UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

Form 10-K

For the fiscal year ended December 31, 2023

For the transition period from ___ to _____

Commission file number: 1-16525

CVD EQUIPMENT CORPORATION

(Exact name of registrant as specified in its charter)

355 South Technology DriveCentral Islip, New York11722

(Address including zip code of registrant’s Principal Executive Offices)

(631)981-7081

(Registrant’s Telephone Number, Including Area Code)

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

Securities registered underpursuant to Section 12(g) of the Act:
None

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☑ ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑ ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13or 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 and posted on its corporate Website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months/(ormonths (or for such shorter period that the registrant was required to submit and post such files).Yes ☑. Yes☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $44,511,547$48,002,094 at June 30, 20162023.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 6,363,6906,824,511 shares of Common Stock, $0.01 par value at March 15, 2017.25, 2024.

DOCUMENTS INCORPORATED BY REFERENCE: None.None.

PART I

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, this Annual Report on Form 10-K 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; our ability to obtain financing on acceptable terms if and when needed; uncertainty as to our future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company.

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.

Item 1.DescriptionYou should not place undue reliance on any forward-looking statements, which speak only as of Business.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.

Definitions

The use of the words “CVD,” “we,” “us”“us,” or “our”“our,” refers to CVD Equipment Corporation, a New York corporation incorporated on October 13, 1982, and its wholly owned subsidiaries, CVD Materials Corporation (including its wholly owned subsidiarysubsidiaries, and CVD MesoScribe Technologies Corporation and Tantaline CVD Holding ApS, collectively “CVD Materials”), and FAE Holdings 411519R LLC except where the context otherwise requires.

Overview

CVD has served the advanced materials markets with chemical vapor deposition, physical vapor transport and thermal process equipment for over 40 years. We are headquartered in Central Islip, New York with one other location in Saugerties, New York.

We design, develop, and manufacture 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 researchthe compound semiconductor, semiconductor, aerospace, battery energy storage markets as well as advanced industrial applications, and industrial applications. This equipment is used byresearch.

We conduct our customers to research, design,business through three reportable operating segments: i) CVD Equipment that supplies chemical vapor deposition, physical vapor transport and manufacture these materials or coatings for aerospace engine components, medical implants, semiconductors, solar cells, smart glass, carbon nanotubes, nanowires, LEDs, MEMSthermal process equipment; ii) SDC that designs and other applications. Throughmanufactures ultra-high purity gas and chemical delivery control systems; and iii) CVD Materials that provide products related to advanced materials and coatings.

Developments

On May 26, 2023, we sold our Application Laboratory, we provide material coatings, process development supportTantaline subsidiary located in Nordborg, Denmark in exchange for a nominal amount at closing and process startup assistance withan earn-out provision based on any net income that Tantaline may earn during the five-year period ending December 31, 2027. The decision to sell Tantaline was based on our ongoing strategy to focus on enabling tomorrow’s technologies^TM.the equipment business consisting of the CVD Equipment and SDC segments and reduce its focus on the non-core CVD Materials business.

On August 8, 2023, we entered into an agreement with a third party to sell certain assets and license certain propriety information of MesoScribe. We will continue to fulfill remaining orders for MesoScribe products through the end of 2024 at which time we plan to cease the remaining operations of MesoScribe and dispose of any remaining equipment.

The decisions to sell our Tantaline subsidiary and wind down the operations of MesoScribe were based on our ongoing strategy to focus on the equipment business consisting of the CVD Equipment and SDC segments.

Key Company Strengths

Based on more than 3440 years of equipment experience, we use our engineering, manufacturing andcapabilities in process development, engineering, and vertical manufacturing to transform newemerging applications into leading-edgemainstream manufacturing solutions. This enables university, research and industrial scientists at the cutting edge of technology to develop next generation aerospace, medical, solar, nano, LEDs, semiconductors and other electronic components. We develop, manufacture and provide equipment for research and production based on our proprietary designs.

We have built a significant library of design expertise, know-how and innovative solutions to assist our customers in developing these intricate processes and to accelerate their production and commercialization. This library of equipment design solutions, along with our vertically integrated manufacturing and systems integration facilities, allows us to provide superiorapplication-specific design, process, and manufacturing solutions to our customers on a cost effective basis.customers.

Our strategy is to target opportunities in the research and development and production equipment market, with a focus on higher-growth applications such as aerospace, medical, solar, smart glass, carbon nanotubes, nanowires, graphene, MEMS and LEDs. To expand our penetration into these growth markets, we have developed a line of proprietary standard products and custom systems. Historically, we manufactured products on a custom, one-at-a-time basis to meet an individual customer’s specific research requirements. Our new proprietary systems leverage the technological expertise that we have developed through designing these custom systems onto a standardized basic core. This core is easily adapted through a broad array of available add-on options to meet the diverse product and budgetary requirements of the research community. By manufacturing the basic core of these systems in higher volumes, we are able to reduce both the cost and delivery time for our systems. These systems, which we market and sell under the EasyTube® product line, are sold to researchers at universities, research laboratories, and startup companies in the United States and throughout the world.

Sales of our proprietary standard, custom systems and process solutions have been driven by our installed customer base, which includes several Fortune 500 companies. The strong performance and success of our products has historically driven repeat orders from existing customers, as well as business from new customers. However, with our proprietary solutions and expanded focus on “accelerating the commercialization of tomorrow’s technologies”^TM we have been developing a new customer base in addition to growing with our existing customers. We have generally gained new customers through word of mouth, limited print advertising and trade show attendance. We are now also gaining new customers by their awareness of our company in the marketplace with results from our Application Laboratory, partnerships with startup companies, increased participation in trade shows and expanded internet advertising.

The core competencies we have developed in equipment and software design, as well as in systems manufacturing and process solutions,development are used to engineer our finished products and to accelerate the commercialization path of our customer base. Our proprietary-real-time,proprietary real-time software allows for rapid configuration, and provides our customers with powerfulenabling tools to understand, optimize and repeatedly control their processes. Our vertically integrated structure allows us to control the manufacturing process, from bringing raw metal and components into our manufacturing facilities to shipping out finished products. These factors significantly reduce cost, improve quality, and reduce the time it takes from customer order tobetween customers’ orders and the shipment of our products. Our Application Laboratory allows selected customers the option to testbring their process tools into our Application Laboratorylaboratory and to work togethercollaboratively with our scientists and engineers to optimize process performance.

To expand our presence into our major target markets, we are developing a line of proprietary standard use products to complement our customized legacy systems. Historically, we manufactured products for research and development on an application-specific basis to meet an individual customer’s specific research and production requirements. Our proprietary systems leverage the technological expertise that we have developed through designing these custom systems into a broader standardized product line. The standard product line can be configured from a wide range of available options to meet diverse product and budgetary requirements. Manufacturing these standardized systems in higher volumes may provide us the flexibility to reduce both the cost and delivery time of our systems. These systems, which we market and sell under the CVD, FirstNano and EasyTube® product names, are sold to commercial companies, universities and research laboratories in the United States and throughout the world.

Sales of our proprietary standard systems, custom systems and process solutions have been driven by our installed customer base, which includes Fortune 500 companies. The performance and success of our products has historically driven repeat orders from existing customers as well as generated business from new customers. Furthermore, with our proprietary solutions and expanded focus on “enabling tomorrow’s technologies”^TM we have been developing a new customer base in addition to growing with our existing customers.

Key Growth Strategies

Our core strategy is to focus on growth market applications in end markets related to the “electrification of everything,” aerospace and industrial applications. The phrase “electrification of everything” refers to the shift from fossil fuels to the use of electricity to power devices, buildings, electric vehicles (“EVs”), and many other applications. With respect to aerospace, our systems are being used by our customers to produce ceramic matrix composite materials (“CMCs”) that will be used in next generation gas turbine jet engines with the objective of reducing jet fuel consumption and contributing to the decarbonization of that industry.

Business DevelopmentsOur current strategy yielded multisystem orders of PVT150 equipment that was delivered to one company that manufactures silicon carbide wafers.

On December 16, 2016,In February 2024, we purchased certain assets formerly owned by Tantaline A/Sreceived an order from an additional customer for our new PVT200 system used to grow silicon carbide crystals for the manufacture of Nordborg, Denmark (“Tantaline A/S”)200 mm wafers. This represents our second customer for our PVT equipment. This customer plans to evaluate our equipment for potential additional purchases of PVT equipment. We have also received orders from OneD Battery Materials in 2023, a company that is engaged in providing battery nanomaterials.

Both technologies are essential for the support of the EV market. These systems should provide us with standard product offering to continue to support the EV focused market as well as energy storage, power conversion and power transmission. We plan to expand our product offerings in the power electronics market to build off the introduction of the PVT150 and PVT200 systems. We are also evaluating our ability to provide other equipment used in the manufacturing process of silicon carbide wafers.

During 2022, we also received an order from an aerospace company for a production chemical vapor infiltration (CVI) system that will be used to manufacture CMCs for gas turbine jet engines. In 2023, we received an order from the same aerospace company for an additional three CVI systems.

In February 2024, we received a multisystem order from an industrial customer for approximately $10 million that will be used for depositing a silicon carbide protective coating on OEM components.

We have generally gained new customers through our industry reputation, as well as limited print advertising and trade show attendance. We have increased the number of trade shows and industry conferences in 2023. In addition, we added to our sales and marketing team in 2022 and expanded our sales team in early 2023.

Major Target Markets

Our major target markets are high power electronics, EV battery materials / energy storage and aerospace, defense and industrial applications – all of which have the objective of improving energy efficiency.

High Power Electronics

Demand for silicon carbide wafers to support high power electronics for energy storage and transmission/charging resulted in a multi-system order from a US-based, silicon carbide wafer manufacturer. Through December 31, 2023, we have received and delivered orders for 30 of our PVT150 physical vapor transport systems from one customer, which uses our systems to grow silicon carbide crystals that are made into 150 mm silicon carbide wafers for use in power electronics. In late 2023, we launched our PVT200 system designed to manufacture silicon carbide crystals for 200 mm wafer and received our first order from a second customer. We plan to expand our marketing and future product development for the PVT product line as well as expand our product offerings to manufacturers of silicon carbide wafers.

EV Battery Materials / Energy Storage

We have experienced increased interest and demand for nanotechnology materials including carbon nanotubes (CNTs), graphene and silicon nanowires (Si-NWs) to support the development and manufacturing for battery materials used in electric vehicles. We received two system orders in 2021 to deposit coatings onto powders used in silicon-graphite anodes, including a production system and a second for research and material development. We received additional system orders from this customer in 2023 that were completed during 2023.

Aerospace & Defense

CVD is a leading manufacturer of CVI and tow-coating systems to manufacture CMCs for aerospace gas turbine jet engine applications. Our customers include two of the leaders in aerospace gas turbine engines.

We continue to engage customers in the aerospace market regarding CMCs. During 2022, we received an order for a production CVI system valued at approximately $3.7 million. We received an additional order for three CVI systems during 2023 from the same customer. These systems will be used to manufacture CMCs for aerospace gas turbine jet engines.

We believe our future growth will be derived from production applications in our major target markets. Our legacy product line continues to provide advanced equipment and subsystems to enable development of emerging technology and research applications.

Our major targeted markets are further described as follows (the term “legacy product” refers to products and systems within our product offerings that we have produced in our history):

Our wholly owned subsidiary, CVD Materials. Formed in 2007, as a spin off from The Danfoss Group, Tantaline A/S established itself as a leader inMaterials Corporation, includes our MesoScribe product lines. Our MesoScribe product line supports the commercialization of tantalum treated parts for corrosion resistance.aerospace and defense markets with novel robust direct write instrumentation. We have now established in Denmark a new and wholly owned CVD subsidiary operating under the name Tantaline CVD ApS (“Tantaline”).

This asset acquisition was a significant step in our strategic plan to leverage our equipment know-how and proven abilitywind down the operations of MesoScribe in 2024 after satisfaction of customer purchase orders.

