UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2006
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____ to _____
Commission file number: 1-16525
CVD EQUIPMENT CORPORATION
(Name of Small Business Issuer in Its Charter)
New York 11-2621692
(State or Other Jurisdiction of
Incorporation or Organization) (I.R.S. Employer 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 under Section 12(b) of the Act:
None
Securities registered under 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 [ ]
Indicate by check mark whether issuer is a large accelerated filer, an
accelerated filer or a non-accelerated filer See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the
Exchange Act). (check one)
Large accelerated filer[ ] Accelerated filer[ ] Non-accelerated filer[x]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,231,000 shares of
Common Stock, $0.01 par value at November 10, 2006.
__________________________________________________________________________
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Index
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2006 (Unaudited)
and December 31, 2005 2
Comparative Consolidated Statements of Operations (Unaudited)
for the three and nine months ended September 30, 2006 and 2005 3
Comparative Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 2006 and 2005 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 - Controls and Procedures 15
Part II - Other Information 16
Item 1 - Legal Proceedings 16
Item 2 - Changes in Securities and Use of Proceeds 16
Item 3 - Defaults Upon Senior Securities 16
Item 4 - Submission of Matters to a Vote of Security Holders 16
Item 5 - Other Information 17
Item 6 - Exhibits and Reports Filed on Form 8-K 17
Signatures 18
Exhibit Index 19
Certification of Chief Executive Officer 20
Certification of Chief Financial Officer 21
Certification of Chief Executive Officer pursuant to U.S.C.
Section 1350 22
Certification of Chief Financial Officer pursuant to U.S.C.
Section 1350 23
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2006
(Unaudited) December 31, 2005
------------------ ------------------
Current Assets:
Cash and cash equivalents $ 354,480 $ 265,454
Accounts receivable, net 2,187,040 1,893,665
Cost in excess of billings on uncompleted contracts 591,088 595,067
Inventories 2,660,015 2,067,255
Other current assets 138,957 49,597
------------------ ------------------
Total current assets 5,931,580 4,871,038
Property, plant and equipment, net 4,875,082 5,090,536
Deferred income taxes 241,774 241,988
Other assets 728,395 610,304
Intangible assets, net 86,079 96,141
------------------ ------------------
$11,862,910 $10,910,007
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 240,913 $ 217,204
Short-term notes payable 125,000 100,000
Accounts payable 669,683 639,619
Accrued expenses 934,535 642,115
Accrued professional fees - related party 20,000 35,260
Deferred revenue 186,560 114,140
------------------ ------------------
Total current liabilities 2,176,691 1,748,338
Long-term debt, net of current portion 2,824,349 2,923,424
------------------ ------------------
Total liabilities 5,001,040 4,671,762
------------------ ------------------
Commitments and contingencies --- ---
Stockholders' Equity
Common stock, par value $.01 per share, authorized 10,000,000
shares; issued and outstanding, 3,221,000 shares at
September 30, 2006 and 3,127,800 shares at December 31, 2005 32,210 31,278
Additional paid-in capital 3,307,194 3,049,362
Retained earnings 3,522,466 3,157,605
------------------ ------------------
6,861,870 6,238,245
------------------ ------------------
$11,862,910 $10,910,007
================== ==================
See notes to the consolidated financial statements
2
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
2006 2005 2006 2005
----------------- ----------------- ----------------- -----------------
Revenue $ 3,635,531 $ 2,851,327 $ 9,958,136 $ 8,257,961
Costs of Revenue 2,218,537 1,914,357 6,404,719 5,335,413
----------------- ----------------- ----------------- -----------------
Gross profit 1,416,994 936,970 3,553,417 2,922,548
----------------- ----------------- ----------------- -----------------
Operating expenses
Selling and shipping 222,391 181,752 619,622 518,716
General and administrative 730,532 684,955 2,180,182 1,823,125
Related party - professional fees 10,000 15,000 20,000 50,000
----------------- ----------------- ----------------- -----------------
Total operating expenses 962,923 881,707 2,819,804 2,391,841
Operating income 454,071 55,263 733,613 530,707
----------------- ----------------- ----------------- -----------------
Other income (expense)
Interest income 340 53 748 761
Interest expense (57,882) (50,591) (173,409) (169,629)
Other income 9,845 19,726 96,599 34,060
----------------- ----------------- ----------------- -----------------
Total other (expense) (47,697) (30,812) (76,062) (134,808)
Income before income taxes 406,374 24,451 657,551 395,899
Income tax (provision) benefit (177,523) 10,338 (292,690) (66,830)
----------------- ----------------- ----------------- -----------------
Net income $ 228,851 $ 34,789 364,861 $ 329,069
