UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(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
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(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 [ ]
Check if there is no disclosure of delinquent filers response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any ammendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year. $ 9,873,592
State the aggregate market value of the voting and non-voting common
equity held by non affiliates computed by reference to the price at which
the common equity was sold, or the average bidand asked price of such common
equity, as of a specified date within the past 60 days: $ 1,893,770 at March
29, 2005.
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, $0.01 par value at March 29, 2005.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
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PART I
Item 1. Business
Unless otherwise set forth herein, when we use the term 'we' or any
derivation thereof, we mean CVD Equipment Corporation, a New York
corporation, formed in 1982 (the "Company").
We design, develop, manufacture, market, install and service equipment
primarily for the semiconductor industry. Our products include (1)
both batch and single wafer systems used for depositing, rapid thermal
processing, annealing, diffusion and etching of semiconductor films,
(2) gas and liquid flow control systems, (3) ultra high purity gas and
chemical piping delivery systems, (4) standard and custom quartzware
and (5) reflow furnaces and rework stations for surface mounting of
components onto printed circuit boards. We also provide equipment
consulting and refurbishing of semiconductor processing equipment.
Our products are generally manufactured as standard products or
customized to the particular specifications of each of our customers.
Semiconductor components are the fundamental electronic building
blocks used in modern electronic equipment and systems. These
components are classified as either discrete devices (such as
transistors) or integrated circuits (in which a number of transistors
and other elements are combined to form a more complicated electronic
circuit). In an integrated circuit, these elements are formed on a
small "chip" of silicon or gallium arsenide, which is then
encapsulated in an epoxy, ceramic or metal package having lead wires
for connection to a circuit board. Our products are used in the
manufacture and mounting of these components.
We conduct our operations through three divisions, CVD, SDC and
Conceptronic. Each division operates reasonably autonomously on a day-
to-day basis with its own operating manager and with sales and
administration being handled by corporate managers. There is an
overall corporate coordination in the day-to-day administration of the
business, in establishing policy and consistently applying procedures.
CVD Division
Our CVD Division designs and manufactures both standard and custom
equipment for the semiconductor industry. CVD's equipment, with its
leading edge technology, is utilized for silicon, silicon germanium,
silicon carbide and gallium arsenide processes. These processes are
paramount in the semiconductor, optoelectronic and wireless
communications arena.
SDC Division
The Stainless Design Concepts, Ltd ("SDC") division of the Company
designs and manufactures in their Class 100 cleanroom, ultra high
purity gas and chemical delivery control systems for the semiconductor
industry, and also provides equipment consulting and refurbishing of
semiconductor equipment. The field service group provides for contract
maintenance, high purity fab and equipment installations and equipment
removal.
The startup of our SDC Division provided new products for CVD to offer
to the semiconductor industry and also improved the manufacturing of
gas and chemical delivery systems used in most of our products.
Conceptronic Division
In December 2001, we acquired the assets of the Surface Mount
Technology division of Research Inc., known as Research International
("RI"). RI is a manufacturer of Surface Mount Technology ("SMT")
reflow furnaces.
In June 2002, we purchased substantially all of the assets of
Conceptronic Inc.'s Surface Mount Technology business. Conceptronic
specializes in solder reflow furnaces and rework stations for the
printed circuit board and chip scale package industries.
In 2002 we combined the operations of RI and Conceptronic and they are
currently being reported under the Conceptronic division.
The startup of our RI and Conceptronic divisions provided a base for
us to generate new and enhanced standard and custom furnace products
to the semiconductor and Surface Mount Technology markets based on our
own technology and technology that was purchased as part of the
acquisition of assets.
Principal Products
Chemical Vapor Deposition - A process which passes a gaseous compound
over a target material surface that is heated to such a degree that
the compound decomposes and deposits a desired layer onto substrate
material. The process is accomplished by combining appropriate gases
in a reaction chamber, of the kind produced by the Company, at
elevated temperatures (typically 300-1,500 degrees Celsius). Our
Chemical Vapor Deposition systems are complete and include all
necessary instrumentation, subsystems and components. The systems
include mass flow controllers, bellows valves, stainless steel lines
and fittings. We provide such standard systems and also specifically
engineered products for particular customer applications. Some of the
standard systems we offer are for Silicon, Silicon-Germanium, Silicon
Dioxide, Silicon Nitride, Polysillicon, Liquid Phase Epitaxial and
Metalorganic Chemical Vapor Deposition.
Our Chemical Vapor Deposition systems are available in a variety of
models that can be used in production and laboratory research. All
models can be offered with total system automation, a microprocessor
control system by which the user can measure, predict and regulate gas
flow, temperature, pressure and chemical reaction rates, thus
controlling the process in order to enhance the quality of the
materials produced. Our standard microprocessor control system is
extremely versatile and capable of supporting the complete product
line and most custom system requirements. These Chemical Vapor
Deposition systems range in price from $100,000 to $2,500,000.
Rapid Thermal Processing ("RTP") - Used to heat semiconductor
materials to elevated temperatures of 1,000 degrees Celsius at rapid
rates of up to 200 degrees Celsius per second. Our RTP systems are
offered for implant activation, oxidation, silicide formation and many
other processes. We offer systems that can operate both at atmospheric
or reduced pressures. A specific model of our RTP system is used for
Thermal Desorption Spectroscopy which allows the semiconductor process
engineer the ability to analyze the deposited films between the many
process steps used in the complex fabrication process. Our RTP systems
generally range in price from $75,000 to $350,000.
Annealing and Diffusion Furnaces - Used for diffusion, oxidation,
implant anneal, solder reflow and other processes. The systems are
normally operated at atmospheric pressure with gaseous atmospheres
related to the process. An optional feature of the system allows for
the heating element to be moved away from the process chamber allowing
the wafers to rapidly cool or be heated in a controlled environment.
Our cascade temperature control system enables more precise control of
the wafers. The systems are equipped with an automatic process
controller, permitting automatic process sequencing and monitoring
with safety alarm provisions. Our Annealing and Diffusion Furnace
systems generally range in price from $75,000 to $650,000.
Gas and Liquid Control Systems - Our standard and custom designed gas
and liquid control systems encompassing (1) gas cylinder storage
cabinets, (2) custom gas and chemical delivery systems, (3) gas and
liquid valve manifold boxes (VMB's) and (4) gas isolation boxes
(GIB's) to provide safe storage and handling of pressurized gases and
chemicals. System design allows for automatic or manual control from
both a local and remote location. The price range for our Gas and
Liquid Control Systems are from $20,000 to $350,000.
Ultra High Purity Gas and Chemical Piping and Delivery Systems - We
provide field installation of ultra high purity piping systems within
a semiconductor plant for the distribution of gases and chemicals to
the assorted process tools. As part of field service, we also offer
repair service on customer equipment.
Quartzware - We provide standard and custom fabricated quartzware used
in the Company's equipment and other customer tools. We also provide
repair and replacement of existing quartzware.
Reflow Furnaces and Rework Stations - We provide a standard line for
the printed circuit board and chip scale package industries.
Markets and Marketing
During 2004, sales were made by a staff of six employees and twenty-
five sales representatives whose activities were supported by a staff
of twelve application engineers. We continue to work on expanding our
product offerings.
Our web sites continue to see increased traffic. We have focused our
efforts on being in the top listings on many search engines in order
to increase the number of "hits" to our web sites.
Many of our products are used in research and production applications
by the semiconductor industry. We sell our products primarily to
semiconductor manufacturers, institutions involved in electronic
research such as universities, government and industrial laboratories
and to electronic assembly manufacturers. We have both an
international and domestic customer base in excess of 300 customers.
For the twelve months ended December 31, 2004 approximately 32% of our
revenues were generated from foreign exports compared to the twelve
months ended December 31, 2003 which generated revenues from foreign
exports equaling 26%. Sales to a single customer in any one year can
exceed 10.0% of our total sales; however, we are not dependent on any
single customer. In 2004 and 2003, one customer, which is a
distributor, represented 16.7% and 12.0% of our total sales,
respectively. In 2004, no other customer represented more than 8.2% of
our total sales and in 2003, one other customer represented 13.4% of
our total sales.
Warranties
We warrant our equipment for a period of twelve to twenty four months
after shipment, depending on the product, and pass along any
warranties from original manufacturers of components used in our
products. We provide for our own equipment servicing with in-house
field service personnel. Warrantee costs have been historically
insignificant.
Competition
Our business is subject to intense competition. We are aware of other
competitors that offer a substantial number of products comparable to
ours. Many of our competitors (including customers who may elect to
manufacture systems for internal use) have financial, marketing and
other resources greater than ours. To date, we have been able to
compete in markets that include these competitors, primarily on the
basis of price, technical performance, quality and delivery.
