UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 September 30, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____ to _____
Commission file number: 1-16525
CVD EQUIPMENT CORPORATION
(Name of Small Business Issuer in Its Charter)
New York 11-2621692
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer Identification No.)
1860 Smithtown Avenue
Ronkonkoma, New York 11779
(Address including zip code of registrant's Principal Executive Offices)
(631) 981-7081
(Issuer's Telephone Number, Including Area Code)
------------------------------------------------------------
(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 period 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 [ ]
Indicate by check mark whether issuer is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes [ ] No [x]
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: 4,718,500 shares of Common
Stock, $0.01 par value at November 9, 2007.
______________________________________________________________________________
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [x]
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Index
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets at September 30, 2007 (Unaudited) and
December 31, 2006 2
Consolidated Statements of Operations (Unaudited) for the three and
nine months ended September 30, 2007 and 2006 3
Consolidated Statements of Cash Flows (Unaudited) for the nine months
ended September 30, 2007 and 2006 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 - Controls and Procedures 15
Part II - Other Information 16
Item 1 - Legal Proceedings 16
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits 16
Signatures 18
Exhibit Index 19
Certification of Chief Executive Officer 20
Certification of Chief Financial Officer 21
Certification of Chief Executive Officer pursuant to U.S.C. Section 1350 22
Certification of Chief Financial Officer pursuant to U.S.C. Section 1350 23
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2007
(Unaudited) December 31, 2006
------------------ -----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,294,343 $ 257,341
Accounts receivable, net 2,621,356 2,377,069
Investments 251,130 251,130
Costs and estimated earnings in excess of billings on uncomplete 1,631,485 716,663
Inventories 2,833,614 2,704,506
Other current assets 562,456 118,300
------------------ -----------------
Total current assets 12,194,383 6,425,009
Property, plant and equipment, net 4,975,779 4,778,807
Deferred income taxes 949,605 899,904
Other assets 737,074 708,114
Intangible assets, net 88,817 105,775
------------------ -----------------
Total Assets $18,945,659 $12,917,609
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 219,182 $ 223,653
Bank line of credit - 210,000
Short-term debt - 2,109
Accounts payable 576,370 640,771
Accrued expenses 1,098,239 686,771
Accrued professional fees - related party 35,000 35,000
Deferred revenue 371,055 212,250
Deferred tax liability 246,635 263,396
------------------ -----------------
Total current liabilities 2,546,481 2,273,950
Long-term debt, net of current portion 2,734,975 2,776,801
Deferred tax liability 587,378 666,948
------------------ -----------------
Total liabilities 5,868,834 5,717,699
------------------ -----------------
Commitments and contingencies --- ---
Stockholders' Equity
Common stock, par value $.01 per share, authorized
10,000,000 shares; issued and outstanding, 4,535,000
shares at September 30, 2007 and
3,250,500 shares at December 31, 2006 45,350 32,505
Additional paid-in capital 8,732,229 3,405,474
Retained earnings 4,299,246 3,761,931
------------------ -----------------
Total stockholders' equity 13,076,825 7,199,910
------------------ -----------------
Total liabilities and stockholders' equity $18,945,659 $12,917,609
================== =================
The accompanying notes are an integral part of the consolidated financial statements
2
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2007 2006 2007 2006
--------------- -------------- --------------- ---------------
Revenue $ 3,302,830 $ 3,635,531 $10,185,351 $ 9,958,136
Costs of revenue 2,238,191 2,218,537 6,693,213 6,404,719
--------------- -------------- --------------- ---------------
Gross profit 1,064,639 1,416,994 3,492,138 3,553,417
--------------- -------------- --------------- ---------------
Operating expenses
Selling and shipping 137,150 222,391 563,720 619,622
General and administrative 754,701 730,532 2,297,947 2,180,182
Related party - professional fees - 10,000 35,000 20,000
--------------- -------------- --------------- ---------------
Total operating expenses 891,851 962,923 2,896,667 2,819,804
Operating income 172,788 454,071 595,471 733,613
--------------- -------------- --------------- ---------------
Other income (expense)
Interest income 2,749 340 2,810 748
