CVD EQUIPMENT CORP

Note 1 –Business Description

CVD Equipment Corporation and its subsidiaries (the “Company”) is a New York corporation. Its principal business activities include designing, developing, and manufacturing a broad range of chemical vapor deposition, physical vapor transport, gas control, and other equipment and process solutions used to develop and manufacture materials and coatings for industrial applications and research. Its products are used in production environments as well as research and development centers, both academic and corporate.

We conduct our business through three reportable operating segments: i) CVD Equipment that supplies chemical vapor deposition, physical vapor transport and thermal process equipment; ii) SDC that designs and manufactures ultra-high purity gas and chemical delivery control systems; and iii) CVD Materials that provide products related to advanced materials and coatings.

Note 2 -Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Liquidity

At December 31, 2023, the Company had $14.0 million in cash and cash equivalents. The Company anticipates that the existing cash and cash equivalents balance together with potential future income from operations, collections of existing accounts receivable, revenue from its existing backlog of products as of this filing date, the sale of inventory on hand, deposits and down payments against significant orders will be adequate to meet its working capital and capital equipment requirements, and its anticipated cash needs over the next 12 months from the date of issuance of the accompanying Form 10-K.

Reclassifications

In addition, certain reclassifications have been made to the prior period consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net (loss).

Principles of Consolidation

The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The Company’s significant estimates are the accounting for certain items such as revenues on long-term contracts recognized on the input method, valuation of inventories at the lower of cost or net realizable value; allowance for credit losses; valuation allowances for deferred tax assets, estimated lives and impairment considerations of long-lived assets and valuation of stock-based compensation.

Revenue Recognition

In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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:

Over time

The Company designs, manufactures and sells custom chemical vapor deposition, thermal process equipment and other equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within two to eighteen months from commencement of order acceptance. For systems sales that meet the criteria to recognize revenue over time, 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. For system sales that do not meet the criteria to recognize revenue over time based on the contract provisions, the Company recognizes revenue based on point in time.

Under the over time method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work-in-process, and installed, as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to

evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. There wereno material impairment losses recognized on contract assets during the year ended December 31, 2023 and 2022.

The timing of revenue recognition, billings and collections results in accounts receivables, unbilled receivables or contract assets and contract liabilities on our consolidated balance sheet. Under typical payment terms for our contracts accounted for over time, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals or upon achievement of contractual milestones.

Under ASC 606, payments received from customers in excess of revenue recognized to-date results in a contract liability. These contract liabilities are not considered to represent a significant financing component of the contract because we believe these cash advances and deposits are generally used to meet working capital demands which can be higher in the earlier stages of a contract. Also, advanced payments and deposits provide us with some measure of assurance that the customer will perform on its obligations under the contract.

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

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

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

Point in time

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

For any system equipment sales where the equipment would have an alternative use or where the contract provisions of the contract preclude the use of over time revenue recognition, revenue is recognized at the point in time when control of the equipment is transferred to the customer. For the year ended December 31, 2023 and 2022, all system equipment sales were recorded over time by using an input method.

Inventories

Inventories (raw materials, work-in-process and finished goods) are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. Work-in-process and finished goods inventory reflect all accumulated production costs, which are comprised of direct production costs and overhead, and is reduced by amounts recorded in cost of sales as the related revenue is recognized. Indirect costs relating to long-term contracts, which include expenses such as general and administrative, are charged to expense as incurred and are not included in our cost of sales or work-in-process and finished goods inventory.

Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost. The Company evaluates usage requirements by analyzing historical usage, anticipated demand, alternative uses of materials, and other qualitative factors. Unanticipated changes in demand for the Company’s products may require a write down of inventory, which would be reflected in cost of sales in the period the revision is made.

Product Warranty

The Company typically provides standard warranty coverage on its systems for one year from the date of final acceptance or fifteen months from the date of shipment by providing labor and parts necessary to repair the systems during the warranty period. The Company records the estimated warranty cost when revenue is recognized on the related system. Warranty cost is included in “Cost of revenue” in the consolidated statements of operations. The estimated warranty cost is based on the Company’s historical cost. The Company updates its warranty estimates based on actual costs incurred.

