What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-14 compared with 2025-11-10 · 205 added, 299 removed, 72 unchanged (88% of the section changed)

1 unchanged sentence

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

8 unchanged sentences

to differ materially from those in the forward-looking statements, include, but are not limited to:

uncertainty as to the future growth and return to consistent profitability;

uncertainty as to our ability to execute on our transformation strategy;

uncertainty as to the general state of the silicon carbide wafer end market;

competition in our existing and potential future product lines of business, including our aerospace

equipment and PVT150 / PVT200 systems;

uncertainty as to our ability to identify and develop new products for growth markets;

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

our ability to attract and retain key personnel and employees;

uncertainty as to changes to international trade policies including the imposition of tariffs;

uncertainty as to the impact of the current U.S.

Government shutdown;

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

as to the receipt of and timing of future orders for our equipment;

as to our future growth and return to consistent profitability;

as to the general state of the silicon carbide wafer end market;

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

as to our ability to identify and develop new products for growth markets;

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

ability to attract and retain key personnel and employees;

as to changes to international trade policies including the imposition of tariffs;

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

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

2 unchanged sentences

factors affecting such forward-looking statements.

Past performance is no guaranty of future results.

Past performance is no guarantee of future results.

should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made.

When used with this

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

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

has served the advanced materials markets with chemical vapor deposition, physical vapor transport and thermal process equipment for

over 40 years.

We are headquartered in Central Islip, New York with our SDC division located in Saugerties, New York.

design, develop, and manufacture a broad range of equipment used to develop and produce materials and coatings for the aerospace, compound

semiconductor, semiconductor, aerospace, battery energy storage markets as well as advanced industrial applications including nuclear,

and research.

conduct our business through three reportable segments:

(i) CVD Equipment that designs and manufactures chemical vapor deposition, physical

vapor transport and thermal process equipment;

(ii) SDC that designs and manufactures ultra-high purity gas and chemical delivery control

and (iii) MesoScribe that provided products related to advanced materials and coatings.

The operations of MesoScribe were ceased

the three months ended September 30, 2025 and 2024:

decreased by $0.8 million or 9.6% as compared to the third quarter of 2024 due

principally to lower MesoScribe revenue of $0.7 million which ceased operations in 2024.

profit increased by $0.7 million or 37.2% due to more profitable contract mix at

CVD Equipment segment partially offset by lower MesoScribe revenues.

bookings for the third quarter of 2025 were approximately $2.2 million as compared

to bookings of $4.1 million in the third quarter of 2024.

bookings for the nine months ended September 30, 2025 were approximately $9.5 million as

compared to bookings of $21.0 million in the nine months ended September 30, 2024.

declined from $13.2 million at June 30, 2025 to $8.0 million at September 30, 2025 due principally

to lower orders in our CVD Equipment segment.

and cash equivalents at September 30, 2025 were $8.4 million as compared to $12.6 million

at December 31, 2024.

This decrease was principally due to the net loss during the period

of $0.3 million, an increase in accounts receivable of $0.5 million, an increase in contract

assets of $2.7 million, and a decrease in contract liabilities of $2.4 million which was partially

offset by non-cash expenses of $1.2 million.

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.

November 6, 2025, our Board of Directors approved a comprehensive strategy to transform our Company in response to the continued

fluctuations in our order rates and the recent decline in the bookings of our CVD Equipment division.

As part of this strategy, we

intend to transition the operating model for our CVD Equipment business from vertically integrated fabrication to outsourced

fabrication of certain components.

These actions are expected to reduce our fixed operating costs.

initiatives of the plan include a reduction in the CVD Equipment division’s workforce, expected to reduce annual operating costs

by approximately $2.0 million;

outsourcing of the fabrication operations for certain components;

and implementation of a revised sales

strategy utilizing distributors and outside sales representatives to supplement internal sales efforts.

Our SDC division will not be

impacted by these actions.

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

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

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

Equipment Corporation (“CVD” or the “Company”) has served the advanced materials markets with chemical vapor

deposition, physical vapor transport and thermal process equipment for over 40 years.

