UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
For the quarterly period ended |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. | |
For the transition period from ____ to _____ |
Commission file number: 1-16525
CVD EQUIPMENT CORPORATION
(Name of Registrant in Its Charter)
New York | 11-2621692 |
State or Other Jurisdiction of | (I.R.S. Employer Identification No.) |
355 South Technology Drive Central Islip, New York 11722 | |
(Address of principal executive offices) |
(631) 981-7081
(Registrant’sRegistrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | CVV | NASDAQ Capital Market |
Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No☐
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act).
Large accelerated filer ☐ | Accelerated filer ☐ | ||
Non-accelerated filer ☑ | Smaller reporting company ☑ | Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.Exchange. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,728,9386,760,938 shares of Common Stock, $0.01 par value at May 9,November 14, 2022.
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Index
Part I - Financial Information | |
Item 1 – Condensed Consolidated Financial Statements (Unaudited) | |
Condensed Consolidated Balance Sheets at | 3 |
Condensed Consolidated Statements of Operations for the three and nine months ended | 4 |
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended | 5 |
Condensed Consolidated Statements of Cash Flows for the | 6 |
Notes to Condensed Consolidated Financial Statements | 7 |
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3 – Quantitative and Qualitative Disclosures About Market Risk |
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Item 4 – Controls and Procedures |
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Part II - Other Information | |
Item 1 – Legal Proceedings |
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Item 1A-Risk Factors |
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Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds |
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Item 3 – Defaults Upon Senior Securities |
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Item 4 – Mine Safety Disclosures |
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Item 5 – Other Information |
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Item 6 – Exhibits |
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Signatures |
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PART 1 – FINANCIAL INFORMATION
Item 1 – Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited) | (Unaudited) | |||||||||||||||
March 31, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||||||||||
ASSETS | ||||||||||||||||
Current Assets | ||||||||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | $ | 13,270,853 | $ | 16,651,371 | $ | 11,875,921 | $ | 16,651,371 | ||||||||
Accounts receivable, net | 1,498,183 | 1,446,354 | 2,850,861 | 1,446,354 | ||||||||||||
Contract assets | 2,717,823 | 2,538,373 | 3,152,469 | 2,538,373 | ||||||||||||
Inventories, net | 1,737,901 | 1,225,015 | 2,133,767 | 1,225,015 | ||||||||||||
Taxes Receivable | 0 | 715,599 | ||||||||||||||
Taxes receivable | - | 715,599 | ||||||||||||||
Other current assets | 384,286 | 493,788 | 560,019 | 493,788 | ||||||||||||
Total Current Assets | 19,609,046 | 23,070,500 | ||||||||||||||
Total current assets | 20,573,037 | 23,070,500 | ||||||||||||||
Property, plant and equipment, net | 12,196,745 | 12,261,321 | 12,813,611 | 12,261,321 | ||||||||||||
Intangible assets, net | 191,316 | 182,838 | 205,510 | 182,838 | ||||||||||||
Other assets | 9,570 | 9,570 | 9,570 | 9,570 | ||||||||||||
Total Assets | $ | 32,006,677 | $ | 35,524,229 | ||||||||||||
Total assets | $ | 33,601,728 | $ | 35,524,229 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current Liabilities | ||||||||||||||||
Current liabilities | ||||||||||||||||
Accounts payable | $ | 1,178,206 | $ | 1,161,381 | $ | 1,523,893 | $ | 1,161,381 | ||||||||
Accrued expenses | 1,820,341 | 1,758,939 | 2,445,791 | 1,758,939 | ||||||||||||
Current maturities of long-term debt | 0 | 1,765,508 | 76,379 | 1,765,508 | ||||||||||||
Contract Liabilities | 720,385 | 1,650,426 | ||||||||||||||
Total Current Liabilities | 3,718,932 | 6,336,254 | ||||||||||||||
Contract liabilities | 1,477,894 | 1,650,426 | ||||||||||||||
Total current liabilities | 5,523,957 | 6,336,254 | ||||||||||||||
Total Liabilities | 3,718,932 | 6,336,254 | ||||||||||||||
Long-term debt, net of current portion | 355,621 | - | ||||||||||||||
Total liabilities | 5,879,578 | 6,336,254 | ||||||||||||||
Stockholders’ Equity: | ||||||||||||||||
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,728,938 at March 31, 2022 and 6,723,438 at December 31, 2021 | 67,289 | 67,234 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,760,938 at September 30, 2022 and 6,723,438 at December 31, 2021 | 67,609 | 67,234 | ||||||||||||||
Additional paid-in capital | 27,374,209 | 27,277,154 | 27,584,158 | 27,277,154 | ||||||||||||
Retained earnings | 846,247 | 1,843,587 | 70,383 | 1,843,587 | ||||||||||||
Total Stockholders’ Equity | 28,287,745 | 29,187,975 | ||||||||||||||
Total stockholders’ equity | 27,722,150 | 29,187,975 | ||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 32,006,677 | $ | 35,524,229 | ||||||||||||
Total liabilities and stockholders’ equity | $ | 33,601,728 | $ | 35,524,229 |
The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended | ||||||||
MARCH 31, | ||||||||
2022 | 2021 | |||||||
Revenue | $ | 4,655,727 | $ | 3,365,860 | ||||
Cost of revenue | 3,886,176 | 2,921,554 | ||||||
Gross profit | 769,551 | 444,306 | ||||||
Operating expenses | ||||||||
Engineering, research and development | 310,207 | 310,954 | ||||||
Selling and shipping | 272,679 | 135,755 | ||||||
General and administrative | 1,192,653 | 1,616,384 | ||||||
Total operating expenses | 1,775,539 | 2,063,093 | ||||||
Operating loss | (1,005,988 | ) | (1,618,787 | ) | ||||
Other income (expense): | ||||||||
Interest income | 18,282 | 1,223 | ||||||
Interest expense | (9,634 | ) | (107,221 | ) | ||||
Other Income | 0 | 219,235 | ||||||
Total other income, net | 8,648 | 113,237 | ||||||
Loss before income tax | (997,340 | ) | (1,505,550 | ) | ||||
Income tax expense | 0 | 0 | ||||||
Net loss | $ | (997,340 | ) | $ | (1,505,550 | ) | ||
Basic loss per common share | $ | (0.15 | ) | $ | (0.23 | ) | ||
Diluted loss per common share | $ | (0.15 | ) | $ | (0.23 | ) | ||
Weighted average common shares Outstanding-basic | 6,725,042 | 6,680,130 | ||||||
Weighted average common shares Outstanding-diluted | 6,725,042 | 6,680,130 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Revenue | $ | 8,118,627 | $ | 4,329,459 | $ | 18,579,447 | $ | 11,729,727 | ||||||||
Cost of revenue | 5,698,766 | 3,466,159 | 13,952,413 | 9,424,994 | ||||||||||||
Gross profit | 2,419,861 | 863,300 | 4,627,034 | 2,304,733 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | 518,007 | 445,807 | 1,397,408 | 1,187,516 | ||||||||||||
Selling | 289,800 | 237,934 | 894,740 | 602,836 | ||||||||||||
General and administrative | 1,489,779 | 1,101,883 | 3,936,734 | 4,138,416 | ||||||||||||
Total operating expenses | 2,297,586 | 1,785,624 | 6,228,882 | 5,928,768 | ||||||||||||
Operating income (loss) | 122,275 | (922,324 | ) | (1,601,848 | ) | (3,624,035 | ) | |||||||||
Other income (expense): | ||||||||||||||||
Interest income | 43,050 | 1,776 | 73,979 | 3,402 | ||||||||||||
Interest expense | (159 | ) | (35,973 | ) | (5,502 | ) | (250,194 | ) | ||||||||
Gain on sale of building | - | 6,894,109 | - | 6,894,109 | ||||||||||||
Gain on debt extinguishment | - | - | - | 2,443,418 | ||||||||||||
Foreign exchange loss | (107,000 | ) | - | (250,000 | ) | - | ||||||||||
Other income | 5,437 | 63,143 | 11,057 | 499,970 | ||||||||||||
Total other income, net | (58,672 | ) | 6,923,055 | (170,466 | ) | 9,590,705 | ||||||||||
Income (loss) before income taxes | 63,603 | 6,000,731 | (1,772,314 | ) | 5,966,670 | |||||||||||
Income tax expense | 65 | 27,327 | 890 | 28,391 | ||||||||||||
Net income (loss) | $ | 63,538 | $ | 5,973,404 | $ | (1,773,204 | ) | $ | 5,938,279 | |||||||
Income (loss) per common share - basic | $ | 0.01 | $ | 0.89 | $ | (0.26 | ) | $ | 0.89 | |||||||
Income (loss) per common share - diluted | $ | 0.01 | $ | 0.89 | $ | (0.26 | ) | $ | 0.89 | |||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic | 6,736,764 | 6,685,599 | 6,730,263 | 6,683,407 | ||||||||||||
Diluted | 6,740,692 | 6,707,883 | 6,730,263 | 6,691,813 |
The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(Unaudited)
Three months ended March 31, 2022 and 2021 | ||||||||||||||||||||
Common stock | ||||||||||||||||||||
Retained | ||||||||||||||||||||
Shares | Par Value | Additional paid-in Capital | Earnings/ (Accumulated deficit) | Total | ||||||||||||||||
Balance at January 1, 2022 | 6,723,438 | $ | 67,234 | $ | 27,277,154 | $ | 1,843,587 | $ | 29,187,975 | |||||||||||
Net loss | - | - | - | (997,340 | ) | (997,340 | ) | |||||||||||||
Stock-Based Compensation | 5,500 | 55 | 97,055 | - | 97,110 | |||||||||||||||
Balance at March 31, 2022 | 6,728,938 | $ | 67,289 | $ | 27,374,209 | $ | 846,247 | $ | 28,287,745 | |||||||||||
Balance at January 1, 2021 | 6,678,698 | $ | 66,786 | $ | 26,961,684 | $ | (2,902,898 | ) | 24,125,572 | |||||||||||
Net loss | - | 0 | 0 | (1,505,550 | ) | (1,505,550 | ) | |||||||||||||
Stock-Based Compensation | 5,583 | 56 | 50,317 | - | 50,373 | |||||||||||||||
Balance at March 31, 2021 | 6,684,281 | $ | 66,842 | $ | 27,012,001 | $ | (4,408,448 | ) | $ | 22,670,395 |
Three months ended September 30, 2022 and 2021 | ||||||||||||||||||||
Common stock | ||||||||||||||||||||
Shares | Par Value | Additional paid-in Capital | Retained Earnings/ (Accumulated Deficit) | Total | ||||||||||||||||
Balance at July 1, 2022 | 6,728,938 | $ | 67,289 | $ | 27,465,930 | $ | 6,845 | $ | 27,540,064 | |||||||||||
Net income | - | - | - | 63,538 | 63,538 | |||||||||||||||
Stock-based compensation | 32,000 | 320 | 118,228 | - | 118,548 | |||||||||||||||
Balance at September 30, 2022 | 6,760,938 | $ | 67,609 | $ | 27,584,158 | $ | 70,383 | $ | 27,722,150 | |||||||||||
