1
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 6-30-02
( ) 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:
3,037,600 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF 8-09-02
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CVD EQUIPMENT CORPORATION
NOTE TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDING
JUNE 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.
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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.
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CVD EQUIPMENT CORPORATION
BALANCE SHEETS
JUNE 30 DECEMBER 31
2002 2001
(UNAUDITED) (AUDITED)
------------ ------------
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 100,874 $2,361,150
ACCOUNTS RECEIVABLE, NET 1,589,158 1,212,237
COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 75,851 358,022
INVENTORY 1,709,885 829,040
OTHER CURRENT ASSETS 126,020 20,269
------------ ------------
TOTAL CURRENT ASSETS 3,601,788 4,780,718
PROPERTY, PLANT AND EQUIPMENT 5,246,817 2,060,502
DEFERRED TAX ASSET 268,623 268,623
OTHER ASSETS 142,233 356,567
INVESTMENT 1,111,944 -
INTANGIBLE ASSETS, NET 103,249 82,500
------------ ------------
TOTAL ASSETS $10,474,654 $7,548,910
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 695,750 $ 153,332
ACCRUED EXPENSES 521,762 378,231
BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS 2,904 -
CURRENT MATURITIES OF LONG-TERM DEBT 484,054 365,790
------------ ------------
TOTAL CURRENT LIABILITIES 1,704,470 897,353
LONG-TERM DEBT 3,396,620 864,100
------------ ------------
TOTAL LIABILITIES 5,101,090 1,761,453
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
COMMON STOCK - $0.01 PAR VALUE -10,000,000 SHARES AUTHORIZED;
3,037,600 AND 3,032,325 SHARES ISSUED & OUTSTANDING 30,376 30,323
ADDITIONAL PAID-IN CAPITAL 2,900,664 2,892,416
RETAINED EARNINGS 2,442,524 2,864,718
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 5,373,564 5,787,457
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $10,474,654 $7,548,910
============ ============
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CVD EQUIPMENT CORPORATION
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
JUNE 30
2002 2001
(UNAUDITED) (UNAUDITED)
------------ ------------
REVENUES
REVENUE ON COMPLETED CONTRACTS $ 1,895,640 $3,441,977
REVENUE ON UNCOMPLETED CONTRACTS (254,327) 291,134
------------ ------------
TOTAL REVENUES 1,641,313 3,733,111
------------ ------------
COSTS OF REVENUES
COST ON COMPLETED CONTRACTS 1,391,287 2,187,602
COST ON UNCOMPLETED CONTRACTS (89,352) 75,582
------------ ------------
TOTAL COSTS OF REVENUES 1,301,935 2,263,184
------------ ------------
GROSS PROFIT 339,378 1,469,927
------------ ------------
OPERATING EXPENSES
SELLING AND SHIPPING 202,131 213,328
GENERAL AND ADMINISTRATIVE 527,036 616,436
------------ ------------
TOTAL OPERATING EXPENSES 729,167 829,764
------------ ------------
OPERATING (LOSS) INCOME (389,789) 640,163
------------ ------------
OTHER INCOME (EXPENSE)
INTEREST INCOME 9,716 10,110
INTEREST EXPENSE (24,919) (16,437)
GAIN ON SALE OF FIXED ASSETS - 37,666
OTHER INCOME 5,997 1,306
------------ ------------
TOTAL OTHER (LOSS) INCOME (9,206) 32,645
------------ ------------
(LOSS) INCOME BEFORE TAXES (398,995) 672,808
INCOME TAX PROVISION - (229,690)
------------ ------------
NET (LOSS) INCOME (398,995) 443,118
EARNINGS (LOSS) PER SHARE
BASIC $ (0.13) $ 0.15
DILUTED $ (0.12) $ 0.13
WEIGHTED AVERAGE SHARES
BASIC 3,033,827 3,011,184
DILUTED 3,203,502 3,283,844
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CVD EQUIPMENT CORPORATION
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED
JUNE 30
2002 2001
(UNAUDITED) (UNAUDITED)
------------ ------------
REVENUES
REVENUE ON COMPLETED CONTRACTS $ 3,110,663 $5,243,165
REVENUE ON UNCOMPLETED CONTRACTS 420,569 1,964,762
------------ ------------
TOTAL REVENUES 3,531,232 7,207,927
------------ ------------
COSTS OF REVENUES
COST ON COMPLETED CONTRACTS 2,322,954 3,535,082
COST ON UNCOMPLETED CONTRACTS 228,297 920,783
------------ ------------
TOTAL COSTS OF REVENUES 2,551,251 4,455,865
------------ ------------
GROSS PROFIT 979,981 2,752,062
------------ ------------
OPERATING EXPENSES
SELLING AND SHIPPING 377,533 399,451
GENERAL AND ADMINISTRATIVE 1,021,262 1,113,709
------------ ------------
