What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-13 · 197 added, 109 removed, 147 unchanged (68% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Management’s Discussion and Analysis of Financial

Condition and Results of Operations.

for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results

of Operations” contains forward – looking statements within the meaning of Section 27A of the Securities Act of 1933,

as amended and Section 21E of the Securities Exchange Act of 1934, as amended.

of Operations” contains forward–looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended

and Section 21E of the Securities Exchange Act of 1934, as amended.

Readers are cautioned not to place undue reliance on forward-looking

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as to our future profitability;

in our existing and potential future product lines of business, including our PVT150 / PVT200

as to our ability to develop new products for the high power electronics market including

our plan to develop a PVT200 to grow silicon carbide crystals for 200 mm wafers;

in our existing and potential future product lines of business, including our PVT150 / PVT200 systems;

as to our ability to develop new products for the high power electronics market

including our plan to develop a PVT200 to grow silicon carbide crystals for 200 mm wafers;

ability to obtain financing on acceptable terms if and when needed;

ability to attract and retain key personnel and employees;

as to our ability to adequately obtain raw materials and on commercially reasonable terms.

as to our ability to adequately obtain raw materials and on commercially reasonable

factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure

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When used with this

Report, the words “ believes ” , “ anticipates ” , “ expects ” ,

“ estimates ” , “ plans ” , “ intends ” , “ will ”

and similar expressions are intended to identify forward-looking statements.

Report, the words “believes” “anticipates”, “expects”, “estimates”, “plans”,

“intends”, “will” and similar expressions are intended to identify forward-looking statements.

have served the advanced materials markets with chemical vapor and thermal process equipment for over 40 years.

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and offerings, visit www.cvdequipment.com.

the three months ended March 31, 2024:

declined by $3.8 million or 43.4% as the first quarter of 2023 benefited from a large PVT150

margin declined by $1.6 million or 64.7% due to lower gross profit margins on contracts in

progress and overall lower revenues as compared to the prior period quarter.

bookings for the first quarter of 2024 were approximately $13.6 million compared to bookings

of $2.9 million in the first quarter of 2023.

in 2024 included a $10.0 million multisystem order from an industrial customer that will be used

to deposit a silicon carbide protective coating on OEM components.

the first quarter of 2024, we received an order from an additional customer for our new PVT200

system that will be used to grow silicon carbide crystals for the manufacture of 200 mm wafers.

our backlog from $18.4 million at December 31, 2023 to $27.1 million.

balance at March 31, 2024 was $11.9 million.

the three and six months ended June 30, 2024 and 2023:

increased by $1.3 million or 25.2% for the second quarter as compared to the prior year period

due to increases in revenues from aerospace contracts in progress and our SDC segment offset

in part by lower revenues for PVT150 systems and spare parts.

margin increased by $0.2 million or 15.9% in the second quarter as compared to the prior

period quarter due to higher revenues that was offset by lower gross profit margins on contracts

bookings for the second quarter of 2024 were approximately $3.2 million as compared to $13.0

million in the prior year period.

bookings for the first half of 2024 were $16.9 million as compared to $15.8 million in the

first half of 2023.

in 2024 included a $10.0 million multisystem order from an industrial customer that will

be used to deposit a silicon carbide protective coating on OEM components.

in 2023 included $8.7 million of multiple systems orders from an aerospace customer and a

battery nanomaterial production system of $1.8 million.

the first quarter of 2024, we received an order from an additional customer for our

new PVT200 system that will be used to grow silicon carbide crystals for the manufacture of 200 mm wafers.

our backlog from $18.4 million at December 31, 2023 to $24.0 million at June

balance at June 30, 2024 was $10.0 million as compared to $14.0 million at December 31, 2023

core strategy is to focus on growth market applications in end markets related to the “electrification of everything,” aerospace

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generation gas turbine jet engines with the objective of reducing jet fuel consumption and contributing to the decarbonization of that

current strategy yielded multisystem orders of PVT150 equipment that was delivered to one company that manufactures silicon carbide wafers

in 2023 and 2022.

current strategy yielded multisystem orders of PVT150 equipment in 2023 and 2022 that was delivered to one company that manufactures

silicon carbide wafers.

