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Note 2 - Summary of Significant Accounting Policies | 12 Months Ended
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Dec. 31, 2021
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | Note 2 - Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly owned subsidiaries. The Company has five wholly owned subsidiaries: CVD Materials Corporation, which provides material coatings, process development support and process startup assistance through Tantaline ApS and CVD MesoScribe Technologies Corporation, FAE Holdings 411519R, LLC, a real estate holding company whose sole asset is its interest in the real estate and building housing our corporate headquarters and 555 N Research Corporation whose sole asset was its interest in the real estate and building located at 555 North Research Place, Central Islip, NY, until sold in July 2021. All significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates are the accounting for certain items such as revenues on long-term contracts recognized on the input method, valuation of inventories at the lower of cost or net realizable value; allowance for doubtful accounts receivable; valuation allowances for deferred tax assets, estimated lives and impairment considerations of long-lived assets and valuation of stock-based compensation. Revenue Recognition 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, typically within three months to eighteen months. Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process, and installed, as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated. “Contract assets,” include unbilled amounts typically resulting from system sales under contracts and revenue recognition 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. The Company typically receives down payments upon receipt of order and progress payments during the manufacturing cycle. 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 (“Revenue from Contracts with Customers”). Inventories Inventories are valued at the lower of cost (determined on the first-in, first-out method) or net realizable value. Income Taxes Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statements and tax bases of assets and liabilities, as measured by using the future enacted tax rates. Deferred tax expense (benefit) is the result of changes in the deferred tax assets and liabilities. The Company records a valuation allowance against deferred tax assets when it is more likely than not that future tax benefits will not be utilized based on a lack of sufficient positive evidence. Investment tax credits are accounted for by the flow-through method, reducing income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount. The Company recognizes the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The accounting guidance on accounting for uncertainty in income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods. The Company does not believe it has any uncertain tax positions through the year ending December 31, 2021 which would have a material impact on the Company’s consolidated financial statements. The Company and its subsidiaries file combined income tax returns in the U.S. Federal and New York State jurisdiction. In addition, the parent company files standalone tax returns in California, Delaware, Florida, Michigan, Minnesota, New Hampshire and Wisconsin. The Company is no longer subject to U.S. federal and state income tax examinations for tax periods before 2017. Impairment of Long Lived Assets and Intangibles Long-lived assets consist primarily of property, plant, and equipment. Intangibles consist of patents, copyrights and intellectual property, licensing agreements and certifications. Long-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists pursuant to the requirements of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10-35, “Impairment or Disposal of Long-Lived Assets.” If the asset is determined to be impaired, the impairment loss is measured on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. During the year ended December 31, 2020, based upon continued operating losses and negative cash flows from the Tantaline product line and the Company’s updated forecasting, the expected future cash flows of the Tantaline product line was negative and thus management had recorded an impairment charge related to long-term Tantaline assets of $3.6 million in the fourth quarter and year ended December 31, 2020. The Company had no recorded impairment charges in the consolidated statement of operations during the year ended December 31, 2021. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is determined on a straight-line basis for buildings and building improvements over 5 to 39 years and for machinery and equipment over 5 to 8 years. Depreciation and amortization of assets used in manufacturing are recorded in Cost of revenue. Depreciation and amortization of all other assets are recorded in Operating Expenses-General and Administrative. Intangible Assets The cost of intangible assets is being amortized on a straight-line basis over their estimated initial useful lives which ranged from 5 to 20 years. Amortization expense recorded by the Company during the years ended December 31, 2021 and 2020 totaled $112,310 and $124,550, respectively. Research & Development Research and development costs are expensed as incurred. The Company’s laboratory staff conducts research and development independent of customer orders. For the years ended December 31, 2021 and 2020, the Company incurred approximately $481,000 and $373,000, respectively, of research and development expenses. Product Warranty The Company records warranty costs as incurred and does not provide for possible future costs. Management estimates such costs are immaterial, based on historical experience. Earnings Per Share Basic earnings per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during each period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be adjusted upon exercise of common stock options, unvested restricted shares and warrants. Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period. Cash and Cash Equivalents The Company had cash and cash equivalents of $16.7 million and $7.7 million at December 31, 2021 and 2020, respectively. The Company invests excess cash in treasury bills, certificates of deposit or deposit accounts, all with maturities of less than three months. Cash equivalents were $7.0 million and $1.0 million at December 31, 2021 and December 31, 2020, 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 December 31, 2021 and at December 31, 2020 was $8,613,000 and $5,822,000 respectively. Concentration of Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company places its cash equivalents with financial institutions and invests its excess cash primarily in treasury bills, certificates of deposit or deposit accounts. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company routinely assesses the financial strength of its customers and maintains allowances for anticipated losses based upon historical experience. 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 has accounts receivables from certain customers that exceed 10%. As of December 31, 2021, the accounts receivable balance includes amounts from two customers which totals 50%, and as of December 31, 2020 two customers totaled 35%. Accounts receivable is presented net of an allowance for doubtful accounts of $59,000 and $164,000 as of December 31, 2021 and 2020, respectively. The allowance is based on historical experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may fluctuate based on changes in economic and customer conditions. The Company doesn’t require collateral from its customers. Sales Concentrations Revenue to a single customer in any one year can exceed 10.0% of our total sales. There were no customers in fiscal year 2021 that exceeded 10% of our revenues, while two customers represented 30.5% of our annual revenues in fiscal year 2020. The Company believes that its relationships with these customers are positive and may provide it with continuous sustainability for years to come, however the loss of a large customer would have to be replaced by others, and the Company’s inability to do so may have a material adverse effect on its business and financial condition. Export sales to customers represented approximately 26.0% and 16.8% of sales for the years ended December 31, 2021 and 2020, respectively. Export sales in both 2021 and 2020 were primarily to customers in Europe and Asia. Primarily all contracts except those entered into by CVD Tantaline ApS are denominated in U.S. dollars. The Company has not entered into any foreign exchange contracts. Fair Value of Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, net, accounts payable, contract liabilities and customer deposits approximate fair value due to the relatively short-term maturity of these instruments. The carrying value of long-term debt approximates fair value based on prevailing borrowing rates currently available for loans with similar terms and maturities. Stock-Based Compensation The Company records stock-based compensation in accordance with the provisions set forth in ASC 718, “Stock Compensation”. ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards over the vesting period. The Company uses the Black-Scholes option-pricing model to compute the estimated fair value of option awards and includes assumptions regarding expected volatility, expected option term, dividend yields and risk-free interest rates. Shipping and Handling It is the Company’s policy to include freight charges billed to customers in total revenue. The amount included in revenue was $30,000 and $6,000 for the years ended December 31, 2021 and 2020, respectively. Recently Issued Accounting Standards In June 2016, the FASB issued Accounting Standard Update (“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. On November 15, 2019, the FASB delayed the effective date for smaller reporting companies. The amendments in this update are now effective for fiscal years beginning after December 15, 2022 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. Management is currently evaluating the effect of this update on the Company’s consolidated financial statements and currently believes it will not have a material impact. The Company believes 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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