CVD EQUIPMENT CORP 10-Q

Item 1 – Financial Statements CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands, except share amounts) (Unaudited) June 30, 2024 December 31, 2023 ASSETS Current assets Cash and cash equivalents $ 10,031 $ 14,025 Accounts receivable, net of allowance for credit losses 4,951 1,906 Contract assets 1,554 1,604 Inventories 4,658 4,454 Other current assets 592 852 Total current assets 21,786 22,841 Property, plant and equipment, net 12,041 12,166 Other assets 18 18 Total assets $ 33,845 $ 35,025 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 1,601 $ 1,203 Accrued expenses 1,736 1,765 Current maturities of long-term debt 84 81 Contract liabilities 5,098 4,908 Deposit from purchaser of MesoScribe assets-Note 11 597 597 Total current liabilities 9,116 8,554 Long-term debt, net of current portion 225 268 Total liabilities 9,341 8,822 Stockholders’ equity: Common stock - $ 0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,825,338 at June 30, 2024 and 6,824,511 at December 31, 2023 68 68 Additional paid-in capital 29,229 28,695 Accumulated deficit ( 4,793 ) ( 2,560 ) Total stockholders’ equity 24,504 26,203 Total liabilities and stockholders’ equity $ 33,845 $ 35,025 The accompanying notes are an integral part of these condensed consolidated financial statements 3 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations (in thousands, except per share and share amounts) (Unaudited) 2024 2023 2024 2023 Three months ended Six months ended June 30, June 30, 2024 2023 2024 2023 Revenue $ 6,345 $ 5,069 $ 11,267 $ 13,764 Cost of revenue 4,736 3,681 8,799 9,943 Gross profit 1,609 1,388 2,468 3,821 Operating expenses Research and development 665 559 1,410 1,161 Selling and shipping 426 428 845 847 General and administrative 1,416 1,360 2,739 2,960 Loss on disposition of Tantaline - 162 - 162 Impairment charge - 111 - 111 Total operating expenses 2,507 2,620 4,994 5,241 Operating loss ( 898 ) ( 1,232 ) ( 2,526 ) ( 1,420 ) Other income (expense): Interest income 145 107 302 227 Interest expense ( 4 ) ( 6 ) ( 10 ) ( 12 ) Foreign exchange income - 15 - 43 Other income (expense) ( 4 ) 13 1 20 Total other income, net 137 129 293 278 Loss before income tax ( 761 ) ( 1,103 ) ( 2,233 ) ( 1,142 ) Income tax expense - 10 - 11 Net loss $ ( 761 ) $ ( 1,113 ) $ ( 2,233 ) $ ( 1,153 ) Loss per common share - basic $ ( 0.11 ) $ ( 0.16 ) $ ( 0.33 ) $ ( 0.17 ) Loss per common share - diluted $ ( 0.11 ) $ ( 0.16 ) $ ( 0.33 ) $ ( 0.17 ) Weighted average common shares Basic 6,816,956 6,778,754 6,813,127 6,776,035 Diluted 6,816,956 6,778,754 6,813,127 6,776,035 The accompanying notes are an integral part of these condensed consolidated financial statements 4 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Changes in Stockholders’ Equity (in thousands, except share amounts) (Unaudited) Three months ended June 30, 2024 and 2023 Shares Par Value Capital Earnings Total Common stock Additional paid-in (Accumulated Deficit) Retained Shares Par Value Capital Earnings Total Balance at April 1, 2024 6,824,511 $ 68 $ 28,962 $ ( 4,032 ) $ 24,998 Net loss - - - ( 761 ) ( 761 ) Stock-based compensation 827 - 267 - 267 Balance at June 30, 2024 6,825,338 $ 68 $ 29,229 $ ( 4,793 ) $ 24,504 Balance at April 1, 2023 6,778,438 $ 67 $ 27,920 $ 1,580 $ 29,567 Net loss - - - ( 1,113 ) ( 1,113 ) Stock-based compensation - - 262 - 262 Exercise of stock options and issuance of shares 625 - 3 - 3 Balance at June 30, 2023 6,779,063 $ 67 $ 28,185 $ 467 $ 28,719 Six months ended June 30, 2024 and 2023 Common stock Additional paid-in (Accumulated Deficit) Retained Shares Par Value Capital Earnings Total Balance at January 1, 2024 6,824,511 $ 68 $ 28,695 $ ( 2,560 ) $ 26,203 Net loss - - - ( 2,233 ) ( 2,233 ) Stock-based compensation 827 - 534 - 534 Balance at June 30, 2024 6,825,338 $ 68 $ 29,229 $ ( 4,793 ) $ 24,504 Balance at January 1, 2023 6,760,938 $ 67 $ 27,712 $ 1,620 $ 29,399 Balance 6,760,938 $ 67 $ 27,712 $ 1,620 $ 29,399 Net loss - - - ( 1,153 ) ( 1,153 ) Stock-based compensation - - 397 - 397 Exercise of stock options and issuance of shares 18,125 - 76 - 76 Balance at June 30, 2023 6,779,063 $ 67 $ 28,185 $ 467 $ 28,719 Balance 6,779,063 $ 67 $ 28,185 $ 467 $ 28,719 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) 2024 2023 Six months ended June 30, 2024 2023 Cash flows from operating activities: Net loss $ ( 2,233 ) $ ( 1,153 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 534 397 Depreciation and amortization 307 392 Loss on disposition of Tantaline - 162 Impairment charge - 111 Changes in assets and liabilities, net of effects of disposition of Tantaline: Accounts receivable ( 3,045 ) 1,592 Contract assets 50 ( 781 ) Inventories ( 204 ) ( 1,616 ) Other current assets 260 231 Accounts payable 398 ( 57 ) Accrued expenses ( 29 ) ( 770 ) Contract liabilities 190 659 Net cash used in operating activities ( 3,772 ) ( 833 ) Cash flows from investing activities: Purchases of property and equipment ( 182 ) ( 225 ) Net cash used in connection with disposition of Tantaline - ( 312 ) Net cash used in investing activities ( 182 ) ( 537 ) Cash flows from financing activities Payments of long-term debt ( 40 ) ( 38 ) Proceeds from exercise of stock options - 76 Net cash (used in) provided by financing activities ( 40 ) 38 Net decrease in cash and cash equivalents ( 3,994 ) ( 1,332 ) Cash and cash equivalents at beginning of period 14,025 14,365 Cash and cash equivalents at end of period $ 10,031 $ 13,033 Supplemental disclosure of cash flow information: Income taxes paid $ 3 $ 11 Interest paid $ 10 $ 12 The accompanying notes are an integral part of these condensed consolidated financial statements 6 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 1: BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that can be expected for the year ending December 31, 2024. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 28, 2024, but does not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with that report. All material intercompany balances and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the prior period condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net loss. Liquidity At June 30, 2024, the Company had $ 10.0 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 these condensed consolidated financial statements 7 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue Recognition In accordance with FASB ASC 606 - Revenue from Contracts with Customers (“ASC 606”), the Company records revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services promised to its customers. Under ASC 606, the Company follows a five-step model to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price for the contract; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue using one of the following two methods: Over time The Company designs, manufactures and sells custom chemical vapor deposition 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 as discussed below. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process, and installed, as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. There were no material impairment losses recognized on contract assets during the three and six months ended June 30, 2024 and 2023 . The timing of revenue recognition, billings and collections results in accounts receivables, unbilled receivables or contract assets and contract liabilities on our consolidated balance sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones. 8 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Under ASC 606, payments received from customers in excess of revenue recognized to-date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract. Contract assets include unbilled amounts typically resulting from system sales under contracts and represents revenue recognized that exceeds the amount billed to the customer. Contract liabilities include advance payments and billings in excess of revenue recognized. The Company typically receives down payments upon receipt of orders and progress payments as the system is manufactured. Contract assets and contract liabilities are classified as current as these contracts in progress are expected to be substantially completed within the next twelve months. Point in time For non-system sales of products and services, revenue is recognized at the point in time when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606, “Revenue from Contracts with Customers”. For any system equipment sales where the equipment would have an alternative use or where the contract provisions of the contract preclude the use of over time revenue recognition, revenue is recognized at the point in time when control of the equipment is transferred to