) under the CARES Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Plan Act of 2021. Based on the analysis, the Company determined that it was entitled to an ERC of approximately $ 1.5 million related to payroll paid in the first and third quarters of 2021 under the applicable Internal Revenue Service regulations related to ERCs. As ERCs are not within the scope of ASC 740, Income Taxes , the Company has chosen to account for the ERCs by analogizing to the International Standard IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. Accordingly, the Company recognized a non-current receivable of $ 1.5 million as of December 31, 2022 and other income of $ 1.5 million for the year ended December 31, 2022. The Company received the ERC credit in July 2023. F- 22 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 12 – Stock-Based Compensation A summary of the Company’s Share Incentive Plans are as follows: 2007 Share Incentive Plan On December 12, 2007, shareholders approved the Company’s 2007 Share Incentive Plan (“2017 Incentive Plan”), in connection therewith, 750,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2017 Incentive Plan through December 12, 2017. The Plan expired in December 2017. As of December 31, 2023, there were 120,000 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, 2023, there were 442,125 options outstanding under this plan. 2022 Share Incentive Plan On July 14, 2022, shareholders approved the Company’s 2022 Share Incentive Plan (“2022 Incentive Plan”), in connection therewith, 515,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2022 Incentive Plan through July 14, 2032. As of December 31, 2023, there were 284,750 options outstanding under this plan. Under the 2016 and 2022 Share Incentive Plans, the purchase price of the common stock under each option plan shall be determined by the Committee, provided, however, that such purchase price shall not be less than the fair market value of the shares on the date such option is granted. The stock options generally expire seven to ten years after the date of grant. As of December 31, 2023 , there were 26,948 shares available for grant under the 2016 Equity Incentive Plan and 188,930 shares available for grant under the 2022 Equity Incentive Plan. F- 23 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 12 – Stock-Based Compensation (continued) The Company recorded stock-based compensation of $ 0.9 million and $ 0.4 million for the years ended December 31, 2023 and 2022, respectively, that were included in the following line items in our Consolidated Statements of Operations (in thousands): Schedule of Stock Based Compensation 2023 2022 Cost of revenue $ 120 $ 34 Research and development 159 57 Selling 94 27 General and administrative 535 317 Total stock-based compensation expense $ 908 $ 435 Stock-based compensation expense in both years included approximately $ 0.2 million related to restricted stock awards pursuant to a Director Compensation plan discussed below. The Company recognizes forfeitures of stock awards as they occur. For the year ended December 31, 2023, the Company granted 254,000 stock options, vesting 25 % per year over four years , with a ten-year life. The Company determined the fair value of stock options granted during the year ended December 31, 2023 is based upon weighted average assumptions as provided 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 The expected life is the number of years the Company estimates that the awards will be outstanding based on the simplified method that considers the vesting period and contractual period of the option. The Company has 846,875 of outstanding stock options under the three plans at December 31, 2023. F- 24 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 12 – Stock-Based Compensation (continued) The following table summarizes stock options awards for the years ended December 31, 2023 and 2022: Schedule of Stock Options Awards Awards (in Shares) Weighted Average Exercise Price Outstanding at December 31, 2021 618,500 $ 11.26 Granted 198,500 5.04 Expired / cancelled ( 144,000 ) 11.72 Exercised - - Outstanding at December 31, 2022 673,000 5.70 Granted 254,000 14.02 Expired / cancelled ( 44,500 ) 6.57 Exercised ( 35,625 ) 4.53 Outstanding at December 31, 2023 846,875 8.20 The following table summarizes information about the outstanding and exercisable options at December 31, 2023: 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 - 7.00 463,375 7.9 $ 4.55 $ 76,655 195,375 $ 4.47 $ 37,064 $ 7.01 - 10.00 20,000 4.3 $ 8.07 $ - 20,000 $ 8.07 $ - $ 10.01 - 13.00 130,000 4.0 $ 11.51 $ - 120,000 $ 10.52 $ - $ 13.01 - 16.00 233,500 9.2 $ 14.11 $ - - $ - $ - As of December 31, 2023, there was $ 2.4 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 2.6 years. Restricted Stock Awards Pursuant to the Director Compensation plan approved on October 11, 2021 , each of the five independent directors is entitled to compensation for an annual equity retainer in the amount of $ 40,000 per director, to be automatically granted on the date of the Company’s annual meeting of shareholders. F- 25 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 12 – Stock-Based Compensation (continued) The following table summarizes restricted stock awards for the years ended December 31, 2023 and 2022: Schedule of Restricted Stock Awards Weighted Average Grant Shares of Date Fair Restricted Stock Value Unvested outstanding at January 1, 2022 - $ - Granted 32,000 5.02 Vested ( 32,000 ) 5.02 Forfeited or cancelled - - Unvested outstanding at December 31, 2022 - - Granted 41,320 6.65 Vested ( 24,187 ) 6.81 Forfeited or cancelled - - Unvested outstanding at December 31, 2023 17,133 $ 6.53 The fair value of the restricted stock awards is recorded as stock-based compensation expense over the one-year vesting period and totaled $ 0.17 million $ 0.16 million for the years ending December 31, 2023 and 2022, respectively. Restricted Stock Units In prior years, the Company issued restricted stock