Cvd Equipment Corp 10-Q for FY2023 Q1
Cvd Equipment Corp (CVV)
About this 10-Q
Cvd Equipment Corp filed this 10-Q on May 15, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).
Headline figures
Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $8.7M
- up 86.7% from $4.66M a year earlier
- Net loss
- $40K
- compared with a net loss of $997K a year earlier
- Diluted EPS
- -$0.01
- compared with -$0.15 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
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For the transition period from ____ to _____ |
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Commission file number:
(Name of Registrant in Its Charter)
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State or Other Jurisdiction of
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices)
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(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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).
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Large accelerated filer ☐ |
Accelerated filer ☐ |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Index
| Part I - Financial Information | |
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Item 1 – Condensed Consolidated Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets at March 31, 2023 and December 31, 2022 |
3 |
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Condensed Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 |
4 |
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Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2023 and 2022 |
5 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 |
6 |
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Notes to Condensed Consolidated Financial Statements |
7 |
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Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
27 |
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Item 4 – Controls and Procedures |
27 |
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Part II - Other Information |
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Item 1 – Legal Proceedings |
28 |
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Item 1A-Risk Factors |
28 |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
28 |
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Item 3 – Defaults Upon Senior Securities |
28 |
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Item 4 – Mine Safety Disclosures |
28 |
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Item 5 – Other Information |
28 |
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Item 6 – Exhibits |
28 |
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Signatures |
30 |
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Exhibit Index |
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PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
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March 31, 2023 |
December 31, 2022 |
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| ASSETS | ||||||||
| Current assets | ||||||||
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Cash and cash equivalents |
$ | $ | ||||||
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Accounts receivable, net |
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Contract assets |
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Inventories, net |
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Other current assets |
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Total current assets |
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Employee retention credit receivable |
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Property, plant and equipment, net |
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Intangible assets, net |
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Other assets |
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Total assets |
$ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
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Accounts payable |
$ | $ | ||||||
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Accrued expenses |
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Current maturities of long-term debt |
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Contract liabilities |
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Total current liabilities |
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Long-term debt, net of current portion |
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Total liabilities |
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| Contingencies (see note 11) |
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| Stockholders’ equity: | ||||||||
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Common stock - $ |
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Additional paid-in capital |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share and share amounts)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
2022 |
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Revenue |
$ | $ | ||||||
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Cost of revenue |
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Gross profit |
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| Operating expenses: | ||||||||
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Research and development |
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Selling |
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General and administrative |
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Total operating expenses |
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Operating loss |
( |
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| Other income (expense): | ||||||||
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Interest income |
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Interest expense |
( |
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Foreign exchange income (expense) |
( |
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Other income (expense) |
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Total other income (expense), net |
( |
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Loss before income taxes |
( |
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Income tax expense |
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Net loss |
$ | ( |
) | $ | ( |
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Loss per common share - basic |
$ | ( |
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Loss per common share - diluted |
$ | ( |
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| Weighted average common shares outstanding: | ||||||||
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(in thousands, except share amounts)
(Unaudited)
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Three months ended March 31, 2023 and 2022 |
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Common stock |
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Shares |
Par Value |
Additional paid-in Capital |
Retained Earnings |
Total |
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Balance at January 1, 2023 |
$ | $ | $ | $ | ||||||||||||||||
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Net loss Stock-based compensation |
- | -- | ( |
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Stock-based compensation |
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Exercise of stock options and issuance of shares |
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Balance at March 31, 2023 |
$ | $ | $ | $ | ||||||||||||||||
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Balance at January 1, 2022 |
$ | $ | $ | $ | ||||||||||||||||
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Net loss |
- | ( |
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Stock-based compensation |
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Balance at March 31, 2022 |
$ | $ | $ | $ | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Three Months Ended |
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March 31, |
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2023 |
2022 |
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| Cash flows from operating activities: | ||||||||
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Net loss |
$ | ( |
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| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
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Stock-based compensation |
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Depreciation and amortization |
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| Changes in assets and liabilities: | ||||||||
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Accounts receivable |
( |
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| Contract assets | ( |
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Inventories |
( |
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Income tax receivable |
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Other current assets |
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Accounts payable |
( |
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Accrued expenses |
( |
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Contract liabilities |
( |
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Net cash used in operating activities |
( |
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| Cash flows from investing activities: | ||||||||
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Capital expenditures |
( |
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Capitalized patent costs |
( |
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Net proceeds from sale of assets |
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| Net cash used in investing activities | ( |
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| Cash flows from financing activities: | ||||||||
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Repayments of long-term debt |
( |
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Proceeds from exercise of stock options |
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Net cash used in financing activities |
( |
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Net decrease in cash and cash equivalents |
( |
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| Cash and cash equivalents at beginning of period | ||||||||
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Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
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Income taxes paid |
$ | $ | ||||||
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Interest paid |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
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 months ended March 31, 2023 are not necessarily indicative of the results that can be expected for the year ending December 31, 2023.
