CVD EQUIPMENT CORP - Quarter Report: 2019 March (Form 10-Q)

 

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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Form 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 2019
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____ to _____

Commission file number: 1-16525

 

CVD EQUIPMENT CORPORATION

 

(Name of Registrant in Its Charter)

 

New York	11-2621692
State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
355 South Technology Drive Central Islip, New York   11722
(Address of principal executive offices)

 

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

 

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑  No☐

 

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

 

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

           

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

 

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

 

Yes ☐    No ☑

 

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 the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,555,150 shares of Common Stock, $0.01 par value at May 5, 2019.

 

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CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

 

Index

 

Part I - Financial Information
Item 1 – Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2019 and December 31, 2018	3
Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018	4
Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	5
Notes to Consolidated Financial Statements	6
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	23
Item 4 – Controls and Procedures	23
Part II - Other Information	25
Item 1 – Legal Proceedings	25
Item 1A-Risk Factors	25
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3 – Defaults Upon Senior Securities	25
Item 4 – Mine Safety Disclosures	25
Item 5 – Other Information	25
Item 6 – Exhibits	25
Signatures	27
Exhibit Index	28

 

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		(Unaudited)
		March 31, 2019				December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents		$	11,252,987			$	11,439,361
Accounts receivable, net			2,103,823				4,065,220
Contract assets			1,088,913				1,357,797
Inventories, net			1,745,327				1,861,873
Other current assets			770,662				723,204
Total Current Assets			16,961,712				19,447,455
Property, plant and equipment, net			30,595,638				30,402,558
Deferred income taxes			2,563,414				2,104,414
Other assets			41,748				64,583
Intangible assets, net			465,905				495,552
Total Assets		$	50,628,417			$	52,514,562
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable		$	779,893			$	713,194
Accrued expenses			1,540,630				1,503,309
Current maturities of long-term debt			860,948				857,590
Contract Liabilities			693,097				536,524
Deferred revenue			455,652				459,899
Total Current Liabilities			4,330,220				4,070,516
Long-term debt, net of current portion			11,883,947				12,051,720
Total Long-Term Liabilities			11,883,947				12,051,720
Total Liabilities			16,214,167				16,122,236
Commitments and contingencies			-				-
Stockholders’ Equity:
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,555,150 at March 31, 2019 and 6,535,888 at December 31, 2018			65,551				65,358
Additional paid-in capital			26,346,934				26,148,256
Retained earnings			8,001,765				10,178,712
Total Stockholders’ Equity			34,414,250				36,392,326
Total Liabilities and Stockholders’ Equity		$	50,628,417			$	52,514,562

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		Three Months Ended
		March 31,
		2019				2018
Revenue		$	3,468,675			$	9,153,833
Cost of revenue			3,856,417				5,392,919
Gross profit			(387,742	)			3,760,914
Operating expenses
Research and development			164,080				96,806
Selling and shipping			277,306				513,475
General and administrative			1,735,974				2,240,065
Total operating expenses			2,177,360				2,850,346
Operating (loss) income			(2,565,102	)			910,568
Other income (expense):
Interest income			46,806				16,960
Interest expense			(114,651	)			(121,354	)
Total other expense, net			(67,845	)			(104,394	)
(Loss) income before income tax			(2,632,947	)			806,174
Income tax (benefit) expense			(456,000	)			247,770
Net (loss) income		$	(2,176,947	)		$	558,404
Basic income (loss) per common share		$	(0.33	)		$	0.09
Diluted income (loss) per common share		$	(0.33	)		$	0.09
Weighted average common shares Outstanding-basic			6,539,120				6,467,252
Weighted average common shares Outstanding-diluted			6,539,120				6,477,699

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		Three Months Ended
		March 31,
		2019				2018
Cash flows from operating activities:
Net income/(loss)		$	(2,176,947	)		$	558,404
Adjustments to reconcile net income/(loss) to net cash provided by operating activities
Stock-based compensation			198,871				222,799
Depreciation and amortization			275,426				273,927
Deferred income tax benefit			(459,000	)			(2,154	)
Provision for inventory obsolescence			25,000				-
Increase/(decrease) in operating assets
Accounts receivable			1,961,396				(6,920,212	)
Contract assets			268,884				4,677,663
Inventories			91,546				235,879
Other current assets			(47,457	)			(53,409	)
Increase/(decrease) in operating liabilities
Accounts payable			66,700				(70,994	)
Accrued expenses			37,319				(178,863	)
Contract liabilities			156,573				1,048,695
Deferred revenue			(4,247	)			241,489
Total adjustments			2,571,011				(525,180	)
Net cash provided by operating activities			394,064				33,224
Cash flows from investing activities:
Capital expenditures			(438,858	)			(805,803	)
Other assets			22,835				(138,034	)
Net cash (used in) investing activities			(416,023	)			(943,837	)
Cash flows from financing activities
Payments of long-term debt			(164,415	)			(165,344	)
Net cash (used in) financing activities			(164,415	)			(165,344	)
Net decrease in cash and cash equivalents			(186,374	)			(1,075,957	)
Cash and cash equivalents at beginning of period			11,439,361				14,210,909
Cash and cash equivalents at end of period		$	11,252,987			$	13,134,952
Supplemental disclosure of cash flow information:
Income taxes paid		$	-			$	200,000
Interest paid		$	112,461			$	116,647
Capitalization of right to use Asset		$	150,000			$	-

