10KSB40 1 0001.txt CVD EQUIPMENT CORP. U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-KSB (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________. Commission File No. 0-14720-NY CVD EQUIPMENT CORPORATION (Exact name of registrant as specified in charter) New York 11-2621692 (State of incorporation) (IRS Employer Identification No.) 1881 Lakeland Avenue, Ronkonkoma, New York 11779 (Address of principal executive offices) 631-981-7081 (Registrant's telephone number) Securities Registered Pursuant to Section 12 (b) of the Act: NONE Securities Registered Pursuant to Section 12 (g) of the Act: Common Stock Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not 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 amendment to this Form 10-KSB. [X] The registrant's revenues for 2000 were $9,504,181 The aggregate market value of voting stock held by non-affiliates of the registrant on March 1, 2001 was $5,105,275 based on a closing price of $3.50 on that date. As of March 1, 2001 there were 3,001,000 shares of Common Stock, Par Value $.01 Per Share, Outstanding. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS ITEM 1. BUSINESS........................................... 1 Introduction.................................. 1 General Development of Business............... 1 The Organization.............................. 2 Information About Industry Segments........... 2 General Narrative Description of Business..... 2 Principle Products............................ 3 Research and Development...................... 4 Industry Overview............................. 4 Marketing..................................... 5 Patents and Copyrights........................ 5 Competition................................... 5 Customers..................................... 6 Foreign Operations............................ 6 Manufacturing Materials and Suppliers......... 6 Order Backlog................................. 7 Employees..................................... 7 Insurance..................................... 7 Government Regulations........................ 7 Forward Looking Statements.................... 8 ITEM 2. DESCRIPTION OF PROPERTIES.......................... 8 ITEM 3. LEGAL PROCEEDINGS.................................. 8 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9 ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS.................... 9 Market Information............................ 9 Dividends..................................... 9 Holders....................................... 9 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ............... 10 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........ 12 ITEM 8. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 39 ITEM 9. EXECUTIVE COMPENSATION............................. 40 ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER & MANAGEMENT................................. 41 ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... 41 ITEM 12. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K................................ 42 1 PART I ITEM 1. BUSINESS INTRODUCTION Statements contained in this Report on Form 10-KSB that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding industry trends, strategic business development, pursuit of new markets, competition, results from operations, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "intends", "plans", "anticipates", "believes", "expect to", or words of similar import. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, marketing success, product development, production, technological difficulties, manufacturing costs, and changes in economic conditions in the markets the Company serves. The Company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. GENERAL DEVELOPMENT OF BUSINESS CVD Equipment Corporation (the "Company") was incorporated under the laws of New York State in October 1982. On September 11, 1985 the Company made an initial public offering of 700,000 units underwritten by D. H. Blair & Co., 44 Wall Street, New York, New York 10005, pursuant to which it received net proceeds of $2,683,640. Between December 11 and December 15, 1998, the Company purchased at public auction the former inventory, tangible assets, intangible assets and intellectual property of Stainless Design Corporation, Saugerties, NY, for $672,095. On December 14, 1998, the Company entered into a contract with Kidco Realty Corp. to purchase, for $1,400,000, the facility owned by Kidco Realty Corp. located at 1117 Kings Highway, Saugerties, NY 12477 and formerly occupied by Stainless Design Corporation. On April 29, 1999, the contract closed. The purchase price was paid by cash funds from the Company in the amount of $500,000 and Kidco Realty Corp. issuing a 30 year amortization, 7% interest, 10 year balloon, non recourse purchase money note and mortgage to the Company in the amount of $900,000. On December 23, 1998 the Company formed a new 100% owned subsidiary called Stainless Design Concepts, Ltd. The new subsidiary is located at 1117 Kings Highway, Saugerties, NY 12477. The new subsidiary manufactures ultra high purity gas and chemical delivery control systems for the semiconductor industry. On April 23, 1999, the new subsidiary was merged into the Company as a wholly owned division. On November 5, 1999 the Company formed another division called Equipment Consulting Services (ECS). This new division is also located at 1117 Kings Highway, Saugerties, NY 12477. The new division focuses on equipment consulting and the refurbished semiconductor equipment market, a 1.5 billion-dollar industry. Our existing facilities and capabilities enables us to become an important player in this market. ECS is an Associate Member of the Surplus Equipment Consortium / Network (SEC/N). 