Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes contained elsewhere in this report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of factors discussed in this report and those discussed in other documents we file with the SEC. In light of these risks, uncertainties and assumptions, readers are cautioned not to place undue reliance on such forward-looking statements. These forward-looking statements represent beliefs and assumptions as of the date of this report. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change. Past performance does not guarantee future results.

Executive Summary

We have served the advanced materials markets with chemical vapor and thermal process equipment for over 40 years. CVD designs, develops, and manufactures a broad range of chemical vapor deposition, gas control, and other state-of-the-art equipment and process solutions used to develop and manufacture materials and coatings for industrial applications and research.

During 2025:

	●	Revenue decreased by $1.1 million or 4.1% as compared to the prior year due to decreases in revenues from aerospace and industrial contracts in progress in our CVD segment, lower revenues in our SDC segment and the lower revenues related to the ceasing of MesoScribe's operations.
	●	Gross profit increased by $1.2 million or 20.4% as compared to the prior year due principally to a $1.6 million non-cash charge in 2024 to reduce certain inventory to net realizable value.
	●	Total bookings for 2025 were approximately $13.0 million as compared to $28.1 million in 2024. The decrease in bookings of $15.1 million was related to a decrease in orders for systems in our CVD Equipment segment due in part to macroeconomic issues associated with tariffs, reduction in university funding and the U.S. government shutdown during 2025.
	●	Our backlog declined from $19.4 million to $6.6 million due to the reduction in bookings, a decrease of $12.8 million or 66.0%.
	●	Cash balance at December 31, 2025 was $8.7 million as compared to $12.6 million at December 31, 2024

Business Update

On March 23, 2026, we entered into a definitive agreement under which our SDC business division will be sold to a subsidiary of the Atlas Copco Group. The purchase price amounts to approximately $16.9 million in cash, subject to certain purchase price adjustments. The transaction is expected to close during the second quarter of 2026, subject to customary closing conditions.

We expect to use the proceeds from the transaction to enhance financial flexibility and support initiatives aimed at creating shareholder value. The expected net cash proceeds after payment of transaction expenses and taxes are approximately $15.0 million, of which $900,000 will be held in escrow to cover post-closing adjustments and indemnification obligations under the agreement.

CVD will retain ownership of its Saugerties, New York facility, which will be leased to the acquiring company for an initial term of two years following the closing of the transaction.

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

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.

We completed the workforce reduction plan during the fourth quarter of 2025 and incurred approximately $0.1 million in severance and other charges. As of December 31, 2025, the Company classified certain manufacturing equipment as held for sale with a fair value of $0.5 million based on an agreement the Company entered into in January 2026 with a third-party to sell the equipment for this amount. The Company recorded an impairment charge of $0.2 million related to this equipment and related capitalized software during the year ended December 31, 2025.

Our core strategy remains focused on serving key markets related to aerospace, microelectronics/power electronics and industrial applications.

With respect to aerospace, our systems are being used by our customers to produce ceramic matrix composite materials ("CMCs") that will be used in next generation gas turbine jet engines with the objective of reducing jet fuel consumption and to produce specialty coatings for advanced high temperature environments.

In October 2025, we received an order for two PVT150™ units from Stony Brook University (SBU) for their new semiconductor research center - onsemi Silicon Carbide Crystal Growth Center. The recently launched research center will enable SBU faculty, scientists, and students to conduct research on silicon carbide crystal growth and other wide band gap (WBG) materials and device-enabling technologies critical to improving energy efficiency in power semiconductors and foster the next generation of skilled professionals in this field.

Our PVT reactor design and control system architecture allows for precise process and temperature control enabling run-to-run repeatability and system-to-system matching. The PVT system platform is also being considered to process other WBG materials such as aluminum nitride (AlN) to support the development of emerging, high performance semiconductor materials.

Our PVT systems may provide us with standard product offerings to continue to support the EV focused market as well as energy storage, power conversion and power transmission. In addition, SiC semiconductors specifically help address the need for high energy efficiency and power density in the AC-DC stage in power supply units for AI data centers. We plan to evaluate the market conditions and opportunities to expand our product offerings in the power electronics market.

We have generally gained new customers through our industry reputation, as well as print advertising and trade show attendance. We have increased the number of trade shows and industry conferences we attend.

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. Tariffs may make our products less cost competitive and reduce gross margins. The impact on our business related to these or any other tariffs that may be imposed, is uncertain and depends on multiple factors, including the duration and expansion of current tariffs, future changes to tariff rates, scope or enforcement, retaliatory measures by impacted trade partners, and related inflationary effects.

Results of Operations

Years Ended December 31, 2025, and 2024

The following table presents revenue and expense line items reported in our Consolidated Statements of Operations for the years ended December 31, 2025, and 2024 and the period-over-period dollar and percentage changes for those line items (in thousands, except percentages).

