# CVD Equipment Corp: Form 10-Q for the period ended Mar 31, 2023

- Company: [CVD Equipment Corp](/companies/cvv.md) (CIK 766792)
- Form: 10-Q
- Filed: 2023-05-15
- Accepted by EDGAR: May 15, 2023, 16:02 ET
- Period: 2023-03-31
- Accession: 0001437749-23-014555
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/766792/000143774923014555/cvv20230331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/766792/000143774923014555/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Cost of revenue | 3 months, 2023-01-01 to 2023-03-31 | $6.3m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-01-01 to 2023-03-31 | $2.4m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-01-01 to 2023-03-31 | $602.0k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-01-01 to 2023-03-31 | −$187.0k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-01-01 to 2023-03-31 | $6.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-01-01 to 2023-03-31 | $2.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-01-01 to 2023-03-31 | −$40.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.01 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-01-01 to 2023-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-01-01 to 2023-03-31 | 6,773,285,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-01-01 to 2023-03-31 | −$3.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-01-01 to 2023-03-31 | $146.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-31 | $11.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-31 | $20.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-31 | $34.8m | us-gaap:Assets |
| Current liabilities | at 2023-03-31 | $4.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-31 | $5.2m | us-gaap:Liabilities |
| Long-term debt | at 2023-03-31 | $329.0k | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2023-03-31 | $29.6m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 20,150 characters.

*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:*

- *competition in our existing and potential future product lines of business, including our PVT150 system;*
- *our ability to attract and retain key personnel and employees;*
- *our ability to obtain financing on acceptable terms if and when needed;*
- *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;*
- *uncertainty as to our future profitability;*
- *uncertainty as to any future expansion of the Company; and*
- *uncertainty as to our ability to adequately obtain raw materials and components from foreign markets in light of geopolitical developments.*
- *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).

|  | March 31 2023 | 2022 | Change | Percent |
| --- | ---: | ---: | ---: | ---: |
| Revenue | $8,695 | $4,656 | $4,039 | 87% |
| Cost of revenue | 6,261 | 3,886 | 2,375 | 61% |
| Gross profit | 2,434 | 770 | 1,664 | 216% |
| Gross profit percentage | 28.0% | 16.5% | 41.2% |  |
| Operating expenses: |  |  |  |  |
| Research and development | 602 | 310 | 292 | 94% |
| Selling | 419 | 273 | 146 | 53% |
| General and administrative | 1,600 | 1,157 | 443 | 38% |
| Total operating expenses | 2,621 | 1,740 | 881 | 51% |
| Operating loss | (187) | (970) | 783 | (81%) |
| Other income (expense): |  |  |  |  |
| Interest income | 120 | 18 | 102 | \* |
| Interest expense | (6) | (9) | 3 | \* |
| Foreign exchange income (expense) | 27 | (36) | 63 | \* |
| Other income (expense) | 8 | - | 8 | \* |
| Total other income (expense), net | 149 | (27) | 176 | \* |
| Loss before income taxes | (38) | (997) | 959 | (96%) |
| Income tax expense | 2 | - | 2 | \* |
| Net loss | $(40) | $(997) | $957 | (96%) |
| Revenue |  |  |  |  |
| CVD Equipment | $5,845 | $2,827 | $3,018 | 107% |
| SDC | 2,312 | 1,415 | 897 | 63% |
| CVD Materials | 667 | 458 | 209 | 46% |
| Intersegment sales elimination | (129) | (44) | (85) | \* |
| 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.

## Controls and procedures

As filed, 2,158 characters.

*Evaluation of Disclosure Controls and Procedure*s

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

### Item1. Legal Proceedings.

None.

### 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.

Filed May 15, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-014555. Last ingested by Listed: Nov 5, 2026, 19:56 ET. No prices; not investment advice.