Balance at July 1, 2021 | 6,684,281 | $ | 66,842 | $ | 27,074,079 | $ | (2,938,023 | ) | $ | 24,202,898 | ||||||||||
Net income | - | - | - | 5,973,404 | 5,973,404 | |||||||||||||||
Stock-based compensation | 3,157 | 32 | 105,459 | - | 105,491 | |||||||||||||||
Balance at September 30, 2021 | 6,687,438 | $ | 66,874 | $ | 27,179,538 | $ | 3,035,381 | $ | 30,281,793 |
Nine months ended September 30, 2022 and 2021 | ||||||||||||||||||||
Common stock | ||||||||||||||||||||
Shares | Par Value | Additional paid-in Capital | Retained Earnings / (Accumulated Deficit) | Total | ||||||||||||||||
Balance at January 1, 2022 | 6,723,438 | $ | 67,234 | $ | 27,277,154 | $ | 1,843,587 | $ | 29,187,975 | |||||||||||
Net loss | - | - | - | (1,773,204 | ) | (1,773,204 | ) | |||||||||||||
Stock-based compensation | 37,500 | 375 | 307,004 | - | 307,379 | |||||||||||||||
Balance at September 30, 2022 | 6,760,938 | $ | 67,609 | $ | 27,584,158 | $ | 70,383 | $ | 27,722,150 | |||||||||||
Balance at January 1, 2021 | 6,678,698 | $ | 66,786 | $ | 26,961,684 | $ | (2,902,898 | ) | $ | 24,125,572 | ||||||||||
Net income | - | - | - | 5,938,279 | 5,938,279 | |||||||||||||||
Stock-based compensation | 8,740 | 88 | 217,854 | - | 217,942 | |||||||||||||||
Balance at September 30, 2021 | 6,687,438 | $ | 66,874 | $ | 27,179,538 | $ | 3,035,381 | $ | 30,281,793 |
The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
March 31, | September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net loss | $ | (997,340 | ) | $ | (1,505,550 | ) | ||||||||||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||||||||||
Net (loss) income | $ | (1,773,204 | ) | $ | 5,938,279 | |||||||||||
Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||||||||||
Gain on sale of building | - | (6,894,109 | ) | |||||||||||||
Gain on debt extinguishment | - | (2,443,418 | ) | |||||||||||||
Stock-based compensation | 97,110 | 50,373 | 307,379 | 217,942 | ||||||||||||
Depreciation and amortization | 250,949 | 255,644 | 537,903 | 585,082 | ||||||||||||
(Increase)/decrease in operating assets | ||||||||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Accounts receivable | (51,829 | ) | 228,699 | (1,404,506 | ) | (844,185 | ) | |||||||||
Contract assets | (179,450 | ) | (533,007 | ) | (614,096 | ) | (1,133,887 | ) | ||||||||
Inventories | (512,886 | ) | (216,160 | ) | (908,753 | ) | (341,905 | ) | ||||||||
Tax receivable | 715,599 | 0 | 715,599 | - | ||||||||||||
Other current assets | 109,244 | 251,987 | (66,230 | ) | 491,764 | |||||||||||
Increase/(decrease) in operating liabilities | ||||||||||||||||
Accounts payable | 16,825 | (314,625 | ) | 362,512 | 36,226 | |||||||||||
Accrued expenses | 61,402 | 264,123 | 686,851 | 95,281 | ||||||||||||
Contract liabilities | (930,041 | ) | (53,150 | ) | (172,532 | ) | 717,688 | |||||||||
Total adjustments | (423,077 | ) | (66,116 | ) | (555,873 | ) | (9,513,521 | ) | ||||||||
Net cash used in operating activities | (1,420,417 | ) | (1,571,666 | ) | (2,329,077 | ) | (3,575,242 | ) | ||||||||
Cash flows from investing activities: | ||||||||||||||||
Net proceeds from sale of building | - | 23,075,477 | ||||||||||||||
Net proceeds from sale of assets | 10,000 | 0 | 10,000 | - | ||||||||||||
Patents | (27,540 | ) | 0 | |||||||||||||
Capitalized patents costs | (52,911 | ) | - | |||||||||||||
Capital expenditures | (177,053 | ) | (26,744 | ) | (637,954 | ) | (212,920 | ) | ||||||||
Net cash used in investing activities | (194,593 | ) | (26,744 | ) | ||||||||||||
Net cash (used in) provided by investing activities | (680,865 | ) | 22,862,557 | |||||||||||||
Cash flows from financing activities | ||||||||||||||||
Payments of long-term debt | (1,765,508 | ) | (171,562 | ) | ||||||||||||
Cash flows from financing activities: | ||||||||||||||||
Repayments of long-term debt | (1,765,508 | ) | (9,540,246 | ) | ||||||||||||
Net cash used in financing activities | (1,765,508 | ) | (171,562 | ) | (1,765,508 | ) | (9,540,246 | ) | ||||||||
Net decrease in cash and cash equivalents | (3,380,518 | ) | (1,769,972 | ) | ||||||||||||
Net (decrease) increase in cash and cash equivalents | (4,775,450 | ) | 9,747,069 | |||||||||||||
Cash and cash equivalents at beginning of period | 16,651,371 | 7,699,335 | 16,651,371 | 7,699,335 | ||||||||||||
Cash and cash equivalents at end of period | $ | 13,270,853 | $ | 5,929,363 | $ | 11,875,921 | $ | 17,446,404 | ||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||
Income taxes paid | $ | 0 | $ | 0 | $ | 890 | $ | 28,391 | ||||||||
Interest paid | $ | 8,953 | $ | 106,547 | $ | 8.157 | $ | 250,194 | ||||||||
Non-cash investing and financing activities: | ||||||||||||||||
Loan obtained for new equipment | $ | 432,000 | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
NOTE 1:
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and ninemonths ended March 31,September 30, 2022 are not necessarily indicative of the results that can be expected for the year ending December 31, 2022.
The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 31, 2022, but does not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with that report.
All material intercompany balances and transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to the prior period condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net income.income (loss).
NOTE 2: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Revenue Recognition
In accordance with FASB ASC 606 - Revenue from Contracts with Customers (“ASC 606“), the Company records revenue in an amount that reflects the consideration to which the Company expects to be entitled in exchange for goods or services promised to its customers. Under ASC 606, the Company follows a five-step model to: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price for the contract; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue using one of the following two methods:
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NOTE 2: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Revenue RecognitionOver time
The Company designs, manufactures and sells customspecialized chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within three to eighteen months from commencement of order acceptance. The Company recognizes revenue from system sales over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process, and installed, as required by the project’s engineering design. Cost basedCost-based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.
“Contract assets,” include unbilled amounts typically resulting from system sales under contracts and represents revenue recognized that exceeds the amount billed to the customer. The amount may not exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle.
“Contract liabilities,” include advance payments and billings in excess of revenue recognized. The Company typically receives down payments upon receipt of order and progress payments duringas the manufacturing cycle. system is manufactured.
Contract assets and contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, atas these contracts in progress are expected to be substantially completed within the end of each reporting period.next twelve months.
Point in time
For non-system sales of products and services, revenue is recognized at the point in time revenue is recognized when control of the promised products or services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606, “Revenue from Contracts with Customers”.
NOTE 2: | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) |
Recent Accounting Standards
In June 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326), which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. On November 15, 2019, the FASB delayed the effective date for smaller reporting companies. The amendments in this update are now effective for fiscal years beginning after December 15, 2022 and interim periods within those annual periods. Management is currently evaluating the effect of this update on the Company’s consolidated financial statements and currently believes it should not have a material impact.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Standards (continued)
The Company believes there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of its financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.
NOTE 3: |
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Cash and cash equivalents
The Company had cash and cash equivalents of $13.3$11.9 million and $16.7 million at March 31,September 30, 2022 and December 31, 2021, respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents were $7.1 million and $7.0 million at March 31,September 30, 2022 and December 31, 2021, respectively.
The Company places most of its temporary cash investments with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at March 31,September 30, 2022 and December 31, 2021 was $5,411,000$3.7 million and $8,613,000,$8.6 million, respectively.
NOTE 3: | CONCENTRATION OF CREDIT RISK (continued) |
Sales concentration
Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended March 31,September 30, 2022, one customer exceeded 10% of revenues, representing 44.6% of revenues, and during the nine months ended September 30, 2022, one customer exceeded 10%, representing 28.6% of revenues. During the three months ended September 30, 2021, two customers exceeded 10% of revenues, representing 14.3%, 13.3%15.6% and 11.6%11.8% of revenues, and during the threenine months ended March 31,September 30, 2021, one customertwo customers exceeded 10%, representing 30.7%12.0% and 11.7% of revenues.
Accounts receivable
The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. For certain contracts, the Company receives advanced payments for a portion of the contract price. The Company also maintains allowances for anticipated losses. At March 31,September 30, 2022, four customersone customer exceeded 10% of the accounts receivable balance representing 58.1%in the aggregate 34.4%, and at December 31, 2021 two customers exceeded 10% of the accounts receivable balance, representing in the aggregate 50.0% of the accounts receivable balance.