Bookings

During 2023, bookings of new orders from customers was approximately $25.8 million, representing a decrease of approximately 22.1% compared to scale up deposition processes into offering high value added materials, products and services. This innovative tantalum chemical vapor technology, called Tantaline® treatment, is used2022 bookings of $33.1 million. The decline in bookings was related to create a tantalum surface alloy on parts including valves, fittings, autoclaves, process chambers, flow reactors, fasteners, mixers, flowmeters, and medical devices,$8.8 million of orders of PVT150 systems that were received in 2022 as well as other parts that are pronecompared to corrosionno such orders in harsh environments. These parts are used across a broad range of industries including chemical processing, oil & gas, mining, pharmaceutical, and medical. In hot corrosive acidic environments (>150°C) such as sulfuric, nitric, and hydrochloric acids, Tantaline® treated parts outperform most high priced specialty alloys nearly at the level of more expensive solid tantalum parts. Tantaline® treatment therefore provides solid tantalum like superior corrosion resistance at a lower part cost. We believe that the acquisition of these assets will further CVD’s corrosion resistant technology and applications base and provide access to new markets and applications. Additionally, sales and manufacturing operations in Denmark expand our geographic footprint.2023.

OperatingSegmentsUnits

In 2016, we conducted our operations through two divisions: (1) CVD/First Nano, and (2) Stainless Design Concepts (“SDC”). Each division operates with divisional management supported by product development, sales and administration which are managed at the corporate level.

With the acquisition of certain assets formerly owned by Tantaline A/S, we set up Tantaline, a wholly owned subsidiary of CVD Materials where we operate a facility in Denmark. There was minimal activity in 2016 and is included in CVD/First Nano.

CVD/First NanoCVD Equipment - supplies state-of-the-art chemical vapor deposition and thermal process equipment targeting growth production markets as well as systems for use in research and development. This includes systems marketed under the research, developmentFirstNano product brand. Utilizing our over 40 years of expertise in the design and manufacturingmanufacture of chemical vapor deposition and thermal process equipment, we provide material processing capability and control at a competitive cost of ownership.

The targeted growth production markets include high power electronics (both silicon carbide (SiC) and gallium nitride (GaN)), aerospace advanced materials primarily for gas turbine jet engines, and medical components,nanomaterials used in batteries. The product group also consists of legacy products serving the production and R&D applications such as semiconductors, LEDs, carbon nanotubes, nanowires, solar cells and a number of other industrial & research applications. We utilize

Our developments and opportunities for the carbon composite business come from achievements in our expertise inApplications Laboratory. The Applications Laboratory, along with the designsales and manufacture of chemical vapor deposition systemsmarketing team continue to workexplore carbon-based products and applications that can be made from our CNT, infiltrated carbon/CVI and carbon nano fiber technology (CNF). Some applications include CNT and infiltrated carbon/CVI based battery material and CNF capacitors for 5G technology.

To support new emerging applications, we provide equipment to and collaborate with laboratory scientists to bring state-of-the-art processes from the research laboratory into production, as well as to provide production equipment andproduction. CVD Equipment group provides process solutions based on our designs. CVD/First Nano also operatesdevelopment value through our Application Laboratory where our personnel interact effectivelydirectly with the scientists and engineers of our customer base. CVD/First Nanobase to develop solutions to tomorrow’s challenges today. CVD Equipment segment operates out offrom our main135,000 sq. ft. facility in Central Islip, New York.

SSDC DC- designs and manufactures ultra-high purity gas and chemical delivery control systems for state-of-the-art semiconductor fabrication processes, aerospace, solar cells, LEDs, carbon nanotubes, nanowires, and a number of industrial applications. Our SDC products are sold on either a stand-alone basis or together withand are also integrated into certain CVD equipment. This internal supply of chemical and gas delivery systems and components provide a competitive advantage for our CVD/First Nano systems.CVD Equipment group over its competition. SDC operates out offrom a 22,000 square foot facility fitted with Class 10 and Class 100a clean room manufacturing space located in Saugerties, New York.

Principal Products

Chemical Vapor DepositionCVD Materials - A process which passes a gaseous compound over a target material surface that is heatedconsist of MesoScribe’s direct write printed electronics business. MesoScribe provides MesoPlasma™ printing services and products (heaters, antennas, and sensors) to such a degree that the compound decomposes and deposits a desired layer onto substrate material. The process is accomplished by combining appropriate gases in a reaction chamber, of the kind produced by the Company, at elevated temperatures (typically 150-1,800° Celsius). Our chemical vapor deposition systems are complete and include all necessary instrumentation, subsystems and components and include state-of-the-art process control software. We provide both standard and specifically engineered products for particular customer applications. Some of the standard systems we offer are for silicon, silicon-germanium, silicon dioxide, silicon nitride, polysilicon, liquid phase epitaxial, metalorganic chemical vapor deposition, carbon nanotubes, graphene nanowires, solar cell research and solar material quality control.

Chemical Vapor Deposition Systems - Used in a variety of models for laboratory research and production. All models are offered with total system automation, a microprocessor control system by which the user can measure, predict and regulate gas flow, temperature, pressure and chemical reaction rates, thus controlling the process in order to enhance the quality of the materials produced. Our standard microprocessor control system is extremely versatile and capable of supporting the complete product line and most custom system requirements. These chemical vapor deposition systems are typically priced between $80,000 and $1,500,000, but can go significantly higher.

Rapid Thermal Processing (“RTP”) - Used to heat semiconductor materials to elevated temperatures of up to 1,000^° Celsius at rapid rates of up to 200° Celsius per second. Our RTP systems are offered for implant activation, oxidation, silicide formation and many other processes. We offer systems that can operate both at atmospheric or reduced pressures. Our RTP systems are priced up to $600,000.

Annealing and Diffusion Furnaces - Used for diffusion, oxidation, implant anneal, solder reflow, solar cell manufacturingaerospace, satellite, power generation, defense, and other processes. The systemsmarkets requiring high performance. MesoScribe operations are normally operatedlocated at atmospheric and/or reduced pressureour main facility in Central Islip, New York.

On August 8, 2023, we entered into an agreement with gaseous atmospheres relateda third party to the process. An optional featuresell certain assets and license certain proprietary information of the system allows for the heating elementMesoScribe. We will continue to be moved away from the process chamber allowing the wafers to rapidly cool or be heated in a controlled environment. Our cascade temperature control system enables more precise control of the wafers. The systems are equipped with an automatic process controller, permitting automatic process sequencing and monitoring with safety alarm provisions. Our annealing and diffusion furnace systems are priced up to $900,000.

Ultra-high Purity Gas and Liquid Control Systems - Our standard and custom designed gas and liquid control systems, which encompass gas cylinder storage cabinets, custom gas and chemical delivery systems, gas and liquid valve manifold boxes and gas isolation boxes, provide safe storage and handling of pressurized gases and chemicals. Our system design allows for automatic or manual control from both a local and remote location. A customer order often includes multiple systems and can total up to $1,000,000.

Quartz-ware - We provide standard and custom fabricated quartz-ware used in our equipment and other customer tools. We also provide repair and replacement of existing quartz-ware.

Markets and Marketing

Due to the highly technical nature of our products, we believe it is essential to contact customers directly through our sales personnel and through a network of domestic and international independent sales representatives and distributors specializing in the type of equipment we sell. Our primary marketing activities include direct sales contacts, participation in trade shows and our internet websites. We are also focusing our efforts on being in the top listings on many search engines in order to increase the number of “hits” to our websites.

Customers

We are continuing to work on expanding our product offerings. Many of these products are used in research and in production applications. We sell our products primarily to electronic component manufacturers, institutions involved in electronic component research (such as universities, government and industrial laboratories) and to industries such as aerospace that require specialized coatings. We have both a domestic and international customer base with hundreds of installed systems.

Given the complexity of some of the systems we sell, revenue from a single customer in any one year can exceed 10.0% of our total sales. In fiscal years 2016 and 2015 one customer represented 45.3% and 49.6% of our annual revenues respectively. Another customer represented 13.7% of our annual revenues for 2015. The loss of current key customers, if not replaced by others, may have a material adverse effect on our business and financial condition.

For the twelve months ended December 31, 2016, approximately 11.9% of our revenues were generated by sales to customers outside the U.S., compared to 9.0% for the twelve months ended December 31, 2015.

Warranties

Warranties on our equipment can range up to twenty-four months from shipment and we pass along any warranties from original manufacturers of components used in our products. We provide service and support for our installed base of equipment with in-house field service personnel. Warranty costs, including those incurred in fiscal years 2016 and 2015, have been historically insignificant and expensed as incurred.

Competition

We are subject to intense competition. We are aware of other competitors that offer a substantial number of products and services comparable to ours. Many of our competitors (including customers who may elect to manufacture systems for internal use) have financial, marketing and other resources greater than ours. To date, we believe that each of our two operating divisions has been able to compete favorably in markets that include these competitors, primarily on the basis of know-how, technical performance, quality, delivery and price and aftermarket support.

CVD/First Nano competes primarily with in-house design and engineering personnel at research and university laboratories with the capacity to design and build their own equipment internally. Due to budgetary and funding constraints, many of these customers are extremely price sensitive. We believe that our systems are among the most advanced available for the targeted market space.

SDC’s gas management and chemical delivery control systems are among the most advanced available. We further believe that SDC is differentiated from our competitors through our intimate understanding of how the systems in which our products are incorporated are actually used in field applications. We have gained this understanding as a result of having designed and built complex process gas systems for CVD/First Nano as well as for a number of the world’s leading semiconductor, solar manufacturers, research laboratories and universities.

Sources of Supply

Many of the components used in producing our products are purchased from unrelated suppliers. We have OEM status with our suppliers but we are not obligated to purchase a pre-determined quantity. We are not dependent on a principal or major supplier and alternate suppliers are available. Subject to lead times, the components and raw materials we use in manufacturing our products are readily obtainable.

We have a fully-equipped machine shop that we use to fabricate most of our metal components in-house, including the most complex designed parts of our equipment. Our investment in CNC machines for our machine shop has increased our efficiencies while significantly reducing costs in production. Similarly, our quartz fabrication capability is sufficient to meet our quartz-ware needs.

Materials procured from the outside and/or manufactured internally undergo a rigorous quality control process to ensure that the parts meet or exceed our requirements and those of our customers. Upon final assembly, all equipment undergoes a final series of complete testing to ensure maximum product performance.

Backlog

As of December 31, 2016, our order backlog was approximately $27.8 million compared to approximately $6.1 million at December 31, 2015, an increase of $21.7 million, or 355.7%. We received approximately $42.6 million infulfill remaining orders for MesoScribe products through the twelve months ended December 31, 2016 comparedend of 2024 at which time we plan to $24.0 million in orders forcease the twelve months ended December 31, 2015, an increaseremaining operations of $18.6 million or 77.5%. The CVD/First Nano division received orders totaling $39.9 millionMesoScribe and the SDC division received $2.7 million. The December 31, 2016 backlog consistsdispose of $23.3 million or 84% from one customer as a result of multiple orders that are still in process. The increase in backlog is related to an increase in orders, as we focus on new opportunities with new and existing customers. The timing for completion of the backlog varies depending on the product mix and can be as long as two years. Included in the backlog are all accepted purchase orders with the exception of those that are included in our percentage-of-completion. Order backlog is usually a reasonable management tool to indicate expected revenues and projected profits, however, it does notprovide an assurance of future achievement or profits as order cancellations or delays are possible.any remaining equipment.

Intellectual Property

Our success is dependent, in part onupon the development and protection of our proprietary technology and other proprietary rights. We have historically protectedand continue to protect our proprietary information and intellectual property such as design specifications, blueprints, technical processes, and employee know-how through the use of patents and non-disclosure agreements. In addition, wherethe area of patents, we deem appropriate, webelieve there is value in having protected intellectual property and will continue to file for patent and trademark protection of our proprietary technology and intellectual property that we believe has the potential to be incorporated into our products and can be sold to multiple customers. We also maintain and/or assert rights in certain trademarks relating to certain of our products and product lines and claim copyright protection for certain proprietary software and documentation.

While patent, copyright and trademark protections for our intellectual property are important to different degrees for our various products and solutions, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel and our ability to accelerate the commercialization of next generation intellectual properties. We attempt to protect our trade secrets and other proprietary information through non-disclosure agreements with our customers, suppliers, employees and consultants and other security measures.