Sources of Supply
We do not manufacture many components used in producing our products.
They are purchased from unrelated third-party manufacturers of such
equipment. We do not have any supply contracts covering these
components. We are not dependent on a principal or major supplier and
alternate suppliers are available. We do not use a large amount of raw
or difficult to obtain materials that could cause a problem in
production of our equipment.
We have our own fully equipped machine shop to fabricate in house, the
most complex designed parts of our equipment. Our previous investment
in CNC machines for the machine shop has increased our efficiencies
while significantly reducing costs in production. Similarly, our own
quartz shop is capable of meeting our quartzware needs.
Materials procured from the outside and/or manufactured internally
undergo a rigorous quality control process to ensure that the parts
meet or exceed the most stringent specifications. All equipment, upon
final assembly, undergoes a final series of complete testing to ensure
maximum product performance.
Backlog
As of December 31, 2004 our order backlog was approximately $2,430,000
compared to approximately $1,738,000 at December 31 2003, an increase
of 39.8%. The increase can primarily be attributed to our CVD Division
which began to experience an increase in orders at the beginning of
the fourth quarter. The timing for completion of the backlog varies
depending on the product mix, however, there is generally a one to six
month lag in the completion and shipping of backlogged product.
Included in the backlog are all accepted purchase orders. Order
backlog is usually a reasonable management tool to indicate expected
revenues and projected profits, however it does not provide an
assurance of future achievement or profits as order cancellations or
delays are possible.
Patents, Copyrights and License Agreements
We believe that while patents are useful and will be used at times in
the future, they are not critical or valuable in many cases on an
individual basis. We believe the collective value of our intangible
property such as blueprints, specifications, technical processes,
cumulative employee knowledge, and experience provide us with a
measure of protection for our manufacturing and design processes.
Research and Development
We continue to concentrate our efforts on several research and
development projects. We develop and customize equipment for industry
and government, university and industry research laboratories around
the world. Our research, design and development of equipment, which
remains proprietary to us, is used to improve our existing products
and develop new products for customers. The amount spent on research
and development was $410,000 and $273,000 for the years ended December
31, 2004 and December 31, 2003, respectively.
Government Regulations
The Company knows of no government requirements for approval of the
sale of its products or services except in some export cases. At that
time, we apply for the appropriate export, license. As of December 31,
2004, there were no pending government approvals for an export
license.
We know of no existing or probable governmental regulations that would
have a serious effect on our business.
We have and will continue to comply with any and all environmental
laws that are applicable to our business.
Insurance
Some of our products are used in connection with explosive, flammable,
corrosive and toxic gases. There are potential exposures to personal
injury as well as property damage, particularly if operated without
regard to the design limits of the systems and components. We believe
that our insurance coverage is adequate. We have the following
insurance coverages:
o Product liability
o Property and contents
o General liability
o Directors and officers
o Transportation
o Business auto
o Workers compensation
o Employee benefits liability
Employees
At December 31, 2004, we had 96 employees, 93 of which were full time
personnel and 3 worked part time. We had 55 people in manufacturing,
14 in engineering (including research and development and efforts
related to product improvement) 6 in field service, three in marketing
and 18 in general management and administration.
Item 2. Description of Property.
We maintain our headquarters at 1860 Smithtown Avenue, Ronkonkoma, New
York, where we own a 50,000 square foot manufacturing facility which
was purchased in November, 2002. Our CVD and Conceptronic divisions
operate out of this facility. Our SDC division operates out of a
22,000 square foot manufacturing facility situated on five acres of
land which we purchased in December 1998 and is located at 1117 Kings
Highway, Saugerties, New York. Each facility is in good operating
condition and is adequate to meet the Company's present and anticipated
future needs.
Item 3. Legal Proceedings.
In September 1999, the Company was named in a lawsuit filed by
Precisionflow Technologies, Inc., in the United States District for
the Northern District of New York relating to comments allegedly made
by CVD's President, Leonard Rosenbaum, concerning the intellectual
property obtained in the purchase of assets of Stainless Design
Corporation. We promptly filed a counterclaim for unauthorized use of
our intellectual property. The plaintiff is seeking monetary damages
and injunctive relief. In our counter claim, we are also seeking
monetary damages and injunctive relief. All pre-trial disclosure has
been completed and the case is currently pending decisions on motions
and cross motions for summary judgment. No trial date has been set.
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 seeking injunctive relief and monetary damages
based upon copyright violations. A motion by Precisionflow
Technologies, Inc. to dismiss this action has been pending since June
2002.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The principal market for our common stock which is traded under the
symbol CVV is the American Stock Exchange. The following table sets
forth, for the periods indicated, the high and low sales prices of our
common stock on the American Stock Exchange.
High Low
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Year Ended December 31, 2004:
1st Quarter.............. $ 3.00 $ 1.28
2nd Quarter............. 2.30 1.20
3rd Quarter............. 1.41 0.75
4th Quarter............. 1.47 0.90
High Low
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Year Ended December 31, 2003
1st Quarter............. $ 1.62 $ 0.82
2nd Quarter............ 1.35 1.00
3rd Quarter............ 1.95 1.03
4th Quarter............ 1.48 1.10
As of March 29, 2005, there were approximately 94 holders of record
and approximately 450 beneficial owners of our common stock. On March
29, 2005, the closing sales price of our common stock as reported on
the American Stock Exchange was $1.23.
Dividend Policy
We have never paid a dividend on our common stock and we do not
anticipate paying dividends on the common stock at the present time.
We currently intend to retain earnings, if any, for use in our
business. There can be no assurance that we will ever pay dividends on
our common stock. Our dividend policy with respect to the common stock
is within the discretion of the Board of Directors and its policy
with respect to dividends in the future will depend on numerous
factors, including earnings, financial requirements and general
business conditions.
Equity Compensation Plan Information
The following table provides information about shares of our common
stock that may be issued upon the exercise of options under all of our
existing compensation plans as of December 31, 2004.
Number of securities
to be issued upon Weighted-average
exercise of exercise price of Number of securities
outstanding options, outstanding options, remaining available
warrants and rights warrants and rights for future issuance
Plan Category
Equity compensation
plans approved by
security holders (1) 355,400 $ 1.56 224,250
Equity compensation
plans not approved by
security holders 0 0 0
Total 355,400 $ 1.56 224,250
__________________________
(1) Reflects aggregate options outstanding under our Non-Qualified Stock Option Plan
Recent Sales Of Unregistered Securities
None.
Issuer Purchases Of Equity Securities
None
Item 6. 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 and uncertainties that may cause our actual
results or outcomes 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.
CVD Equipment Corporation designs, develops, manufactures, markets,
installs and services equipment primarily for the semiconductor
industry. The Company's products and services include (1) batch and
single wafer systems used for depositing, rapid thermal processing,
annealing, diffusion and etching of semiconductor films (2) gas and
liquid flow control systems (3) ultra high purity gas and chemical
piping delivery systems; (4) standard and custom quartzware, and (5)
reflow furnaces and rework stations for surface mounting of components
onto printed circuit boards. We also provide equipment consulting, and
refurbishing of semiconductor processing equipment. The Company's
products are generally manufactured as standard products, or customized
to the particular specifications of its customers.
Results of Operations
Revenue for the year ended December 31, 2004 was approximately
$9,874,000 compared to approximately $9,788,000 for the year ended
December 31, 2003, representing an increase of $86,000 or 0.9%. Revenue
from the Conceptronic Division was approximately $4,820,000 or 48.8% of
the total revenue generated for the twelve months ended December 31,
2004 compared to $4,107,000 or 42.0% of the total revenue generated in
the twelve months ended December 31, 2003. The Company spent a
considerable part of 2004 redesigning and reengineering its product
lines and in the latter half of the year, the Company had implemented
enough of the upgrades to increase its manufacturing and shipping of
Conceptronic equipment. Revenue from the CVD Division decreased to
approximately $2,810,000 or 28.5% of total revenues during the year
ended December 31, 2004, compared to $3,758,000, or 38.4% of total
revenues, for the year ended December 31, 2003. This decrease was due
to overall softness in the economy for the majority of the year ended
December 31, 2004, causing existing and potential customers to reduce
or delay their capital expenditures, resulting in our primary source of
revenue, the manufacture of customized CVD equipment and gas and
chemical delivery systems to be negatively impacted. However, during
the latter portion of the year, the CVD Division began to experience an
increase in orders and sales. The Company's third division, Stainless
Design Concepts ("SDC") also saw an increase in revenues towards the
end of the year, enabling it to reach $2,243,000 or 22.7% of total
revenue for the year ended December 31, 2004 compared to $1,925,000 or
19.7% of total revenue in the year ended December 31, 2003.