the customer. For the three and six months ended June 30, 2024 and 2023, all system equipment sales were recorded over time by using an input method except for one system equipment contract in the second quarter of 2023 where the revenue was to be recognized at the point in time when the equipment was transferred to the customer. Subsequent to June 30, 2023, this one system equipment contract was modified such that the revenue under this contract would be recognized over time using an input method based on the revised contract provisions and the fact that the equipment does not have an alternative use. 9 Notes to Condensed Consolidated Financial Statements (Unaudited) 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 condensed consolidated statements of operations. The estimated warranty cost is based on the Company’s historical cost. The Company updates its warranty estimates based on actual costs incurred. Recent Accounting Standards In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amendments in this update expand annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. This update is effective for our annual report for fiscal year 2025, and interim periods thereafter, with early adoption permitted, and will be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of this ASU on our Consolidated Financial Statements and related disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures . The amendments further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This ASU is effective for our annual report for fiscal year 2026, with early adoption permitted, and should be applied either prospectively or retrospectively. We are currently evaluating the timing of adoption and impact of this ASU on our Consolidated Financial Statements and related disclosures. 10 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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. NOTE 3: CONCENTRATION OF CREDIT RISK Cash and cash equivalents The Company had cash and cash equivalents of $ 10.0 million and $ 14.0 million at June 30, 2024 and December 31, 2023, respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents consisting of U.S. treasury bills were $ 9.8 million and $ 12.1 million at June 30, 2024 and December 31, 2023, respectively. The Company places most of its temporary cash investments in the United States with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at June 30, 2024 and December 31, 2023 was $ 0.1 million and $ 1.5 million, respectively. Accounts receivable The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. Accounts receivable are presented net of an allowance for credit losses of approximately $ 36,000 at both June 30, 2024 and December 31, 2023. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. 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 credit losses could be material to our results of operations and financial condition. 11 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 3: CONCENTRATION OF CREDIT RISK (continued) At June 30, 2024, the accounts receivable balance included amounts from two customers that represented 35.7 % and 10.5 % of total accounts receivable. 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. Sales concentration Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended June 30, 2024, one customer exceeded 10% of revenues, representing 35.2 % of revenues, and during the six months ended June 30, 2024, one customer exceeded 10%, representing 32.8 % of revenues. During the three months ended June 30, 2023, four customers exceeded 10% of revenues, representing 16.1 %, 15.6 %, 11.0 % and 10.2 % of revenues, and during the six months ended June 30, 2023, two customers exceeded 10%, representing 21.0 % and 15.8 % of revenues. NOTE 4: REVENUE RECOGNITION The following table represents a disaggregation of revenue for the three and six months ended June 30, 2024, and 2023 (in thousands): SCHEDULE OF DISAGGREGATION OF REVENUE Over time Point in time Total Three months ended June 30, 2024 Over time Point in time Total Energy $ 239 $ 12 $ 251 Aerospace 2,694 179 2,873 Industrial 1,542 300 1,842 Research 1,174 205 1,379 Total $ 5,649 $ 696 $ 6,345 Over time Point in time Total Three months ended June 30, 2023 Over time Point in time Total Energy $ 760 $ 38 $ 798 Aerospace - 604 604 Industrial 1,085 915 2,000 Research 1,184 483 1,667 Total $ 3,029 $ 2,040 $ 5,069 12 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 4: REVENUE RECOGNITION (continued) Over time Point in time Total Six months ended June 30, 2024 Over time Point in time Total Energy $ 239 $ 30 $ 269 Aerospace 4,496 494 4,990 Industrial 2,801 774 3,575 Research 2,035 398 2,433 Total $ 9,571 $ 1,696 $ 11,267 Over time Point in time Total Six months ended June 30, 2023 Over time Point in time Total Energy $ 3,276 $ 52 $ 3,328 Aerospace 264 855 1,119 Industrial 4,756 1,127 5,883 Research 2,456 978 3,434 Total $ 10,752 $ 3,012 $ 13,764 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 such as universities and other research institutions. The Company has unrecognized contract revenue of approximately $ 21.6 million at June 30, 2024, which it expects to substantially recognize as revenue within the next twelve months based on over time revenue recognition. Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize. Changes in estimates for sales of systems may occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s condensed consolidated statements of operations. 13 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 4: REVENUE RECOGNITION (continued) Contract assets and liabilities Contract assets and contract liabilities on input method type contracts in progress are summarized as follows as of June 30, 2024 (in thousands): SCHEDULE OF COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS Costs incurred on contracts in progress $ 11,009 Estimated earnings 5,609 Costs and estimated earnings on uncompleted contracts 16,618 Billings to date ( 19,589 ) Net cost in excess of billings ( 2,971 ) Deferred revenue related to non-system contracts ( 573 ) Contract liability in excess of contract assets $ ( 3,544 ) Included in accompanying condensed consolidated balance sheet as of June 30, 2024 under the following captions (in thousands): Contract assets $ 1,554 Contract liabilities $ 5,098 Of the contract liability balances at December 31, 2023 and 2022 of $ 4.6 million and $ 4.1 million, respectively, $ 2.7 million and $ 2.6 million was recognized as revenue during the six months ended June 30, 2024 and 2023, respectively. NOTE 5: INVENTORIES SCHEDULE OF INVENTORIES Inventories consist of: June 30, 2024 December 31, 2023 Raw materials $ 2,231 $ 2,351 Work-in-process 1,612 1,248 Finished goods 815 855 Total $ 4,658 $ 4,454 Included in our inventories (raw materials, work-in-process and finished goods) are approximately $ 1.8 million related to PVT 150 systems that were purchased in anticipation of future orders. In the event that such orders do not materialize, the Company would incur a charge to reduce the carrying value of such inventory to market. Such a charge may be material to the Company’s financial position and future results of operations. 14 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 6: LONG-TERM DEBT In September 2022, the Company entered into a loan agreement to fund the acquisition of machinery. The loan amount of $ 432,000 , is payable in 60 equal monthly installments of $ 8,352 and secured by equipment. The interest rate is 6 %. NOTE 7: EARNINGS PER SHARE The calculation of basic and diluted weighted average common shares outstanding for the three and six months ended June 30, 2024 and 2023 is as follows: SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2024 2023 2024 2023 Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Basic weighted average common shares outstanding 6,816,956 6,778,754 6,813,127 6,776,035 Dilutive effect of options and unvested restricted stock - - - - Diluted weighted average shares outstanding 6,816,956 6,778,754 6,813,127 6,776,035 At June 30, 2024, stock options to purchase 838,125 shares of common stock were outstanding and 416,875 were exercisable. At June 30, 2023, stock options to purchase 599,500 shares of common stock were outstanding and 297,500 were exercisable. For the three and six months ended June 30, 2024 and 2023, all stock options were excluded in the computation of diluted earnings per share because their effect was antidilutive. NOTE 8: STOCK-BASED COMPENSATION EXPENSE The Company recorded stock-based compensation for the three and six months ended June 30, 2024 and 2023, respectively, that were included in the following line items in our condensed consolidated statements of operations (in