================= ================= ================= =================
Basic income per common share $ 0.07 $ 0.01 $ 0.12 $ 0.11
================= ================= ================= =================
Diluted income per common share $ 0.07 $ 0.01 $ 0.11 $ 0.10
================= ================= ================= =================
Weighted average common shares outstanding
basic income per share 3,198,247 3,122,463 3,155,710 3,087,553
Effect of potential common share issuance:
Stock options 69,534 152,340 102,816 107,012
----------------- ----------------- ----------------- -----------------
Weighted average common shares outstanding
diluted income per share 3,267,781 3,274,803 3,258,526 3,194,565
================= ================= ================= =================
See notes to the consolidated financial statements
3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30
2006 2005
---------------- ----------------
Cash flows from operating activities
Net income $ 364,861 $ 294,271
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 244,792 177,684
Deferred tax benefit 214 (208,341)
Stock option expense 128,889 -
Bad debt provision - (393)
Changes in operating assets and liabilities:
Accounts receivable (293,375) (134,767)
Cost in excess of billings on uncompleted contracts 3,979 1,073,275
Inventory (507,863) (213,042)
Other current assets (89,361) 9,401
Other assets - (133,790)
Accounts payable 30,064 (175,399)
Accrued expenses 277,162 216,963
Customer deposits - (298,152)
Deferred revenue 72,420 54,489
---------------- ----------------
Net cash provided by operating activities 231,782 662,199
---------------- ----------------
Cash flows from investing activities:
Capital expenditures (222,264) (29,216)
---------------- ----------------
Net cash used in investing activities (222,264) (29,216)
---------------- ----------------
Cash flows from financing activities:
Proceeds from short-term borrowings 1,310,000 400,000
Payments of short-term borrowings (1,285,000) (1,100,000)
Proceeds from long-term debt 115,309 0
Payments of long-term debt (190,676) (105,118)
Net proceeds from stock options exercised 129,875 134,100
---------------- ----------------
Net cash provided by (used in) financing activities 79,508 (671,018)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 89,026 (38,035)
Cash and cash equivalents at beginning of period 265,454 171,463
---------------- ----------------
Cash and cash equivalents at end of period $ 354,480 $ 133,428
================ ================
Supplemental discolsure of cash flow information:
Income taxes $ 8,354 $ 3,718
================ ================
Interest paid $ 172,109 $ 169,629
================ ================
Equipment reclassified to inventory $ 84,897 $ -
================ ================
See notes to consolidated financial statements
4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information and with the
instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
of America for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary in order to make the interim financials not
misleading have been included and all such adjustments are of a normal
recurring nature. The operating results for the three and nine months
ended September 30, 2006 are not necessarily indicative of the results
that can be expected for the year ending December 31, 2006.
The balance sheet as of December 31, 2005 has been derived from the
audited financial statements at such date, but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements.
The accounting policies followed by the Company are set forth in Note 2 to
the Company's consolidated financial statements in the December 31, 2005
Form 10-KSB.
For further information, please refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report
of Form 10-KSB for the year ended December 31, 2005.
Intercompany transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior period financial
statements to conform to the current year presentation.
5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
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.
Recent Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. ("FIN") 48, Accounting for Uncertainty in Income
Taxes-an interpretation of FASB Statement No. 109 Accounting for Income
Taxes, which clarifies the accounting for uncertainty in income taxes. FIN
48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Interpretation requires that the
Company recognize in the financial statements, the impact of a tax
position, if that position is more likely than not of being sustained on
audit, based on the technical merits of the position. FIN 48 also provides
guidance on derecognition, classification, interest and penalties,
accounting in interim periods and disclosure. The provisions of FIN 48 are
effective for fiscal years beginning after December 15, 2006 with the
cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The Company is currently
evaluating the impact of adopting FIN 48 on its financial statements.
6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In September 2006, FASB issued Statement No. 157, Fair Value Measurements.
