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 attract and retain key personnel and employees; 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, uncertainty as to the Company's ability to adequately obtain raw materials and components from foreign markets in light of geopolitical developments and the effect of the novel coronavirus (COVID-19) on our business and operations (including with respect to supply chain disruptions), and those of our customers, suppliers and other third parties . 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 with this Report, the words "believes", "anticipates", "expects", "estimates", "plans", "intends", "will" and similar expressions are intended to identify forward-looking statements.

Known Trends and Uncertainties

We are confronting a very difficult operating environment as the global economy continues to experience the challenges from the pandemic, geopolitical conflicts, surging inflationary pressures and adverse supply chain disruptions. The specific impacts on our Company have included:





  ? Significant geopolitical developments across Europe and Asia (including the
    war in Ukraine) have and may continue to restrict our ability to procure raw
    materials and components such as nickel and integrated circuits, as well as
    impact our ability to sell its products into China, Russia and other Eastern
    European and Asian regions.


  ? Supply chain disruptions have led to much longer lead times to acquire raw
    materials for production and has led to inflationary pressures in both
    materials and labor. These supply chain disruptions have impacted our ability
    to recognize revenue more timely as it delays our manufacturing processes.




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  ? The pandemic's impact on long distance air travel resulted in a reduction in
    orders for the Company's aerospace equipment products that adversely affected
    our revenues since the start of the pandemic.

We continue to be unable to predict the extent of the impact the pandemic and geopolitical uncertainties will have on our financial position and operating results for the remainder of 2022 and in future periods due to numerous uncertainties, supply chain disruptions, rapidly rising costs and the impact on the aerospace sector, but the impact could be material during any future period affected either directly or indirectly by the pandemic and the geopolitical uncertainties. The longer-term impacts from these matters are highly uncertain and cannot be predicted.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of the Company's financial condition and results of operations is based on the Company's condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. In accordance with U.S. GAAP, the Company bases its estimates on historical experience and on various other assumptions the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

For information on the Company's significant accounting policies and estimates refer to Note 2 to the Company's consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2021 and to Note 2 "Summary of Significant Accounting Policies" in the unaudited condensed consolidated financial statements.





Executive Level Summary

CVD has continued to serve the advanced materials markets with chemical vapor and thermal process equipment for over 40 years. We develop, design, manufacture and service a broad range of chemical vapor deposition, gas control and other state-of-the-art process equipment and solutions used in advanced materials and coatings. Our products are used in production environments as well as research and development centers, both academic and corporate. Major target markets for our business include advanced nanomaterials, batteries and silicon carbide for high power electronics; aerospace (such as gas turbine engines and structural components); medical devices (such as implants); advanced semiconductor devices and silicon for solar cells; and carbon nanotubes and nanowires. Our Application Laboratory supports the development of new material systems and processes. Our CVD Materials group (consisting of our MesoScribe and Tantaline subsidiaries) provides material coating services, process development support and process startup assistance. MesoScribe continues to support the aerospace and defense markets with robust direct write instrumentation. Tantaline which underwent a restructuring and consolidation in 2021 provides chemical-resistant coating services to many industrial applications.

We use our capabilities in process development, engineering and vertical manufacturing to transform new applications into mainstream manufacturing solutions. We have built a significant library of design expertise, know-how and innovative solutions to assist our customers in developing these intricate processes and to accelerate their production and commercialization. This library of equipment design solutions, along with our manufacturing and systems integration facilities, allows us to provide application-specific design, process and manufacturing solutions to our customers.

To expand our presence into various growth markets, we are developing a line of proprietary standard use products to complement our specialized legacy systems. Historically, we manufactured products for research and development on an application-specific basis to meet an individual customer's specific research and production requirements. Our proprietary systems leverage the technological expertise that we have developed through designing these specialized systems into a broader standardized product line. The standard product line is easily configured from a wide range of available options to meet diverse product and budgetary requirements. Manufacturing these standardized systems in higher volumes provides us the flexibility to reduce both the cost and delivery time of our systems. These systems, which we market and sell under the EasyTube® and CVD product lines, are sold to corporations, universities, research laboratories, in the United States and throughout the world.





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Sales of our proprietary standard systems, specialized systems and process solutions have been driven by our installed customer base, which includes Fortune 500 companies. The performance and success of our products has historically driven repeat orders from existing customers as well as generated business from new customers. Furthermore, with our proprietary solutions and expanded focus on "accelerating the commercialization of tomorrow's technologies"TM we have been developing a new customer base in addition to growing with our existing customers. We have generally gained new customers through our industry reputation, as well as limited print advertising and trade show attendance (which has been negatively impacted by COVID-19 in 2020, 2021 and into 2022).

Our core competencies in equipment and software design, manufacturing and process development are used to engineer our finished products and to accelerate the commercialization path of our customer base. Our proprietary real-time software allows for rapid configuration, and provides our customers with enabling tools to understand, optimize and repeatedly control their processes. These factors significantly reduce cost, improve quality, and reduce the time it takes between customers' orders and the shipment of our products. Our Application Laboratory allows customers the option to bring their process tools in our Application Laboratory and to work collaboratively with our scientists and engineers to optimize process performance.

In 2021 and into 2022 our focus has been on our growth markets, the development of standard product solutions and being able to provide solutions from gas/liquid storage through process and process by-product treatment. This has allowed us to provide increased value to our customers. Our return to profitability is dependent upon, among other things, the receipt of new equipment orders, our ability to mitigate the impact of supply chain disruptions and inflationary pressures, as well as managing planned capital expenditures and operating expenses.





2022 Developments

In 2021, we launched our strategy to transition the focus of the Company to standardized products serving global growth application markets. Our growth opportunities in 2022 are consistent with our strategic plan to address and serve growth production markets.

In the first nine months of 2022, total orders were $24.0 million as compared to $15.9 million in the first nine months of 2021, an increase of $8.1 million or 51.2%. The first nine months of 2022 orders included 14 system orders for PVT-150 systems that grow silicon carbide ("SiC") material which is subsequently processed into wafers to support high power electronics applications. All PVT-150 systems are planned to be shipped to our customer in 2022. For the first, second and third quarters of 2022, new customer orders were $4.1 million, $12.6 million, and $7.3 million, respectively. For the first, second and third quarters of 2022 revenue was $4.7 million, $5.8 million, and $8.1 million, respectively.





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During the quarter ended September 30, 2021, we started to experience increased costs on certain components as well as delays in supply chain delivery, which also impacts revenue as well as manufacturing lead times and efficiencies. We are also seeing the effects of the macroeconomic inflationary cost environment that has resulted in increased costs for labor and materials. We have been placing orders with more lead time to help mitigate the manufacturing delays, as well as assessing other suppliers or components to attempt to mitigate the potential cost impacts. In addition, we are utilizing our in-house flexible manufacturing to attempt to further mitigate both potential schedule delivery delays and material cost increases. In late 2021, we initiated price increases on new quotations in line with inflationary pressures which we believe could mitigate our cost increases and benefit margins during 2022 and 2023.

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