UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
| (Mark One) | |
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
| For
the quarterly period ended | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from ____ to _____
Commission
file number:
(Name of Registrant in Its Charter)
State
or Other Jurisdiction of |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s Telephone Number, Including Area
Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act).
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller
reporting company |
Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of Common Stock, $ par value at August 13, 2024.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Index
| 2 |
PART 1 – FINANCIAL INFORMATION
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 | $ | $ | ||||||
| Accounts receivable, net of allowance for credit losses | ||||||||
| Contract assets | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Current maturities of long-term debt | ||||||||
| Contract liabilities | ||||||||
| Deposit from purchaser of MesoScribe assets-Note 11 | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock - $ par value – shares authorized; issued and outstanding at June 30, 2024 and at December 31, 2023 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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)
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling and shipping | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Loss on disposition of Tantaline | ||||||||||||||||
| Impairment charge | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign exchange income | ||||||||||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Total other income, net | ||||||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share - basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share - diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average common shares | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
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
| Common stock | Additional paid-in | (Accumulated Deficit) | ||||||||||||||||||
| Shares | Par Value | Capital | Earnings | Total | ||||||||||||||||
| Balance at April 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at April 1, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Exercise
of stock options and issuance of shares | ||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
Six months ended June 30, 2024 and 2023
| Common stock | Additional paid-in | (Accumulated Deficit) | ||||||||||||||||||
| Shares | Par Value | Capital | Earnings | Total | ||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||
| Exercise of stock options and issuance of shares | ||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ||||||||||||||||
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)
| Six months ended | ||||||||
| June 30, | ||||||||
| 2024 | 2023 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Loss on disposition of Tantaline | ||||||||
| Impairment charge | ||||||||
| Changes in assets and liabilities, net of effects of disposition of Tantaline: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Contract assets | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Other current assets | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Contract liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Net cash used in connection with disposition of Tantaline | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Proceeds from exercise of stock options | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Income taxes paid | $ | $ | ||||||
| Interest paid | $ | $ | ||||||
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 $
| 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
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
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 $
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 $
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 $
| 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
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
During
the three months ended June 30, 2023, four customers exceeded 10% of revenues, representing
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):
| Three months ended June 30, 2024 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Three months ended June 30, 2023 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
| 12 |
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 4: REVENUE RECOGNITION (continued)
| Six months ended June 30, 2024 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
| Six months ended June 30, 2023 | ||||||||||||
| Over time | Point in time | Total | ||||||||||
| Energy | $ | $ | $ | |||||||||
| Aerospace | ||||||||||||
| Industrial | ||||||||||||
| Research | ||||||||||||
| Total | $ | $ | $ | |||||||||
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 $
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):
| Costs incurred on contracts in progress | $ | |||
| Estimated earnings | ||||
| Billings to date | ( | ) | ||
| ( | ) | |||
| Deferred revenue related to non-system contracts | ( | ) | ||
| $ | ( | ) | ||
Included in accompanying condensed consolidated balance sheet as of June 30, 2024 under the following captions (in thousands): | ||||
| Contract assets | $ | |||
| Contract liabilities | $ |
Of
the contract liability balances at December 31, 2023 and 2022 of $
NOTE 5: INVENTORIES
| Inventories consist of: | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Included
in our inventories (raw materials, work-in-process and finished goods) are approximately $
| 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 $
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Basic weighted average common shares outstanding | ||||||||||||||||
| Dilutive effect of options and unvested restricted stock | ||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||
At June 30, 2024, stock options to purchase shares of common stock were outstanding and were exercisable. At June 30, 2023, stock options to purchase shares of common stock were outstanding and 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.
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):
Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Research and development | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 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 $ and , respectively, and for the six month periods June 30, 2024 and 2023 included $ and $, 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 $, 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 stock options, vesting % per year over , with a life. The Company determined the weighted average fair value of stock options granted was $ and is based upon weighted average assumptions below.
| Stock price | $ | |||
| Exercise price | $ | |||
| Dividend yield | % | |||
| Expected volatility | % | |||
| Risk-free interest rate | % | |||
| Expected life (in years) |
| Weighted | ||||||||
| Stock Option | Average | |||||||
| Awards | Exercise | |||||||
| (in shares) | Price | |||||||
| Outstanding at January 1, 2024 | ||||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Outstanding at June 30, 2024 | $ | |||||||
| 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 | |||||||||||||||||||||
| $- | $ | $ | $ | $ | ||||||||||||||||||||||||
| $- | $ | $ | $ | $ | ||||||||||||||||||||||||
| $- | $ | $ | $ | $ | ||||||||||||||||||||||||
| $- | $ | $ | $ | $ | ||||||||||||||||||||||||
| 16 |
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)
As of June 30, 2024, there was $ million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 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
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
$
| 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):
2024
| CVD
Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Assets | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Pretax (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2023
CVD Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Assets | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | ( | ) | *( | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Pretax (loss) income | ( | ) | *( | ( | ) | ( | ) | ( | ) | |||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| * |
| 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 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Pretax (loss) Income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
2023
| CVD Equipment | SDC | CVD Materials | Eliminations | Corporate | Consolidated | |||||||||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||
| Operating (loss) income | ( | ) | ( | )* | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Pretax (loss) Income | ( | ) | ( | )* | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Depreciation and amortization | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Purchase of property, plant & equipment | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| * |
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 $
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 $
The Company received payments under the Agreement in the amount of $
The
revenue and net loss were $
The
total assets and total liabilities of the MesoScribe subsidiary were $
| 19 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Except 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. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. These statements involve known and unknown risks and uncertainties that may cause our actual results or outcomes to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on various factors and are derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include, but are not limited to:
| ● | uncertainty as to our future profitability; | |
| ● | competition in our existing and potential future product lines of business, including our PVT150 / PVT200 systems; | |
| ● | uncertainty as to our ability to develop new products for the high power electronics market including our plan to develop a PVT200 to grow silicon carbide crystals for 200 mm wafers; | |
| ● | our ability to obtain financing on acceptable terms if and when needed; | |
| ● | our ability to attract and retain key personnel and employees; and | |
| ● | uncertainty as to our ability to adequately obtain raw materials and on commercially reasonable terms. |
Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. We assume no obligation to update these forward-looking statements to reflect actual results, changes in assumptions, or changes in other factors affecting such forward-looking statements. Past performance is no guaranty of future results.