The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 27, 2023, 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 income (loss).
Liquidity
At March 31, 2023, the Company had $
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
NOTE 3: CONCENTRATION OF CREDIT RISK
Cash and cash equivalents
The Company had cash and cash equivalents of $
NOTE 3: CONCENTRATION OF CREDIT RISK (continued)
The Company places most of its temporary cash investments with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at March 31, 2023 and December 31, 2022 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 doubtful accounts of approximately $
At March 31, 2023, the accounts receivable balance included amounts from two customers that totaled
Sales concentration
Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended March 31, 2023, three customers exceeded 10% of revenues, representing
NOTE 4: REVENUE RECOGNITION
The following table represents a disaggregation of revenue for the three months ended March 31, 2023 and 2022 (in thousands):
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Three months ended March 31, 2023 |
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Over time |
Point in time |
Total |
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Energy |
$ | $ | $ | |||||||||
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Aerospace |
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Industrial |
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Research |
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Total |
$ | $ | $ | |||||||||
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Three months ended March 31, 2022 |
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Over time |
Point in time |
Total |
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Energy |
$ | $ | $ | |||||||||
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Aerospace |
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Industrial |
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Research |
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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 that are 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 consolidated statements of operations.
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 March 31, 2023 (in thousands):
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Costs incurred on contracts in progress |
$ | |||
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Estimated earnings |
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| $ | ||||
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Billings to date |
( |
) | ||
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Deferred revenue related to non-system contracts |
( |
) | ||
| $ | ||||
| Included in accompanying condensed consolidated balance sheets under the following captions (in thousands): | ||||
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Contract assets |
$ | |||
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Contract liabilities |
$ |
Of the contract liability balances at December 31, 2022 and 2021 of $
NOTE 5: INVENTORIES, NET
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Inventories consist of: |
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March 31, 2023 |
December 31, 2022 | |||||||
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Raw materials |
$ | $ | ||||||
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Work-in-process |
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Total |
$ | $ | ||||||
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 $
NOTE 7: EARNINGS PER SHARE
The calculation of basic and diluted weighted average common shares outstanding for the three months ended March 31, 2023 and 2022 is as follows:
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Three months ended March 31, |
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2023 |
2022 |
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Basic weighted average common shares outstanding |
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Effect of potentially dilutive share-based awards |
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Diluted weighted average shares outstanding |
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At March 31, 2023, stock options to purchase
For the three months ended March 31, 2023 and 2022,
NOTE 8: STOCK-BASED COMPENSATION EXPENSE
The Company recorded stock-based compensation for the three months ended March 31, 2023 and 2022, respectively, that were included in the following line items in our Consolidated Statements of Operations (in thousands):
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Three months ended March 31, |
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2023 |
2022 |
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Cost of revenue |
$ | $ | ||||||
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Research and development |
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Selling |
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General and administrative |
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Total |
$ | $ | ||||||
NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)
Stock-based compensation expense in both periods included approximately $
For the three months ended March 31, 2023, the Company granted
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Stock price |
$ | |||
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Exercise price |
$ | |||
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Dividend yield |
% | |||
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Expected volatility |
% | |||
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Risk-free interest rate |
% | |||
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Expected life (in years) |
The following table summarizes stock options awards for the three months ended March 31, 2023:
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Weighted |
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Stock Option |
Average |
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Awards |
Exercise |
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(in shares) |
Price |
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Outstanding at January 1, 2023 |
$ | |||||||
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Granted |
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Exercised |
( |
) | ||||||
