10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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.

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

2

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

	(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

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

3

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	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

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

4

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	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		$	-

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

5

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

6

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

7

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

8

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

9

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:

	Three Months Ended
Category	March 31, 2019		March 31, 2018
Aerospace	$	212,728	$	3,873,833
Industrial		1,568,453		3,246,082
Research		834,933		861,200
Point in time		852,561		1,172,718
Net Revenue	$	3,468,675	$	9,153,833

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

10

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.

	Three Months Ended		Three Months Ended
(In thousands)	March 31, 2019		March 31, 2018
Increase in revenue from net changes in transaction prices	$	9	$	15
(Decrease) increase in revenue from net changes in input cost estimates	$	(181)	$	894
Net (decrease) increase in revenue from net Changes in estimates	$	(172)	$	909
Number of projects		21		10
Net change in estimate as a percentage of aggregate revenue for associated projects		(.2%)		2.1%

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.

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

11

NOTE 5: INVENTORIES, NET

Inventories consist of:
	March 31, 2019			December 31, 2018
Raw materials	$	1,799,361		$	2,016,488
Work-in-process		330,966			205,385
Finished goods		-			-
Gross inventories		2,130,327			2,221,873
Less reserve for obsolescence		(385,000	)		(360,000	)
Inventories, net	$	1,745,327		$	1,861,873

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

12

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

13

NOTE 9: INCOME TAXES (continued)

The provision for income taxes includes the following:

	Three Months Ended March 31,
	2019			2018
Current:
Federal	$	---		$	240,924
State		3,000			9,000
Total current provision		3,000			249,924
Deferred:
Federal	$	(459,000	)	$	(2,154	)
State		------			----
Total deferred (benefit) provision		(459,000	)		(2,154	)
Income tax expense (benefit) provision	$	(456,000	)	$	247,770

Tax Rate Reconciliation

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

	Three Months Ended
	March 31,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(552,918	)	$	169,296
Foreign tax loss		16,673			9,855
State taxes		3,000			9,000
Difference between tax and book depreciation		24,072			33,037
Stock compensation		25,002			44,860
Other Permanent differences		28,171			(18,278	)
Income tax (benefit) expense	$	(456,000	)	$	247,770

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.

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

14

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

15

NOTE 11: SEGMENT REPORTING (continued)

Three Months Ended March 31,

(In thousands)

									Eliminations and
2019	CVD			SDC		Materials			Unallocated			Consolidated
Assets	$	38,604		$	5,182	$	6,851		$	(9	)	$	50,628
Revenue		2,019			1,087		429			(66	)		3,469
Operating income/(loss)		(1,540	)		174		(198	)		(1,001	)		(2,565	)
Pretax income/(loss)		(1,511	)		176		(296	)		(1,002	)		(2,633	)
2018
Assets	$	47,397		$	6,463	$	6,790		$	(9	)	$	60,641
Revenue		6,705			2,260		372			(183	)		9,154
Operating income/(loss)		1,515			718		(303	)		(1,019	)		911
Pretax income/(loss)		1,624			718		(517	)		(1,019	)		806

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

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

16

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include but are not limited to: competition in the Company’s existing and potential future product lines of business; the Company’s ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company’s future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Past results are no guaranty of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” “will” and similar expressions are intended to identify forward-looking statements.

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

17

Results of Operations

Three Months Ended March 31, 2019 vs. Three Months Ended March 31, 2018

	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

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

18

Revenue

Our revenue for the three months ended March 31, 2019 was $3.5 million compared to $9.2 million for the three months ended March 31, 2018, resulting in a decrease of 62.1% which was primarily attributable to the completion of orders received from our largest customer. This customer, in the aerospace industry from which we have secured multiple orders, represented $.8 million or approximately 22.2% of our revenue for the three months ended March 31, 2019 as compared to $4.4 million or approximately 47.5% of our revenue for the three months ended March 31, 2018.

The revenue contributed for the three months ended March 31, 2019, by the CVD Equipment segment, of $2.0 million, which totaled 58.2% of our overall revenue, was 69.9% or $4.7 million less than the segment’s $6.7 million contribution made in the prior year, which totaled 73.2% of our overall revenue.

