1
US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended ____6-30-03_____
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE EXCHANGE ACT
For the transition period from ________________ to ________________
Commission file number _____________2-97210-NY_____________________
CVD EQUIPMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
11-2621692
(IRS Employer Identification Number)
1860 SMITHTOWN AVENUE, RONKONKOMA, NY 11779
(Address of principal executive offices)
631-981-7081
(Issuers Telephone Number)
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed
by section 13 or 15 (d) of the Exchange Act during the past 12 months (or
for such shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes
No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
3,039,100 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF 8-14-03
2
CVD EQUIPMENT CORPORATION
NOTE TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDING
JUNE 30, 2003
BASIS OF FINANCIAL STATEMENTS
The financial data is subject to year end audit and does not claim to be a
complete presentation since note disclosure under generally accepted
accounting procedures is not included. Note disclosures required under
generally accepted accounting procedures are included in the Company's
audited financial statements filed as part of Form 10-KSB for the year
ended December 31, 2002. Form 10-QSB should be read in conjunction with
these financial statements.
The results of operations for the three months are not necessarily
indicative of those for the full year. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments
necessary to fairly present the financial position and the results of
operation for the periods indicated.
3
MANAGEMENT'S DISCUSSION
INTRODUCTION
Statements contained in this Report on Form 10-QSB that are not
historical facts are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, including
without limitation, statements regarding industry trends, strategic business
development, pursuit of new markets, competition, results from operations,
and are subject to the safe harbor provisions created by that statute. A
forward-looking statement may contain words such as "intends", "plans",
"anticipates", "believes", "expect to", or words of similar import.
Management cautions that forward-looking statements are subject to risks
and uncertainties that could cause the Company's actual results to differ
materially from those projected. These risks and uncertainties include,
but are not limited to, marketing success, product development,
production, technological difficulties, manufacturing costs, and changes
in economic conditions in the markets the Company serves. The Company
undertakes no obligation to release revisions to forward-looking
statements to reflect subsequent events, changed circumstances, or the
occurrence of unanticipated events.
FORWARD LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward looking 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.
REVENUE RECOGNITION
CVD recognizes and identifies on its financial statements, revenue on
a percent complete methodology for contracts falling under SOP 81-1 and
recognizes revenues on a completed contract methodology for contracts
falling under SAB 101. CVD feels this is the most accurate and consistent
methodology to meet the requirements of the two regulations.
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CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30 DECEMBER 31
2003 2002
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 253,756 $ 323,537
Accounts receivable, net 1,693,386 1,852,794
Cost in excess of billings on uncompleted contracts 1,143,408 783,646
Inventories 1,517,850 2,023,487
Other current assets 212,155 194,232
------------ ------------
Total Current Assets 4,820,555 5,177,696
Property, Plant and Equipment, net 5,526,167 5,630,375
Deferred Income Taxes 344,074 344,074
Other Assets 167,569 138,974
Intangible Assets, net 129,685 136,393
------------ ------------
Total Assets $10,988,050 $11,427,512
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,158,034 $ 938,056
Accrued expenses 195,730 336,702
Billings in excess of costs on uncompleted contracts - 146,387
Short-term notes payable 350,000 350,000
Short-term borrowings - -
Current maturities of long-term debt 182,735 177,124
------------ ------------
Total Current Liabilities 1,886,499 1,948,269
Long-term Debt, net of current portion 3,420,990 3,513,783
------------ ------------
Total Liabilities 5,307,489 5,462,052
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock - $0.01 par value -10,000,000 shares authorized;
3,039,100 shares issued & outstanding 30,391 30,391
Additional paid-in capital 2,902,149 2,902,149
Retained earnings 2,748,021 3,032,920
------------ ------------
Total Stockholders' Equity 5,680,561 5,965,460
------------ ------------
Total Liabilities and Stockholders' Equity $10,988,050 $11,427,512
============ ============
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CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2003 2002 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
Revenue
Revenue on completed contracts $ 1,440,743 $ 1,895,640 $ 3,971,524 $ 3,110,663
Revenue on uncompleted contracts 583,711 (254,327) 1,680,067 420,569
------------ ------------ ------------ ------------