Research and Development

We develop new products based on market analysis or by customer request. The university research community is at the forefront of nanotechnologytechnology included in our product development includes mechanical hardware, software and controls systems and overall configuration. We have conducted research and we are focused on providing state-of-the-artdevelopment over the last 40 years and have a wealth of technology from which systems to this market that will help bridge the gap between pioneering research and marketable products. Our Application Laboratory, togethersolutions can be derived from and productized. Together with a number of leading universities and startup companies with whom we partner from time to time, conducts cutting-edgewe conduct research on SiC growth, the growth and infiltration of carbon nanotubes, graphene and nanowires as well as on selected solar cellaerospace manufacturing processes and smart glass coating processes. The results of this research could have far reaching implications concerning the use and manufacture of carbon nanotubes, graphene and nanowires, solar cell and glass coatings for many markets. Our intention is that together with these leadingcustomers and universities, and start-up companies, we will leverage our collective expertise in this field, which we believe will allow us to capitalize on commercial opportunities in the future. This relationship has thus far produced leading edge results,

Products and Technology

Chemical Vapor Deposition/Infiltration – Chemical vapor deposition is a method of coating or growing material through a chemical recombination at elevated temperatures onto or within pores of a substrate material. A single or collection of gases or vapor introduced on to the surface or into pores of a substrate material that is heated to such a degree that the gases decompose and deposits a desired layer onto and or into a substrate material. Chemical vapor infiltration (CVI) is a variant of a chemical vapor deposition process that is performed at low pressures to allow for coating the internal surfaces of a porous material. Using heat and low pressure, precursor vapors penetrate the pores/fiber of the material and deposit to form a conformal coating on the internal surfaces. Both processes are accomplished by combining appropriate gases in a reaction chamber, of the kind we manufacture, at elevated temperatures (typically 500° to 2,500° Celsius). Our chemical vapor deposition and CVI systems are complete and include all necessary heating techniques, precise control instrumentation, gas delivery and abatement subsystems and components and include state-of-the-art proprietary process control software. We provide both standard and emerging applications specified products. Some of the standard systems we offer are for SiC, GaN, Aluminum Nitride (AlN), CMCs, silicon (Si), CNT, graphene, silicon nanowires. The systems are sold under the CVD and FirstNano product brands.

Physical Vapor Transport (PVT) – While the PVT150 was officially launched for production in 2022, we have sold PVT systems in prior years and have pioneered both resistive heating and more effectively inductively heated PVT systems. The PVT150 system was specifically designed to address the SiC crystal growth market for 150 mm substrates or wafers. Designed to provide enhanced process parameter control it allows existing and future customers the ability to tightly control and monitor the crystal growth process for 150mm substrates. A 200 mm version called the PVT200 was developed during 2023 and the first order was received in February 2024. The crystal growth technique utilized a high temperature furnace to vaporize from seed granular material of SiC and further deposit out in an ordered crystal structure onto substrate wafer. The process takes days to over a week to complete and yield a SiC crystal ready for further processing into wafers.

Rapid Thermal Processing (RTP) – Used to heat semiconductor materials to elevated temperatures of up to 1,200^° Celsius at rapid rates of up to 200° Celsius per second. Our RTP systems are offered for implant activation, oxidation, silicide formation and many other processes. We offer systems that can operate both at atmospheric and reduced pressures.

Annealing, Diffusion and Low-Pressure Chemical Vapor Deposition (LPCVD) Furnaces – These furnaces are used for dislocation removal in crystals, dopant diffusion, oxidation, for SiC, Si, SiOx and other applications. The systems are normally operated at atmospheric and/or reduced pressure with gaseous atmospheres related to the process. An optional feature of the system allows for the heating element to be moved away from the process chamber allowing the wafers to rapidly cool or be heated in a controlled environment. Our temperature control system enables more precise control of the wafers. The systems are equipped with an automatic process controller, permitting automatic process sequencing and monitoring with safety alarm provisions.

Ultra-High Purity Gas and Liquid Control Systems – Our standard and custom designed gas and liquid control systems, which encompass gas cylinder storage cabinets, custom gas and chemical delivery systems, gas and liquid valve manifold boxes and gas isolation boxes, provide safe storage and handling of pressurized gases and chemicals. Our system design allows for automatic or manual control from both a local and remote location. These subsystems and components are provided to the general market as well as support the CVD Equipment segment.

Quartzware – The majority of our process equipment solutions, utilize quartz components which we partially manufacturer internally. In addition, the equipment typically requires routine maintenance, consumable and spare parts. One such spare part and consumable which is core to our technology offering is quartz hardware. We provide standard and custom fabricated quartzware used in our equipment and to a lesser extent for other customer tools.

MesoPlasma™ Direct Write Printing – A materials deposition process that provides robust direct write high-definition instrumentation, fine feature patterns, and coatings onto conformal components. The technique involves powder material that is injected into a thermal plasma where it is rapidly heated and deposited onto the substrate or component. The versatility of the process enables a wide range of materials to be deposited including whatceramic dielectrics, nickel-based sensor alloys, metallic conductors, precious metals, and protective coatings. Products include temperature sensors, heaters, antennas and patterns per customer specifications.

Markets and Marketing

We serve multiple emerging and mature global markets including compound semiconductor high power electronics, aerospace, defense, battery energy storage, silicon and other microelectronic and micromechanical devices, semiconductor, universities, and research centers. Due to the highly technical nature of our products, we believe it is essential to engage with customers directly through our sales personnel, our network of domestic and international independent sales representatives, and distributors specializing in the type of equipment, products, and services that we sell. Our primary marketing activities include direct sales engagement, participation in trade associations and trade shows and our internet websites. We expanded our marketing activities in 2023 through attendance at key tradeshows and online marketing.

Customers

Our systems and products are used in both production applications and advanced materials research. We market and sell primarily to companies that are the tallest carbon nanotube arrays yet developed.engaged in producing compound semiconductor wafers, aerospace gas turbine jet engine component material, defense, battery energy storage, silicon and other microelectronic and micromechanical devices, semiconductor, universities and research centers. We have both a domestic and international customer base.

Given the complexity and magnitude of the systems we sell, revenue from a single customer in any one year can exceed 10% of our total sales. During the year ended December 31, 2023, three customers represented 14.3%, 13.5% and 10.9% of our revenues, while in 2022 one customer represented 29.2% of our revenues. While we believe that our relationships with these customers are generally positive, the loss of a large customer would have to be replaced by others, and our inability to do so could have a material adverse effect on our business and financial condition.

For the year ended December 31, 2023, approximately $4.1 million or 17% of our revenues were generated by sales to customers outside the U.S., compared to approximately $4.4 million or 17% for the year ended December 31, 2022.

Competition

We can experience intense direct competition from both domestic and international competitors in all our product segments. Our CVD Equipment product lines including FirstNano, target multiple markets and both production and research customers. Competition is substantial in both the production applications and research. In 2016,production application, competition comes from larger companies offering enhanced services. In research applications, the competition comes from small companies that compete with us mostly on price. We are aware of other competitors that offer a substantial number of products and services comparable to ours. Many of our competitors (including customers who may elect to manufacture systems for internal use) have financial, marketing and other resources greater than our own. To date, we incurredbelieve that each of our product and service segments has been able to compete favorably in markets that include these competitors, primarily based on know-how, technical performance, quality, delivery, price and aftermarket support. We continue to focus on products, which serve markets that are growing and where we have a technical and commercially competitive advantage.

CVD Equipment competes with companies located in Asia, Europe, and the US in both the production and research market. In the production and research markets, some of our potential customers built their own equipment. Additionally, there are large established companies who compete with us and pose a competitive risk in the market. Due to budgetary and funding constraints, many customers are price sensitive. We believe that our systems are among the most advanced available for the targeted market and coupled with our vertical integration in engineering and manufacturing, we believe that we can compete effectively.

SDC’s gas management and chemical delivery control systems are among the most advanced available. We further believe that SDC is differentiated from our competitors through our deep understanding of how the systems in which our products are incorporated are used in field applications. We have gained this understanding as a result of having designed and built complex process gas systems for our CVD Equipment group as well as for a number of the world’s leading semiconductor, aerospace, medical, solar manufacturers, research laboratories and universities.

CVD Materials consists of our MesoScribe subsidiary. There is no viable direct competitor for the MesoScribe services. There are technology competitors in the direct write applications and other additive manufacturing technologies competing for the same contracts and business opportunity.

Sources of Supply

Many of the components used in producing our products are purchased from unrelated suppliers. We have OEM status with our suppliers, but we are not obligated to purchase a pre-determined quantity. We are not dependent on a principal or major supplier and alternate suppliers are available. Historically, subject to lead times, the components and raw materials we used in manufacturing our products were readily obtainable.

We maintain a fully equipped machine shop that we use to fabricate a significant portion of our metal components in-house, including the most intricately designed parts of our equipment. We expanded our machine shop in 2022 to allow us to expand our ability to fabricate parts. Our quartz fabrication capability is currently sufficient to meet our quartzware needs. We believe our vertical manufacturing integration is a competitive advantage.

Materials procured from suppliers and/or manufactured internally undergo a rigorous quality control process to ensure that the parts meet or exceed our requirements and those of our customers. Upon final assembly, all equipment undergoes a final series of complete testing to ensure maximum product performance.

Backlog

As of December 31, 2023, our backlog was approximately $2.4$18.4 million, compared to $17.8 million as of December 31, 2022, an increase of $0.6 million. Our backlog at December 31, 2023 consists of approximately $16.3 million remaining performance obligations for contracts in researchprogress and development expensesthe balance of approximately $2.1 million represents orders received from customers. We continue to work at diversifying our customer base away from any one customer as we focus on new opportunities with new and existing customers within our existing marketplaces and in new applications. The timing for completion of backlog varies depending on the product mix and can be as long as two years or as short as 30-60 days.

There can be no assurance that our backlog will result in actual revenue in any particular period, or at all, or that any contract included in backlog will be profitable. The actual amount and timing of any revenue is subject to various contingencies, many of which $434,000 was independentare beyond our control, such as cancellations and delays. As a result of external customerthese contingencies, we may adjust our backlog if we determine that such orders comparedare no longer firm. In addition to 2015, whenadjustments from these types of contingencies, variations in backlog from time to time are attributable, in part, to changes in sales mix, the timing of contract proposals, the timing of contract awards, delivery schedules on specific contracts. As a result, we incurred $1.8 millionbelieve our backlog and orders, at any point in time, are not necessarily indicative of research and development expenses, $605,000 of which was independent of external customer orders.the total sales anticipated for any future period.

Government RegulationRegulations

We are subject to a variety of federal, state and local government regulations, such as environmental, labor and export control.control regulations. We believe that we have obtained all necessary permits to operate our business and that we are in material compliance with all laws and regulations applicable to us. These regulations are subject to change and the effect of these changes could materially impact our business in certain technology areas and regions.

Utilizing our in-house safety team, engineering expertise and consultants as required, we continue to monitor and comply with applicable Environmental Health and Safety regulations at our facilities as well as the installation of equipment at our customer facilities.

With respect to our sales to customers located in China or elsewhere outside the United States, products which (i) are manufactured in the United States, (ii) incorporate controlled U.S. origin parts, technology, or software, or (iii) are based on U.S. technology, are subject to the U.S. Export Administration Regulations (“EAR”). We are not aware of any government regulations or requirements necessary forcontinue to monitor, review, and maintain ongoing compliance with the sale ofEAR with respect to our products, other than certain approvals or permits which may be required for us to export certain of our products to certain foreign countries.sales.

InsuranceProduct Liability

Our products are used in our customers’ manufacturing processes, which in some cases contain explosive, flammable, corrosive, and toxic gases. There are potential exposures to personal injury as well as property damage, particularly if operated without regard to the design limits of the systems and components. Additionally, the end products of some of our customers are used in areas such as aerospace and high techhigh-tech devices where safety is of great concern. Management reviews its insurance coverage on an annual basis or more frequently, if appropriate, and we believe we have the types and amounts of insurance coverage that are sufficient for our business.

EmployeesHuman Capital

AtWe consider our employees a vital asset to our business and strive to ensure we foster a work environment of respect, communication, objective orientation, and personal life balance. We believe this results in a higher level of employee satisfaction and hence improved performance and employment longevity. On December 31, 2016,2023, we had 173 employees, with all but one being full time personnel.128 employees. We had 95 people70 employees in manufacturing, 3230 in engineering (including research and development and efforts related to product improvement) 7, 5 in field service, 109 in sales and marketing and 2914 in general management, maintenance and administration.administration, compared to 136 employees as of December 31, 2022. None of our employees were subject to a collective bargaining agreement.

The implementation of our business strategy depends on our ability to hire, train, and retain qualified and diverse professionals, and we must emphasize employee development and training in order to do so. We are committed to identifying and developing the talents of our next generation of managers and intend to establish a strong succession-planning program for our critical positions, including internships for technical and engineering resources from local universities. Moreover, a key strategic focus of our management team is to foster and maintain a strong and healthy culture, where collaboration to achieve results and focus on the success of our customers and shareholders is paramount.