2 As evidenced by the Company's development of these new divisions, our growth strategy is one of expansion. The Company is focused on expanding revenues and increasing profits. An important ingredient in our Strategic Plan is to be an active player in the acquisitions environment. We are always looking for businesses that are: * Synergistic in nature to our core business * Complementary to our existing product lines * Geared toward a start-up or turnaround situation * Opportunistic for growth and profit development In the year 2000, CVD Equipment Corporation was named to Deloitte & Touche's prestigious "Long Island Technology Fast 50" program, which ranks the 50 fastest growing technology companies on Long Island. Deloitte & Touche computed all calculations for revenue growth rate with CVD having a five-year revenue growth rate of 101.5%. CVD is a leading manufacturer of critical LPCVD, UHVCVD, MOCVD, LPE, VPE and RTP products and services for the Semiconductor, Optoelectronic and Wireless Telecommunications markets. CVD is proud to be recognized as a key player within Long Island's growing technology sector. CVD has gone from number 50 in 1998 to number 28 in 1999 and with our continued growth rate we expect a lower ranking next year as a result of a higher growth rate. The Long Island Technology Fast 50 program is sponsored by Deloitte & Touche LLP, The Bank of New York, the Nasdaq Stock Market, the Long Island Technology Center, the Long Island Association, SUNY Stony Brook, Idea Alley, Long Island High Technology Incubator at Stony Brook, Newsday, Certilman Balin Adler & Hyman,LLP, Long Island Software & Technology Network, and Invision.com. THE ORGANIZATION Each division, CVD, SDC and ECS has their own operating manager with sales and administration being handled by individual corporate managers. Thus, each division operates reasonably autonomously on a day to day basis. Yet, there is an overall corporate coordination in the day to day administration of the business, in setting policy and consistently applying procedures. All sales are coordinated by the corporate sales manager. INFORMATION ABOUT INDUSTRY SEGMENTS The Company designs, develops, manufactures, markets, installs and services equipment primarily for the semiconductor industry. The Company's products include (1) both batch and single substrate 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) fabricates standard and custom quartzware and (5) equipment consulting and refurbishing of semiconductor processing equipment. The Company's products are generally manufactured to the particular specifications of each of its customers. GENERAL NARRATIVE DESCRIPTION OF BUSINESS 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. The Company's products are used in the manufacture of these components. 3 CVD DIVISION Designs and manufacturers both standard and custom equipment for the semiconductor industry. CVD has developed a fine reputation for producing high quality products. CVD's equipment has leading edge technology and is utilized for silicon germanium, silicon carbide, and gallium arsenide processes. These processes are paramount in the optoelectric and wireless communications arena. SDC DIVISION Designs and manufactures in their Class 100 cleanroom, ultra high purity Gas and Chemical Delivery systems. Their field service group provides for contract maintenance, high purity fab and equipment installations and equipment removal. ECS DIVISION Provides semiconductor equipment consulting and refurbishing services. Their expertise crosses over many product lines as well as manufacturers, positioning the division to meet the changing requirements of the industry. PRINCIPLE PRODUCTS Chemical Vapor Deposition (CVD) - is 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 - 1500 degrees Celsius). The Company's 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. The Company provides such standard systems and also specifically engineered products for particular customer applications. Some of the standard systems offered by the Company are for Silicon, Silicon-Germanium, Silicon Dioxide, Silicon Nitride, Polysilicon, Liquid Phase Epitaxial, and Metalorganic Chemical Vapor Deposition. The Company's CVD 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. The Company's standard microprocessor control system is extremely versatile and capable of supporting the Company's complete product line and most custom system requirements. The Company's CVD systems generally range in price from $100,000 to $2,500,000. Rapid Thermal Processing (RTP) - are used to heat semiconductor materials to elevated temperatures of 1000 degrees Celsius at rapid rates of up to 200 degrees Celsius per second. The Company's RTP systems are offered for implant activation, oxidation, silicide formation and many other processes. The Company offers system that can operate both at atmospheric or reduced pressures. A specific model of the Company's 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. The Company's RTP systems generally range in price from $75,000 to $350,000. 4 Annealing and Diffusion Furnaces - are 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. The Company's Annealing and Diffusion Furnace systems generally range in price from $75,000 to $650,000. Gas and Liquid Control Systems - 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 Company's Gas and Liquid Control Systems generally range in price from $20,000 to $350,000. Ultra High Purity Gas and Chemical Piping 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 the field service group we also offer repair service work on customer equipment. Quartzware - we provide standard and custom fabricated quartzware used in the Company's equipment and other customer tools. The Company also provides repair and replacement of existing quartzware. Our customer quartzware spare parts requirements have grown substantially, especially for non-company related products. RESEARCH AND DEVELOPMENT The Company continues its efforts on several research and development projects. Our joint Silicon Carbide venture with Dow Corning has been extended through June 30, 2001. In addition, we continue to develop and customize