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Outstanding at March 31, 2023 |
$ | |||||||
The following table summarizes information about the outstanding and exercisable options at March 31, 2023 by ranges of exercise prices:
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Options Outstanding |
Options Exercisable |
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Weighted |
Weighted |
Weighted |
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Average |
Average |
Average |
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Exercise |
Number |
Remaining |
Exercise |
Intrinsic |
Number |
Exercise |
Intrinsic |
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Price Range |
Outstanding |
Contractual |
Price |
Value |
Exercisable |
Price |
Value |
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| - | $ | $ | $ | $ | |||||||||||||||||||||||||||
| - | $ | $ | $ | $ | |||||||||||||||||||||||||||
| - | $ | $ | $ | $ | |||||||||||||||||||||||||||
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As of March 31, 2023, there was $
NOTE 9: INCOME TAXES
As of March 31, 2023 and December 31, 2022, 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 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 that 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, 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 for the three months ended March 31, 2023 and 2022 by the SDC segment to the CVD Equipment segment were $
NOTE 10: SEGMENT REPORTING (continued)
The following table presents certain information regarding the Company’s segments as of and for the three months ended March 31, 2023 and 2022 (in thousands):
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2023 |
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CVD Equipment |
SDC |
CVD Materials |
Eliminations |
Corporate |
Consolidated |
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Assets |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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Revenue |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
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Operating (loss) income |
( |
) | ( |
) | ||||||||||||||||||||
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Pretax (loss) income |
( |
) | ( |
) | ||||||||||||||||||||
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Depreciation and amortization |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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Purchase of property, plant & equipment |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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2022 |
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CVD Equipment |
SDC |
CVD Materials |
Eliminations |
Corporate |
Consolidated |
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Assets |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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Revenue |
$ | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||
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Operating (loss) income |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
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Pretax (loss) income |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||
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Depreciation and amortization |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
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Purchase of property, plant & equipment |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
NOTE 11: CVD MATERIALS UPDATE
Management is evaluating options for the disposal of its Tantaline subsidiary located in Nordborg, Denmark based on the Company’s current strategy to focus on the equipment business consisting of the CVD Equipment and SDC segments and reduce its focus on the non-core CVD Materials business. The revenues and net income of the Tantaline subsidiary were $
NOTE 12: RISKS AND UNCERTAINTIES
The Company currently operates in a challenging economic environment as the global economy continues to confront the impacts from the pandemic, geopolitical conflicts, inflationary pressures and adverse supply chain disruptions. The specific impacts on the Company have included:
Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have and may continue to restrict the Company’s ability to procure raw materials and components such as nickel and integrated circuits, as well as impact the Company’s ability to sell its products into China, Russia and other Eastern European and Asian regions.
Supply chain disruptions have led to much longer lead times to acquire raw materials for production and has led to inflationary pressures in both materials and labor. These supply chain disruptions have impacted the Company’s ability to recognize revenue more timely as it delays the Company’s manufacturing processes.
While management has initiated actions to mitigate the potential negative impacts to its revenue and profitability, the Company is unable to predict the impact that the above uncertainties will have on its future results of operations and cash flows.
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:
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competition in our existing and potential future product lines of business, including our PVT150 system; |
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our ability to attract and retain key personnel and employees; |
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our ability to obtain financing on acceptable terms if and when needed; |
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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 200mm wafters and epitaxy equipment for silicon carbide waters; |
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uncertainty as to our future profitability; |
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uncertainty as to any future expansion of the Company; and |
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uncertainty as to our ability to adequately obtain raw materials and components from foreign markets in light of geopolitical developments. |
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uncertainty as to our ability to timely acquire raw materials for production due to supply chain disruptions. |
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.
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.cvdequipement.com.
