cvv20220630_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☑

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____ to _____

Commission file number: 1-16525

CVD EQUIPMENT CORPORATION

(Name of Registrant in Its Charter)

New York	11-2621692

*State or Other Jurisdiction of* *Incorporation or Organization)*	*(I.R.S. Employer Identification No.)*

355 South Technology Drive Central Islip, New York 11722


*(Address of principal executive offices)*

(631) 981-7081
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CVV	NASDAQ Capital Market

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. Yes ☑ No☐

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). Yes ☑ No☐

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company ☑	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,728,938 shares of Common Stock, $0.01 par value at August 8, 2022.

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Index

Part I - Financial Information

Item 1 – Condensed Consolidated Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021	3

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021	4

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021	5

Condensed Consolidated Statements of Cash Flows for the three and six months ended June 30, 2022 and 2021	6

Notes to Condensed Consolidated Financial Statements	7

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	31
Item 4 – Controls and Procedures	31

Part II - Other Information

Item 1 – Legal Proceedings	32
Item 1A-Risk Factors	32
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3 – Defaults Upon Senior Securities	32
Item 4 – Mine Safety Disclosures	32
Item 5 – Other Information	32
Item 6 – Exhibits	33

Signatures	34

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

	(Unaudited)
	June 30, 2022		December 31, 2021
ASSETS
Current assets
Cash and cash equivalents	$	12,159,052	$	16,651,371
Accounts receivable, net		2,572,192		1,446,354
Contract assets		4,255,400		2,538,373
Inventories, net		2,050,405		1,225,015
Taxes receivable		-		715,599
Other current assets		529,264		493,788


Total current assets		21,566,313		23,070,500

Property, plant and equipment, net		12,334,374		12,261,321
Intangible assets, net		205,258		182,838
Other assets		9,570		9,570
Total assets	$	34,115,515	$	35,524,229


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,422,072	$	1,161,381
Accrued expenses		1,857,317		1,758,939
Current maturities of long-term debt		-		1,765,508
Contract liabilities		3,296,062		1,650,426
Total current liabilities		6,575,451		6,336,254

Total liabilities		6,575,451		6,336,254



Stockholders’ Equity:

Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,728,938 at June 30, 2022 and 6,723,438 at December 31, 2021		67,289		67,234
Additional paid-in capital		27,465,930		27,277,154
Retained earnings		6,845		1,843,587
Total stockholders’ equity		27,540,064		29,187,975

Total liabilities and stockholders’ equity	$	34,115,515	$	35,524,229

The accompanying notes are an integral part of these condensed consolidated financial statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Revenue	$	5,808,588		$	4,034,408		$	10,460,820		$	7,400,268

Cost of revenue		4,367,472			3,037,280			8,253,647			5,958,834

Gross profit		1,441,116			997,128			2,207,173			1,441,434

Operating expenses
Research and development		569,194			430,754			879,401			741,708
Selling and shipping		332,261			229,147			604,940			364,902
General and administrative		1,396,506			1,420,151			2,589,955			3,036,535

Total operating expenses		2,297,961			2,080,052			4,074,296			4,143,145

Operating loss		(856,845	)		(1,082,924	)		(1,867,123	)		(2,701,711	)

Other income (expense):
Interest income		12,647			403			30,929			1,626
Interest expense		-			(107,000	)		(5,344	)		(214,221	)
Gain on debt extinguishment		-			2,443,418			-			2,443,418
Other income		5,621			217,592			5,621			436,827

Total other income, net		18,268			2,554,413			31,206			2,667,650

(Loss) income before income tax		(838,577	)		1,471,489			(1,835,917	)		(34,061	)

Income tax expense		825			1,064			825			1,064

Net (loss) income	$	(839,402	)	$	1,470,425		$	(1,836,742	)	$	(35,125	)

Basic (loss) income per common share	$	(0.12	)	$	0.22		$	(0.27	)	$	(0.01	)
Diluted (loss) income per common share	$	(0.12	)	$	0.22		$	(0.27	)	$	(0.01	)