		December 31, 2025				December 31, 2024				Change				Percent
Revenue		$	25,786			$	26,876			$	(1,090	)			(4.1	%)
Cost of revenue			18,498				20,825				(2,327	)			(11.2	%)
Gross profit			7,288				6,051				1,237				20.4	%
Operating expenses
Research and development			2,786				2,627				159				6.1	%
Selling			1,443				1,656				(213	)			(12.9	%)
General and administrative			4,806				4,901				(95	)			(1.9	%)
Impairment charges			163				-				163				*
Gain on sales of equipment			-				(717	)			717				*
Total operating expenses			9,198				8,467				731				8.6	%
Operating loss			(1,910	)			(2,416	)			506				(20.9	%)
Other income (expense):
Interest income			341				559				(218	)			(39.0	%)
Interest expense			(13	)			(19	)			6				31.6	%
Other income			-				2				(2	)			*
Total other income, net			328				542				(214	)			(39.5	%)
Loss before income tax			(1,582	)			(1,874	)			292				15.6	%
Income tax expense			3				24				(21	)			*
Net loss		$	(1,585	)		$	(1,898	)		$	313				16.5	%

* Not meaningful

Revenue

		December 31, 2025				December 31, 2024				Change				Percent
CVD Equipment		$	18,079			$	18,288			$	(209	)			(1.1	%)
SDC			7,937				8,444				(507	)			(6.0	%)
MesoScribe			112				778				(666	)			(85.6	%)
Intersegment sales elimination			(342	)			(634	)			292				46.1	%
Total		$	25,786			$	26,876			$	(1,090	)			(4.1	%)

Our revenue for the year ended December 31, 2025 was $25.8 million as compared to $26.9 million for the year ended December 31, 2024, a decrease of $1.1 million or 4.1%.

The decrease in revenue versus the prior year period was primarily attributable to lower revenue of $0.2 million from our CVD Equipment segment, a $0.5 million decrease in revenue from our SDC segment and $0.7 million lower MesoScribe revenues which ceased operations in 2024. Revenue from two customers for the year ended December 31, 2025 represented 27.6% and 13.7% of our consolidated revenues and 39.5% and 19.6% of CVD Equipment segment revenues, respectively.

The revenue contributed by our CVD Equipment segment for the year ended December 31, 2025 of $18.1 million (net of intersegment revenue of $23,000) represented 70.0% of overall revenue as compared to $18.3 million (net of intersegment revenue of $8,000) or 68.0% of overall revenue for the year ended December 31, 2024. The decrease in external revenues of $0.2 million or 1.2% resulted principally from lower system revenues due to lower orders during 2025 offset by higher non-system revenues, principally spare parts.

The revenue contributed by our SDC segment for the year ended December 31, 2025 of $7.6 million (net of intersegment sales of $0.3 million) represented 29.5% of overall revenue as compared to $7.8 million (net of intersegment sales of $0.6 million) or 29.1% of overall revenue for the year ended December 31, 2024. External revenue for our SDC segment decreased by $0.2 million or 2.6%.

The revenue contributed by our MesoScribe segment for the year ended December 31, 2025 of $0.1 represented 0.4% of our overall revenue as compared to $0.8 million or 2.9% of overall revenue for the year ended December 31, 2024. MesoScribe fulfilled its final orders during 2024 and ceased operations. Revenue in 2025 was principally a license fee.

Our order backlog at December 31, 2025 was approximately $6.6 million as compared to December 31, 2024 of $19.4 million. Our order backlog at December 31, 2025 consists of approximately $4.9 million related to remaining performance obligations of contracts in progress and not yet started and the balance of approximately $1.7 million represents other orders received from customers. As of December 31, 2025, one aerospace customer represented 29.4% of our backlog and one industrial customer represented 15.4% of our backlog. Historically, our revenues and orders have fluctuated based on changes in order rate and demand as well as factors in our manufacturing process that impacts the timing of revenue recognition. Accordingly, orders received from customers and revenue recognized may fluctuate from quarter to quarter.

Gross Profit

Gross profit for the year ended December 31, 2025 amounted to $7.3 million, with a gross profit margin of 28.3%, compared to a gross profit of $6.1 million and a gross profit margin of 22.5% for the year ended December 31, 2024. The increase in gross profit of $1.2 million was primarily due to higher gross margin for CVD Equipment due principally to a $1.6 million non-cash charge in 2024 to reduce certain inventory to net realizable value. This was offset by lower gross margins at our SDC and MesoScribe segments due principally to lower revenues.

Research and Development

For the year ended December 31, 2025, research and development expenses were $2.8 million, or 10.8% of revenue as compared to $2.6 million, or 9.8% for the year ended December 31, 2024. The increase was due to less time charged to contracts in progress partially offset by lower personnel costs.

General engineering support and expenses related to the development of more standard products and value-added development of existing products are reflected as part of research and development expense. General engineering support and expenses are charged to costs of goods sold when work is performed directly on a customer order.