This Statement defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands
disclosures about fair value measurements. This Statement applies under
other accounting pronouncements that require or permit fair value
measurements. The other accounting pronouncements affected include
Statements No. 107, Disclosures about Fair Value of Financial Instruments;
No. 115, Accounting for Certain Investments; No. 124, Accounting for
Certain Investments Held by Non-for-Profit Organizations; No. 133,
Accounting for Derivative Instruments and Hedging Activities. Statement
No. 157 is effective for financial statements issued for fiscal years
after November 15, 2007 and interim periods within those fiscal years.
Statement No. 157 is not expected to have a material impact on the
Company's consolidated financial statements.
NOTE 3: UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
(Unaudited)
September 30, 2006 December 31, 2005
------------------ ------------------
Costs incurred on uncompleted contracts $ 388,463 $ 961,735
Estimated earnings 720,176 901,390
------------------ ------------------
1,108 ,639 1,863,125
Billings to date (517,551) (1,268,058)
------------------ ------------------
$ 591,088 $ 595,067
------------------ ------------------
Included in accompanying balance sheets
Under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 591,088 $ 595,067
Billings in excess of costs and estimate
earnings on uncompleted contracts 0 0
------------------ ------------------
$ 591,088 $ 595,067
------------------ ------------------
7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: INVENTORY
Inventories consist of the following:
(Unaudited)
September 30, 2006 December 31, 2005
------------------ -----------------
Raw materials $ 938,014 $ 849,355
Work-in-process 1,393,040 854,115
Finished goods 328,961 363,785
------------------ -----------------
$ 2,660,015 $ 2,067,255
------------------ -----------------
NOTE 5: BAD DEBTS
Accounts receivables are presented net of an allowance for doubtful
accounts of $8,597 as of September 30, 2006 and December 31, 2005,
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.
NOTE 6: SHORT TERM BORROWINGS
(Unaudited)
September 30, 2006 December 31, 2005
------------------ ------------------
$ 125,000 $ 100,000
The Company has a line of credit with a bank permitting it to borrow on a
revolving basis amounts up to $1,250,000 until June 1, 2007. Interest is
payable on any unpaid principal balance at the bank's prime rate plus 3/4
of 1%. The prime rate was 8.25% and 7.25% and the amount outstanding on
the facility was $125,000 and $100,000 on September 30, 2006 and December
31, 2005 respectively. Borrowings are collateralized by the Company's
assets.
The Company has a line of credit for equipment purchases from the same
bank permitting it to borrow up to 100% of the purchase price of the
equipment. The amount borrowed is immediately converted into a five year
term loan at the bank's prime rate plus 1 1/4%. As of September 30, 2006,
there was approximately $81,000 outstanding on this facility. Borrowings
are collateralized by the equipment purchased.
8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: STOCK COMPENSATION EXPENSE
On January 1, 2006, the Company adopted the provisions of SFAS No. 123-R
"Share-Based Payment" using the modified prospective method. SFAS No. 123-
R requires companies to recognize the cost of employee services received
in exchange for awards of equity instruments based upon the grant date
fair value of those awards. Under the modified prospective method of
adopting SFAS No. 123-R, the Company recognized compensation cost for all
share-based payments granted after January 1, 2006, plus any awards
granted to employees prior to January 1, 2006 that remain unvested at that
time. Under this method of adoption, no restatement of prior periods is
made.
Prior to January 1, 2006 the Company recognized the cost of employee
services received in exchange for equity instruments in accordance with
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued
Employees" (APB 25). APB 25 required the use of the intrinsic value
method, which measures compensation cost as the excess, if any, of the
quoted market price of the stock over the amount the employee must pay for
the stock. Compensation expense was measured under APB 25 on the date the
shares were granted. Under APB 25, no compensation expense was recognized
for stock options.
During the three and nine months ended September 30, 2006 the Company
recorded into selling and general administrative expense approximately
$33,000 and $129,000 respectively, for the cost of employee services
received in exchange for equity instruments based on the grant-date fair
value of those instruments in accordance with the provisions of SFAS No.
123-R.
During the three and nine months ended September 30, 2005 had the cost of
employee services received in exchange for equity instruments been
recognized based on the grant-date fair value of those instruments in
accordance with the provisions of SFAS No. 123, the Company's net income
and earnings per share would have been impacted as shown in the following
table.