Income Taxes

Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statements and tax bases of assets and liabilities, as measured by using the future enacted tax rates. Deferred tax expense (benefit) is the result of changes in the deferred tax assets and liabilities. The Company records a valuation allowance against deferred tax assets when it is more likely than not that future tax benefits will not be utilized based on a lack of sufficient positive evidence.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not the tax position will be sustained on examination by taxing authorities based on the technical merits of the position and (2) for those positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount oftax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

The Company’s policy for global intangible low taxed income (“GILTI”) is to treat such amounts as a period cost when incurred.

Impairment of Long-Lived Assets and Intangibles

Long-lived assets consist primarily of property, plant, and equipment. Intangibles consist of patents, copyrights and intellectual property, licensing agreements and certifications. Long-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable.When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists.If the asset is determined to be impaired, the impairment loss is measured on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for buildings and building improvements over 5 to 39 years and for machinery and equipment over 5 to 8 years. Depreciation and amortization of assets used in manufacturing are recorded in cost of revenue. Depreciation and amortization of all other assets are recorded as operating expenses.

Intangible Assets

The cost of intangible assets is being amortized on a straight-line basis over their estimated initial useful lives which ranged from 5 to 20 years.

Research and Development

Research and development costs are expensed as incurred and include charges for the development of new technology and transition of existing technology into new products.

Earnings Per Share

Basic earnings per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during each period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be adjusted upon exercise of common stock options, unvested restricted shares, and warrants.

Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.

Cash and Cash Equivalents

The Company had cash and cash equivalents of $14.0 million and $14.4 million at December 31, 2023 and 2022, respectively. The Company invests excess cash in treasury bills, certificates of deposit or deposit accounts, all with original maturities of less than three months. Cash equivalents were $12.1 million and $11.7 million at December 31, 2023 and 2022, 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 in excess of the limit at both December 31, 2023 and 2022 was $1.5 million. The Company’s cash in our Denmark subsidiary exceeded the government guarantee limit by approximately $0.5 million at December 31, 2022.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company places its cash equivalents with financial institutions and invests its excess cash primarily in treasury bills, certificates of deposit or deposit accounts. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity.

The Company routinely assesses the financial strength of its customers*.* In accordance with the “expected credit loss” model, the carrying amount of accounts receivable is reduced by a valuation allowance that reflects the best estimate of the amounts the Company does not expect to collect. In addition to reviewing delinquent accounts receivable, the Company consider many factors in estimating our reserve, including types of customers and their credit worthiness, experience and historical data adjusted for current conditions and reasonable supportable forecasts*.*The Company records an allowance for credit losses based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided based upon the collection history, current economic trends and reasonable supportable forecasts.

The Company has accounts receivables from certain customers that exceed 10%. As of December 31, 2023, the accounts receivable balance includes amounts from three customers that represented 37.6%,13.0% and 12.8% of total accounts receivable, and as of December 31, 2022, two customers that represented 35.7% and 30.3% of total accounts receivable.

Accounts receivable is presented net of an allowance for credit losses of $36,000 as of both December 31, 2023 and 2022. The allowance is based on prior experience and management’s evaluation of future economic conditions. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Future changes to the estimated allowance for doubtful accounts could be material to our results of operations and financial condition.

Sales Concentrations

Revenue to a single customer in any one year can exceed 10% of our total sales. There were three customers in the year ended December 31, 2023 that represented 14.3%,13.5% and 10.9% of our revenues, while there was one customer in the year ended December 31, 2022 that represented 29.2% of our revenues. The loss of a large customer could have a material adverse effect on the Company’s business and financial condition.

Export sales to customers represented approximately 17% of sales for both years ended December 31, 2023 and 2022. Export sales in both 2023 and 2022 were primarily to customers in Europe and Asia. All contracts except those entered into by the Company’s subsidiary in Denmark are denominated in U.S. dollars. The Company has not entered into any foreign exchange contracts.

Supplier Risk

The Company relies on suppliers to manufacture many of the components and subassemblies used in its products. Quality or performance failures of the Company’s products or changes in its manufacturers’ financial or business condition could disrupt the Company’s ability to supply quality products to its customers and thereby have a material and adverse effect on its business and operating results. Some of the components and technologies used in the Company’s products are purchased and licensed from a single source or a limited number of sources. The loss of any of these suppliers may cause the Company to incur additional transition costs, result in delays in the manufacturing and delivery of its products or cause it to carry excess or obsolete inventory and could cause it to redesign its products.

