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NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively the “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all 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 and six months ended June 30, 2025 are not necessarily indicative of the results that can be expected for the year ending December 31, 2025.

The condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited consolidated financial statements at such date, as filed on Form 10-K with the SEC on March 19, 2025, but does not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with that report.

All material intercompany balances and transactions have been eliminated in consolidation.

Reclassifications

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

Liquidity

At June 30, 2025, the Company had $7.0 million in cash and cash equivalents. The Company believes that its existing cash and cash equivalents, together with anticipated cash flows from operations, collections of outstanding accounts receivable, revenue from its current backlog, sales of inventory on hand, and deposits and down payments on significant orders, will be sufficient to fund its working capital and capital equipment needs, as well as its expected cash requirements, for at least the next 12 months from the date of issuance of these condensed consolidated financial statements.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 3: CONCENTRATION OF CREDIT RISK

Cash and cash equivalents

The Company had cash and cash equivalents of $7.0 million and $12.6 million at June 30, 2025 and December 31, 2024, respectively. The Company invests excess cash in U.S. treasury securities, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents consisting of U.S. treasury securities were $5.9 million and $11.9 million at June 30, 2025 and December 31, 2024, respectively.

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

Accounts receivable

The Company routinely assesses the financial strength of its customers. In accordance with the “expected credit loss” model of ASC 326, the carrying amount of accounts receivable is reduced by a valuation allowance that reflects the best estimate of the amounts the Company does not expect to collect. In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating our reserve, including types of customers and their credit worthiness, experience and historical data adjusted for current conditions and reasonable supportable forecasts. The Company records an allowance for credit losses based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided based upon the collection history, current economic trends and reasonable supportable forecasts.

Accounts receivable is presented net of an allowance for credit losses of $48,000 as of June 30, 2025 and December 31, 2024. The allowance is based on prior experience and management’s evaluation of future economic conditions. Measurement of credit losses requires consideration of historical loss experience, including the need to adjust for changing business conditions, and judgments about the probable effects of relevant observable data, including present economic conditions such as delinquency rates and the financial health of specific customers. Future changes to the estimated allowance for credit losses could be material to our results of operations and financial condition.

At June 30, 2025, the accounts receivable balance included amounts from one customer that represented 31.5% of total accounts receivable. As of December 31, 2024, the accounts receivable balance includes amounts from three customers that represented 28.6%, 14.0% and 11.9% of total accounts receivable.

NOTE 3: CONCENTRATION OF CREDIT RISK (continued)

Sales concentration

Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three months ended June 30, 2025, two customers exceeded 10% of revenues, representing 23.4% and 17.7% of revenues, and during the six months ended June 30, 2025, two customers represented 34.3% and 15.4% of revenues.

During the three months ended June 30, 2024, one customer represented 35.2% of revenues, and during the six months ended June 30, 2024, one customer represented 32.8% of revenues.

NOTE 4: REVENUE RECOGNITION

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

The Company has unrecognized contract revenue of approximately $10.9 million at June 30, 2025, which it expects to substantially recognize as revenue within the next twelve months based on over time revenue recognition.

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

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

NOTE 4: REVENUE RECOGNITION (continued)

Contract assets and liabilities

Of the contract liability balances at December 31, 2024 and 2023, $2.1 million and $2.7 million was recognized as revenue during the six months ended June 30, 2025 and 2024, respectively. Contract assets and contract liabilities at December 31, 2023 were $1.6 million and $4.9 million, respectively.

NOTE 5: INVENTORIES

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

NOTE 5: INVENTORIES (continued)

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

NOTE 6: LONG-TERM DEBT

In September 2022, the Company entered into a loan agreement to fund the acquisition of machinery. The loan amount of $432,000, is payable in 60 equal monthly installments of $8,352 and secured by equipment. The interest rate is 6%.

NOTE 7: EARNINGS PER SHARE

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

NOTE 8: STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense for three months ended June 30, 2025 and 2024 included $50,000 and $57,423, respectively, and for the six month periods June 30, 2025 and 2024 included $100,000 and $103,736, respectively, related to restricted stock awards that directors are entitled to receive pursuant to the Director Compensation Plan. Under this plan each of the Company’s independent directors is entitled to an Annual Equity Retainer in the amount of $40,000, to be granted on the date of the Company’s annual meeting of shareholders.

NOTE 8: STOCK-BASED COMPENSATION EXPENSE (continued)

As of June 30, 2025, there was $1.1 million of unrecognized compensation costs related to stock options expected to be recognized over a weighted average period of 1.6 years.

NOTE 9: INCOME TAXES

As of June 30, 2025 and December 31, 2024, the Company has provided a full valuation allowance against its net deferred tax assets. This was based on management’s assessment, including the last four years of operating losses, that it is more likely than not that the net deferred tax assets may not be realized in the future. Management continues to evaluate for potential utilization of the Company’s net deferred tax asset, which has been fully reserved for, on a quarterly basis, reviewing our economic models, including projections of future operating results.

NOTE 10: SEGMENT REPORTING

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

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

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

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

NOTE 10: SEGMENT REPORTING (continued)

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