thousands): SCHEDULE OF STOCK BASED COMPENSATION EXPENSE 2024 2023 2024 2023 Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Cost of revenue $ 38 $ 41 $ 76 $ 60 Research and development 47 45 94 65 Selling 27 31 54 42 General and administrative 155 145 310 230 Total $ 267 $ 262 $ 534 $ 397 15 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued) Stock-based compensation expense for three months ended June 30, 2024 and 2023 included $ 57,423 and 40,000 , respectively, and for the six month periods June 30, 2024 and 2023 included $ 103,736 and $ 80,000 , respectively, related to restricted stock awards that directors are entitled to receive pursuant to the Director Compensation Plan. Under this plan each of the Company’s independent directors is entitled to an Annual Equity Retainer in the amount of $ 40,000 , to be granted on the date of the Company’s annual meeting of shareholders. For the six months ended June 30, 2024, the Company granted 5,000 stock options, vesting 25 % per year over four years , with a ten-year life. The Company determined the weighted average fair value of stock options granted was $ 3.30 and is based upon weighted average assumptions below. SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS Stock price $ 4.75 Exercise price $ 4.75 Dividend yield 0 % Expected volatility 77 % Risk-free interest rate 4.12 % Expected life (in years) 6.00 The following table summarizes stock options awards through June 30, 2024: SCHEDULE OF STOCK OPTIONS AWARDS Weighted Stock Option Average Awards Exercise (in shares) Price Outstanding at January 1, 2024 846,875 8.20 Granted 5,000 4.75 Forfeited ( 13,750 ) 7.94 Outstanding at June 30, 2024 838,125 $ 8.18 The following table summarizes information about the outstanding and exercisable options at June 30, 2024 by ranges of exercise prices: SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS RANGES OF EXERCISE PRICES Options Outstanding Options Exercisable Weighted Weighted Weighted Exercise Average Average Average Price Number Remaining Exercise Intrinsic Number Exercise Intrinsic Range Outstanding Contractual Price Value Exercisable Price Value $ 4.00 - 7.00 459,625 7.4 $ 4.55 $ - 217,250 $ 4.45 $ - $ 7.01 - 10.00 20,000 3.8 $ 8.07 $ - 20,000 $ 8.07 $ - $ 10.01 - 13.00 130,000 3.2 $ 10.62 $ - 122,500 $ 10.55 $ - $ 13.01 - 16.00 228,500 8.7 $ 14.11 $ - 57,125 $ 14.11 $ - 16 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued) As of June 30, 2024, there was $ 2.0 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 1.8 years. NOTE 9: INCOME TAXES As of June 30, 2024 and December 31, 2023, the Company has provided a full valuation allowance against its net deferred tax assets. This was based on management’s assessment, including the last four years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future. Management continues to evaluate for potential utilization of the Company’s net deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections of future operating results. NOTE 10: SEGMENT REPORTING The Company operates through three segments: CVD Equipment, Stainless Design Concepts (“SDC”) and CVD Materials. The CVD Equipment segment manufactures and sells chemical vapor deposition, physical vapor transport and similar equipment. The SDC segment designs and manufactures ultra-high purity gas and chemical delivery control systems. The CVD Materials segment provides material coatings for aerospace, medical, electronic and other applications and is not considered a core business of the Company. The Company evaluates performance based on several factors, of which the primary financial measure is income (loss) before taxes. The Company’s corporate administration activities are reported in the “Corporate” column. These activities primarily include expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for options and shares of restricted stock granted to corporate administration employees and board members, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees. Elimination entries included in the “Eliminations” column represent intersegment revenues and cost of revenues that are eliminated in consolidation. Intersegment sales by the SDC segment to the CVD Equipment segment for the three months ended June 30, 2024 and 2023 were $ 132,000 and $ 138,000 , respectively and $ 147,000 and $ 266,000 for the six months ended June 30, 2024 and 2023, respectively. There were no intersegment sales by the CVD Equipment segment to the SDC segment during the three and six months ended June 30, 2024. Intersegment sales by the CVD Equipment segment to the SDC segment for the three months and six months ended June 30, 2023 were $ 64,000 . 