Selling

Selling expenses were $1.4 million or 5.6% of the revenue for the year ended December 31, 2025 as compared to $1.7 million or 6.2% for the year ended December 31, 2024. The decrease was primarily due to lower personnel costs.

General and Administrative

General and administrative expenses for the year ended December 31, 2025 were $4.8 million or 18.6% of revenue compared to $4.9 million or 18.2% of revenue for the year ended December 31, 2024, a decrease of $0.1 million. The decrease in 2025 was due to lower employee compensation and lower professional fees.

Impairment Charge

At December 31, 2025, we classified certain excess manufacturing equipment as held for sale with a fair value of $0.5 million based on an agreement with a third-party to sell the equipment for this amount. The Company recorded an impairment charge of $0.2 million related to this equipment and related capitalized software during the year ended December 31, 2025.

Gain on Sales of Equipment

During 2024, we recognized a gain of $0.6 million on the sale of equipment related to MesoScribe representing the sale price of $0.8 million less the costs of the equipment sold of $0.2 million. We also recognized a gain of $42,000 on the sale of equipment by our CVD Equipment segment.

Other Income, Net

Other income (expense) consists principally of interest income on U.S. treasury securities and was lower than the prior year quarter due to less funds available for investment and lower interest rates.

Income Taxes

Income tax expense for the years ended December 31, 2025 and 2024, was $3,000 and $24,000 respectively. We continue to evaluate for potential utilization of our deferred tax asset, which has been fully reserved for, on a quarterly basis, by reviewing our economic models, including projections of future operating results.

Inflation and Supply Chain Matters

We experienced increased costs on certain materials and components as well as delays in supply chain delivery, which may also impact our ability to recognize revenue and reduce our gross profit margins, as well as extend our manufacturing lead times and reduce our manufacturing efficiencies. We have commenced placing orders with more lead time to help mitigate the manufacturing delays, as well as assessing other suppliers or components to attempt to mitigate the potential cost impacts. While we have initiated actions to mitigate the potential negative impacts to our revenue and profitability, there can be no assurance of the ultimate impact and the length of time that the supply chain factors may impact our revenues and profitability.

Inflation has also had an impact on salaries and compensation. To remain competitive in the acquisition and retention of our employees, we have reviewed and adjusted salaries and implemented bonus incentives to mitigate the potential negative impacts of inflation on our employees.

Any significant increases in tariffs on goods that we purchase could negatively affect our business and results of operations by increasing the cost to manufacture our products.

Liquidity and Capital Resources

As of December 31, 2025, we had aggregate working capital of $14.1 million compared to aggregate working capital of $13.8 million at December 31, 2024. Our cash and cash equivalents at December 31, 2025 and 2024 were $8.7 million and $12.6 million, respectively.

Net cash used in operating activities during 2025 was $3.7 million and was principally due to the net loss of $1.6 million and net increase in contract assets and liabilities of $3.5 million, offset by a reduction in inventory of $0.5 million, and non-cash items of $1.6 million.

Net cash used in investing activities for the year ended December 31, 2025 of $0.1 million consisted of purchases of equipment and investment in captive insurance company.

Net cash used in financing activities for the year ended December 31, 2025 consisted of repayments of $0.1 million for an equipment loan.

We believe that our cash and cash equivalent positions and our projected cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months from the filing of this Form 10-K. We will continue to assess our operations and take actions anticipated to maintain our operating cash to support the working capital needs.

Critical Accounting Estimates

Use of Estimates

This discussion and analysis of the Company's financial condition and results of operations is based on the Company's consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods.

In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Revenue Recognition

We design, manufacture, and sell custom chemical vapor deposition equipment through contractual agreements. These system sales require us to deliver functioning equipment that is generally completed within two to eighteen months from commencement of order acceptance. We recognize revenue over time by using an input method based on costs incurred as it depicts our 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 us 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, we recognize the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

We have been engaged in the production and delivery of goods on a continual basis under contractual arrangements for many years. Historically, we have demonstrated an ability to accurately estimate total revenues and total expenses relating to our long-term contracts. However, there exist many inherent risks and uncertainties in estimating revenues, expenses and progress toward completion, particularly on larger or longer-term contracts. If we do not estimate the total sales, related costs, and progress toward completion on such contracts, the estimated gross margins may be significantly impacted, or losses may need to be recognized in future periods. Any such resulting changes in margins or contract losses could be material to our results of operations and financial condition.

Long-Lived Assets

Long-lived assets consist primarily of property, plant and equipment. 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 pursuant to the requirements of ASC 360-10-35, "Impairment or Disposal of Long-Lived Assets." If the asset is determined to be impaired, the impairment loss is measured on the excess of it carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. It is not possible for us to predict the likelihood of any possible future impairments or, if such an impairment were to occur, the magnitude of any impairment.