Revenue for our SDC segment decreased to $1.1 million in 2019 as compared to $2.1 million in 2018, a decrease of 47.7%. The decrease is primarily attributable to a higher sales activity level from one customer in the prior year. The SDC segment represented 31.3% and 22.8% of our total revenue during the three months ended March 31, 2019 and 2018, respectively.

Revenues for our CVD Materials segment were $.4 million in the three months ended March 31, 2019 as compared to $.4 million for 2018.

Gross Profit

Gross profit for the three months ended March 31, 2019 amounted to ($.4 million), with a gross profit margin of (11.2%,) compared to a gross profit of $3.8 million and a gross profit margin of 41.1% for the three months ended March 31, 2018. The decreased gross profit and gross profit margin were the result of the reduction in sales from our largest customer and delays in receiving new orders, while costs, principally payroll, remained at levels to support our anticipated expansion of the CVD Materials segment and future growth.

Research and Development, Selling and General and Administrative Expenses

Research and Development:

Due to the technical development required on our custom orders, our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project. When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development. For the three months ended March 31, 2019, our research and development expenses totaled $164,000 compared to $97,000 for the three months ended March 31, 2018.

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

19

Selling:

Selling expenses were $.3 million or 8.0 % of the revenue for the three months ended March 31, 2019 as compared to $.5 million or 5.6% for the three months ended March 31, 2018. The decrease was a result of lower employee related costs and commissions as a result of the reduction in overall sales. 

General and Administrative:

General and administrative expenses for the three months ended March 31, 2019 were $1.7 million or 50.0% of revenue compared to $2.2 million or 24.5% for the three months ended March 31, 2018, a decrease of $.5 million. The decrease is primarily the result of reductions in employees and the related payroll and benefit costs.

Operating Income/(Loss)

As a result of the decreased revenues and gross margins, we recorded an operating loss of $2.6 million for the three months ended March 31, 2019 as compared to operating income of $.9 million for the three months ended March 31, 2018, which was driven primarily by the reduced revenue from our largest customer.

Other (expenses)/Income

Other expenses were $68,000 and $104,000 for the three months ended March 31, 2019 and 2018, respectively. This reduction is the result of actions taken to invest significantly more of the Company’s free cash into short-term treasury bills and certificates of deposits and thereby generating increased interest income of $30,000.

Income Taxes

For the three months ended March 31, 2019, we recorded an income tax benefit of $456,000 as compared to an income tax expense of $248,000 for the three months ended March 31, 2018. Commencing in 2018, our corporate tax rate was reduced to 21% as a result of The Tax Cuts and Jobs Act (“TCJA”) enacted December 22, 2017. For the three months ended March 31, 2019 and 2018, this rate was affected by permanent differences related to fixed and intangible assets, stock-based compensation and other items resulting in an effective tax rate of 17.3% and 30.7%, respectively.

Net (loss) / income

As a result of the foregoing factors, we reported net (loss) income of ($2.2 million), or ($0.33) per basic and diluted share, for the three months ended March 31, 2019, as compared to net income of $0.6 million, or $0.09 per basic and diluted share for the three months ended March 31, 2018.

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

20

Liquidity and Capital Resources

As of March 31, 2019, we had aggregate working capital of $12.6 million compared to aggregate working capital of $15.4 million at December 31, 2018. Our cash and cash equivalents of at March 31, 2019 and December 31, 2018 were $11.3 million and $11.4 million, respectively. The decrease in working capital of $2.8 million is primarily attributable to the overall sales reductions and resulting operating loss for the year and debt service payments of approximately $.3 million, including payments on our investment in the CVD Materials building purchased on November 30, 2017. We have continued to invest in activities primarily related to preparing CVD Materials for operations which we anticipate will commence by the third quarter of 2019. Our total capital invested in the three months ended March 31, 2019 was $.4 million, primarily related to building improvements and machinery for the CVD Materials operations and we also incurred operating costs of approximately $84,000, exclusive of interest expense. Further, there were decreases in accounts receivable of $2.0 million and contract assets of $.3 million,

Accounts receivable, net of allowance for doubtful accounts, decreased by $2 million or 48.3% at March 31, 2019, to $2.1 million compared to $4.1 million at December 31, 2018. This decrease is principally due to the timing of shipments and customer payments.