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NOTE 1:

BASIS OF PRESENTATION

 

The accompanying unaudited consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that can be expected for the year ending December 31, 2019.

 

The consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at such date, 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. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’ Annual Report on Form 10-K for the year ended December 31, 2018, including the accounting policies followed by the Company as set forth in Note 2 to the consolidated financial statements contained therein.

 

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period consolidated financial statements to conform to the current year presentation.

 

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Revenue Recognition

 

On January 1, 2018, we adopted accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts not yet completed as of the adoption date. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted.

 

The adoption of ASC 606 did not have a significant impact on our Consolidated Financial Statements as of and for the three-month period ended March 31, 2019 and, as a result, comparisons of revenues and operating profits performance between periods are not affected by the adoption of this ASU.

 

 

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

 

 

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue Recognition (continued)

 

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within three to eighteen months from commencement of order acceptance. The Company recognizes revenue 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 indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require 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 sales under contracts when revenue recognition is utilized and revenue recognized 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. Contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

 

For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect 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.

 

 

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

 

 

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Research and Development

 

Research and development costs are expensed as incurred. Due to the highly technical nature of our projects, we use our technical staff in a dual role, and based on their contribution to the customer or research and development projects, their costs are charged accordingly to either cost of goods sold or research and development.

 

Recent Accounting Pronouncements

 

In June 2016, the FASB issued 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. The amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

 

Recently Adopted Accounting Pronouncements

 

In February 2016 the FASB issued ASU No. 2016-02, "Leases (Topic 842)" (ASU 2016-02). The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply.

 

 

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

 

 

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. In addition, FASB has amended Topic 842 prior to it becoming effective. The effective date and transition requirements for these amendments to Topic 842 are the same as ASU 2016-02. The Company has one lease at its Denmark facility which currently expires at December 31, 2020 and has recognized a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term in the amount of $150,000.

 

 

We believe there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of our 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:

SIGNIFICANT RISK AND UNCERTAINTY

 

Cash and cash equivalents

 

The Company had cash and cash equivalents of $11.3 million and $11.4 million at March 31, 2019 and December 31, 2018, respectively. The Company invests excess cash in treasury bills, certificates of deposit or money market accounts, all with maturities of less than three months. Cash equivalents were $7.6 million and $8.9 million at March 31, 2019 and December 31, 2018, 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, 2019 and December 31, 2018 was $8,820,000 and $6,920,000, respectively.

 

 

 

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, 2019, no customer represented more than 10% of revenues. For the three months ended March 31, 2018, one customer represented approximately 48% of our revenues.

 

 

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

 

 

NOTE 3:

SIGNIFICANT RISK AND UNCERTAINTY (continued)

 

 

Accounts receivable

 

The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. The Company also maintains allowances for anticipated losses. At March 31, 2019 one customer represented 22% of the accounts receivable balance, and at December 31, 2018 two customers represented approximately 42% of the accounts receivable balance.

 

NOTE 4:

REVENUE FROM CONTRACTS WITH CUSTOMERS

 

The following table represents a disaggregation of revenue from contracts with customers for the three months ended March 31, 2019 and March 31, 2018:

 

 

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. 

 

 

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

 

 

NOTE 4:

REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)

 

Changes in estimates for sales of systems occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s consolidated statements of operations. The table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three months ended March 31, 2019 and 2018, as well as the number of projects that comprise such changes. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.

 

 

For the three months ended March 31, 2019 and March 31, 2018, revenue (decreased) increased by ($172,000) and $909,000, respectively, from net changes in transaction prices, input cost estimates, product cost overruns and product cost forecast changes related to redesign of certain systems.

 

Contract Assets and Liabilities

 

Contract assets consist of (i) retainage which represent 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 three months ended March 31, 2019 and 2018, the decrease in contract assets of approximately $.3 million and $4.7 million, respectively, was primarily driven by additional billed receivables during the period, for those projects that certain milestones had been reached.

