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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

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Form 10-Q

 

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended March 31, 2016
☐	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.)
355 South Technology Drive Central Islip, New York 11722
(Address of 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 ☑ No☐

 

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 ☑ No☐      

 

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 ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☑

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes  No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,218,205 shares of Common Stock, $0.01 par value at May 3, 2016.

 

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CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

 

Index

 

 

Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at March 31, 2016 and December 31, 2015	2
Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015	3
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	4
Notes to Consolidated Financial Statements	5
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of  Operations	12
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	16
Item 4 - Controls and Procedures	16
Part II - Other Information	17
Item 1 - Legal Proceedings	17
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3 – Defaults Upon Senior Securities	17
Item 4 – Mine Safety Disclosures	17
Item 5 - Other Information	17
Item 6 - Exhibits	17
Signatures	19
Exhibit Index	20

 

 

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

 

 

 

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

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

 

 

 

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

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

 

 

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

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

(Unaudited)

 

 

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016 

(Unaudited)

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

(Unaudited)

 

 

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

(Unaudited)

 

 

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2016

(Unaudited)

 

 

 

 

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 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. Past results are no guaranty of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” “will” and similar expressions are intended to identify forward-looking statements.

 

 

Results of Operations

Three Months Ended March 31, 2016 vs. Three Months Ended March 31, 2015

(in thousands, except per share amounts)

 

		Three Months Ended								Change				% Change
		March 31, 2016				March 31 2015
(In thousands)
Bookings		$	2,270			$	5,181			$	(2,911	)			(56.2	)
Ending Backlog			3,388				16,562				(13,174	)			(79.5	)
Revenue
CVD (net of eliminations)		$	4,090			$	8,571			$	(4,481	)			(52.3	)
SDC (net of eliminations)			914				1,122				(208	)			(18.5	)
Total Revenue			5,004				9,693				(4,689	)			(48.4	)
Cost of Goods Sold			3,470				5,933				(2,463	)			(41.5	)
Gross Profit			1,534				3,760				(2,226	)			(59.2	)
Gross Margin			30.7	%			38.8	%
Research and development			82				212				(130	)			(61.3	)
Selling and shipping			258				314				(56	)			(17.8	)
General and administrative			1,726				2,027				(301	)			(14.8	)
Total Operating Expenses			2,066				2,553				(487	)			(19.1	)
Operating (loss)/income			(533	)			1,207				(1,740	)			(144.2	)
Other (expense)/income			(9	)			(18	)			9				(50.0	)
(Loss)/income before taxes			(542	)			1,189				(1,731	)			(145.6	)
Income tax (benefit)/expense			(204	)			521				(725	)			(139.2	)
Net (loss)/income			(338	)			668				(1,006	)			(150.6	)
Net (loss)/income per share
Basic and diluted			(0.05	)			0.11

 

Orders/Order Backlog

 

Orders received for the three months ended March 31, 2016 were $2.3 million compared to $5.2 million in orders received for the three months ended March 31, 2015 resulting in an ending backlog of $3.4 million as of March 31, 2016 compared to $16.6 million as of March 31, 2015. $0.4 million or 11.8% of the backlog at March 31, 2016 remains from our largest customer as compared to $9.7 million or 58.4% from that same customer as of March 31, 2015.

 

 

Included in the backlog are all accepted purchase orders, less any amounts which have been previously billed or recognized as a component of our percentage-of-completion calculations. Management utilizes the order backlog to assist it in gauging projected revenues and profits; however, it does not provide an assurance of future achievement of revenues or profits as, for example, order cancellations or delays are possible. 

 

The timing of the receipt of an order is subject to various factors, many of which are not in our control. As a result, our order levels from period to period, tend to be uneven. Order levels attained in the three month period ended March 31, 2016 are not necessarily indicative of order levels that will be attained in future periods.

 

Revenue

 

Revenue for the three month period ended March 31, 2016 was $5.0 million compared to $9.7 million for the three month period ended March 31, 2015, a decrease of $4.7 million or 48.5%. The same customer represented 58.8% and 54.6% of our revenue for the three months ended March 31, 2016 and 2015 respectively. Now that we have nearly completed the successful execution of the large aerospace pilot production contract, we are focused on booking the follow-on business with that customer as well as on opportunities with new and other current customers.

 

Revenue from the SDC division for the three months ended March 31, 2016 decreased by 18.2% to $0.9 million compared to $1.1 million for the three months ended March 31, 2015.

 

Gross Profit

 

We generated a gross profit of $1.5 million, resulting in a gross profit margin of 30.7%, for the three months ended March 31, 2016 as compared to gross profits of $3.8 million and a gross profit margin of 38.8%, for the three months ended March 31, 2015. The decreased gross margin we are now experiencing is primarily attributable to the lower revenues.