You 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.
| 20 |
Executive Summary
We have served the advanced materials markets with chemical vapor and thermal process equipment for over 40 years. CVD designs, develops, and manufactures a broad range of chemical vapor deposition, gas control, and other state-of-the-art equipment and process solutions used to develop and manufacture materials and coatings for industrial applications and research. To learn more about CVD’s systems and offerings, visit www.cvdequipment.com.
During the three and six months ended June 30, 2024 and 2023:
| ● | Revenue increased by $1.3 million or 25.2% for the second quarter as compared to the prior year period due to increases in revenues from aerospace contracts in progress and our SDC segment offset in part by lower revenues for PVT150 systems and spare parts. | |
| ● | Gross margin increased by $0.2 million or 15.9% in the second quarter as compared to the prior period quarter due to higher revenues that was offset by lower gross profit margins on contracts in progress. | |
| ● | Total bookings for the second quarter of 2024 were approximately $3.2 million as compared to $13.0 million in the prior year period. | |
| ● | Total bookings for the first half of 2024 were $16.9 million as compared to $15.8 million in the first half of 2023. | |
| ● | Bookings 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. | |
| ● | Bookings in 2023 included $8.7 million of multiple systems orders from an aerospace customer and a battery nanomaterial production system of $1.8 million. | |
| ● | During the first quarter of 2024, we received an order from an additional customer for our new PVT200 system that will be used to grow silicon carbide crystals for the manufacture of 200 mm wafers. | |
| ● | Increased our backlog from $18.4 million at December 31, 2023 to $24.0 million at June 30, 2024. | |
| ● | Cash balance at June 30, 2024 was $10.0 million as compared to $14.0 million at December 31, 2023 |
Business Update
Our core strategy is to focus on growth market applications in end 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 (“EVs”), and many other 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 contributing to the decarbonization of that industry.
| 21 |
Our current strategy yielded multisystem orders of PVT150 equipment in 2023 and 2022 that was delivered to one company that manufactures silicon carbide wafers. Although we continue to invest in our vision for the “electrification of everything,” we have observed lower-than-anticipated industrywide electric vehicle adoption rates which may reduce demand for silicon carbide and impact sales of our PVT systems.
In 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 have also received orders from OneD Battery Materials in 2023, a company that is engaged in providing battery nanomaterials.
Both technologies are essential for the support of the EV market. These systems should provide us with standard product offering to continue to support the EV focused market as well as energy storage, power conversion and power transmission. We plan to expand our product offerings in the power electronics market to build off the introduction of the PVT150 and PVT200 systems. We are also evaluating our ability to provide other equipment used in the manufacturing process of silicon carbide wafers.
During 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.
In February 2024, we received a multisystem order from an industrial customer for approximately $10 million that will be used for depositing a silicon carbide protective coating on OEM components.
We have generally gained new customers through our industry reputation, as well as limited print advertising and trade show attendance. We have increased the number of trade shows and industry conferences. In addition, we added to our sales and marketing team in 2022 and expanded our sales team in early 2023.
Historically, our orders have fluctuated based on end user market conditions, adoption of our new products and acceptance of our products. The order 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 system.
| 22 |
Results of Operations
Three Months Ended June 30, 2024 and 2023
The following table presents revenue and expense line items reported in our condensed consolidated statements of operations for the three months ended June 30, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).