9
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three months ended September 30, Nine months ended September 30,
2005 2005
-------------- --------------
Net income, as reported $ 34,789 $ 329,069
Add: Stock-based employee
compensation expense included in
reported net income, net of
related tax effects -- --
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (30,467) (34,846)
-------------- --------------
Pro forma net income $ 4,322 $ 294,223
-------------- --------------
Earnings (loss) per share:
Basic-as reported $ 0.01 $ 0.11
-------------- --------------
Basic-pro forma $ 0.00 $ 0.10
-------------- --------------
Diluted-as reported $ 0.01 $ 0.10
-------------- --------------
Diluted-pro forma $ 0.00 $ 0.09
-------------- --------------
The historical pro-forma impact of applying the fair value method
prescribed by SFAS No. 123 is not representative of the impact that may be
expected in the future due to changes resulting from additional grants in
future years and changes in assumptions such as volatility, interest rates
and expected life used to estimate fair value of the grants in future
years.
10
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INCOME TAXES
The provision (benefit) for income taxes includes the following:
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, 2006 September 30, 2006
------------------ ------------------
Current:
Federal $ 67,548 $ 281,635
State 10,718 10,841
------------------ ------------------
Total Current Provision 78,266 292,476
Deferred:
Federal 75,308 ( 3,196)
State 23,949 3,410
------------------ ------------------
Total Deferred (Benefit) 99,257 214
------------------ ------------------
$ 177,523 $ 292,690
------------------ ------------------
All of the Company's federal and state net operating loss carry forwards
of approximately $203,000 and $420,000 respectively, have been utilized
through September 30, 2006. For the nine months ended September 30, 2006,
the Company recorded a current income tax expense of approximately
$293,000, which related to various federal, state and local taxes. The
current income tax provision was reduced by approximately $94,000 as a
result of the use of available net operating losses.
11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and accompanying notes filed as part
of this report.
Except for historical information contained herein, this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995, as amended. These statements
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance, or achievements of the Company to
be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements.
These forward-looking statements were based on various factors and were
derived utilizing numerous important assumptions and other important
factors that could cause actual results to differ materially from those in
the forward-looking statements. Important assumptions and other factors
that could cause actual results to differ materially from those in the
forward-looking statements, include but are not limited to: competition in
the Company's existing and potential future product lines of business; the
Company's ability to obtain financing on acceptable terms if and when
needed; uncertainty as to the Company's future profitability, uncertainty
as to the future profitability of acquired businesses or product lines,
uncertainty as to any future expansion of the Company. Other factors and
assumptions not identified above were also involved in the derivation of
these forward-looking statements and the failure of such assumptions to be
realized as well as other factors may also cause actual results to differ
materially from those projected. The Company assumes no obligation to
update these forward looking statements to reflect actual results, changes
in assumptions or changes in other factors affecting such forward-looking
statements.
Results of Operations
Revenue for the three month period ended September 30, 2006 was $3,635,531
compared to $2,851,327 for the three month period ended September 30,
2005, representing an increase of $784,204 or 27.5%. As a result of an
increase in the number of inquiries the Company has received and proposals
the Company has submitted, the Company has experienced an increased demand
for customized CVD systems along with requests for equipment provided by
the First Nano product line.
Revenue for the nine months ended September 30, 2006 was approximately
$9,958,000 representing an increase of approximately $1,700,000 or 20.6%
over the $8,258,000 of revenue for the nine months ended September 30,
2005. This increase is a result of increased demand for the Company's
products as discussed in the previous paragraph.
The Company generated a gross profit of approximately $1,417,000 and a
gross profit margin of 39.0% for the three months ended September 30, 2006
compared to a gross profit of approximately $937,000 and a gross profit
margin of 32.9% for the three months ended September 30, 2005. This
increase in both gross profit and gross profit margin is attributable to
the Company's successful efforts to control the direct costs incurred in
manufacturing the product lines despite rising labor, insurance and energy
costs.
12
The Company's gross profit increased 21.6% to approximately $3,553,000
during the current nine month period compared to $2,923,000 in gross
profit for the nine month period during the prior year. The gross profit
margin increased to 35.7% for the nine months ended September 30, 2006
compared to 35.4% for the nine months ended September 30, 2005. The
Company was able to increase its gross profit margin despite increased
labor costs as a result of the increased personnel needed to develop and
expand the sales of the First Nano equipment line in addition to rising
employee benefit, insurance and energy costs.