Inventories as of March 31, 2019 were approximately $1.8 million representing a decrease of approximately $.1 million or a decrease of 6.2% compared to the balance of approximately $1.9 million as of December 31, 2018. The decrease was driven primarily by management’s efforts to better utilize existing inventories.

As previously reported, our Revolving Line of Credit expired on September 1, 2018. We have elected not to renew our credit line at this time because (a) renewal terms were not acceptable to us, (b) we have not borrowed on our line of credit in the past 10 years, and (c) we have sufficient cash and cash equivalents to meet our working capital and capital expenditure requirements over the next twelve months.

We have a loan agreement with HSBC which is secured by a mortgage on our Central Islip headquarters at 355 South Technology Drive. 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 which is intended to house the CVD Materials segment. The purchase price of the land and the building was $13,850,000 exclusive of closing costs.

As part of the acquisition, our 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 USA, N.A. (the ”Bank”) 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, Central Islip, New York (the ”Premises”). 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, dated November 30, 2017 (the “Mortgage”), as well as a collateral Assignment of Leases and Rents (“Assignment of Leases”).

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

21

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, we were required to guaranty Assignee’s obligations under the Loan.

At December 31, 2018, we were not in compliance with the single 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.

At December 31, 2018 we have reduced our employee headcount by 15% to 197 as compared to December 31, 2017. At March 31, 2019 we have 193 employees and we are continuing to evaluate our staffing levels to support the CVD Materials new building and related operations commencing by the third quarter of 2019, and the level of current and expected orders. We believe that our cash and cash equivalent positions and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months.

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

22

Off-Balance Sheet Arrangements.

We have no off-balance sheet arrangements at this time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).

Based on that review and evaluation, our Chief Executive Officer and Chief Financial Officer, along with others in our management, have determined that as of the end of the period covered by this Report on Form 10-Q, while improvements have been made since our December 31, 2018 year end, the disclosure controls and procedures were not effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosures. Specifically, at year end December 31, 2018, we have identified the following significant deficiencies in our disclosure controls: (1) The Company lacks sufficient internal controls over monitoring the accounting activity and consolidation of its foreign subsidiary into the Company’s consolidated financial statements. (2) Also, the Company has not fully integrated its new project accounting software into its general ledger accounting system and continues to rely on manual reconciliations using electronic spreadsheets. (3) The Company has a deficiency in internal controls regarding the estimation of costs on contracts in progress.

To remediate such deficiencies, we have implemented the following changes: (1) established stricter formal procedures with respect to how and when our management will communicate to the auditors and Audit Committee on a more timely basis, (2) is adopting sufficient written policies and procedures for accounting and financial reporting, (3) we have appointed and /or designated additional qualified personnel to ensure timely filing of the reports that we file or submit under the Exchange Act, (4) added additional, multiple review levels, (5) receive from the staff of the foreign subsidiary financial information on a weekly and monthly basis in order to monitor more closely. During the year ended December 31, 2018, we integrated three more entities into its accounting software and is planning the integration of the remaining two entities shortly. In addition, we have reevaluated our internal controls regarding the estimation of costs on contracts in progress and have implemented changes as needed. We continued to monitor and improve upon our operational and financial controls during the quarter ended March 31, 2019.

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

23

Changes in Internal Controls

There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

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

24

CVD EQUIPMENT CORPORATION

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Not applicable for Smaller Reporting Companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.     

Item 5. Other Information.

None.

Item 6. Exhibits

The exhibits listed below are hereby furnished to the SEC as part of this report:

31.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 9, 2019

31.2* Certification of Thomas McNeill, Chief Financial Officer, dated May 9, 2019

32.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 9, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

25

32.2* Certification of Thomas McNeill, Chief Financial Officer, dated May 9, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1** XBRL Instance.

101.SCH** XBRL Taxonomy Extension Schema.

101.CAL** XBRL Taxonomy Extension Calculation.