Interest expense (64,564) (57,882) (170,337) (173,409)
Other income 517,657 9,845 557,060 96,599
--------------- -------------- --------------- ---------------
Total other (expense) 455,842 (47,697) 389,533 (76,062)
Income before income taxes 628,630 406,374 985,004 657,551
Income tax provision (352,652) (177,523) (447,689) (292,690)
--------------- -------------- --------------- ---------------
Net income $ 275,978 $ 228,851 537,315 $ 364,861
=============== ============== =============== ===============
Basic income per common share $ 0.08 $ 0.07 $ 0.16 $ 0.12
=============== ============== =============== ===============
Diluted income per common share $ 0.08 $ 0.07 $ 0.16 $ 0.11
=============== ============== =============== ===============
Weighted average common shares outstanding
basic income per share 3,395,321 3,198,247 3,327,256 3,155,710
Effect of potential common share issuances:
Stock options 122,419 69,534 134,155 102,816
--------------- -------------- --------------- ---------------
Weighted average common shares outstanding
diluted income per share 3,517,740 3,267,781 3,461,411 3,258,526
=============== ============== =============== ===============
The accompanying notes are an integral part of the consolidated financial statements
3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
September 30
2007 2006
--------------- ---------------
Cash flows from operating activities
Net income $ 537,315 $ 364,861
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 318,367 244,792
Deferred tax benefit (146,032) 214
Stock based compensation expense 128,468 128,889
Bad debt provision 11,360 -
Changes in operating assets and liabilities:
Accounts receivable (255,647) (293,375)
Costs and estimated earnings in excess of billings on uncomplete (914,822) 3,979
Inventories (129,108) (507,863)
Other current assets (444,156) (89,361)
Other assets (133,300) -
Accounts payable (64,401) 30,064
Accrued expenses 411,469 277,162
Deferred revenue 158,805 72,420
--------------- ---------------
Net cash (used in) provided by operating activities (521,682) 231,782
--------------- ---------------
Cash flows from investing activities:
Capital expenditures (398,083) (222,264)
Deposits 4,043 -
--------------- ---------------
Net cash used in investing activities (394,040) (222,264)
--------------- ---------------
Cash flows from financing activities:
Proceeds from short-term borrowings 1,125,000 1,310,000
Payments of short-term borrowings (1,335,000) (1,285,000)
Proceeds from bank line of credit - long-term 1,505,000 -
Payments to bank line of credit - long-term (1,505,000) -
Proceeds from long-term debt 139,510 115,309
Payments of long-term debt (187,917) (190,676)
Net proceeds from issuance of common stock 5,058,032
Net proceeds from stock options exercised 153,100 129,875
--------------- ---------------
Net cash provided by financing activities 4,952,725 79,508
--------------- ---------------
Net increase in cash and cash equivalents 4,037,002 89,026
Cash and cash equivalents at beginning of period 257,341 265,454
--------------- ---------------
Cash and cash equivalents at end of period $ 4,294,343 $ 354,480
=============== ===============
Supplemental disclosure of cash flow information:
Income taxes paid $ 108,076 $ 8,354
Interest paid 166,261 172,109
Equipment reclassified to inventory - 84,897
The accompanying notes are an integral part of the consolidated financial statements
4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements 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-QSB and Item 310(b) of Regulation S-B. Accordingly, 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 nine months ended September 30, 2007 are not necessarily indicative
of the results that can be expected for the year ending December 31, 2007.
The balance sheet as of December 31, 2006 has been derived from the audited
financial statements at such date, but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
The accounting policies followed by CVD Equipment Corporation and Subsidiary,
(the "Company") are set forth in Note 2 to the Company's consolidated
financial statements in the December 31, 2006 Form 10-KSB.
For further information, please refer to the consolidated financial
statements and notes thereto included in the Company's Annual Report of Form
10-KSB for the year ended December 31, 2006.
Intercompany transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior period financial statements
to conform to the current period presentation.
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 subsidiary. In December 1998 , a subsidiary,
Stainless Design Concepts, Ltd., was formed as a New York Corporation. In
April 1999, this subsidiary was merged into CVD Equipment Corporation. The
Company has one inactive subsidiary. All significant intercompany accounts
and transactions have been eliminated in consolidation.