Cost of revenue decreased for the year ended December 31, 2004 to
approximately $6,549,000 from approximately $7,484,000 for the year
ended December 31, 2003 representing a decrease of approximately
$935,000 or 12.5%. The gross profit for the current year increased to
approximately $3,325,000 from last year's $2,304,000, an increase of
approximately $1,021,000 with a corresponding increase in gross profit
margin to 33.7% for the current year compared to 23.5% for the prior
year. During the current year, all three divisions experienced an
increase in gross profit margin, with the Conceptronic Division
experiencing the largest increase in gross profit and gross profit
margin. The gross profit margin for Conceptronic increased from 18%
during the year ended December 31, 2003 to 31% for the year ended
December 31, 2004. These increases are the result of the time and
efforts spent by the Company during the past year in redesigning and
reengineering some of the product lines into a more cost effective and
efficient system.
Selling and shipping expenses were approximately $691,000 in the year
ended December 31, 2004 compared to $740,000 in the year ended December
31, 2003, representing a decrease of 6.6%. The decrease is
attributable to 2004's full year impact of reductions made in the sales
staff during 2003.
General and administrative expenses were approximately $2,225,000
during the year ended December 31, 2004. This was an increase of
approximately $101,000 or 4.8% compared to approximately $2,164,000
during the year ended December 31, 2003. The Company experienced an
increase in professional fees as a result of the requirements of
complying with the Sarbanes-Oxley Act, in addition to a general
increase in costs associated with employee benefits and building
utilities.
The Company earned minimal interest income for both 2004 and 2003 as a
result of the utilization of all of its available funds for operations.
The Company incurred $213,000 of interest expense in the year ended
December 31, 2004, which was a slight increase of $4,000 or 1.9% over
the interest expense incurred in the year ended December 31, 2003. The
primary source of this interest expense, approximately $190,000 in the
current year and approximately $204,000 in the year ended December 31,
2003, was the interest expense on the mortgages for the two buildings
the Company owns. The increase in the balance of interest expense is
due to the higher average outstanding debt on the company's revolving
line of credit from its bank in the year ended December 31, 2004 than
in the year ended December 31, 2003.
Other income decreased to approximately $26,000 during the year ended
December 31, 2004 compared to approximately $310,000 during the year
ended December 31, 2003. This is a result of the reduction in cash
received on the collection of accounts receivable exceeding the
$369,000 recorded as part of the purchase of substantially all of the
assets of Conceptronic Inc.'s Surface Mount Technology business that
occurred in 2002, which was a nonrecurring event.
Liquidity and Capital Resources
As of December 31, 2004, we had aggregate working capital of
approximately $2,878,000 compared to aggregate working capital of
$2,857,000 at December 31, 2003 and had available cash and cash
equivalents of approximately $171,000 compared to approximately
$321,000 in cash and cash equivalents at December 31, 2003. The cash
used for operations and capital expenditures exceeded the funds
provided by financing activities.
Accounts receivable, net of allowance for doubtful accounts increased
by approximately $556,000 or 30.5% at December 31, 2004 to $2,375,257
compared to $1,819,744 at December 31, 2003.
Inventory as of December 31, 2004 was approximately $1,823,000
representing an increase of approximately $398,000 or 27.9% over the
inventory balance as of December 31, 2003. The increase in inventory
was comprised of a decrease in raw materials of approximately $149,000,
an increase in work in process of approximately $578,000 and a decrease
in finished goods of approximately $31,000. The build-up in work in
process is indicative of the increase in orders that the Company is
experiencing. Accounts payable at December 31, 2004 was approximately
$726,000 or 39.4% higher than it was at December 31, 2003. This higher
level of accounts payable at December 31, 2004 is also attributed to
the necessary increase in materials purchased in order to fill the
higher level of orders.
The Company has a line of credit with a bank permitting it to borrow up
to $1,000,000 until June 1, 2005, at which time it is subject to
renewal. 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, the
outstanding balances on this facility were $850,000 and $0
respectively.
In March, 2002, the Company received from General Electric Capital
Corporation a $2,700,000 mortgage, secured by the real property and
building and improvements to finance and improve a new facility in
Ronkonkoma, New York. The mortgage, which has an outstanding balance as
of December 31, 2004 of $2,357,668, is payable in equal monthly
installments of $22,285 including interest at 5.67% per annum; pursuant
to an Industrial Development bond purchase agreement with the town of
Islip Industrial Development Agency. The final payment is due March
2017.
In April, 1999 the Company received from Kidco Realty Corporation a
$900,000 purchase money mortgage, secured by the real property,
building and improvements in Saugerties, New York. The mortgage has an
outstanding balance at December 31, 2004 of $838,645 and is payable in
equal monthly installments of $5,988 including interest at 7% per
annum. The entire principal comes due in May 2009.
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 we may need to raise
capital through additional equity or debt financing.
Significant Accounting Policies
The Company continues to recognize 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 total estimated costs over the
percentage of total costs incurred on individual contracts,
commencing, when progress reaches a point where experience is
sufficient to estimate final results with reasonable accuracy. Under
this method, revenues are recognized based on costs incurred to date
compared with total estimated costs.
The asset, "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 billing in excess of revenues recognized.
Off-Balance Sheet Arrangements
None
Item 7. Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data required in
this item are set forth on the pages indicated in Item 13.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None
Item 8A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. In response to the
requirements of the Sarbanes-Oxley Act of 2002, as of the end of the period
covering this report, the evaluation date, our Chief Executive Officer and
Chief Financial Officer carried out an evaluation of the effectiveness of
our "disclosure controls and procedures" (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based on that
evaluation, these officers concluded that, as of the evaluation date, our
disclosure controls and procedures were adequate and effective to ensure
that material information relating to us and our consolidated subsidiary was
made known to them by others within those entities, particularly during the
period in which this report was being prepared.
Changes in Internal Controls. There were no changes in our internal
controls over financial reporting, identified in connection with the
evaluation of such internal controls that occurred during our last fiscal
quarter, that have materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.
Item 8B. Other Information
None
PART III
Item 9. Management
Board of Directors and Executive Officers
Our Certificate of Incorporation and Bylaws provide for our business to be
managed by or under the direction of the Board of Directors. Under our
Certificate of Incorporation and Bylaws, the number of directors is fixed
from time to time by the board of Directors. The Board of Directors
currently consists of five members. Directors are elected for a period of
one year and thereafter serve, subject to the bylaws, until the next annual
meeting at which their successors are duly elected by the stockholders.
Name Age Position(s) with the Company
---------------------- ------ -------------------------------
Leonard A. Rosenbaum 59 Director, Chief Executive Officer, President
Alan H. Temple Jr. 71 Director, Chairman Compensation Committee
Martin J. Teitelbaum 55 Director, Assistant Secretary
Conrad Gunther 56 Director, Chairman Audit Committee
Bruce T. Swan 72 Director, Chairman Nominating, Governance
and Compliance Committee
Glen R. Charles 51 Chief Financial Officer, Secretary
Leonard Rosenbaum
Leonard Rosenbaum founded the Company in 1982 and has been its President,
Chief Executive Officer and a Director since that date. From 1971 until the
time of his affiliation with the Company in 1982, Mr. Rosenbaum was
President, Director and principal stockholder of Nav-Tec Industries, a
manufacturer of semiconductor processing equipment similar to the type of
equipment presently manufactured by the Company. From 1966 to 1971, Mr.
Rosenbaum was employed by a division of General Instrument, a manufacturer
of semiconductor materials and equipment.
Alan H. Temple Jr.
Alan H. Temple Jr. has been a member of the Board of Directors since 1987.
Mr. Temple earned an MBA at Harvard University and has been President of
Harrison Homes Inc., a building and consulting firm located in Pittsford,
New York since 1977.
Martin J. Teitelbaum
Martin Teitelbaum is an attorney, who since 1988, has conducted his own
private practice, the Law Offices of Martin J. Teitelbaum. Prior to
establishing his own firm, from 1977 to 1987, Mr. Teitelbaum was a partner
in the law firm of Guberman and Teitelbaum. Mr. Teitelbaum became a member
of the Board of Directors for the Company in 1985. He is presently the
Secretary of the Company, a position Mr. Teitelbaum also held from 1986 to
1998.
Conrad Gunther
Conrad Gunther was elected to the Board of Directors at the annual meeting
in 2000. Mr. Gunther has extensive experience in mergers and acquisitions
and raising capital through both public and private means. He also has
extensive experience in executive management in the banking industry as well
as serving on the Board of Directors of Reliance Bancorp, Childrobics and
GVC Venture Corp, all public companies. For the past five years, Mr.