Weighted average common shares Outstanding-basic		6,728,938			6,684,281			6,726,990			6,682,347

Weighted average common shares Outstanding-diluted		6,728,938			6,687,229			6,726,990			6,682,347

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

(Unaudited)

Three months ended June 30, 2022 and 2021
	Common stock
	Shares		Par Value		Additional paid-in Capital		Retained Earnings/ (Accumulated Deficit)			Total


Balance at April 1, 2022		6,728,938	$	67,289	$	27,374,209	$	846,247		$	28,287,745
Net loss		-		-		-		(839,402	)		(839,402	)
Stock-based compensation		-		-		91,721		-			91,721
Balance at June 30, 2022		6,728,938	$	67,289	$	27,465,930	$	6,845		$	27,540,064

Balance at April 1, 2021		6,684,281	$	66,842	$	27,012,001	$	(4,408,448	)	$	22,670,395
Net income		-		-		-		1,470,425			1,470,425
Stock-based compensation		-		-		62,078		-			62,078
Balance at June 30, 2021		6,684,281	$	66,842	$	27,074,079	$	(2,938,023	)	$	24,202,898

Six months ended June 30, 2022 and 2021
	Common stock
	Shares		Par Value		Additional paid-in Capital		Retained Earnings / (Accumulated Deficit)			Total


Balance at January 1, 2022		6,723,438	$	67,234	$	27,277,154	$	1,843,587		$	29,187,975
Net loss		-		-		-		(1,836,742	)		(1,836,742	)
Stock-based compensation		5,500		55		188,776		-			188,831
Balance at June 30, 2022		6,728,938	$	67,289	$	27,465,930	$	6,845		$	27,540,064

Balance at January 1, 2021		6,678,698	$	66,786	$	26,961,684	$	(2,902,898	)	$	24,125,572
Net loss		-		-		-		(35,125	)		(35,125	)
Stock-based compensation		5,583		56		112,395		-			112,451
Balance at June 30, 2021		6,684,281	$	66,842	$	27,074,079	$	(2,938,023	)	$	24,202,898

The accompanying notes are an integral part of these condensed consolidated financial statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(1,836,742	)	$	(35,125	)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on debt extinguishment		-			(2,443,418	)
Stock-based compensation		188,831			112,451
Depreciation and amortization		402,305			429,195
(Increase)/decrease in operating assets:
Accounts receivable		(1,125,838	)		(99,723	)
Contract assets		(1,717,027	)		(572,101	)
Inventories		(825,390	)		(173,363	)
Tax receivable		715,599			-
Other current assets		(35,476	)		239,345
Increase/(decrease) in operating liabilities:
Accounts payable		260,691			92,798
Accrued expenses		98,378			384,654
Contract liabilities		1,645,636			214,414

Total adjustments		(392,291	)		(1,815,748	)
Net cash used in operating activities		(2,229,033	)		(1,850,873	)

Cash flows from investing activities:
Net proceeds from sale of assets		10,000			-
Capitalized patents costs		(47,423	)		-
Capital expenditures		(460,355	)		(118,471	)
Net cash used in investing activities		(497,778	)		(118,471	)

Cash flows from financing activities
Payments of long-term debt		(1,765,508	)		(342,095	)
Net cash used in financing activities		(1,765,508	)		(342,095	)

Net decrease in cash and cash equivalents		(4,492,319	)		(2,311,439	)

Cash and cash equivalents at beginning of period		16,651,371			7,699,335

Cash and cash equivalents at end of period	$	12,159,052		$	5,387,896

Supplemental disclosure of cash flow information:
Income taxes paid	$	-		$	1,064
Interest paid	$	8,157		$	214,221

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 and six months ended June 30, 2022 are not necessarily indicative of the results that can be expected for the year ending December 31, 2022.

The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 31, 2022, 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. In addition, 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).