Three months ended June 30 | ||||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Revenue | $ | 6,345 | $ | 5,069 | $ | 1,276 | 25.2 | % | ||||||||
| Cost of revenue | 4,736 | 3,681 | 1,055 | 28.7 | % | |||||||||||
| Gross profit | 1,609 | 1,388 | 221 | 15.9 | % | |||||||||||
| Gross profit percentage | 25.4 | % | 27.4 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 665 | 559 | 106 | 18.9 | % | |||||||||||
| Selling | 426 | 428 | (2 | ) | 0.5 | % | ||||||||||
| General and administrative | 1,416 | 1,360 | 56 | 4.1 | % | |||||||||||
| Loss on disposition of Tantaline | - | 162 | (162 | ) | * | |||||||||||
| Impairment charge | - | 111 | (111 | ) | * | |||||||||||
| Total operating expenses | 2,507 | 2,620 | (113 | ) | (4.3 | %) | ||||||||||
| Operating loss | (898 | ) | (1,232 | ) | 334 | 27.1 | % | |||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 145 | 107 | 38 | 35.5 | % | |||||||||||
| Interest expense | (4 | ) | (6 | ) | 2 | * | ||||||||||
| Foreign exchange income | - | 15 | (15 | ) | * | |||||||||||
| Other income (expense) | (4 | ) | 13 | (17 | ) | * | ||||||||||
| Total other income, net | 137 | 129 | 8 | 6.2 | % | |||||||||||
| Loss before income taxes | (761 | ) | (1,103 | ) | 342 | 31.0 | % | |||||||||
| Income tax expense | - | 10 | 10 | * | ||||||||||||
| Net loss | $ | (761 | ) | $ | (1,113 | ) | $ | 352 | 31.6 | % | ||||||
| Revenue (net of intersegment sales) | ||||||||||||||||
| CVD Equipment | $ | 4,107 | $ | 3,134 | $ | 973 | 31.0 | % | ||||||||
| SDC | 2,315 | 1,795 | 520 | 29.0 | % | |||||||||||
| CVD Materials | 55 | 342 | (287 | ) | (83.9 | %) | ||||||||||
| Intersegment sales elimination | (132 | ) | (202 | ) | 70 | 34.7 | % | |||||||||
| Total | $ | 6,345 | $ | 5,069 | $ | 1,276 | 25.2 | % | ||||||||
* Not meaningful
| 23 |
Revenue
Our revenue for the three months ended June 30, 2024 was $6.3 million compared to $5.1 million for the three months ended June 30, 2023, an increase of 25.2%.
The increase in revenue versus the prior year period was primarily attributable to higher revenue of $1.0 million from our CVD Equipment segment, a $0.5 million increase in revenue from our SDC segment, offset by a $0.3 million decrease from our CVD Materials segment. Revenue from one aerospace customer for the three months ended June 30, 2024 represented 35.2% of our total revenues and 54.3% of CVD Equipment segment revenues.
The revenue contributed by the CVD Equipment segment for the three months ended June 30, 2024 of $4.1 million represented 64.8% of overall revenue as compared to $3.1 million or 61.8% of overall revenue for the three months ended June 30, 2023. The increase in revenues of $1.0 million or 31.0%% resulted principally due to increases in revenues from aerospace contracts in progress offset in part by lower revenue for PVT150 systems and spare parts.
The revenue contributed by the SDC segment for the three months ended June 30, 2024 of $2.3 million represented 36.5% of overall revenue as compared to $1.8 million or 35.4% of overall revenue for the three months ended June 30, 2023. Revenue for our SDC segment increased by $0.5 million or 30.0% due to higher demand for SDC’s gas and chemical delivery system products as compared to the prior period.
The revenue contributed by the CVD Materials segment for the three months ended June 30, 2024 of $55,000 represented 0.9% of our overall revenue as compared to $0.3 million or 6.7% of overall revenue for the three months ended June 30, 2023. The decrease of $0.3 million or 83.9% was principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.
Our order backlog at June 30, 2024 was approximately $24.0 million as compared to December 31, 2023 of $18.4 million. Our backlog at June 30, 2024 consists of approximately $21.6 million related to remaining performance obligations of contracts in progress and not yet started that will be recognized over time with the balance of approximately $2.4 million representing other orders received from customers. Historically, our revenues and orders have fluctuated based on changes in order rate as well as other factors in our manufacturing process that impact the timing of revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter.
| 24 |
Gross Profit
Gross profit for the three months ended June 30, 2024 was $1.6 million, with a gross profit margin of 25.4%, compared to a gross profit of $1.4 million and a gross profit margin of 27.4% for the three months ended June 30, 2023. The increase in gross profit of $0.2 million was primarily due to higher revenues that was offset by a contract mix with lower gross margins as compared to the prior period.
Research and Development
For the three months ended June 30, 2024, research and development expenses were $0.7 million, or 10.5% of revenue as compared to $0.6 million, or 11.0% for the three months ended June 30, 2023, an increase of $0.1 million or 18.9%. The increase in 2024 was due principally to a reduction of bonus accruals in the prior period quarter and a recruitment fee for a new engineer in the current quarter.
General 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.
Selling
Selling expenses were $0.4 million or 6.7% of the revenue for the three months ended June 30, 2024 as compared to $0.4 million or 8.4% for the three months ended June 30, 2023. There were no significant changes in selling expenses as compared to the prior period quarter.
General and Administrative
General and administrative expenses for the three months ended June 30, 2024 were $1.4 million or 22.3% of revenue compared to $1.4 million or 26.8% of revenue for the three months ended June 30, 2023, an increase of $56,000 or 5.7%. The increase in 2024 was due principally to a reduction of bonus accruals in the prior period quarter offset by increases in consulting and recruitment fees in the current quarter.