We are headquartered in Central Islip, New York.

November 6, 2025, our Board of Directors approved a comprehensive strategy to transform our Company in response to the continued fluctuations

in our order rates and the recent decline in the bookings of our CVD Equipment division.

As part of this strategy, we transitioned our

operating model for our CVD Equipment business from vertically integrated fabrication to outsourced fabrication of certain components

to reduce our fixed operating costs.

transformation strategy also includes the exploration of strategic alternatives for businesses and product lines, including the potential

sale or divestiture of assets or business lines.

expect to complete the workforce reduction plan during the fourth quarter of 2025 and anticipate incurring approximately $0.1 million

in severance and other charges.

In connection with the transformation plan, we may incur non-cash

impairment charges in future periods with respect to certain of our long-lived assets to the extent that any such assets are disposed of for

amounts less than their book values.

October 2025, we received an order for two PVT150™ Physical Vapor Transport Systems (PVT)

from Stony Brook University (SBU) for their new semiconductor research center - onsemi Silicon Carbide Crystal Growth Center.

launched research center will enable SBU faculty, scientists, and students to conduct research on silicon carbide crystal growth and

other wide band gap (WBG) materials and device-enabling technologies critical to improving energy efficiency in power semiconductors

and foster the next generation of skilled professionals in this field.

PVT reactor design and control system architecture allows for precise process and temperature control enabling run-to-run repeatability

and system-to-system matching.

The PVT system platform is also being considered to process other WBG materials such as aluminum nitride

(AlN) to support the development of emerging, high performance semiconductor materials.

March 23, 2026, we entered into an asset purchase agreement with a third party to sell our SDC business division (“SDC”).

The purchase price was approximately $16.9 million in cash, subject to customary purchase price adjustments.

The transaction closed

on April 1, 2026.

net cash proceeds from the sale of SDC we received in April 2026, after payment of transaction costs and employee related

liabilities, were $14.8 million.

Following the sale of SDC, CVD Equipment has approximately $23 million in cash and no long-term

We expect to use the proceeds from the transaction to enhance financial flexibility and support initiatives aimed

at creating shareholder value.

retained ownership of our Saugerties, New York facility, which will be leased to the acquiring company for an initial term of two

the sale of our SDC business and the cessation of our MesoScribe business in 2024, we have one reportable segment consisting of our CVD

Equipment division that manufactures chemical vapor deposition, physical vapor transport and thermal process equipment.

design, develop, and manufacture a broad range of equipment used to develop and produce materials and coatings for the aerospace, compound

semiconductor, semiconductor, battery energy storage markets as well as advanced industrial applications, and research.

from continuing operations during the quarter ended March 31, 2026 included:

decreased by $4.5 million or 70.9% as compared to the prior period quarter due lower systems revenue due to reduced system bookings.

margin decreased by $1.6 million or 91.5% as compared to the prior period quarter due to the lower system revenues and lower

absorption of fixed manufacturing costs.

in revenue and gross margin for the quarter ended March 31, 2026 from lower system bookings were partially offset by a $0.3 million

benefit from a contract modification.

bookings for the first quarter of 2026 were approximately $1.8 million as compared to bookings of $0.8 million in the first quarter

of 2025 due to higher non-system orders for spare parts.

was $4.7 million at both December 31, 2025 and March 31, 2026.

and cash equivalents at March 31, 2026 were $8.2 million.

from discontinued operations before transaction costs of our SDC business division declined from $0.6 million in the prior year quarter

to $0.5 million in the current year quarter due to lower gross margins on higher revenues.

Transaction costs associated with the sale

of SDC consisted of legal and investment banking fees of $0.4 million for the quarter ended March 31, 2026.

The total income from discontinued

operations was $63,000 for the quarter ended March 31, 2026 as compared to $0.6 million for the prior year quarter due principally to

the transaction costs incurred in connection with the sale of SDC.

The Company filed a Form 8-K on April 7, 2026 that included pro forma financial information.

of December 31, 2025, we classified certain manufacturing equipment as held for sale with a fair value of $0.5 million based on an agreement

we entered into in January 2026 with a third-party to sell the equipment for this amount.