5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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. Estimates are used when accounting for certain items such as
revenues on long-term contracts recognized on the percentage-of-completion
method, allowances for doubtful accounts, depreciation and amortization, tax
provisions and product warranties.
Revenue and Income Recognition
The Company recognizes revenues and income using the percentage-of-completion
method for custom production-type contracts while revenues from other
products are recorded when such products are accepted and shipped. Profits on
custom production-type contracts are recorded on the basis of the Company's
estimates of the percentage-of-completion of individual contracts,
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. Under this method, revenues
are recognized based on costs incurred to date compared with total estimated
costs.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased with
an original maturity of three months or less at the date of purchase to be
cash equivalents.
Investments
Investments in unconsolidated companies in which the Company owns less than a
20% interest or does not exercise a significant influence are carried at
cost.
6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3: INVESTMENTS
The Company sold equipment to a customer for a purchase price of one hundred
four thousand, four hundred eighty two (104,482) shares of common stock, par
value $.001 per share. Between July 19, 2007 and July 31, 2007, the Company
had the option to demand that the customer make cash payment i.e.: two
hundred fifty-one thousand, one hundred thirty 00/100 U.S. dollars ($251,130)
for the equipment, the amount that would have been required had the customer
made cash payment for the equipment on July 19, 2006 in exchange for the
return of said stock. The customer's obligation to make such payment pursuant
to the terms of the option is secured by a perfected lien upon the subject
equipment and the Company's right to execute upon the aforesaid common stock.
In the event the customer does not make full payment, the Company has also
reserved the right to maintain plenary proceedings against the customer for
the purpose of recovering such sums as may be due as well as the right to
obtain a deficiency judgment in the event that the collateral in the
equipment and stock is insufficient to discharge said obligation.
The Company agreed to extend the option to demand cash payment to the period
between December 1, 2007 and March 12, 2008 in exchange for fifty thousand
(50,000) shares of the customer's common stock.
NOTE 4: UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
September 30, 2007 December 31, 2006
(Audited)
------------------ -----------------
Costs incurred on uncompleted contracts $ 1,655,904 $ 1,509,672
Estimated earnings 2,595,712 2,015,836
------------------ -----------------
4,251,616 3,525,508
Billings to date (2,620,131) (2,808,845)
------------------ -----------------
$ 1,631,485 $ 716,663
------------------ -----------------
Included in accompanying balance sheets
Under the following caption:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,631,485 $ 716,663
7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: INVENTORIES
Inventories consist of the following:
September 30, 2007 December 31, 2006
(Audited)
------------------ -----------------
Raw materials $ 1,053,158 $ 860,085
Work-in-process 1,547,670 1,515,460
Finished goods 232,786 328,961
------------------ -----------------
$ 2,833,614 $ 2,704,506
------------------ -----------------
NOTE 6: BAD DEBTS
Accounts receivables are presented net of an allowance for doubtful accounts
of $18,577 and $7,217 as of September 30, 2007 and December 31, 2006
respectively. The allowance is based on prior experience and management's
evaluation of the collectability of accounts receivable. Management believes
the allowance is adequate. However, future estimates may change based on
changes in economic conditions.
NOTE 7: BANK LINE OF CREDIT
September 30, 2007 December 31, 2006
(Audited)
------------------ -----------------
Short Term Borrowings $ --- $210,000
Long term Borrowings $ --- ---
On June 1, 2007, the Company entered into a new $2 million three-year
revolving credit facility with a bank permitting it to borrow on a revolving
basis until June 1, 2010. Interest on the unpaid principal balance on this
facility accrues at either (i) the LIBOR Rate plus 2.50% or (ii) the bank's
Prime Rate plus .25%. Borrowings under the facility are secured by
substantially all of the Company's personal property. The amount outstanding
on the facility was $0 and $210,000 on September 30, 2007 and December 31,
2006 respectively. On September 28, 2007, the Company signed a commitment
letter from the same bank to increase this revolving credit facility to $5
million, the closing of which is pending.