During the three months ended June 30, 2023, the Company revised its estimated bonus accrual. This resulted in an adjustment of $0.2 million to reverse a portion of the 2024 bonus that was accrued as of March 31, 2023. The impact of this reversal on general administrative expense was a reduction of $0.1 million. The impact of this reversal also resulted in reductions of expenses for cost of revenue of $41,000, research and development of $56,000 and selling expenses of $24,000 during the three months ended June 30, 2023.
Loss on Disposition of Tantaline
This item represents the net loss on the sale of our Tantaline subsidiary including professional fees in the three months ended June 30, 2023.
Impairment Charge
This item represents the loss on the impairment of certain assets of MesoScribe based on the decision at June 30, 2023 to dispose of the subsidiary.
Other Income (Expense), Net
Other income (expense), net was $0.1 million for both the three months ended June 30, 2024 and 2023. Other income is principally interest income on treasury bills.
Income Taxes
We continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by reviewing our economic models, including projections of future operating results.
| 25 |
Six Months Ended June 30, 2024 versus June 30, 2023
The following table presents revenue and expense line items reported in our condensed consolidated statements of operations for the six months ended June 30, 2024 and 2023 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).
Six months ended June 30 | ||||||||||||||||
| 2024 | 2023 | Change | Percent | |||||||||||||
| Revenue | $ | 11,267 | $ | 13,764 | $ | (2,497 | ) | (18.1 | %) | |||||||
| Cost of revenue | 8,799 | 9,943 | (1,144 | ) | (11.5 | %) | ||||||||||
| Gross profit | 2,468 | 3,821 | (1,353 | ) | (35.4 | %) | ||||||||||
| Gross profit percentage | 21.9 | % | 27.8 | % | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | 1,410 | 1,161 | 249 | 21.4 | % | |||||||||||
| Selling | 845 | 847 | (2 | ) | (0.2 | %) | ||||||||||
| General and administrative | 2,739 | 2,960 | (221 | ) | (7.5 | %) | ||||||||||
| Loss on disposition of Tantaline | - | 162 | (162 | ) | * | |||||||||||
| Impairment charge | - | 111 | (111 | ) | * | |||||||||||
| Total operating expenses | 4,994 | 5,241 | (247 | ) | (4.7 | %) | ||||||||||
| Operating loss | (2,526 | ) | (1,420 | ) | (1,106 | ) | (77.9 | %) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 302 | 227 | 75 | 33.0 | % | |||||||||||
| Interest expense | (10 | ) | (12 | ) | 2 | * | ||||||||||
| Foreign exchange income | - | 43 | (43 | ) | * | |||||||||||
| Other income | 1 | 20 | (19 | ) | * | |||||||||||
| Total other income, net | 293 | 278 | 15 | 5.4 | % | |||||||||||
| Loss before income taxes | (2,223 | ) | (1,142 | ) | (1,091 | ) | (95.1 | %) | ||||||||
| Income tax expense | - | 11 | (11 | ) | * | |||||||||||
| Net loss | $ | (2,223 | ) | $ | (1,153 | ) | $ | (1,080 | ) | (93.2 | ) | |||||
| Revenue (net of intersegment sales) | ||||||||||||||||
| CVD Equipment | $ | 7,054 | $ | 8,979 | $ | (1,925 | ) | (21.4 | %) | |||||||
| SDC | 4,246 | 4,107 | 139 | 3.4 | % | |||||||||||
| CVD Materials | 114 | 1,009 | (895 | ) | (88.7 | %) | ||||||||||
| Intersegment sales elimination | (147 | ) | (331 | ) | 184 | (55.6 | %) | |||||||||
| Total | $ | 11,267 | $ | 13,764 | $ | (2,497 | ) | (18.1 | %) | |||||||
* Not meaningful
| 26 |
Revenue
Our revenue for the six months ended June 30, 2024 was $11.3 million compared to $13.8 million for the six months ended June 30, 2023, a decrease of 18.1%.
The decrease in revenue versus the prior year period was primarily attributable to lower revenues of $1.9 million from our CVD Equipment segment and $0.9 million from our CVD Materials segment, offset by a $0.1 million increase in revenue from our SDC segment,
Revenue from one aerospace customer for the six months ended June 30, 2024 represented 32.8% of our total revenues and 52.3% of CVD Equipment segment revenues.
The revenue contributed by the CVD Equipment segment for the six months ended June 30, 2024 of $7.1 million represented 62.6% of overall revenue as compared to $9.0 million or 65.2% of overall revenue for the six months ended June 30, 2023. The decrease in revenues of $1.9 million or 21.4%% resulted principally due to lower PVT150 systems and revenue from spares and parts offset by increases in revenues from aerospace contracts in progress.
The revenue contributed by the SDC segment for the six months ended June 30, 2024 of $4.2 million represented 37.7% of overall revenue as compared to $4.1 million or 29.8% of overall revenue for the six months ended June 30, 2023. Revenue for our SDC segment increased by $0.1 million or 3.4% due to slightly higher demand for SDC’s gas and chemical delivery system products as compared to the prior period.
