US SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended 9-30-02
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE EXCHANGE ACT
For the transition period from _________________to____________________
Commission file number _____________2-97210-NY______________________
CVD EQUIPMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
NEW YORK
(State or other jurisdiction of incorporation or organization)
11-2621692
(IRS Employer Identification Number)
1881 LAKELAND AVENUE, RONKONKOMA, NY 11779
(Address of principal executive offices)
631-981-7081
(Issuers Telephone Number)
(Former name, former address, and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15 (d) of the Exchange Act during the past 12 months (or for
such shorter periods that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
3,039,100 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF 11-13-02
2
CVD EQUIPMENT CORPORATION
NOTE TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDING
SEPTEMBER 30, 2002
BASIS OF FINANCIAL STATEMENTS
The financial data is subject to year end audit and does not claim to be a
complete presentation since note disclosure under generally accepted
accounting procedures is not included. Note disclosures required under
generally accepted accounting procedures are included in the Company's
audited financial statements filed as part of Form 10-KSB for the year ended
December 31, 2001. Form 10-QSB should be read in conjunction with these
financial statements.
The results of operations for the three months are not necessarily
indicative of those for the full year. In the opinion of management, the
accompanying unaudited financial statements contain all adjustments
necessary to fairly present the financial position and the results of
operation for the periods indicated.
3
MANAGEMENT'S DISCUSSION
INTRODUCTION
Statements contained in this Report on Form 10-QSB that are not historical
facts are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, including without
limitation, statements regarding industry trends, strategic business
development, pursuit of new markets, competition, results from operations,
and are subject to the safe harbor provisions created by that statute. A
forward-looking statement may contain words such as "intends", "plans",
"anticipates", "believes", "expect to", or words of similar import.
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause the Company's actual results to differ
materially from those projected. These risks and uncertainties include, but
are not limited to, marketing success, product development, production,
technological difficulties, manufacturing costs, and changes in economic
conditions in the markets the Company serves. The Company undertakes no
obligation to release revisions to forward-looking statements to reflect
subsequent events, changed circumstances, or the occurrence of unanticipated
events.
FORWARD LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from
any future results, performance, or achievements expressed or implied by
such forward looking statements. These forward looking statements were
based on various factors and were derived utilizing numerous important
assumptions and other important factors that could cause actual results to
differ materially from those in the forward looking statements. Important
assumptions and other factors that could cause actual results to differ
materially from those in the forward looking statements, include, but are
not limited to: competition in the Company's existing and potential future
product lines of business; the Company's ability to obtain financing on
acceptable terms if and when needed; uncertainty as to the Company's future
profitability, uncertainty as to the future profitability of acquired
businesses or product lines, uncertainty as to any future expansion of the
company. Other factors and assumptions not identified above were also
involved in the derivation of these forward looking statements, and the
failure of such assumptions to be realized as well as other factors may also
cause actual results to differ materially from those projected. The Company
assumes no obligation to update these forward looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
such forward looking statements.
REVENUE RECOGNITION
CVD recognizes and identifies on its financial statements, revenue on a
percent complete methodology for contracts falling under SOP 81-1 and
recognizes revenues on a completed contract methodology for contracts
falling under SAB 101. CVD feels this is the most accurate and consistent
methodology to meet the requirements of the two regulations.
4
SUBSEQUENT EVENTS
During October, 2002 we relocated our Conceptronic Division from Portsmouth,
New Hampshire to our new facility in Ronkonkoma, New York.
Effective October 28, 2002, our Chief Financial Officer, Mitchell Drucker
resigned. We are actively looking for a replacement.
Effective October 29, 2002 we received our final funding of $1,114,816 as
listed on the balance sheet, from General Electric Capital for our new
facility at 1860 Smithtown Avenue, Ronkonkoma, New York. Upon receipt of
this funding, we repaid the $650,000 in short-term borrowings.
During November, 2002, we anticipate that our main offices will be relocated
from our old facility at 1881 Lakeland Avenue, Ronkonkoma, New York to our
new facility at 1860 Smithtown Avenue, Ronkonkoma, New York.