We received the proceeds from the sale in the

first quarter of 2026 and also sold additional equipment for $46,000 that was no longer necessary for our business.

core strategy remains focused on serving key markets related to aerospace, microelectronics/power electronics and industrial applications.

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.

microelectronics/power electronics, our PVT reactor design and control system architecture allows for precise process and temperature

control enabling run-to-run repeatability and system-to-system matching.

The PVT system platform is also being considered to process

other WBG materials such as aluminum nitride (AlN) to support the development of emerging, high performance semiconductor materials.

October 2025, we sold two PVT150™ units to Stony Brook University (SBU) for their new semiconductor research center - onsemi

Silicon Carbide Crystal Growth Center.

The recently launched research center will enable SBU faculty, scientists, and students to conduct

research on silicon carbide crystal growth and other wide band gap (WBG) materials and device-enabling technologies critical to improving

energy efficiency in power semiconductors and foster the next generation of skilled professionals in this field.

PVT systems may provide us with standard product offerings to continue to support the EV focused market as well as energy storage, power

conversion and power transmission.

In addition, SiC semiconductors specifically help address the need for high energy efficiency and

power density in the AC-DC stage in power supply units for AI data centers.

We plan to evaluate the market conditions and opportunities

to expand our product offerings in the power electronics market.

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

200 mm wafers.

We shipped this unit to the customer in the third quarter of 2024 and it continues to be evaluated.

In addition, silicon carbide (“SiC”)semiconductors specifically help address the need

for high energy efficiency and power density in the AC-DC stage in power supply units for AI data centers.

We plan to evaluate the market

conditions and opportunities to expand our product offerings in the power electronics market.

potentially emerging market for our business is the nuclear energy industry.

We are currently focused on two potential applications

within this market.

The first involves SiC chemical vapor infiltration systems used in the production of SiC tubing intended to

replace traditional zirconium alloy fuel cladding.

The second involves coating systems used to apply protective coatings to nuclear

fuel pellets.

We believe demand for both applications is being driven primarily by the development and deployment of small modular

We intend to continue to focus on leading customers and strategic opportunities within this evolving market.

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.

global economy continues to confront the impacts of recent executive orders by the U.S.

federal administration regarding tariffs on imports

from various countries including the European Union, Canada, Mexico, and China and the potential impact of actions taken by other countries

in response to the announced tariffs.

Tariffs may make our products less cost competitive and reduce gross margins.

The impact on our

business related to these or any other tariffs that may be imposed, is uncertain and depends on multiple factors, including the duration

and expansion of current tariffs, future changes to tariff rates, scope or enforcement, retaliatory measures by impacted trade partners,

and related inflationary effects.

September 30, 2025, the continuing resolution (CR) allowing U.S.

government departments and agencies to operate through the end of the

government fiscal year expired and the U.S.

government shut down most of its operations.

As a result of the U.S.

government shutdown,

our business and results of operations may be impacted by the disruptions to federal government offices, workers, and operations, including

disruptions relating to the funding of research activities to both universities and companies that may result in delays in new orders

or the loss of orders.

We may also experience similar impacts in the event of a series of short-term continuing resolutions rather than

full-year fiscal year 2026 appropriations.

Generally, the significance of these impacts will primarily be based on the length of the

shutdown and timing of passage of a new CR or a full budget.

July 4, 2025, “An Act to Provide for Reconciliation Pursuant to Title II of the H.

14” (the Act) was enacted.

Act provides for several corporate tax changes including, but not limited to, restoring full expensing of domestic research and development

costs, restoring immediate deductibility of certain capital expenditures, and changes in the computations of U.S.

taxation on international

Historically,

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

economic uncertainty regarding tariffs may potentially affect our future order rate.

The order rate as well as other factors in our manufacturing

process ultimately impacts on the timing of revenue recognition, whether accounted for over time or at a point in time.

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

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 system.

operate in a challenging and uncertain global economic environment.

