Edgar Filing: CVD EQUIPMENT CORP

cvd10q63010.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2010
o 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 Registrant 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 (Registrant’s Telephone Number, Including Area Code)

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o Noo

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,778,325 shares of Common Stock, $0.01 par value as of August 13, 2010.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Index

Part I - Financial Information

Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2010 (Unaudited) and December 31, 2009	2
Consolidated Statements of Operations (Unaudited) for the three and six monthsended June 30, 2010 and 2009	3
Consolidated Statements of Cash Flows (Unaudited) for the three months and six ended June 30, 2010 and 2009	4
Notes to Unaudited Consolidated Financial Statements	5
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	17
Item 4T - Controls and Procedures	17
Part II - Other Information	18
Item 1 - Legal Proceedings	18
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3 – Defaults Upon Senior Securities	18
Item 4 – (Removed and Reserved)	18
Item 5 - Other Information	19
Item 6 - Exhibits and Reports Filed on Form 8-K	19
Signatures	20
Exhibit Index	21
31.1 Certification of Chief Executive Officer	22
31.2 Certification of Chief Financial Officer	23
32.1 Certification of Chief Executive Officer pursuant to U.S.C. Section 1350	24
32.2 Certification of Chief Financial Officer pursuant to U.S.C. Section 1350	25

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets

	June 30, 2010 (Unaudited)		December 31, 2009*
ASSETS
Current Assets:
Cash and cash equivalents	$	4,742,299	$	3,119,731
Accounts receivable, net		1,622,056		2,130,196
Cost and estimated earnings in excess
of billings on uncompleted contracts		1,047,673		2,708,084
Inventories		4,613,569		4,418,138
Deferred income taxes – current		401,290		378,412
Other current assets		295,562		213,593

Total Current Assets		12,722,449		12,968,154

Property, plant and equipment, net		7,632,228		7,591,363

Deferred income taxes – non-current		758,792		711,293

Other assets		280,371		327,968

Intangible assets, net		22,037		66,213

Total Assets	$	21,415,877	$	21,664,991


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	370,999	$	368,041
Accounts payable and accrued expenses		1,770,693		1,820,890
Accrued professional fees – related party		60,000		64,521
Deferred revenue		37,566		151,514
		2,239,258		2,404,966
Long-term debt, net of current portion		3,584,332		3,768,824
Total liabilities		5,823,590		6,173,790

Commitments and contingencies		-		-

Stockholders’ Equity
Common stock - $0.01 par value – 10,000,000 shares
authorized; issued and outstanding, 4,778,325 at
June 30, 2010 and 4,761,825 at December 31, 2009		47,783		47,618
Additional paid-in-capital		10,181,247		10,093,761
Retained earnings		5,363,257		5,349,822
Total Stockholders’ Equity		15,592,287		15,491,201

Total liabilities and stockholders’ equity	$	21,415,877	$	21,664,991

* Derived from audited financial statements for the year ended December 31, 2009 (see Annual Report on Form 10-K filed on March 31, 2010 with the Securities and Exchange Commission).

The accompanying notes are an integral part of these consolidated financial statements.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
Revenue	$	3,380,788		$	3,442,457		$	7,102,637		$	7,427,198

Cost of revenue		2,157,975			2,412,037			4,773,278			5,369,750

Gross profit		1,222,813			1,030,420			2,329,359			2,057,448

Operating expenses
Selling and shipping		215,312			194,610			426,967			361,574
General and administrative		836,580			784,942			1,769,763			1,729,783
Related party – professional fees		45,000			25,000			60,000			50,000
Total operating expenses		1,096,892			1,004,552			2,256,730			2,141,357

Operating income (loss)		125,921			25,868			72,629			(83,909	)
Other income (expense)
Interest income		2,006			10,919			4,378			22,589
Interest expense		(57,507	)		(62,228	)		(116,223	)		(126,983	)
Other income		3,000			13,390			8,725			11,690
Total other (expense)		(52,501	)		(37,919	)		(103,120	)		(92,704	)

Income (loss) before income taxes		73,420			(12,051	)		(30,491	)		(176,613	)

Income tax benefit		30,444			22,601			43,926			100,815

Net income (loss)	$	103,864		$	10,550		$	13,435		$	(75,798	)

Basic income (loss) per common share	$	0.02		$	0.00		$	0.00		$	( 0.02	)

Diluted income (loss) per common share	$	0.02		$	0.00		$	0.00		$	(0.02	)


Weighted average common shares outstanding basic		4,778,325			4,761,100			4,776,950			4,760,203

Effect of potential common share issuance: Stock options		34,682			47,612			40,666		--__

Weighted average common shares outstanding diluted		4,813,007			4,808,712			4,817,616			4,760,203

The accompanying notes are an integral part of these consolidated financial statements.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	2010			2009
Cash flows from operating activities
Net income (loss)	$	13,435		$	(75,798	)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Stock-based compensation expense		87,652			86,690
Depreciation and amortization		305,284			294,978
Deferred tax benefit		(70,377	)		(116,627	)
Bad debt provision		(2,321	)		(8,639	)
Changes in operating assets and liabilities:
Accounts receivable		510,461			465,501
Cost and estimated earnings in excess of billings
on uncompleted contracts		1,660,411			(388,011	)
Inventories		(195,431	)		135,679
Other current assets		(81,969	)		(71,573	)
Deferred revenue		(113,948	)		(21,521	)
Accounts payable and accrued expenses		(54,717	)		(682 400	)
Net cash provided by (used in) operating activities		2,058,480			(381,721	)

Cash flows from investing activities:
Capital expenditures		(254,377	)		(239,938	)
Net cash (used in) investing activities		(254,377	)		(239,938	)

Cash flows from financing activities:
Payments of long-term debt		(181,535	)		(171,914	)
Net cash (used in) financing activities		(181,535	)		171,914	)

Net increase (decrease) in cash and cash equivalents		1,622,568			(793,573	)

Cash and cash equivalents at beginning of period		3,119,731			5,721,369

Cash and cash equivalents at end of period	$	4,742,29		$	4,927,796


Supplemental disclosure of cash flow information
Income taxes paid	$	13,338		$	5,000
Interest paid	$	116,223		$	126,982

The accompanying notes are an integral part of these consolidated financial statements.

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-Q and Article 8 of Regulation S-X. 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 six months ended June 30, 2010 are not necessarily indicative of the results that can be expected for the year ending December 31, 2010.

The balance sheet as of December 31, 2009 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. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, including the accounting policies followed by the Company as set forth in Note 2 to the consolidated financial statements in the December 31, 2009 Form 10-K.

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period financial statements to conform to the current year presentation.

Subsequent events have been evaluated through the filing date of this Quarterly Report on Form 10-Q.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Income Recognition

The Company recognizes revenues 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, “Cost and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements

In September 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, and ASU 2009-14, Certain Revenue Arrangements That Include Software Elements – a consensus of the FASB Emerging Issues Task Force, to amend the existing revenue recognition guidance. ASU 2009-13 amends ASC 605, Revenue Recognition, 25, “Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue Arrangements with Multiple Deliverables”), as follows: modifies criteria used to separate elements in a multiple-element arrangement, introduces the concept of “best estimate of selling price” for determining the selling price of a deliverable, established a hierarchy of evidence for determining the selling price of a deliverable, requires use of the relative selling price method and prohibits use of the residual method to allocate arrangement consideration among units of accounting, and expands the disclosure requirements for all multiple-element arrangements within the scope of ASC 605-25. The adoption of this pronouncement had no effect on our consolidated financial statements.

In January 2010, the FASB issued updated accounting guidance related to fair value measurements and disclosures which amends and clarifies existing disclosure requirements. This updated accounting guidance requires new disclosures related to amounts transferred into and out of Level 1 and 2 fair value measurements as well as separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements. This guidance also clarifies existing fair value disclosure requirements related to the level of disaggregation and the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. This guidance is effective for interim and annual periods beginning after December 15, 2009, except for the separate disclosures of purchases, sales, issuances, and settlements related to amounts reported as Level 3 fair value measurements, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance did not have a material impact on our consolidated financial statements.

ASU 2009-14 amends the scope of ASC 985, Software, 605, “Revenue Recognition” (formerly AICPA Statement of Position 97-2, Software Revenue Recognition), to exclude certain tangible products and related deliverables that contain embedded software from the scope of this guidance. Instead, the excluded products and related deliverables must be evaluated for separation, measurement, and allocation under the guidance of ASC 605-25, as amended by ASU 2009-13. The amended guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. An entity may elect retrospective application to all revenue arrangements for all periods presented using the guidance in ASC 250, Accounting Changes and Error Corrections.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements

Entities must adopt the amendments resulting from both of these ASUs in the same period using the same transition method, where applicable. Management is reviewing ASU 2009-13 and ASU 2009-14 for applicability to the Company’s revenue recognition policies. The Company will adopt this standard for our fiscal year beginning January 1, 2011.

In February 2010, the FASB issued an additional accounting pronouncement that amended certain requirements for subsequent events (FASB ASC Topic 855), which requires an SEC filer or a conduit bond obligor to evaluate subsequent events through the date the financial statements are available to be issued and removes the previous requirement to disclose the date through which subsequent events have been evaluated. The amended amendments were effective on issuance of the final pronouncement. The adoption of this pronouncement had no effect on our consolidated financial statements.

ASU 2010-17 provides guidance on defining a milestone under Topic 605 and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. Consideration that is contingent on achievement of a milestone in its entirety may be recognized as revenue in the period in which the milestone is achieved only if the milestone is judged to meet certain criteria to be considered substantive. Milestones should be considered substantive in their entirety and may not be bifurcated. An arrangement may contain both substantive and nonsubstantive milestones that should be evaluated individually. The Company will adopt this standard for our fiscal year beginning January 1, 2011.

NOTE 3: CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents and accounts receivable. The Company places its cash equivalents with high credit-quality financial institutions and invests its excess cash primarily in certificates of deposit, treasury bills and money market instruments. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. From time to time these temporary cash investments may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at June 30, 2010 and December 31, 2009 was approximately $502,000 and $377,000, respectively. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company assesses the financial strength of its customers and maintains allowances for anticipated losses.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 4: UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts are summarized as follows:

	June 30, 2010			December 31, 2009
	(Unaudited)

Costs incurred on uncompleted contracts	$	1,265,714		$	1,504,137
Estimated earnings		1,464,696			2,429,770
		2,730,410			3,933,907
Billings to date		(1,682,737	)		(1,225,823	)
Cost and estimated earnings in excess of
billings on uncompleted contracts	$	1,047,673		$	2,708,084

NOTE 5: INVENTORIES

Inventories consist of:

	June 30, 2010		December 31, 2009
	(Unaudited)
Raw materials	$	1,866,017	$	1,848,620
Work-in-process		2,527,366		2,388,115
Finished goods		220,186		181,403

	$	4,613,569	$	4,418,138

NOTE 6: FAIR VALUE MEASUREMENTS

On January 1, 2009, we implemented new accounting guidance, ASC 820, Fair Value Measurements and Disclosures, on a prospective basis for our non-financial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. The new guidance requires that we determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy and describes three levels of inputs that may be used to measure fair value as follows:

Level 1 inputs which include quoted prices in active markets for identical assets or liabilities.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 6: FAIR VALUE MEASUREMENTS (continued)

Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability, and Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following table summarizes, for each major category of assets and liabilities, the respective fair value and the classification by level of input within the fair value hierarchy:

	June 30, 2010								December 31, 2009
Description	Level (1)		Level (2)		Level (3)		Total		Level (1)		Level (2)		Level (3)		Total
Assets:
Cash equivalents	$	1,605,442	$	---	$	---	$	1,605,442	$	1,795,622	$	---	$	---	$	1,795,622

Total Liabilities	$	---	$	---	$	---	$	---	$	---	$	---	$	---	$	---

NOTE 7: BAD DEBTS

Accounts receivable are presented net of an allowance for doubtful accounts of $54,795 and $57,116 as of June 30, 2010 and December 31, 2009, 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 future economic conditions.

NOTE 8: LONG-TERM DEBT

On April 22, 2008, the Company entered into a three year Modified and Restated Revolving Credit Agreement with Capital One, N.A. (the “Bank”) as successor to North Fork Bank, pursuant to which the Bank has agreed to make revolving loans to the Company of up to $5 million until May 1, 2011, at which time it will be subject to renewal. Interest on the unpaid principal balance on this facility accrues at either (i) the LIBOR rate plus 2.00% or (ii) the Bank’s prime rate minus .25%. This agreement contains certain financial and other covenants. Borrowings are collateralized by the Company’s assets.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 8: LONG-TERM DEBT (continued)

The amount available under this agreement was $4,702,000 as of June 30, 2010 as the Company has utilized approximately $298,000 of this facility in the form of equipment term loans. As of June 30, 2010, the Company was in full compliance with the terms of the Revolving Credit Agreement.

NOTE 9: STOCK-BASED COMPENSATION EXPENSE

During the three and six months ended June 30, 2010 and June 30, 2009, as per ASC 718, Stock Compensation, the Company recorded as part of selling and general administrative expense, approximately $44,000 and $88,000 and $43,000 and $87,000 respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments.

NOTE 10: INCOME TAXES

The income tax (benefit) provision for income taxes includes the following:

	Six Months Ended June 30,
	2010			2009

Current:
Federal	$	17,151		$	8,845
State		9,300			6,967
Total Current Provision		26,451			15,812
Deferred:
Federal	$	(47,257	)	$	(75,641	)
State		(23,120	)		(40,986	)
Total deferred (benefit)		(70,377	)		(116,627	)
Income tax (benefit)	$	(43,926	)	$	(100,815	)

In 2006, the Company was required to change its accounting method for tax purposes from the completed contract method to the percentage of completion method. Under the provisions of the Internal Revenue Code, the Company elected to report the additional deferred revenue, for tax reporting purposes, of approximately $2,000,000, or approximately $500,000 per year, ratably over the four year period ended December 31, 2009.

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed. Adjustments for differences between our tax provisions and tax returns are recorded when identified, which is generally in the third or fourth quarter of our subsequent year.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 11: EARNINGS PER SHARE

As per ASC 260, basic earnings per share are computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Stock options to purchase 442,550 shares of common stock were outstanding and 351,775 were exercisable during the three and six months ended June 30, 2010. Stock options to purchase 416,000 shares were outstanding and 301,000 were exercisable during the three and six months ended June 30, 2009. During the six months ended June 30, 2009, potentially dilutive shares of 42,700 were not included in the computation of diluted earnings per share because their effects would have been antidilutive. These securities may be dilutive to the earnings per share calculation in the future.

The dilutive potential common shares on warrants and options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.

The following table sets forth our computation of basic and diluted net income per share:

	Three months ending June 30,				Six months ended June 30,
	2010		2009		2010		2009
Numerator:
Net income (loss) used in calculation of basic
and diluted earnings per share	$	103,864	$	10,550	$	13,435	$	(75,798	)
Denominator:
Weighted-average common shares outstanding
Used in calculation of basic earnings per share		4,778,325		4,761,100		4,776,950		4,760,203
Effect of dilutive securities		34,682		47,612		40,666		---
Weighted-average common shares used in calculation of diluted earnings per share
		4,813,007		4,808,712		4,817,616		4,760,203
Net income (loss) per share:
Basic and diluted	$	0.02	$	0.00	$	0.00	$	(0.02	)

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 12: LEGAL PROCEEDINGS

In June 2008, the Company commenced an action against a third party in the Supreme Court of the State of New York, Suffolk County. By that action, the Company sought to recover approximately $154,000 for manufacturing engineering services and system fabrication; spare parts; and reimbursable expenses. Subsequently, the defendant removed the action to the United States District court for the Eastern District of New York. Once in Federal Court, the defendant asserted several counterclaims. A settlement was agreed to in late 2009 and executed in February 2010.

On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp and Mizuho Corporate Bank in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages against Taiwan Glass. Industrial Corp. ($5,816,000) for breach of contract and against Mizuho Corporate Bank ($3,564,000) for failing to pay the second installment on a letter of credit issued by Mizuho Corporate Bank.

The Company believes that Taiwan Glass Industrial Corp. has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company and that Mizuho Corporate Bank was obligated to make the payment which it has failed and refused to make to the Company. Taiwan Glass Industrial Corp. and Mizuho Corporate Bank have each interposed an answer denying these allegations and Taiwan Glass Industrial Corp. has interposed counterclaims seeking unspecified monetary damages. There is a pending motion for summary judgment filed by Mizhuo Corporate Bank seeking dismissal of the claim as against it. The Company is vigorously pursuing its claims against both defendants and defending against the counterclaims interposed by Taiwan Glass Industrial Corp.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 13 SEGMENT REPORTING

The Company operates through (3) segments, CVD, SDC and Conceptronic. The CVD division is utilized for silicon, silicon germanium, silicon carbide and gallium arsenide processes. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York. Conceptronic is a manufacturer of Surface Mount Technology equipment. The respective accounting policies of CVD, SDC and Conceptronic are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.

Three Months Ended June 30,
2010	CVD		SDC			Conceptronic			Eliminations *			Consolidated
Revenue	$	2,664,359	$	459,339		$	458,365		$	(201,275	)	$	3,380,788
Pretax income/(loss)		242,845		(249,589	)		80,164						73,420
2009
Revenue	$	2,857,096	$	612,353		$	242,512		$	(269,504	)	$	3,442,457
Pretax income/(loss)		148,263		(131,045	)		(29,269	)					(12,051	)

Six Months Ended June 30,
2010	CVD			SDC			Conceptronic			Eliminations *			Consolidated
Revenue	$	5,115,807		$	1,857,697		$	667,874		$	(538,741	)	$	7,102,637
Pretax (loss)/income		(75,888	)		(75,663	)		121,060						( 30,491	)
2009
Revenue	$	5,596,666		$	1,727,688		$	437,748		$	(334,904	)	$	7,427,198
Pretax income/(loss)		114,389			(133,274	)		(157,728	)					(176,613	)

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 our actual results, performance, or achievements 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 our existing and potential future product lines of business; our ability to obtain financing on acceptable terms if and when needed; uncertainty as to our 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. We assume 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 Six Months Ended June 30, 2010 vs. Three and Six Months Ended June 30, 2009

Revenue

Revenue for the three and six months ended June 30, 2010 was approximately $3,381,000 and $7,103,000, respectively, as compared to $3,442,000 and $7,427,000, respectively, for the three and six months ended June 30, 2009, a decrease of 1.8% and 4.4%, respectively.

Gross Profit

We generated gross profits of approximately $1,223,000 and $2,329,000, respectively, for the three and six month periods ended June 30, 2010 resulting in gross profit margins of 36.2 % and 32.8%, respectively, as compared to gross profits of approximately $1,030,000 and $2,057,000, respectively, for the three and six month periods ended June 30, 2009 with gross profit margins of 29.9% and 27.7%, respectively. The increase in gross margins during the three and six months ended June 30, 2010 was primarily attributable to management’s efforts to streamline our engineering and production personnel in order to achieve greater efficiencies.

Selling, General and Administrative Expenses

Selling and shipping expenses for the three and six months ended June 30, 2010 were approximately $215,000 and $427,000, respectively. This represented increases of approximately 10.3% and 18.0%, respectively, as compared to selling and shipping expenses of $195,000 and $362,000, respectively, for the three and six months ended June 30, 2009. The increases for these respective periods can be primarily attributed to the allocation of certain costs.

We incurred approximately $882,000 and $1,830,000 of general and administrative expenses respectively, during the three and six months ended June 30, 2010, compared to approximately $810,000 and $1,780,000, respectively, incurred during the three and six months ended June 30, 2009. This represents increases of $72,000 or 8.9% and $50,000 or 2.8%, respectively, for the current periods compared to the same respective periods a year earlier. The increase can be primarily attributed to additional legal fees in connection with pending litigation and allocations of certain costs.

Operating Income

As a result of the foregoing factors, operating income was approximately $126,000 for the three months ended June 30, 2010, which represents an increase of 384.6% compared to operating income of $26,000 for the three month period ended June 30, 2009. We achieved operating income of approximately $73,000 for the six months ended June 30, 2010 compared to an operating loss of approximately $84,000 for the six months ended June 30, 2009.

Interest Expense, Net

Interest income for the three and six months ended June 30, 2010 was approximately $2,000 and $4,000, respectively, compared to approximately $11,000 and $23,000 for the three and six months ended June 30, 2009. This decrease is a result of investing cash in more conservative investments such as short-term treasury bonds and certificates of deposit, with lower returns than we previously received on money market funds. Interest expense for the three and six months ended June 30, 2010 was $58,000 and $116,000 respectively, compared to approximately $62,000 and $127,000 for the three and six months ended June 30, 2009. The primary source of this interest expense is from the mortgages on the three buildings that we own.

Other Income

Other income during the three and six months ended June 30, 2010 was approximately $3,000 and $9,000 respectively, compared to approximately $13,000 and $12,000, respectively, for the three and six months ended June 30, 2009. Other income is primarily comprised of the cash received by the Company when it sells excess scrap metal periodically throughout the year.

Income Taxes

For the six months ended June 30, 2010, we recorded a current income tax expense of approximately $26,000 that was reduced by the recognition of deferred tax benefits of approximately $70,000 which provided a net tax benefit for that period, compared to a current income tax expense of approximately $16,000 that was reduced by the recognition of the deferred tax benefits of approximately $117,000, which provided a net tax benefit for the six months ended June 30, 2009.

Net Income/(Loss)

We reported net income of approximately $104,000 and $13,000, respectively, for the three and six month periods ended June 30, 2010 compared to net income of approximately $11,000 and a net loss of approximately $76,000 for the three and six months ended June 30, 2009. The primary explanation for the increased income can be attributed to the increased gross profits achieved in the current periods as a result of the streamlining of personnel to achieve greater efficiencies.

Liquidity and Capital Resources

As of June 30, 2010, we had aggregate working capital of approximately $10,483,000 compared to $10,563,000 of working capital at December 31, 2009. We had cash and cash equivalents of $4,742,000 compared to $3,120,000 at December 31, 2009, an increase of approximately $1,622,000. This increase in cash and cash equivalents was primarily the result of the timing of both shipments and customer payments on outstanding balances.

Accounts receivable, net as of June 30, 2010 was $1,622,000 compared to $2,130,000 as of December 31, 2009. This decrease is attributable to the timing of shipments and customer payments on balances outstanding.

As of June 30, 2010 our backlog was approximately $4,664,000, an increase of $2,115,000, or 83.0%, compared to $2,549,000 at December 31, 2009. The increase is an indication that the delays and reductions in capital expenditures that we have been experiencing due to unfavorable economic conditions is subsiding. The increase in backlog is a direct result of the increase in orders we have received in 2010. Timing for completion of the backlog varies depending on the product mix and can be as long as two years. Included in the backlog are all accepted purchase orders with the exception of those that are included in percentage-of-completion. Order backlog is usually a reasonable management tool to indicate expected revenues and projected profits, however, it does not provide an assurance of future achievement or profits as order cancellations or delays are possible.

We believe that based on our historical growth rate, our cash and cash equivalents position at June 30, 2010 and available credit facilities, our funds at June 30, 2010 will be sufficient to meet our working capital and investment requirements for the next twelve months.

Inflation

Inflation has not materially impacted the operations of our Company.

Off-Balance Sheet Arrangements.

We have no off-balance sheet arrangements at this time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).

Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer, along with our management, have determined that as of the end of the period covered by the Report on Form 10-Q, the disclosure controls and procedures were and are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter 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.

CVD EQUIPMENT CORPORATION

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

In June 2008, we commenced an action against a third party in the Supreme Court of the State of New York, Suffolk County. By that action, we sought to recover $154,161 for manufacturing and engineering services and system fabrication; spare parts; and reimbursable expenses. Subsequently, the defendant removed the action to the United States District Court for the Eastern District of New York. Once in Federal Court, the customer asserted various counterclaims. A settlement of the actions was agreed to in late 2009 and executed in February 2010.

On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp and Mizuho Corporate Bank in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages against Taiwan Glass Industrial Corp. ($5,816,000) for breach of contract and against Mizuho Corporate Bank ($3,564,000) for failing to pay the second installment on a letter of credit issued by Mizuho Corporate Bank.

The Company believes that Taiwan Glass Industrial Corp. has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company and that Mizuho Corporate Bank was obligated to make the payment which it has failed and refused to make to the Company. Taiwan Glass Industrial Corp. and Mizuho Corporate Bank have each interposed an answer denying these allegations and Taiwan Glass Industrial Corp. has interposed counterclaims seeking unspecified monetary damages. There is a pending motion for summary judgment filed by Mizuho Corporate Bank seeking dismissal of the claim as against it. The Company is vigorously pursuing its claims against both defendants and defending against the counterclaims interposed by Taiwan Glass Industrial Corp.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits and Reports Filed on Form 8-K

(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

SIGNATURE

Pursuant to the requirements 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 16th day of August 2010.

	CVD EQUIPMENT CORPORATION

	By: /s/Leonard A. Rosenbaum
	Leonard A. Rosenbaum
	Chief Executive Officer
	(Principal Executive Officer)

	By: /s/ Glen R. Charles
	Glen R. Charles
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

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 *

* Filed herewith