units or RSUs. During the year ended December 31, 2022, 5,500 RSUs vested which had an intrinsic value of $ 22,745 . No restricted stock units vested during the year ended December 31, 2023 and there were no RSUs outstanding as of December 31, 2023 and 2022. Note 13 – Defined Contribution Plan The Company maintains a 401(k) Plan for the benefit of all eligible employees. All employees as of the effective date of the 401(k) Plan became eligible. An employee is eligible to become a participant after three months of continuous service. Participants may elect to contribute from their compensation any amount up to the maximum deferral allowed by the Internal Revenue Code. Employer contributions are optional. Effective July 1, 2022, the Company implemented a matching contribution of 50 % of an employee’s contributions up to 6 % of their compensation. The Company recorded compensation expense of $ 243,000 and $ 90,000 during the years ended December 31, 2023 and 2022, respectively, for matching contributions to the 401(k) plan. No discretionary employer contribution has been made for 2023 and 2022. F- 26 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 14 – Segment Reporting The Company operates through three segments: CVD Equipment, Stainless Design Concepts (“SDC”) and CVD Materials. The CVD Equipment segment manufactures and sells chemical vapor deposition, physical vapor transport and similar equipment. SDC manufactures ultra-high purity gas control systems. The CVD Materials segment provides material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income (loss) before taxes. The Company’s corporate administration activities are reported in the “Corporate” column. These activities primarily include expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense. Elimination entries included in the “Eliminations” column represent intersegment revenues and cost of revenues that are eliminated in consolidation. Intersegment sales for the year ended December 31, 2023 and 2022 by the SDC segment to the CVD Equipment segment were $ 439,000 and $ 573,000 , respectively. Intersegment sales by the CVD Equipment segment to the SDC segment for the year ended December 31, 2023 were $ 109,000 . There were no intersegment sales by the CVD Equipment segment to the SDC segment during the year ended December 31, 2022. The following table presents certain information regarding the Company’s segments as of and for the years ended December 31, 2023 and December 31, 2022 (in thousands, including amount in notes): Schedule of Segments 2023 CVD Equipment SDC CVD Materials Corporate Eliminations Consolidated Assets $ 31,401 $ 3,468 $ 211 $ - $ ( 55 ) $ 35,025 Revenue $ 16,334 $ 7,139 $ 1,184 $ - $ ( 548 ) $ 24,109 Operating (loss) income (1) ( 2,129 ) 1,677 ( 193 ) ( 4,118 ) ( 118 ) ( 4,881 ) Pretax (loss) income (1) ( 2,070 ) 1,677 ( 141 ) ( 3,542 ) ( 118 ) ( 4,194 ) Depreciation and amortization $ 620 $ 49 $ 123 $ - $ - $ 792 Purchases of property, plant & equipment $ 404 $ 14 $ - $ - $ - $ 418 2022 CVD Equipment SDC CVD Materials Corporate Eliminations Consolidated Assets $ 31,622 $ 4,149 $ 2,099 $ - $ 42 $ 37,912 Revenue $ 16,674 $ 6,541 $ 3,171 $ - $ ( 573 ) $ 25,813 Operating (loss) income ( 1,430 ) 1,546 1,050 ( 2,989 ) - ( 1,823 ) Pretax (loss) income (2) ( 156 ) 1,849 1,076 ( 2,989 ) - ( 220 ) Depreciation and amortization $ 652 $ 49 $ 166 $ - $ - $ 867 Purchases of property, plant & equipment (3) $ 653 $ 3 $ 3 $ - $ - $ - (1) CVD Materials segment includes loss on sale of Tantaline of $ 0.2 million and an impairment charge related to MesoScribe fixed assets of $ 0.1 million. (2) Includes other income related to ERCs of $ 1,103 , $ 303 and $ 123 for the CVD, SDC and Materials segments, respectively. (3) Include $ 0.4 million of purchased equipment financed with a loan F- 27 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 15 – CVD Materials – Tantaline and MesoScribe Subsidiaries 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 year ended December 31, 2023. The total assets and total liabilities of the Tantaline subsidiary were $ 1.1 million and $ 0.4 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 year ended December 31, 2023, the Company recorded an impairment charge of $ 0.1 million 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. 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 consolidated balance sheet as of December 31, 2023. The Company expects the transaction to be completed in 2024 with the shipment of the equipment to the purchaser. The revenues and net income of MesoScribe were $ 0.7 million and $ 33,000 for the year ended December 31, 2023, including the impairment charge of $ 0.1 million. The total assets and total liabilities of the MesoScribe subsidiary were $ 0.2 million and $ 0.7 million, respectively, as of December 31, 2023 and $ 0.9 million and $ 0.1 million, respectively, as of December 31, 2022. F- 28 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2023 and 2022 Note 16 – Risks and Uncertainties The Company currently operates in a challenging economic environment as the global economy continues to confront the remaining impacts from the pandemic, geopolitical conflicts, inflationary pressures, and adverse supply chain disruptions. The specific impacts on the Company have included: ● Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have and may continue to restrict the Company’s ability to procure raw materials and components such as nickel and integrated circuits, as well as impact the Company’s ability to sell its products into China, Russia and other Eastern European and Asian regions. ● Supply chain disruptions have led to much longer lead times to acquire raw materials for production and has led to inflationary pressures in both materials and labor. These supply chain disruptions have impacted the Company’s ability to recognize revenue timelier 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 may have on its future results of operations and cash flows. F- 29