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

In accordance with FASB ASC 606 - Revenue from Contracts with Customers ("ASC 606"), the Company records revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services promised to its customers. Under ASC 606, the Company follows a five-step model to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price for the contract; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue using one of the following two methods:

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Over time

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within three to eighteen months from commencement of order acceptance. The Company recognizes revenue from system sales over time by using an input method based on costs incurred as it depicts the Company’s 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 supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process, and installed, as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

“Contract assets,” include unbilled amounts typically resulting from system sales under contracts and represents revenue recognized that exceeds the amount billed to the customer.

“Contract liabilities,” include advance payments and billings in excess of revenue recognized. The Company typically receives down payments upon receipt of order and progress payments as the system is manufactured.

Contract assets and contract liabilities are classified as current as these contracts in progress are expected to be substantially completed within the next twelve months.

Point in time

For non-system sales of products and services, the revenue is recognized at the point in time when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606, “Revenue from Contracts with Customers”.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Standards

In June 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. On November 15, 2019, the FASB delayed the effective date for smaller reporting companies. The amendments in this update are now effective for fiscal years beginning after December 15, 2022 and interim periods within those annual periods. Management is currently evaluating the effect of this update on the Company’s consolidated financial statements and currently believes it should not have a material impact.

The Company believes there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of its financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.

NOTE 3: CONCENTRATION OF CREDIT RISK

Cash and cash equivalents

The Company had cash and cash equivalents of $12.2 million and $16.7 million at June 30, 2022 and December 31, 2021, respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents were $7.0 million at both June 30, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021 was $4.1 million and $8.6 million, respectively.

Sales concentration

Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended June 30, 2022, two customers exceeded 10% of revenues, representing 24.3% and 14.8% of revenues, and during the six months ended June 30, 2022 two customers exceeded 10%, representing 16.2% and 12.2% of revenues. During the three months ended June 30, 2021, three customers exceeded 10% of revenues, representing 17.3%, 12.9% and 11.2% of revenues, and during the six months ended June 30, 2021, one customer exceeded 10%, representing 18.0% of revenues.

NOTE 3: CONCENTRATION OF CREDIT RISK (continued)

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. The Company also maintains allowances for anticipated losses. At June 30, 2022, three customers exceeded 10% of the accounts receivable balance representing in the aggregate 54.1%, and at December 31, 2021 two customers exceeded 10% of the accounts receivable balance, representing in the aggregate 50.0% of the accounts receivable balance.

NOTE 4: REVENUE DISAGGREGATION

The following table represents a disaggregation of revenue for the three and six months ended June 30, 2022 and 2021 (in thousands):

	Three Month's Ending June 30, 2022

	Over time		Point in time		Total
Aerospace	$	-	$	520	$	520
Energy, storage and transmission		2,024		219		2,243
Industrial		1,450		725		2,175
Research		299		572		871
Total	$	3,773	$	2,036	$	5,809

	Three Month's Ending June 30, 2021

	Over time		Point in time		Total
Aerospace	$	197	$	577	$	774
Energy, storage and transmission		-		-		-
Industrial		1,226		1,293		2,519
Research		365		376		741
Total	$	1,788	$	2,246	$	4,034

NOTE 4: REVENUE DISAGGREGATION (continued)

	Six Month's Ending June 30, 2022

	Over time		Point in time		Total
Aerospace	$	-	$	1,221	$	1,221
Energy, storage and transmission		2,923		226		3,149
Industrial		2,446		1,597		4,043
Research		1,005		1,043		2,048
Total	$	6,374	$	4,087	$	10,461

	Six Month's Ending June 30, 2021

	Over time		Point in time		Total
Aerospace	$	386	$	1,102	$	1,488
Energy, storage and transmission		-		-		-
Industrial		2,595		1,969		4,564
Research		552		796		1,348
Total	$	3,533	$	3,867	$	7,400

The Company has unrecognized contract revenue of approximately $12.8 million at June 30, 2022, which it expects to substantially recognize as revenue within the next twelve months.

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 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 DISAGGREGATION (continued)

Contract Assets and Liabilities

During the six months ended June 30, 2022 and 2021, the increase in contract assets of approximately $1.7 million and $.6 million, respectively, was the result of work performed in excess of billings which are based upon project milestones.