NOTE 4: | REVENUE RECOGNITION |
The following table represents a disaggregation of revenue for the three and ninemonths ended March 31,September 30, 2022 and 2021 (in thousands):
Three Month's Ending March 31, 2022 | Three months ended September 30, 2022 | |||||||||||||||||||||||
Over time | Point in time | Total | Over time | Point in time | Total | |||||||||||||||||||
Aerospace | $ | 0 | $ | 705 | $ | 705 | $ | - | $ | 154 | $ | 154 | ||||||||||||
Energy, storage and transmission | $ | 899 | $ | 7 | $ | 906 | 3,791 | 25 | 3,816 | |||||||||||||||
Industrial | $ | 997 | $ | 872 | $ | 1,869 | 1,653 | 1,153 | 2,806 | |||||||||||||||
Research | $ | 706 | $ | 470 | $ | 1,176 | 827 | 516 | 1,343 | |||||||||||||||
Total | $ | 2,602 | $ | 2,054 | $ | 4,656 | $ | 6,271 | $ | 1,848 | $ | 8,119 |
Three Month's Ending March 31, 2021 | ||||||||||||
Over time | Point in time | Total | ||||||||||
Aerospace | $ | 189 | $ | 526 | $ | 715 | ||||||
Energy, storage and transmission | $ | 0 | $ | 0 | $ | 0 | ||||||
Industrial | $ | 1,369 | $ | 675 | $ | 2,044 | ||||||
Research | $ | 187 | $ | 420 | $ | 607 | ||||||
Total | $ | 1,745 | $ | 1,621 | $ | 3,366 |
NOTE 4: | REVENUE RECOGNITION (continued) |
Three months ended September 30, 2021 | ||||||||||||
Over time | Point in time | Total | ||||||||||
Aerospace | $ | - | $ | 574 | $ | 574 | ||||||
Energy, storage and transmission | - | - | - | |||||||||
Industrial | 1,551 | 1,205 | 2,756 | |||||||||
Research | 612 | 388 | 1,000 | |||||||||
Total | $ | 2,163 | $ | 2,167 | $ | 4,330 |
Nine months ended September 30, 2022 | ||||||||||||
Over time | Point in time | Total | ||||||||||
Aerospace | $ | - | $ | 1,375 | $ | 1,375 | ||||||
Energy, storage and transmission | 6,714 | 49 | 6,763 | |||||||||
Industrial | 4,099 | 3,197 | 7,296 | |||||||||
Research | 1,832 | 1,313 | 3,145 | |||||||||
Total | $ | 12,645 | $ | 5,934 | $ | 18,579 |
Nine months ended September 30, 2021 | ||||||||||||
Over time | Point in time | Total | ||||||||||
Aerospace | $ | 386 | $ | 1,677 | $ | 2,063 | ||||||
Energy, storage and transmission | - | - | - | |||||||||
Industrial | 4,147 | 3,173 | 7,320 | |||||||||
Research | 1,164 | 1,183 | 2,347 | |||||||||
Total | $ | 5,697 | $ | 6,033 | $ | 11,730 |
The Company has unrecognized contract revenue of approximately $6.2$9.8 million at March 31,September 30, 2022, which it expects to substantially recognize as revenue within the next twelve months.
Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.
NOTE 4: | REVENUE RECOGNITION (continued) |
Changes in estimates for sales of systems may occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s consolidated statements of operations.
NOTE 4: REVENUE DISAGGREGATION (continued)
Contract Assetsassets and Liabilitiesliabilities
Contract assets consist of (i) retainage which represents the earned, but unbilled, portion for which payment is deferred by the customer until certain contractual milestones are met; and (ii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for long-term contracts. Contract liabilities consist of customer advances and billings in excess of revenue recognized.
During the threenine months ended March 31,September 30, 2022 and 2021, the increase in contract assets of approximately $.2.6 million and $.5$1.1 million, respectively, was the result of work performed in excess of billings which are based upon projectcontract milestones.
Contract assets and contract liabilities on input method type contracts in progress are summarized as follows:
2022 | 2022 | |||||||
Costs incurred on contracts in progress | $ | 6,878,958 | $ | 11,921,048 | ||||
Estimated earnings | 4,792,589 | 8,530,639 | ||||||
11,671,547 | 20,451,687 | |||||||
Billings to date | (9,510,318 | ) | (18,548,776 | ) | ||||
$ | 2,161,229 | 1,902,911 | ||||||
Deferred revenue related to non-systems contracts | (163,791 | ) | ||||||
Deferred revenue related to non-system contracts | (228,336 | ) | ||||||
1,997,438 | $ | 1,674,575 | ||||||
Included in accompanying balance sheets | ||||||||
Under the following captions: | ||||||||
Included in accompanying condensed consolidated balance sheets under the following captions: | ||||||||
Contract assets | $ | 2,717,823 | $ | 3,152,469 | ||||
Contract liabilities | $ | (720,385 | ) | $ | (1,477,894 | ) |
NOTE 5: |
|
Inventories consist of:
March 31, 2022 | December 31, 2021 | September 30, 2022 | December 31, 2021 | |||||||||||||
Raw materials | $ | 1,368,955 | $ | 1,030,955 | $ | 1,804,675 | $ | 1,030,955 | ||||||||
Work-in-process | 368,946 | 194,060 | 329,092 | 194,060 | ||||||||||||
Inventories | $ | 1,737,901 | $ | 1,225,015 | $ | 2,133,767 | $ | 1,225,015 |
NOTE 6: |
|
Accounts receivable are presented net of an allowance for doubtful accounts of approximately $36,000 and $59,000 as of March 31,September 30, 2022 and December 31, 2021, respectively. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.
NOTE 7: | LONG-TERM DEBT |
NOTEIn 7:September 2022, LONG-TERM DEBTthe Company entered into a loan agreement to fund the acquisition of machinery. The loan amount is $432,000, is payable in 60 equal monthly installments of $8,352 and secured by equipment. The interest rate is 6%.
The Company had a loan agreement with HSBC Bank USA (“HSBC”) which was secured by a mortgage against its Central Islip, NY Headquarters.New York facility. The loan was payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity on March 1, 2022. The balance as of December 31, 2021 was approximately $1.8 million. Interest accrued on the Loan, at the Company’s option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5% (1.86% at December 31, 2021). According to the terms of the agreement, the loan was satisfied on March 1, 2022.
NOTE 8: | GAIN ON DEBT EXTINGUISMENT |
On April 21, 2020, the Company entered into a loan agreement (the “Loan Agreement”) with HSBC pursuant to which the Company was granted a loan in the principal amount of $2.4 million, pursuant to the Paycheck Protection Program (the “PPP”) under Division A, Title I of the CARES Act, which was enacted by the United States Congress on March 27, 2020.
The PPP loan, the obligation of which was represented by a note issued by the Company, was to mature on April 21, 2022 and bore interest at a rate of 1% per annum. The note could be prepaid by the Company at any time prior to maturity with no prepayment penalties. Under the terms of the PPP, all or a portion of the loan could be forgiven, based upon payments made in the firsttwenty-four weeks following receipt of the proceeds, related to payroll costs, continue group health care benefits, utilities and mortgage interest on other debt obligations incurred before February 15, 2020. The Company filed an application for forgiveness in April 2021 and the Company received a notification from its lender that on June 10, 2021 the U.S. Small Business Administration approved the Company’s PPP Loan forgiveness application and remitted payment to the lender for the entire principal amount of the PPP Loan and accrued interest. As a result, the Company recognized a gain on debt extinguishment in the amount of $2.4 million during the nine months ended September 30, 2021.
NOTE 9: |
|
The Company recorded $97,110$118,548 and $50,373$307,379 during the three and ninemonths ended March 31,September 30, 2022, respectively, and recorded $105,491 and $217,942 during the threeand 2021,nine months ended September 30, 2021, respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments. The following table summarizes the compensation expense recorded for the three and ninemonths ended March 31,September 30, 2022 and 2021 related to stock-based compensation.
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Cost of revenue | $ | 16,029 | $ | 0 | ||||
Engineering, research and development | $ | 3,941 | $ | 0 | ||||
Selling and shipping | $ | 5,246 | $ | 0 | ||||
General and administrative | $ | 71,894 | $ | 50,373 | ||||
Total | $ | 97,110 | $ | 50,373 |
NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Cost of revenue | $ | 9,221 | $ | 7,715 | $ | 26,100 | $ | 7,715 | ||||||||
Research and development | 16,367 | 3,972 | 42,684 | 3,972 | ||||||||||||
Selling and shipping | 7,508 | 4,371 | 18,305 | 4,371 | ||||||||||||
General and administrative | 85,452 | 89,433 | 220,290 | 201,884 | ||||||||||||
Total | $ | 118,548 | $ | 105,491 | $ | 307,379 | $ | 217,942 |
A summary of the stock option activity related to the 2007 Share Incentive Plan, and the 2016 ShareEquity Incentive Plan and the 2022 Equity Incentive Plan for the period from January 1, 2022 through March 31,September 30, 2022 are as follows:
2007 Share Incentive Plan | ||||||||||||||||||||||||||||||||||||||||||||||||
Beginning | Granted | Exercised | Canceled | Ending | Beginning | Granted | Exercised | Canceled | Ending | |||||||||||||||||||||||||||||||||||||||
Balance | During | During | During | Balance | Balance | During | During | During | Balance | |||||||||||||||||||||||||||||||||||||||
Outstanding | Period | Period | Period | Outstanding | Exercisable | Outstanding | Period | Period | Period | Outstanding | Exercisable | |||||||||||||||||||||||||||||||||||||
Number of shares | 220,000 | 0 | 0 | 0 | 220,000 | 220,000 | 220,000 | - | - | (75,000 | ) | 145,000 | 145,000 | |||||||||||||||||||||||||||||||||||
Weighted average exercise price per share | $ | 12.56 | 0 | 0 | 0 | $ | 12.56 | $ | 12.56 | $ | 12.56 | - | - | $ | 15.00 | $ | 11.29 | $ | 11.29 |
2016 Share Incentive Plan | ||||||||||||||||||||||||
Beginning | Granted | Exercised | Canceled | Ending | ||||||||||||||||||||
Balance | During | During | During | Balance | ||||||||||||||||||||
Outstanding | Period | Period | Period | Outstanding | Exercisable | |||||||||||||||||||
Number of shares | 398,500 | 12,500 | 0 | (2,500 | ) | 408,500 | 65,000 | |||||||||||||||||
Weighted average exercise price per share | $ | 4.43 | $ | 4.60 | 0 | $ | 4.01 | $ | 4.43 | $ | 5.94 |
2016 Equity Incentive Plan | ||||||||||||||||||||||||
Beginning | Granted | Exercised | Canceled | Ending | ||||||||||||||||||||
Balance | During | During | During | Balance | ||||||||||||||||||||
Outstanding | Period | Period | Period | Outstanding | Exercisable | |||||||||||||||||||
Number of shares | 398,500 | 102,500 | - | (44,000 | ) | 457,000 | 145,500 | |||||||||||||||||
Weighted average exercise price per share | $ | 4.43 | $ | 4.97 | - | $ | 4.25 | $ | 4.56 | $ | 4.94 |
2022 Equity Incentive Plan | ||||||||||||||||||||||||
Beginning | Granted | Exercised | Canceled | Ending | ||||||||||||||||||||
Balance | During | During | During | Balance | ||||||||||||||||||||
Outstanding | Period | Period | Period | Outstanding | Exercisable | |||||||||||||||||||
Number of shares | - | 76,000 | - | - | 76,000 | - | ||||||||||||||||||
Weighted average exercise price per share | - | $ | 5.13 | - | - | $ | 5.13 | - |
In August 2022, the shareholders of the Company approved the 2022 Equity Incentive Plan that provides for the issuance of stock options and restricted stock for up to 515,000 shares. As of September 30, 2022, there were 47,698 shares available for grant under the 2016 Equity Incentive Plan and 439,000 shares available for grant under the 2022 Equity Incentive Plan.