Recent and potential actions by the U.S.

federal administration,

including changes in trade policy, export controls, and tariffs on imports from various countries and regions, as well as retaliatory

or responsive actions by other governments, may adversely affect our supply chain, costs, demand for our products, receipt of orders

and results of operations.

In addition, we face ongoing risks related to geopolitical instability, including conflicts and tensions in

Europe, the Middle East, and Asia, which may further disrupt global economic conditions and financial markets.

factors contributing to economic uncertainty include inflationary pressures, elevated interest rates, disruptions in global logistics,

labor market challenges, and potential changes in fiscal, tax, or regulatory policies.

These conditions may impact customer spending

decisions, order rates, project timing, and the availability and cost of materials and components used in our products.

our management continuously evaluates these conditions and has taken, and may take, actions intended to mitigate the potential adverse

effects on our business, there can be no assurance that such actions will be successful.

We are unable to predict the ultimate impact

of these risks and uncertainties on our future results of our operations, financial position, or cash flows.

of Operations

Months Ended September 30, 2025 and 2024

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

months ended September 30, 2025 and 2024 and the period-over-period dollar and percentage changes for those line items (in thousands,

except percentages).

ended September 30

Cost of revenue

Operating expenses:

Research and development

General and administrative

on sale of equipment

Total operating expenses

Operating income

Other income (expense):

Interest income

other income, net

Income before income taxes

Income tax expense

CVD Equipment

Intersegment sales elimination

revenue for the three months ended September 30, 2025 was $7.4 million compared to $8.2 million for the three months ended September

30, 2024, a decrease of $0.8 million or 9.6%.

decrease in revenue versus the prior year period was primarily attributable to lower revenue of $0.7 million from our MesoScribe segment

which ceased operations in 2024.

Revenue from three customers for the quarter ended September 30, 2025 represented 22.7%, 19.1% and 13.6%,

respectively, of our total revenues and 29.7%, 24.9%, and 17.5%, respectively, of CVD Equipment segment revenues.

revenue contributed by our CVD Equipment segment for the quarter ended September 30, 2025 of $5.7 million (net of intersegment revenue

of $2,000) represented 76.6% of overall revenue as compared to $5.7 million (net of intersegment revenue of $5,000) or 69.3% of overall

revenue for the quarter ended September 30, 2024.

Lower revenues from system contracts in progress were offset by revenue recognized

on one contract that was modified during the third quarter of 2025 to allow revenue to be recognized over time.

Revenue recognized from

this contract was approximately $1.0 million during the third quarter ended September 30, 2025.

revenue contributed by our SDC segment for the quarter ended September 30, 2025 of $1.7 million (net of intersegment sales of $130,000)

represented 23.3% of overall revenue as compared to $1.9 million (net of intersegment sales of $151,000) or 22.6% of overall revenue

for the quarter ended September 30, 2024.

SDC segment revenue decreased by $0.1 million or 7.3% due to less contracts in progress

during the quarter.

order backlog at September 30, 2025 was approximately $8.0 million as compared to $13.2 million at June 30, 2025.

Our order backlog at

September 30, 2025 consists of approximately $6.8 million related to remaining performance obligations of contracts in progress and not

yet started and the balance of approximately $1.2 million represents non-system orders received from customers.

As of September 30, 2025,

one industrial customer represented 23.8% of our backlog and one aerospace customer represented 24.7% 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 impact

on the timing of revenue recognition.

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

profit for the three months ended September 30, 2025 was $2.4 million, with a gross margin of 32.7%, compared to a gross profit of $1.8

million and a gross margin of 21.5% for the three months ended September 30, 2024.

The increase in gross profit of $0.7 million was principally

due to more profitable contract mix at CVD Equipment segment partially offset by lower MesoScribe revenues.

The gross profit of our CVD

Equipment segment includes $0.6 million related to the revenue recognized as the result of a contract modification.

The gross profit of our SDC segment was negatively impacted by $0.1 million of non-recurring equipment certification

and Development

the three months ended September 30, 2025, research and development expenses were $0.6 million, or 8.0% of revenue as compared to $0.6

million, or 7.9% of revenue for the three months ended September 30, 2024, a decrease of $50,000 or 7.8%.