Total Revenue 2,024,454 1,641,313 5,651,591 3,531,232
------------ ------------ ------------ ------------
Costs of Revenue
Cost on completed contracts 1,351,679 1,391,287 3,482,469 2,322,954
Cost on uncompleted contracts 518,600 (89,352) 1,042,095 228,297
------------ ------------ ------------ ------------
Total Costs of Revenues 1,870,279 1,301,935 4,524,564 2,551,251
------------ ------------ ------------ ------------
Gross Profit 154,175 339,378 1,127,027 979,981
------------ ------------ ------------ ------------
Operating Expenses
Selling and shipping 71,922 202,131 425,915 377,533
General and administrative 545,915 527,036 1,126,413 1,021,262
------------ ------------ ------------ ------------
Total Operating Expenses 617,837 729,167 1,552,328 1,398,795
------------ ------------ ------------ ------------
Operating Income(Loss) (463,662) (389,789) (425,301) (418,814)
------------ ------------ ------------ ------------
Other Income (Expense)
Interest income 110 9,716 234 19,544
Interest expense (60,793) (24,919) (123,762) (47,921)
Gain on sale of fixed assets - - - 2,500
Other income 195,954 5,997 263,930 22,485
------------ ------------ ------------ ------------
Total Other Income 135,271 (9,206) 140,402 (3,392)
------------ ------------ ------------ ------------
Income(Loss) Before Taxes (328,391) (398,995) (284,899) (422,206)
Income Tax Benefit 15,170 - - 9
------------ ------------ ------------ ------------
Net Income(Loss) (313,221) (398,995) (284,899) (422,197)
Earnings Per Share
Basic $ (0.10) $ (0.13) $ (0.09) $ (0.14)
Diluted $ (0.10) $ (0.12) $ (0.09) $ (0.13)
Weighted Average Shares
Basic 3,039,100 3,033,827 3,039,100 3,035,703
Diluted 3,045,557 3,203,502 3,047,350 3,208,799
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CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2003 2002 2003 2002
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
CASH Flows from Operating Activities
Net Income(Loss) $ (313,221) $ (398,995) $ (284,899) $ (422,197)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 89,929 70,148 180,150 137,124
Gain on sale of fixed assets - - - (2,500)
Bad debt provision 4,669 (3,024) 1,358 (5,071)
(Increase) decrease in:
Accounts receivable 802,638 (347,710) 158,050 (371,850)
Cost in excess of billings on uncompleted contracts (195,502) 313,704 (359,762) 282,171
Inventory 122,372 (906,710) 505,638 (880,844)
Other current assets 20,675 (50,274) (17,924) (105,752)
Other assets (24,704) (46,441) (48,799) 170,740
Increase (decrease) in:
Accounts payable (219,535) 486,861 219,981 542,418
Accrued expenses (301,513) 236,675 (140,976) 143,531
Billing in excess of costs on uncompleted contracts - (8,728) (146,387) 2,904
------------ ------------ ------------ ------------
Net cash provided by (used in) operating activities (14,192) (654,494) 66,430 (509,326)
------------ ------------ ------------ ------------
Cash Flows from Investing Activities
Capital expenditures (9,829) (1,105,174) (49,029) (3,300,592)
Proceeds from sale of fixed assets - - - 2,500
------------ ------------ ------------ ------------
Net cash provided by (used in) investing activities (9,829) (1,105,174) (49,029) (3,298,092)
------------ ------------ ------------ ------------
Cash Flows from Financing Activities
Proceeds from the exercise of options - 8,301 - 8,301
Proceeds of short-term borrowings 100,000 - 315,000 -
Payments of short-term borrowings (150,000) - (315,000) -
Proceeds of long-term debt - - - 1,588,056
Payments of long-term debt (43,931) (37,419) (87,182) (49,215)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities (93,931) (29,118) (87,182) 1,547,142
------------ ------------ ------------ ------------
Net increase(decrease) in cash and cash equivalents (117,952) (1,788,786) (69,781) (2,260,276)
------------ ------------ ------------ ------------
Cash and cash equivalents at the beginning of the quarter 371,708 1,889,660 323,537 2,361,150
------------ ------------ ------------ ------------
Cash and cash equivalents at the end of the quarter $ 253,756 $ 100,874 $ 253,756 $ 100,874
============ ============ ============ ============
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ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2003
REVENUE
An increase in volume resulted in second quarter of 2003 revenue being
$2,024,454, a 23% increase from second quarter of 2002 revenue of
$1,641,313.
COSTS AND EXPENSES
The cost of revenue increased to $1,870,279 in second quarter of 2003 as
compared to $1,301,935 in second quarter of 2002. Of this $568,344
increase, approximately $343,000 is attributed to material, $7,000 to
freight in expense, $151,000 to salaries, $10,000 to depreciation expense
and $17,000 to real estate taxes.
Selling and shipping expenses decreased to $71,922 in second quarter of
2003 from $202,131 in second quarter of 2002. Of this $130,209 decrease,
approximately $117,000 is attributed to commissions, $18,000 to salaries
and $10,000 to royalties, which is offset by an increase of $7,000 to
freight out expense and $5,000 to auto expense.
General and Administrative expenses increased to $545,915 in second
quarter of 2003 from $527,036 in second quarter of 2002. Of this $18,879
increase, approximately $45,000 to salaries, which is offset by a
decrease of $14,000 to legal fees and $9,000 to employee relocation
expense.