For the threenine months ended March 31,September 30, 2022, the Company granted 12,500178,500 stock options, vesting 25% per year over four years, with a ten-year life. The Company determined the weighted average fair value of stock options granted during the threenine months ended March 31,September 30, 2022 was $3.17 and is based upon weighted average assumptions as provided below.
Stock Price | $ | 4.60 | $ | 5.04 | ||||
Exercise Price | $ | 4.60 | $ | 5.04 | ||||
Dividend yield | 0 | % | 0 | % | ||||
Expected volatility | 68 | % | 68 | % | ||||
Risk-Free interest rate | 1.79 | % | 2.96 | % | ||||
Expected life (in years) | 6.00 | 6.00 |
The Company has a total of 628,500678,000 outstanding stock options, of which 285,000290,500 were exercisable, under the twothree plans at March 31,September 30, 2022.
NOTE 9: |
|
The following table summarizes information about the outstanding and exercisable options at March 31, 2022.September 30, 2022 by ranges of exercise prices:
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||||||||||
Exercise | Number | Remaining | Exercise | Intrinsic | Number | Exercise | Intrinsic | |||||||||||||||||||||||||
Price Range | Outstanding | Contractual | Price | Value | Exercisable | Price | Value | |||||||||||||||||||||||||
$ | 4.00 | - | 7.00 | 388,500 | 9.1 | $ | 4.25 | $ | 116,000 | 45,000 | $ | 5.00 | $ | 0 | ||||||||||||||||||
$ | 7.01 | - | 10.00 | 20,000 | 6.1 | $ | 8.07 | $ | 0 | 20,000 | $ | 8.07 | $ | 0 | ||||||||||||||||||
$ | 10.01 | - | 12.00 | 120,000 | 3.3 | $ | 10.52 | $ | 0 | 120,000 | $ | 10.52 | $ | 0 | ||||||||||||||||||
$ | 12.01 | - | 15.00 | 100,000 | .4 | $ | 15.00 | $ | 0 | 100,000 | $ | 15.00 | $ | 0 |
Options Outstanding | Options Exercisable | ||||||||||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||||||||||
Average | Average | Average | |||||||||||||||||||||||||||||
Exercise | Number | Remaining | Exercise | Intrinsic | Number | Exercise | Intrinsic | ||||||||||||||||||||||||
Price Range | Outstanding | Contractual | Price | Value | Exercisable | Price | Value | ||||||||||||||||||||||||
$4.00 | - | 7.00 | 513,000 | 8.8 | $ | 4.51 | $ | 249,645 | 125,500 | $ | 4.94 | $ | 67,905 | ||||||||||||||||||
$7.01 | - | 10.00 | 20,000 | 5.6 | $ | 8.07 | $ | 0 | 20,000 | $ | 8.07 | $ | 0 | ||||||||||||||||||
$10.01 | - | 12.00 | 120,000 | 4.5 | $ | 10.52 | $ | 0 | 120,000 | $ | 10.52 | $ | 0 | ||||||||||||||||||
$12.01 | - | 15.00 | 25,000 | .1 | $ | 15.00 | $ | 0 | 25,000 | $ | 15.00 | $ | 0 |
NaN options were exercised duringFor the threenine months ended March 31, 2022.September 30, 2022, no options were exercised. As of March 31,September 30, 2022, there was $693,000$1.0 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 3.3 years.
Restricted Stock Awards
There were 0 unvested shares of restricted stock at March 31, 2022 and December 31, 2021. During the three months ended March 31, 2022 there were 0 grants of restricted stock.
Pursuant to the director compensationDirector Compensation plan approved on October 11, 2021, each director is entitled to Director Compensation for an Annual Equity Retainer in the amount of $40,000, to be automatically granted on the date of the Company’s annual meeting of shareholders (directorsshareholders. The directors may elect to receive payment in restricted stock, stock options or a combination thereof).thereof.
During the three and nine months ended September 30, 2022, the Company’s directors received 32,000 shares of restricted stock with an estimated fair value of $160,000 of which 16,000 shares vested upon the date of grant on August 17, 2022 and the remaining 16,000 shares will vest on December 31, 2022. At September 30, 2022, there was $40,000 of unrecognized stock compensation expense associated with the restricted stock awards.
Restricted Stock Units
The following table summarizes activity related to outstanding restricted stock units for the threenine months ended March 31,September 30, 2022:
Weighted | Weighted | |||||||||||||||
Shares of | Average Grant | Shares of | Average Grant | |||||||||||||
Restricted | Date Fair | Restricted | Date Fair | |||||||||||||
Stock Units | Value | Stock Units | Value | |||||||||||||
Unvested outstanding at December 31, 2021 | 5,500 | $ | 4.82 | 5,500 | $ | 4.82 | ||||||||||
Granted | 0 | $ | 0 | - | $ | - | ||||||||||
Vested | (5,500 | ) | $ | 4.82 | (5,500 | ) | $ | 4.82 | ||||||||
Forfeited/Cancelled | 0 | $ | 0 | |||||||||||||
Forfeited or cancelled | - | $ | - | |||||||||||||
Unvested outstanding at March 31, 2022 | 0 | $ | 0 | |||||||||||||
Unvested outstanding at September 30, 2022 | - | $ | - |
NOTE 9: | STOCK-BASED COMPENSATION EXPENSE (continued) |
The total fair value of vested restricted stock units was $3,458 for the threenine months ended March 31,September 30, 2022. As of March 31,September 30, 2022, there was 0no unrecognized compensation costs related to restricted stock units.
NOTE 10: |
|
Basic earnings per share is computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares outstanding (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.
A reconciliation of basic to diluted shares used in the earnings per share calculation is as follows:
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Basic weighted average common shares outstanding | 6,725,042 | 6,680,130 | ||||||
Dilutive effect of options and unvested restricted shares | 0 | 0 | ||||||
Diluted weighted average shares outstanding | 6,725,042 | 6,680,130 |
NOTE 10: EARNINGS PER SHARE (continued)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Basic weighted average common shares outstanding | 6,736,764 | 6,685,599 | 6,730,263 | 6,683,407 | ||||||||||||
Dilutive effect of options and unvested restricted shares | 3,928 | 22,284 | - | 8,406 | ||||||||||||
Diluted weighted average shares outstanding | 6,740,692 | 6,707,883 | 6,730,263 | 6,691,813 |
The following table represents commonweighted average stock equivalentsoptions that were excluded from the computation of diluted earnings per share for the three and ninemonths ended March 31,September 30, 2022 and 2021, because the effect of their inclusion would be anti-dilutive.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Stock options | 652,109 | 716,216 | 615, 999 | 730,094 | ||||||||||||
Restricted stock | - | - | 2,637 | - | ||||||||||||
652,109 | 716,216 | 618,636 | 730,094 |
Three months ended March 31, | ||||||||
2022 | 2021 | |||||||
Stock Options | 628,500 | 410,000 | ||||||
628,500 | 410,000 |
NOTE 10: EARNINGS PER SHARE (continued) The dilutive potential common shares on options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all options are used to repurchase common stock at market NOTE 11: INCOME TAXES As of September 30, 2022 and December 31, 2021, the Company has provided a full valuation allowance against its net deferred tax assets. This was based on management’s assessment, including the last four years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future. Management continues to evaluate for potential utilization of the Company’s net deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections of future operating results. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted by the United States Congress. As a result of the enactment of the CARES Act, net operating losses (“NOL’s”) generated in during the years 2018 through 2020 could be carried back for five years and resulted in the Company recognizing approximately $1.5 million of a tax benefit, of which $.7 million was a receivable at December 31, 2021. This tax receivable was collected in March 2022. NOTE 12: The Company operates through three The Company’s corporate administration activities are reported in the NOTE 12: SEGMENT REPORTING (continued) Elimination entries included in the “Eliminations and Unallocated” column represent intersegment revenues and cost of revenues that are eliminated in consolidation. Intersegment sales for the three months ended September 30, 2022 and 2021 by the SDC segment to the CVD Equipment segment were 72,409 and $6,882, respectively. Intersegment sales for the nine months ended September 30, 2022 and 2021 by the SDC segment to the CVD Equipment segment were $497,306 and $121,920, respectively. Three (In thousands) Eliminations* and Eliminations 2022 CVD SDC Materials Unallocated Consolidated CVD SDC Materials and Unallocated Consolidated Assets Revenue Operating (loss) income Pretax (loss) income 2021 Assets Revenue Operating loss Operating (loss) income Pretax (loss) income (In thousands) Eliminations 2022 CVD SDC Materials and Unallocated Consolidated Revenue Operating (loss) income Pretax (loss) income 2021 Revenue Operating (loss) income Pretax (loss) income (1) Materials segment includes a gain on the sale of building in the amount of $6,894,109 for the nine months ended September 30, 2021. (2) CVD segment includes a gain on the forgiveness of the PPP loan for the nine months ended September 30, 2021. NOTE 13: SALE-LEASEBACK TRANSACTION On NOTE 14: SALE OF 555 BUILDING On March 29, 2021, the Company entered into an agreement with Steel K, LLC for the sale of its facility located at 555 S. Technology Drive in Central Islip, New York (the “555 Building”), and on July 26, 2021, the Company closed on the sale. The sale price was $24.4 million, subject to adjustment for apportionments, adjustments and credits. A portion of the sale proceeds was used to satisfy the existing mortgage debt on the 555 Building, including interest and fees, in the amount of $9.4 million, as well as various costs related to the closing of the transaction. The Company recognized a gain on the sale of the building in the amount of $6.9 million and received approximately $14.0 million in net proceeds. Management NOTE 15: RISKS AND UNCERTAINTIES The Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have and may continue to restrict Supply chain disruptions have led to much longer lead times to acquire raw materials for production and The While management has initiated actions to mitigate the potential negative impacts to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors 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 attract and retain key personnel and employees; 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, uncertainty as to the Company’s ability to adequately obtain raw materials and components from foreign markets in light of geopolitical developments and the effect of the novel coronavirus (COVID-19) on our business and operations (including with respect to supply chain disruptions), and those of our customers, suppliers and other third parties . 