The decrease in 2025 was the

result of a reduction in personnel partially offset by less hours being charged to cost of revenue for contracts in progress.

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 $0.3 million or 4.4% of the revenue for the three months ended September 30, 2025 as compared to $0.4 million or 5.2% of

revenue for the three months ended September 30, 2024, a decrease of $0.1 million or 22.5%.

The decrease was the result of a reduction

in personnel.

and Administrative

and administrative expenses for the three months ended September 30, 2025 were $1.2 million or 16.1% of revenue compared to $1.2 million

or 15.2% of revenue for the three months ended September 30, 2024, a decrease of $0.1 million or 4.3%.

There were no significant changes

in general and administrative expenses.

on Sale of Equipment

the three months ended September 30, 2024, we recognized a gain of $0.6 million on the sale of equipment related to our MesoScribe subsidiary

representing the sale price of $0.8 million less the costs of the equipment sold of $0.2 million.

Income (Expense), Net

income (expense) consists principally of interest income on U.S.

treasury securities and was lower than the prior year quarter due to

less funds available for investment and lower interest rates.

continue to evaluate the potential utilization of our net 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 September 30, 2025 versus September 30, 2024

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

months ended September 30, 2025 and 2024 and the period-over-period dollar and percentage changes for those line items (in thousands,

except percentages).

ended September 30

Ended March 31, 2026 and 2025

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

ended March 31, 2026 and 2025 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).

Unless otherwise specified, our discussion below reflects continuing operations only.

Prior period financial information related to discontinued

operations has been reclassified and separately presented in the condensed consolidated financial statements and accompanying notes to

conform to the current period presentation.

Cost of revenue

Gross profit percentage

Operating expenses:

1 unchanged sentence

General and administrative

on sale of equipment

Gain on sale of equipment

Total operating expenses

Operating loss

Operating loss from continuing operations

Other income (expense):

2 unchanged sentences

Total other income, net

Loss before income taxes

Loss from continuing operations before income taxes

Income tax expense

ended September 30

CVD Equipment

Intersegment sales elimination

revenue for the nine months ended September 30, 2025 was $20.8 million compared to $19.5 million for the nine months ended September

30, 2024, an increase of $1.4 million or 7.1%.

increase in revenue versus the prior year period was primarily attributable to higher revenues of $2.7 million from our CVD Equipment

segment offset by lower revenues of $0.7 million from our MesoScribe segment and $0.5 million from our SDC segment.

Revenue from two

customers for the nine months ended September 30, 2025 represented 30.2% and 16.7%, respectively, of our total revenues and 41.0% and 22.7%,

respectively, of CVD Equipment segment revenues.

revenue contributed by the CVD Equipment segment for the nine months ended September 30, 2025 of $15.4 million (net of intersegment revenue

of $13,000) represented 73.6% of overall revenue as compared to $12.7 million (net of intersegment revenue of $5,000) or 65.4% of overall

revenue for the nine months ended September 30, 2024.

The increase in revenues of $2.7 million or 20.9% was principally due to higher

contract revenues from contracts in progress of $1.6 million and higher non-system revenues of $1.0 million.

revenue contributed by the SDC segment for the nine months ended September 30, 2025 of $5.4 million (net of intersegment revenue of $0.3

million) represented 26.0% of overall revenue as compared to $5.9 million (net of intersegment revenue of $0.3 million) or 30.6% of overall

revenue for the nine months ended September 30, 2024.

Revenue for our SDC segment decreased by $0.5 million or 8.3% due to less contracts

in progress during the period.

profit for the nine months ended September 30, 2025 was $6.2 million, with a gross margin of 29.7%, compared to a gross profit of

$4.1 million and a gross margin of 21.0% for the nine months ended September 30, 2024.

The increase in gross profit of $2.1 million

was principally due to higher system and non-system revenues in our CVD Equipment segment offset by lower revenues in our SDC and

MesoScribe segments.