101.DEF** XBRL Taxonomy Extension Definition.

101.LAB** XBRL Taxonomy Extension Labels.

101.PRE** XBRL Taxonomy Extension Presentation.

________________

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 9^th day of May 2019.

CVD EQUIPMENT CORPORATION
By:	/s/ Leonard A. Rosenbaum
	Leonard A. Rosenbaum
	Chief Executive Officer (Principal Executive Officer)
By:	/s/ Thomas McNeill
	Chief Financial Officer (Principal Financial and Accounting Officer)

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

27

EXHIBIT INDEX

31.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 9, 2019

31.2* Certification of Thomas McNeill, Chief Financial Officer, dated May 9, 2019

32.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 9, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* Certification of Thomas McNeill, Chief Financial Officer, dated May 9, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1** XBRL Instance.

101.SCH** XBRL Taxonomy Extension Schema.

101.CAL** XBRL Taxonomy Extension Calculation.

101.DEF** XBRL Taxonomy Extension Definition.

101.LAB** XBRL Taxonomy Extension Labels.

101.PRE** XBRL Taxonomy Extension Presentation.

________________

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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

28

EX-31.1

Exhibit 31.1                          

Certifications of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Leonard A. Rosenbaum, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation;

2. Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 9, 2019

   /s/ Leonard A. Rosenbaum 

----------------------------------------

President, Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

Certifications of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas McNeill, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation;

2. Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: May 9, 2019

   /s/ Thomas McNeill 

----------------------------------------

Thomas McNeill

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, Leonard A. Rosenbaum, President and Chief Executive Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending March 31, 2019 of CVD Equipment Corporation (the “Form 10-Q") fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.

Dated: May 9, 2019                          /s/   Leonard A. Rosenbaum

    Leonard A. Rosenbaum

    Chief Executive Officer

    (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, Thomas McNeill, Chief Financial Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending March 31, 2019 of CVD Equipment Corporation (the “Form 10-Q") fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.

Dated: May 9, 2019                       /s/   Thomas McNeill

Thomas McNeill

Chief Financial Officer

(Principal Financial Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 05, 2019
Document Information [Line Items]
Entity Registrant Name	CVD EQUIPMENT CORP
Entity Central Index Key	0000766792
Trading Symbol	cvv
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		6,555,150
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
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
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

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Mar. 31, 2019	Dec. 31, 2018
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	6,555,150	6,535,888
Common stock, shares outstanding (in shares)	6,555,150	6,535,888

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 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 (in dollars per share)	$ (0.33)	$ 0.09
Diluted income (loss) per common share (in dollars per share)	$ (0.33)	$ 0.09
Weighted average common shares Outstanding-basic (in shares)	6,539,120	6,467,252
Weighted average common shares Outstanding-diluted (in shares)	6,539,120	6,477,699

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 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

XML

Note 1 - Basis of Presentation

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

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.

XML

Note 2 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

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 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.

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,

F

inancial 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.

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.

XML

Note 3 - Significant Risk and Uncertainty

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

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.

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.

XML

Note 4 - Revenue From Contracts With Customers

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

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:

	Three Months Ended
Category	March 31, 2019		March 31, 2018
Aerospace	$	212,728	$	3,873,833
Industrial		1,568,453		3,246,082
Research		834,933		861,200
Point in time		852,561		1,172,718
Net Revenue	$	3,468,675	$	9,153,833

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 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.

	Three Months Ended		Three Months Ended
(In thousands)	March 31, 2019		March 31, 2018
Increase in revenue from net changes in transaction prices	$	9	$	15
(Decrease) increase in revenue from net changes in input cost estimates	$	(181)	$	894
Net (decrease) increase in revenue from net Changes in estimates	$	(172)	$	909
Number of projects		21		10
Net change in estimate as a percentage of aggregate revenue for associated projects		(.2%)		2.1%

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.