Contract assets and contract liabilities on input method type contracts in progress are summarized as follows:

	2022
Costs incurred on contracts in progress	$	8,822,284
Estimated earnings		6,151,767
		14,974,051
Billings to date		(13,683,261	)
	$	1,290,790
Deferred revenue related to non-systems contracts		(331,452	)
		959,338
Included in accompanying balance sheets
Under the following captions:
Contract assets	$	4,255,400
Contract liabilities	$	(3,296,062	)

NOTE 5: INVENTORIES, NET

Inventories consist of:

	June 30, 2022		December 31, 2021

Raw materials	$	1,366,405	$	1,030,955
Work-in-process		684,000		194,060
Inventories	$	2,050,405	$	1,225,015

NOTE 6: ACCOUNTS RECEIVABLE, NET

Accounts receivable are presented net of an allowance for doubtful accounts of approximately $36,000 and $59,000 as of June 30, 2022 and December 31, 2021, respectively. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.

NOTE 7: LONG-TERM DEBT

The Company had a loan agreement with HSBC which was secured by a mortgage against its Central Islip, NY Headquarters. The loan was payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity on March 1, 2022. The balance as of December 31, 2021 was approximately $1.8 million. Interest accrued on the Loan, at the Company’s option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5% (1.86% at December 31, 2021). According to the terms of the agreement the loan was satisfied on March 1, 2022.

NOTE 8: STOCK-BASED COMPENSATION EXPENSE

The Company recorded $91,721 and $188,831 during the three and six months ended June 30, 2022, respectively, and recorded $62,078 and $112,451 during the three and six months ended June 30, 2021, respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments. The following table summarizes the compensation expense recorded for the three and six months ended June 30, 2022 and 2021 related to stock-based compensation.

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Cost of revenue	$	8,440	$	-	$	16,880	$	-
Research and development		13,417		-		26,316		-
Selling and shipping		5,398		-		10,796		-
General and administrative		64,466		62,078		134,839		112,451

Total	$	91,721	$	62,078	$	188,831	$	112,451

NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)

A summary of the stock option activity related to the 2007 Share Incentive Plan and the 2016 Share Incentive Plan for the period from January 1, 2022 through June 30, 2022 are as follows:

2007 Share Incentive Plan
	Beginning		Granted		Exercised		Canceled			Ending
	Balance		During		During		During			Balance
	Outstanding		Period		Period		Period			Outstanding		Exercisable

Number of shares		220,000		-		-		(25,000	)		195,000		195,000
Weighted average exercise price per share	$	12.56		-		-	$	15.00		$	12.24	$	12.24

2016 Share Incentive Plan
	Beginning		Granted		Exercised		Canceled			Ending
	Balance		During		During		During			Balance
	Outstanding		Period		Period		Period			Outstanding		Exercisable

Number of shares		398,500		12,500		-		(6,500	)		404,500		102,500
Weighted average exercise price per share	$	4.43	$	4.60		-	$	4.01		$	4.44	$	5.33

For the six months ended June 30, 2022, the Company granted 12,500 stock options, vesting 25% per year over four years, with a ten-year life. The Company determined the fair value of stock options granted during the six months ended June 30, 2022 was $2.81 and is based upon weighted average assumptions as provided below.

Stock Price	$	4.60
Exercise Price	$	4.60
Dividend yield		0	%
Expected volatility		68	%
Risk-Free interest rate		1.79	%
Expected life (in years)		6.00

The Company has a total of 599,500 outstanding stock options, of which 297,500 were exercisable under the two plans at June 30, 2022.

NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)

The following table summarizes information about the outstanding and exercisable options at June 30, 2022.