5
CVD EQUIPMENT CORPORATION SEPTEMBER 30 DECEMBER 31
BALANCE SHEET 2002 2001
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 597,301 $ 2,361,150
ACCOUNTS RECEIVABLE, NET 988,577 1,212,237
COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 445,333 358,022
INVENTORY 1,857,047 829,040
OTHER CURRENT ASSETS 162,936 20,269
------------ ------------
TOTAL CURRENT ASSETS 4,051,194 4,780,718
PROPERTY, PLANT AND EQUIPMENT 5,607,948 2,060,502
DEFERRED TAX ASSET 268,623 268,623
OTHER ASSETS 143,451 356,567
INVESTMENT 1,114,816 -
INTANGIBLE ASSETS, NET 101,124 82,500
------------ ------------
TOTAL ASSETS $11,287,156 $ 7,548,910
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 664,261 $ 153,332
ACCRUED EXPENSES 350,933 378,231
SHORT-TERM BORROWINGS 650,000 -
CURRENT MATURITIES OF LONG-TERM DEBT 484,509 365,790
------------ ------------
TOTAL CURRENT LIABILITIES 2,149,703 897,353
LONG-TERM DEBT 3,362,637 864,100
------------ ------------
TOTAL LIABILITIES 5,512,340 1,761,453
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK - $0.01 PAR VALUE -10,000,000 SHARES AUTHORIZED;
3,039,100 AND 3,032,325 SHARES ISSUED & OUTSTANDING 30,391 30,323
ADDITIONAL PAID-IN CAPITAL 2,902,149 2,892,416
RETAINED EARNINGS 2,842,276 2,864,718
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,774,816 5,787,457
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $11,287,156 $ 7,548,910
============ ============
6
CVD EQUIPMENT CORPORATION THREE MONTHS ENDED NINE MONTHS ENDED
STATEMENT OF OPERATIONS SEPTEMBER 30 SEPTEMBER 30
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
REVENUES
REVENUE ON COMPLETED CONTRACTS $ 2,411,683 $ 2,312,819 $ 5,522,346 $ 7,555,984
REVENUE ON UNCOMPLETED CONTRACTS 453,898 (44,118) 874,467 1,920,644
------------ ------------ ------------ ------------
TOTAL REVENUES 2,865,581 2,268,701 6,396,813 9,476,628
------------ ------------ ------------ ------------
COSTS OF REVENUES
COST ON COMPLETED CONTRACTS 1,660,095 1,317,102 3,983,049 4,852,184
COST ON UNCOMPLETED CONTRACTS 197,100 (10,156) 425,397 910,627
------------ ------------ ------------ ------------
TOTAL COSTS OF REVENUES 1,857,195 1,306,946 4,408,446 5,762,811
------------ ------------ ------------ ------------
GROSS PROFIT 1,008,386 961,755 1,988,367 3,713,817
------------ ------------ ------------ ------------
OPERATING EXPENSES
SELLING AND SHIPPING 257,223 141,357 634,756 540,808
GENERAL AND ADMINISTRATIVE 674,827 479,369 1,696,089 1,593,078
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 932,050 620,726 2,330,845 2,133,886
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 76,336 341,029 (342,478) 1,579,931
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
INTEREST INCOME 3,103 18,562 22,647 33,898
INTEREST EXPENSE (29,303) (15,492) (77,224) (49,247)
GAIN ON SALE OF FIXED ASSETS - - 2,500 37,666
OTHER INCOME 382,197 - 404,682 6,053
------------ ------------ ------------ ------------
TOTAL OTHER INCOME 355,997 3,070 352,605 28,370
------------ ------------ ------------ ------------
INCOME BEFORE TAXES 432,333 344,099 10,127 1,608,301
INCOME TAX PROVISION (32,582) (102,637) (32,573) (535,047)
------------ ------------ ------------ ------------
NET INCOME (LOSS) 399,751 241,462 (22,446) 1,073,254
EARNINGS (LOSS) PER SHARE
BASIC $ 0.13 $ 0.08 $ (0.01) $ 0.36
DILUTED $ 0.13 $ 0.07 $ (0.01) $ 0.33
WEIGHTED AVERAGE SHARES
BASIC 3,037,991 3,019,192 3,035,676 3,011,054
DILUTED 3,095,426 3,237,757 3,184,794 3,280,030
7
CVD EQUIPMENT CORPORATION THREE MONTHS ENDED NINE MONTHS ENDED
STATEMENT OF CASH FLOWS SEPTEMBER 30 SEPTEMBER 30
2002 2001 2002 2001