Gunther has been the President of E-Billsolutions, a company that provides
credit card processing to Internet, mail order and telephone order merchants
Bruce T. Swan
Bruce Swan was appointed a member of the Board of Directors in September
2003. Mr. Swan has extensive banking, export and international credit
experience and has been retired for more than five years. He previously has
held the positions of Deputy Manager at Brown Brothers Harriman and Co.,
Assistant Treasurer at Standard Brands Incorporated, Assistant Treasurer at
Monsanto Corporation, Vice President and Treasurer at AM International Inc.
and President and Founder of Export Acceptance Company. Mr. Swan, earned his
MBA from Harvard University and is a former adjunct faculty member of New
York University's Stern School of Business Administration.
Glen R. Charles
Mr. Charles has been the Chief Financial Officer and Secretary of the
Company since January, 2004. From 2002 until he joined the Company, he was
the Director of Financial Reporting for Jennifer Convertibles, Inc., the
owner and licensor of the largest group of sofabed specialty retail stores
in the United States. From 1994 to 2002, he was the Chief Financial Officer
of Trans Global Services, Inc., a provider of temporary technical services
to the aerospace, aircraft, electronics and telecommunications markets. Mr.
Charles has also had his own business in the private practice of accounting.
Code Of Ethics
The Company has adopted a Corporate Code of Conduct and Ethics that applies
to its employees, senior management, and Board of Directors, including the
Chief Executive Officer and Chief Financial Officer. See Exhibit 14.1.
Audit Committee
The Board of Directors has an Audit Committee that consists of Conrad
Gunther, Alan H. Temple Jr., Bruce T. Swan and Martin J. Teitelbaum. During
the fiscal year ended December 31, 2004, the Audit Committee held five
meetings. The Board of Directors has adopted and amended a written charter
for the Audit Committee. Pursuant to the Audit Committee Charter, the
Audit Committee is empowered to retain and terminate the services of our
independent public accountants and review the independence of such public
accounting firm. The Audit Committee also reviews financial statements, the
scope and results of annual audits and the audit and non audit fees of the
independent public accountants. Furthermore, the committee reviews the
adequacy of our internal control procedures, the structure of our financial
organization and the implementation of our financial and accounting
policies. Messrs. Gunther, Temple and Swan are "independent" as defined in
Section 121(B) of the American Stock Exchange original listing requirements.
Under new SEC rules, companies are required to disclose whether their audit
committees have an "audit committee financial expert" as defined in Item
401(e) of Regulation S-B under the Securities Exchange Act of 1934 and
whether that expert is "independent" as that term is used in Item
7(d)(3)(iv) of Schedule 14A under the Exchange Act. The Board of Directors
has determined that Conrad Gunther is an "audit committee financial expert"
and is also "independent".
Section 16(a) Beneficial Ownership Reporting Compliance
The rules of the Securities and Exchange Commission require us to disclose
late filings of reports of stock ownership and changes in stock ownership by
our directors, officers and ten percent stockholders. To our knowledge,
based solely on our review of (a) the copies of such reports and amendments
thereto furnished to us and (b) written representations that no other
reports were required, during our fiscal year ended December 31, 2004, all
of the filings for our officers, directors and ten percent stockholders were
made on a timely basis.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth compensation paid for the years ending
December 31, 2004, 2003 and 2002, or such shorter period as such employees
were employed by us, to those persons who were either (a) the chief
executive officer as of December 31, 2004 or (b) one of our four other most
highly compensated executive officers or executive employees as of December
31, 2004 whose total annual salary and other compensation exceeded $100,000
(collectively with the Chief Executive Officer, the "Named Executive
Officers").
Annual Compensation Long -term Compensation
Awards Payouts
Securities
Name and principal Underlying
position Year Salary Bonus options/
-------------------- ---- -------- -------- --------
$ $ $ #
Leonard A. Rosenbaum 2004 162,742 15,000(1)
President and Chief 2003 165,645 0
Executive Officer 2002 165,478 20,000 0
Glen R. Charles 2004 105,269 0
Secretary and Chief 2003 0
Financial Officer 2002 0
________________
(1) On September 23, 2003, Mr. Rosenbaum was granted options to purchase
15,000 shares of our common stock at $1.40 per share.
The company is the owner of a life insurance policy on the life of Leonard
Rosenbaum in the amount of $2,000,000. The Company is the sole beneficiary
of said policy.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 4, 2005, information regarding
the beneficial ownership of our common stock by (a) each person who is
known to us to be the owner of more than five percent of our common stock,
(b) each of our directors, (c) each of the named executive officers, and
(d) all directors and executive officers and executive employees as a
group.
Amounts and Nature of Percent of Class
Name and Address of Beneficial Owner Beneficial Ownership (1) (%)
------------------------------------ ------------------------ ----------------
Leonard A. Rosenbaum 1,315,450 (2) 43.3
Alan H. Temple Jr. 211,000 (3) 6.9
Martin J. Teitelbaum 41,000 (4) 1.3
Conrad Gunther 15,000 (5) 0.5
Bruce T. Swan 5,000 (6) 0.2
All directors and executive officers and
executive employees as a group (five (5)
persons) 1,587,450 52.2
______________________________
(1) All of such shares are owned directly with sole voting and investment
power, unless otherwise
noted below.
(2) Includes 15,000 shares of our common stock underlying options which are
currently
exercisable.
(3) Includes an aggregate of 21,000 shares held by Mr. Temple's wife, as to
which he disclaims beneficial interest and 15,000 shares of our common
stock underlying currently exercisable options.
(4) Includes 2,000 shares held by Mr. Teitelbaum's wife as to which
beneficial ownership thereof is disclaimed by Mr. Teitelbaum and 15,000
shares of our common stock underlying currently exercisable options.
(5) Includes 15,000 shares of our common stock underlying currently
exercisable options.
(6) Includes 5,000 shares of our common stock underlying currently
exercisable options.
Item 12. Certain Relationships and Related Transactions
None.
Exhibits
PART IV
Item 13. Exhibits, Financial Statement Schedules and Reports on form 8-K.
(a) (1) Financial Statements
The financial statements required by this item are submitted
in a separate section beginning on Page F-1 of this report.
(2) Financial Statement Schedules
Schedules have been omitted because of the absence of conditions
under which they are required or because the required information
is included in the financial statements or notes thereto.
(3) See Exhibit Index on Page 20.
(b) Reports on Form 8-K.
(1) On December 23, 2004 we filed a current report on Form 8-K
announcing the resignation of our independent accountants
Albrecht, Viggiano, Zureck and Company, P.C. and the appointment
of our new independent accountants Moore Stephens, P.C..
(c) Exhibits.
See (a) (3) above.
(d) Financial Statement Schedules.
See (a) (2) above
Item 14. Principal Accountant Fees and Services
The following presents fees for professional audit services rendered by
Moore Stephens, P.C. for the audit of our financial statements for the year
ended December 31, 2004 and the fees for professional audit services
rendered by Albrecht, Viggiano, Zureck and Company, P.C. for December 31,
2003 and fees billed for other services rendered by Albrecht, Viggiano,
Zureck and Company, P.C. during those periods.
Audit Fees
The aggregate fees billed audit work performed in the preparation and
review of our annual financial statements and review of financial
statements included in our quarterly reports filed with the Securities and
Exchange Commission for 2003 was $57,000, and for 2004 was $72,900.
Audit- Related Fees
Audit related fees consisted principally of assistance in connection with
the interpretation of comment letters we received from the SEC regarding
our annual statement for fiscal year 2002 and quarterly statements for
March 31, 2003, June 30, 2003 and September 30, 2003. The aggregate fees
billed for such services was $3,675 in 2003 and $5,900 in 2004.
Tax Fees
Tax fees consisted principally of tax preparation of the 2002 and 2003
annual tax returns in addition to work performed with regard to the New
York State tax audit for the fiscal years ended 2000-2002. The aggregate
fees billed for such services was $3,000 in 2003 and $5,025 in 2004.
All Other Fees
None
Audit Committee Approval
The engagement of the Company's independent auditors is pre-approved by
the Company's Audit Committee. The Audit Committee pre-approves all fees
billed and all services rendered by the Company's independent auditors.
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.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Name: Leonard A. Rosenbaum
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated
below.
NAME POSITION DATE
------------------------ ---------------------------------- --------------
/s/ Leonard A Rosenbaum President, Chief Executive Officer March 24, 2004
and Director
Leonard A. Rosenbaum (Principal Executive Officer)
/s/ Alan H. Temple Jr. Director March 24, 2004
Alan H. Temple Jr.