Selling and shipping expenses for the three months ended September 30,
2006 and 2005 were $222,391 and $181,752 respectively, representing a
22.4% increase. The increase is primarily due to greater commissions
earned as a result of projects being completed and shipped during the
current three month period.
Selling and shipping expenses for the nine months ended September 30, 2006
were approximately $620,000 compared to $519,000 for the corresponding
period one year ago, representing an increase of 19.5%. This increase is
due to an increase in commissions earned and increased costs of trade
shows attended by the Company.
The Company incurred approximately $741,000 of general and administrative
expenses during the period ended September 30, 2006, representing an
increase of 5.8% or approximately $41,000 compared to the approximately
$700,000 of general and administrative expenses incurred in the period
ended September 30, 2005. As a result of the Company adopting the
provisions of SFAS No. 123-R "Share-Based Payment" approximately $43,000
of stock compensation costs were recognized in the current three month
period which were not recognized last year. Other than the stock
compensation costs, despite increasing labor, employee benefit, insurance
and energy costs, the Company managed to avoid an increase in general and
administrative costs
General and administrative expenses for the nine months ended September
30, 2006 were approximately $2,200,000 compared to $1,873,000 for the nine
months ended September 30, 2005 representing a 17.5% increase as a result
of a combination of increased personnel as well as various increases in
employee benefit costs, insurance, professional fees and energy costs.
Additionally, as a result of the Company adopting the provisions of SFAS
No. 123-R "Share-Based Payment" approximately $129,000 of stock
compensation costs were recognized in the current nine month period which
were not recognized last year.
Interest expense for the three months ended September 30, 2006 increased
by 14.4% to $57,882 compared to $50,591 during the three months ended
September 30, 2005. This is a result of increased borrowing and higher
interest rates on the Company's revolving line of credit from its bank
during the current three month period.
Interest expense for the nine months ended September 30, 2006 increased by
2.2% or $3,000 to approximately $173,000 compared to approximately
$170,000 during the nine months ended September 30, 2005. This is a result
of higher interest rates on the Company's revolving line of credit from
its bank during the current nine month period.
13
Other income during the nine months ended September 30, 2006 was
approximately $97,000 compared to approximately $34,000 for the
corresponding period one year ago. This increase is the result of the
Company receiving $70,000 for equipment sold to a former customer that
filed a voluntary petition for relief under Chapter 11, in the United
States Bankruptcy Court in February 2004. The Company had previously
written off all accounts receivables from this customer.
For the three and nine months ended September 30, 2006, the Company had
earnings before taxes of approximately $406,000 and $658,000 compared to
approximately $24,000 and $396,000 for the three and nine months ended
September 30, 2005. For the nine months ended September 30, 2006 the
Company recorded income tax expense of approximately $293,000 which
related to various federal, state and local taxes. The current income tax
provision was reduced by approximately $94,000 as a result of the use of
available net operating losses.
As a result of the foregoing factors, for the three and nine months ended
September 30, 2006, the Company earned approximately $229,000 and $365,000
respectively, compared to net income of approximately $35,000 and $329,000
respectively, for the same periods, one year ago. The increase in earnings
is a result of increased revenues during the current periods and the
successful efforts of the Company to maintain costs despite the
recognition of approximately $43,000 and $129,000 in stock compensation
costs, respectively and an increase in personnel costs and insurance and
energy costs.
Liquidity and Capital Resources
As of September 30, 2006, the Company had an aggregate working capital of
approximately $3,755,000 compared to $3,123,000 at December 31, 2005 an
increase of $632,000 or 20.2%
Accounts receivable, net of allowances, as of September 30, 2006 was
$2,187,040 compared to $1,893,665 as of December 31, 2005. This increase
is attributable to timing of shipments and customer payments.
As of September 30, 2006 the Company's backlog was approximately
$3,143,000, an increase of $495,000 or 18.7% compared to $2,648,000 at
December 31, 2005. 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.
The Company has a revolving line of credit with a bank permitting it to
borrow on a revolving basis amounts up to $1,250,000 until June 1, 2007.
Interest is payable on any unpaid principal balance at the bank's prime
rate plus 3/4 of 1%. As of September 30, 2006, $125,000 was outstanding on
this facility. Borrowings are collateralized by the Company's assets.
The Company also has an equipment line of credit of $250,000 with that
same bank. The Company is permitted to borrow up to 100% of the purchase
price of the equipment. The amount borrowed is immediately converted into
a five year term loan at the bank's prime rate plus 11/4%. As of September
30, 2006, there was approximately $81,000 outstanding on this facility.