Although we continue to invest in our vision for the “electrification of everything,” we have observed

lower-than-anticipated industrywide electric vehicle adoption rates which may reduce demand for silicon carbide and impact sales of our

February 2024, we received an order from an additional customer for our new PVT200 system used to grow silicon carbide crystals for the

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expanded our sales team in early 2023.

the three months ended March 31, 2024, new order bookings approximated $13.6 million, representing an increase of $10.7 million as compared

to bookings of $2.9 million in three months ended March 31, 2023.

Our backlog increased from $18.4 million at December 31, 2023 to $27.1

million at March 31, 2024 as revenues were in excess of orders by approximately $8.7 million.

Historically,

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of Operations

Months Ended March 31, 2024 and 2023

Months Ended June 30, 2024 and 2023

following table presents revenue and expense line items reported in our condensed consolidated statements of operations for the three

months ended March 31, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except

months ended June 30, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except

percentages).

Three months ended

Cost of revenue

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Research and development

and administrative

General and administrative

Loss on disposition of Tantaline

Impairment charge

Total operating expenses

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Foreign exchange income

Total other income,

Other income (expense)

Total other income, net

Loss before income taxes

Income tax expense

Revenue (net of intersegment sales)

CVD Equipment

CVD Materials

sales elimination

Intersegment sales elimination

* Not meaningful

revenue for the three months ended March 31, 2024 was $4.9 million compared to $8.7 million for the three months ended March 31, 2023,

a decrease of 43%.

decrease in revenue versus the prior year period was primarily attributable to lower revenue of $2.9 million from the CVD Equipment segment, a $0.3 million decrease in revenue from our SDC segment and a $0.6 million decrease from

the CVD Materials segment due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.

in CVD Equipment revenue in the period was principally the result of the recognition of revenue associated with our PVT150 systems in

the prior period as compared to no such revenue in the current period.

Revenue related to PVT150 systems sold to one customer for the

three months ended March 31, 2023 represented 28.3% of our total revenues and 42.2% of CVD Equipment segment revenues.

from one aerospace customer for the three months ended March 31, 2024 represented 29.6% of our total revenues and 49.5% of CVD Equipment

revenue for the three months ended June 30, 2024 was $6.3 million compared to $5.1 million for the three months ended June 30, 2023,

an increase of 25.2%.

increase in revenue versus the prior year period was primarily attributable to higher revenue of $1.0 million from our CVD Equipment

segment, a $0.5 million increase in revenue from our SDC segment, offset by a $0.3 million decrease from our CVD Materials segment.

from one aerospace customer for the three months ended June 30, 2024 represented 35.2% of our total revenues and 54.3% of CVD Equipment

segment revenues.

revenue contributed by the CVD Equipment segment for the three months ended March 31, 2024 of $2.9 million represented 60% of overall

revenue as compared to $5.8 million or 67% of overall revenue for the three months ended March 31, 2023.

The decrease in revenues of

$2.9 million or 50% resulted principally due to a contract for PVT150 systems which was completed in 2023.

revenue contributed by the SDC segment for the three months ended March 31, 2024 of $1.9 million represented 40% of overall revenue as

compared to $2.2 million or 25% of overall revenue for the three months ended March 31, 2023.

Revenue for our SDC segment decreased by

$0.3 million or 12% due to lower orders of SDC’s gas and chemical delivery system products as compared to the prior period.

revenue contributed by the CVD Materials segment for the three months ended March 31, 2024 of $59,000 represented 1% of our overall revenue

as compared to $0.7 million or 8% of overall revenue for the three months ended March 31, 2023.

decrease of $0.6 million was principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.

order backlog at March 31, 2024 was approximately $27.1 million as compared to December 31, 2023 of $18.4 million.

Our backlog at March

revenue contributed by the CVD Equipment segment for the three months ended June 30, 2024 of $4.1 million represented 64.8% of overall

revenue as compared to $3.1 million or 61.8% of overall revenue for the three months ended June 30, 2023.

