What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-19 compared with 2024-03-28 · 134 added, 140 removed, 124 unchanged (69% of the section changed)

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used to develop and manufacture materials and coatings for industrial applications and research.

To learn more about CVD’s systems

and offerings, visit www.cvdequipement.com.

declined by $1.7 million or 6.6% as the prior year benefited from a large number of PVT150 orders.

margin declined by $1.6 million or 23.5% due to cost overruns experienced on one large contract.

bookings for 2023 were approximately $25.8 million, a decrease of $7.3 million or 22.1% as compared to 2022.

Bookings for 2022 included

orders for PVT equipment as compared to none in 2023.

$8.7 million in orders from a major aerospace company for the production of CVI systems.

The systems will be used by our customer

to manufacture CMCs for their gas turbine jet engines.

our backlog from $17.8 million to $18.4 million.

balance at December 31, 2023 was $14.0 million.

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

aerospace and industrial applications.

The phrase “electrification of everything” refers to the shift from fossil fuels to

the use of electricity to power devices, buildings, electric vehicles or EVs, and many other applications.

With respect to aerospace,

our systems are being used by our customers to produce ceramic matrix composite materials or CMCs that will be used in next generation

jet engines with the objective of reducing jet fuel consumption and contributing to the decarbonization of that industry.

2021, we received the first six (6) orders for our PVT150 system that is used by our customer to grow silicon carbide crystals and received

an additional 24 orders from the same customer in 2022.

The crystals would be further processed into 150 mm silicon carbide wafers and

later processed into integrated circuits and other devices.

Devices based on silicon carbide have been shown to reduce energy consumption

in EVs and reduce the need for additional cooling elements.

While we did not receive any additional orders from this customer, we remain

in continuing discussions regarding potential additional orders.

launched our marketing campaign for the PVT150 in the latter part of 2022 as we seek orders from other potential customers.

We also developed

and launched our new PVT200 system used to grow silicon carbide crystals for the manufacture of 200 mm wafers in 2023.

February 2024, we received our first order for a PVT200.

This is our second customer for PVT equipment.

This customer plans to evaluate

our equipment with the objective to select a vendor for potential additional purchases of PVT equipment.

2022, we completed the production of a system for a customer that deposits coatings onto powders used in silicon-graphite anodes that

has the objective of increasing EV battery performance while lowering cost.

We received two additional orders from this customer in 2023

that were completed during the year.

2023, we also received a total $10.6 million of aerospace orders from multiple customers, reflecting continuing strong interest in the

application of CMCs in gas turbine jet engines.

February 2024, we received a multisystem order for approximately $10 million that will be used for depositing a silicon carbide protective

coating on OEM components.

increased by $2.8 million or 11.5% as compared to the prior year due to increases in revenues

from aerospace and industrial contracts in progress and our SDC segment that was partially

offset by lower revenues of spare parts and lower revenues from Tantaline that was sold in

margin increased by $1.3 million or 24.8% as compared to the prior year due to higher revenues

and improved margins on contracts in process offset by a $1.3 million non-cash charge to

reduce certain PVT inventory to net realizable value.

bookings for 2024 were approximately $28.1 million as compared to $25.8 million in 2023,

an increase of $2.3 million or 8.9%.

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 2024 also included a $3.5 million order from a major aerospace company for the production

of CVI systems.

This is the fifth system purchased by this customer that will be used by

our customer to manufacture CMCs for their gas turbine jet engines.

backlog increased from $18.4 million to $19.4 million, an increase of $0.8 million or 4.9%.

balance at December 31, 2024 was $12.6 million as compared to $14.0 million at December 31,

core strategy is to focus on growth end markets in applications related to aerospace, microelectronics including markets related to the

“electrification of everything,” and industrial applications.

With respect to aerospace, our systems are being used by our

customers to produce ceramic matrix composite materials (“CMCs”) that will be used in next generation gas turbine jet engines

with the objective of reducing jet fuel consumption and to produce specialty coatings for advanced high temperature environments.

phrase “electrification of everything” refers to the shift from fossil fuels to the use of electricity to power devices,

buildings, electric vehicles (“EVs”), and many other applications.

current strategy yielded multisystem orders of PVT150 equipment in 2023 and 2022 that were delivered to one company that planned to use

our systems to manufacture 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 sales which may reduce demand for silicon carbide and impact sales

of our PVT systems.

In addition, the current global over capacity of 150 mm silicon carbide wafers has reduced the market for 150 mm

silicon carbide growth systems.

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

manufacture of 200 mm wafers.

This represents our second customer for our PVT equipment.

This customer plans to evaluate our equipment

for potential additional purchases of PVT equipment.