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 of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used with this Report, the words “believes”, “anticipates”, “expects”, “estimates”, “plans”, “intends”, “will” and similar expressions are intended to identify forward-looking statements. Known Trends and Uncertainties We are confronting a very difficult operating environment as the global economy continues to experience the challenges from the pandemic, geopolitical conflicts, surging inflationary pressures and adverse supply chain disruptions. The specific impacts on our Company have included: ● Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have and may continue to restrict our ability to procure raw materials and components such as nickel and integrated circuits, as well as impact our ability to sell its products into China, Russia and other Eastern European and Asian regions. ● Supply chain disruptions have led to much longer lead times to acquire raw materials for production and has led to inflationary pressures in both materials and labor. These supply chain disruptions have impacted our ability to recognize revenue more timely as it delays our manufacturing processes. ● The pandemic’s impact on long distance air travel resulted in a reduction in orders for the Company’s aerospace equipment products that adversely affected our revenues since the start of the pandemic. Critical Accounting Policies and Significant Judgments and Estimates This discussion and analysis of the Company’s financial condition and results of operations is based on the Company’s condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. For information on the Company’s significant accounting policies and estimates refer to Note 2 to the Company’s consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 and to Note 2 “Summary of Significant Accounting Policies” in the unaudited condensed consolidated financial statements. Executive Level Summary CVD has continued to serve the advanced materials markets with chemical vapor and thermal process equipment for over To expand our presence into various growth markets, we are developing a line of proprietary standard use products to complement our Sales of our proprietary standard systems, Our core competencies in equipment and software design, manufacturing and process development are used to engineer our finished products and to accelerate the commercialization path of our customer base. Our proprietary real-time software allows for rapid configuration, and provides our customers with enabling tools to understand, optimize and repeatedly control their processes. These factors significantly reduce cost, improve quality, and reduce the time it takes between customers’ orders and the shipment of our products. Our Application Laboratory allows customers the option to bring In 2021 and into 2022 our focus has been on our growth markets, the development of standard product solutions and being able to provide solutions from gas/liquid storage through process and process by-product treatment. This has allowed us to provide increased value to our customers. Our return to profitability is dependent upon, among other things, the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and inflationary pressures, as well as managing planned capital expenditures and operating expenses. 2022 Developments In 2021, we launched our strategy to transition the focus of the Company to standardized products serving global growth application markets. Our growth opportunities in 2022 are consistent with our strategic plan to address and serve growth production markets. In the first nine months of 2022, total orders were $24.0 million as compared to $15.9 million in the first nine months of 2021, an increase of $8.1 million or 51.2%. The first nine months of 2022 orders included 14 system orders for PVT-150 systems that grow silicon carbide (“SiC”) material which is subsequently processed into wafers to support high power electronics applications. All PVT-150 systems are planned to be shipped to our customer in 2022. For the first, second and third quarters of 2022, new customer orders were $4.1 million, $12.6 million, and $7.3 million, respectively. For the first, second and third quarters of 2022 revenue was $4.7 million, $5.8 million, and $8.1 million, respectively. Three Months Ended MARCH 31, 2022 2021 Revenue Cost of revenue Gross profit Operating expenses Engineering, research and development Selling and shipping General and administrative Total operating expenses Operating loss Other income (expense): Interest income Interest expense Other Income Total other income, net Loss before income tax Income tax expense Net loss Statement of Operations Three months ended September 30, Nine months ended September 30, 2022 2021 2022 2021 Revenue Cost of revenue Gross profit Gross profit percentage Operating expenses: Research and development Selling General and administrative Total operating expenses Operating income (loss) Other income (expense): Interest income Interest expense Gain on sale of building Gain on debt extinguishment Other income Total other income, net Income (loss) before income taxes Income tax expense Net income (loss) Three Months Ended September 30, 2022 versus September 30, 2021 Revenue Our revenue for the three months ended September 30, 2022 was $8.1 million compared to $4.3 million for the three months ended September 30, 2021, an increase of $3.8 million or 88.4%. The increase in revenue for the three months ended September 30, 2022 versus the prior year period was primarily attributable to increased revenue of $3.6 million from the CVD Equipment segment related to equipment sales and spare parts, $.3 million from our SDC segment, offset, in part by, decreased revenue of $.1 million from the CVD Materials segment. The large increase in revenue in the quarter was principally the result of the recognition of revenue associated with our PVT-150 systems. Our order backlog at September 30, 2022 was $15.7 million as compared to $10.4 million at December 31, 2021. Historically, our revenues and orders have fluctuated based on changes in order rate as well as other factors in our manufacturing process that impacts the timing of revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter. The revenue contributed by the CVD Equipment segment for the three months ended September 30, 2022 was $5.7 million, which totaled 70.4% of our overall revenue, and was $3.6 million or 275.6% higher than the segment’s $2.1 million contribution made in the three months ended September 30, 2021, which totaled 47.9% of our overall revenue. The increase in revenues resulted from an increase in orders in 2022 over 2021 due to increased demand for the Company’s products including for its PVT-150 systems. Revenue for our SDC segment was $1.6 million for the three months ended September 30, 2022 as compared to $1.3 million for the three months ended September 30, 2021, an increase of $.3 million or 23.1% as compared to 2021 as a result of increased orders and demand for the Company’s products during 2022. Revenues for our CVD Materials segment were $.8 million for the three months ended September 30, 2022, as compared to $.9 million in the three months ended September 30, 2021. The decrease of $.1 million was the result of reduced revenue in the amount of $.2 million related to our Tantaline products, offset, in part by, increased MesoScribe revenue of $.1 million. Gross profit for the three months ended September 30, 2022 was $2.4 million, with a gross profit margin of 29.8%, as compared to a gross profit of $.9 million and a gross profit margin of 19.9% for the three months ended September 30, 2021. The increase in gross profit of $1.5 million was primarily the result of leveraging fixed costs on higher sales levels and product mix, which offset certain component cost increases and higher compensation costs. Research and Development For the three months ended General engineering support and expenses related to Selling Selling expenses were General and Administrative General and administrative expenses for the three months ended Operating As a result of increased sales of $3.8 million and the increased gross profit Other Other income (expense), net was Income Taxes Income tax expense for the three months ended Net Income (Loss) As a result of the foregoing factors, we reported a net income of $63,603 or $0.01 for both basic and diluted per share, for the three months ended September30, 2022, as compared to net income of $6.0 million (which includes a $6.9 million gain on sale of building), or $0.89 for both basic and diluted share for the three months ended September 30, 2021. Nine Months Ended September 30, 2022 versus September 30, 2021 Revenue Our revenue for the nine months ended September 30, 2022 was $18.6 million compared to $11.7 million for the nine months ended September 30, 2021, an increase of $6.9 million or 58.4%. The increase in revenue for the nine months ended September 30, 2022 versus the prior year period was primarily attributable to increased revenue of $6.4 million from the CVD Equipment segment related to equipment sales and spare parts, a $1.0 million increase in revenue from our SDC segment, offset, in part by, decreased revenue of $.6 million from the CVD Materials segment. The large increase in revenue in the period was principally the result of the recognition of revenue associated with our PVT-150 systems. Our order backlog at September 30, 2022 was approximately $15.7 million as compared to December 31, 2021 of $10.4 million. Historically, our revenues and orders have fluctuated based on changes in order rate as well as other factors in our manufacturing process that impacts the timing of revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter The revenue contributed by the CVD Equipment segment for the nine months ended September 30, 2022 was $12.3 million, which totaled 66.3% of our overall revenue, and was 109.4% or $6.4 million higher than the segment’s $5.9 million contribution made in the nine months ended September 30, 2021, which totaled 50.2% of our overall revenue. The increase in revenues resulted from an increase in orders in 2022 over 2021 due to increased demand for the Company’s products including for its PVT-150 systems. Revenue for our SDC segment was $4.2 million for the nine months ended September 30, 2022 (22.4% of our overall revenue) as compared to $3.2 million for the nine months ended September 30, 2021, an increase of $1.0 million or 30.7% resulting from increased orders and demand for the SDC’s products during 2022. Revenues for our CVD Materials segment were $2.1 million for the nine months ended September 30, 2022 (11.2% of our overall revenue), as compared to $2.7 million in the nine months ended September 30, 2021. The decrease of $.6 million was the result of reduced revenue in the amount of $.8 million related to our Tantaline products which was impact by supply chain issues that impacted its ability to obtain components to coat for its customers, offset, in part by, increased MesoScribe revenue of $.2 million. Gross Profit Gross profit for the nine months ended September 30, 2022 was $4.6 million, with a gross profit margin of 24.9%, as compared to a gross profit of $2.3 million and a gross profit margin of 19.6% for the nine months ended September 30, 2021. The increase in gross profit of $2.4 million was primarily the result of leveraging fixed costs on higher sales levels and higher margin product mix, which more than offset certain component cost increases and higher compensation costs. Research and Development For the nine months ended September 30, 2022, research and development expenses were $1.4 million, or 7.5% of revenue as compared to $1.2 million, or 10.1% for the nine months ended September 30, 2021. The increase in 2022 was the result of increased personnel and employee-related costs. General engineering support and expenses related to the development of more standard products and value-added development of existing products are reflected as part of research and development expense. General engineering support and expenses are charged to costs of goods sold when work is performed directly on a customer order. Selling Selling expenses were $.9 million or 4.8% of revenue for the nine months ended September 30, 2022 as compared to $.6 million or 5.1% of revenue for the nine months ended September 30, 2021. The increase in 2022 was primarily the result of increased personnel and employee-related costs during the nine months ended September 30, 2022, to support increased marketing efforts, as compared to September 30, 2021. General and Administrative General and administrative expenses for the nine months ended September 30, 2022 were $3.9 million or 21.2% of revenue as compared to $4.1 million or 35.2% of revenue for the nine months ended September 30, 2021, a decrease of $.2 million or 4.8%. The decrease in expenses was principally due to lower professional fees of approximately $160,000 and decreased operating costs of associated with the 555 building that was sold in July 2021 of approximately $.5 million. Offsetting these decreases were increases in personnel