Business Update
Our core strategy is to focus on growth market applications in end-user markets related to the “electrification of everything” and aerospace. The phrase “electrification of everything” refers to the shift from fossil fuels to the use of electricity to power devices, buildings, electric vehicles or EVs, and many other applications. With respect to aerospace, our systems are being used by our customers to produce ceramic matrix composite materials or CMCs that will be used in next generation jet engines with the objective of reducing jet fuel consumption and contributing to the decarbonization of that industry.
During 2021, we received the first six (6) orders for our PVT150 system that is used by our customer to grow silicon carbide crystals. These crystals are then further processed into silicon carbide wafters by our customer and later processed into integrated circuits and other devices. Devices based on silicon carbide have been shown to reduce energy consumption in EVs and reduce the need for additional cooling elements. During 2022, we received an additional 24 orders from the same customer. We also launched our marketing campaign for the PVT150 in the latter part of 2022 as we seek orders from other potential customers.
During 2022, we completed the production of a system for a customer that deposits coatings onto powders used in silicon-graphite anodes that has the objective of increasing EV battery performance while lowering cost.
We believe that the receipt of a $3.7 million order from a major aerospace company in 2022 for the production of chemical vapor infiltration system reflects the beginnings of a revival in aircraft manufacturing. In prior years, we had sold Tow-Coating Systems to manufacture CMCs to another major jet engine manufacturer and have an installed base of such systems at that customer.
During the three months ended March 31, 2023, new order bookings approximated $2.9 million, representing a decrease of approximately 30% compared to bookings of $4.1 million in three months ended March 31, 2022. Our backlog declined from $17.8 million at December 31, 2022 to $12.0 million at March 31, 2023 as revenues were in excess of orders by approximately $5.8 million.
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.
Our PVT150 system which was launched in 2022 with an initial 20 systems shipped in 2022, a follow-on order of 10 systems to the same customer is scheduled for shipment in the second quarter of 2023. In the first quarter of 2023, the PVT150 system was launched to the broader customer market and we are engaged in discussions with several potential customers. The timing of orders for our PVT-150 system contributes to the overall quarter to quarter fluctuation in orders.
During the first quarter of 2023, our aerospace customers continued their evaluation of market conditions related to their capacity demand and ordering of additional systems to meet the capacity demand. We continue to engage in discussions with them regarding timing and potential orders.
Results of Operations
Three Months Ended March 31, 2023 and 2022
The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).
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March 31 |
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2023 |
2022 |
Change |
Percent |
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Revenue |
$ | 8,695 | $ | 4,656 | $ | 4,039 | 87 | % | ||||||||
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Cost of revenue |
6,261 | 3,886 | 2,375 | 61 | % | |||||||||||
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Gross profit |
2,434 | 770 | 1,664 | 216 | % | |||||||||||
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Gross profit percentage |
28.0 | % | 16.5 | % | 41.2 | % | ||||||||||
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Operating expenses: |
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Research and development |
602 | 310 | 292 | 94 | % | |||||||||||
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Selling |
419 | 273 | 146 | 53 | % | |||||||||||
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General and administrative |
1,600 | 1,157 | 443 | 38 | % | |||||||||||
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Total operating expenses |
2,621 | 1,740 | 881 | 51 | % | |||||||||||
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Operating loss |
(187 | ) | (970 | ) | 783 | (81 | %) | |||||||||
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Other income (expense): |
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Interest income |
120 | 18 | 102 | * | ||||||||||||
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Interest expense |
(6 | ) | (9 | ) | 3 | * | ||||||||||
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Foreign exchange income (expense) |
27 | (36 | ) | 63 | * | |||||||||||
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Other income (expense) |
8 | - | 8 | * | ||||||||||||
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Total other income (expense), net |
149 | (27 | ) | 176 | * | |||||||||||
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Loss before income taxes |
(38 | ) | (997 | ) | 959 | (96 | %) | |||||||||
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Income tax expense |
2 | - | 2 | * | ||||||||||||
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Net loss |
$ | (40 | ) | $ | (997 | ) | $ | 957 | (96 | %) | ||||||
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Revenue |
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CVD Equipment |
$ | 5,845 | $ | 2,827 | $ | 3,018 | 107 | % | ||||||||
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SDC |
2,312 | 1,415 | 897 | 63 | % | |||||||||||
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CVD Materials |
667 | 458 | 209 | 46 | % | |||||||||||
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Intersegment sales elimination |
(129 | ) | (44 | ) | (85 | ) | * | |||||||||
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Total |
$ | 8,695 | $ | 4,656 | $ | 4,039 | 87 | % | ||||||||
* Not meaningful
Revenue
Our revenue for the three months ended March 31, 2023 was $8.7 million compared to $4.7 million for the three months ended March 31, 2022, an increase of 87%.