/s/ Martin J. Teitelbaum Director and Assistant Secretary March 24, 2004
Martin J. Teitelbaum
/s/ Conrad Gunther Director March 24, 2004
Conrad Gunther
/s/ Bruce T. Swan Director March 24, 2004
Bruce T. Swan
/s/ Glen R. Charles Chief Financial Officer March 24, 2004
and Secretary
Glen R. Charles (Principal Financial and Accounting Officer)
EXHIBIT INDEX
3.1 Certificate of Amendment dated October 12, 1982 of Certificate of
Corporation incorporated herein by reference to Exhibit 3.1 to
our Registration No. 2-97210-NY.
3.2 Certificate of Amendment dated April 25, 1985 of Certificate of
Corporation incorporated herein by reference to Exhibit 3.1 to
our Registration No. 2-97210-NY.
3.3 Certificate of Amendment dated August 12, 1985 of Certificate of
Corporation incorporated herein by reference to Exhibit 3.1 to our
Registration No. 2-97210-NY.
3.4 Bylaws of CVD Equipment Corporation, incorporated herein by
reference to our Registration No. 2-97210-NY.
10.1 Form of Non-Qualified Stock Option Agreement with certain
directors, officers and employees of CVD Equipment Corporation incorporated
herein by reference to our Registration Statement on Form S-8 No. 33-30501,
filed August 15, 1989.
10.2 Purchase at public auction the inventory, tangible assets,
intangible assets and intellectual property of Stainless Design
Corporation incorporated herein by reference to our Form 8-K
filed on December 31, 1998.
10.3 Purchase a 22,000 square foot facility from Kidco Realty
incorporated herein by reference to our Form 8-K filed on
December 31, 1998.
10.4 Purchase a 50,000 square foot facility from Arrow Electronics
incorporated herein by reference to our Form 8-K filed on
November 12, 2001.
10.5 Purchase substantially all of the assets of Research Inc.'s
Surface Mount Technology business incorporated herein by
reference to our Form 8-K filed on November 12, 2001.
10.6 Purchase substantially all of the assets of Conceptronic Inc.'s
Surface Mount Technology business incorporated herein by
reference to our Form 8-K filed on July 1, 2002.
14.1 Corporate Code of Conduct and Ethics.*
21.1 Subsidiaries*
31.1 Certification of Chief Executive Officer. *
31.2 Certification of Chief Financial Officer. *
32.1 Certification of Principal Executive Officer pursuant to U.S.C.
Section 1350. *
32.2 Certification of Principal Financial Officer pursuant to U.S.C.
Section 1350. *
* Filed herewith
Exhibit 14.1
CVD EQUIPMENT CORPORATION
CORPORATE CODE OF CONDUCT AND ETHICS
FOREWORD
This Corporate Code of Conduct and Ethics, referred to as the "Code," is
intended to provide our associates, as defined below, with a clear
understanding of the principles of business conduct and ethics that are
expected of them. The standards set forth in the Code apply to us all. Every
associate of the company must acknowledge his or her review of and agreement
to comply with the Code as a condition of his or her relationship with the
company. The term "associate" means every full and part-time employee of the
company and its subsidiaries, all members of the company's senior
management, including the company's Chief Executive Officer and Chief
Financial Officer, and every member of the company's Board of Directors,
even if such member is not employed by the company.
Many of the standards outlined on the following pages will be familiar,
for they reflect the fundamental values of fairness and integrity that are a
part of our daily lives. Applying these standards to our business lives is
an extension of the values by which we are known as individuals and by which
we want to be known as a company.
It is our responsibility to conduct ourselves in an ethical business
manner and also to ensure that others do the same. If any one of us violates
these standards, he or she can expect a disciplinary response, up to and
including termination of any employment or other relationship with the
company, and possibly other legal action. If any breach of the Code is known
to you, you are obligated to report violations to the Corporate Compliance
Officer or any member of the Compliance Committee, described in more detail
below. By doing so, we ensure that the good faith efforts of all of us to
comply with the Code are not undermined.
The ultimate responsibility for maintaining our Code rests with each of
us. As individuals of personal integrity, we can do no less than to behave
in a way that will continue to bring credit to our company and ourselves.
While it is impossible for this Code to describe every situation that may
arise, the standards explained in this Code are guidelines that should
govern our conduct at all times. If you are confronted with situations not
covered by this Code, or have questions regarding the matters that are
addressed in the Code, you are urged to consult with the Corporate
Compliance Officer or a member of the Compliance Committee.
The provisions of the Code regarding the actions the company will take
are guidelines, which the company intends to follow. There may be
circumstances, however, that in the company's judgment require different
measures or actions and in such cases it may act accordingly while still
attempting to fulfill the principles underlying this Code.
----------------
IMPLEMENTATION OF THE CODE
The following questions and answers address the company's implementation
of the Code. The company has attempted to design procedures that ensure
maximum confidentiality and, most importantly, freedom from the fear of
retaliation for complying with and reporting violations under the Code.
Q: Who is responsible for administering, updating and enforcing the Code?
A: The Company's Board of Directors has appointed a Corporate Compliance
Officer and a Compliance Committee Member to administer, update and enforce
the Code. Ultimately, the Board of Directors of the company must ensure that
the Corporate Compliance Officer and the Compliance Committee Member fulfill
their responsibilities.
The Corporate Compliance Officer is Karen Hamberg. The Corporate
Compliance Officer has overall responsibility for overseeing the
implementation of the Code. Specific responsibilities of the position are
to:
o Develop the Code based on legal requirements, regulations and
ethical considerations that are raised in
the company's operations;
o Ensure that the Code is distributed to all associates and that all
associates acknowledge the principles of the Code;
o Assess compliance success with the Code;
o Serve as a point person for reporting violations and asking
questions under the Code; and
o Revise and update the Code to respond to detected violations and
changes in the law.
o Recommend to Committee revisions and updates
The Compliance Committee Member is Bruce Swan. The primary
responsibilities of the Compliance Committee Member is to:
o Assist the Corporate Compliance Officer in developing and updating
the Code;
o Develop internal procedures to monitor and audit compliance with
the Code;
o Serve as a point person for reporting violations and asking
questions under the Code;
o Set up a mechanism for anonymous reporting of suspected violations
of the Code by associates and refer, when appropriate, such
reports to the Audit Committee;
o Conduct internal investigations, with the assistance of counsel,
of suspected compliance violations;
o Evaluate disciplinary action for associates who violate the Code;
o In the case of more severe violations of the Code, make
recommendations regarding disciplinary action to the Board of
Directors or a committee thereof; and
o Evaluate the effectiveness of the Code and improve the Code.
The Compliance Committee Member will provide a summary of all matters
considered under the Code to the Board of Directors or a committee thereof
at each regular meeting thereof, or sooner if warranted by the severity of
the matter. All proceedings and the identity of the person reporting will be
kept as confidential as practicable under the circumstances.
Q: How can I contact the Corporate Compliance Officer and the
Compliance Committee Member?
A: The names and phone numbers of the Corporate Compliance Officer
and the Compliance Committee Member are listed below. Any one of
these individuals can assist you in answering questions or
reporting violations or suspected violations under the Code.
Karen Hamberg 631 981-7081 extension 213
Corporate Compliance Officer
Bruce Swan 203 226-0656
Compliance Committee Member
GENERAL REQUIREMENTS
To be honest, fair, and accountable in all business dealings and obligations,
and to ensure:
o The ethical handling of conflicts of interest between personal and
professional relationships;
o Full, fair, accurate, timely and understandable disclosure in the
reports required to be filed by the company with the Securities
and Exchange Commission and in other public communications made by
the company; and
o Compliance with applicable governmental laws, rules and
regulations.