The revenue contributed by the CVD Materials segment for the six months ended June 30, 2024 of $0.1 million represented 1.0% of our overall revenue as compared to $1.0 million or 7.3% of overall revenue for the six months ended June 30, 2023. The decrease of $0.9 million was principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.
| 27 |
Gross Profit
Gross profit for the six months ended June 30, 2024 was $2.5 million, with a gross profit margin of 21.9%, compared to a gross profit of $3.8 million and a gross profit margin of 27.8% for the six months ended June 30, 2023. The decrease in gross profit of $1.4 million was primarily the result of lower revenue and a contract mix with lower gross margins as compared to the prior period.
Research and Development
For the six months ended June 30, 2024, research and development expenses were $1.4 million, or 12.5% of revenue as compared to $1.2 million, or 8.4% for the six months ended June 30, 2023, an increase of $0.2 million or 21.4%. The increase in 2024 was the result of lower costs allocated to cost of revenue and a recruitment fee for a new engineer in the current year period.
General 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.
Selling
Selling expenses were $0.8 million or 7.5% of the revenue for the six months ended June 30, 2024 as compared to $0.8 million or 6.2% for the six months ended June 30, 2023. There were no significant changes in selling expenses as compared to the prior period.
General and Administrative
General and administrative expenses for the six months ended June 30, 2024 were $2.7 million or 24.3% of revenue compared to $3.0 million or 21.5% of revenue for the six months ended June 30, 2023, a decrease of $0.2 million. The decrease in expenses was principally due to lower salaries of $0.1 million due to sale of Tantaline, lower bonuses and commissions of $0.1 million and lower professional fees of $0.1 million, offset by higher stock-based compensation expense of $0.1 million.
Loss on disposition of Tantaline
This item represents the net loss on the sale of our Tantaline subsidiary including professional fees.
Impairment Charge
This item represents the loss on the impairment of certain assets of MesoScribe based on the decision to dispose of the subsidiary.
| 28 |
Other Income (Expense), Net
Other income (expense), net was $0.3 million for both six month periods ended June 30, 2024 and 2023. Other income is principally interest income on treasury bills.
Income Taxes
We continue to evaluate the potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by reviewing our economic models, including projections of future operating results.
Liquidity and Capital Resources
As of June 30, 2024, aggregate working capital was $12.7 million as compared to aggregate working capital of $14.3 million at December 31, 2023. Cash and cash equivalents at June 30, 2024 and December 31, 2023 were $10.0 million and $14.0 million, respectively.
Net cash used in operating activities for the six months ended June 30, 2024 was $3.8 million. This decrease was principally due to the net loss of $2.2 million, an increase in accounts receivable of $3.0 million, offset by an increase in accounts payable of $0.4 million and non-cash items of $0.8 million.
Net cash used in investing activities for the three months ended June 30, 2024 consisted of capital expenditures of $0.2 million related to purchases of equipment, building improvements and software.
Net cash used in financing activities for the three months ended June 30, 2024 consisted of repayments of $40,000 for an equipment loan.
We 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 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.
Critical Accounting Estimates
This 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, or U.S. GAAP. 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. 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.
| 29 |
We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.
We 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 and are considered critical accounting estimates.
Revenue Recognition
We design, manufacture, and sell custom chemical vapor deposition equipment through contractual agreements. These system sales require us to deliver functioning equipment that is generally completed within two to eighteen months from commencement of order acceptance. We recognize revenue over time by using an input method based on costs incurred as it depicts our progress toward satisfaction of the performance obligation. 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 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.
There exist many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or longer-term contracts. Changes in estimates of the total sales, related costs, and progress toward completion on such contracts may significantly impact the estimated gross margins, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.
| 30 |
Inventory Valuation
Inventories (raw materials, work-in-process and finished goods) are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of inventory, which would be reflected in cost of sales in the period the revision is made. Any such charge could be material to our results of operations and financial condition.
Long-Lived Assets
Long-lived assets consist primarily of property, plant and equipment. Long-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists pursuant to the requirements of ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets.” If the asset is determined to be impaired, the impairment loss is measured on the excess of it carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. In the future, if we determine that our long-lived assets are impaired, we would be required to recognize a charge in our financial statements at the time of such determination. Any such charge could be material to our results of operations and financial condition.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
| Item 4. | Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 13d-15(e) under the Exchange Act of 1934, as amended, (the “Exchange Act”)). As required by Rule 13a-15(b) under the Exchange Act, our management, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).
Based on that review and evaluation, our Chief Executive Officer and Chief Financial Officer, along with others in our management, have determined that as of the end of the period covered by this Report on Form 10-Q the disclosure controls and procedures were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosures.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
| 31 |
CVD EQUIPMENT CORPORATION
PART II
OTHER INFORMATION
| Item 1. | Legal Proceedings. |
None.
| Item 1A. | Risk Factors. |
There have been no other material changes to the risk factors disclosed in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 28, 2024.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
| Item 3. | Defaults Upon Senior Securities. |
None.
| Item 4. | Mine Safety Disclosures. |
Not applicable.
| Item 5. | Other Information. |
None.
