CVD EQUIPMENT CORP

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively the “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 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 nine months ended September 30, 2025 are not necessarily indicative of the results that can be expected for the year ending December 31, 2025.

The condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 19, 2025, but does not contain all 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.

Transformation Strategy

On November 6, 2025, the Company’s Board of Directors approved a comprehensive strategy to transform the Company in response to the continued fluctuations in order rates and the recent decline in the bookings of the CVD Equipment division. As part of this strategy, the Company intends to transition the operating model for our CVD Equipment business from vertically integrated fabrication to outsourced fabrication of certain components. These actions are expected to reduce the Company’s fixed operating costs.

Key initiatives of the plan include a reduction in the CVD Equipment division’s workforce, expected to reduce annual operating costs by approximately $2.0 million; outsourcing of the fabrication operations for certain components; and implementation of a revised sales strategy utilizing distributors and outside sales representatives to supplement internal sales efforts. The SDC division will not be impacted by these actions.

The transformation strategy also includes the exploration of strategic alternatives for businesses and product lines, including the potential sale or divestiture of assets or business lines.

The Company expects to complete the workforce reduction plan during the fourth quarter of 2025 and anticipates incurring approximately $0.1 million in severance and other charges. In connection with the transformation plan, the Company may incur non-cash impairment charges in future periods with respect to certain of its long-lived assets to the extent any such assets are disposed of for amounts less than their book values.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Liquidity

At September 30, 2025, the Company had $8.4 million in cash and cash equivalents. The Company believes that its existing cash and cash equivalents, together with anticipated cash flows from operations, collections of outstanding accounts receivable, revenue from its current backlog, sales of inventory on hand, and deposits and down payments on significant orders, will be sufficient to fund its working capital and capital equipment needs, as well as its expected cash requirements, for at least the next 12 months from the date of issuance of these condensed consolidated financial statements.

Reclassifications

Certain reclassifications have been made to the prior period condensed consolidated financial statements to conform to the current period presentation. These reclassifications had no effect on net income (loss).

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:

Over time

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within 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 impairment losses recognized on contract assets during the three and nine months ended September 30, 2025 and 2024.

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 orders 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 three and nine months ended September 30, 2025 and 2024, all system equipment sales were recorded over time by using an input method except a) one contract that was recorded as revenue at the point in time the equipment was transferred to the customer during the third quarter of fiscal year 2024 and b) one contract that was entered during 2024 was not recognized using over time revenue recognition until July 2025 when a contract modification was entered into with the customer to change certain contract provisions. Revenue and gross profit recognized for this modified contract was $1.0 million and $0.6 million, respectively for the three and nine months ended September 30, 2025.

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 condensed 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.

Recent Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures. The amendments further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted, and should be applied either prospectively or retrospectively. The resulting new annual disclosures requirements will be reflected in the Company’s 2025 report on Form 10-K.

In November 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statements Expenses (Subtopic 220-40),” to improve income statement expenses disclosure. The standard requires more detailed information related to the types of expenses, including (among other items) the amounts of purchases of inventory, employee compensation, depreciation and intangible asset amortization included within each interim and annual income statement’s expense caption, as applicable.

This authoritative guidance can be applied prospectively or retrospectively and will be effective for financial statements issued for annual periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027, with early adoption permitted. The Company is currently in the process of evaluating the impact of adoption on its consolidated financial statements.

The Company believes there is no additional new accounting guidance adopted, but not yet effective, which 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: CONCENTRATION OF CREDIT RISK

Cash and cash equivalents

The Company had cash and cash equivalents of $8.4 million and $12.6 million at September 30, 2025 and December 31, 2024, respectively. The Company invests excess cash in U.S. treasury securities, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents consisting of U.S. treasury securities were $7.6 million and $11.9 million at September 30, 2025 and December 31, 2024, respectively.

The Company’s cash balances are held in United States financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at September 30, 2025 and December 31, 2024 was $0.7 million and $0.4 million, respectively.

NOTE 3: CONCENTRATION OF CREDIT RISK (continued)

Accounts receivable

The Company routinely assesses the financial strength of its customers*.* In accordance with the “expected credit loss” model of ASC 326, 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 considers 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.

Accounts receivable is presented net of an allowance for credit losses of $23,000 and $48,000 as of September 30, 2025 and December 31, 2024, respectively. 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 credit losses could be material to our results of operations and financial condition.

At September 30, 2025, the accounts receivable balance included amounts from three customers that represented 47.4%,11.3%, and 13.1% of total accounts receivable. As of December 31, 2024, the accounts receivable balance includes amounts from three customers that represented 28.6%,14.0% and 11.9% of total accounts receivable.

Sales concentration

Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended September 30, 2025, three customers exceeded 10% of revenues, representing 22.7%,19.1%, and 13.6% of revenues, and during the nine months ended September 30, 2025, two customers represented 30.2% and 16.7% of revenues.

During the three months ended September 30, 2024, two customers represented 29.1% and 11.2% of revenues, and during the nine months ended September 30, 2024, one customer represented 31.2% of revenues.