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) INCOME $ 399,751 $ 241,462 $ (22,446) $ 1,073,254
Adjustments to reconcile net income to net cash provided by operating activities:
DEFERRED TAX BENEFIT (PROVISION) - (56,284) - 80,265
DEPRECIATION AND AMORTIZATION 79,740 63,791 216,857 198,640
GAIN ON SALE OF FIXED ASSETS - - (2,500) (37,666)
BAD DEBT (8,027) (120,509) (13,098) 40,827
(Increase) Decrease In:
ACCOUNTS RECEIVABLES 608,608 1,025,612 236,758 1,199,613
COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS (369,482) 406,212 (87,311) 522,331
INVENTORY (147,162) 61,631 (1,028,006) 257,323
OTHER CURRENT ASSETS (36,917) (30,961) (142,667) (21,855)
OTHER ASSETS (13,388) (19,722) 151,660 (29,154)
Increase (Decrease) In:
ACCOUNTS PAYABLE (31,489) (193,004) 510,929 (453,858)
ACCRUED EXPENSES (170,829) 337,607 (27,294) 93,380
BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS (2,904) - - (146,613)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 307,901 1,715,835 (207,118) 2,776,487
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES (429,447) (14,280) (3,730,039) (80,027)
PROCEEDS FROM SALE OF FIXED ASSETS - - 2,500 155,000
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (429,447) (14,280) (3,727,539) 74,973
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM THE EXERCISE OF OPTIONS 1,500 8,549 9,801 30,471
PROCEEDS FROM DEBT 650,000 256 2,243,750 -
PAYMENTS OF LONG-TERM DEBT (33,527) (4,213) (82,743) (93,790)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 617,973 4,592 2,170,808 (63,319)
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 496,427 1,706,147 (1,763,849) 2,788,141
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 100,874 1,682,615 2,361,150 600,621
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE QUARTER $ 597,301 $ 3,388,762 $ 597,301 $ 3,388,762
============ ============ ============ ============
8
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002
REVENUE
An increase in volume resulted in third quarter of 2002 revenue being
$2,865,581, a 26% increase from third quarter of 2001 revenue of
$2,268,701.
COSTS AND EXPENSES
The cost of revenue increased to $1,857,195 in third quarter of 2002 as
compared to $1,306,946 in third quarter of 2001. Of this $550,249 increase,
approximately $304,000 is attributed to material, $9,000 to freight in,
$186,000 to salaries, $14,000 to utilities and $12,000 to depreciation
expense.
Selling and shipping expenses increased to $257,223 in third quarter of 2002
from $141,357 in third quarter of 2001. Of this $115,866 increase,
approximately $55,000 is attributed to commissions , $13,000 to travel
expense, $23,000 to salaries and $18,000 to royalties.
General and Administrative expenses increased to $674,827 in third quarter
of 2002 from $479,369 in third quarter of 2001. Of this $195,458 increase,
approximately $112,000 was attributable to bad debt recoveries in the
prior period, $115,000 to salaries, $11,000 to travel expense, $17,000 to
relocation expenses, $10,000 to utilities, $14,000 consulting fees, $3,000
to medical expenses, $7,000 to printing expense, $5,000 to depreciation
expense, which is offset by a decrease of $122,000 to legal fees.
Interest expense increased by $13,811 from $15,492 in third quarter of 2001
to $29,303 in third quarter of 2002, because the company's average
outstanding debt increased, as a result of the mortgage on the new building
purchased in March 2002.
Other income increased by $382,197 from third quarter of 2001 to third
quarter of 2002. Of this increase, $379,000 is attributed to collection of
accounts receivable above the purchase price, which is a non-recurring
event.