Borrowings are collateralized by the equipment purchased.
14
The Company believes that its cash, cash equivalents and available credit
facilities will be sufficient to meet its working capital and investment
requirements for the next twelve months. However, future growth, including
potential acquisitions, may require additional funding, and from time to
time the Company may need to raise capital through additional equity or
debt financing.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and
Chief Financial Officer, conducted an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures, as
required by Exchange Act Rule 13a-15, as of the end of the period covered
by this report. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls
and procedures were effective to insure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified by the SEC's rules and forms.
Changes in Internal Controls
There were no significant changes in the Company's internal controls over
financial reporting that occurred during the six months ended June 30,
2006 that have materially affected, or are reasonably likely to materially
affect, the internal controls over financial reporting.
Limitations on the Effectiveness of Controls
We believe that a control system, no matter how well designed and
operated, cannot provide absolute assurance that the objectives of the
control systems are met, and no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within a company have been detected.
15
CVD EQUIPMENT CORPORATION
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At our annual meeting of stockholders, which was held on
September 13, 2006, our stockholders:
(1) Elected five nominees for directors to serve for a term
ending in 2007;
(2) Approved the selection of Moore Stephens, P.C. as the
Company's independent registered public accounting firm for the
year ending December 31, 2006.
The following tables show the common stock votes cast with respect to the
proposals identified above:
Election of Directors:
Withheld
For Authority
------------ -----------
Leonard A. Rosenbaum 2,913,530 4,138
Martin J. Teitelbaum 2,904,930 12,738
Alan H. Temple Jr. 2,913,680 3,988
Conrad J. Gunther 2,913,380 4,288
Bruce T. Swan 2,913,380 4,288
Proposal 2:
For Against Abstentions
------------ ------------ ------------
2,916,780 888 0
16
Item 5. Other Information.
None.
Item 6. Exhibits and Reports Filed on Form 8-K
(a) Exhibits filed with this report:
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to U.S.C.
Section 1350
32.2 Certification of Chief Financial Officer pursuant to U.S.C.
Section 1350
(b) Reports on Form 8-K
None
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, this 14th day of November 2006.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Glen R. Charles
Glen R. Charles
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
31.1 Certification of Chief Executive Officer *
31.2 Certification of Chief Financial Officer *
32.1 Certification of Chief Executive Officer pursuant to U.S.C.
Section 1350 *
32.2 Certification of Chief Financial Officer pursuant to U.S.C.
Section 1350 *
* Filed herewith
19
Exhibit 31.1
Certifications of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Leonard A. Rosenbaum, the principal executive officer of CVD Equipment
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CVD
Equipment Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report.
4. The registrant'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)) for the
registrant 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
registrant, 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. Evaluated the effectiveness of the registrant'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
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
the registrant'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 registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Dated: November 14, 2006
/s/ Leonard A. Rosenbaum
----------------------------------------
President, Chief Executive Officer and Director
20
Exhibit 31.2
Certifications of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Glen R. Charles, the principal financial officer of CVD Equipment
Corporation, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of CVD
Equipment Corporation;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report.
4. The registrant'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) for the
registrant 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
registrant, 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. Evaluated the effectiveness of the registrant'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
c. Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
the registrant'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 registrant's
ability to record, process, summarize and report financial
information; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls over financial reporting.
Dated: November 14, 2006
/s/ Glen R. Charles
----------------------------------------
Chief Financial Officer
21
Exhibit 32.1
Certification of Principal Executive Officer
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 certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on
Form 10-QSB for the period ending September 30, 2006 of CVD Equipment
Corporation (the "Form 10-QSB") 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-QSB fairly presents, in all material
respects, the financial condition and results of operations of CVD
Equipment Corporation.
Dated: November 14, 2006 /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
22
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
I, Glen R. Charles, Chief Financial Officer of CVD Equipment Corporation,
hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to my knowledge, the quarterly report on Form 10-QSB for the period
ending September 30, 2006 of CVD Equipment Corporation (the "Form 10-QSB")
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-QSB fairly presents, in all material respects, the financial condition
and results of operations of CVD Equipment Corporation.
Dated: November 14, 2006 /s/ Glen R. Charles
Glen R. Charles
Chief Financial Officer
(Principal Financial Officer)
23