8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8: STOCK COMPENSATION EXPENSE
On January 1, 2006, the Company adopted the provisions of SFAS No. 123-R
"Share-Based Payment" using the modified prospective method. SFAS No. 123-R
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. Under the modified prospective method of adopting SFAS
No. 123-R, the Company recognized compensation cost for all share-based
payments granted after January 1, 2006, plus any awards granted to employees
prior to January 1, 2006 that remain unvested at that time. Under this method
of adoption, no restatement of prior periods is made.
During the three and nine months ended September 30, 2007 and September 30,
2006, the Company recorded into selling and general administrative expense
approximately $43,200 and $128,468 and $42,963 and $128,889 respectively for
the cost of employee services received in exchange for equity instruments
based on the grant-date fair value of those instruments in accordance with
the provisions of SFAS No. 123-R.
NOTE 9 LEGAL PROCEEDINGS
On September 18, 2007 a settlement was reached between the Company and
PrecisionFlow Technologies, Inc. of pending litigation. Under the terms of
the settlement, all claims and counterclaims asserted by the parties in
previously filed lawsuits were discontinued in consideration of which the
Company will receive payments totaling $541,600 to be paid over a specific
timetable as defined.
NOTE 10: INCOME TAXES
The provision (benefit) for income taxes includes the following:
Nine Months Ended Nine Months Ended
September 30, 2007 September 30, 2006
------------------ ------------------
Current:
Federal $ 463,686 $ 281,635
State 130,035 10,841
------------------ ------------------
Total Current Provision 593,721 292,476
Deferred:
Federal (134,932) (3,196)
State ( 11,100) 3,410
------------------ ------------------
Total Deferred (Benefit) (146,032) 214
------------------ ------------------
$ 447,689 $ 292,690
------------------ ------------------
9
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
All of the Company's federal net operating loss ("NOL'S") carry forwards of
approximately $40,000 have been utilized and all of the Company's $214,000
state NOL'S carry forwards have been utilized through September 30, 2007.
NOTE 11: ISSUANCE OF COMMON STOCK
In September 2007, the Company filed registration statements on Form S-1 with
the Securities and Exchange Commission for the sale of 1,200,000 shares of
its common stock in an underwritten public offering at a price to the public
of $4.75 per share. Net proceeds to the Company were approximately $5 million
net of $300,000 of offering expenses and after deducting $370,500 of
underwriting commissions. The Company also granted the underwriter a 30-day
option to purchase up to 180,000 additional shares of common stock to cover
over-allotments.
NOTE 12: SUBSEQUENT EVENT
In October 2007, the underwriter exercised its option to purchase 180,000
additional shares of common stock. The Company received net proceeds of
approximately $800,000.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes filed as part of
this report.
Except for historical information contained herein, this "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
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 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.
Results of Operations
Three and Nine Months Ended September 30, 2007 vs. Three and Nine Months
Ended September 30, 2006
Revenues:
Revenue for the three and nine month periods ended September 30, 2007 was
approximately $3,303,000 and $10,185,000 compared to approximately $3,636,000
and $9,958,000 for the three month and nine month periods ended September 30,
2006. This represents a decrease of 9.2% for the comparable three month
period and a 2.3% increase for the comparable nine month period. Revenues for
the current nine month period were impacted by the Company's decision to
raise additional capital and focus on the CVD and First Nano product lines
which we anticipate will add to the Company's long-term growth and
profitability.
Gross Profit
The Company generated gross profits of approximately $1,065,000 and
$3,492,000 resulting in gross profit margins of 32.2% and 34.3% for the three
and nine months ended September 30, 2007 compared to gross profits of
approximately $1,417,000 and $3,553,000 resulting in gross profit margins of
39.0% and 35.7% for the three and nine months ended September 30, 2006. The
decrease in gross profit is due to additional new hires, as a result of the
Company's expansion plans for the First Nano product line.
11
Selling, General and Administrative Expenses:
Selling and shipping expenses for the three months ended September 30, 2007
and 2006 were $137,150 and $222,391 respectively, representing a 38.3%
decrease. This decrease is attributed directly to a decrease in sales
commissions. Sales concluded in the current period were primarily
attributable to our direct sales personnel and therefore not subject to
outside sales commissions.