The increase in revenues of

$1.0 million or 31.0%% resulted principally due to increases in revenues from aerospace contracts in progress offset in part by lower

revenue for PVT150 systems and spare parts.

revenue contributed by the SDC segment for the three months ended June 30, 2024 of $2.3 million represented 36.5% of overall revenue

as compared to $1.8 million or 35.4% of overall revenue for the three months ended June 30, 2023.

Revenue for our SDC segment increased

by $0.5 million or 30.0% due to higher demand for SDC’s gas and chemical delivery system products as compared to the prior period.

revenue contributed by the CVD Materials segment for the three months ended June 30, 2024 of $55,000 represented 0.9% of our overall

revenue as compared to $0.3 million or 6.7% of overall revenue for the three months ended June 30, 2023.

The decrease of $0.3 million

or 83.9% was principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.

order backlog at June 30, 2024 was approximately $24.0 million as compared to December 31, 2023 of $18.4 million.

Our backlog at June

30, 2024 consists of approximately $21.6 million related to remaining performance obligations of contracts in progress and not yet started

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Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter.

profit for the three months ended March 31, 2024 was $0.9 million, with a gross profit margin of 17.5%, compared to a gross profit

of $2.4 million and a gross profit margin of 28.0% for the three months ended March 31, 2023.

The decrease in gross profit of $1.6

million was primarily the result of lower gross profit margins on contracts in progress during the current period as compared to the

first quarter of 2023 which benefited from contracts with higher gross margins.

In addition, lower CVD Equipment segment revenues

reduced the Company’s ability to spread its fixed costs.

profit for the three months ended June 30, 2024 was $1.6 million, with a gross profit margin of 25.4%, compared to a gross profit of

$1.4 million and a gross profit margin of 27.4% for the three months ended June 30, 2023.

The increase in gross profit of $0.2 million

was primarily due to higher revenues that was offset by a contract mix with lower gross margins as compared to the prior period.

and Development

the three months ended March 31, 2024, research and development expenses were $0.7 million, or 15.2% of revenue as compared to $0.6 million,

or 6.9% for the three months ended March 31, 2023.

The increase in 2024 was the result of less amounts charged to cost of goods sold

as a result of lower revenues offset by reductions in personnel costs.

the three months ended June 30, 2024, research and development expenses were $0.7 million, or 10.5% of revenue as compared to $0.6 million,

or 11.0% for the three months ended June 30, 2023, an increase of $0.1 million or 18.9%.

The increase in 2024 was due principally to

a reduction of bonus accruals in the prior period quarter and a recruitment fee for a new engineer in the current

engineering support and expenses related to the development of more standardized products and value-added development of existing products

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when work is performed directly on a customer order.

expenses were $0.4 million or 8.5% of the revenue for the three months ended March 31, 2024 as compared to $0.4 million or 4.8% for the

three months ended March 31, 2023.

Increase in marketing costs were offset by lower personnel costs.

expenses were $0.4 million or 6.7% of the revenue for the three months ended June 30, 2024 as compared to $0.4 million or 8.4% for

the three months ended June 30, 2023.

There were no significant changes in selling expenses as compared to the prior period

and Administrative

and administrative expenses for the three months ended March 31, 2024 were $1.3 million or 26.8% of revenue compared to $1.6 million

or 18.4% of revenue for the three months ended March 31, 2023, a decrease of $0.3 million.

The decrease in expenses was principally due

to lower personnel costs of $0.2 million due to a reduction of bonus accruals.

income, net was $151,000 for the three months ended March 31, 2024 as compared to other income, net of $149,000 for the three months

ended March 31, 2023.

Other income consists principally of interest earned on amounts invested in U.S.

treasury securities.

and administrative expenses for the three months ended June 30, 2024 were $1.4 million or 22.3% of revenue compared to $1.4 million

or 26.8% of revenue for the three months ended June 30, 2023, an increase of $56,000 or 5.7%.

The increase in 2024 was due

principally to a reduction of bonus accruals in the prior period quarter offset by increases in consulting and recruitment fees in

the current quarter.

the three months ended June 30, 2023, the Company revised its estimated bonus accrual.