Employee Safety

The health and safety of our employees and partners is our highest priority, and this is consistent with our operating philosophy. We maintain strong environmental, health and safety protocols that focus on implementing policies and training programs, as well as performing self-audits to ensure our colleagues and partners leave the workplace safely on a daily basis.

Employee Compensation

Management continues to review our employee compensation programs to better align the compensation of our employees with our objectives, performance, and personal performance, and to provide the proper short-term and long-term incentives to attract, retain and motivate them to achieve superior results. We believe we must offer wages that are competitive and consistent with employee positions, skill levels, experience, and knowledge, and in order to do so we may work with a nationally recognized outside compensation and benefits consulting firm to independently evaluate the effectiveness of our executive and non-executive compensation and benefit programs and to provide benchmarking against our peers within our industry.

Equal Opportunity

We are committed to building and sustaining a culture of equal opportunity that encourages all of our employees to reach their full potential. Our CVD team, like the technologies we enable, is a rich combination of diverse individuals coming together to make a material difference for our people, our customers, and the world. As a company that enables tomorrow’s technologies, we recognize that a diverse employee population makes CVD a stronger, more innovative, and a more engaging place to work. We are always striving to attract talented individuals from a diverse candidate pool.

Available Information

Our website address is www.cvdequipment.com and the contents of our website, including our investor relations website, is not incorporated by reference into this filing or any other report we file with or furnish to the SEC. We have no duty to update or revise any forward-looking statements in this Annual Report on Form 10-K or in other reports filed with the SEC, whether as a result of new information, future events or otherwise, unless we are required to do so by law. The SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.

Item 1A.     Risk Factors

In addition to the other information set forth in this Annual Report on Form 10-K, our shareholders should carefully consider the risk factors described below. The risks set forth below may not be the only risk factors relating to the company.Company. Any of these factors, many of which are beyond our control, could materially adversely affect our business, financial condition, operating results, cash flow and stock price.

Risk categories:

Risks related to sales and product development

Historically, we have maintained a highly concentrated customer base so that changes in ordering patterns, delays or order cancellations could have a material adverse effect on our business and results of operations.

During 2023, three customers represented 14.3%, 13.5% and 10.9% of our total revenues. The loss of a major customer would have to be replaced by others, and our inability to do so may have a material adverse effect on our business and financial condition. We expect that contracts or orders from a relatively limited number of customers will, at times, continue to account for a substantial portion of our business. The mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year. If any major customer did not place orders, or if they substantially reduced, delayed, or cancelled orders, we may not be able to replace the business in a timely manner or at all, which can and has had a material adverse effect on our results of operations and financial condition.

Our lengthy and variable sales cycle makes it difficult to predict our financial results.

The marketing, sale and manufacture of our products, often requires a lengthy sales cycle ranging from several months to over one year before we can complete production and delivery. The lengthy sales cycle makes forecasting the volume and timing of sales difficult and raises additional risks that customers may cancel or decide not to enter into contracts. The length of the sales cycle depends on the size and complexity of the project, the customer’s in-depth evaluation of our products, and, in some cases, the protracted nature of a bidding process.

Because a significant portion of our operating expenses are fixed, we have and may continue to incur substantial expense before we earn associated revenue. If customer cancellations occur, they could result in the loss of anticipated sales without allowing us sufficient time to reduce our operating expenses.

If any of our customers cancel or fail to accept a large system order, our financial position and results of operations could be materially and adversely affected.

Our backlog includes orders for customized systems including our chemical vapor deposition equipment and furnaces which are built to client specifications. These customized systems can have prices up to several million dollars, depending on the configuration, specific options included and any specific requirements of the customer. Because our orders are subject to cancellation or delay by the customer, our backlog at any point in time is not necessarily representative of actual sales for succeeding periods, nor does our backlog provide any assurance of achievement of revenues or that we will realize a profit from completing these orders. Our financial position and results of operations could be materially and adversely affected should any large system order be cancelled prior to shipment, or not be accepted by the customer due to alleged non-conformity with product specifications or otherwise. Likewise, a significant change in the liquidity or financial position of any of our customers that purchase large systems, could have a material impact on the collectability of our accounts receivable and our future operating results. Our backlog does not provide any assurance that we will realize a profit from those orders or indicate in which period revenue will be recognized.

If demand declines for chemical vapor deposition,deposition/infiltration, physical vapor transport, gas control and related equipment, or for carbon nanotube and nanowire deposition systems, our financial position and results of operations could be materially adversely affected.

Our products are utilized to develop and manufacture materials and coatings for industrial and research applications that are used in numerous markets including but not limited to power electronics, battery materials, aerospace, medical, solar, nano and advanced electronic components. A significant part of our growth strategy involves continued expansion of the sales of our products for industrial as well as research and development purposes by companies, universities, and government-funded research laboratories. The availability of funds for these purposes may be subject to budgetary and political restrictions, as well as cost-cutting measures by manufacturers in the markets in which we operate.

If the availability of funds or the demand for capital equipment in the markets in which we operate declines, the demand for our products would also decline and our financial position and results of operations could be harmed.

We face risks associated with selling our products to a highly concentrated customer base.

In fiscal 2016, approximately 53.5% of our net sales was accounted for by 2 customers. We expect that contracts or orders from a relatively limited number of customers will continue to account for a substantial portion of our business. The mix and type of customers, and sales to any single customer, may vary significantly from quarter to quarter and from year to year. If any of our significant customers do not place orders, or they substantially reduce, delay or cancel orders, we may not be able to replace the business in a timely manner or at all, which could have a material adverse effect on our results of operations and financial condition. Major customers may also seek, and on occasion receive, pricing, payment, intellectual property-related, or other commercial terms that are less favorable to us.

The conditions of the markets in which we operate are volatile. The demand for our products and the profitability of our products can change significantly from period to periodas a result because of numerousfactors.

The industries in which we operate are characterized by ongoing changes,factors, including:

For these and other reasons, our results of operations for past periods may not necessarily be indicative of future operating results.

VolatileOur business might be adversely affected by our dependence on foreign business.

Because a material portion of our revenues are traditionally derived from international customers, our operating results could be negatively affected by a decline in the economies of any of the countries or regions in which we do business. Each region can exhibit unique characteristics, which can cause capital equipment investment patterns to vary significantly from period to period. Periodic local or international economic downturns, trade balance issues and cyclical demandpolitical instability, as well as fluctuations in interest and currency exchange rates, could negatively affect our business and results of operations.

The majority of our sales to date have been primarily priced in U.S. dollars. While our business has not been materially affected in the past by currency fluctuations, there is a risk that it may be materially adversely affected in the future. Such risks include possible losses due to both currency exchange rate fluctuations and from possible social and political instability.

Our reputation and operating performance may be negatively affected if our products are not timely delivered.

We provide complex products that often require substantial lead-time for design, ordering parts and materials, and for assembly and installation. The time required to design, order parts and materials and to manufacture, assemble and install our products, may make it difficult for usin turn lead to accurately budgetdelays or shortages in the availability of some products. If a product is delayed or is the subject of shortage because of problems with our expense levels,ability to design, manufacture or assemble the product on a timely basis, obtain necessary materials and components, or if a product or software otherwise fails to meet performance criteria, we may lose revenue opportunities entirely, or experience delays in revenue recognition associated with a product or service. In addition, we may incur higher operating expenses during the period required to correct the problem.

We may not be able to keep pace with the rapid change in the technology we use in our products.

We believe that our continued success in the markets in which are basedwe operate depends, in part, on our projections of future revenues.

Demand for our equipmentability to continually improve existing technologies and related consumableto develop and manufacture new products may be volatile asand product enhancements on a result of sudden changes in supplytimely and demand, and other factors in the manufacturing process. Our orders tend to be more volatile than our revenue, as any change in demand is reflected immediately in orders booked, which are net of cancellations, while revenue, tends to be recognized over multiple quarters as a result of procurement and production lead times, and the deferral of certain revenue under our revenue recognition policies. The fiscal period in which we are able to recognize revenue is also at times subject to the length of time that our customers require to evaluate the performance of our equipment. This could cause our quarterly operating results to fluctuate.

When cyclical fluctuations result in lower than expected revenue levels, operating results may be adversely affected and cost reduction measures may be necessary in for us to remain competitive and financially sound. During a down cycle, wecost-effective basis. We must be able to make timely adjustments to our costintroduce these products and expense structure to correspond toproduct enhancements into the prevailing market conditions. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and the number of our personnel to meet customer demand, which may require additional liquidity. We can provide no assurance, that these objectives can be met in a timely manner, in response to changes withincustomer’s demands for higher-performance research and assembly equipment, customized to address rapid technological advances in capital equipment designs.

Technological innovations are inherently complex and require long development cycles and appropriate professional staffing. Our future business success depends on our ability to develop and introduce new products, or new uses for existing products, that successfully address changing customer needs. Our success also depends on our ability to achieve market acceptance of our new products. To maintain our success in the industry cycles in whichmarketplace, we operate.may have to substantially increase our expenditures on research and development. If we faildo not develop and introduce new products, technologies or uses for existing products in a timely manner and continually find ways to respondreduce the cost of developing and producing them in response to these cyclical change,changing market conditions or customer requirements, our business could be seriously harmed.

We do not have long-term volume production contracts with our customers, and we do not control the timing or volume of orders placed by our customers. Whether and to what extent our customers place orders for any specific products, and the mix and quantities of products included in those orders are factors beyond our control. Insufficient orders would result in under-utilization of our manufacturing facilities and infrastructure, and will negatively affect our financial position and results of operations.

We face significant competition, and we are relatively small in size and have fewer resources in comparison with many of our competitors.

We face significant competition throughout the world, which may increase as certain markets in which we operate continue to evolve. Some of our competitors have greater financial, engineering, manufacturing and marketing resources than us to develop new products and to support customers worldwide. Our future performance depends, in part, upon our ability to continue to compete successfully worldwide. Some of our competitors are diversified companies that have substantially greater financial resources and more extensive research, engineering, manufacturing, marketing and customer service and support capabilities than we can provide. We face competition from companies whose strategy is to provide a broad array of products, some of which compete with the products and services that we offer, as well as companies, universities and research laboratories that have the capacity to design and build their own equipment internally. These competitors may bundle their products and services in a manner that may discourage customers from purchasing our products. In addition, we face competition from smaller emerging processing equipment companies, whose strategy is to provide a portion of the products and services that we offer at often lower prices than ours, using innovative technology to sell products into specialized markets. Loss of competitive position could impair our prices, customer orders, revenue, gross margin, and market share, any of which would negatively affect our financial position and results of operations. Our failure to compete successfully with these other companies would seriously harm our business. There is a risk that larger, better financed competitors will develop and market more advanced products than those we currently offer, or that competitors with greater financial resources may decrease prices, thereby putting us under financial pressure.

The health and environmental effects of nanotechnology are unknown, and this uncertainty could adversely affect the expansion of our business.

The health and environmental effects of nanotechnology are unknown. There is no scientific agreement on the health effects of nanomaterials in general and carbon nanotubes, in particular, but some scientists believe that in some cases, nanomaterials may be hazardous to an individual’s health or to the environment. The science of nanotechnology is based on arranging atoms in such a way as to modify or build materials not made in nature; therefore, the effects are unknown. Future research into the effects of nanomaterials in general, and carbon nanotubes in particular, on health and environmental issues, may have an adverse effect on products incorporating nanotechnology. Since part of our growth strategy is based on sales of research equipment for the production of carbon nanotubes and the sale of such materials, the determination that these materials are harmful could adversely affect the expansion of our business.

We may experience increasing price pressure.

Our historical business strategy for many of

Risks related to manufacturing and our products has focused on product performance and customer service rather than on price. As a result of budgetary constraints, many of our customers are extremely price sensitive when purchasing of capital equipment. If we are unable to obtain prices that allow us to continue to compete on the basis of product performance and customer service, our profit margins will be reduced.supply chain

We may not be able to keep pace with the rapid change in the technology we use in our products.

We believe that our continued success in the markets in which we operate depends, in part, on our ability to continually improve existing technologies and to develop and manufacture new products and product enhancements on a timely and cost-effective basis. We must be able to introduce these products and product enhancements into the market in a timely manner, in response to customer’s demands for higher-performance research and assembly equipment, customized to address rapid technological advances in capital equipment designs.