Selling and shipping expenses for the nine months ended September 30, 2007
and 2006 were approximately $564,000 and $620,000 respectively, representing
a 9.0% decrease. This decrease is primarily attributed to a decrease in sales
commissions. Sales concluded in this period were primarily by our direct
sales personnel and therefore not subject to outside sales commissions.
However, this decrease is partially offset by an increase in trade show
expenses corresponding to implementation of the Company's sales and marketing
program.
The Company incurred approximately $755,000 and $2,333,000 of general and
administrative expenses during the three and nine months ended September 30,
2007, compared to the approximately $741,000 and $2,200,000 in the three and
nine months ended September 30, 2006 representing increases of 1.9% and 6.1%
or approximately $14,000 and $133,000. The nine month increase is primarily
attributed to increases in employee benefit costs, professional fees,
insurance and energy costs.
Operating Income:
As a result of the foregoing factors, operating income was $173,000 and
$595,000 for the three and nine months ended September 30, 2007 respectively.
This represents a decrease of 61.9% and 18.8% compared to operating income of
$454,000 and $734,000 for the three and nine month periods ended September
30, 2006.
Other Expense/ Income:
Interest expense for the three and nine months ended September 30, 2007 was
approximately $65,000 and $170,000 respectively compared to approximately
$58,000 and $173,000 for the three and nine months ended September 30, 2006.
The increase was due to increased borrowing by the Company.
On September 25, 2007, the Company sold 1.2 million shares of common stock
under a registration statement filed with the Securities and Exchange
Commission. As a result, during the three months ended September 30, 2007,
the Company earned interest of $2,749 from these proceeds.
Other income during the three and nine months ended September 30, 2007 was
approximately $518,000 and $557,000 compared to approximately $10,000 and
$97,000 for the corresponding period one year ago. This increase was the
result of a settlement of litigation between the Company and PrecisionFlow
Technologies, Inc. Under the terms of the settlement, all claims and
counterclaims asserted by the parties were discontinued in consideration of
which the Company will receive payments totaling $541,600 to be paid over a
specific timetable.
12
For the three and nine months ended September 30, 2007, the Company had
earnings before taxes of approximately $620,000 and $985,000 compared to
approximately $406,000 and $658,000 for the three and nine months ended
September 30, 2006. For the three and nine months ended September 30, 2007,
the Company recorded a current income tax expense of approximately $402,000
and $594,000 respectively, which related to various federal, state and
local taxes. This current income tax provision was reduced by a deferred tax
benefit of $49,000 and $146,000 respectively. For the three months ended
September 30, 2006, the Company recorded a current tax expense of
approximately $78,000 increased by deferred taxes of $100,000. For the nine
months ended September 30, 2006, the Company recorded a current income tax
expense of $293,000.
Net Income:
The Company reported net income of approximately $276,000 for the current
three month period compared to net income of approximately $229,000 for the
same period, one year ago. This increase was primarily due to the settlement
reached on PrecisionFlow litigation offset by an increase in income taxes.
For the nine month period ended September 30, 2007, the Company reported net
income of approximately $537,000 as compared to net income of $365,000 for
the nine months ended September 30, 2006. This increase was primarily due to
the settlement reached on PrecisionFlow litigation offset by an increase in
income taxes.
Liquidity and Capital Resources
In September 2007 the Company completed the sale of 1,200,000 shares of
common stock in a public offering at $4.75 per share. The net proceeds of the
sale after offering expenses and underwriting fees was approximately $5
million. The Company intends to use the net proceeds from the offering for
working capital and other general corporate purposes, including possible
product or business acquisitions in connection with the planned expansion of
our business.
As of September 30, 2007, the Company had aggregate working capital of
approximately $9,648,000 compared to $4,151,000 at December 31, 2006 an
increase of $5,497,000. This increase was primarily the result of
approximately $5,330,000 received from the issuance of common stock in our
public offering and the settlement of the PrecisionFlow litigation which
yielded an additional $408,000 of working capital. In addition, working
capital increased by the estimated earnings in excess of billings on
uncompleted contracts of approximately $915,000. This was partially offset
by an increase in accrued expenses of $412,000 and the repayment of $210,000
under the Company's revolving credit facility.
Accounts receivable at September 30, 2007 was $2,621,356 compared to
$2,377,069 at December 31, 2006. This increase is primarily attributable to
the timing of shipments and customer payments.
13
As of September 30, 2007, the Company's backlog was approximately $4,982,000,
an increase of $1,417,000 or 39.7% compared to $3,565,000 at December 31,
2006. Timing for completion of backlog varies depending on the product mix,
however, there is generally a one to six month lag in the completion and
shipping of backlog. Backlog from quarter to quarter can vary based on the
timing of order placements and shipments. Demand for CVD and First Nano
systems continues to remain strong.
Revolving Credit Facility and Borrowings
On June 1, 2007, the Company entered into a three year Revolving Credit
Agreement with a bank permitting it to borrow on a revolving basis amounts up
to $2,000,000 until June 1, 2010, at which time it will be subject to
renewal. The loan will bear interest on any unpaid principal balance at a
rate to be elected by the Company, which shall be equal to either (1) the
LIBOR Rate plus 2.50% or (2) the bank's prime rate plus 1/4 of 1%. This
agreement contains certain financial and other covenants, with which the
Company was in compliance at September 30, 2007. Borrowings are
collateralized by the Company's assets. On September 28, 2007, the Company
signed a commitment letter from the same bank to increase this revolving
credit facility to $5 million, the closing of which is pending.
The Company had an equipment line of credit of $250,000 with that same bank.
This line of credit was discontinued as of June 1, 2007 with the inception of
the three year Revolving Credit Agreement previously discussed.
The Company believes that its cash and cash equivalents resulting from the
September 2007 public offering and the available credit facilities discussed
above, is sufficient to support operations and will enable the Company to
pursue our growth strategies for the next twelve months.
14
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures, as required
by Exchange Act Rule 13a-15, as of the end of the period covered by this
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures
were effective to insure that information required to be disclosed by us in
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the SEC's rules
and forms.
Changes in Internal Controls
There were no significant changes in the Company's internal controls over
financial reporting that occurred during the nine months ended September 30,
2007 that have materially affected, or are reasonably likely to materially
affect, the internal controls over financial reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and operated,
cannot provide absolute assurance that the objectives of the control systems
are met, and no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected
15
CVD EQUIPMENT CORPORATION
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1999, the Company was named in a lawsuit filed by PrecisionFlow
Technologies, Inc. ("PFT"), in the United States District Court for the
Northern District of New York, relating to comments allegedly made by the
Company's President and Chief Executive Officer, Leonard A. Rosenbaum,
concerning the intellectual property obtained in the purchase of assets of
Stainless Design Corporation. The Company promptly filed a counterclaim for
unauthorized use of its intellectual property and filed a complaint against
the President of PFT (these two actions have been consolidated) alleging the
same acts as set forth in the counterclaim. The plaintiff is seeking monetary
damages and injunctive relief. In the Company's counterclaim, it is also
seeking monetary damages and injunctive relief. All pre-trial disclosure has
been completed. The Company withdrew certain of its counterclaims following
the completion of discovery and the court has dismissed certain of the claims
which had been asserted by PFT. No trial date has been set.
In May 2002, the Company instituted a new action against PFT and certain of
its employees, in the United States District for the Northern District of New
York seeking injunctive relief and monetary damages based upon copyright
violations. A motion by PFT to dismiss this action which had been pending
since June 2002, was denied in March 2007. On May 25, 2007 PFT's motion for
reconsideration was likewise denied. On June 11, 2007, PFT filed its answer
in which no counterclaims have been asserted against the Company.
On September 18, 2007 a settlement was reached between the Company and PFT of
the pending litigation. Under the terms of the settlement, all claims and
counterclaims asserted by the parties in previously filed lawsuits were
discontinued in consideration of which the Company will receive payments
totaling $541,600.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
16
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Exhibits filed with this report:
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to U.S.C. Section 1350
17
SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CVD EQUIPMENT CORPORATION
November 14, 2007 By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
November 14, 2007 By: /s/ Glen R. Charles
Glen R. Charles
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to U.S.C.
Section 1350
32.2 Certification of Chief Financial Officer pursuant to U.S.C.
Section 1350
19