TOTAL OPERATING EXPENSES 1,398,795 1,513,160
------------ ------------
OPERATING (LOSS) INCOME (418,814) 1,238,902
------------ ------------
OTHER INCOME (EXPENSE)
INTEREST INCOME 19,544 15,336
INTEREST EXPENSE (47,921) (33,755)
GAIN ON SALE OF FIXED ASSETS 2,500 37,666
OTHER INCOME 22,485 6,053
------------ ------------
TOTAL OTHER (LOSS) INCOME (3,392) 25,300
------------ ------------
(LOSS) INCOME BEFORE TAXES (422,206) 1,264,202
INCOME TAX PROVISION 9 (432,410)
------------ ------------
NET (LOSS) INCOME (422,197) 831,792
EARNINGS (LOSS) PER SHARE
BASIC $ (0.14) $ 0.28
DILUTED $ (0.13) $ 0.25
WEIGHTED AVERAGE SHARES
BASIC 3,035,703 3,006,817
DILUTED 3,208,799 3,296,741
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CVD EQUIPMENT CORPORATION
STATEMENT OF CASH FLOWS
THREE MONTHS ENDED
JUNE 30
2002 2001
(UNAUDITED) (UNAUDITED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) INCOME $ (398,995) $ 443,118
Adjustments to reconcile net income to net cash
provided by operating activities:
DEFERRED TAX BENEFIT (PROVISION) - 68,275
DEPRECIATION AND AMORTIZATION 70,148 67,960
GAIN ON SALE OF FIXED ASSETS - (37,667)
BAD DEBT PROVISION (3,024) 129,127
(Increase) Decrease In:
ACCOUNTS RECEIVABLES (347,710) 618,813
COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 313,704 156,145
INVENTORY (906,710) 208,725
OTHER CURRENT ASSETS (50,274) 8,385
OTHER ASSETS (46,441) (1,772)
Increase (Decrease) In:
ACCOUNTS PAYABLE 486,861 (169,705)
ACCRUED EXPENSES 236,675 (44,045)
BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS (8,728) (39,248)
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (654,494) 1,408,111
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES (1,105,174) (48,082)
PROCEEDS FROM SALE OF FIXED ASSETS - 155,000
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,105,174) 106,918
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM THE EXERCISE OF OPTIONS 8,301 10,974
PROCEEDS OF LONG-TERM DEBT - -
PAYMENTS OF LONG-TERM DEBT (37,419) (85,164)
------------ ------------
NET CASH USED IN FINANCING ACTIVITIES (29,118) (74,190)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,788,786) 1,440,839
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE QUARTER 1,889,660 241,776
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE QUARTER $ 100,874 $1,682,615
============ ============
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CVD EQUIPMENT CORPORATION
STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30
2002 2001
(UNAUDITED) (UNAUDITED)
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
NET (LOSS) INCOME $ (422,197) $ 831,792
Adjustments to reconcile net income to net cash
provided by operating activities:
DEFERRED TAX BENEFIT (PROVISION) - 136,549
DEPRECIATION AND AMORTIZATION 137,124 134,849
GAIN ON SALE OF FIXED ASSETS (2,500) (37,667)
BAD DEBT PROVISION (5,071) 161,336
(Increase) Decrease In:
ACCOUNTS RECEIVABLES (371,850) 174,001
COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 282,171 116,119
INVENTORY (880,844) 195,692
OTHER CURRENT ASSETS (105,752) 9,106
OTHER ASSETS 170,740 (9,432)
Increase (Decrease) In:
ACCOUNTS PAYABLE 542,418 (260,854)
ACCRUED EXPENSES 143,531 (244,227)
BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS 2,904 (146,613)
------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (509,326) 1,060,651
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
CAPITAL EXPENDITURES (3,300,592) (65,746)
PROCEEDS FROM SALE OF FIXED ASSETS 2,500 155,000
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (3,298,092) 89,254
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM THE EXERCISE OF OPTIONS 8,301 21,922
PROCEEDS OF LONG-TERM DEBT 1,588,056
PAYMENTS OF LONG-TERM DEBT (49,215) (89,833)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,547,142 (67,911)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,260,276) 1,081,994
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE QUARTER 2,361,150 600,621
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF THE QUARTER $ 100,874 $1,682,615
============ ============
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ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002
REVENUE
A decrease in volume resulted in second quarter of 2002 revenue being
$1,641,313, a 56% decrease from second quarter of 2001 revenue of
$3,733,111.