XML

Note 5 - Inventories, Net

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE 5: INVENTORIES, NET

Inventories consist of:
	March 31, 2019			December 31, 2018
Raw materials	$	1,799,361		$	2,016,488
Work-in-process		330,966			205,385
Finished goods		-			-
Gross inventories		2,130,327			2,221,873
Less reserve for obsolescence		(385,000	)		(360,000	)
Inventories, net	$	1,745,327		$	1,861,873

XML

Note 6 - Accounts Receivable, Net

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

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.

XML

Note 7 - Long-term Debt

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Long-term Debt [Text Block]

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,

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.

XML

Note 8 - Stock-based Compensation Expense

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

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

.

”

XML

Note 9 - Income Taxes

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

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 provision for income taxes includes the following:

	Three Months Ended March 31,
	2019			2018
Current:
Federal	$	---		$	240,924
State		3,000			9,000
Total current provision		3,000			249,924
Deferred:
Federal	$	(459,000	)	$	(2,154	)
State		------			----
Total deferred (benefit) provision		(459,000	)		(2,154	)
Income tax expense (benefit) provision	$	(456,000	)	$	247,770

Tax Rate Reconciliation

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

	Three Months Ended
	March 31,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(552,918	)	$	169,296
Foreign tax loss		16,673			9,855
State taxes		3,000			9,000
Difference between tax and book depreciation		24,072			33,037
Stock compensation		25,002			44,860
Other Permanent differences		28,171			(18,278	)
Income tax (benefit) expense	$	(456,000	)	$	247,770

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.

XML

Note 10 - Earnings Per Share

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

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.

XML

Note 11 - Segment Reporting

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

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.

Three Months Ended

March 31,

(

In

thousands

)

									Eliminations and
2019	CVD			SDC		Materials			Unallocated			Consolidated
Assets	$	38,604		$	5,182	$	6,851		$	(9	)	$	50,628
Revenue		2,019			1,087		429			(66	)		3,469
Operating income/(loss)		(1,540	)		174		(198	)		(1,001	)		(2,565	)
Pretax income/(loss)		(1,511	)		176		(296	)		(1,002	)		(2,633	)
201 8
Assets	$	47,397		$	6,463	$	6,790		$	(9	)	$	60,641
Revenue		6,705			2,260		372			(183	)		9,154
Operating income/(loss)		1,515			718		(303	)		(1,019	)		911
Pretax income/(loss)		1,624			718		(517	)		(1,019	)		806

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

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Revenue from Contract with Customer [Policy Text Block]

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 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.

Research and Development Expense, Policy [Policy Text Block]

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.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

June 2016,

the FASB issued ASU

2016

-

13,

F

inancial 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.

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.

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Note 4 - Revenue From Contracts With Customers (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended
Category	March 31, 2019		March 31, 2018
Aerospace	$	212,728	$	3,873,833
Industrial		1,568,453		3,246,082
Research		834,933		861,200
Point in time		852,561		1,172,718
Net Revenue	$	3,468,675	$	9,153,833

Contract with Customer, Asset and Liability [Table Text Block]

	Three Months Ended		Three Months Ended
(In thousands)	March 31, 2019		March 31, 2018
Increase in revenue from net changes in transaction prices	$	9	$	15
(Decrease) increase in revenue from net changes in input cost estimates	$	(181)	$	894
Net (decrease) increase in revenue from net Changes in estimates	$	(172)	$	909
Number of projects		21		10
Net change in estimate as a percentage of aggregate revenue for associated projects		(.2%)		2.1%

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Note 5 - Inventories, Net (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

Inventories consist of:
	March 31, 2019			December 31, 2018
Raw materials	$	1,799,361		$	2,016,488
Work-in-process		330,966			205,385
Finished goods		-			-
Gross inventories		2,130,327			2,221,873
Less reserve for obsolescence		(385,000	)		(360,000	)
Inventories, net	$	1,745,327		$	1,861,873

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Note 9 - Income Taxes (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Three Months Ended March 31,
	2019			2018
Current:
Federal	$	---		$	240,924
State		3,000			9,000
Total current provision		3,000			249,924
Deferred:
Federal	$	(459,000	)	$	(2,154	)
State		------			----
Total deferred (benefit) provision		(459,000	)		(2,154	)
Income tax expense (benefit) provision	$	(456,000	)	$	247,770