Technological innovations are inherently complex, and require long development cycles and appropriate professional staffing. Our future business success depends on our ability to develop and introduce new products, or new uses for existing products, that successfully address changing customer needs. Our success also depends on our ability to achieve market acceptance of our new products. In order to maintain our success in the marketplace, we may have to substantially increase our expenditures on research and development. If we do not develop and introduce new products, technologies or uses for existing products in a timely manner and continually find ways to reduce the cost of developing and producing them in response to changing market conditions or customer requirements, our business could be seriously harmed.

Manufacturing interruptions or delays could affect our ability to meet customer demand and lead to higher costs, while the failure to estimate customer demand accurately could result in excess or obsolete inventory.

Our business depends on timely supply of equipment, services and related products that meet the rapidly changing technical and volume requirements of our customers. Some key parts to our products are subject to long lead-times and/or obtainable only from a single supplier or limited group of suppliers. Cyclical industry conditions and the volatility of demand for manufacturing equipment increase capital, technical, operational and other risks for us and for companies throughout our supply chain. Further, these conditions may cause some suppliers to scale back operations, exit businesses, merge with other companies, or file for bankruptcy protection and possibly cease operations. We have also experienced and continue to experience significant disruptions in our supply chain, resulting in delays and higher costs to procure certain components and materials that we utilize in our business.

We may also experience significant interruptions of our manufacturing operations, delays in our ability to deliver products or services, increased costs or customer order cancellations as a result of:

If a supplier fails to meet our requirements concerning quality, cost, socially-responsible business practices, or other performance factors, we may transfer our business to alternative sources, which could entail manufacturing delays, additional costs, or other difficulties. In addition, if we need to rapidly increase our business and manufacturing capacity to meet increases in demand or expedited shipment schedules, this may exacerbate any interruptions in our manufacturing operations and supply chain and the associated effect on our working capital.

We are presently experiencing supply chain delays and cost increases that may adversely affect our business.

Geopolitical developments across Europe and Asia have and may continue to restrict our ability to procure raw materials and components such as nickel and integrated circuits. Since 2021, we have experienced increased costs on certain components as well as delays in supply chain delivery, which may also impact our ability to recognize revenue and reduce our gross profit margins, as well as extend our manufacturing lead times and reduce our manufacturing efficiencies. We have begun placing orders with more lead time to help mitigate the manufacturing delays, as well as assessing other suppliers or components to attempt to mitigate the potential cost impacts. In addition, we are utilizing our in-house flexible manufacturing to attempt to further mitigate both potential schedule delivery delays and material cost increase, as well as increasing sales prices. While we have taken actions to mitigate the potential negative impacts to our revenue and profitability, there can be no assurance of the ultimate impact and the length of time that the supply chain factors may impact our revenues and profitability.

If any ofInflation has and may continue to adversely affect our customers cancel or fail to accept a large system order, ourbusiness, financial positioncondition, and results of operations.

Recent global inflation has adversely affected our costs, including the cost of materials, production, and labor. As such, we have had to implement measures to mitigate the negative impacts of inflation on our costs. As the selling prices in our customer contracts are fixed, any increase in the cost of materials, labor and other costs as we manufacture any system would negatively impact our gross margins and results of operations. Longstanding or increased periods of inflation could perpetuate these material adverse effects on our business, financial condition and results of operations.

If our critical suppliers fail to deliver enough quality materials and components in a timely and cost-effective manner, it could negatively affect our business.

We use numerous unrelated suppliers of materials and components. Due to geopolitical developments across Europe and Asia, we are experiencing reduced availability of raw materials and components. In turn, any reduction in the availability of these materials and components may reduce our ability to obtain sufficient amounts in a cost-effective manner. We generally do not have guaranteed supply arrangements with our suppliers. Because of the variability and uniqueness of our customer’s orders, we try to avoid maintaining an extensive inventory of materials and components for manufacturing. While we are not dependent on any principal or major supplier for most of our material and component needs, switching to an alternative supplier may take significant amounts of time and added expense, which could result in a disruption of our operations and adversely affect our business. It is not always practical or even possible to ensure that component parts are available from multiple suppliers; accordingly, we procure some key parts from a single supplier or a limited group of suppliers. At certain times, increases in demand for capital equipment can result in longer lead-times for many important system components, which may cause delays in meeting shipments to our customers. The delay in the shipment of even a few systems could cause significant variations in our quarterly revenue, operating results and the market value of our common stock.

Our manufacturing facilities are in Central Islip, New York and Saugerties, New York could be materiallyaffected due to multiple weather risks, including risks to our Central Islip facility from hurricanes and similar phenomena.

Our manufacturing facilities are located in Central Islip, New York and Saugerties, New York could be affected by multiple weather risks, most notably hurricanes for our Central Islip facility which is located on Long Island, New York. Although we carry property and casualty insurance and business interruption insurance, future possible disruptions of operations or damage to property, plant and equipment due to hurricanes or other weather risks could result in impaired production and affect our ability to meet our commitments to our customers and impair important business relationships, the loss of which could adversely affected.affect our operations and profitability. We do, however, maintain a backup power source at our Central Islip facility, are working to establish deeper redundancies between our New York facilities to help mitigate this risk.

Our backlog, largely consists of orders for customized systems including our chemical vapor deposition equipmentRisks related to cybersecurity, intellectual property and annealing and diffusion furnaces which are built to client specifications. These customized systems can have prices that range from $100,000 to several million dollars, depending on the configuration, specific options included and any special requirements of the customer.  Because our ordersregulatory compliance

If we are subject to cancellation or delay by the customer,cyberattacks, we could incur substantial costs and, if such attacks are successful, we could incur significant liabilities, reputational harm, and disruption to our backlog at any particular point in time is not necessarily representative of actual sales for succeeding periods, nor doesoperations.

We manage, store, and transmit proprietary information and sensitive data relating to our backlog provide any assurance of achievement of revenues or that we will realize a profit from completing these orders.  Since revenues on long-term contracts are recognized by the percentage-of-completion method, if a contract is canceled, weoperations. We may havebe subject to reverse revenue at such time. Our financial position and results of operations could be materially and adversely affected should any large system order be cancelled prior to shipment, or not be accepted by the customer due to alleged non-conformity with product specifications or otherwise. Likewise, a significant change in the liquidity or financial position of any of our customers that purchase large systems, could have a material impact on the collectability of our accounts receivable and our future operating results.  Our backlog does not provide any assurance that we will realize a profit from those orders, or indicate in which period revenue will be recognized.

Our success is highly dependent on the technical, sales, marketing and managerial contributions of key individuals, including Leonard A. Rosenbaum, Chairmanbreaches of the Board of Directors, Chief Executive Officerinformation technology systems we use for these purposes. Experienced computer programmers and President, and we may be unable to retain these individuals or recruit others.

We depend on our senior executives, including Leonard A. Rosenbaum, our Chairman of the Board of Directors, Chief Executive Officer and President, and certain key managers as well as, engineering, research and development, sales, marketing and manufacturing personnel, who are critical to our business. We do not have long-term employment agreements with our key employees. We presently have a key person life insurance policies on the life of Leonard A. Rosenbaum, for a total insured amount of $5 million, which may not be sufficient to cover our loss of Mr. Rosenbaum’s services. Furthermore, larger competitorshackers may be able to offer more generous compensation packagespenetrate our network security and misappropriate and/or compromise our confidential information (and or third-party confidential information), create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our executivessystems or our products, or that otherwise exploit any security vulnerabilities.

While we have an active security training program for all employees during the year, utilize intrusion prevention and key employees,detection systems, as well as hardware firewall and therefore we risk losing key personnelvirus security, the costs to those competitors. If we were to loseaddress the services of any of our key personnel, our engineering, product development, manufacturingforegoing security problems and sales effortssecurity vulnerabilities before or after a cyber-incident could be slowed. We may also incur increased operating expenses, and be required to divert the attention of our senior executives to search for their replacements. The integration of any new personnel could disrupt our ongoing operations.

Wesignificant. Our remediation efforts may not be able to hiresuccessful and could result in interruptions, delays, or retain the numbercessation of qualified personnel, particularly engineering personnel, required forservice, and loss of existing or potential customers, impeding our business, which would harm the development and sales, manufacturing, distribution, or other critical functions. In addition, breaches of our productssecurity measures and limitthe unapproved dissemination of proprietary information or sensitive data about us, our ability to grow.

Competition incustomer, or other third parties, could expose us, our industry for senior management, technical, sales, marketing andcustomers, or other key personnel is intense. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, our growth may be limited duethird parties to a lackrisk of capacity to develop and market our products.

In particular, we have, from time to time, experienced difficulty in hiring and retaining skilled engineers with appropriate qualifications to support our growth strategy. Our success depends on our ability to identify, hire, train and retain qualified engineering personnel with experience in equipment design. Specifically, we need to continue to attract and retain mechanical, electrical, software and field service engineers to work with our direct sales force to technically qualify and perform on new sales opportunities and orders, and to demonstrate our products.

The substantial lead-time required for ordering parts and materials may lead to inventory problems.

The lead-time for ordering parts and materials for someloss or misuse of our products can be several months. As a result, we must order some components based on forecasted demand. If demand for our products lags significantly behind our forecasts, we may order more components than we require, which wouldthis information, result in cash flow problems as well as excesslitigation and potential liability for us, damage our reputation, or obsolete inventory.otherwise harm our business.

Acquisitions can result in an increase in our operating costs, divert management’s attention away from other operational matters and expose us to other associated risks.

In December 2016, we purchased certain assets formally owned by Tantaline A/S, which we incorporated into a facility in Denmark which is operated by our subsidiary, Tnataline CVD ApS. We continually evaluate potential acquisitions of businesses and technologies, and we consider targeted acquisitions that expand our core competencies to be an important part of our future growth strategy.  In the past, we have made acquisitions of other businesses with synergistic products, services and technologies, and plan to continue to do so in the future.  Acquisitions involve numerous risks, which include but are not limited to:

Our financial position and results of operations may be materially harmed if we are unable to recoup our investment in research and development.

The rapid change in technology in our industry requires that we continue to make substantial investments in research and development and selective acquisitions of technologies and products, in order to enhance the performance and functionality of our product line, to keep pace with competitive products and to satisfy customer demands for improved performance, features and functionality.  These efforts include those related to the development of technology for the commercialization of carbon nanotubes. There can be no assurance that revenue from future products or enhancements will be sufficient to recover the development costs associated with such products, enhancements, or acquisitions, or that we will be able to secure the financial resources necessary to fund future research and development or acquisitions. Research and development costs are typically incurred before we confirm the technical feasibility and commercial viability of a product, and not all development activities result in commercially viable products. In addition, we cannot ensure that products or enhancements will receive market acceptance, or that we will be able to sell these products at prices that are favorable to us. Our business could be seriously harmed if we are unable to sell our products at favorable prices, or if our products are not accepted by the markets in which we operate.

We have made investments in our proprietary technologies.If third parties violate our proprietary rights, or accuse us of infringing upon their proprietary rights, such events could result in a loss of value of some of our intellectual property or costly litigation.

Our success is dependent in part on our technologies and our other proprietary rights.  We believe that while patents can be useful and may be utilized by us in the future, they are not always necessary or feasibleattempt to protect our intellectual property. The processcertain of seeking patent protection is lengthy and expensive, and we cannot be certain that applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage to us.  In addition to patent protection, we have also historically protected our proprietary information and intellectual property such as design specifications, blueprints, technical processes and employee know-how, by limiting access to this confidential information and trade secrets and through the use of non-disclosure agreements. Other companies and individuals, including our larger competitors, may develop technologies that are similar or superior to our technology, or design around the intellectual property that we own or license.  Our failure to adequately protect our intellectual property could result in the reduction or extinguishment of our rights by obtaining patent and trademark protection where we believe it is appropriate to such intellectual property. We also assert rights to certain trademarks relating to certain of our products and product lines. We have not filed trademark applications to protect such marks with any governmental agency, including, but not limited to the U.S. Patent and Trademark Office. We claim copyright protection for certain proprietary software and documentation, but we have not filed any copyright applications with the U.S. Copyright Office in connection with those works.  As a result, we can give no assurance that our trademarks and copyrights will be upheld or successfully deter infringement by third parties. 

do so. While patent, copyright and trademark protection for our intellectual property may be important, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel. We may also attempt to protect our trade secrets and other proprietary information through confidentiality agreements with our customers, suppliers, employees, and consultants, and through other internal security measures. However, these employees, consultants and third parties may breach these agreements, and we may not have adequate remedies for wrongdoing. In addition, the laws of certain territories in which we sell our products may not protect our intellectual property rights to the same extent as do the laws of the United States.