COSTS AND EXPENSES
The cost of revenue decreased to $1,301,935 in second quarter of 2002 as
compared to $2,263,184 in second quarter of 2001. Of this $961,249 decrease,
approximately $904,000 is attributed to material, $12,200 to freight in and
$17,100 to manufacturing supplies..
Selling and shipping expenses decreased to $202,131 in second quarter of 2002
from $213,328 in second quarter of 2001. Of this $11,197 decrease,
approximately $47,500 is attributed to commissions , $13,000 to freight
expense, which is offset by an increase of $27,400 to salaries and $19,000 to
royalties.
General and Administrative expenses decreased to $527,036 in second quarter
of 2002 from $616,436 in second quarter of 2001. Of this $89,400 decrease,
approximately $18,000 is attributed to legal fees, $132,000 to bad debt,
which is offset by an increase of $49,000 to salaries and $5,500 to travel
expense.
Interest expense increased by $8,482 from $16,437 in second quarter of 2001
to $24,919 in second quarter of 2002, because the company's average
outstanding debt increased, as a result of the mortgage on the new building
purchased on 3/7/02.
Gain on sale of fixed asset decreased by $37,666 in second quarter of 2002
from second quarter of 2001, because the company had previously sold some
fixed assets in 2001.
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ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002
REVENUE
A decrease in volume resulted in six months of 2002 revenue being $3,531,232,
a 51% decrease from six months of 2001 revenue of $7,207,927.
COSTS AND EXPENSES
The cost of revenue decreased to $2,551,251 in six months of 2002 as compared
to $4,455,865 in six months of 2001. Of this $1,904,614 decrease,
approximately $1,848,000 is attributed to material, $22,500 to freight in,
$49,800 to manufacturing supplies, which is offset by an increase in salaries
of $52,500.
Selling and shipping expenses decreased to $377,533 in six months of 2002
from $399,451 in six months of 2001. Of this $21,918 decrease,
approximately $80,000 is attributed to commissions , $30,000 to freight
expense, which is offset by an increase of $36,000 to salaries, $35,000 to
royalties, $10,000 to travel expense and $5,000 to advertising.
General and Administrative expenses decreased to $1,021,262 in six months of
2002 from $1,113,709 in six months of 2001. Of this $92,447 decrease,
approximately $42,000 is attributed to legal fees, $166,000 to bad debt,
which is offset by an increase of $94,000 to salaries, $13,900 to building
rent and $7,700 to travel expense.
Interest expense increased by $14,166 from $33,755 in six months of 2001 to
$47,921 in six months of 2002, because the company's average outstanding debt
increased, as a result of the mortgage on the new building purchased on
3/7/02
Gain on sale of fixed asset decreased by $35,166 in six months of 2002 from
six months of 2001, because the company had sold some fixed assets in 2001.
LIQUIDITY AND CAPITAL RESOURCES
By the end of the second quarter of 2002, the Company's cash position
decreased to $100,874 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, $757,000 for the
building's renovations, $856,000 was for the purchase of Conceptronic Inc's
assets of their Surface Mount Technology (SMT) business, $89,138 for the new
building's mortgage and $58,300 for commissions .
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 second quarter was $5,694. Hence, the escrow
balance at the end of the second quarter was $1,111,944.
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At the end of the second quarter of 2002, the Company's account receivable
position increased to $1,589,158 from $ 1,212,237 at the beginning of the
year. This increase was attributable to timing of customer payments and
billings and a accounts receivable position of $353,000 as part of the
Conceptronic acquisition.
At the close of the second quarter of 2002, the Company's backlog increased
to $1,740,939 from approximately $1,389,004 at the beginning of the year.
This increase is attributed to a 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.
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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 9th day of
August 2002.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
President and Chief Executive Officer
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
/s/ Mitchell Drucker Chief Financial Officer
Mitchell Drucker