We shipped this unit to the customer in the third quarter of 2024.

technologies are essential for the support of the EV market.

These systems should provide us with standard product offerings to continue

to support the EV focused market as well as energy storage, power conversion and power transmission.

We plan to evaluate opportunities

to expand our product offerings in the power electronics market to build off the introduction of the PVT150 and PVT200 systems.

also evaluating our ability to provide other equipment used in the manufacturing process of silicon carbide wafers.

2022, we also received an order from an aerospace company for a production chemical vapor infiltration (CVI) system that will be used

to manufacture CMCs for gas turbine jet engines.

In 2023, we received an order from the same aerospace company for an additional three

CVI systems and in November 2024 we received an order from the same aerospace company for an additional CVI system.

February 2024, we received a multisystem order from an industrial customer for approximately $10.0 million that will be used for depositing

a silicon carbide protective coating on OEM components and the units are expected to be delivered over 18 to 24 months period.

have generally gained new customers through our industry reputation, as well as print advertising and trade show attendance.

increased the number of trade shows and industry conferences we attend.

Historically,

our orders have fluctuated based on end user market conditions, adoption of our new products and acceptance of our products.

rate as well as other factors in our manufacturing process ultimately impacts the timing of revenue recognition, whether accounted for

over time or at a point in time.

Accordingly, orders received from customers and the corresponding revenue recognized may fluctuate from

quarter to quarter.

The sales cycle for our equipment is typically six months, but can range up to twelve to eighteen months, depending

on the application and product stage of the equipment.

The order cycle to manufacture and test a system also will vary from six to eighteen

months for our CVD Equipment segment and two to twelve months for our SDC segment, depending on system complexity and magnitude of the

of Operations

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31, 2024, and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).

December 31, 2024

December 31, 2023

Cost of revenue

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General and administrative

Loss on disposition of

Gain on sales of equipment

Loss on disposition of Tantaline

Impairment charge

Total operating expenses

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Interest expense

Employee retention credits

Foreign exchange loss

Total other income,

Foreign exchange income

Total other income, net

Loss before income tax

Income tax (benefit)

Income tax expense (benefit)

Not meaningful

December 31, 2023

CVD Equipment

CVD Materials

Intersegment sales

Not meaningful

revenue for the year ended December 31, 2023 was $24.1 million compared to $25.8 million for the year ended December 31, 2022, a decrease

Intersegment sales elimination

revenue for the year ended December 31, 2024 was $26.9 million compared to $24.1 million for the year ended December 31, 2023, an increase

of $2.8 million or 11.5%.

decrease in revenue versus the prior year period was primarily attributable to decreased revenue of $0.3 million from the CVD Equipment

segment related to lower equipment sales and spare parts, $2.0 million decrease from our CVD Materials segment due to the disposition

of Tantaline and wind down of MesoScribe’s operations, offset by a $0.6 million increase in revenue from our SDC segment due to

higher demand.

from one aerospace customer in 2023 represented 13.5% of our total revenues and 20.1% of CVD Equipment segment revenues.

Sales of PVT150

systems made to one customer in 2023 and 2022 represented 14.3% and 29.2%, respectively, of our total revenues and 21.2% and 45.2%, respectively,

increase in revenue versus the prior year period was primarily attributable to higher revenue of $1.9 million from our CVD Equipment

segment and a $1.3 million increase in revenue from our SDC segment, offset by lower Tantaline revenues of $0.5 million that was sold

Revenue from one aerospace customer for the year ended December 31, 2024 represented 29.5% of our total revenues and 43.4%

of CVD Equipment segment revenues.

revenue contributed by the CVD Equipment segment for the year ended December 31, 2023 represented 67% of overall revenue as compared

to 65% of overall revenue for the year ended December 31, 2022.

The decrease in revenues of $0.3 million or 2% resulted from lower PVT150

revenues offset by an increase in aerospace revenue.

revenue contributed by the SDC segment for the year ended December 31, 2023 represented 28% of overall revenue as compared to 25% of

overall revenue for the year ended December 31, 2022.