17 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 10: SEGMENT REPORTING (continued) The following table presents certain information regarding the Company’s segments as of and for the three months ended June 30, 2024 and 2023 (in thousands): SCHEDULE OF SEGMENTS 2024 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Assets $ 29,368 $ 4,310 $ 222 $ ( 55 ) $ - $ 33,845 Revenue $ 4,107 $ 2,315 $ 55 $ ( 132 ) $ - $ 6,345 Operating (loss) income ( 729 ) 714 ( 45 ) ( 8 ) ( 830 ) ( 898 ) Pretax (loss) income ( 743 ) 714 ( 45 ) ( 8 ) ( 679 ) ( 761 ) Depreciation and amortization $ 141 $ 13 $ - $ - $ - $ 154 Purchase of property, plant & equipment $ 101 $ 4 $ - $ - $ - $ 105 2023 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Assets $ 32,139 $ 4,189 $ 483 $ ( 28 ) $ - $ 36,783 Revenue $ 3,134 $ 1,795 $ 342 $ ( 202 ) $ - $ 5,069 Operating (loss) income ( 445 ) 363 *( 224 ) ( 28 ) ( 898 ) ( 1,232 ) Pretax (loss) income ( 445 ) 364 *( 203 ) ( 28 ) ( 791 ) ( 1,103 ) Depreciation and amortization $ 136 $ 12 $ 79 $ - $ - $ 227 Purchase of property, plant & equipment $ 78 $ - $ - $ - $ - $ 78 * Includes loss on sale of Tantaline of $ 0.2 million and impairment charge related to MesoScribe fixed assets of $ 0.1 million. 18 Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 10: SEGMENT REPORTING (continued) The following table presents certain information regarding the Company’s segments as of and for the six months ended June 30, 2024 and 2023 (in thousands): 2024 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Revenue $ 7,054 $ 4,246 $ 114 $ ( 147 ) $ - $ 11,267 Operating (loss) income ( 2,173 ) 1,346 ( 71 ) 10 ( 1,638 ) ( 2,526 ) Pretax (loss) Income ( 2,188 ) 1,346 ( 71 ) 10 ( 1,330 ) ( 2,233 ) Depreciation and amortization $ 283 $ 24 $ - $ - $ - $ 307 Purchase of property, plant & equipment $ 178 $ 4 $ - $ - $ - $ 182 2023 CVD Equipment SDC CVD Materials Eliminations Corporate Consolidated Revenue $ 8,979 $ 4,107 $ 1,009 $ ( 331 ) $ - $ 13,764 Operating (loss) income ( 267 ) 994 ( 143 )* ( 28 ) ( 1,976 ) ( 1,420 ) Pretax (loss) Income ( 265 ) 996 ( 95 )* ( 28 ) ( 1750 ) ( 1,142 ) Depreciation and amortization $ 267 $ 24 $ 101 $ - $ - $ 392 Purchase of property, plant & equipment $ 215 $ 10 $ - $ - $ - $ 225 * Includes loss on sale of Tantaline of $ 0.2 million and impairment charge related to MesoScribe fixed assets of $ 0.1 million. NOTE 11: MESOSCRIBE SUBSIDIARY On August 8, 2023, the Company entered into a Purchase and License Agreement (the “Agreement”) with a third-party. Pursuant to the Agreement, the Company will sell certain proprietary assets relating to its plasma spray technology and material deposition system and grant a non-exclusive license to use certain of the Company’s related intellectual property as more fully described in the Agreement, for an aggregate purchase price of $ 0.9 million. The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones. The Company will continue to fulfill remaining orders for MesoScribe products through the end of 2024 at which time it plans to cease the remaining operations of MesoScribe and dispose of any remaining equipment. During the three and six months ended June 30, 2023, the Company recorded an impairment charge of $ 0.1 million for certain equipment of MesoScribe based on its decision to cease the remaining operations by the end of 2024. The Company received payments under the Agreement in the amount of $ 0.6 million which has been reflected as “deposit from purchaser” in the accompanying consolidated balance sheet as of March 31, 2024 and December 31, 2023. The Company expects the transaction to be completed in 2024 with the acceptance of the equipment by the purchaser. The revenue and net loss were $ 55,000 and ($ 45,000 ) , respectively, for the three months ended June 30, 2024 and $ 0.1 million and ($ 0.1 ) million, respectively, for the six months ended June 30, 2024. The total assets and total liabilities of the MesoScribe subsidiary were $ 0.2 million and $ 0.7 million, respectively, as of both June 30, 2024 and December 31, 2023. 19