This resulted in an adjustment of $0.2 million

to reverse a portion of the 2024 bonus that was accrued as of March 31, 2023.

The impact of this reversal on general administrative expense

was a reduction of $0.1 million.

The impact of this reversal also resulted in reductions of expenses for cost of revenue of $41,000,

research and development of $56,000 and selling expenses of $24,000 during the three months ended June 30, 2023.

on Disposition of Tantaline

item represents the net loss on the sale of our Tantaline subsidiary including professional fees in the three months ended June 30, 2023.

item represents the loss on the impairment of certain assets of MesoScribe based on the decision at June 30, 2023 to dispose of the subsidiary.

Income (Expense), Net

income (expense), net was $0.1 million for both the three months ended June 30, 2024 and 2023.

Other income is principally interest income

on treasury bills.

continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by

reviewing our economic models, including projections of future operating results.

Months Ended June 30, 2024 versus June 30, 2023

following table presents revenue and expense line items reported in our condensed consolidated statements of operations for the six months

ended June 30, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).

Six months ended

Cost of revenue

Gross profit percentage

Operating expenses:

Research and development

General and administrative

Loss on disposition of Tantaline

Impairment charge

Total operating expenses

Operating loss

Other income (expense):

Interest income

Interest expense

Foreign exchange income

Total other income, net

Loss before income taxes

Income tax expense

Revenue (net of intersegment sales)

CVD Equipment

CVD Materials

Intersegment sales elimination

* Not meaningful

revenue for the six months ended June 30, 2024 was $11.3 million compared to $13.8 million for the six months ended June 30, 2023, a

decrease of 18.1%.

decrease in revenue versus the prior year period was primarily attributable to lower revenues of $1.9 million from our CVD Equipment

segment and $0.9 million from our CVD Materials segment, offset by a $0.1 million increase in revenue from our SDC segment,

from one aerospace customer for the six months ended June 30, 2024 represented 32.8% of our total revenues and 52.3% of CVD Equipment

segment revenues.

revenue contributed by the CVD Equipment segment for the six months ended June 30, 2024 of $7.1 million represented 62.6% of overall

revenue as compared to $9.0 million or 65.2% of overall revenue for the six months ended June 30, 2023.

The decrease in revenues of $1.9

million or 21.4%% resulted principally due to lower PVT150 systems and revenue from spares and parts offset by increases in revenues

from aerospace contracts in progress.

revenue contributed by the SDC segment for the six months ended June 30, 2024 of $4.2 million represented 37.7% of overall revenue as

compared to $4.1 million or 29.8% of overall revenue for the six months ended June 30, 2023.

Revenue for our SDC segment increased by

$0.1 million or 3.4% due to slightly higher demand for SDC’s gas and chemical delivery system products as compared to the prior

revenue contributed by the CVD Materials segment for the six months ended June 30, 2024 of $0.1 million represented 1.0% of our overall

revenue as compared to $1.0 million or 7.3% of overall revenue for the six months ended June 30, 2023.

The decrease of $0.9 million was

principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.

profit for the six months ended June 30, 2024 was $2.5 million, with a gross profit margin of 21.9%, compared to a gross profit of $3.8

million and a gross profit margin of 27.8% for the six months ended June 30, 2023.

The decrease in gross profit of $1.4 million was primarily

the result of lower revenue and a contract mix with lower gross margins as compared to the prior period.

and Development

the six months ended June 30, 2024, research and development expenses were $1.4 million, or 12.5% of revenue as compared to $1.2 million,

or 8.4% for the six months ended June 30, 2023, an increase of $0.2 million or 21.4%.

The increase in 2024 was the result of lower costs

allocated to cost of revenue and a recruitment fee for a new engineer in the current year period.

engineering support and expenses related to the development of more standardized products and value-added development of existing products

are reflected as part of research and development expense.

General engineering support and expenses are charged to costs of goods sold

when work is performed directly on a customer order.

expenses were $0.8 million or 7.5% of the revenue for the six months ended June 30, 2024 as compared to $0.8 million or 6.2% for the

six months ended June 30, 2023.