| Item 6. | Exhibits |
| 31.1* | Certification of Emmanuel Lakios, Chief Executive Officer, dated August 13, 2024 |
| 31.2* | Certification of Richard Catalano, Chief Financial Officer, dated August 13, 2024 |
| 32.1* | Certification of Emmanuel Lakios, Chief Executive Officer, dated August 13, 2024, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2* | Certification of Richard Catalano, Chief Financial Officer, dated August 13, 2024, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.1** | Inline XBRL Instance. |
| 101.SCH** | Inline XBRL Taxonomy Extension Schema. |
| 101.CAL** | Inline XBRL Taxonomy Extension Calculation. |
| 101.DEF** | Inline XBRL Taxonomy Extension Definition. |
| 101.LAB** | Inline XBRL Taxonomy Extension Labels. |
| 101.PRE** | Inline XBRL Taxonomy Extension Presentation. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
| 32 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 13th day of August 2024.
| CVD EQUIPMENT CORPORATION | ||
| By: | /s/ Emmanuel Lakios | |
| Emmanuel Lakios | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ Richard Catalano | |
| Richard Catalano | ||
| Executive Vice President and | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 33 |
Exhibit 31.1
Certifications of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Emmanuel Lakios, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation; | |
| 2. | Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Dated: August 13, 2024 | |
| /s/ Emmanuel Lakios | |
| President and Chief Executive Officer |
Exhibit 31.2
Certifications of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard Catalano, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation; | |
| 2. | Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. | |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Dated: August 13, 2024 | |
| /s/ Richard Catalano | |
| Richard Catalano | |
| Executive Vice President and | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, Emmanuel Lakios, President and Chief Executive Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending June 30, 2024 of CVD Equipment Corporation (the “Form 10-Q”) fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.
| Dated: August 13, 2024 | /s/ Emmanuel Lakios |
| Emmanuel Lakios | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
I, Richard Catalano, Chief Financial Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending June 30, 2024 of CVD Equipment Corporation (the “Form 10-Q”) fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.
| Dated: August 13, 2024 | /s/ Richard Catalano |
| Richard Catalano | |
| Executive Vice President and | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Common stock, par value | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 20,000,000 | 20,000,000 |
| Common stock, shares issued | 6,825,338 | 6,824,511 |
| Common stock, shares outstanding | 6,825,338 | 6,824,511 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Income Statement [Abstract] | ||||
| 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 |
BASIS OF PRESENTATION |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Accounting Policies [Abstract] | |
| BASIS OF PRESENTATION | 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
Notes to Condensed Consolidated Financial Statements (Unaudited)
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Accounting Policies [Abstract] | |
| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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.
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.
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.
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.
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.
|
CONCENTRATION OF CREDIT RISK |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Risks and Uncertainties [Abstract] | |
| CONCENTRATION OF CREDIT RISK | 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.
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.
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| Revenue from Contract with Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| REVENUE RECOGNITION | 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):
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 4: REVENUE RECOGNITION (continued)
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.
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):
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.
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INVENTORIES |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| INVENTORIES | NOTE 5: INVENTORIES
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.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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LONG-TERM DEBT |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Debt Disclosure [Abstract] | |
| LONG-TERM DEBT | 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%.
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EARNINGS PER SHARE |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS PER SHARE |
At June 30, 2024, stock options to purchase shares of common stock were outstanding and were exercisable. At June 30, 2023, stock options to purchase shares of common stock were outstanding and 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.
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STOCK-BASED COMPENSATION EXPENSE |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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):
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 $ and , respectively, and for the six month periods June 30, 2024 and 2023 included $ and $, 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 $, 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 stock options, vesting % per year over , with a life. The Company determined the weighted average fair value of stock options granted was $ and is based upon weighted average assumptions below.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)
As of June 30, 2024, there was $ million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of years.
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INCOME TAXES |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Income Tax Disclosure [Abstract] | |
| INCOME TAXES | 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.
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SEGMENT REPORTING |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT REPORTING | 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.
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):
2024
2023
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
2023
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MESOSCRIBE SUBSIDIARY |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Discontinued Operations and Disposal Groups [Abstract] | |
| MESOSCRIBE SUBSIDIARY | 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. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended |
|---|---|
Jun. 30, 2024 | |
| Accounting Policies [Abstract] | |
| Revenue Recognition | 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.
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.
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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| Inventories | 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.
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| Product Warranty | 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.
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| Recent Accounting Standards | 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.
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.
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REVENUE RECOGNITION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF DISAGGREGATION OF REVENUE | The following table represents a disaggregation of revenue for the three and six months ended June 30, 2024, and 2023 (in thousands):
Notes to Condensed Consolidated Financial Statements (Unaudited)
NOTE 4: REVENUE RECOGNITION (continued)
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| SCHEDULE OF COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS | Contract assets and contract liabilities on input method type contracts in progress are summarized as follows as of June 30, 2024 (in thousands):
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.