========
CONFLICTS OF INTEREST
Associates should avoid any situation that may involve, or even appear to
involve, a conflict between their personal interests and the interests of
the company. In dealings with current or potential customers, suppliers,
contractors, and competitors, each associate should act in the best
interests of the company to the exclusion of personal advantage. Associates
are prohibited from any of the following activities, which could represent
an actual or perceived conflict of interest:
o No associate or immediate family member of an associate shall have
a significant financial interest in, or obligation to, any outside
enterprise which does or seeks to do business with the company or
which is an actual or potential competitor of the company, without
prior approval from the Compliance Committee Member, or in the
case of executive officers or members of the Board of Directors,
the full Board of Directors or a committee thereof.
o No associate shall conduct a significant amount of business on the
company's behalf with an outside enterprise which does or seeks to
do business with the company if an immediate family member of the
associate is a principal, officer or employee of such enterprise,
without prior approval from the Compliance Committee Member, or in
the case of executive officers or members of the Board of
Directors, the full Board of Directors or a committee thereof.
o No associate or immediate family member of an associate shall
serve as a director of any actual or potential competitor of the
company.
o No associate shall use any company property or information or his
or her position at the company for his or her personal gain.
o No associate shall engage in activities that are directly
competitive with those in which the company is engaged.
o No associate shall divert a business opportunity from the company
to such individual's own benefit. If an associate becomes aware of
an opportunity to acquire or profit from a business opportunity or
investment in which the company is or may become involved or in
which the company may have an existing interest, the associate
should disclose the relevant facts to the Corporate Compliance
Officer or the Compliance Committee Member. The associate may
proceed to take advantage of such opportunity only if the company
is unwilling or unable to take advantage of such opportunity as
notified in writing by the Compliance Committee Member.
o No associate or immediate family member of an associate shall
receive any loan or advance from the company, or be the
beneficiary of a guarantee by the company of a loan or advance
from a third party, except for customary advances or corporate
credit in the ordinary course of business or approved by the
Compliance Committee Member. Please see Section IV.E. below,
"Corporate Advances", for more
information on permitted corporate advances.
In addition, the Audit Committee of the Board of Directors will review
and approve all related-party transactions, as required by the Securities
and Exchange Commission, The American Stock Exchange or any other regulatory
body to which the company is subject.
Each associate should make prompt and full disclosure in writing to the
Corporate Compliance Officer or Compliance Committee Member of any situation
that may involve a conflict of interest. Failure to disclose any actual or
perceived conflict of interest is a violation of the Code.
=========
PROTECTION AND PROPER USE OF COMPANY ASSETS AND ASSETS ENTRUSTED TO IT
Proper protection and use of company assets and assets entrusted to it by
others, including proprietary information, is a fundamental responsibility
of each associate of the company. Associates must comply with security
programs to safeguard such assets against unauthorized use or removal, as
well as against loss by criminal act or breach of trust. The provisions
hereof relating to protection of the company's property also apply to
property of others entrusted to it (including proprietary and confidential
information).
Proper Use of Company Property
The removal from the company's facilities of the company's property is
prohibited, unless authorized by the company. This applies to furnishings,
equipment, and supplies, as well as property created or obtained by the
company for its exclusive use - such as client lists, files, personnel
information, reference materials and reports, computer software, data
processing programs and data bases. Neither originals nor copies of these
materials may be removed from the company's premises or used for purposes
other than the company's business without prior written authorization from
the Compliance Committee Member.
The company's products and services are its property; contributions made by
any associate to their development and implementation are the company's
property and remain the company's property even if the individual's
employment or directorship terminates.
Each associate has an obligation to use the time for which he or she
receives compensation from the company productively. Work hours should be
devoted to activities directly related to the company's business.
Confidential Information
The company provides its associates with confidential information relating
to the company and its business with the understanding that such information
is to be held in confidence and not communicated to anyone who is not
authorized to see it, except as may be required by law. The types of
information that each associate must safeguard include (but are not limited
to) the company's plans and business strategy, unannounced products and/or
contracts, sales data, significant projects, customer and supplier lists,
patents, patent applications, trade secrets, manufacturing techniques and
sensitive financial information, whether in electronic or conventional
format. These are costly, valuable resources developed for the exclusive
benefit of the company. No associate shall disclose the company's
confidential information to an unauthorized third party or use the company's
confidential information for his or her own personal benefit.
Accurate Records and Reporting
Under law, the company is required to keep books, records and accounts that
accurately and fairly reflect all transactions, dispositions of assets and
other events that are the subject of specific regulatory record keeping
requirements, including generally accepted accounting principles and other
applicable rules, regulations and criteria for preparing financial
statements and for preparing periodic reports filed with the Securities and
Exchange Commission. All company reports, accounting records, sales reports,
expense accounts, invoices, purchase orders, and other documents must
accurately and clearly represent the relevant facts and the true nature of
transactions.
Reports and other documents should state all material facts of a transaction
and not omit any information that would be relevant in interpreting such
report or document. Under no circumstance may there be any unrecorded
liability or fund of the company, regardless of the purposes for which the
liability or fund may have been intended, or any improper or inaccurate
entry knowingly made on the books or records of the company. No payment on
behalf of the company may be approved or made with the intention,
understanding or awareness that any part of the payment is to be used for
any purpose other than that described by the documentation supporting the
payment. In addition, intentional accounting misclassifications (e.g.,
expense versus capital) and improper acceleration or deferral of expenses or
revenues are unacceptable reporting practices that are expressly prohibited.
The company has developed and maintains a system of internal controls to
provide reasonable assurance that transactions are executed in accordance
with management's authorization, are properly recorded and posted, and is in
compliance with regulatory requirements. The system of internal controls
within the company includes written policies and procedures, budgetary
controls, supervisory review and monitoring, and various other checks and
balances, and safeguards such as password protection to access certain
computer systems.
The company has also developed and maintains a set of disclosure controls
and procedures to ensure that all of the information required to be
disclosed by the company in the reports that it files or submits under the
Securities Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the Securities and Exchange
Commission's rules and forms.
Associates are expected to be familiar with, and to adhere strictly to,
these internal controls and disclosure controls and procedures.
Responsibility for compliance with these internal controls and disclosure
controls and procedures rests not solely with the company's accounting
personnel, but with all associates involved in approving transactions,
supplying documentation for transactions, and recording, processing,
summarizing and reporting of transactions and other information required by
periodic reports filed with the Securities and Exchange Commission. Because
the integrity of the company's external reports to shareholders and the
Securities and Exchange Commission depends on the integrity of the company's
internal reports and record-keeping, all associates must adhere to the
highest standards of care with respect to our internal records and
reporting. The company is committed to full, fair, accurate, timely, and
understandable disclosure in the periodic reports required to be filed by it
with the Securities and Exchange Commission, and it expects each associate
to work diligently towards that goal.
Any associate who believes the company's books and records are not in accord
with these requirements should immediately report the matter to the
Corporate Compliance Officer or the Compliance Committee Member. The company
has adopted explicit non-retaliation policies with respect to these matters,
as described in Section VIII below.
Document Retention
Numerous federal and state statutes require the proper retention of many
categories of records and documents that are commonly maintained by
companies. In consideration of those legal requirements and the company's
business needs, all associates must maintain records in accordance with the
company's Document Retention Policy, a copy of which is available from the
Corporate Compliance Officer.
In addition, any record, in paper or electronic format, relevant to a
threatened, anticipated or actual internal or external inquiry,
investigation, matter or lawsuit may not be discarded, concealed, falsified,
altered, or otherwise made unavailable, once an associate has become aware
of the existence of such threatened, anticipated or actual internal or
external inquiry, investigation, matter or lawsuit. Associates must handle
such records in accordance with the procedures outlined in the company's
Document Retention Policy.
When in doubt regarding retention of any record, an associate must not
discard or alter the record in question and should seek guidance from the
Corporate Compliance Officer the Compliance Committee Member. Associates
should also direct all questions regarding our Document Retention Policy and
related procedures to the Corporate Compliance Officer or the Compliance
Committee Member.
E. Corporate Advances
Under law, the company may not loan money to associates except in limited
circumstances. It shall be a violation of the Code for any associate to
advance company funds to any other associate or to himself or herself except
for usual and customary business advances for legitimate corporate purposes
which are approved by a supervisor or pursuant to a corporate credit card
for usual and customary, legitimate business purposes.
Company credit cards are to be used only for authorized, legitimate business
purposes. An associate will be responsible for any unauthorized charges to a
company credit card.
FAIR DEALING WITH CUSTOMERS, SUPPLIERS, COMPETITORS, AND ASSOCIATES
The company does not seek to gain any advantage through the improper use of
favors or other inducements. Good judgment and moderation must be exercised
to avoid misinterpretation and adverse effect on the reputation of the
company or its associates. Offering, giving, soliciting or receiving any
form of bribe to or from an employee of a customer or supplier to influence
that employee's conduct is strictly prohibited.
Giving Gifts
An associate must not give cash or cash-equivalent gifts to any person or
enterprise.
Receiving Gifts
Gifts, favors, entertainment or other inducements may not be accepted by
associates or members of their immediate families from any person or
organization that does or seeks to do business with, or is a competitor of,
the company, except as common courtesies usually associated with customary
business practices. If the gift is of more than token value, the Compliance
Committee must approve its acceptance.
An especially strict standard applies when suppliers are involved. If a gift
unduly influences or makes an associate feel obligated to "pay back" the
other party with business, receipt of the gift is unacceptable.
It is never acceptable to accept a gift in cash or cash equivalent.