Fair Value of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable, contract assets and contract liabilities approximate fair value due to the relatively short-term maturity of these instruments. The carrying value of long-term debt approximates fair value based on prevailing borrowing rates currently available for loans with similar terms and maturities.

Stock-Based Compensation

The Company records stock-based compensation in accordance with the provisions set forth in ASC 718, “Stock Compensation”. ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards over the vesting period. The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and includes assumptions regarding expected volatility, expected option term, dividend yields and risk-free interest rates.

Shipping and Handling

It is the Company’s policy to include freight charges billed to customers in total revenue. The amount included in revenue was $55,000 and $87,000 for the years ended December 31, 2023 and 2022, respectively.

Recently Adopted 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. The adoption of the ASU 2016-3 as of January 1, 2023 did not have a material impact on the Company’s financial position.

Recently Issued Accounting Standards

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which requires public business entities to disclose additional information in specified categories with respect to the reconciliation of the effective tax rate to the statutory rate for federal, state, and foreign income taxes. It also requires greater detail about individual reconciling items in the rate reconciliation to the extent the impact of those items exceeds a specified threshold. In addition to new disclosures associated with the rate reconciliation, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts exceed a quantitative threshold. The ASU also describes items that need to be disaggregated based on their nature, which is determined by reference to the item’s fundamental or essential characteristics, such as the transaction or event that triggered the establishment of the reconciling item and the activity with which the reconciling item is associated. The ASU eliminates the historic requirement that entities disclose information concerning unrecognized tax benefits having a reasonable possibility of

significantly increasing or decreasing in the 12 months following the reporting date. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU should be applied on a prospective basis; however, retrospective application is permitted. We are currently evaluating the impact that ASU 2023 – 09 will have on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segments,” which aims to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. Currently, Topic280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain circumstances. The amendments in this ASU do not change or remove those disclosure requirements and do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact that ASU 2023 – 07 will have on our consolidated financial statements.

The Company believes 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 –Revenue **

The following table represents a disaggregation of revenue from contracts by end markets for the years ended December 31, 2023 and 2022 (in thousands):

The energy market includes customers involved in the manufacture of silicon carbide wafers and batteries. Aerospace market includes customers that manufacture aircraft engines. Industrial end market consists of various end customers in diverse industries. Research market principally represents customers that are universities and other research institutions.

The Company has unrecognized contract revenue of approximately $16.3 million at December 31, 2023, which it expects to recognize as revenue within the next twelve months.

Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

Changes in estimates for sales of systems occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s consolidated financial position and results of operations.

Note 3 – Revenue (continued)

Contract assets and contract liabilities on input method type contracts in progress are summarized at December 31 as follows (in thousands):

Of the contract liability balances at December 31, 2022 and December 31, 2021, $3.7 million and $1.7 million was recognized as revenue during the years ended December 31, 2023 and 2022, respectively. Contract assets at December 31, 2021 were $2.5 million.

Note 4 -Inventories

Inventories as of December 31 consist of (in thousands):

Note 5 –Property, Plant and Equipment

Major classes of property, plant and equipment consist of the following as of December 31 (in thousands):

Machinery and equipment also include furniture and fixtures and software.

Depreciation expense was $0.7 million and $0.8 million for the years ended December 31, 2023 and 2022, respectively.

The Company entered into an agreement with the Town of Islip Industrial Development Agency (Islip IDA) in July 2021 under which the Company was granted tax incentives whereby the Company agreed to make payments in lieu of all real estate taxes and assessments (PILOT payments). The agreement requires the Company to maintain certain employment levels at its Central Islip, New York facility. The agreement provides for the Islip IDA to recapture tax incentives provided to the Company in certain circumstances. Any recapture of such tax benefits could have a material adverse effect on the Company’s financial position and future results of operations and cash flows.

Note 6 –Intangible Assets

Intangible assets consisted of the following (in thousands):

December 31, 2023

December 31, 2022

Amortization expense was $0.1 million and $0.1 million in years ended December 31, 2023 and 2022, respectively, including costs of abandoned patent applications.