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INVENTORIES (Tables) |
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Jun. 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF INVENTORIES |
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EARNINGS PER SHARE (Tables) |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING |
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STOCK-BASED COMPENSATION EXPENSE (Tables) |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF STOCK BASED COMPENSATION EXPENSE |
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| SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS |
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| SCHEDULE OF STOCK OPTIONS AWARDS |
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| SCHEDULE OF OUTSTANDING AND EXERCISABLE OPTIONS RANGES OF EXERCISE PRICES |
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SEGMENT REPORTING (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SCHEDULE OF SEGMENTS | 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):
2024
2023
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
2023
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BASIS OF PRESENTATION (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Cash and cash equivalents | $ 10,031 | $ 14,025 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
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| Accounting Policies [Abstract] | ||||
| Contract assets, impairment loss | $ 0 | $ 0 | $ 0 | $ 0 |
| Standard product warranty description | 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. | |||
SCHEDULE OF COST AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Revenue from Contract with Customer [Abstract] | ||
| 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) | |
| Contract assets | 1,554 | $ 1,604 |
| Contract liabilities | $ 5,098 | $ 4,908 |
REVENUE RECOGNITION (Details Narrative) - USD ($) $ in Millions |
6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Dec. 31, 2023 |
Dec. 31, 2022 |
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| Revenue from Contract with Customer [Abstract] | ||||
| Unrecognized contract revenue | $ 21.6 | |||
| Contract liability | $ 2.7 | $ 2.6 | $ 4.6 | $ 4.1 |
SCHEDULE OF INVENTORIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 2,231 | $ 2,351 |
| Work-in-process | 1,612 | 1,248 |
| Finished goods | 815 | 855 |
| Total | $ 4,658 | $ 4,454 |
INVENTORIES (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2024 |
Dec. 31, 2023 |
|---|---|---|
| Inventory [Line Items] | ||
| Inventories | $ 4,658 | $ 4,454 |
| PVT 150 Systems [Member] | ||
| Inventory [Line Items] | ||
| Inventories | $ 1,800 |
LONG-TERM DEBT (Details Narrative) - Loan Agreement to Fund Machinery Acquisition [Member] |
1 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Loan principal amount | $ 432,000 |
| Loan payment term | 60 |
| Loan, monthly installment amount | $ 8,352 |
| Loan interest rate | 6.00% |
SCHEDULE OF BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Details) - shares |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Earnings Per Share [Abstract] | ||||
| 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 |
EARNINGS PER SHARE (Details Narrative) - shares |
Jun. 30, 2024 |
Dec. 31, 2023 |
Jun. 30, 2023 |
|---|---|---|---|
| Earnings Per Share [Abstract] | |||
| Stock option outstanding | 838,125 | 846,875 | 599,500 |
| Stock option exercisable | 416,875 | 297,500 |
SCHEDULE OF STOCK BASED COMPENSATION EXPENSE (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total | $ 267 | $ 262 | $ 534 | $ 397 |
| Cost of Revenue [Member] | ||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total | 38 | 41 | 76 | 60 |
| Research and Development Expense [Member] | ||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total | 47 | 45 | 94 | 65 |
| Selling Expense [Member] | ||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total | 27 | 31 | 54 | 42 |
| General and Administrative Expense [Member] | ||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total | $ 155 | $ 145 | $ 310 | $ 230 |
SCHEDULE OF WEIGHTED AVERAGE ASSUMPTIONS (Details) |
6 Months Ended |
|---|---|
|
Jun. 30, 2024
$ / shares
| |
| Share-Based Payment Arrangement [Abstract] | |
| Stock price | $ 4.75 |
| Exercise price | $ 4.75 |
| Dividend yield | 0.00% |
| Expected volatility | 77.00% |
| Risk-free interest rate | 4.12% |
| Expected life (in years) | 6 years |
SCHEDULE OF SEGMENTS (Details) - USD ($) |
3 Months Ended | 6 Months Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
Dec. 31, 2023 |
|||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Assets | $ 33,845,000 | $ 36,783,000 | $ 33,845,000 | $ 36,783,000 | $ 35,025,000 | ||||||
| Revenue | 6,345,000 | 5,069,000 | 11,267,000 | 13,764,000 | |||||||
| Operating (loss) income | (898,000) | (1,232,000) | (2,526,000) | (1,420,000) | |||||||
| Pretax (loss) income | (761,000) | (1,103,000) | (2,233,000) | (1,142,000) | |||||||
| Depreciation and amortization | 154,000 | 227,000 | 307,000 | 392,000 | |||||||
| Purchase of property, plant & equipment | 105,000 | 78,000 | 182,000 | 225,000 | |||||||
| Operating Segments [Member] | CVD Equipment [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Assets | 29,368,000 | 32,139,000 | 29,368,000 | 32,139,000 | |||||||