Unfair Competition
Although the free enterprise system is based upon competition, rules have
been imposed stating what can and what cannot be done in a competitive
environment. The following practices can lead to liability for "unfair
competition" and should be avoided. They are violations of the Code.
Disparagement of Competitors. It is not illegal to point out weaknesses
in a competitor's service, product or operation; however, associates may not
spread false rumors about competitors or make misrepresentations about their
businesses. For example, an associate may not pass on anecdotal or
unverified stories about a competitor's products or services as the absolute
truth (e.g., the statement that "our competitors' diagnostic testing
procedures have poor quality control").
Misrepresentations of Price and Product. Lies or misrepresentations about
the nature, quality or character of the company's services and products are
both illegal and contrary to company policy. An associate may only describe
our services and products based on their documented specifications, not
based on anecdote or his or her belief that our specifications are too
conservative.
Antitrust Concerns
Federal and state antitrust laws are intended to preserve the free
enterprise system by ensuring that competition is the primary regulator of
the economy. Every corporate decision that involves customers, competitors,
and business planning with respect to output, sales and pricing raises
antitrust issues. Compliance with the antitrust laws is in the public
interest, in the interest of the business community at large, and in our
company's interest.
Failing to recognize antitrust risk is costly. Antitrust litigation can
be very expensive and time-consuming. Moreover, violations of the antitrust
laws can, among other things, subject you and the company to the imposition
of injunctions, treble damages, and heavy fines. Criminal penalties may also
be imposed, and individual employees can receive heavy fines or even be
imprisoned. For this reason, antitrust compliance should be taken seriously
at all levels within the company.
A primary focus of antitrust laws is on dealings between competitors. In
all interactions with actual or potential competitors all associates must
follow these rules:
o Never agree with a competitor or a group of competitors to charge
the same prices or to use the same pricing methods, to allocate
services, customers, private or governmental payor contracts or
territories among yourselves, to boycott or refuse to do business
with a provider, vendor, payer or any other third party, or to
refrain from the sale or marketing of, or limit the supply of,
particular products or services.
o Be careful of your conduct. An "agreement" that violates the
antitrust laws may be not only a written or oral agreement, but
also a "gentlemen's agreement" or a tacit understanding. Such an
"agreement" need not be in writing. It can be inferred from
conduct, discussions or communications of any sort with a
representative of a competitor.
o Make every output-related decision (pricing, volume, etc.)
independently, in light of costs and market conditions and
competitive prices.
o Carefully monitor trade association activity. These forums
frequently create an opportunity for competitors to engage in
antitrust violations.
Finally, always immediately inform the Corporate Compliance Officer or
the Compliance Committee Member if local, state or federal law enforcement
officials request information from the company concerning its operations.
GOVERNMENT RELATIONS
Associates must adhere to the highest standards of ethical conduct in all
relationships with government employees and must not improperly attempt to
influence the actions of any public official.
Payments to Officials
Payments or gifts shall not be made directly or indirectly to any government
official or associate if the gift or payment is illegal under the laws of
the country having jurisdiction over the transaction, or if it is for the
purpose of influencing or inducing the recipient to do, or omit to do, any
act in violation of his or her lawful duty. Under no circumstances should
gifts be given to employees of the United States Government.
Political Contributions
Company funds, property or services may not be contributed to any political
party or committee, or to any candidate for or holder of any office of any
government. This policy does not preclude, where lawful, company
expenditures to support or oppose public referendum or separate ballot
issues, or, where lawful and when reviewed and approved in advance by the
Compliance Committee Member, the formation and operation of a political
action committee.
COMPLIANCE WITH LAWS, RULES AND REGULATIONS
Insider Trading Policy
The company expressly forbids any associate from trading on material non-
public information or communicating material non-public information to
others in violation of the law. This conduct is frequently referred to as
"insider trading." This policy applies to every associate of the company and
extends to activities both within and outside their duties to the company,
including trading for a personal account.
The concept of who is an "insider" is broad. It includes officers,
directors and employees of a company. In addition, a person can be a
"temporary insider" if he or she enters into a special confidential
relationship in the conduct of a company's affairs and as a result is given
access to information solely for the company's purpose. A temporary insider
can include, among others, a company's investment advisors, agents,
attorneys, accountants and lending institutions, as well as the employees of
such organizations. An associate may also become a temporary insider of
another company with which our company has a contractual relationship, to
which it has made a loan, to which it provides advice or for which it
performs other services.
Trading on inside information is not a basis for liability unless the
information is material. This is information that a reasonable investor
would consider important in making his or her investment decisions, or
information that is likely to have a significant effect on the price of a
company's securities.
Information is non-public until it has been effectively communicated to
the marketplace. Tangible evidence of such dissemination is the best
indication that the information is public. For example, information found in
a report filed with the Securities and Exchange Commission or appearing in a
national newspaper would be considered public.
Equal Employment Opportunity
The company makes employment-related decisions without regard to a
person's race, color, religious creed, age, sex, sexual orientation, marital
status, national origin, ancestry, present or past history of mental
disorder, mental retardation, learning disability or physical disability,
including, but not limited to, blindness and genetic predisposition, or any
other factor unrelated to a person's ability to perform the person's job.
"Employment decisions" generally mean decisions relating to hiring,
recruiting, training, promotions and compensation, but the term may
encompass other employment actions as well.
The company encourages its associates to bring any problem, complaint or
concern regarding any alleged employment discrimination to the attention of
the Human Resources Administrator. Associates who have concerns regarding
conduct they believe is discriminatory should also feel free to make any
such reports to the Corporate Compliance Officer or the Compliance Committee
Member.
Sexual Harassment Policy
The company is committed to maintaining a collegial work environment in
which all individuals are treated with respect and dignity and which is free
of sexual harassment. In keeping with this commitment, the company will not
tolerate sexual harassment of associates by anyone, including any
supervisor, co-worker, vendor, client or customer, whether in the workplace,
at assignments outside the workplace, at company-sponsored social functions
or elsewhere. Reporting sexual harassment is identical to reporting Ethics
Code Violations.
Each associate should be familiar with and abide by the company's Sexual
Harassment Policy. A copy of this policy is included in the employee manual
which is given to all associates when they begin employment with the
company. Additional copies can be provided by the Human Resources
administrator.
Health, Safety & Environment Laws
Health, safety, and environmental responsibilities are fundamental to the
company's values. Associates are responsible for ensuring that the company
complies with all provisions of the health, safety, and environmental laws
of the United States and of other countries where the company does business.
The penalties that can be imposed against the company and its associates
for failure to comply with health, safety, and environmental laws can be
substantial, and include imprisonment and fines.
REPORTING VIOLATIONS UNDER THE CODE: NON-RETALIATION POLICY
Any associate of the company having any information or knowledge regarding
the existence of any violation or suspected violation of the Code has a duty
to report the violation or suspected violation to the Corporate Compliance
Officer or the Compliance Committee Member. Failure to report suspected or
actual violations is itself a violation of the Code and may subject the
associate to disciplinary action, up to and including termination of
employment or legal action. The Company will endeavor to keep reports
confidential to the fullest extent practicable under the circumstances.
Any associate who reports a suspected violation under the Code by the
company, or its agents acting on behalf of the company, to the Corporate
Compliance Officer the Compliance Committee Member, may not be fired,
demoted, reprimanded or otherwise harmed for, or because of, the reporting
of the suspected violation, regardless of whether the suspected violation
involves the associate, the associate's supervisor or senior management of
the company.
In addition, any associate who reports a suspected violation under the Code
which the associate reasonably believes constitutes a violation of a federal
statute by the company, or its agents acting on behalf of the company, to a
federal regulatory or law enforcement agency, may not be reprimanded,
discharged, demoted, suspended, threatened, harassed or in any manner
discriminated against in the terms and conditions of the associate's
employment for, or because of, the reporting of the suspected violation,
regardless of whether the suspected violation involves the associate, the
associate's supervisor or senior management of the company.
QUESTIONS UNDER THE CODE AND WAIVER PROCEDURES
Associates are encouraged to consult with the Corporate Compliance
Officer and the Compliance Committee Member about any uncertainty or
questions they may have under the Code.
If any situation should arise where a course of action would likely
result in a violation of the Code but for which the associate thinks that a
valid reason for the course of action exists, the associate should contact
the Corporate Compliance Officer or the Compliance Committee Member to
obtain a waiver prior to the time the action is taken. No waivers will be
granted after the fact for actions already taken. Except as noted below, the
Compliance Committee Member will review all the facts surrounding the
proposed course of action and will determine whether a waiver from any
policy in the Code should be granted.