NOTE 4: REVENUE RECOGNITION

The following table represents a disaggregation of revenue for the three and nine months ended September 30, 2025, and 2024 (in thousands):

The energy market includes customers involved in the manufacture of silicon carbide wafers and batteries. The aerospace market includes customers that manufacture aircraft engines. The industrial end market consists of various end customers in diverse industries. The research market principally represents customers such as universities and other research institutions.

NOTE 4: REVENUE RECOGNITION (continued)

The Company has unrecognized contract revenue of approximately $5.3 million at September 30, 2025 of contracts in progress that it expects to substantially recognize as revenue within the next twelve months based on over time revenue recognition.

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 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 condensed consolidated statements of operations.

Contract assets and liabilities

Contract assets and contract liabilities on input method type contracts in progress are summarized as follows as of September 30, 2025 (in thousands):

Of the contract liability balances at December 31, 2024 and 2023, $2.4 million and $2.7 million was recognized as revenue during the nine months ended September 30, 2025 and 2024, respectively. Contract assets and contract liabilities at December 31, 2023 were $1.6 million and $4.9 million, respectively.

NOTE 5: INVENTORIES

Inventories consist of:

Included in our inventories are finished goods and raw materials related to PVT 150/200 systems that were purchased and built, respectively, in anticipation of future orders.

As of September 30, 2025, the net amount of PVT 150/200 systems inventory is approximately $0.4 million. If future PVT 150/200 orders do not materialize and if the Company is not otherwise able to sell this inventory, the Company could incur additional charges to further reduce the carrying value of such inventory to net realizable value. Such charges may be material to the Company’s financial position and future results of operations.

NOTE 6: LONG-TERM DEBT

In September 2022, the Company entered into a loan agreement to fund the acquisition of machinery. The remaining loan balance of $203,000 is payable in equal monthly installments of $8,352 and secured by equipment. The interest rate is 6%.

NOTE 7: EARNINGS PER SHARE

The calculation of basic and diluted weighted average common shares outstanding for the three and nine months ended September 30, 2025 and 2024 is as follows:

For the three and nine months ended September 30, 2025 and 2024, all stock options were excluded in the computation of diluted earnings per share because their effect was antidilutive.

NOTE 8: STOCK-BASED COMPENSATION EXPENSE

The Company recorded stock-based compensation for the three and nine months ended September 30, 2025 and 2024, respectively, that were included in the following line items in our condensed consolidated statements of operations (in thousands):

Stock-based compensation expense for three months ended September 30, 2025 and 2024 included $50,000 and $50,000, respectively, and for the nine month periods ended September 30, 2025 and 2024 included $150,000 and $153,736, respectively, related to restricted stock awards that directors are entitled to receive pursuantto the Director Compensation Plan. Under this plan each of the five Company’s independent directors is entitled to an Annual Equity Retainer in the amount of $40,000, to be granted on the date of the Company’s annual meeting of shareholders.

The following table summarizes stock options activity through September 30, 2025:

The following table summarizes information about the outstanding and exercisable options at September 30, 2025 by ranges of exercise prices:

NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)

As of September 30, 2025, there was $0.9 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 1.4 years.

NOTE 9: INCOME TAXES

As of September 30, 2025 and December 31, 2024, 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.

NOTE 10: SEGMENT REPORTING

The Company has determined that it hasthree reportable segments, organized primarily based on product offerings, as follows:

Both CVD Equipment and SDC also sell spares and parts and provide services related to the equipment each segment sells.

The chief operating decision maker (“CODM”) of the Company is the Company’s chief executive officer. The CODM assesses performance and decides how to allocate resources, including employees, financial or capital resources, based on segment net income (loss). The CODM considers actual-to-actual variances on a quarterly basis when making decisions about allocating capital and other resources to the segments and to assess the performance for each segment.

Financial results for the reportable segments are prepared on a basis consistent with the internal disaggregation of financial information to assist the CODM in making internal operating decisions.

Certain income and expenses are excluded from segment net income (loss) and included in the unallocated amounts in the reconciliation of reportable segment net income (loss) to net income (loss). These items are not used by the CODM in allocating resources or evaluating the results of the segments and include the following: corporate expenses consisting of employment costs of executives, finance, information technology and human resources; board of director fees; professional fees; shareholder and investor relations expense; directors’ and officers’ insurance; interest income and income tax expense. Segment income (loss) from operations may not be consistent with measures used by other companies.

The following provides segment information as described below (in thousands):

The following provides segment information as described below (in thousands):

Intersegment revenues are determined based on similar product sales to external customers of the Company.

The following table presents a reconciliation of net income (loss) of reportable segments to consolidated net income (loss) (in thousands):

The following table presents revenue by geographic area (in thousands):

For geographical reporting, revenues are attributed to the location in which the customer facility is located. All the Company’s long-lived assets are located in the United States.

NOTE 11: RISKS AND CONTINGENCIES

The Company operates in a challenging economic environment as the global economy continues to confront the impacts of recent executive orders by the U.S. federal administration regarding tariffs on imports from various countries including the European Union, Canada, Mexico, and China and the potential impact of actions taken by other countries in response to the announced tariffs, geopolitical conflicts and general inflationary pressures. Other economic challenges include the effects of the current U.S. government shutdown and the ongoing geopolitical developments across Europe and Asia including the war in Ukraine. 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.