and employee-related costs to support the growth of our business of approximately $277,000 and a severance charge of $134,000. Operating Loss As a result of increased sales of $6.9 million and the increased gross profit margins of $2.4 million, and offset by increased operating expenses of $.6 million, our operating loss was $1.9 million in the nine months ended September 30, 2022, as compared with an operating loss of $3.6 million in the nine months ended September 30, 2021. Other Income (Expense) Other income (expense), net was an expense of $.2 million for the nine months ended September 30, 2022 an income of $9.6 million for the nine months ended September 30, 2021. The gain on debt extinguishment for the nine months ended September 30, 2021 was the result of the forgiveness of the Company’s PPP loan in the amount of $2.4 million. The gain on the sale of the building of $6.9 million was the result of the sale of our 555 Building. There were no such gains during the nine months ended September 30, 2022. Other income from subleasing a portion of our 555 Building (which was sold on July 26, 2021) was $500,000 for the nine months ended September 30, 2021 as compared to none in the nine months ended September 30, 2022. Other expense for the nine months ended September 30, 2022 was principally a foreign exchange loss of $250,000 on an intercompany loan. As a result of our increased cash position from the sale of the 555 Building in July 2021 and higher interest rates, interest income increased to $43,050 for the nine months ended September 30, 2022 as compared to $3,402 in 2021. In addition, interest expense decreased principally due to the satisfactions of the mortgage loans on our 555 Building on July 26, 2021 and on our 355 Building on March 1, 2022. Income Taxes Income tax expense for the nine months ended September 30, 2022 and 2021, was $890 and $28,391, respectively, related to minimum state taxes. 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. Net Income (Loss) As a result of the foregoing factors, we reported a net loss of Liquidity and Capital Resources As of Net cash used in operating activities was Capital expenditures We had a loan agreement with HSBC USA, N.A. (the “HSBC”) which was secured by a mortgage on our Central Islip headquarters at 355 South Technology Drive. On September 22, 2022, the Company entered into an Agreement of Purchase and Sale (the “Purchase Agreement”) with 355 S Technology Drive Owner LLC (the “Potential Purchaser”), to sell and leaseback its facility in Geopolitical Uncertainties and COVID-19 We are confronting a very difficult operating environment as the global economy continues to confront the challenges from the pandemic, geopolitical conflicts, surging inflationary pressures and adverse supply chain disruptions. Significant geopolitical developments across Europe and Asia (including the war in Ukraine) have We continue to be unable to predict the extent of the impact the pandemic and geopolitical uncertainties will have on our financial position and operating results for the remainder of 2022 and beyond due to numerous uncertainties, Our return to profitability is dependent upon, among other things, the receipt of new equipment orders, our ability to mitigate the Based upon all of these factors, we believe that our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve to eighteen months of the filing of this Form 10-Q. Should the current environment continue longer or worsen, we will continue to assess our operations and take actions anticipated to maintain our operating cash to support the working capital needs. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 4. Controls and Procedures. Evaluation of Disclosure Controls and Procedures We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 13d-15(e) under the Exchange Act of 1934, as amended, (the “Exchange Act”)). As required by Rule 13a-15(b) under the Exchange Act, our management, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”). Based on that review and evaluation, our Chief Executive Officer and Chief Financial Officer, along with others in our management, have determined that as of the end of the period covered by this Report on Form 10-Q the disclosure controls and procedures were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosures. Changes in Internal Controls There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting. Limitations on the Effectiveness of Controls We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. CVD EQUIPMENT CORPORATION PART II OTHER INFORMATION Item 1. Legal Proceedings. None. Item 1A. Risk Factors. There have been no other material changes to the risk factors disclosed in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 31, 2022. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Mine Safety Disclosures. Not applicable. Item 5. Other Information. None. Item 6. Exhibits 10.1 10.2 10.3 Second Amendment dated November 3, 2022 to Agreement of Purchase and Sale dated September 21, 2022* 10.4 Third Amendment dated November 4, 2022 to Agreement of Purchase and Sale dated September 21, 2022* 31.1* Certification of Emmanuel Lakios, Chief Executive Officer, dated 31.2* 32.1* 32.2* 101.1** Inline XBRL Instance. 101.SCH** Inline XBRL Taxonomy Extension Schema. 101.CAL** Inline XBRL Taxonomy Extension Calculation. 101.DEF** Inline XBRL Taxonomy Extension Definition. 101.LAB** Inline XBRL Taxonomy Extension Labels. 101.PRE** Inline XBRL Taxonomy Extension Presentation. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). ________________ * Filed herewith. ** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this CVD EQUIPMENT CORPORATION /s/ Emmanuel Lakios Emmanuel Lakios President and Chief Executive Officer (Principal Executive Officer) By: /s/ Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Stock options to purchase 628,500 shares of common stock were outstanding and 285,000 were exercisable during the three months ended March 31, 2022.value.value and the amount of stock-based compensation cost attributed to future services and not yet recognized. The number of shares remaining after the proceeds and unrecognized compensation cost are exhausted represents the potential dilutive effect of the securities.NOTE 11:SEGMENT REPORTING (3) segments: CVD Equipment (“CVD”), Stainless Design Concepts (“SDC”) and CVD Materials (“Materials”). The CVD segment is utilized formanufactures and sells chemical vapor deposition equipment manufacturing.equipment. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York for gas control systems. The Materials segment was established to provideprovides material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.16NOTE 11: SEGMENT REPORTING (continued)Eliminations“Eliminations and UnallocatedUnallocated” column. These activities primarily include intercompany profit, expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense.Months Endedmonths ended March 31,September 30, $ 22,575 $ 7,756 $ 1,661 $ 15 $ 32,007 $ 22,415 $ 8,800 $ 2,345 $ 42 $ 33,602 2,827 1,415 458 (44 ) 4,656 5,718 1,663 809 (71 ) 8,119 (736 ) 442 (6 ) (706 ) (1,006 ) (32 ) 448 365 (659 ) 122 (726 ) 442 (7 ) (706 ) (997 ) (27 ) 448 258 (615 ) 64 $ 29,659 $ 6,116 $ 3,407 $ 24 $ 39,206 $ 27,248 $ 7,053 $ 1,655 $ 2 $ 35,958 2,006 827 629 (96 ) 3,366 2,074 1,326 937 (7 ) 4,330 (575 ) (5 ) (110 ) (929 ) (1,619 ) (911 ) 275 441 (727 ) (922 ) (590 ) (5 ) 18 (929 ) (1,506 ) (920 ) 275 7,373 (1) (727 ) 6,001 *All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.Nine months ended September 30, 12,324 4,669 2,083 (497 ) 18,579 (1,391 ) 1,117 642 (1,970 ) (1,602 ) (1,380 ) 1,117 392 (1,903 ) (1,772 ) 5,884 3,314 2,654 (122 ) 11,730 (2,664 ) 637 828 (2,425 ) (3,624 ) (259 )(2) 637 8,014 (1) (2,425 ) 5,967 NOTE 12: SIGNIFICANT EVENTS- CORONAVIRUS (COVID-19The Company has been actively monitoring the coronavirus (COVID-19 outbreak and resulting pandemic and its impact on both the global economic and operating environment and specifically on its impact to the Company, its employees, its operations and its financial condition. In March 2020, the World Health Organization recognized the COVID-19 outbreak as a pandemic based on the global spread of the disease, the severity of illnesses it causes and its effects on society. In response to the COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations, including complete or partial government shutdowns of many schools and businesses, including the Company, and advising or requiring individuals to limit or forego their time outside of their homes. Accordingly, the COVID-19 outbreak (including the impact of the COVID Omicron variant) has severely restricted the level of economic activity in many countries, including the United States, and continues to materially and adversely impact global economic activity. In particular, the aerospace sector, for which the Company relies on a significant part of its business, has been faced with significant reductions to its business due to reduced air travel which has negatively affected new order bookings and has materially and adversely affected the Company’s revenues to date.1719NOTE12:September 22, 2022, the Company entered into an Agreement of Purchase and Sale (the “Purchase Agreement”) with 355 SIGNIFICANT EVENTS- CORONAVIRUS (COVID-S Technology Drive Owner LLC (the “Potential Purchaser”), to sell and leaseback its facility in Central Islip, New York that houses it corporate headquarters and the administrative offices and manufacturing operations of its CVD Equipment and MesoScribe subsidiaries. The lease agreement was to have an initial term of 19ten) (continued) years and two renewal terms of five year each. The terms of the agreement provided for a purchase price of $28.5 million and annual fixed rent of $1.5 million in the first year of the initial term and increasing by 3% each year. The Potential Purchaser had thirty (30) business days from date of the Purchase Agreement to complete its due diligence (until November 3, 2022), during which time the Potential Purchaser retained the right to cancel the Purchase Agreement. On November 3, 2022 and November 4, 2022, the Company and the Potential Purchaser entered into two extension agreements whereas the due diligence period was ultimately extended to November 11, 2022. On November 11, 2022, the Potential Purchaser notified the Company that it was terminating the Purchase Agreement in its entirety and the transactions contemplated thereby, prior to the expiration of the due diligence period. Each party will bear its own costs and expenses in connection with the forgoing, and neither party will pay a termination fee with respect to the termination of the Purchase Agreement. is unable to predicthad determined the extent555 Building was not needed for business operations, and the remaining elements of the impactCVD Materials business located in the pandemic will have on555 Building were consolidated into the Company’s financial position and operating results for the remainder of 2022355 due to numerous uncertainties, but the impact could be material during any future period affected either directly or indirectly by this pandemic. The Company intends to continue to evaluate the various government-sponsored plans and programs put in place in response to the COVID-19 pandemic and further plans to take advantage of any such government benefits reasonably available to it. Moreover, the Company will continue to monitor developments in that area as new government initiatives are passed.Building.COVID-19Company currently operates in a challenging economic environment as the global economy continues to confront the impacts from the pandemic, has adversely impacted worldwidegeopolitical conflicts, inflationary pressures and adverse supply chains andchain disruptions. The specific impacts on the ability to obtain sufficient amounts of raw materials and component parts