| Revenue | 4,107,000 | 3,134,000 | 7,054,000 | 8,979,000 | |||||||
| Operating (loss) income | (729,000) | (445,000) | (2,173,000) | (267,000) | |||||||
| Pretax (loss) income | (743,000) | (445,000) | (2,188,000) | (265,000) | |||||||
| Depreciation and amortization | 141,000 | 136,000 | 283,000 | 267,000 | |||||||
| Purchase of property, plant & equipment | 101,000 | 78,000 | 178,000 | 215,000 | |||||||
| Operating Segments [Member] | SDC [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Assets | 4,310,000 | 4,189,000 | 4,310,000 | 4,189,000 | |||||||
| Revenue | 2,315,000 | 1,795,000 | 4,246,000 | 4,107,000 | |||||||
| Operating (loss) income | 714,000 | 363,000 | 1,346,000 | 994,000 | |||||||
| Pretax (loss) income | 714,000 | 364,000 | 1,346,000 | 996,000 | |||||||
| Depreciation and amortization | 13,000 | 12,000 | 24,000 | 24,000 | |||||||
| Purchase of property, plant & equipment | 4,000 | 4,000 | 10,000 | ||||||||
| Operating Segments [Member] | CVD Materials [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Assets | 222,000 | 483,000 | 222,000 | 483,000 | |||||||
| Revenue | 55,000 | 342,000 | 114,000 | 1,009,000 | |||||||
| Operating (loss) income | (45,000) | (224,000) | [1] | (71,000) | (143,000) | [2] | |||||
| Pretax (loss) income | (45,000) | (203,000) | [1] | (71,000) | (95,000) | [2] | |||||
| Depreciation and amortization | 79,000 | 101,000 | |||||||||
| Purchase of property, plant & equipment | |||||||||||
| Intersegment Eliminations [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Assets | (55,000) | (28,000) | (55,000) | (28,000) | |||||||
| Revenue | (132,000) | (202,000) | (147,000) | (331,000) | |||||||
| Operating (loss) income | (8,000) | (28,000) | 10,000 | (28,000) | |||||||
| Pretax (loss) income | (8,000) | (28,000) | 10,000 | (28,000) | |||||||
| Depreciation and amortization | |||||||||||
| Purchase of property, plant & equipment | |||||||||||
| Intersegment Eliminations [Member] | CVD Equipment [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Revenue | (132,000) | (138,000) | (147,000) | (266,000) | |||||||
| Intersegment Eliminations [Member] | SDC [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Revenue | 0 | 64,000 | 0 | 64,000 | |||||||
| Segment Reporting, Reconciling Item, Corporate Nonsegment [Member] | |||||||||||
| Segment Reporting Information [Line Items] | |||||||||||
| Assets | |||||||||||
| Revenue | |||||||||||
| Operating (loss) income | (830,000) | (898,000) | (1,638,000) | (1,976,000) | |||||||
| Pretax (loss) income | (679,000) | (791,000) | (1,330,000) | (1,750,000) | |||||||
| Depreciation and amortization | |||||||||||
| Purchase of property, plant & equipment | |||||||||||
| |||||||||||
SCHEDULE OF SEGMENTS (Details) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
|
| Defined Benefit Plan Disclosure [Line Items] | ||||
| Asset impairment charges | $ 111 | $ 111 | ||
| Meso Scribe Technologies Inc [Member] | ||||
| Defined Benefit Plan Disclosure [Line Items] | ||||
| Asset impairment charges | 100 | 100 | ||
| Tantaline Subsidiary [Member] | ||||
| Defined Benefit Plan Disclosure [Line Items] | ||||
| Loss on sale of assets | $ 200 | $ 200 | ||
SEGMENT REPORTING (Details Narrative) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 30, 2024
USD ($)
|
Jun. 30, 2023
USD ($)
|
Jun. 30, 2024
USD ($)
Segment
|
Jun. 30, 2023
USD ($)
|
|
| Segment Reporting Information [Line Items] | ||||
| Number of operating segments | Segment | 3 | |||
| Revenue from contract with customer, including assessed tax | $ 6,345,000 | $ 5,069,000 | $ 11,267,000 | $ 13,764,000 |
| Intersegment Eliminations [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenue from contract with customer, including assessed tax | (132,000) | (202,000) | (147,000) | (331,000) |
| Intersegment Eliminations [Member] | CVD Equipment [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenue from contract with customer, including assessed tax | (132,000) | (138,000) | (147,000) | (266,000) |
| Intersegment Eliminations [Member] | SDC [Member] | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenue from contract with customer, including assessed tax | $ 0 | $ 64,000 | $ 0 | $ 64,000 |
MESOSCRIBE SUBSIDIARY (Details Narrative) - USD ($) |
3 Months Ended | 6 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Jun. 30, 2024 |
Jun. 30, 2023 |
Jun. 30, 2024 |
Jun. 30, 2023 |
Mar. 31, 2024 |
Dec. 31, 2023 |
Aug. 08, 2023 |
|
| Asset impairment charges | $ 111,000 | $ 111,000 | |||||
| Deposits from purchaser of equipment | 597,000 | 597,000 | $ 597,000 | ||||
| Revenues | 6,345,000 | 5,069,000 | 11,267,000 | 13,764,000 | |||
| Net loss | (761,000) | (1,113,000) | (2,233,000) | (1,153,000) | |||
| Assets | 33,845,000 | 36,783,000 | 33,845,000 | 36,783,000 | 35,025,000 | ||
| Liabilities | 9,341,000 | 9,341,000 | 8,822,000 | ||||
| Meso Scribe Technologies Inc [Member] | |||||||
| Aggregate purchase price | $ 900,000 | ||||||
| Asset impairment charges | $ 100,000 | $ 100,000 | |||||
| Deposits from purchaser of equipment | $ 600,000 | 600,000 | |||||
| Revenues | 55,000 | 100,000 | |||||
| Net loss | (45,000) | (100,000) | |||||
| Assets | 200,000 | 200,000 | 200,000 | ||||
| Liabilities | $ 700,000 | $ 700,000 | $ 700,000 | ||||