The increase in revenue versus the prior year period was primarily attributable to increased revenue of $3.0 million from the CVD Equipment segment related to equipment sales and spare parts, a $0.9 million increase in revenue from our SDC segment and a $0.2 million increase from the CVD Materials segment. The increase in revenue in the period was principally the result of the recognition of revenue associated with our PVT150 systems. Revenue related to PVT150 systems sold to one customer in 2023 represented 28.3% of our total revenues and 42.2% of CVD Equipment segment revenues. We recognized revenue on this contract as we construct the equipment for our customer.
Our order backlog at March 31, 2023 was approximately $12.0 million as compared to December 31, 2022 of $17.8 million. Our backlog at March 31, 2023 consists of approximately $10.1 million related to remaining performance obligations of contracts in progress and not yet started with the balance of approximately $1.9 million represents 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 impacts the timing of revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter.
The revenue contributed by the CVD Equipment segment for the three months ended March 31, 2023 of $5.8 million represented 67% of overall revenue as compared to $2.8 million or 61% of overall revenue for the three months ended March 31, 2022. The increase in revenues of $3.0 million or 107% resulted principally related revenue associated with a contract for PVT150 systems.
The revenue contributed by the SDC segment for the three months ended March 31, 2023 of $2.3 million represented 25% of overall revenue as compared to $1.4 million or 29% of overall revenue for the three months ended March 31, 2022. Revenue for our SDC segment increased $0.9 million or 63% due to increased orders and strong demand for the SDC’s gas and chemical delivery system products as compared to the prior year.
The revenue contributed by the CVD Materials segment for the three months ended March 31, 2023 of $0.7 million represented 8% of our overall revenue as compared to $0.5 million or 10% of overall revenue for the three months ended March 31, 2022
Gross Profit
Gross profit for the three months ended March 31, 2023 was $2.4 million, with a gross profit margin of 28.0%, compared to a gross profit of $0.8 million and a gross profit margin of 16.5% for the three months ended March 31, 2022. The increase in gross profit of $1.6 million was primarily the result of leveraging fixed costs on higher sales levels which offset certain component cost increases and higher compensation costs.
Research and Development
For the three months ended March 31, 2023, research and development expenses were $0.6 million, or 6.9% of revenue as compared to $0.3 million, or 6.7% for the three months ended March 31, 2022. The increase in 2023 was the result of increased personnel and employee-related costs to develop new products for key growth markets.
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 4.8% of the revenue for the three months ended March 31, 2023 as compared to $0.3 million or 5.9% for the three months ended March 31, 2022. The increase in 2023 was primarily the result of increased personnel and employee-related costs during to support increased marketing efforts as well as increase in trade shows and other marketing expenses.
General and Administrative
General and administrative expenses for the three months ended March 31, 2023 were $1.6 million or 18.4% of revenue compared to $1.2 million or 25.8% of revenue for the three months ended March 31, 2022, an increase of $0.4 million. The increase in expenses was principally due to increases in personnel and employee-related costs of approximately $0.2 million to support the growth of our business and higher professional fees of $0.1 million.
Other Income (Expense), Net
Other income (expense), net was $149,000 for the three months ended March 31, 2023 as compared to other income (expense), net of ($27,000) for the three months ended March 31, 2022. The change was principally due to an increase in interest income due to higher interest rates and increased amounts in invested in U.S. treasury securities.
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 March 31, 2023, aggregate working capital was $15.7 million as compared to aggregate working capital of $15.5 million at December 31, 2022. Cash and cash equivalents at March 31, 2023 and December 31, 2022 were $11.0 million and $14.4 million, respectively.