The estimated amortization expense related to intangible assets for each of the five succeeding fiscal years and thereafter as of December 31, 2023 is approximately $1,000 per year.

Note 7 –Accrued Expenses

Accrued expenses consist of the following as of December 31 (in thousands):

Note 8 –Long-term Debt

Long-term debt as of December 31 consist of the following (in thousands, except percentages and amounts in notes):

In September 2022*,*the Company entered into a loan agreement to fund the acquisition of machinery equipment in the amount of $0.4 million.

Future maturities of long-term debt as of December 31, 2023 are as follows (in thousands):

Note 9 –Earnings per Share

The calculation of basic and diluted weighted average common shares outstanding as of December 31 is as follows (in thousands):

At December 31, 2023, stock options to purchase 846,875 shares of common stock were outstanding and 335,375 were exercisable. At December 31, 2022, stock options to purchase 673,000 shares of common stock were outstanding and 265,000 were exercisable.

At December 31, 2023 and 2022,846,875 and 673,000 stock options, respectively, were not included in the computation of diluted earnings per share because their effect was antidilutive.

**Note 10 –Income Taxes **

Loss before income taxes are as follows:

The expense/(benefit) for income taxes for the years ended December 31 includes the following (in thousands):

The reconciliation of the federal statutory income tax rate to our effective tax rate for the years ended December 31 is as follows (in thousands):

Note 10 – Income Taxes (continued)

The tax effects of temporary differences giving rise to significant portions of the net deferred taxes as of December 31 are as follows (in thousands):

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is based on the assessment of available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit the utilization of existing deferred tax assets. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the prior three-year period ended December 31, 2023. Such objective evidence limits the ability to consider subjective evidence such as our projections for future growth. Based on this assessment, we maintained a full valuation allowance against our net deferred tax assets as of December 31, 2023, and 2022. If these estimates and assumptions change in the future, we may be required to reduce our existing valuation allowance resulting in less income tax expense.

For the year ended December 31, 2023, the valuation allowance increased by approximately $0.7 million from the prior year primarily from current year operating losses for which no tax benefit was provided.

Note 10 – Income Taxes (continued)

At December 31, 2023, the Company had $4.0 million of U.S. federal net operating loss carryforwards. These net operating losses have an indefinite carryforward period but are only available to offset 80% of future taxable income. The Company also has $1.9 million of federal research and development tax credits which expire in varying amounts in tax years 2028 through 2042.

The Company applies the applicable authoritative guidance which prescribes a comprehensive model for the manner in which a company should recognize, measure, present and disclose in its financial statements all material uncertain tax positions that the Company has taken or expects to take on a tax return. As of December 31, 2023 and 2022, the Company hadno uncertain tax positions. The Company does not expect that its unrecognized tax benefits will significantly increase or decrease within twelve months.

The Company files federal income tax returns and income tax returns in various state and local tax jurisdictions and in Denmark. The federal tax years open to examination are 2020 to 2023. The Company’s state and local tax years that are open to tax examination are generally 2019 to 2023.

The Inflation Reduction Act (“IRA”) and Chips and Science Act (“CHIPS Act”) were both enacted in August 2022. The IRA introduced new provisions including a 15% corporate alternative minimum tax for certain large corporations that have at least an average of $1 billion adjusted financial statement income over a consecutive three-tax-year period and a 1% excise tax surcharge on stock repurchases. The CHIPS Act provides a variety of incentives associated with investments in domestic semiconductor manufacturing and related activities. Both the IRA and CHIPS Act are applicable for tax years beginning after December 31, 2022 and had no impact to the Company’s consolidated financial statements for the years ended December 31, 2023 and 2022.

Note 11 –Employee Retention Credit

During 2022, the Company conducted an analysis as to whether it was entitled to employee retention credits (“ERC”) under the CARES Act as amended by the Taxpayer Certainty and Disaster Tax Relief Act of 2020 and the American Plan Act of 2021. Based on the analysis, the Company determined that it was entitled to an ERC of approximately $1.5 million related to payroll paid in the first and third quarters of 2021 under the applicable Internal Revenue Service regulations related to ERCs.