Interest expense increased by $35,874 from $24,919 in second quarter 2002
to $60,793 in second quarter of 2003, because the company's average
outstanding debt increased, as a result of the mortgage on the new
building purchased in March 2002.
Other income increased by $189,957 from $5,997 in second quarter of 2002
to $195,954 in second quarter of 2003. Of this increase, $150,000 is
attributed to an insurance reimbursement for legal fees and $41,000 is
attributed to collection of accounts receivable exceeding the $369,000
booked as part of the purchase of the assets.
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ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2003
REVENUE
An increase in volume resulted in six months of 2003 revenue being
$5,651,591, a 60% increase from six months of 2002 revenue of $3,531,232.
COSTS AND EXPENSES
The cost of revenue increased to $4,524,564 in six months of 2003 as
compared to $2,551,251 in six months of 2002. Of this $1,973,313 increase,
approximately $1,414,000 is attributed to material, $16,000 to freight in,
$335,000 to salaries, $28,000 to depreciation, $28,000 to utilities and
$35,000 to real estate taxes.
Selling and shipping expenses increased to $425,915 in six months of 2003
from $377,533 in six months of 2002. Of this $48,382 increase,
approximately $38,000 is attributed to commissions and $38,000 to freight
out expense, which is offset by a decrease of $12,000 to salaries and
$14,000 to royalties.
General and Administrative expenses increased to $1,126,413 in six months
of 2003 from $1,021,262 in six months of 2002. Of this $105,151 increase,
approximately $135,000 to salaries, which is offset by a decrease of
$22,000 to legal fees and $7,000 to consulting fees.
Interest expense increased by $75,841 from $47,921 in six months of 2002
to $123,762 in six months of 2003, because the company's average
outstanding debt increased, as a result of the mortgage on the new
building purchased in March 2002.
Other income increased by $241,445 from 22,485 in six months of 2002 to
$263,930 in six months of 2003. Of this increase, $150,000 is attributed
to an insurance reimbursement for legal fees and $104,000 is attributed
to collection of accounts receivable exceeding the $369,000 booked as part
of the purchase of the assets.
LIQUIDITY AND CAPITAL RESOURCES
By the end of the second quarter of 2003, the Company's cash position
decreased to $253,756 from $323,537 at the beginning of the year. The
decrease in cash is mainly attributed to the daily operating activities.
At the end of the second quarter of 2003, the Company's account receivable
position decreased to $1,693,386 from $ 1,852,794 at the beginning of the
year. This decrease was attributable to timing of customer payments and
billings.
9
At the close of the second quarter of 2003, the Company's backlog
decreased to approximately $1,876,855. This represents the amount of
orders not billed or taken as part of percentage of completion. This
backlog has decreased from approximately $3,816,877 at the beginning of
the year. This decrease is mainly attributed to a decrease in new orders
and to shipments delayed from the fourth quarter of 2002 to the first
quarter of 2003. This delay resulted from the reduction in productivity of
the CVD and Conceptronic divisions due to their relocation to the new
facility in the fourth quarter of 2002. The $1,876,855 backlog is actively
being worked on.
The Company believes that its cash and cash equivalents, cash flow from
operations and available credit facilities will be sufficient to meet its
working capital and investment requirements for the next twelve months.
However, future growth, including potential acquisitions, may require
additional funding, and from time to time the Company may need to raise
capital through additional equity or debt financing.
10
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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
14th day of August 2003.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Leonard A. Rosenbaum President, Chief Executive Officer and Director
Leonard A. Rosenbaum
/s/ Sharon Canese Chief Financial Officer and Secretary
Sharon Canese
11
Certifications Pursuant to Rule 13A-14 or 15D-14 of the Securities exchange
act of 1934, as adopted 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-QSB of CVD
Equipment Corporation;
2. Based upon my knowledge, this quarterly 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 quarterly report.
3. Based upon my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures 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
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, the registrant's auditors and
the audit committee of the registrants' board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; 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.
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: August 14, 2003
/s/ Leonard A. Rosenbaum
----------------------------------------
President, Chief Executive Officer and Director
12
Certifications Pursuant to Rule 13A-14 or 15D-14 of the Securities exchange
act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
I, Sharon Canese, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CVD
Equipment Corporation;
2. Based upon my knowledge, this quarterly 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 quarterly report.
3. Based upon my knowledge, the financial statements, and other
financial information included in this quarterly 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 quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. Designed such disclosure controls and procedures 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
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, the registrant's auditors and
the audit committee of the registrants' board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; 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.
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: August 14, 2003
/s/ Sharon Canese
----------------------------------------
Chief Financial Officer and Secretary