CVD(CVV) - 2021 Q1 - Quarterly Report

Part I - Financial Information Item 1 – Condensed Consolidated Financial Statements (Unaudited) The unaudited condensed consolidated financial statements for Q1 2021 reflect a net loss of $1.5 million and decreased assets due to reclassification of the 555 Building to assets held for sale Condensed Consolidated Balance Sheets Total assets decreased to $39.2 million by March 31, 2021, primarily due to reclassification of the 555 Building to assets held for sale Condensed Consolidated Balance Sheet Highlights (at March 31, 2021 vs. December 31, 2020) | Balance Sheet Item | March 31, 2021 ($) | December 31, 2020 ($) | | :--- | :--- | :--- | | Total Assets | 39,205,534 | 40,935,925 | | Cash and cash equivalents | 5,929,363 | 7,699,335 | | Assets held for sale | 16,181,368 | 0 | | Property, plant and equipment, net | 12,460,305 | 28,843,563 | | Total Liabilities | 16,535,139 | 16,810,353 | | Liabilities held for sale | 9,218,683 | 0 | | Long-term debt, net of current portion | 2,415,970 | 13,106,057 | | Total Stockholders' Equity | 22,670,395 | 24,125,572 | Condensed Consolidated Statements of Operations The company reported a net loss of $1.5 million for Q1 2021, a significant decline from prior-year net income, driven by a 44.3% revenue decrease Statement of Operations Summary (Three Months Ended March 31) | Metric | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Revenue | 3,365,860 | 6,036,360 | | Gross Profit | 318,580 | 1,935,524 | | Operating (Loss) Income | (1,618,787) | 108,161 | | Net (Loss) Income | (1,505,550) | 1,658,478 | | Basic (Loss) Income per Share | (0.23) | 0.25 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $1.6 million in Q1 2021, resulting in a $1.8 million net decrease in cash and cash equivalents Cash Flow Summary (Three Months Ended March 31) | Cash Flow Activity | 2021 ($) | 2020 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (1,571,666) | (675,238) | | Net cash used in investing activities | (26,744) | (422,435) | | Net cash (used) in financing activities | (171,562) | (166,878) | | Net decrease in cash and cash equivalents | (1,769,972) | (1,264,551) | | Cash and cash equivalents at end of period | 5,929,363 | 7,399,702 | Notes to Condensed Consolidated Financial Statements Notes detail strategic shifts, including a new CEO, the planned sale of the 555 Building for $24.36 million, customer concentration, and COVID-19 impacts - In January 2021, a new CEO was appointed to change direction, focusing on the core equipment business and minimizing or ceasing parts of the Materials Business due to continued losses[29] - The company entered an agreement on March 29, 2021, to sell its 555 Building for $24,360,000; proceeds will be used to pay off the building's $9.2 million mortgage and for working capital[32][67] - Revenue is recognized over time using a cost-based input method, where revenue is calculated based on the ratio of costs incurred to date to total estimated costs[33] - For Q1 2021, one customer represented 30.7% of revenues; in Q1 2020, three customers represented 27.1%, 21.5%, and 19.3% of revenues, indicating significant customer concentration[44] - The COVID-19 pandemic has caused substantial reductions in new order levels through Q1 2021, materially and adversely affecting revenues, particularly from the hard-hit aerospace sector[89] Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 44.3% revenue decline in Q1 2021 due to COVID-19, strategic shifts, and the planned sale of the 555 Building to improve liquidity - Overall revenues have declined from $41.1 million in 2017 to $16.9 million in 2020, with cumulative operating losses of $14.5 million from 2018-2020[99] - A new CEO was appointed in January 2021 to revise the business strategy, focusing on the core equipment business and ceasing further investment in the loss-making Tantaline product line[101] - The company entered into an agreement to sell its 555 Building for $24,360,000 to increase liquidity and provide working capital, with proceeds first satisfying the $9.2 million mortgage on the property[104] - Management believes that cash, cash flow from operations, and proceeds from the building sale will be sufficient to meet working capital and capital expenditure needs for the next twelve months[135] Results of Operations Q1 2021 revenue decreased by 44.3% to $3.4 million, driven by declines in CVD Equipment and SDC segments, leading to a compressed gross profit margin and operating loss Revenue by Segment (Three Months Ended March 31) | Segment | 2021 Revenue ($) | 2020 Revenue ($) | Change ($) | | :--- | :--- | :--- | :--- | | CVD Equipment | 2.0M | 4.1M | (2.1M) | | SDC | 0.8M | 1.6M | (0.8M) | | CVD Materials | 0.6M | 0.3M | +0.3M | | Total | 3.4M | 6.0M | (2.6M) | - Gross profit margin decreased to 9.5% in Q1 2021 from 32.1% in Q1 2020, primarily due to the impact of a $2.7 million sales decrease and fixed costs[111] - General and administrative expenses increased by $0.2 million to $1.7 million, mainly due to a $235,000 increase in legal costs related to corporate governance and the sale of the 555 Building[115] Liquidity and Capital Resources Working capital stood at $12.3 million with cash at $5.9 million as of March 31, 2021, with liquidity plans including a PPP loan and the 555 Building sale - Working capital was $12.3 million at March 31, 2021, compared to $8.1 million at December 31, 2020; cash and cash equivalents decreased to $5.9 million from $7.7 million[121] - The company obtained a $2,415,970 PPP loan in April 2020, with an application for forgiveness filed in April 2021, anticipating substantial forgiveness[131][132] - The sale of the 555 Building for $24,360,000 is key to improving liquidity, with proceeds intended for general working capital after satisfying the building's $9.2 million mortgage[134] Item 3 – Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for the current reporting period - Not applicable[138] Item 4 – Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[139] - No changes in internal controls over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[140] Part II - Other Information Item 1 – Legal Proceedings The company reported no legal proceedings during the current reporting period - None[144] Item 1A-Risk Factors The company did not report any new or updated risk factors in this filing - None[146] Item 6 – Exhibits Key exhibits include the 555 N Research Place property sale agreement and CEO/CFO certifications - Exhibit 10.1: Agreement to Purchase and Sale for the building and real estate property located at 555 N Research Place, Central Islip, NY, dated March 29, 2021[153] - Exhibits 31.1, 31.2, 32.1, and 32.2: Certifications by the Chief Executive Officer and Chief Financial Officer as required by the Sarbanes-Oxley Act[153][156]