such as nickel and integrated circuits. Further,Company have included:ourthe Company’s ability to procure raw materials and components such as nickel and integrated circuits, as well as impact ourthe Company’s ability to sell ourits products into China, Russia and other Eastern European and Asian regions. In addition,delayshas led to inflationary pressures in the ability of the Company’s third party freight carriers to transport these items to the Company’s manufacturing facility also continues to be a challenge. During the thirdboth materials and fourth quarters of 2021, and into 2022, the Company experienced increased costs on certain components as well as delays inlabor. These supply chain delivery, which has and may continue to impact itsdisruptions have impacted the Company’s ability to recognize revenue and reducemore timely as it delays the Company’s gross profit margins, as well as extend our manufacturing lead times and reduce its manufacturing efficiencies. processes.Company is now placingpandemic’s impact on long distance air travel resulted in a reduction in orders with more lead time to help mitigatefor the manufacturing delays, as well as assessing other suppliers or components to attempt to mitigateCompany’s aerospace equipment products that adversely affected the potential cost impacts. In addition,Company’s revenues since the Company is utilizing its in-house flexible manufacturing to attempt to further mitigate both potential schedule delivery delays and material cost increase. start of the pandemic.ourits revenue and profitability, there can be no assurance of the ultimateCompany is unable to predict the impact and the length of time period that the supply chain factorsabove uncertainties may impacthave on its revenuesfuture results of operations and profitability.cash flows.181922Coronavirus (COVID-19)We have been actively monitoring the coronavirus ("COVID-19") outbreak and its impact globally. Our primary focus to this point has been to ensure the health and safety of our employees. To that end, we have adopted social distancing practices where appropriate, implemented travel restrictions, and have taken actions to ensure that our facilities are cleaned and sanitized regularly. These are novel and challenging times and the magnitude of this crisis is requiring us to consider all options to promote the safety of employees, including, where appropriate, or where required to comply with foreign, national, state or local governmental authority recommendations, guidelines, and/or mandates, the temporary reduction or suspension of work at certain of our locations and production facilities to protect employees and curb the spread of the coronavirus. All of these factors have adversely impacted our operating results. In particular, the aerospace sector, for which we rely on for a significant part of our business, has been faced with significant reductions to its business due to reduced air travel which has negatively affected new order bookings and has materially and adversely affected the Company’s revenues to date. Due to the timing of the COVID-19 outbreak, our new order levels during the first quarter of 2021 have seen continued substantial reductions, while new orders in the second, third, and fourth quarters of 2021 were substantially higher at approximately $6.0 million, $6.1 million and $5.2 million, respectively, and new orders in the first quarter of 2022 were approximately $4.1 million. Significant 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, as well as impact our ability to sell our products into China, Russia and other Eastern European and Asian regions. We continue to be unable to predict the extent of the impact the pandemic and geopolitical uncertainties will have on our financial position and operating results for the remainder of 2022 and in future periods due to numerous uncertainties, (including the impact of the COVID Omicron variant), supply chain disruptions, rapidly rising costs and the impact on the aerospace sector, but the impact could be material during any future period affected either directly or indirectly by this pandemic.the pandemic and the geopolitical uncertainties. The longer-term impacts from the pandemicthese matters are highly uncertain and cannot be predicted.3840 years. Our products are used in research and development centers as well as in production environments. We develop, design, manufacture and service a broad range of chemical vapor deposition, gas control and other state-of-the-art process equipment and solutions used in advanced materials and coatings. We serve markets ranging from academic/Our products are used in production environments as well as research initiatives to industrial applications. With the adoption of our technology in these markets we see increased usage of our systems across production environments.and development centers, both academic and corporate. Major target markets for our business include advanced nanomaterials, batteries and Silicon Carbidesilicon carbide for high power electronics; aerospace (such as gas turbine engines and structural components;components); medical devices (such as implants); advanced semiconductor devices and Siliconsilicon for solar cells; and carbon nanotubes and nanowires. Our Application Laboratory supports the development of new material systems and processes. Our CVD Materials group (consisting of our MesoScribe and Tantaline subsidiaries) provides material coating services, process development support and process startup assistance with the focus on enabling tomorrow’s technologiesTM. Our Mesoscribe product lineassistance. MesoScribe continues to support the aerospace and defense markets with robust direct write instrumentation. Our CVD Tantaline subsidiary which underwent a restructuring and consolidation in 2021 provides chemical-resistant coating services to many industrial applications.Based on more than 38 years of experience, weWe use our capabilities in process development, engineering and vertical manufacturing to transform new applications into mainstream manufacturing solutions. 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 manufacturing and systems integration facilities, allows us to provide application-specific design, process and manufacturing solutions to our customers.20customizedspecialized 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 customspecialized systems into a broader standardized product line. The standard product line is easily configured from a wide range of available options to meet diverse product and budgetary requirements. Manufacturing these standardized systems in higher volumes provides us the flexibility to reduce both the cost and delivery time of our systems. These systems, which we market and sell under the EasyTube® and CVD product lines, are sold to corporations, universities, research laboratories, and production companies in the United States and throughout the world.customspecialized 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 “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 our industry reputation, as well as limited print advertising and trade show attendance (which has been negatively impacted by COVID-19 in 2020, 2021 and into 2022).up their process tools in our Application Laboratory and to work collaboratively with our scientists and engineers to optimize process performance.2124In the first three months of 2022, and in the month of April 2022, total Company orders were approximately $4.1 million and $7.2 million, respectively. This $11.3 million year to date total for April 2022 included 14 system orders for Silicon Carbide (“SiC”) growth. There have been twenty (20) systems ordered for our PVT-150 system which has been developed for SiC growth over the last 6 months and planned to ship in 2022. In total there were eighteen (18) CVD systems booked in the first four months of 2022.Statement of Operations $ 4,655,727 $ 3,365,860 3,886,176 2,921,554 769,551 444,306 310,207 310,954 272,679 135,755 1,192,653 1,616,384 1,775,539 2,063,093 (1,005,988 ) (1,618,787 ) 18,282 1,223 (9,634 ) (107,221 ) - 219,235 8,648 113,237 (997,340 ) (1,505,550 ) - - $ (997,340 ) $ (1,505,550 ) 22Three Months Ended March 31, 2022 vs. March 31, 2021RevenueOur revenue for the three months ended March 31, 2022 was $4.7 million compared to $3.4 million for the three months ended March 31, 2021, an increase of $1.3 million or 38.3%. The increase in revenue for the three months ended March 31, 2022 versus the prior year period was primarily attributable to increased revenue of $.8 million from the CVD Equipment segment related to spare parts and equipment sales, $.6 million from our SDC segment, offset, in part by, decreased revenue of $.1 million from the CVD Materials segment. Despite achieving a sales increase of $1.3 million or 38.3% this quarter, as compared to the prior year quarter, overall sales levels continue to be negatively affected, primarily attributable to the impacts of COVID-19 including delays in our supply chain delivery of components which impacts our ability to recognize revenue more timely. However, as a result of increased new orders, primarily in the last three quarters of 2021, the result of a recovery in the marketplace, exclusive of aerospace, as well as the execution of our operating plan, we have achieved four sequential quarters of revenue increases during 2021. Quarterly revenue in 2021 was $3.4 million, $4.0 million, $4.3 million and $4.7 million, during Q1 to Q4, respectively, and revenue in Q1 2022 was essentially unchanged at $4.7 million. Our backlog at March 31, 2022 was approximately $9.9 million, a decrease of $.5 million as compared to December 31, 2021 of $10.4 million. This decrease is due to the timing of new orders in Q1 2022 of $4.1 million, as compared to revenue of $4.7 million. While aerospace sales had represented as much as 60% of our total revenue, during the three months ended March 31, 2022 and 2021 it represented approximately 15.1% and 21.2%, respectively. This is due to the negative effect the COVID-19 crisis has had initially in 2020 and continuing to date on the aerospace sector, which resulted from reduced travel and reduction of industry gas turbine engine sales.The revenue contributed by the CVD Equipment segment for the three months ended March 31, 2022 was $2.8 million, which totaled 60.7% of our overall revenue, and was 40.8% or $.8 million higher than the segment’s $2.0 million contribution made in the three months ended March 31, 2021, which totaled 59.6% of our overall revenue. This revenue increase is the result of increases of $.4 million in spare parts sales, which continue to be impacted by the slow down in aerospace demand due to COVID-19, and an increase of $.4 million from equipment sales.Revenue for our SDC segment was $1.4 million for the three months ended March 31, 2022 as compared to $.8 million for the three months ended March 31, 2021, an increase of $.6 million resulting from the receipt of one large order in 2022, compared to 2021.Revenues for our CVD Materials segment were $.5 million for the three months ended March 31, 2022, as compared to $.6 million in the three months ended March 31, 2021.23Gross ProfitGross profit for the three months ended March 31, 2022 was to $.8 million, with a gross profit margin of 16.5%, as compared to a gross profit of $.4 million and a gross profit margin of 13.2% for the three months ended March 31, 2021. The increase in gross profit and gross profit margin was primarily the result of leveraging fixed costs on higher sales levels, and product mix, which more than offset certain component cost increases and compensation costs. During the quarter ended September 30, 2021, we started to experience increased costs on certain components as well as delays in supply chain delivery, which also impacts revenue as well as manufacturing lead times and efficiencies. We