There were no significant changes in selling expenses as compared to the prior period.

and Administrative

and administrative expenses for the six months ended June 30, 2024 were $2.7 million or 24.3% of revenue compared to $3.0 million or

21.5% of revenue for the six months ended June 30, 2023, a decrease of $0.2 million.

The decrease in expenses was principally due to

lower salaries of $0.1 million due to sale of Tantaline, lower bonuses and commissions of $0.1 million and lower professional fees of

$0.1 million, offset by higher stock-based compensation expense of $0.1 million.

on disposition of Tantaline

item represents the net loss on the sale of our Tantaline subsidiary including professional fees.

item represents the loss on the impairment of certain assets of MesoScribe based on the decision to dispose of the subsidiary.

Income (Expense), Net

income (expense), net was $0.3 million for both six month periods ended June 30, 2024 and 2023.

Other income is principally interest

income on treasury bills.

continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by

reviewing our economic models, including projections of future operating results.

and Capital Resources

of March 31, 2024, aggregate working capital was $13.1 million as compared to aggregate working capital of $14.3 million at December

Cash and cash equivalents at March 31, 2024 and December 31, 2023 were $11.9 million and $14.0 million, respectively.

cash used in operating activities for the three months ended March 31, 2024 was $2.0 million.

This decrease was principally due to the

net loss of $1.5 million, increase in contract assets of $1.1 million, increase in accounts receivable of $1.1 million, increase in inventories

of $0.5 million, offset by an increase in contract liabilities of $1.1 million and non-cash items of $0.4 million.

cash used in investing activities for the three months ended March 31, 2024 consisted of capital expenditures of $70,000 related to purchases

of equipment, building improvements and software.

cash used in financing activities for the three months ended March 31, 2024 consisted of repayments of an equipment loan.

of June 30, 2024, aggregate working capital was $12.7 million as compared to aggregate working capital of $14.3 million at December 31,

Cash and cash equivalents at June 30, 2024 and December 31, 2023 were $10.0 million and $14.0 million, respectively.

cash used in operating activities for the six months ended June 30, 2024 was $3.8 million.

This decrease was principally due to the net

loss of $2.2 million, an increase in accounts receivable of $3.0 million, offset by an increase in accounts payable of $0.4 million and

non-cash items of $0.8 million.

cash used in investing activities for the three months ended June 30, 2024 consisted of capital expenditures of $0.2 million related

to purchases of equipment, building improvements and software.

cash used in financing activities for the three months ended June 30, 2024 consisted of repayments of $40,000 for an equipment loan.

believe that our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working

capital and capital expenditure requirements for the next twelve months .from the filing of these condensed consolidated financial statements

included in this Form 10-Q.

We will continue to assess our operations and take actions anticipated to maintain our operating cash to

support the working capital needs.

capital and capital expenditure requirements for the next twelve months from the filing of this Form 10-Q.

We will continue to assess

our operations and take actions anticipated to maintain our operating cash to support the working capital needs.

Accounting Estimates

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can be reasonably estimated.

exist many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger

or longer-term contracts.

If we do not estimate the total sales, related costs, and progress toward completion on such contracts,

the estimated gross margins may be significantly impacted, or losses may need to be recognized in future periods.

Any such resulting

changes in margins or contract losses could be material to our results of operations and financial condition.

Inventory Valuation

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.

Obsolete inventory

or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less

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.

exist many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or

longer-term contracts.

Changes in estimates of the total sales, related costs, and progress toward completion on such contracts may significantly

impact the estimated gross margins, or losses may need to be recognized in future periods.

Any such resulting changes in margins or contract

losses could be material to our results of operations and financial condition.

(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.

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.

Any such charge

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be disposed of are reported at the lower of their carrying value or net realizable value.

In the future, if we determine that our long-lived assets are impaired, we would be required to recognize a charge

in our financial statements at the time of such determination.

Any such charge could be material to our results of operations and financial

Quantitative and Qualitative Disclosures About Market

In the future, if we determine that our long-lived

assets are impaired, we would be required to recognize a charge in our financial statements at the time of such determination.

charge could be material to our results of operations and financial condition.

Quantitative and Qualitative Disclosures About Market Risk

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis