UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 10-KSB/A
Amendment No. 1
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the year ended December 31, 2004
[ ] 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 (I.R.S. Employer
of Incorporation or Organization) 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)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par value $0.01
(Title of class)
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 [ ]
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
EXPLANATORY NOTE
This amendment is being filed for the sole purpose of correcting the
inadvertent typographical error contained in the previously-filed
independent audit report for the year ended December 31, 2003. No
changes to the financial statements are being made in this amendment.
The third paragraph of the Independent Audit Report for the year
ended December 31, 2003 filed in the 2004 10-KSB on page F-2
previously read:
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of CVD Equipment Corporation and Subsidiary as of December 31, 2003,
in conformity with accounting principles generally accepted in the
United States of America.
The third paragraph of the Independent Audit Report for the year ended
December 31, 2003 filed in this 2004 10-KSB/A on page F-2 presently
reads as follows:
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of CVD Equipment Corporation and its subsidiary as
of December 31, 2003 and the consolidated results of their operations
and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of
America.
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Report of Independent Registered Public Accounting Firm ........ F1
Independent Auditor's Report .................. F2
Financial Statements:
Consolidated Balance Sheets at December 31, 2004 and 2003 ...... F3
Consolidated Statements of Operations for the years ended
December 31, 2004 and 2003 .................. F4
Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 2004 and 2003 .................. F5
Consolidated Statements of Cash Flows for the years ended
December 31, 2004 and 2003 .................. F6
Notes to Consolidated Financial Statements .................. F7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
CVD Equipment Corporation
Ronkonkoma, New York
We have audited the accompanying consolidated balance sheet of CVD
Equipment Corporation and its subsidiary as of December 31, 2004,
and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of CVD Equipment Corporation and its subsidiary
as of December 31, 2004, and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
February 25, 2005
F-2
INDEPENDENT AUDIT REPORT
------------------------
To the Board of Directors and Stockholders
CVD Equipment Corporation
Ronkonkoma, NY
We have audited the accompanying consolidated balance sheet of CVD
Equipment Corporation and Subsidiary (the "Company") as of December
31, 2003, and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of CVD Equipment Corporation and its subsidiary
as of December 31, 2003 and the consolidated results of their
operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the
United States of America.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
Hauppauge, New York
February 20, 2004
F-3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 2004 and 2003
2004 2003
------------- -------------
ASSETS
Current Assets
Cash and cash equivalents $ 171,463 $ 321,490
Accounts receivable, net 2,375,257 1,819,744
Cost and estimated earnings in excess of billings
on uncompleted contracts 1,110,362 575,734
Inventories 1,823,453 1,425,851
Other current assets 110,743 74,247
------------- -------------
Total Current Assets 5,591,278 4,217,066
Property, plant and equipment, net 5,153,017 5,400,032
Deferred income taxes 300,743 440,362
Other assets 398,587 144,458
Intangible assets, net 109,558 122,977
------------- -------------
Total Assets $ 11,553,183 $ 10,324,895
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 213,394 $ 177,381
Short-term notes payable 850,000 -
Accounts payable 725,706 520,525
Accrued expenses 584,443 426,838
Accrued professional fees - related party 41,626 40,578
Customer Deposits 298,152 20,595
Billings in excess of costs on uncompleted contracts - 174,068
------------- -------------
Total Current Liabilities 2,713,321 1,359,985
Long-term Debt, net of current portion 3,140,628 3,336,400
Commitments and Contingencies - -
------------- -------------
Total Liabilities $ 5,853,949 $ 4,696,385
------------- -------------
Stockholders' Equity:
Common stock - $0.01 par value -10,000,000 shares authorized;
3,039,100 shares issued & outstanding
at December 31, 2004 and 2003 30,391 30,391
Additional paid-in capital 2,902,149 2,902,149
Retained earnings 2,766,694 2,695,970
------------- -------------
Total Stockholders' Equity 5,699,234 5,628,510
------------- -------------
Total Liabilities and Stockholders' Equity $ 11,553,183 $ 10,324,895
============= =============
See Notes to Consolidated Financial Statements
F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 2004 and 2003
2004 2003
------------- -------------
Revenue
Revenue on completed contracts $ 7,647,369 $ 9,065,679
Revenue on uncompleted contracts 2,226,223 722,260
------------- -------------
9,873,592 9,787,939
------------- -------------
Costs of revenue
Cost on completed contracts 5,406,889 7,180,226
Cost on uncompleted contracts 1,142,057 303,771
------------- -------------
6,548,946 7,483,997
------------- -------------
Gross profit 3,324,646 2,303,942
------------- -------------
Operating expenses
Selling and shipping 691,281 740,266
General and administrative 2,225,250 2,123,603
Related party - professional fees 26,464 40,578
------------- -------------
Total operating expenses 2,942,995 2,904,447
Operating income (loss) 381,651 (600,505)
------------- -------------
Other income (expense)
Interest income 752 1,243
Interest expense (212,547) (208,944)
Other income 26,001 310,042
------------- -------------
Total other (expense) income, net (185,794) 102,341
------------- -------------
Income (loss) before income tax (expense) benefit 195,857 (498,164)
Income tax (expense) benefit (125,133) 161,214
------------- -------------
Net income (loss) $ 70,724 $ (336,950)
============= =============
Basic income (loss) per common share $ 0.02 $ (0.11)
Diluted income (loss)per common share $ 0.02 $ (0.11)
Weighted average common shares outstanding
basic income per share 3,039,100 3,039,100
Weighted average common shares outstanding
diluted income per share 3,053,494 3,039,100
See Notes to Consolidated Financial Statements
F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholder's' Equity
Years ended December 31, 2004 and 2003
Additional Total
Common Stock Paid -In Retained Shareholder's
Shares Amount Capital Earnings Equity
-------------------------- ------------- ------------- --------------
Balance - December 31, 2002 3,039,100 $ 30,391 $ 2,902,149 $ 3,032,920 $ 5,965,460
Net loss (336,950) (336,950)
Balance - December 31, 2003 3,039,100 30,391 2,902,149 2,695,970 5,628,510
Net income 70,724 70,724
Balance - December 31, 2004 3,039,100 $ 30,391 $ 2,902,149 $ 2,766,694 $ 5,699,234
See Notes to Consolidated Financial Statements
F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 2004 and 2003
2004 2003
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 70,724 $ (336,950)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating activities:
Depreciation and amortization 356,884 351,579
Deferred tax (benefit) provision 139,619 (96,288)
Bad debt provision 4,430 1,241
Changes in operating assets and liabilities
Accounts receivable (559,942) 31,808
Cost in excess of billings on uncompleted contracts (534,628) 207,912
Inventory (397,602) 597,636
Other current assets (36,496) 119,985
Other assets (302,694) (45,902)
Accounts payable 205,181 (417,529)
Accrued expenses 158,655 130,712
Customer Deposits 277,557 20,595
Billing in excess of costs on uncompleted contracts (174,068) 27,681
------------- -------------
Net cash (used in) provided by operating activities (792,380) 592,480
------------- -------------
Cash flows from investing activities:
Capital expenditures (47,886) (67,403)
------------- -------------
Net cash used in investing activities (47,886) (67,403)
------------- -------------
Cash flows from financing activities
Proceeds of short-term borrowings 1,425,000 1,024,000
Payments of short-term borrowings (575,000) (1,374,000)
Proceeds of long-term debt 26,460 -
Payments of long-term debt (186,221) (177,124)
------------- -------------
Net cash provided by (used in) financing activities 690,239 (527,124)
------------- -------------
Net decrease in cash and cash equivalents (150,027) (2,047)
Cash and cash equivalents at beginning of year 321,490 323,537
------------- -------------
Cash and cash equivalents at end of year $ 171,463 $ 321,490
============= =============
See Notes to Consolidated Financial Statements
F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 1 - Business Description
CVD Equipment Corporation and Subsidiary (the "Company"), a New
York corporation, was organized and commenced operations in
October 1982. Its principal business activities include the
manufacturing of chemical vapor deposition equipment, customized
gas control systems and a line of furnaces all of which are used
primarily to produce semiconductors and other electronic
components. The Company engages in business throughout the
United States and the world.
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, CVD Materials Corporation
as of December 31, 2004 and 2003. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. Estimates are used when accounting for certain items such
as long-term contracts, allowance for doubtful accounts, depreciation
and amortization , taxes and 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.
F-8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of
amounts billed.
The liability, "Billings in excess of costs on uncompleted
contracts," represents amounts billed in excess of revenues earned.
Inventories
Inventories are valued at the lower of cost (determined on the first-
in, first-out method) or market.
Reclassifications
Certain items have been reclassified in the 2003 financial statements
to conform to the 2004 presentation. These reclassifications have no
effect on the net (loss) previously reported.
Income Taxes
Deferred tax assets and liabilities are determined based on the
estimated future tax effects of temporary differences between the
financial statements and tax bases of assets and liabilities, as
measured by the current enacted tax rates. Deferred tax expense
(benefit) is the result of changes in the deferred tax assets and
liabilities. A valuation allowance is not considered necessary by
management since it is more likely than not that the deferred tax
asset will be realized. An allowance may be necessary in the future
based on changes in economic conditions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Expenditures for maintenance and
repairs are charged against operations as incurred. The cost of
certain labor and overhead which is expected to benefit future
periods, has been capitalized and amortized. Depreciation and
amortization are computed by the straight-line method for financial
statement purposed over the following estimated useful lives:
Estimated
Useful Life
------------
Buildings 39 years
Building improvements 39 years
Machinery and equipment 8 years
Capitalized labor and overhead 3 years
F-9
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Estimated
Useful Life
------------
Furniture and fixtures 8 years
Computer equipment 5 years
Transportation equipment 3 years
Software Capitalization
The Company follows Statement of Position 98-1, Accounting for Costs
of Computer Software Developed or Obtained for Internal Use. This
standard requires certain direct development costs associated with
internal-use software to be capitalized including external direct
costs of material and services and payroll costs for employees
devoting time to the software projects. These costs totaled $235,217
and $55,408 for the years ended December 31, 2004 and 2003
respectively and are included in Other Assets. All software is
amortized straight-line over its useful life of three years.
Amortization expense related to software totaled $40,299 and $31,111
for the years ended December 31, 2004 and 2003, respectively.
Intangible Assets
The cost of intangible assets is being amortized on a straight-line
basis over their useful lives ranging from 5 to 15 years.
Amortization expense recorded by the Company in 2004 and 2003 totaled
$13,419 and $13,416 respectively.
Bad Debts
Accounts receivables are presented net of an allowance for doubtful
accounts of $23,728 and $19,298 as of December 31, 2004 and 2003,
respectively. The allowance is based on prior experience and
management's evaluation of the collectibility of accounts receivable.
Management believes the allowance is adequate. However, future
estimates may change based on changes in economic conditions.
Product Warranty
The Company records warranty costs as incurred and does not provide
for possible future costs. Management estimates such costs not to be
material based on prior experience. However, it is reasonably
possible that this estimate may change in the future.
F-10
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Advertising Costs
The company expenses advertising costs which are not expected to
benefit future periods. Advertising expenses included in selling and
shipping expenses were $21,765 and $16,143 in 2004 and 2003,
respectively. The Company capitalizes certain advertising costs
included in Other Assets, totaling $63,849 to develop a web site and
to print brochures expected to be used in the future. Capitalized
advertising costs are amortized straight-line over three years.
Amortization expense related to advertising costs totaled $390 and
$1,428 in 2004 and 2003, respectively. These costs have been fully
amortized as of December 31, 2004.
Interest Capitalization
The Company follows the policy of capitalizing interest as a
component of the cost of property, plant and equipment constructed
for its own use. The amount is included in building improvements.
During the years ended December 31, 2004 and 2003, the Company did
not capitalize any interest.
Income Per Share
Basic net income (loss) per common share is computed by dividing the
net income (loss) by the weighted average number of shares of common
stock outstanding during each period. Diluted income per share for
2004 reflects the dilutive effect of the assumed exercise of options.
Potentially dilutive shares related to the exercise of stock options
were excluded from the diluted loss per share calculation for the
year ended December 31, 2003, because their effects would have been
antidilutive.
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash
equivalents, and accounts receivable. The Company places its cash
equivalents with high credit-quality financial institutions and
invests its excess cash primarily in money market instruments. The
Company has established guidelines relative to credit ratings and
maturities that seek to maintain safety and liquidity. The Company
sells products and services to various companies across several
industries in the ordinary course of business. The Company routinely
assesses the financial strength of its customers and maintains
allowances for anticipated losses. Generally, the Company does not
require collateral or other security to support customer receivables.
See Note 14 for concentration details.
F-11
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Fair value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, other assets, accounts payable and
accrued expenses, approximate fair value due to the relatively short
maturity of these instruments. The fair value of securities
available-for-sale is estimated based on quoted market prices. The
carrying value of long-term debt approximates fair value based on
borrowing rates currently available for loans with similar terms and
maturities.
Stock-Based Compensation
The Company accounts for stock-based employee compensation under
Accounting Principles Board ("APB") Opinion No. 25. "Accounting for
Stock Issued to Employees", and related interpretations. The Company
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" and SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", which was released in
December 2002 as an amendment of SFAS No. 123. No stock-based
employee compensation cost is reflected in net income (loss), as all
options granted under the plans had an exercise price at least equal
to the market value of the underlying common stock on the date of
grant.
Shipping and Handling
It is the Company's policy to include freight in total sales. The
amount included in sales was $18,304 and $48,288 for the years ended
December 31, 2004 and 2003, respectively. Included in selling and
shipping is $58,629 and $91,516 for shipping and handling costs for
2004 and 2003, respectively.
Recently Issued Accounting Standards
In November 2004, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS NO. 151"), "Inventory Costs-an amendment to ARB No.43,"
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. This statement provides guidance
to clarify the accounting for abnormal amounts of idle facility
expense, freight handling costs, and wasted material (spoilage),
among other production costs. Provisions of ARB No. 43 stated
that under some circumstances, items such as idle facility
expense, excessive spoilage and other costs may be so abnormal
as to require treatment as current period charges. This
statement requires that those items be recognized as current
period charges regardless of whether they meet the criterion of
"so abnormal." In addition, SFAS 151 requires that allocation of
fixed production overheads to the costs of conversion be based
on the normal capacity of the production facilities. Adoption of
the Statement is not expected to have a material impact on the
financial statements of the Company.
F-12
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
In November 2004, the FASB issued SFAS No. 152 "Accounting for
Real Estate Time-Sharing Transactions-An amendment of SFAS NO.
66 and 67. This Statement amends SFAS No. 66. "Accounting for
Sales of Real Estate," to reference the financial accounting and
reporting guidance for real estate time-sharing transactions
that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This
Statement also amends SFAS No. 67, "Accounting for Costs and
Initial Rental Operations of Real Estate Projects," to state the
guidance for (a) incidental costs and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is
subject to guidance in SOP 04-2, effective for financial
statements with fiscal years beginning after June 15, 2005.
Adoption of this Statement is not expected to have a material
impact on the financial statements of the Company.
In November 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets-an amendment to APB No. 29," effective for
nonmonetary asset exchanges occurring in fiscal years beginning
after June 15, 2005. This Statement amends Opinion No. 29 to
eliminate the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if
the future cash flows of the entity are expected to change
significantly as a result of the exchange. Adoption of this
Statement is not expected to have a material impact on the
financial statements of the Company.
In December 2004, the FASB issued Statement of Financial Accounting
Standard No. 123R (SFAS 123R), "Share-Based Payment." Under previous
practice, the reporting entity could account for share-based payment
under the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and disclose share-based
compensation as if accounted for under the provisions of Statement of
Financial Accounting Standard No. 123 (SFAS No. 123), " Accounting
for Stock-Based Compensation." Under the provisions of SFAS No. 123R,
a public entity is required to measure the cost of employee services
received in exchange for an award of equity instruments based on the
grant-date fair value of the award. That cost is recognized over the
period during which an employee is required to provide service in
exchange for the award.
The Company expects to adopt SFAS No. 123R effective with the
beginning of the quarter ended March 31, 2006. Adoption of the
standard is currently expected to reduce future earnings by an amount
consistent with the reductions shown in recent pro forma disclosures
provided under the provisions of SFAS No. 123. Application of this
pronouncement requires significant judgement regarding the
assumptions used in the selected option pricing model, including
stock price volatility and employee exercise behavior. Most of these
inputs are either highly dependent on the current economic
environment at the date of grant or forward-looking over the expected
term of the award. As a result, the actual impact of adoption on
future earnings could differ significantly from our current estimate.
F-13
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 3 - Supplemental Cash Flow Information
During 2003, options to purchase 87,500 common shares were issued to
certain employees and members of the board of directors. The option
price for all options granted in 2003 was equal to or greater than
the fair market value per share on the date the option was granted
and no compensation cost was recognized.
2004 2003
------------ ------------
Cash paid during the year for:
Income taxes, net of refunds $ 3,256 $ (61,621)
Interest 212,547 208,944
Note 4 - Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted contracts are
summarized as follows:
2004 2003
------------ ------------
Costs incurred on uncompleted contracts $ 1,142,057 $ 303,772
Estimated earnings 1,084,166 951,894
------------ ------------
2,226,223 1,255,666
Billings to date (1,115,861) (854,000)
------------ ------------
$ 1,110,362 $ 401,666
============ ============
Included in accompanying balance sheets
Under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,110,362 $ 575,734
Billings in excess of costs and estimated
earnings on uncompleted contracts --- (174,068)
------------ ------------
$ 1,110,362 $ 401,666
------------ ------------
F-14
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 5 - Inventory
December 31,
2004 2003
------------ ------------
Raw materials $ 628,934 $ 777,893
Work-in-process 686,325 108,350
Finished goods 508,194 539,608
------------ ------------
$ 1,823,453 $ 1,425,851
------------ ------------
Note 6 - Property, Plant and Equipment
Major classes of property, plant and equipment consist of the
following:
2004 2003
------------ ------------
Land $ 760,000 $ 760,000
Buildings 2,815,839 2,815,839
Building improvements 1,378,552 1,372,505
Machinery and equipment 1,246,470 1,222,587
Capitalized labor and overhead 216,602 216,602
Furniture and fixtures 224,542 214,903
Computer equipment 201,377 193,063
Transportation equipment 74,709 74,709
------------ ------------
Totals at Cost 6,918,091 6,870,208
Accumulated depreciation and amortization (1,765,074) (1,470,176)
------------ ------------
$ 5,153,017 $ 5,400,032
Depreciation and amortization expense $ 294,901 $ 297,747
------------ ------------
F-15
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 7 - Intangible Assets
Intangible assets are summarized as follows:
December 31, 2004
Weighted Average Accumulated Net of Accumulated
Intangible Asset Amortization Period Cost Amortization Amortization
----------------- ------------------- ---------- ------------ ------------------
Licensing Agreement 5 10,000 10,000 0
Patents & Copyrights 14 32,019 12,021 19,998
Intellectual Property 15 100,000 23,335 76,665
Other 5 21,492 8,597 12,895
Totals 13 163,511 53,953 109,558
December 31, 2003
Weighted Average Accumulated Net of Accumulated
Intangible Asset Amortization Period Cost Amortization Amortization
----------------- ------------------- ---------- ------------ ------------------
Licensing Agreement 5 10,000 10,000 0
Patents & Copyrights 14 32,019 9,568 22,451
Intellectual Property 15 100,000 16,668 83,332
Other 5 21,492 4,298 17,194
Totals 13 163,511 40,534 122,977
The estimated amortization expense related to intangible assets
for each of the five succeeding fiscal years and thereafter as
of December 31, 2004 is as follows:
Year Ended
December 31,
2005 $ 13,417
2006 13,417
2007 13,417
2008 9,119
2009 7,619
Thereafter 52,569
Total $ 109,558
F-16
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 8 - Financing Arrangements
The Company has a line of credit with a bank which allows the
Company to borrow up to $1,000,000 until June 1, 2005. Interest
is payable on any unpaid principal balance at the bank's prime
rate plus 3/4 of 1%. As of December 31, 2004 and 2003 $850,000 and
$0 was outstanding on this facility. The prime rate was 5.25%
and 4.0% at December 31, 2004 and 2003 respectively. The
weighted average interest rate on the Company's short-term
borrowings for 2004 and 2003 was 5.46% and 4.80% respectively.
Note 9 - Long-term Debt
Long-term debt consists of the following:
2004 2003
------------- -------------
KIDCO REALTY CORP.
$900,000 purchase money mortgage secured by
real property, building and improvements in
Saugerties, New York; payable in equal monthly
installments of $5,988 including interest at 7%
per annum; entire principal comes due in
May 2009. $ 838,645 $ 851,308
GENERAL ELECTRIC CAPITAL CORPORATION
$2,700,000 mortgage payable secured by real
property, building and improvements in
Ronkonkoma, New York; payable in equal
monthly installments of $22,285, including
interest at 5.67% per annum; pursuant to an
installment sale agreement with the Town of
Islip Industrial Development Agency; final
payment due March 2017. 2,357,668 2,476,851
NORTH FORK BANK
Sixty month installment note; payable in
monthly installments of $4,922, including
interest at 7.74% per annum; final payment
due October 2007; collateralized by
equipment costing $244,239. 140,087 185,622
F-17
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
2004 2003
------------- -------------
KEY EQUIPMENT FINANCE
Twenty-four month installment note, payable
In monthly installments of $1,123, including
Interest at 1.9% per annum; final payment due
May 2006, collateralized by software
costing $26,460. 17,622 0
------------- -------------
3,354,022 3,513,781
Less: Current maturities 213,394 177,381
------------- -------------
$ 3,140,628 $ 3,336,400
------------- -------------
Future maturities of long-term debt as follows:
Year ended December 31, 2005 $ 213,394
Year ended December 31, 2006 217,204
Year ended December 31, 2007 207,088
Year ended December 31, 2008 179,394
Year ended December 31, 2009 950,276
Thereafter 1,586,666
-------------
$ 3,354,022
=============
Note 10 - Income per Share
The calculation of basic and diluted weighted average common
shares outstanding is as follows:
2004 2003
------------- -------------
Weighted average common shares outstanding
basic income per share 3,039,100 3,039,100
Effect of potential common share issuance:
Stock options 14,394 ---
------------- -------------
Weighted average common shares outstanding
Diluted income per share 3,053,494 3,039,100
============= =============
F-18
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Outstanding options to purchase 305,900 shares were not included
in the earnings per share calculation at December 31, 2004,
because the exercise price was higher than the market price.
Potentially dilutive shares related to the exercise of stock
options to purchase 365,400 shares were excluded from the
diluted loss per share calculation at December 31, 2003, because
their effects would have been antidilutive. These options could
potentially dilute earnings in the future.
Note 11 - Income Taxes
The provision (benefit) for income taxes includes the following:
2004 2003
------------- -------------
Current:
Federal $ --- $ (65,761)
State (14,486) 835
------------- -------------
Total Current Provision (Benefit) (14,486) (64,926)
Deferred:
Federal 85,638 (77,849)
State 53,981 (18,439)
------------- -------------
Total Deferred Provision (Benefit) 139,619 (96,288)
------------- -------------
$ 125,133 $ (161,214)
============= =============
The Company has New York State investment tax credit
carryforwards of $263,160 that may be offset against future
state tax liabilities through the year 2019 and other state tax
credits totaling $316,053 which may be carried forward
indefinitely. The Company accounts for investment tax credits
primarily by the flow-through method.
As of December 31, 2004, the Company had federal and state net
operating loss (NOL's) carryforwards totaling approximately
$625,000 and $342,000, respectively. These NOL's were incurred
in the 2003 tax year and may be used to offset taxable income in
future periods through 2023.
The Company also has capital loss carryforwards incurred in
prior periods totaling approximately $24,000 set to expire 2005.
The difference between the provision for income taxes at the
Company's effective income tax rate and the federal statutory
rate of 34% is as follows:
F-19
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
2004 2003
------------- -------------
Statutory rate 34% 34%
State taxes, net of federal benefits 7% 7%
Investment and other tax credits 24% (73%)
------------- -------------
Totals 65% (32%)
============= =============
The tax effects of temporary differences giving rise to
significant portions of deferred taxes are as follows:
2004 2003
------------- -------------
Allowance for doubtful accounts $ 9,320 $ 7,472
Inventory capitalization 67,353 39,618
Deferred revenue (425,860) (368,573)
Net operating loss 222,555 289,570
Depreciation and amortization (190,376) (157,462)
Investment tax credit 579,213 615,133
Vacation Accrual 28,963 14,604
Other 9,575 0
------------- -------------
Net deferred tax asset $ 300,743 $ 440,362
------------- -------------
Management believes the net deferred tax asset will more likely
than not be realized. In assessing the likelihood of
realization, management considers estimates of future taxable
income. However, it is at least reasonably possible that
management's estimate of future realization may change in the
near term.
Note 12 - Stock Option Plans
On June 15, 1989 the Company instituted a non-qualified stock
option plan (the "Plan"). In connection therewith, 700,000
shares of the Company's common stock are reserved for issuance
pursuant to options that may be granted under the Plan through
June 30, 2009. On June 3, 1996, the Company issued 84,000
options which expire ten years from the date of grant. None of
these options were exercisable until June 3, 1999. The option
price was less than the fair market value per share on the date
the 1996 options were granted. On April 15, 1998, 140,000
options were granted to employees under this plan. Options
granted in 1998 vest straight-line over a four-year period
following the date of grant and expire five years after the date
of grant. On July 16, 1999, 52,500 options were granted to
employees under this Plan. Options granted in 1999 vest
incrementally over a four-year period following the date of
grant and expire seven years after the date of grant. On
February 2, 2000, 242,000 options were granted to employees
under this plan.
F-20
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
On May 7, 2000 and August 8, 2000, a total of 80,000 options
were granted to employees. On October 26, 2000, 3,500 options
were granted to employees. All options vest over a four-year
period. All options granted in 2000 expire seven years after the
date of grant. The option price for options granted in 1999 and
2000 is an amount per share of not less than the fair market
value per share on the date the option is granted. On April 1,
2003, the Company granted 12,500 options to employees under this
plan which expire April 1, 2008, and on September 23, 2003
granted 75,000 options to directors which expire on September 23,
2010.
In July 2001, the shareholders approved a non-qualified stock
option plan covering key employees, officers, directors and
other persons that may be considered as service providers to the
Company. Options will be awarded by the Board of Directors or by
a committee appointed by the board. Under the plan, an aggregate
of 300,000 shares of Company common stock, $.01 par value, are
reserved for issuance or transfer upon the exercise of options
which are granted. Unless otherwise provided in the option
agreement, options granted under the plan shall become
exercisable in 25% installments commencing one year from the
anniversary date of the grant.
The purchase price of the common stock under each option shall
be no lower than the average bid price per share, calculated on
a monthly basis, that the common stock (as reported by AMEX)
traded during the calendar year immediately preceding the year
in which the option is granted. The stock options generally
expire five years after the date of grant. The stock option plan
shall terminate on July 22, 2011. No options have been granted
under the July 2001 plan.
A summary of stock option activity related to the Company's Plan is as follows:
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Period Period Period Outstanding Exercisable
----------- --------- --------- --------- ----------- -----------
Year ended December 31, 2003
Number of shares 396,650 87,500 -0- 118,750 365,400 196,290
Weighted average exercise price
per share $ 1.65 $ 1.75 $ -0- $ 1.59 $ 1.69 $ 1.66
Year ended December 31, 2004
Number of shares 365,400 -0- -0- 10,000 355,400 296,650
Weighted average exercise price
Per share $ 1.69 -0- $ -0- $ 1.75 $ 1.69 $ 1.68
F-21
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
The following table summarizes information about the options at December 31, 2004.
Options Outstanding Options Exercisable
----------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Range Outstanding Life Price Exercisable Price
------------- ----------- ------------ -------- ----------- --------
$0.13 - $1.00 49,500 1.55 years $ 1.00 49,500 $ 1.00
$1.25 - $1.50 75,000 5.74 years $ 1.40 25,000 $ 1.40
$1.51 - $1.75 169,900 2.09 years $ 1.75 169,900 $ 1.75
$2.00 - $2.75 45,000 2.56 years $ 2.00 45,000 $ 2.00
$3.00 - $3.25 3,500 2.50 years $ 3.25 3,500 $ 3.25
$3.75 - $4.00 12,500 4.25 years $ 3.88 3,750 $ 3.88
The Company accounts for the stock option plans under the
recognition and measurement principles of APB Opinion No. 25,
"Accounting for Stock Issued to Employees, and related
interpretations. The following table illustrates the effect on
net income and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation", to its stock-based
employee compensation: See Note 2.
The weighted average grant date fair value of options granted
during 2003 was $1.75. There were no options granted in 2004.
2004 2003
------------- -------------
Net income (loss), as reported $ 70,724 $ (336,950)
Add: Stock-based employee compensation
expense included in reported net income (loss),
net of related tax effects -0- -0-
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects $ (71,978) $ (57,985)
------------- -------------
Pro-forma net (loss) $ (1,254) $ (394,935)
============= =============
F-22
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Income (loss) per share: 2004 2003
------------- -------------
Basic-as reported $ .02 $ (.11)
Basic-pro forma $ .00 $ (.13)
Diluted -as reported $ .02 $ (.11)
Diluted -pro forma $ .00 $ (.13)
The fair value used in the pro forma data was estimated by using the
Black-Scholes option-pricing model which took into account as of the grant
date, the exercise price and the expected life of the option, the current
price of the underlying stock and its expected volatility, expected
dividends on the stock and the risk-free interest rate for the expected
term of the option. The following is the average of the data used for the
following items.
Risk-Free Expected Expected
Year Ended Interest Rate Expected Life Volatility Dividends
------------------- ------------- ------------- ---------- ---------
December 31, 2003 2.5% 5.7 Years 47.725% None
There were no options granted in 2004.
Note 13 - Defined Contribution Plan
On August 1, 1998, the Company adopted a 401(k) Plan for the
benefit of all eligible employees. All employees as of the
effective date of the 401(k) Plan became eligible. An employee
who became employed after August 1, 1998, would become a
participant after three months of continuous service.
Participants may elect to contribute from their compensation any
amount up to the maximum deferral allowed by the Internal
Revenue Code. Employer contributions are optional. During the
years ended December 31, 2004 and 2003 the Company incurred
administrative costs totaling $2,530 and $2,869 respectively. No
employer contribution has been made for 2004 and 2003.
F-23
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 14 - Concentration of Credit Risk
Cash
The Company places most of its temporary cash investments with
one financial institution. Balances normally exceed the federal
Deposit Insurance Corporation limit. The amount at risk at
December 31, 2004 was approximately $76,000. The Company has not
experienced any loss to date as a result of this policy.
Significant Customers
The Company's sales encompass markets wherein the demands of any
one customer may vary greatly due to changes in technology. In
2004, one customer from the Conceptronic division represented
approximately 17% of the Company's total revenue for the year
and 16% of the Company's total billed and unbilled receivables
at December 31, 2004. Two other customers, one each from the CVD
and SDC divisions, represented approximately 11% and 23% of
total billed and unbilled receivables at December 31, 2004. In
2003, one customer of Conceptronic represented approximately 12%
and one customer of the CVD division represented 13% of the
Company's annual revenue. These customers represented less than
1% of total billed and unbilled receivables at December 31,
2003.
Export Sales
Export sales to unaffiliated customers represented approximately
32% and 26% of sales for the years ended December 31, 2004 and
2003, respectively, Export sales in 2004 and 2003 were primarily
to customers in Asia. All contracts are denominated in U.S.
dollars. The Company does not enter into any foreign exchange
contracts.
Note 15 - Related Party Transactions
The general counsel for the Company is also a director. The
Company incurred legal fees for his professional services of
approximately $26,000 and $41,000 for the years ended December
31, 2004 and 2003, respectively. As of December 31, 2004 and
2003, the Company owed the general counsel approximately
$41,000.
Note 16 - Other Income
Other income for the year ended December 31, 2003 consists of
approximately $140,000 in cash received on the collection of
accounts receivable exceeding the amount booked as part of the
purchase of assets on June 17, 2002.
F-24
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
Note 17 - Segment Reporting
The Company adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information." 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 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 earnings before taxes.
The following table presents certain information regarding the
Company's segments at December 31, 2004 and for the year then ended:
CVD SDC Conceptronic Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets $ 10,026,553 $ 2,604,804 $ 2,878,597 $ (3,956,771) $ 11,553,183
============= ============= ============= ============= =============
Revenue $ 2,885,410 $ 2,843,293 $ 4,948,170 $ (803,281) $ 9,873,592
Interest Income -0- 752 -0- 752
Interest Expense 76,678 59,190 76,679 212,547
Depreciation and
amortization 201,958 130,876 24,050 356,884
Capital
expenditures 36,721 8,150 3,015 47,886
Pretax (loss) earnings (38,052) 140,380 93,529 195,857
F-25
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004 and 2003
The following table presents certain information regarding the
Company's segments at December 31, 2003 and for the year then
ended:
CVD SDC Conceptronic Eliminations Consolidated
------------- ------------- ------------- ------------- -------------
Assets $ 9,227,302 $ 2,245,712 $ 2,361,457 $ (3,509,577) $ 10,324,894
============= ============= ============= ============= =============
Revenue $ 3,779,878 $ 2,360,711 $ 4,106,780 $ (459,430) $ 9,787,939
Interest Income 586 657 -0- 1,243
Interest Expense 170,735 60,044 (21,835) 208,944
Depreciation and
amortization 188,789 140,229 22,562 351,580
Capital
expenditures 47,168 17,413 2,822 67,403
Pretax earnings (loss) 87,950 (205,884) (380,230) (498,164)
Note 18- Commitments and Contingencies
Legal Proceedings
On September 24, 1999 the Company was named in a lawsuit. The
nature of this legal proceeding focused on the intellectual
property obtained during the purchase of assets of Stainless
Design Corporation. On November 10, 1999, the Company responded
with a counterclaim. It is legal counsels' belief that the
lawsuit against the Company is without merit. The Company
considers its potential exposure to be negligible and/or covered
by insurance. Presently, cross-motions for summary judgment are
pending before the court.
In May 2002, the Company instituted a new action against
Precisionflow Technologies, Inc., in the United States District
for the Northern District of New York also seeking injunctive
relief and monetary damages based upon additional copyright
violations. A motion by Precisionflow Technologies, Inc. to
dismiss this action has been pending since June 2002.