9
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
REVENUE
A decrease in volume resulted in nine months of 2002 revenue being
$6,396,813, a 32% decrease from nine months of 2001 revenue of $9,476,628.
COSTS AND EXPENSES
The cost of revenue decreased to $4,408,446 in nine months of 2002 as
compared to $5,762,811 in nine months of 2001. Of this $1,354,365 decrease,
approximately $1,543,000 is attributed to material, $55,000 to
manufacturing supplies, which is offset by an increase in salaries of
$238,000.
Selling and shipping expenses increased to $634,756 in nine months of 2002
from $540,808 in nine months of 2001. Of this $93,948 increase,
approximately $59,000 is attributed to salaries, $5,000 to advertising
expense, $53,000 to royalties, $22,000 to travel, which is offset by a
decrease of $27,000 to freight expense and $25,000 to commissions.
General and Administrative expenses increased to $1,696,089 in nine months
of 2002 from $1,593,078 in nine months of 2001. Of this $103,011 increase,
approximately $209,000 is salaries, $27,000 to relocation expenses, $18,000
to travel expense, $9,000 to utilities expense, which is offset by a
decrease of $164,000 in legal fees.
Interest expense increased by $27,977 from $49,247 in nine months of 2001 to
$77,224 in nine months of 2002, because the company's average outstanding
debt increased, as a result of the mortgage on the new building purchased in
March 2002.
Gain on sale of fixed asset decreased by $35,166 in nine months of 2002 from
nine months of 2001.
Other income increased to $404,682 in third quarter of 2002 from $6,053 in
third quarter of 2001. Of this $398,629 increase, $379,000 is attributed to
collection of accounts receivable above the purchase price, which is a
non-recurring event.
LIQUIDITY AND CAPITAL RESOURCES
By the end of the third quarter of 2002, the Company's cash position
decreased to $597,301 from $2,361,150 at the beginning of the year. The
decrease in cash is largely attributed to the cash layout for the new
building, which $345,000 was for the building acquisition, $1,012,000 for
the building's renovations, $856,000 was for the purchase of certain assets
of the Surface Mount Technology (SMT) business, $155,992 for the new
building's mortgage and $222,000 for machinery equipment, which is offset by
an increase of $650,000 borrowed against the line of credit.
10
However, as part of the building acquisition and the associated mortgage
transaction, an escrow account was established. This escrow account was set
up to fund the building renovation. This escrow account is not accessible by
CVD Equipment Corporation, until the building renovations are complete, the
mortgagee inspects the new facility and a new certificate of occupancy is
issued. The initial escrow amount was $1,106,250 on March 7, 2002. Interest
on this escrow to the end of the third quarter was $8,566. Hence, the
escrow balance at the end of the third quarter was $1,114,816.
At the end of the third quarter of 2002, the Company's account receivable
position decreased to $988,577 from $ 1,212,237 at the beginning of the
year. This decrease was attributable to timing of customer payments and
billings.
At the close of the third quarter of 2002, the Company's backlog increased
to $2,966,348 from approximately $1,389,004 at the beginning of the year.
This increase is attributed to an increase in order levels.
The Company believes that its cash and cash equivalents, cash flow from
operations and available credit facilities will be sufficient to meet its
working capital and investment requirements for the next twelve months.
However, future growth, including potential acquisitions, may require
additional funding, and from time to time the Company may need to raise
capital through additional equity or debt financing.
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, this 13th
day of November 2002.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Leonard A. Rosenbaum President, Chief Executive Officer and Director
Leonard A. Rosenbaum
12
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, Leonard A. Rosenbaum, President, Chief Executive Officer and Director of
CVD Equipment Corporation certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CVD Equipment
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Dated: November 13, 2002
/s/ Leonard A. Rosenbaum
----------------------------------------
President, Chief Executive Officer and Director
13
ACTING CHIEF FINANCIAL OFFICER CERTIFICATION
I, Leonard A. Rosenbaum, Acting Chief Financial Officer of CVD Equipment
Corporation certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CVD Equipment
Corporation (the "Registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Dated: November 13, 2002
/s/ Leonard A. Rosenbaum
----------------------------------------
Acting Chief Financial Officer