Revenue for our SDC segment increased $0.6 million or 9% due to increased orders

and demand for the SDC’s products during 2023 as compared to the prior year.

revenue contributed by the CVD Materials segment for the year ended December 31, 2023 represented 5% of our overall revenue as compared

to 12% of overall revenue for the year ended December 31, 2022 The decrease of $2.0 million was principally due to the disposition of

Tantaline in May 2023 and the wind down of MesoScribe’s operations.

revenue contributed by our CVD Equipment segment for the year ended December 31, 2024 of $18.3 million represented 68.1% of overall revenue

as compared to $16.2 million (net of intersegment sales of $0.1 million) or 67.8% of overall revenue for the year ended December 31,

The increase in external revenues of $2.1 million or 11.3% resulted principally from increases in revenues from aerospace and industrial

contracts in progress offset in part by lower revenue for PVT150/200 systems and spare parts.

revenue contributed by our SDC segment for the year ended December 31, 2024 of $7.8 million (net of intersegment sales of $0.6 million)

represented 29.1% of overall revenue as compared to $6.7 million (net of intersegment sales of $0.4 million) or 27.8% of overall revenue

for the year ended December 31, 2023.

External revenue for our SDC segment increased by $1.1 million or 16.4% due to higher demand for

gas delivery system products as compared to the prior period.

revenue contributed by our MesoScribe segment for the year ended December 31, 2024 of $0.8 represented 2.9% of our overall revenue as

compared to $0.7 million or 3.0% of overall revenue for the year ended December 31, 2023.

MesoScribe fulfilled its final orders during

2024 and ceased operations.

order backlog at December 31, 2024 was approximately $19.4 million as compared to December 31, 2023 of $18.4 million.

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at December 31, 2024 consists of approximately $17.4 million related to remaining performance obligations of contracts in progress and

the balance of approximately $2.1 million represents other orders received from customers.

One aerospace customer represented 49.2% of

our backlog as of December 31, 2023.

Historically, our revenues and orders have fluctuated based on changes in order rate as well as

other factors in our manufacturing process that impacts the timing of revenue recognition.

Accordingly, orders received from customers

and revenue recognized may fluctuate from quarter to quarter.

profit for the year ended December 31, 2023 amounted to $5.1 million, with a gross profit margin of 21%, compared to a gross profit of

$6.6 million and a gross profit margin of 26% for the year ended December 31, 2022.

The decrease in gross profit of $1.6 million was

primarily due to significant cost overruns on one contract and lower PVT150 and CVD Materials revenues as compared to 2022.

not yet started and the balance of approximately $1.9 million represents other orders received from customers.

As of December 31, 2024,

one industrial customer represented 41.8% of our backlog and one aerospace customer represented 27.1% of our backlog.

Historically, our

revenues and orders have fluctuated based on changes in order rate as well as other factors in our manufacturing process that impacts

the timing of revenue recognition.

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

profit for the year ended December 31, 2024 amounted to $6.3 million, with a gross profit margin of 23.6%, compared to a gross profit

of $5.1 million and a gross profit margin of 21.0% for the year ended December 31, 2023.

The increase in gross profit of $1.3 million

was primarily due to higher revenues as well as improved margins on CVD contracts in progress and final MesoScribe sales that was partially

offset by a $1.3 million non-cash charge to reduce certain PVT inventory to net realizable value.

and Development

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or 10.8% for the year ended December 31, 2023.

The increase in 2023 was the result of increased personnel and employee-related costs to

develop new products for key growth markets.

There were no significant changes in research and development expenses as compared to

the prior year.

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

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ended December 31, 2023.

The increase in 2023 was primarily the result of increased personnel and employee-related costs during to support

increased marketing efforts.

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

and Administrative

and administrative expenses for the year ended December 31, 2024 were $5.2 million or 19.3% of revenue compared to $5.4 million or 22.6%

of revenue for the year ended December 31, 2022, an increase of $0.1 million.

The increase in expenses was principally due to increases

in stock-based compensation of $0.2 million, higher professional fees of $0.3 million, and increase in 401(k) match of $0.2 million,

offset by lower bonus expense of $0.4 million and lower expenses for CVD Materials of $0.1 million due to the disposition of Tantaline.

of revenue for the year ended December 31, 2023, a decrease of $0.3 million.

The decrease in 2024 was due to lower employee compensation

and lower professional fees.

on Sales of Equipment

2024, we recognized a gain of $0.6 million on the sale of equipment related to MesoScribe representing the sale price of $0.8 million

less the costs of the equipment sold of $0.2 million.

We also recognized a gain of $42,000 on the sale of equipment by our CVD Equipment.

on Disposition of Tantaline

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

expense represents the loss on the impairment of certain assets of MesoScribe based on the decision to wind down its operations.

expense of $162,000 represents the net loss on the sale of our Tantaline subsidiary including professional fees.

This disposition was

completed in 2023.

expense represents the loss on the impairment of certain assets of MesoScribe based on the decision to wind down its operations made

income, net was $0.5 million for the year ended December 31, 2024 as compared to other income, net of $0.7 million for the year ended

December 31, 2023.

increase in interest income of $0.4 million was due to higher interest rates and increased amounts invested in U.S.

treasury bills.