Occasionally, we may receive communications from other parties asserting the existence of patent rights or other intellectual property rights that they believe cover certain of our products, processes, technologies, or information. In addition, it is possible we could have a dispute with a customer concerning the use of intellectual property utilized in their equipment. If such cases arise, we will evaluate our position and consider the available alternatives, which may include seeking licenses to use the technology in question on commercially reasonable terms, developing new alternative technology or defending our position. Nevertheless, we cannot ensure that we will be able to obtain licenses, or, if we are able to obtain licenses, thatwhich related terms will be acceptable, or that litigation or other administrative proceedings will not occur. Defending our intellectual property rights through litigation could be very costly. If we are not able to negotiate the necessary licenses on commercially reasonable terms or successfully defend our position, our ability to utilize such intellectual property could substantially inhibit our access to certain markets and our ability to compete in these markets which could have a material adverse effect on our financial position and results of operations could be materially and adversely affected.operations.

Our reputation and operating performanceWe may be negatively affected ifunable to obtain required export licenses for the sale of our products are not timely delivered.products.

We provide complexWhether with respect to sales to customers located in China or otherwise, products that often require substantial lead-time for design, ordering parts and materials, and for assembly and installation. The time required to design, order parts and materials and to manufacture, assemble and install our products, may in turn lead to delays or shortageswhich (i) are manufactured in the availability of some products. If a product is delayed or is the subject of shortage because of problems with our ability to design, manufacture or assemble the product on a timely basis, or if a productUnited States, (ii) incorporate controlled U.S. origin parts, technology, or software, otherwise failsor (iii) are based on U.S. technology, are subject to meet performance criteria, wethe U.S. Export Administration Regulations (“EAR”) when exported to and re-exported from international jurisdictions, in addition to the local jurisdiction’s export regulations applicable to individual shipments. Licenses or proper license exceptions may lose revenue opportunities entirely, or experience delays in revenue recognition associated with a product or service. In addition, we may incur higher operating expenses duringbe required for the period required to correct the problem.

Our lengthy and variable sales cycle may make it difficult to predict our financial results.

The marketing, sale and manufactureshipment of our products to certain customers or countries. Obtaining an export license or determining whether an export license exception exists often requires considerable effort by us and cooperation from the customer, which can add time to the order fulfillment process. We may be unable to obtain required export licenses or qualify for export license exceptions and, as a lengthy sales cycle ranging from several months to over one year before we can complete production and delivery. The lengthy sales cycle makes forecasting the volume and timing of sales difficult, and raises additional risks that customers may cancel or decide not to enter into contracts. The length of the sales cycle depends on the size and complexity of the project, the customer’s in-depth evaluation of our products, and, in some cases, the protracted nature of a bidding process. Because a significant portion of our operating expenses are fixed,result, we may incur substantial expense before we earn associated revenue. If customer cancellations occur, theybe unable to export products to our customers and/or meet their servicing needs. Non-compliance with the EAR or other applicable export regulations could result in a wide range of penalties including the lossdenial of anticipated sales without allowing us sufficient time to reduce our operating expenses.

We anticipate continued growth in our revenuesexport privileges, fines, criminal penalties, and operations during the next few years.seizure of commodities. If we fail to manage our growth effectively, we may experience difficulty in filling customer orders, declining product quality, increased costs or other operating challenges.

We anticipatean export regulatory body determines that continued growthany of our operations willshipments violate applicable export regulations, we could be required to satisfyfined significant sums and our projected increase in demand for our products and to avail ourselves of new market opportunities. The expanding scope of our business and the growth in the number of our employees, customers and productsexport capabilities could be restricted, which could have placed and will continue to place a significant strainmaterial adverse impact on our management, information technology systems, manufacturing facilities and other resources. To properly manage our growth, we may need to hire additional employees, upgrade our existing financial and reporting systems and improve our business processes and controls. We may also be required to expand our manufacturing facilities or add new manufacturing facilities. Failure to effectively manage our growth could make it difficult to manufacture our products and fill orders, as well as lead to declines in product quality or increased costs; any of these would adversely impact our business and results of operations.business.

Historically, we have only manufactured in unit or small batch quantities. If we receive orders for a large number of our systems, we may not have the internal manufacturing capacity to fill these orders on a timely basis, if at all, and may be forced to subcontract or outsource some of the fabrication of these systems to third parties. We cannot assure you that we will be able to successfully subcontract or outsource the fabrication of our systems at a reasonable cost to us, or that such third parties will adhere to our quality control standards.

Our business might be adversely affected by our dependence on foreign business.

During the year ended December 31, 2016, 11.9% of our revenues came from foreign exports as compared with 9.0% for the year ended December 31, 2015.

Because a significant amount of our revenues are derived from international customers, our operating results could be negatively affected by a decline in the economies of any of the countries or regions in which we do business.  Each region in the global semiconductor and electronics equipment market exhibits unique characteristics, which can cause capital equipment investment patterns to vary significantly from period to period.  Periodic local or international economic downturns, trade balance issues and political instability, as well as fluctuations in interest and currency exchange rates, could negatively affect our business and results of operations.

All of our sales to date have been priced in U.S. dollars. While our business has not been materially affected in the past by currency fluctuations, there is a risk that it may be materially adversely affected in the future.  Such risks include possible losses due to both currency exchange rate fluctuations and from possible social and political instability. 

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

We are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. We have agreements with third parties and make sales in countries known to experience corruption, extortion, bribery, pay-offs, theft, and other fraudulent practices. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition, and results of operations.

If our critical suppliers fail to deliver sufficient quantities of quality materials and components in a timely and cost-effective manner, it could negatively affect our business.

We do not manufacture many components used in the production of our products, and consequently, we use numerous unrelated suppliers of materials and components.  We generally do not have guaranteed supply arrangements with our suppliers.  Because of the variability and uniqueness of our customer’s orders, we try to avoid maintaining an extensive inventory of materials and components for manufacturing. While we are not dependent on any principal or major supplier for most of our material and component needs, switching over to an alternative supplier may take significant amounts of time and added expense, which could result in a disruption of our operations and adversely affect our business.

It is not always practical or even possible to ensure that component parts are available from multiple suppliers; accordingly, we procure some key parts from a single supplier or a limited group of suppliers.  At certain times, increases in demand for capital equipment can result in longer lead-times for many important system components, which may cause delays in meeting shipments to our customers.  The delay in the shipment of even a few systems could cause significant variations in our quarterly revenue, operating results and the market value of our common stock. 

We cannot assure you that our financial position and results of operations will not be materially and adversely affected if, in the future, we do not receive in a timely and cost-effective manner a sufficient quantity of quality component parts and materials to meet our production requirements.

We might require additional financing to expand our operations.

We may require additional financing to further implement our growth plans.  We cannot assure you any additional financing will be available if and when required, or, even if available, that it would not materially dilute the ownership percentage of the then existing shareholders.

Cost of compliance with Section 404 of the Sarbanes-Oxley Act could adversely affect future operating results, the trading price of our common stock and failure to comply could result in loss of our stock market listing, civil penalties and other liabilities.

Section 404 of the Sarbanes-Oxley Act requires management to certify that it has tested and found the company’s internal controls to be effective.  It also requires, for accelerated filers, that a company’s independent auditors attest that such management representations are reasonably founded.  The adequacy of internal controls generally takes into consideration that the anticipated benefits of a control should outweigh the cost of that control.  Auditing standards related to the internal control requirements of Section 404 of the Sarbanes Oxley Act will significantly increase the cost and time needed to comply with the requirements of Section 404.  Complying with these requirements is very complex, costly and time consuming and, if we are required to comply under the existing regulations, will have a material impact on our operating results.  Failure to comply could result in civil penalties, loss of our listing on NASDAQ, and the imposition of possible litigation. 

Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results.

Changes in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results. New accounting pronouncements or taxation rules and varying interpretations of accounting pronouncements or taxation practices have occurred and may occur in the future. New rules, changes to existing rules, or the questioning of our current or past practices may adversely affect our reported financial results.

We may be required to take additional impairment charges on assets.

We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on an interim basis, whenever certain events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value below its carrying amount. We are also required to test our long-lived assets, including acquired intangible assets and property, plant and equipment, for recoverability and impairment whenever there are indicators or impairment, such as an adverse change in business climate.

As part of our long-term strategy, we may pursue future acquisitions of other companies or assets which could potentially increase our assets. Adverse changes in business conditions could materially impact our estimates of future operations and result in impairment charges to these assets. If our assets were impaired, our financial condition and results of operations could be materially and adversely affected.

The price of our common shares is volatile and could decline significantly.

The stock market in general and the market for technology stocks in particular has experienced volatility. If those industry-based market fluctuations continue, the trading price of our common shares could decline significantly independent of the overall market, and shareholders could lose all or a substantial part of their investment. The market price of our common shares could fluctuate significantly in response to several factors, including, among others:

Significant price and value fluctuations have occurred with respect to our publicly traded securities and technology companies generally. The price of our common shares is likely to be volatile in the future. In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management’s attention and resources, which could materially and adversely affect our financial condition, results of operations, and liquidity.

We face the risk of product liability claims.

The manufacture and sale of our products, which in operation may involve the use of toxic materials and extreme temperatures, involve the risk of product liability claims. For example, our rapid thermal processing systems are used to heat semiconductor materials to temperatures in excess of 1000º Celsius. In addition, a failure of one of our products at a customer site could interrupt the business operations of our customer. Our existing insurance coverage limits may not be adequate to protect us from all liabilities that we might incur in connection with the manufacture and sale of our products if a successful product liability claim or series of product liability claims were brought against us.

We are subject to environmental regulations, and our inability or failure to comply with these regulations could adversely affect our business.

We are subject to environmental regulations in connection with our business operations, including regulations related to the development and manufacture of our products and our customers’ use of our products. Our failure or inability to comply with existing or future environmental regulations could result in significant remediation liabilities, the imposition of fines or the suspension or termination of development, manufacturing, or use of certain of our products, or affect the operation of our facilities, use or value of our real property, each of which could damage our financial position and results of operations.

If we are subject to cyber-attacks we could incur substantial costs and, if such attacks are successful, we could incur significant liabilities, reputational harm, and disruption to our operations.

We manage, store and transmit proprietary information and sensitive data relating to our operations. We may be subject to breaches of the information technology systems we use for these purposes. Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate and/or compromise our confidential information (and or third party confidential information), create system disruptions, or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or our products, or that otherwise exploit any security vulnerabilities.

The costs to address the foregoing security problems and security vulnerabilities before or after a cyber-incident could be significant. Our remediation efforts may not be successful and could result in interruptions, delays, or cessation of service, and loss of existing or potential customers, impeding our sales, manufacturing, distribution, or other critical functions. In addition, breaches of our security measures and the unapproved dissemination of proprietary information or sensitive data about us, our customer, or other third parties, could expose us, our customers, or other third parties to a risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation, or otherwise harm our business.

Regulations related to conflict minerals will force us to incur additional expenses, may make our supply chains more complex, and may result in damage to our relationships with customers.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the SEC adopted requirements for companies that manufacture products that contain certain minerals and metals known as conflict minerals.“conflict minerals”. These rules require public companies to perform diligence and to report annually to the SEC whether such minerals originate from the Democratic Republic of Congo and adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability, and pricing of minerals we use in the manufacture of our products. In addition, we have incurred and will continue to incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. Given the complexity of our supply chain, we may not be able to ascertain the origins of these minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. We may also face difficulties in satisfying customers who may require that our products be certified as conflict mineral free, which could harm our relationships with these customers and lead to a loss of revenue. These requirements could limit the pool of suppliers that can provide conflict-free minerals, and we may be unable to obtain conflict-free minerals at competitive prices, which could increase our costs and adversely affect our manufacturing operations and our profitability.

Risks related to financial and accounting matters

Cyclical demand for our products may make it difficult for us to accurately budget our expense levels, which are based in part on our projections of future revenues.

Historically, demand for our equipment and related consumable products have been volatile because of changes in supply and demand, and other factors in the manufacturing process. Our orders tend to be more volatile than our revenue, as any change in demand is reflected immediately in orders booked, which are net of cancellations, while revenue, tends to be recognized over multiple quarters because of procurement and production lead times, and the deferral of certain revenue under our revenue recognition policies. The fiscal period in which we can recognize revenue is also at times subject to the length of time that our customers require to evaluate the performance of our equipment. This could cause our quarterly operating results to fluctuate.