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Three Months Ended
	March 31,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(552,918	)	$	169,296
Foreign tax loss		16,673			9,855
State taxes		3,000			9,000
Difference between tax and book depreciation		24,072			33,037
Stock compensation		25,002			44,860
Other Permanent differences		28,171			(18,278	)
Income tax (benefit) expense	$	(456,000	)	$	247,770

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Note 11 - Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

									Eliminations and
2019	CVD			SDC		Materials			Unallocated			Consolidated
Assets	$	38,604		$	5,182	$	6,851		$	(9	)	$	50,628
Revenue		2,019			1,087		429			(66	)		3,469
Operating income/(loss)		(1,540	)		174		(198	)		(1,001	)		(2,565	)
Pretax income/(loss)		(1,511	)		176		(296	)		(1,002	)		(2,633	)
201 8
Assets	$	47,397		$	6,463	$	6,790		$	(9	)	$	60,641
Revenue		6,705			2,260		372			(183	)		9,154
Operating income/(loss)		1,515			718		(303	)		(1,019	)		911
Pretax income/(loss)		1,624			718		(517	)		(1,019	)		806

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - Accounting Standards Update 2016-02 [Member]	Jan. 01, 2019 USD ($)
Operating Lease, Right-of-Use Asset	$ 150,000
Operating Lease, Liability, Total	$ 150,000

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Note 3 - Significant Risk and Uncertainty (Details Textual)	3 Months Ended		12 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 11,252,987	$ 13,134,952	$ 11,439,361	$ 14,210,909
Cash Equivalents, at Carrying Value, Total	7,600,000		8,900,000
Cash, Uninsured Amount	$ 8,820,000		$ 6,920,000
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Number Of Major Customers	0	1
Concentration Risk, Percentage		48.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number Of Major Customers	1		2
Concentration Risk, Percentage	22.00%		42.00%

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Note 4 - Revenue From Contracts With Customers (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Contract with Customer, Cumulative Catch-up Adjustment to Revenue, Change in Estimate of Transaction Price and Input Costs	$ (172,000)	$ 909,000
Increase (Decrease) in Contract with Customer, Asset	$ (268,884)	$ (4,677,663)

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Note 4 - Revenue From Contracts With Customers - Disaggregation of Revenue (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net Revenue	$ 3,468,675	$ 9,153,833
Transferred at Point in Time [Member]
Net Revenue	852,561	1,172,718
Aerospace [Member]
Net Revenue	212,728	3,873,833
Industrial [Member]
Net Revenue	1,568,453	3,246,082
Research [Member]
Net Revenue	$ 834,933	$ 861,200

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Note 4 - Revenue From Contracts With Customers - Changes in Estimates (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Increase in revenue from net changes in transaction prices	$ 9,000	$ 15,000
(Decrease) increase in revenue from net changes in input cost estimates	(181,000)	894,000
Net (decrease) increase in revenue from net Changes in estimates	$ (172,000)	$ 909,000
Number of projects	21	10
Net change in estimate as a percentage of aggregate revenue for associated projects	(0.20%)	2.10%

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Note 5 - Inventories, Net - Components of Inventories (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Raw materials	$ 1,799,361	$ 2,016,488
Work-in-process	330,966	205,385
Finished goods
Gross inventories	2,130,327	2,221,873
Less reserve for obsolescence	(385,000)	(360,000)
Inventories, net	$ 1,745,327	$ 1,861,873

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Note 6 - Accounts Receivable, Net (Details Textual) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Accounts Receivable, Allowance for Credit Loss, Ending Balance	$ 24,000	$ 24,000