The gross profit of our CVD Equipment segment includes $0.6 million related to the revenue recognized as the

result of a contract modification.

The gross profit of our SDC segment was negatively impacted by $0.1

million of non-recurring equipment certification costs.

Net loss from continuing operations

Discontinued operations:

Income from discontinued operations

Transaction costs on disposal of discontinued

Income from discontinued operations, net of taxes

Net income (loss)

Not meaningful

revenue for the quarter ended March 31, 2026, was $1.8 million compared to $6.3 million for the quarter ended March 31, 2025, a decrease

decrease in revenue versus the prior year period was primarily attributable to lower system revenue due to lower bookings.

was partially offset by $0.3 million benefit from a contract modification during the quarter.

Revenue from three customers represented

227.2%, 21.7% and 17.3%, respectively, of our total revenues.

order backlog at March 31, 2026, was approximately $4.7 million as compared to December 31, 2025, of $4.7 million.

Our order backlog

at March 31, 2026, consists of approximately $2.6 million related to remaining performance obligations of contracts in progress and not

yet started and the balance of approximately $2.0 million represents other orders received from customers.

As of March 31, 2026, one

industrial customer represented 14.7% of our backlog and one aerospace customer represented 32.8% 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 quarter ended March 31, 2026, was $0.1 million, with a gross profit margin of 8.0%, compared to a gross profit of

$1.7 million and a gross profit margin of 27.4% for the quarter ended March 31, 2025.

The decrease in gross profit of $1.6 million

was primarily the result of lower system revenue and lower absorption of fixed manufacturing costs.

during the quarter ended March 31, 2026, benefited by $0.3 million from a contract modification.

and Development

the nine months ended September 30, 2025, research and development expenses were $2.1 million, or 9.9% of revenue as compared to $2.1

million, or 10.6% of revenue for the nine months ended September 30, 2024, an increase of $6,000 or 0.3%.

Reductions in personnel was

offset by less hours being charged to cost of revenue for contracts in progress.

the quarter ended March 31, 2026, research and development expenses were $0.7 million, or 39.4% of revenue as compared to $0.7 million,

or 11.6% of revenue for the quarter ended March 31, 2025.

During the current quarter there was

less time charged to contracts in progress that was offset by lower personnel costs.

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 $1.1 million or 5.3% of revenue for the nine months ended September 30, 2025 as compared to $1.3 million or 6.5% of revenue

for the nine months ended September 30, 2024, a decrease of $0.1 million or 13.5%.

The decrease was the result of a reduction in personnel.

General engineering support and expenses are charged to cost of revenue when

work is performed directly on a customer order.

expenses were $0.2 million or 13.0% of revenue for the quarter ended March 31, 2026 as compared to $0.4 million or 5.8% of revenue for

the quarter ended March 31, 2025.

The decrease was primarily due to lower personnel costs.

and Administrative

and administrative expenses for the nine months ended September 30, 2025 were $3.6 million or 17.3% of revenue compared to $3.8 million

or 19.8% of revenue for the nine months ended September 30, 2024, a decrease of $0.2 million or 6.5%.

The decrease in expenses was principally

due to lower professional fees, lower bonus accrual and the cessation of MesoScribe’s operations.

on Sale of Equipment

the nine months ended September 30, 2024, we recognized a gain of $0.6 million on the sale of equipment related to our MesoScribe subsidiary

representing the sale price of $0.8 million less the costs of the equipment sold of $0.2 million.

Income (Expense), Net

income (expense) consists principally of interest income on U.S.

treasury securities and was lower than the prior year period due to

less funds available for investment and lower interest rates.

continue to evaluate the potential utilization of our net 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 administrative expenses were $1.0 million or 55.4% of revenue for the quarter ended March 31, 2026 as compared to $1.0 million or

15.1% of revenue for the quarter ended March 31, 2025.

The increase was due to higher personnel and building maintenance costs.

on Sales of Equipment

the quarter ended March 31, 2026, we recognized a gain of $46,000 on the sale of equipment that was no longer necessary for our business.

income, net was $70,000 for the quarter ended March 31, 2026, as compared to other income, net of $107,000 for the quarter ended March

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

treasury securities and was lower than the

prior period quarter due to less funds available for investment.