As ERCs are not within the scope of ASC 740,Income Taxes, the Company has chosen to account for the ERCs by analogizing to the International Standard IAS 20,Accounting for Government Grants and Disclosure of Government Assistance. In accordance with IAS 20, an entity recognizes government grants only when there is reasonable assurance that the entity will comply with the conditions attached to them and the grants will be received. Accordingly, the Company recognized a non-current receivable of $1.5 million as of December 31, 2022 and other income of $1.5 million for the year ended December 31, 2022. The Company received the ERC credit in July 2023.

Note 12 –Stock-Based Compensation

A summary of the Company’s Share Incentive Plans are as follows:

2007 Share Incentive Plan

On December 12, 2007, shareholders approved the Company’s 2007 Share Incentive Plan (“2017 Incentive Plan”), in connection therewith,750,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2017 Incentive Plan through December 12, 2017. The Plan expired in December 2017. As of December 31, 2023, there were 120,000 options outstanding under this plan.

2016 Share Incentive Plan

On December 9, 2016, shareholders approved the Company’s 2016 Share Incentive Plan (“2016 Incentive Plan”), in connection therewith,750,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2016 Incentive Plan through December 9, 2026. As of December 31, 2023, there were 442,125 options outstanding under this plan.

2022 Share Incentive Plan

On July 14, 2022, shareholders approved the Company’s 2022 Share Incentive Plan (“2022 Incentive Plan”), in connection therewith,515,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the 2022 Incentive Plan through July 14, 2032. As of December 31, 2023, there were 284,750 options outstanding under this plan.

Under the 2016 and 2022 Share Incentive Plans, the purchase price of the common stock under each option plan shall be determined by the Committee, provided, however, that such purchase price shall not be less than the fair market value of the shares on the date such option is granted. The stock options generally expire seven toten years after the date of grant.

As of December 31, 2023*,*there were 26,948 shares available for grant under the 2016 Equity Incentive Plan and 188,930 shares available for grant under the 2022 Equity Incentive Plan.

The Company recorded stock-based compensation of $0.9 million and $0.4 million for the years ended December 31, 2023 and 2022, respectively, that were included in the following line items in our Consolidated Statements of Operations (in thousands):

Stock-based compensation expense in both years included approximately $0.2 million related to restricted stock awards pursuant to a Director Compensation plan discussed below. The Company recognizes forfeitures of stock awards as they occur.

For the year ended December 31, 2023, the Company granted 254,000 stock options, vesting 25% per year over four years, with aten-year life. The Company determined the fair value of stock options granted during the year ended December 31, 2023 is based upon weighted average assumptions as provided below.

The expected life is the number of years the Company estimates that the awards will be outstanding based on the simplified method that considers the vesting period and contractual period of the option. The Company has 846,875 of outstanding stock options under the three plans at December 31, 2023.

The following table summarizes stock options awards for the years ended December 31, 2023 and 2022:

The following table summarizes information about the outstanding and exercisable options at December 31, 2023:

As of December 31, 2023, there was $2.4 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 2.6 years.

Restricted Stock Awards

Pursuant to the Director Compensation plan approved on October 11, 2021*,*each of the five independent directors is entitled to compensation for an annual equity retainer in the amount of $40,000 per director, to be automatically granted on the date of the Company’s annual meeting of shareholders.

The following table summarizes restricted stock awards for the years ended December 31, 2023 and 2022:

The fair value of the restricted stock awards is recorded as stock-based compensation expense over theone-year vesting period and totaled $0.17 million $0.16 million for the years ending December 31, 2023 and 2022, respectively.

Restricted Stock Units

In prior years, the Company issued restricted stock units or RSUs. During the year ended December 31, 2022,5,500 RSUs vested which had an intrinsic value of $22,745. No restricted stock units vested during the year ended December 31, 2023 and there wereno RSUs outstanding as of December 31, 2023 and 2022.

Note 13 –Defined Contribution Plan

The Company maintains a 401(k) Plan for the benefit of all eligible employees. All employees as of the effective date of the 401(k) Plan became eligible. An employee is eligible to become a participant after three months of continuous service.

Participants may elect to contribute from their compensation any amount up to the maximum deferral allowed by the Internal Revenue Code. Employer contributions are optional.