When cyclical fluctuations result in lower-than-expected revenue levels, operating results have been and may continue to be materially adversely affected and cost reduction measures have been and may continue to be necessary for us to remain competitive and financially sound. During a down cycle, we must be able to make timely adjustments to our cost and expense structure to correspond to the prevailing market conditions. In addition, during periods of rapid growth, we must be able to increase manufacturing capacity and the number of our personnel to meet customer demand, which may require additional liquidity. We can provide no assurance, that these objectives can be met in a timely manner in response to changes within the industry cycles in which we operate. If we fail to respond to these cyclical changes, our business could be seriously harmed.

We do not have long-term volume production contracts with our customers, and we do not control the timing or volume of orders placed by our customers. Whether and to what extent our customers place orders for any specific products, and the mix and quantities of products included in those orders are factors beyond our control. Insufficient orders would result in under-utilization of our manufacturing facilities and infrastructure and will negatively affect our financial position and results of operations.

We might require additional financing.

Our continuing operating losses may make it difficult for us to obtain financing on commercially reasonable terms, if at all. If adequate financing is not available when required on commercially reasonable terms, if at all, our business and operations may be materially and adversely affected. In addition, we could issue additional common stock, to fund our growth initiatives and operations which could materially dilute the ownership interests of the then existing shareholders.

We may, in the future, identify deficiencies in controls over financial reporting.

While we have concluded that, as of December 31, 2023, our disclosure and reporting controls were effective as included in Part II, Item 9A, there can be no assurance that material weaknesses will not be identified in the future. If we do identify material weaknesses in our internal controls over financial reporting in the future, our ability to analyze, record and report financial information free of material misstatements, and to prepare our financial statements within the time periods specified by the rules and forms of the SEC, may likely be adversely affected.

We have and may continue to be required to take impairment charges on assets.

We are required to assess our long-lived assets, including acquired intangible assets and property, plant and equipment, for recoverability and impairment whenever there are indicators or impairment, such as an adverse change in business climate.

As part of our long-term strategy, we have pursued acquisitions of other companies or assets, and may pursue future acquisitions of other companies or assets which could potentially increase our assets. Adverse changes in business conditions could materially impact our estimates of future operations and result in impairment charges to these assets. If our assets were impaired, our financial condition and results of operations could be materially and adversely affected.

Acquisitions can result in an increase in our operating costs, divert management’s attention away from other operational matters and expose us to other associated risks.

We evaluate potential acquisitions of businesses and technologies, and we consider targeted acquisitions that expand our core competencies to be an important part of our future growth strategy. In the past, we have made acquisitions of other businesses with synergistic products, services and technologies, and plan to continue to do so in the future.

Acquisitions involve numerous risks, which include but are not limited to:

Risks related to product liability

We face the risk of product liability claims.

The manufacture and sale of our products, which in operation sometimes involve the use of toxic materials and extreme temperatures and could result in product liability claims. For example, our rapid thermal processing systems used to heat semiconductor materials to temperatures more than 1000º Celsius have certain inherent risks. A failure of our products at a customer site could also result in losses due to interruption of the business operations of our customer. While we regularly evaluate the nature and limits of our insurance coverages, there can be no assurance that our existing policies of insurance will be adequate to protect us from all liabilities that we might incur in connection with the manufacture and sale of our products in the event of a successful product liability claim or series of successful claims against us.

The health and environmental effects of nanotechnology are unknown, and this uncertainty could adversely affect the expansion of our business.

The health and environmental effects of nanotechnology are unknown. There is no scientific agreement on the health effects of nanomaterials in general and carbon nanotubes but some scientists believe that in some cases, nanomaterials may be hazardous to an individual’s health or to the environment.

The science of nanotechnology is based on arranging atoms in such a way as to modify or build materials not made in nature; therefore, the effects are unknown. Future research into the effects of nanomaterials in general, and carbon nanotubes, on health and environmental issues, may have an adverse effect on products incorporating nanotechnology. Since part of our growth strategy is based on sales of research equipment to produce carbon nanotubes and the sale of such materials, the determination that these materials are harmful could adversely affect the expansion of our business.

Risk related to our stock

The price of our common shares is volatile and could decline significantly.

The stock market in general and the market for technology stocks has experienced volatility. If those industry-based market fluctuations continue, the trading price of our common shares could decline significantly independent of the overall market, and shareholders could lose all or a substantial part of their investment. The market price of our common shares could fluctuate significantly in response to several factors, including, among others:

Significant price and value fluctuations have occurred with respect to our publicly traded securities and those of technology companies generally. The price of our common shares is likely to be volatile in the future. In the past, securities class action litigation often has been brought against a company following periods of volatility in the market price of its securities. If similar litigation were pursued against us, it could result in substantial costs and a diversion of management’s attention and resources, which could materially and adversely affect our financial condition, results of operations, and liquidity.

General risks

Our success is highly dependent on the technical, sales, marketing and managerial contributions of key individuals, including our Chief Executive Officer and President, and we may be unable to retain these individuals or recruit others.

We depend on our senior executives including our Chief Executive Officer and President, and certain key managers as well as, engineering, research and development, sales, marketing and manufacturing personnel, who are critical to our business. Except for our Chief Executive Officer and President, we do not have employment agreements with our key employees. Furthermore, the current labor market remains very competitive and challenging for the acquisition and retention of key employees. Larger competitors may be able to offer more generous compensation packages to our executives and key employees, and therefore we risk losing key personnel to those competitors. If we were to lose the services of any of our key personnel, our engineering, product development, manufacturing and sales efforts could be slowed. We may also incur increased operating expenses and be required to divert the attention of our senior executives to search for their replacements. The integration of any new personnel could disrupt our ongoing operations.

We may not be able to hire or retain the number of qualified personnel, particularly engineering personnel, required for our business, which would harm the development and sales of our products and limit our ability to grow.

Competition in our industry for senior management, technical, sales, marketing and other key personnel is intense and has been made even more challenging in the current labor market. If we are unable to retain our existing personnel, or attract and train additional qualified personnel, our growth may be limited due to a lack of capacity to develop and market our products.

We have, from time to time, had trouble in hiring and retaining skilled engineers with appropriate qualifications to support our growth strategy. Our success depends on our ability to identify, hire, train and retain qualified engineering personnel with experience in equipment design. Specifically, we need to continue to attract and retain mechanical, electrical, software and field service engineers to work with our direct sales force to technically qualify and perform on new sales opportunities and orders, and to demonstrate our products.

Item 1B.     Unresolved Staff CommentsNone.

None.

Item 2.          Description of Property.

We have implemented a risk-based approach to identify and assess the cybersecurity threats that could affect our business and information systems. We use recognized commercially reasonable measures, tools, and methodologies to manage cybersecurity risk, which are tested regularly. We also monitor and evaluate our cybersecurity posture on an ongoing basis through regular malware scans, penetration tests, and third-party reviews. Specific controls that are used to some extent include endpoint threat detection, identity and access management (IAM), privileged access management (PAM), logging and monitoring, multi-factor authentication (MFA), firewalls and intrusion detection and prevention, and vulnerability and patch management.

To manage our material risks from cybersecurity threats and to protect against, detect, and prepare to respond to cybersecurity incidents, we undertake the below listed activities:

Our incident response plan coordinates the activities that we and our third-party cybersecurity provider take to prepare to respond to and recover from cybersecurity incidents. These include processes to triage, assess severity, investigate, escalate, contain, and remediate an incident, as well as to comply with potentially applicable legal obligations and mitigate brand and reputational damage. We have an IT continuity plan that we continuously review and update in line with our evolving applications architecture.

Our Board of Directors and Audit Committee oversee our cybersecurity efforts to ensure effective governance in managing risks associated with cybersecurity threats. Our Director of Information Technology provides periodic updates to the Board of Directors and Audit Committee regarding our cybersecurity program, including status updates on various projects to enhance our overall cybersecurity posture.

We describe whether and how risks from cybersecurity threats have or are reasonably likely to affect our financial position, results of operations, and cash flows under the heading “Risk related to cybersecurity, intellectual property and regulatory compliance,” which is included as part of Item 1A. Risk Factors of this Annual Report on Form 10-K, which disclosures are incorporated by reference herein.

Our corporate headquarters, research and development, manufacturing and process coating facilities as of December 31, 2023 are as follows:

Not applicable.

Not applicable.

Item 3.          Legal Proceedings.

None

Item 4.Mine Safety Disclosures.

Not applicable.

PART II

Item 5.          Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is listed on the NASDAQ Capital Market under the symbol “CVV.” The following table sets forth, for the periods indicated, the high and low closing prices of our common stock on the NASDAQ Capital Market.

As of March 22, 201725, 2024, there were approximately 8355 holders of record and approximately 1,2263,544 beneficial owners of our common stock, and the closing sales price of our common stock as reported on the NASDAQ Capital Market was $10.17$4.93.

Dividend Policy

We have never paid dividends on our common stock and we do not anticipate paying dividends on common stock at the present time. We currently intend to retain earnings, if any, for use in our business. There can be no assurance that we will ever pay dividends on our common stock. Our dividend policy with respect to our common stock is within the discretion of the Board of Directors and its policy with respect to dividends in the future will depend on numerous factors, including earnings, financial requirements, and general business conditions. We are also prohibited from paying dividends under the terms of our Revolving Line of Credit Agreement with HSBC Bank, USA, N.A.

Equity Compensation Plan Information Table

The following table provides information about shares of our common stock that may be issued upon the exercise of options under all of our existing compensation plans as of December 31, 2016.

Recent Sales of Unregistered Securities

None.

Issuer Purchasesof of Equity Securities

None.

 Selected Financial Data.

Not applicable.

Except for historical informationYou should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes contained herein,elsewhere in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”report. This discussion contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statementsthat involve known and unknown risks, uncertainties and other factors which may cause theassumptions. Our actual results performance, or achievementsmay differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the CompanySEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to be materially different from any future results, performance, or achievements expressed or implied byplace undue reliance on such forward-looking statements. These forward-looking statements were based on various factorsrepresent beliefs and were 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 the Company’s existing and potential future product lines of business; the Company’s ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company’s future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. 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. The Company assumes 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 results are no guaranty future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When useddate of this report. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

Executive Summary

We have served the advanced materials markets with this Report, the words “believes,” “anticipates,” ”expects,” “estimates,” “plans,” “intends,” “will”chemical vapor and similar expressions are intended to identify forward-looking statements.

We designthermal process equipment for over 40 years. CVD designs, develops, and manufacturemanufactures 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 researchindustrial applications and research. To learn more about CVD’s systems and offerings, visit www.cvdequipement.com.

During 2023:

Business Update

Our core strategy is to focus on growth market applications in end-user markets related to the “electrification of everything,” aerospace and industrial applicationsapplications. 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 focus onenabling tomorrow’s technologies^TM. These coatings are used in numerous fields including but not limitedobjective of reducing jet fuel consumption and contributing to aerospace, medical, solar, nano and advanced electronic components. We offer a broad rangethe decarbonization of chemical vapor deposition, gas control and other equipmentthat industry.

During 2021, we received the first six (6) orders for our PVT150 system that is used by our customerscustomer to research, designgrow silicon carbide crystals and manufacture these materials or coatings for turbine blades, implants, semiconductors, solar cells, smart glass, carbon nanotubes, nanowires, LEDs, MEMSreceived an additional 24 orders from the same customer in 2022. The crystals would be further processed into 150 mm silicon carbide wafers and later processed into integrated circuits and other applications. Throughdevices. Devices based on silicon carbide have been shown to reduce energy consumption in EVs and reduce the need for additional cooling elements. While we did not receive any additional orders from this customer, we remain in continuing discussions regarding potential additional orders.

We launched our Application Laboratory,marketing campaign for the PVT150 in the latter part of 2022 as we provide process development support, startup assistanceseek orders from other potential customers. We also developed and focus on developing higher efficiency material manufacturinglaunched our new PVT200 system used to grow silicon carbide crystals for the manufacture of 200 mm wafers in 2023.

In February 2024, we received our first order for a wide variety of growth markets. We lookPVT200. This is our second customer for PVT equipment. This customer plans to accelerate the introduction of nano materials into a range of products and applications to help create a demand forevaluate our equipment or whichwith the objective to select a vendor for potential additional purchases of PVT equipment.

During 2022, we can market through our wholly owned subsidiary, CVD Materials Corporation. Our proprietary technology products are generally customized to meetcompleted the particular specificationsproduction of individuala 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 received two additional orders from this customer in 2023 that were completed during the year.