 

Research and Development, Selling and General and Administrative Expenses

 

Research and development expenses totaled $82,000 for the three months ended March 31, 2016 compared to $212,000 for the three months ended March 31, 2015. Due to attrition in our laboratory staff, we have temporarily reduced our independently conducted research and product development for CVD products. However, we continue to conduct research on customer related product development which we include in our costs of goods sold.

 

Selling and shipping expenses for the three months ended March 31, 2016 and 2015 were $258,000 and $314,000 million, respectively. This decrease is primarily attributable to reduced personnel costs during the current period.

 

We incurred $1,726,000 of general and administrative expenses during the three months ended March 31, 2016, compared to $2,027,000 for the three months ended March 31, 2015, representing a decrease of 14.8%. This decrease is primarily attributable to a decrease in legal costs during the current period.

 

 

Operating (Loss)/Income

 

As a result of the reduced revenues, we incurred a loss from operations of $533,000 for the three months ended March 31, 2016 compared to income from operations of $1.2 million for the three months ended March 31, 2015.

 

Income Taxes

 

For the three months ended March 31, 2016, we did not incur any current income tax expense, received a refund of $71,000 as a result of an overpayment on the 2014 federal corporate tax return and recorded $133,000 of deferred tax benefits, compared to the three months ended March 31, 2015, when we incurred $316,000 of current income tax expense and utilized $205,000 in deferred tax benefits.

 

Net (loss)/income

 

We reported a net loss of $338,000 for the three months ended March 31, 2016 compared to net income of $668,000 for the three months ended March 31, 2015.

 

Liquidity and Capital Resources

 

As of March 31, 2016, we had working capital of $19.7 million compared to $19.9 million at December 31, 2015, a decrease of $0.2 million, and cash and cash equivalents of $12.3 million, compared to $13.1 million at December 31, 2015, a decrease of $0.8 million. The decrease in cash and cash equivalents was primarily a result of the timing of both shipments and customer payments on outstanding balances.

 

Accounts receivable, net, as of March 31, 2016 was approximately $3.4 million compared to $3.1 million as of December 31, 2015. This increase is principally due to the timing of customer shipments and customer payments on outstanding balances.

 

At March 31, 2016, the number of full time employees decreased to 186 employees compared to 192 at December 31, 2015.

 

We believe that our cash and cash equivalents position and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months.

 

We may also raise additional capital in the event we determine in the future to effect one or more acquisitions of businesses, technologies or products. In addition, we may elect to raise additional capital even before we need them if the conditions for raising capital are favorable. Any equity or equity-linked financing could be dilutive to existing shareholders.

  

 

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 4.               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 this 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.

 

None.

 

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

 

None.

 

Item 3.          Defaults Upon Senior Securities.

 

None.

 

Item 4.          Mine Safety Disclosures.

 

Not applicable.     

 

Item 5.          Other Information.

 

None.

 

Item 6.          Exhibits

 

The exhibits listed below are hereby furnished to the SEC as part of this report:

  

31.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 16, 2016

 

31.2*

Certification of Glen R. Charles, Chief Financial Officer, dated May 16, 2016

 

32.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 16, 2016, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2*

Certification of Glen R. Charles, Chief Financial Officer, dated May 16, 2016, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

101.1**	XBRL Instance.
101.SCH**	XBRL Taxonomy Extension Schema.

 

101.CAL**

XBRL Taxonomy Extension Calculation.

 

101.DEF**

XBRL Taxonomy Extension Definition.

 

101.LAB**

XBRL Taxonomy Extension Labels.

 

101.PRE**

XBRL Taxonomy Extension Presentation.

 

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* Filed herewith.

 

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

 

 

SIGNATURES

 

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 16^th day of May 2016.

 

	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
		Glen R. Charles
		(Principal Financial and Accounting Officer)

 

 

EXHIBIT INDEX

  

31.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 16, 2016

 

31.2*

Certification of Glen R. Charles, Chief Financial Officer, dated May 16, 2016

 

32.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated May 16, 2016, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

32.2*

Certification of Glen R. Charles, Chief Financial Officer, dated May 16, 2016, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.1**

XBRL Instance.

 

101.SCH**

XBRL Taxonomy Extension Schema.

 

101.CAL**

XBRL Taxonomy Extension Calculation.

 

101.DEF**

XBRL Taxonomy Extension Definition.

 

101.LAB**

XBRL Taxonomy Extension Labels.

 

101.PRE**

XBRL Taxonomy Extension Presentation.

 

________________

* Filed herewith.

 

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

 

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