Effective July 1, 2022, the Company implemented a matching contribution of 50% of an employee’s contributions up to 6% of their compensation. The Company recorded compensation expense of $243,000 and $90,000 during the years ended December 31, 2023 and 2022, respectively, for matching contributions to the 401(k) plan.

No discretionary employer contribution has been made for 2023 and 2022.

Note 14 –Segment Reporting

The Company operates through three segments: CVD Equipment, Stainless Design Concepts (“SDC”) and CVD Materials. The CVD Equipment segment manufactures and sells chemical vapor deposition, physical vapor transport and similar equipment. SDC manufactures ultra-high purity gas control systems. The CVD Materials segment provides material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income (loss) before taxes.

The Company’s corporate administration activities are reported in the “Corporate” column. These activities primarily include 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.

Elimination entries included in the “Eliminations” column represent intersegment revenues and cost of revenues that are eliminated in consolidation. Intersegment sales for the year ended December 31, 2023 and 2022 by the SDC segment to the CVD Equipment segment were $439,000 and $573,000, respectively. Intersegment sales by the CVD Equipment segment to the SDC segment for the year ended December 31, 2023 were $109,000. There wereno intersegment sales by the CVD Equipment segment to the SDC segment during the year ended December 31, 2022.

The following table presents certain information regarding the Company’s segments as of and for the years ended December 31, 2023 and December 31, 2022 (in thousands, including amount in notes):

2023

2022

Note 15 –CVD Materials – Tantaline and MesoScribe Subsidiaries

Tantaline Subsidiary

On May 26, 2023, the Company sold its Tantaline subsidiary located in Nordborg, Denmark in exchange for a nominal amount at closing and an earn-out provision based on any net income that Tantaline may earn during the five-year period ending December 31, 2027. The Company recorded a loss of $0.2 million upon the sale. Any earn-out amounts will be recognized when and if any such amounts become probable of receipt.

The decision to sell Tantaline was based on the Company’s ongoing strategy to focus on the equipment business consisting of the CVD Equipment and SDC segments and reduce its focus on the non-core CVD Materials business.

Including the loss on disposition of $0.2 million, the revenues and net income of Tantaline were $0.5 million and $0.1 million, respectively, for the year ended December 31, 2023. The total assets and total liabilities of the Tantaline subsidiary were $1.1 million and $0.4 million as of December 31, 2022.

MesoScribe Subsidiary

On August 8, 2023, the Company entered into a Purchase and License Agreement (the “Agreement”) with a third-party. Pursuant to the Agreement, the Company will sell certain proprietary assets relating to its plasma spray technology and material deposition system and grant a non-exclusive license to use certain of the Company’s related intellectual property as more fully described in the Agreement, for an aggregate purchase price of $0.9 million. The purchase price is payable in several installments and contingent upon certain performance metrics and other milestones.

The Company will continue to fulfill remaining orders for MesoScribe products through the end of 2024 at which time it plans to cease the remaining operations of MesoScribe and dispose of any remaining equipment. During the year ended December 31, 2023, the Company recorded an impairment charge of $0.1 million for certain equipment of MesoScribe based on its decision to cease the operations of MesoScribe upon fulfillment of remaining orders. There were no impairment charges recorded in 2022.

The Company received payments under the Agreement in the amount of $0.6 million which has been reflected as “deposits from purchaser” in the accompanying consolidated balance sheet as of December 31, 2023. The Company expects the transaction to be completed in 2024 with the shipment of the equipment to the purchaser.

The revenues and net income of MesoScribe were $0.7 million and $33,000 for the year ended December 31, 2023, including the impairment charge of $0.1 million.

The total assets and total liabilities of the MesoScribe subsidiary were $0.2 million and $0.7 million, respectively, as of December 31, 2023 and $0.9 million and $0.1 million, respectively, as of December 31, 2022.

Note 16 –Risks and Uncertainties

The Company currently operates in a challenging economic environment as the global economy continues to confront the remaining impacts from the pandemic, geopolitical conflicts, inflationary pressures, and adverse supply chain disruptions. The specific impacts on the Company have included:

While management has initiated actions to mitigate the potential negative impacts to its revenue and profitability, the Company is unable to predict the impact that the above uncertainties may have on its future results of operations and cash flows.