				Options Outstanding								Options Exercisable
						Weighted		Weighted						Weighted
						Average		Average						Average
*Exercise*				*Number*		*Remaining*		*Exercise*		*Intrinsic*		*Number*		*Exercise*		*Intrinsic*
*Price Range*				*Outstanding*		*Contractual*		*Price*		*Value*		*Exercisable*		*Price*		*Value*
	$4.00	-	7.00		384,500		8.8	$	4.25	$	0		82,500	$	4.66	$	0
	$7.01	-	10.00		20,000		5.8	$	8.07	$	0		20,000	$	8.07	$	0
	$10.01	-	12.00		120,000		4.7	$	10.52	$	0		120,000	$	10.52	$	0
	$12.01	-	15.00		75,000		.2	$	15.00	$	0		75,000	$	15.00	$	0

No options were exercised during the six months ended June 30, 2022. As of June 30, 2022, there was $644,000 of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 3.0 years.

Restricted Stock Awards

There were no unvested shares of restricted stock at June 30, 2022 and December 31, 2021. During the three and six months ended June 30, 2022 there were no grants of restricted stock.

Pursuant to the director compensation plan approved on October 11, 2021, each director is entitled to Director Compensation for an Annual Equity Retainer in the amount of $40,000, to be automatically granted on the date of the Company’s annual meeting of shareholders. The directors may elect to receive payment in restricted stock, stock options or a combination thereof.

Restricted Stock Units

The following table summarizes activity related to outstanding restricted stock units for the six months ended June 30, 2022:

				Weighted
	Shares of			Average Grant
	Restricted			Date Fair
	Stock Units			Value
Unvested outstanding at December 31, 2021		5,500		$	4.82
Granted		-		$	-
Vested		(5,500	)	$	4.82
Forfeited/Cancelled		-		$	- -

Unvested outstanding at June 30, 2022		-		$	-

The total fair value of vested restricted stock units was $3,458 for the six months ended June 30, 2022. As of June 30, 2022, there was no unrecognized compensation costs related to restricted stock units.

NOTE 9: INCOME TAXES

As of June 30, 2022 and December 31, 2021, the Company has provided a full valuation allowance against all of the net deferred tax assets. This was based on management’s assessment, including the last two 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 deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections and timing of orders, and cost containment measures.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted by the United States Congress. As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) generated in 2018-2020 could be carried back for five years and resulted in the Company recognizing approximately $1.5 million of a tax benefit, of which $.7 million was a receivable at December 31, 2021. This tax receivable was collected in March 2022.

NOTE 10: EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Basic weighted average common shares outstanding		6,728,938		6,684,281		6,726,990		6,682,347
Dilutive effect of options and unvested restricted shares		-		2,948		-		-
Diluted weighted average shares outstanding		6,728,938		6,687,229		6,726,990		6,682,347

NOTE 10: EARNINGS PER SHARE (continued)

The following table represents common stock equivalents that were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2022 and 2021, because the effect of their inclusion would be anti-dilutive.

	Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021

Stock Options		599,500		557,052		599,500		560,000
		599,500		557,052		599,500		560,000

Stock options to purchase 599,500 shares of common stock were outstanding and 297,500 were exercisable during the three and six months ended June 30, 2022.

The dilutive potential common shares on options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market value. The number of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.

NOTE 11: SEGMENT REPORTING

The Company operates through three segments: CVD Equipment (“CVD”), Stainless Design Concepts (“SDC”) and CVD Materials (“Materials”). The CVD segment manufactures and sells chemical vapor deposition equipment. SDC is the Company’s ultra-high purity manufacturing division for gas control systems. The Materials segment provides material coatings for aerospace, medical, electronic and other applications. 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 Eliminations and Unallocated column. These activities primarily include the elimination of intercompany sales and profit, expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense.

NOTE 11: SEGMENT REPORTING (continued)

Three Months Ended June 30,

(In thousands)

								Eliminations* and
2022	CVD			SDC		Materials		Unallocated			Consolidated
Assets	$	23,661		$	8,474	$	1,913	$	68		$	34,116

Revenue		3,782			1,591		816		(380	)		5,809
Operating (loss) income		(469	)		227		143		(758	)		(857	)
Pretax (loss) income		(451	)		227

SEC Form 10-Q filed by CVD Equipment Corporation