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

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

Operations – SDC

from discontinued operations before transaction costs of our SDC business division was $0.5 million in the current quarter as compared

to $0.6 million for the quarter ended March 31, 2025.

This decrease was primarily due to lower gross margins on higher revenues.

costs associated with the sale of SDC consisted of legal and investment banking fees of $0.4 million for the quarter ended March 31,

The total income from discontinued operations was $63,000 for the quarter ended March 31, 2026 as compared to $0.6 million for

the quarter ended March 31, 2025 due principally to the transaction costs incurred in connection with the sale of SDC.

and Capital Resources

of September 30, 2025, aggregate working capital was $14.6 million as compared to aggregate working capital of $13.8 million at December

Cash and cash equivalents at September 30, 2025 and December 31, 2024 were $8.4 million and $12.6 million, respectively.

cash used in operating activities for the nine months ended September 30, 2025 was $4.1 million.

This decrease was principally due to

the net loss of $0.3 million, an increase in accounts receivable of $0.5 million, an increase in contract assets of $2.7 million and

a decrease in contract liabilities of $2.4 million which was partially offset by non-cash expenses of $1.2 million.

cash used in investing activities for the nine months ended September 30, 2025 consisted of capital expenditures of $49,000 related to

purchases of property and equipment and investment in a captive insurance company related to our self-insured health benefits program

cash used in financing activities for the nine months ended September 30, 2025 consisted of repayments of $65,000 for an equipment loan.

of March 31, 2026, aggregate working capital was $12.8 million.

Cash and cash equivalents at March 31, 2026 were $8.2 million.

The net cash proceeds from the sale of SDC received by us in April 2026, after payment of transaction

costs and employee related liabilities, were $14.8 million, increasing our cash balance at the time to approximately $23

cash used in operating activities for the quarter ended March 31, 2026 was $0.9 million.

This decrease was principally due to net loss

of $1.6 million and a $0.3 million increase in contract assets due to revenue recognized on contracts in progress.

These decreases were

partially offset by non-cash expense items of $0.3 million, decrease in inventory of $0.3 million, a decrease in accounts receivable

of $0.2 million and an increase of $0.3 million in accrued expenses.

cash provided by investing activities for the quarter ended March 31, 2026 consisted of proceeds from the sale of assets held for sale

and other equipment of $0.6 million partially offset by capital expenditures of $13,000 and an investment in a captive insurance company

related to our health insurance program of $48,000.

cash used in financing activities for the quarter ended March 31, 2026 consisted of the full repayment of an equipment loan in the amount

As of March 31, 2026, we have no outstanding debt.

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 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.

Accounting Estimates

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

financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America,

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts

of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts

of revenue and expenses during the reported periods.

discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements,

which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of

assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported

amounts of revenue and expenses during the reported periods.

accordance with U.S.

GAAP, we base our estimates on historical experience and on various other assumptions the Company believes are reasonable

under the circumstances.

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.

9 unchanged sentences

incurred to date to the total estimated costs at completion of the performance obligations.

costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, 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 as required by the project’s engineering design.

Cost based input methods of revenue recognition require

us 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, we recognize the entire estimated loss in the period the loss becomes known and

can be reasonably estimated.

costs include all direct material and labor costs, and those indirect costs related to contract performance, such as indirect labor,

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 as required by the project’s engineering design.

Cost based input methods of revenue

recognition require us 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, we recognize the entire estimated loss in the period the loss

becomes known and can be reasonably estimated.

have been engaged in the production and delivery of goods on a continual basis under contractual arrangements for many years.

15 unchanged sentences

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

Assets to be disposed of are reported at the

lower of their carrying value or net realizable value.

It is not possible for us to predict the likelihood of any possible future impairments

or, if such an impairment were to occur, the magnitude of any impairment.

It is not possible for us to predict the likelihood

of any possible future impairments or, if such an impairment were to occur, the magnitude of any impairment.

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