are also seeing the effects of the macroeconomic inflationary cost environment that has resulted in increased costs for labor and materials. We have been 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 increases. In late 2021, we initiated price increases on new quotations in line with inflationary pressures which we anticipate willbelieve could mitigate our cost increases and we anticipate will benefit margins during 2022 and 2023. $ 8,118,627 $ 4,329,459 $ 18,579,447 $ 11,729,727 5,698,766 3,466,159 13,952,413 9,424,994 2,419,861 863,300 4,627,034 2,304,733 29.8 % 19.9 % 24.9 % 19.6 % 518,007 445,807 1,397,408 1,187,516 289,800 237,934 894,740 602,836 1.489,779 1,101,883 3,936,734 4,138,417 2,297,586 1,785,624 6,228,882 5,928,769 122,275 (922,324 ) (1,601,848 ) (3,624,035 ) 43,050 1,776 73,979 3,402 (159 ) (35,973 ) (5,502 ) (250,194 ) - 6.894,109 - 6,894,109 - - - 2,443,418 Foreign exchange loss (107,000 ) - (250,000 ) - 5,437 63,143 11,057 499,970 (58,672 ) 6,923,055 (170,466 ) 9,590,705 63,603 6,000,731 (1,772,314 ) 5.966,670 65 27,327 890 28,391 $ 63,538 $ 5,973,404 $ (1,773,204 ) $ 5,938,279 Engineering, Gross ProfitMarch 31September 30, 2022, and 2021, engineering, research and development expenses were $310,207$518,007, or 6.4% of revenue as compared to $445,807, or 10.3% for the three months ended September 30, 2021. The increase in 2022 was the result of increased personnel and $310,954, respectively, essentially unchanged. employee-related costs.focusingthe development onof more standard products and value addedvalue-added development of existing products are reflected as engineering,part of research and development while due to the technical development required on custom orders, ourexpense. General engineering teamsupport and their expenses are charged to costs of goods sold when they are workingwork is performed directly on a customer project.order.$272,679$289,800 or 5.9%3.6% of the revenue for the three months ended March 31,September 30, 2022 as compared to $135,755$237,934 or 4.0%5.5% of the revenue for the three months ended March 31,September 30, 2021. The increase in 2022 was primarily the result of increased employee compensation, which includes the transfer of one employee from administration to focus on all salespersonnel and marketing initiatives, and benefitemployee-related costs during the three months ended March 31,September 30, 2022, to support increased marketing efforts, as compared to March 31,September 30, 2021. March 31,September 30, 2022 were $1,192,653$1.5 million or 25.6%18.4% of revenue as compared to $1,616,384$1.1 million or 48.0%25.4% of revenue for the three months ended March 31,September 30, 2021, a decreasean increase of $423,731$.4 million or 26.2%35.2%. The decreaseincrease in these expenses is primarilywas principally due to reduced legal expenses of $206,000 dueincreases in personnel and employee-related costs to higher costs insupport the three months ended March 31, 2021 related to governance and strategic planning activities, including $75,000 related to the preparation of the sale of the 555 building which closed in July 2021. In addition, other operating costs decreased due to lower building operating costs as a result of the sale of the 555 Building in July 2021, and consolidationgrowth of our facilities into our 355 facility.business of approximately $186,000, and a severance charge of $134,000.24lossIncome (Loss)margins of $.3$1.9 million, and reducedoffset by increased operating expenses of $.3$.6 million, our operating lossincome was 1.0 million in$122,275 for the three months ended March 31September 30, 2022 compared with an operating loss of $1.6$.9 million infor the three months ended March 31,September 30, 2021.incomeIncome (Expense)$8,648 and $113,237an expense of $.1 million for the three months ended March 31,September 30, 2022 and 2021, respectively. Other income from subleasing a portion of our then 555 Building (which was sold on July 26, 2021) was $219,235$6.9 million for the three months ended March 31, 2021 as compared to none in the three months ended March 31, 2022. As a result of our increased cash position from the sale of the 555 Building in July 2021, interestSeptember 30, 2021. Other income increased $17,059, to $18,282 for the three months ended March 31,September 30, 2021 included a gain on the sale of our 555 building of $6.9 million. Interest income increased in 2022 as compared to $1,223 in 2021. In addition,the result of higher interest rates and investable balances from the sale of our 555 Building. Other expense related to the Company’s mortgages decreased $97,587 to $9,634 infor the three months ended March 31,September 30, 2022 as compared to $107,221 in 2021, the resultwas principally a foreign exchange loss of our 555 Building mortgage satisfied$107,000 on July 26, 2021, as well as the satisfaction of our remaining mortgage on the 355 building on March 1, 2022.an intercompany loan.March 31,September 30, 2022 and 2021, were $0, respectively.was $65 and $27,327, respectively, related to minimum state taxes. 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 and timing of orders, cost containment measures and other factors.future operating results.$997,340$1.8 million or $0.15 per$0.26 for both basic and diluted per share, for the threenine months ended March 31,September 30, 2022, as compared to a net lossincome of $1,505,550,$5.9 million (which includes a $2.4 million gain on debt extinguishment and a $6.9 million gain on the sale of building), or $0.23 per$0.89 for both basic and diluted per share for the threenine months ended March 31,September 30, 2021.March 31,September 30, 2022, we had aggregate working capital of $15.9$15.0 million compared to aggregate working capital of $16.7 million at December 31, 2021. Our cash and cash equivalents at March 31,September 30, 2022 and December 31, 2021 were $13.3$11.9 million and $16.7 million, respectively.$1.4$2.3 million. This is primarily the result of aour net loss, adjusted for non-cash items,expenses of $.6$.8 million, decreasedand increases in accounts receivable and contract liabilities of $.9 million,assets due to our increase in revenue, as well as increased inventory of $.5 million to support increased orders and attempt to mitigate furtherthe impact of delays in our supply chain impacts, increased contract assets of $.2 million, offset, in part by, decreased tax receivables $.7 million and increased accrued expenses of $.1 million.chain.25for equipment were $.2$.6 million in the threenine months ended March 31, 2022.September 30, 2022 related to purchases of manufacturing equipment to allow for more efficient manufacturing and improved control of our supply chain. We also entered into a loan agreement to acquire equipment in the amount of $.4 million.The loan was payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity on March 1, 2022. According to the terms of the agreement the loan was satisfied on March 1, 2022 resulting in total debt repayments of $1.8 million during the threenine months ended March 31,September 30, 2022.The COVID-19 outbreak has resultedSale-Leaseback of 355 South Technology Drive, Central Islip, New Yorkextended shutdowns of certain businesses in United States and around the world. We have been actively monitoring the COVID-19 outbreak and its impact globally. Our primary focus to this point has been to ensure the health and safety of our employees. ToCentral Islip, New York that end, we have adopted social distancing where appropriate, implemented travel restrictions, and we have taken actions to ensure that locations and facilities are cleaned and sanitized regularly. These are novel and challenging timeshouses it corporate headquarters and the magnitudeadministrative offices and manufacturing operations of this crisis is requiring usits CVD Equipment and MesoScribe subsidiaries. The lease agreement was to consider all options to promote the safetyhave an initial term of employees, including, where appropriate, or where required to comply with foreign, national, state or local governmental authority recommendations, guidelines, and/or mandates, the temporary reduction or suspensionten years and two renewal terms of work at certainfive year each. The terms of the Company’s locationsagreement provided for a purchase price of $28.5 million and production facilities to protect employees and curbannual fixed rent of $1.5 million in the spreadfirst year of the coronavirus. Allinitial term and increasing by 3% each year. The Potential Purchaser had thirty (30) business days from date of these actionsthe Purchase Agreement to complete its due diligence (until November 3, 2022), during which time the Potential Purchaser retained the right to cancel the Purchase Agreement. On November 3, 2022 and November 4, 2022, the Company and the Potential Purchaser entered into two extension agreements whereas the due diligence period was ultimately extended to November 11, 2022. On November 11, 2022, the Potential Purchaser notified the Company that it was terminating the Purchase Agreement in its entirety and the transactions contemplated thereby, prior to the expiration of the due diligence period. Each party will bear its own costs and expenses in connection with the forgoing, and neither party will pay a termination fee with respect to the termination of the Purchase Agreement. adversely impactedand may continue to restrict our operating results. In particular,ability to procure raw materials and components such as nickel and integrated circuits, as well as impact our ability to sell our products into China, Russia and other Eastern European and Asian regions. Supply chain disruptions resulting from both the pandemic and geopolitical matters have led to much longer lead times to acquire materials for production and has led to surging inflationary pressures. Since 2020, our aerospace sector for which we rely on a significant part of our business, has been faced with significant reductions to its business due to reduced long distance air travel which has negatively affected new order bookings and has materially and adversely affected the Company’s revenues to date. (including the impact of the COVID Omicron variant), supply chain disruptions, rising costs and the impact on the aerospace sector, but the impact could be material during any future period affected either directly or indirectly by this pandemic. The longer-term impacts from the pandemic and geopolitical uncertainties are highly uncertain and cannot be predicted.lesseningimpact of the ongoing effects of COVID-19 on our businesssupply chain disruptions and the Aerospace market, improvement in the operations of the materials business,inflationary pressures, as well as managing planned capital expenditures and operating expenses.26Off-Balance Sheet Arrangements.We have no off-balance sheet arrangements at this time.2734May 16,August 15, 20222829361614th day of MayNovember 2022. ByBy: Thomas McNeillRichard CatalanoThomas McNeill Executive Richard Catalano EXHIBIT INDEX31.1*Certification of Emmanuel Lakios, Chief Executive Officer, dated May 16, 202231.2*Certification of Thomas McNeill, Chief Financial Officer, dated May 16, 202232.1*Certification of Emmanuel Lakios, Chief Executive Officer, dated May 16, 2022, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2*Certification of Thomas McNeill, Chief Financial Officer, dated May 16, 2022, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002101.1**Inline XBRL Instance.101.SCH**Inline XBRL Taxonomy Extension Schema.101.CAL**Inline XBRL Taxonomy Extension Calculation.101.DEF**Inline XBRL Taxonomy Extension Definition.101.LAB**Inline XBRL Taxonomy Extension Labels.101.PRE**Inline XBRL Taxonomy Extension Presentation.104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).________________* Filed herewith.** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.3137