2022, we conducted an analysis to determine if we were entitled to an employee retention credit (“ERC”) under the Coronavirus

Aid, Relief, and Economic Security Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Plan

Based on our analysis, we determined that we were 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 and .

we recognized other income of

this amount during the year ended December 31, 2022.

This amount was collected in July 2023.

tax (benefit) expense for the years ended December 31, 2023 and 2022, was ($14,000) and $4,000, respectively.

Other income is principally interest income on treasury bills.

tax expense (benefit) for the years ended December 31, 2024 and 2023, was $24,000 and $(14,000) respectively.

We continue to evaluate

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reviewed and adjusted salaries and implemented bonus incentives to mitigate the potential negative impacts of inflation on our employees.

significant increases in tariffs on goods that we purchase could negatively affect our business and results of operations by increasing

the cost to manufacture our products.

and Capital Resources

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Our cash and cash equivalents at December 31, 2024 and 2023 were $12.6 million and $14.0 million, respectively.

cash used in operating activities during 2023 was $0.2 million and was principally due to the net loss of $4.2 million, decrease in contract

assets of $0.6 million, increase in inventories of $1.9 million, decrease in accrued expenses of $0.7 million (primarily due to payment

of 2022 bonus) offset by a decrease in accounts receivable of $1.8 million, collection of employee retention credit receivable of $1.5

million, an increase in contract liabilities of $0.9 million and non-cash items of $2.0 million.

The increase in inventory was related

to the production of PVT150 systems in anticipation of potential future orders and increases related to new system orders.

cash used in investing activities during 2023 was $0.1 million.

Capital expenditures of $0.4 million related to purchases of manufacturing

equipment and building improvements.

The disposition of Tantaline resulted in a cash outflow of $0.3 million based on the terms of the

We received $0.6 million of deposits from the purchaser of certain MesoScribe equipment as described below.

Cash flows from financing activities during 2023 was not significant and included $0.1 million of proceeds from the exercise of employee

stock options and $0.1 million of repayment of an equipment loan.

August 4, 2023, we entered into a Purchase and License Agreement with a third-party.

Pursuant to the Purchase and License Agreement,

we 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 our related intellectual property as more fully described in the Purchase and License 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 year ended December 31, 2023, we received payments under the Purchase and License Agreement in the amount of $0.6 million which is

reflected as deposits from purchaser in the accompanying consolidated balance sheet as of December 31, 2023.

We expect the transaction

to be completed during 2024.

expect to continue to fulfill remaining customer 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.

cash used in operating activities during 2024 was $1.5 million and was principally due to the net loss of $1.9 million and reductions

in contract assets and liabilities of $2.4 million, offset by a reduction in inventory of $0.6 million, and non-cash items of $2.6 million

including a provision for excess and obsolete inventory of $1.6 million.

cash provided by investing activities for the year ended December 31, 2024 consisted of proceeds from the sales of equipment of $0.2

million offset by capital expenditures of $0.1 million.

cash used in financing activities for the year ended December 31, 2024 consisted of repayments of $0.1 million 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

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

Accounting Policies and Estimates

Accounting Estimates

discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s consolidated

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of revenue and expenses during the reported periods.

In accordance with U.S.

GAAP, the Company bases its estimates on historical experience

and on various other assumptions the Company believes are reasonable under the circumstances.

Actual results may differ from these estimates

under different assumptions or conditions.

accordance with U.S.

GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes

are reasonable under the circumstances.

Actual results may differ from these estimates under different assumptions or conditions.

consider an accounting estimate to be critical if:

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on our financial condition or results of operations.

believe that of our significant accounting policies, which are described in the notes to the consolidated financial statements, the following

accounting policies involve a greater degree of judgments, estimates and assumptions.

Accordingly, these are the policies that we believe

are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.

information on the Company’s significant accounting policies and estimates refer to Note 2 “Summary of Significant Accounting

Policies” including the “Use of Estimates” section, in the consolidated financial statements.

consider the following estimates within our significant accounting policies to be critical because of their complexity and the high degree

of judgment involved in maintaining them.

See Note 2 – “Summary of Significant Accounting Policies” of our Consolidated

Financial Statements for additional information regarding our accounting policies

design, manufacture, and sell custom chemical vapor deposition equipment through contractual agreements.

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and Qualitative Disclosures About Market Risk.

Statements and Supplementary Data.

consolidated financial statements and supplementary data required by this item are included in this Annual Report on Form 10-K beginning

Financial Statements and Supplementary Data.

consolidated financial statements required by this item are included in this Annual Report on Form 10-K beginning on page F-1.

in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 7. Management’s Discussion and Analysis