Net cash used in operating activities for the three months ended March 31, 2023 was $3.3 million. This decrease was principally due to increases in contract assets of $1.5 million, decrease in contract liabilities of $2.8 million, increase in inventories of $0.3 million, decrease in accrued expenses of $0.5 million (primarily due to payment of 2022 bonus) offset by reduction in accounts receivable of $1.4 million and non-cash items of $0.3 million.
Capital expenditures for the three months ended March 31, 2023 were $146,000 related to purchases of manufacturing equipment and building improvements.
Cash flows from financing activities for the three months ended March 31, 2022 included $73,000 of proceeds from the exercise of employee stock options.
Management is evaluating options for the disposal of its Tantaline subsidiary located in Nordborg, Denmark based on the Company’s current strategy to focus on the equipment business consisting of the CVD Equipment and SDC segments and reduce its focus on the non-core CVD Materials business. . The revenues and net income of the Tantaline subsidiary were $0.4 million and $0.1 million, respectively, for the three months ended March 31, 2023. The total assets and total liabilities of the Tantaline subsidiary were $1.1 million and $0.2 million as of March 31, 2023, respectively. The disposition of Tantaline subsidiary may result in a financial charge of up to $500,000 during the year ending December 31, 2023.
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 Policies and Estimates
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our critical estimates include accounting for certain items such as revenues on long-term contracts recognized on the input method; and the recoverable value of our long-lived assets.
We consider the following significant accounting policies to be critical because of their complexity and the high degree of judgment involved in maintaining them.
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.
We have been engaged in the production and delivery of goods on a continual basis under contractual arrangements for many years. Historically, we have demonstrated an ability to accurately estimate total revenues and total expenses relating to our long-term contracts. However, there are many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or longer-term contracts. If we do not estimate the total sales, related costs, and progress toward completion on such contracts, the estimated gross margins may be significantly impacted, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.
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 its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.
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.
CVD EQUIPMENT CORPORATION
PART II
OTHER INFORMATION
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Item1. |
Legal Proceedings. |
None.
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Item1A. |
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 27, 2023.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
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Item 3. |
Defaults Upon Senior Securities. |
None.
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Item 4. |
Mine Safety Disclosures. |
Not applicable.
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Item 5. |
Other Information. |
None.
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Item 6. |
Exhibits |
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31.1* |
Certification of Emmanuel Lakios, Chief Executive Officer, dated May 15, 2023 |
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31.2* |
Certification of Richard Catalano, Chief Financial Officer, dated May 15, 2023 |
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32.1* |
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32.2* |
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101.1** |
Inline XBRL Instance. |
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101.SCH** |
Inline XBRL Taxonomy Extension Schema. |
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101.CAL** |
Inline XBRL Taxonomy Extension Calculation. |
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101.DEF** |
Inline XBRL Taxonomy Extension Definition. |
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101.LAB** |
Inline XBRL Taxonomy Extension Labels. |
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101.PRE** |
Inline XBRL Taxonomy Extension Presentation. |
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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.
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 15th day of May 2023.
| CVD EQUIPMENT CORPORATION | ||
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By: |
/s/ Emmanuel Lakios |
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Emmanuel Lakios |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Richard Catalano |
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Richard Catalano |
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Vice President and |
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Chief Financial Officer |
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(Principal Financial and |
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Accounting Officer) |
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Exhibit 31.1
Certifications of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Emmanuel Lakios, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation; |
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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; |
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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; |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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: May 15, 2023
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/s/ Emmanuel Lakios |
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President and Chief Executive Officer |
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Exhibit 31.2
Certifications of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard Catalano, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation; |
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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; |
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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. |
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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: |
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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; |
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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; |
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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 |
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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 |
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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): |
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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 |
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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: May 15, 2023
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/s/ Richard Catalano |
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Richard Catalano 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 March 31, 2023 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.
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Dated: May 15, 2023 |
/s/ Emmanuel Lakios |
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Emmanuel Lakios |
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President and Chief Executive Officer |
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(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 March 31, 2023 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.
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Dated: May 15, 2023 |
/s/ Richard Catalano |
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Richard Catalano |
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Vice President and |
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Chief Financial Officer |
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(Principal Financial Officer) |