Waiver Procedures for Executive Officers and Directors. Waiver requests
by an executive officer or member of the Board of Directors shall be
referred by the Compliance Committee Member, with his recommendation, to the
Board of Directors or a committee thereof for consideration. If either (i) a
majority of the independent directors on the Board of Directors, or (ii) a
committee comprised solely of independent directors agrees that the waiver
should be granted, it will be granted. The company will disclose the nature
and reasons for the waiver on a Form 8-K to be filed promptly with the
Securities and Exchange Commission or otherwise as required by the
Securities and Exchange Commission or The American Stock Exchange. If the
Board denies the request for a waiver, the waiver will not be granted and
the associate may not pursue the intended course of action.
It is the company's policy only to grant waivers from the Code in limited
and compelling circumstances.
FREQUENTLY ASKED QUESTIONS AND ANSWERS
The following questions and answers address each associate's obligation
to comply with the Code. The company has attempted to design procedures that
ensure maximum confidentiality and, most importantly, freedom from the fear
of retaliation for complying with and reporting violations under the Code.
Q: Do I have a duty to report violations under the Code?
A: Yes, participation in the Code and its compliance program is
mandatory. You must immediately report any suspected or actual
violation of the Code to the Corporate Compliance Officer or the
Compliance Committee Member. The Company will endeavor to keep
reports confidential to the fullest extent practicable under the
circumstances. Failure to report suspected or actual violations is
itself a violation of the Code and may subject you to disciplinary
action, up to and including termination of employment or legal
action.
Q: I'm afraid of being fired for raising questions or reporting
violations under the Code. Will I be risking my job if I do?
A: The Code contains a clear non-retaliation policy which is located
in Section VIII of the Code, meaning that if you in good faith
report a violation of the Code by the company, or its agents
acting on behalf of the company, to the Corporate Compliance
Officer or the Compliance Committee Member, the company will
undertake to protect you from being fired, demoted, reprimanded or
otherwise harmed for reporting the violation, even if the
violation involves you, your supervisor, or senior management of
the company. The Company will endeavor to keep confidential any
report you make to the Corporate Compliance Officer or the
Compliance Committee Member to the extent practicable under the
circumstances.
In addition, if you report a suspected violation under the Code which you
reasonably believe constitutes a violation of a federal statute by the
company, or its agents acting on behalf of the company, to a federal
regulatory or law enforcement agency, you may not be reprimanded,
discharged, demoted, suspended, threatened, harassed or in any manner
discriminated against in the terms and conditions of your employment for
reporting the suspected violation, regardless of whether the suspected
violation involves you, your supervisor or senior management of the company.
Q: How are suspected violations investigated under the Code?
A: When a suspected violation is reported to the Corporate
Compliance Officer or the Compliance Committee Member, the
Corporate Compliance Officer will gather information about
the allegation by interviewing the associate reporting the
suspected violation, the associate who is accused of the
violation and/or any co-workers or associates of the accused
associates to determine if a factual basis for the allegation
exists. The reporting associate's immediate supervisor will
not be involved in the investigation if the reported violation
involved that supervisor. The Company will endeavor to keep the
identity of the reporting associate confidential to the fullest
extent practicable under the circumstances.
If the report is not substantiated, the reporting associate will be
informed and at that time will be asked for any additional information not
previously communicated. If there is no additional information, the
Corporate Compliance Officer will close the matter as unsubstantiated.
If the allegation is substantiated, the Compliance Committee Member
will make a judgment as to the degree of severity of the violation and the
appropriate disciplinary response. In more severe cases, the Compliance
Committee Member will make a recommendation to the Board of Directors of the
company for its approval. The Board's decision as to disciplinary and
corrective action will be final. In the case of less severe violations, the
Corporate Compliance Officer may refer the violation to the Human Resources
Department for appropriate disciplinary action.
The Compliance Committee Member shall provide a summary of all
matters considered under the Code to the Board of Directors or a committee
thereof at each regular meeting thereof, or sooner if warranted by the
severity of the matter.
The company will endeavor to keep all proceedings and the identity
of the reporting person as confidential as practicable under the
circumstances.
Q: Do I have to participate in any investigation under the
Code?
A: Your full cooperation with any pending investigation under
the Code is a condition of your continued relationship with
the company. The refusal to cooperate fully with any
investigation is a violation of the Code and grounds for
discipline, up to and including termination.
Q: What are the consequences of violating the Code?
A: As explained above, associates who violate the Code may be
subject to discipline, up to and including termination of
employment. Associates who violate the Code may simultaneously
violate federal, state, local or foreign laws, regulations or
policies. Such associates may be subject to prosecution,
imprisonment and fines, and may be required to make
reimbursement to the company, the government or any other
person for losses resulting from the violation. They may be
subject to punitive or treble damages depending on the severity
of the violation and applicable law.
Q: What if I have questions under the Code or want to obtain a
waiver under any provision of the Code?
A: The Corporate Compliance Officer and the Compliance Committee
Member can help answer questions you may have under the Code.
Particularly difficult questions will be answered with input
from the Compliance Committee Member. In addition, Section IX
of the Code provides information on how you may obtain a waiver
from the Code; waivers will be granted only in very limited
circumstances. You should never pursue a course of action that
is unclear under the Code without first consulting the
Corporate Compliance Officer or the Compliance Committee
Member, and if necessary, obtaining a waiver from the Code.
APPENDIX TO CORPORATE CODE OF CONDUCT AND ETHICS
ASSOCIATE'S AGREEMENT TO COMPLY
I have read CVD Equipment Corporations Corporate Code of Conduct and Ethics
(the "Code"). I have obtained an interpretation of any provision about which
I had a question. I agree to abide by the provisions of the Code. Based on
my review, I acknowledge that
____ To the best of my knowledge, I am not in violation of, or aware of
any violation by others of, any provision contained in the Code;
OR
____ I have made a full disclosure on the reverse side of this
acknowledgement of the facts regarding any possible violation of
the provisions set forth in the Code.
In addition, I understand that I am required to report any suspected or
actual violation of the Code. I understand that I am required to cooperate
fully with the company in connection with the investigation of any suspected
violation. I understand that my failure to comply with the Code or its
procedures may result in disciplinary action, up to and including
termination.
By:
Date:
Name (Please print):
Department/Location:
Exhibit 21.1
SUBSIDIARIES
CVD Materials Corporation, a New York corporation, is a wholly owned
subsidiary of CVD Equipment Corporation.
33
-36-
Exhibit 31.1
Certifications Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
I, Leonard A. Rosenbaum, certify that:
1. I have reviewed this annual report on Form 10-KSB of CVD Equipment
Corporation;
2. Based upon my knowledge, this annual 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 annual report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the small business issuer as of, and for, the periods
presented in this annual report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control
over financial reporting and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the
audit committee of the small business issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business
issuer's ability to record, process, summarize and report
financial data; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Dated: March 31, 2005
/s/ Leonard A. Rosenbaum
----------------------------------------
President, Chief Executive Officer and Director
Exhibit 31.2
Certifications Pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
I, Glen R. Charles, certify that:
1. I have reviewed this annual report on Form 10-KSB of CVD Equipment
Corporation;
2. Based upon my knowledge, this annual 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 annual report;
3. Based upon my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the small business issuer as of, and for, the periods
presented in this annual report;
4. The small business issuer's other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this report
based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the
small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control
over financial reporting and
5. The small business issuer's other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the
audit committee of the small business issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business
issuer's ability to record, process, summarize and report
financial data; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Dated: March 31, 2005
/s/ Glen R. Charles
----------------------------------------
Chief Financial Officer
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
I, Leonard A. Rosenbaum, President and Chief Executive Officer
of CVD Equipment Corporation, hereby certifies, to my knowledge,
that the annual report on Form 10-KSB for the period ending
December 31, 2004 of CVD Equipment Corporation (the "Form 10-
KSB") fully complies with the requirements of Section 13 (a) or
15 (d) of the Securities Exchange Act of 1934 and the
information contained in the Form 10-KSB fairly presents, in all
material respects, the financial condition and results of
operations of CVD Equipment Corporation.
Dated: March 31, 2005 /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
I, Glen R. Charles, Chief Financial Officer of CVD Equipment
Corporation, hereby certifies, to my knowledge, that the annual
report on Form 10-KSB for the period ending December 31, 2004 of
CVD Equipment Corporation (the "Form 10-KSB") fully complies
with the requirements of Section 13 (a) or 15 (d) of the
Securities Exchange Act of 1934 and the information contained in
the Form 10-KSB fairly presents, in all material respects, the
financial condition and results of operations of CVD Equipment
Corporation.
Dated: March 31, 2005 /s/ Glen R. Charles
Glen R. Charles
Chief Financial Officer
(Principal Financial Officer)
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 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.
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.