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Note 7 - Long-term Debt (Details Textual)		3 Months Ended
	Nov. 30, 2017 USD ($)	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)	Sep. 01, 2018 USD ($)
Payments to Acquire Property, Plant, and Equipment, Total		$ 438,858	$ 805,803
HSBC Bank Mortgage Loan [Member]
Debt Instrument, Number of Payments		120
Debt Instrument, Periodic Payment, Total		$ 25,000
Long-term Debt, Total		$ 2,600,000		$ 2,700,000
HSBC Bank Mortgage Loan [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		1.75%
HSBC Bank Mortgage Loan [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate		0.50%
HSBC Bank Second Mortgage Loan [Member]
Debt Instrument, Number of Payments		60
Debt Instrument, Periodic Payment, Total		$ 62,481
Long-term Debt, Total		$ 9,900,000		$ 10,000,000
Debt Instrument, Face Amount	$ 10,387,500
Debt Instrument, Interest Rate, Stated Percentage		3.9148%
HSBC Bank Second Mortgage Loan [Member] | Premises at 555 North Research Place, Central Islip, NY [Member]
Payments to Acquire Property, Plant, and Equipment, Total	$ 13,850,000
HSBC Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity					$ 7,000,000

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Note 8 - Stock-based Compensation Expense (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Selling, General and Administrative Expenses [Member]
Share-based Payment Arrangement, Expense	$ 199,000	$ 223,000

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Note 9 - Income Taxes (Details Textual) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net Income (Loss) Attributable to Parent, Total	$ (2,176,947)	$ 558,404
CVD Tantaline ApS [Member] | DENMARK
Net Income (Loss) Attributable to Parent, Total	79,000	47,000
Deferred Tax Assets, Gross, Total	$ 17,000	$ 10,000
CVD Tantaline ApS [Member] | DENMARK | Foreign Tax Authority [Member] | The Danish Ministry of Taxation [Member]
Effective Income Tax Rate Reconciliation, at Foreign Statutory Income Tax Rate, Percent	22.00%

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Note 9 - Income Taxes - Components of Income Taxes (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Current:
Federal		$ 240,924
State	3,000	9,000
Total current provision	3,000	249,924
Deferred:
Federal	(459,000)	(2,154)
State
Total deferred (benefit) provision	(459,000)	(2,154)
Income tax expense (benefit) provision	$ (456,000)	$ 247,770

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Note 9 - Income Taxes - Effective Income Tax Rate Reconciliation (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income tax provision at federal statutory rate (21%)	$ (552,918)	$ 169,296
Foreign tax loss	16,673	9,855
State taxes	3,000	9,000
Difference between tax and book depreciation	24,072	33,037
Stock compensation	25,002	44,860
Other Permanent differences	28,171	(18,278)
Income tax expense (benefit) provision	$ (456,000)	$ 247,770

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Note 9 - Income Taxes - Effective Income Tax Rate Reconciliation (Details) (Parentheticals)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income tax, rate	21.00%	21.00%

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Note 10 - Earnings Per Share (Details Textual) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	467,930	387,930
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	227,930	227,930
Share-based Payment Arrangement, Option [Member]
Incremental Common Shares Attributable to Share-based Payment Arrangements, Total	0	10,447
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	365,000	365,000

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Note 11 - Segment Reporting (Details Textual)	3 Months Ended
	Mar. 31, 2019
Number of Operating Segments	3

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Note 11 - Segment Reporting - Segment Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Assets	$ 50,628,417	$ 60,641,000	$ 52,514,562
Revenue	3,468,675	9,153,833
Operating income/(loss)	(2,565,102)	910,568
Pretax income/(loss)	(2,632,947)	806,174
Intersegment Eliminations [Member]
Assets	(9,000)	(9,000)
Revenue	(66,000)	(183,000)
Operating income/(loss)	(1,001,000)	(1,019,000)
Pretax income/(loss)	(1,002,000)	(1,019,000)
CVD [Member] | Operating Segments [Member]
Assets	38,604,000	47,397,000
Revenue	2,019,000	6,705,000
Operating income/(loss)	(1,540,000)	1,515,000
Pretax income/(loss)	(1,511,000)	1,624,000
SDC [Member] | Operating Segments [Member]
Assets	5,182,000	6,463,000
Revenue	1,087,000	2,260,000
Operating income/(loss)	174,000	718,000
Pretax income/(loss)	176,000	718,000
Materials [Member] | Operating Segments [Member]
Assets	6,851,000	6,790,000
Revenue	429,000	372,000
Operating income/(loss)	(198,000)	(303,000)
Pretax income/(loss)	$ (296,000)	$ (517,000)