During 2023, we also received a total $10.6 million of aerospace orders from multiple customers, and to acceleratereflecting continuing strong interest in the commercializationapplication of their proprietary intellectual property. We also offer standard productsCMCs in gas turbine jet engines.

In February 2024, we received a multisystem order for approximately $10 million that are basedwill be used for depositing a silicon carbide protective coating on the expertise and know-how we have developed in designing and manufacturing our customized products.OEM components.

Based on more than 34 years of experience, we use our engineering, manufacturing and process development to transform new applications into leading-edge manufacturing solutions. This enables university, research and industrial scientists at the cutting edge of technology to develop next generation chemical vapor deposited products for use in solar, nano materials, LEDs, semiconductors and other applications. We also develop and manufacture research and production equipment based on our proprietary designs. We have built a significant library of design expertise, know-how and innovative solutions to assist our customers in developing these intricate processes and to accelerate their commercialization of chemically deposited materials. This library of solutions, along with our vertically integrated manufacturing facilities, allows us to provide superior design, process and manufacturing solutions to our customers on a cost effective basis.

Results of Operations

Twelve Months

Years Ended December 31, 2016 vs Twelve Months Ended2023 and 2022

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the years ended December 31, 20152023 and 2022 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).

* Not meaningful

Revenue

* Not meaningful

Our revenue for the year ended December 31, 20162023 was $21$24.1 million compared to $39$25.8 million for the year ended December 31, 2015, resulting in2022, a decrease of 46.2%$1.7 million or 7%. This

The decrease in revenue versus the prior year period was primarily attributable to decreased revenue of $0.3 million from the protracted negotiations withCVD Equipment segment related to lower equipment sales and spare parts, $2.0 million decrease from our CVD Materials segment due to the disposition of Tantaline and wind down of MesoScribe’s operations, offset by a $0.6 million increase in revenue from our SDC segment due to higher demand.

Revenue from one aerospace customer a major aviation component supplier, which caused a delay in receiving a large anticipated follow-on order. 2023 represented 13.5% of our total revenues and 20.1% of CVD Equipment segment revenues. Sales of PVT150 systems made to one customer in 2023 and 2022 represented 14.3% and 29.2%, respectively, of our total revenues and 21.2% and 45.2%, respectively, of CVD Equipment segment revenues.

The revenue contributed by the CVD Equipment segment for the year ended December 31, 2016,2023 represented 67% of overall revenue as compared to 65% of overall revenue for the year ended December 31, 2022. The decrease in revenues of $0.3 million or 2% resulted from lower PVT150 revenues offset by an increase in aerospace revenue.

The revenue contributed by the CVD/First Nano division,SDC segment for the year ended December 31, 2023 represented 28% of $18.6overall revenue as compared to 25% of overall revenue for the year ended December 31, 2022. Revenue for our SDC segment increased $0.6 million which totaled 88.6%or 9% due to increased orders and demand for the SDC’s products during 2023 as compared to the prior year.

The revenue contributed by the CVD Materials segment for the year ended December 31, 2023 represented 5% of our overall revenue was 47.7% or $16.9 million less than the division’s $35.5 million contribution made in the prior year, which totaled 91%as compared to 12% of our overall revenue.

Annual revenue for the SDC division decreased to $2.4 million in 2016 compared to $3.5 million in 2015. This was a result of a general slowdown in the industry. However, we are beginning to see an increase in activity, as some of the expected orders from earlier are now being received. The SDC division represented 11.4% and 9% of our total revenue during the yearsyear ended December 31, 20162022 The decrease of $2.0 million was principally due to the disposition of Tantaline in May 2023 and the wind down of MesoScribe’s operations.

Our order backlog at December 31, 2015 respectively.2023 was approximately $18.4 million as compared to December 31, 2022 of $17.8 million. Our order backlog at December 31, 2023 consists of approximately $16.3 million related to remaining performance obligations of contracts in progress and the balance of approximately $2.1 million represents other orders received from customers. One aerospace customer represented 49.2% of our backlog as of December 31, 2023. 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.

Gross Profit

Gross profit for the year ended December 31, 20162023 amounted to $7.1$5.1 million, with a gross profit margin of 33.9%21%, compared to a gross profit of $15.1$6.6 million and a gross profit margin of 38.9%26% for the year ended December 31, 2015.2022. The reduceddecrease in gross profit of $1.6 million was primarily due to significant cost overruns on one contract and gross marginlower PVT150 and CVD Materials revenues as compared to 2022.

Research and Development

For the year ended December 31, 2023, research and development expenses were $2.6 million, or 10.8% of revenue as compared to $1.9 million, or 7.4% for the year ended December 31, 2022. The increase in 2023 was the result of the lower revenueincreased personnel and theemployee-related costs associated with maintaining production staff in anticipation of the large follow-on order from our largest customer.to develop new products for key growth markets.

ResearchGeneral engineering support and Development, Selling and General and Administrative Expenses

Dueexpenses related to the technical development required on our custom orders, ourof more standard products and value-added development of existing products are reflected as part of research and development teamexpense. General engineering support and their expenses are charged to costs of goods sold when they are workingwork is performed directly on a customer project. When they are not working on a customer project they work in our Application Laboratory and their costs are charged to research and development. In 2016, we incurred $0.4 million of internal research and development costs compared to $0.6 million of internal research and product development expenses incurred in 2015. The Company had temporarily curtailed independent research and development activities during the first six months of 2016, however, it has begun to expand those activities during the last half of the year.order.

Selling and shipping

Selling expenses were $1.1$1.6 million or 5.2%6.8% of the revenue for the year ended December 31, 20162023 as compared to $1.2 million or 3.1%4.7% for the year ended December 31, 2015.2022. The decreaseincrease in actual expenses2023 was aprimarily the result of reducedincreased personnel and shippingemployee-related costs in the current period. The increase as a percentage of revenue was dueduring to the reduced revenues for the current year.support increased marketing efforts.

General and Administrative

General and administrative expenses for the year ended December 31, 20162023 were $6.9$5.5 million or 22.6% of revenue compared to $7.7$5.3 million duringor 20.6% of revenue for the year ended December 31, 2015, a decrease2022, an increase of $0.8$0.1 million. In 2016, we incurred general legalThe increase in expenses was principally due to increases in stock-based compensation of $0.2 million, higher professional fees of $75,000 compared$0.3 million, and increase in 401(k) match of $0.2 million, offset by lower bonus expense of $0.4 million and lower expenses for CVD Materials of $0.1 million due to $619,000 in legal fees related to litigation that was settled in 2015.the disposition of Tantaline.

Litigation SettlementLoss on Disposition of Tantaline

Pursuant to a settlement agreement, in September 2015,This expense represents the Company paid the sum of $995,000 to Development Specialists, Inc. an Illinois corporation, solely in its capacity as assignee for the benefit of creditors of CM Manufacturing, Inc., f/k/a Stion Corporation, a Delaware corporation in full settlement and satisfaction of all claims asserted in a previously disclosed proceeding. Each party released all claims of any nature which it had against the other.

Gain on Settlement

The Company has included the results of a negotiated reduction to legal fees and expenses

in connection with the settlement of the previously disclosed Taiwan Glass litigation. The final negotiated sum was $1.1 million, resulting in a reduction of the amount that was previously billed and accrued and a gainnet loss on the statementsale of operationsour Tantaline subsidiary including professional fees.

Impairment Charge

This expense represents the loss on the impairment of $629,000 duringcertain assets of MesoScribe based on the period.decision to wind down its operations.

Operating (Loss)/Other Income, Net

As a result of the decreased revenues, we incurred a loss from operations ofOther income, net was $0.7 million for the year ended December 31, 20162023 as compared to operatingother income, net of $4.5$1.6 million for the year ended December 31, 2015.2022.

Other Income/(Expenses)

The increase in interest income of $0.4 million was due to higher interest rates and increased amounts invested in U.S. treasury bills. During 2022, we conducted an analysis to determine if we were entitled to an employee retention credit (“ERC”) under the Coronavirus Aid, Relief, and Economic Security Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Plan Act of 2021. Based on our analysis, we determined that we were entitled to an ERC of approximately $1.5 million related to payroll paid in the first and third quarters of 2021 under the applicable Internal Revenue Service regulations and . we recognized other income of this amount during the year ended December 31, 2016, we received a payment from our insurance company on a property damage claim that exceeded2022. This amount was collected in July 2023.

Income Taxes

Income tax (benefit) expense for the repair costs by $119,000.

Income Taxes

For the twelve monthsyears ended December 31, 2016,2023 and 2022, was ($14,000) and $4,000, respectively. We continue to evaluate for 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.

Inflation and Supply Chain Matters

We experienced increased costs on certain materials and components as well as delays in supply chain delivery, which may also impact our ability to recognize revenue and reduce our gross profit margins, as well as extend our manufacturing lead times and reduce our manufacturing efficiencies. We have commenced placing orders with more lead time to help mitigate the manufacturing delays, as well as assessing other suppliers or components to attempt to mitigate the potential cost impacts. In addition, we recorded an income tax benefit of approximately $504,000. This is primarilyare utilizing our in-house flexible manufacturing to attempt to further mitigate both potential schedule delivery delays and material cost increase. While we have initiated actions to mitigate the result of available researchpotential negative impacts to our revenue and development and other tax credits to a pre-tax loss of $654 as compared to an income tax expense of $1.3 million on pre-tax income of $4.5 million for the twelve months ended December 31, 2015.

Net (Loss)/Income

As a resultprofitability, there can be no assurance of the foregoingultimate impact and the length of time that the supply chain factors for the year ended December 31, 2016, we incurred a net loss of $149,000 or $(0.02) per diluted share compared to net income of $3.2 million or $0.51 per diluted share for the year ended December 31, 2015.may impact our revenues and profitability.

Inflation

Inflation has not materially impactedalso had an impact on salaries and compensation. To remain competitive in the acquisition and retention of our operations.employees, we have reviewed and adjusted salaries and implemented bonus incentives to mitigate the potential negative impacts of inflation on our employees.

Liquidity and Capital Resources

As of December 31, 2016,2023, we had aggregate working capital of $20.5$14.3 million compared to aggregate working capital of $19.9$15.5 million at December 31, 2015 and had available cash and cash equivalents of $21.7 million, compared to $13.1 million, in2022. Our cash and cash equivalents at December 31, 2015.2023 and 2022 were $14.0 million and $14.4 million, respectively.

Net cash used in operating activities during 2023 was $0.2 million and was principally due to the net loss of $4.2 million, decrease in contract assets of $0.6 million, increase in inventories of $1.9 million, decrease in accrued expenses of $0.7 million (primarily due to payment of 2022 bonus) offset by a decrease in accounts receivable of $1.8 million, collection of employee retention credit receivable of $1.5 million, an increase in contract liabilities of $0.9 million and non-cash items of $2.0 million. The increase in working capitalinventory was related to the production of $0.6 million is primarily attributablePVT150 systems in anticipation of potential future orders and increases related to an increase in cash that was partially offset by a reduction in costs and estimated earnings in excess of billings on contracts in progress as well as an increase in billings in excess of costs and estimated earnings on contracts in progress. Net cash increased by $8.6 million as a result of cash provided by operating activities of $8.8 million which was primarily attributed to an increase in billings in excess of costs and estimated earnings on contracts in progress. new system orders.

Net cash used in investing activities during 2023 was $0.1 million. Capital expenditures of $0.4 million.million related to purchases of manufacturing equipment and building improvements. The disposition of Tantaline resulted in a cash outflow of $0.3 million based on the terms of the agreement. We received $0.6 million of deposits from the purchaser of certain MesoScribe equipment as described below.

Cash flows from financing activities during 2023 was not significant and included $0.1 million of proceeds from the exercise of employee stock options and $0.1 million of repayment of an equipment loan.

Accounts receivable, net

On August 4, 2023, we entered into a Purchase and License Agreement with a third-party. Pursuant to the Purchase and License Agreement, we will sell certain proprietary assets relating to its plasma spray technology and material deposition system and grant a non-exclusive license to use certain of allowanceour related intellectual property as more fully described in the Purchase and License Agreement, for doubtful accounts, decreased by $2.5 million or 80.6% atan aggregate purchase price of $0.9 million. The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones.

During the year ended December 31, 2016 to2023, we received payments under the Purchase and License Agreement in the amount of $0.6 million compared to $3.1 million at December 31, 2015. This decreasewhich is principally due toreflected as deposits from purchaser in the timing of shipments and customer payments.