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NOTE 5:

INVENTORIES, NET

 

 

 

NOTE 6:

ACCOUNTS RECEIVABLE, NET

 

Accounts receivable are presented net of an allowance for doubtful accounts of approximately $24,000 as of March 31, 2019 and December 31, 2018. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.

 

NOTE 7:

LONG-TERM DEBT

 

The Company had a revolving credit facility with HSBC Bank, USA, N.A. (“HSBC”) providing up to $7 million, although the Company has never utilized this facility. This credit facility expired on September 1, 2018.

 

 

The Company has a loan agreement with HSBC which is secured by a mortgage on our Central Islip, NY headquarters. The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022. The balances as of March 31, 2019 and December 31, 2018 were approximately $2.6 million and $2.7 million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5%.

 

On November 30, 2017, we purchased the premises located at 555 North Research Place, Central Islip, NY. The purchase price of the building was $13,850,000 exclusive of closing costs. The Company’s newly formed wholly-owned subsidiary, 555 N Research Corporation (the “Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of $10,387,500, which was used to finance a portion of the purchase price to acquire the premises located at 555 North Research Place,

 

 

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

 

 

NOTE 7:

LONG-TERM DEBT (continued)

 

 

Central Islip, New York. The Loan was evidenced by the certain Note, dated November 30, 2017 (the “Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement (the “Mortgage”), dated November 30, 2017, as well as a collateral Assignment of Leases and Rents.

 

The Loan is payable in 60 consecutive equal monthly installments of $62,481 including interest. The balances as of March 31, 2019 and December 31, 2018 were approximately $9.9 million and $10.0 million respectively. The Loan shall bear interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%. The maturity date for the Note is December 1, 2022. As a condition of the Bank making the Loan, the Company was required to guaranty Assignee’s obligations under the Loan pursuant that certain Unlimited Guaranty, dated November 30, 2017 (the “Guaranty”).

 

At December 31, 2018, the Company was not in compliance with the one financial covenant (fixed charge coverage ratio) contained in the Mortgage. On March 26, 2019 the Company received a waiver from HSBC until April 1, 2020.

 

NOTE 8:

STOCK-BASED COMPENSATION EXPENSE

 

During the three months ended March 31, 2019 and March 31, 2018, the Company recorded as part of selling and general administrative expense approximately $199,000 and $223,000, 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. This expense was recorded based upon the guidance of ASC 718, “Compensation-Stock Compensation.”

 

NOTE 9:

INCOME TAXES

 

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S. Tax Reform significantly lowering the amount of current and future income tax expense primarily due to the reduction in the U.S. statutory tax rate from 35.0% to 21.0%. This provision went into effect on January 1, 2018 and will result in the loss of our ability to take the domestic production activities deduction which has been repealed and will require us to remeasure our deferred tax assets and liabilities. This has resulted in a higher tax rate at this time than the statutory rate.

 

 

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

 

 

NOTE 9:

INCOME TAXES (continued)

 

 

The provision for income taxes includes the following:

 

 

Tax Rate Reconciliation

 

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

 

 

 

The Company’s foreign subsidiary, CVD Tantaline ApS incurred a loss of approximately $79,000 for the three months ended March 31, 2019 which would provide a $17,000 deferred tax asset, based on the standard corporate tax rate of 22% in Denmark. For the three months ended March 31, 2018 the Company had a loss of $47,000 with a deferred tax asset of $10,000. However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance has been necessary.

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NOTE 10:

EARNINGS PER SHARE

 

In accordance with ASC 260, basic earnings per share are computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (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.

 

Stock options to purchase 467,930 shares of common stock were outstanding and 227,930 were exercisable during the three months ended March 31, 2019. Stock options to purchase 387,930 shares were outstanding and 227,930 were exercisable during the three months ended March 31, 2018. At March 31, 2019, no shares were included in the diluted earnings per share calculation as a result of the net loss. At March 31, 2018, options to purchase 10,447 shares were included in the diluted earnings per share calculation. At March 31, 2019 and March 31, 2018 options to purchase 365,000 and 365,000 shares, respectively, were not included in the diluted earnings per share calculation as their effect would have been anti-dilutive.

 

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

 

NOTE 11:

SEGMENT REPORTING

 

The Company operates through three (3) segments, CVD Equipment Corporation (“CVD”),  Stainless Design Concepts (“SDC”) and CVD Materials Corporation (“Materials”). The CVD segment is utilized for chemical vapor deposition equipment manufacturing. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York for gas control systems. Materials is our new segment based on recent acquisitions, for providing quartzware and 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.

 

 

The Company’s corporate administration activities are reported in the Eliminations and Unallocated 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.

 

 

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

 

 

NOTE 11:

SEGMENT REPORTING (continued)

 

 

Three Months Ended March 31,

(In thousands)

 

 

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

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