equipment for numerous government, university and industry research laboratories around the world. Very often the research, design and development of custom equipment, which remains proprietary to the Company, yields new products. INDUSTRY OVERVIEW In 2000, the industry grew at an unprecedented rate. This growth was fueled by new end products and the drive to manufacture smaller chips on larger wafers - substantially reducing the cost of manufacturing. The industry however is historically cyclic in nature. CVD believes that it has organized and structured itself with the three divisions to partially compensate for the cyclic nature and thereby smooth out the ups and downs. The CVD division deals with large capital equipment, which sometimes suffers in a down cycle. However, the CVD division also sells to research facilities and universities that are not normally influenced in a significant way in a down market. The SDC division supplies Gas and Chemical Delivery Systems, which can be impacted during a down market. However, the field service group within that division, usually adds significant field service work in a down market. And finally, the ECS division is usually impacted in a positive fashion in a down market, as customers look for alternative ways (refurbished equipment). Hence, the Company believes that volatile market conditions will have less of an impact on the overall performance of the Company as compared to other semiconductor equipment manufacturers. 5 MARKETING The Company's products are used in research and production applications by the semiconductor industry. The Company sells its products primarily to semiconductor manufacturers and to institutions involved in electronic research such as universities, government and industrial laboratories. During 2000, sales of the Company's products were made by a staff of four employees and five sales representatives, whose activities were supported by a staff of nine application engineers. During 2000 the Company continued to work on expanding our product offerings. The Company's Web Sites; www.cvdequipment.com; www.stainlessdesign.com; www.equipmentconsulting.com; continue to see increased traffic. The Company focuses on being in the top listings on many search engines, thus increasing the number of hits to our web sites. The Company continuously receives inquiries as a result of the web sites. The Company has expanded it's sales efforts considerably by utilizing sales representatives having offices in Santa Clara, CA, Chandler, AZ, Albuquerque, NM, Austin, TX, Dallas, TX, Taiwan and Korea. Additional representatives are expected to be added during the year 2001. We expect that this expansion will create a wider exposure to CVD and it's product line. The Company warrants its equipment for a period of six months after shipment and passes along any warranties from original manufacturers of components used in its products. The Company provides for its own equipment servicing with in-house field service personnel. Warrantee costs are historically insignificant. PATENTS, COPYRIGHTS AND LICENSE AGREEMENTS The Company has developed technology related to the automatic valve shut-off system manufactured by the Company, which has been granted Patent No. 4,527,715 that expires on August 27, 2002. Although the Company believes that the patent provides it with some competitive advantage, the Company does not believe the patent protection is significant to any of its current business operations. Patent protection was not significant to previous business because the unique products offered are custom built for a particular customer. As such, when reviewing the cost and time required for patent protection, management determined that future benefits were minimal. The Company believes 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 the intangible property of the Company is comprised of blueprints, specifications, technical processes, cumulative employee knowledge, experience, copyrights and patents. In August 1997, the Company signed a 5-year license agreement with IBM to sell equipment using IBM's patented method for low temperature, low-pressure chemical vapor deposition of epitaxial layers (UHV/CVD). During years 1999 and 2000 the Company has applied for several copyrights associated with the intellectual properties of the former Stainless Design Corporation. COMPETITION The Company's business is subject to intense competition. The Company is aware of other competitors that offer a substantial number of products 6 comparable to the Company's. Many of the Company's competitors (including customers who may elect to manufacture systems for internal use) have financial, marketing and other resources greater than the Company's. To date, the Company has been able to compete in markets that include these competitors, primarily on the basis of price, technical performance, quality and delivery. CUSTOMERS The Company sells to a wide range of customers. Sales to a single customer in a given year however can exceed 10%. In 2000, two customers represented approximately 10% each of sales whereas in 1999, two customers represented approximately 13% and 14% of sales. CVD's customers include many of the largest semiconductor, telecommunications, and computer companies in the world. Several of these major customers are as follows: Advanced Technology Material Alpha Photonics Alpha Industries AMP Inc. Applied Material Bechtel Bettis Inc. B.F. Goodrich BOC Brookhaven National Labs Bruckner Corning Inc. Cree Dow Corning Hewlett Packard IBM ITT JDS Uniphase Kopin Corporation Lockheed Martin Lucent Technologies Microchip Technology NASA Nova Crystals Osram Raytheon Schumacher SemiTool Sensors Unlimited Silicon Valley Group Inc. Thermco Systems Veeco
In addition, CVD's customers include many prominent universities as follows: Australian National University Carnegie Mellon University Case Western Reserve University Cornell University Louisiana Tech. University Pennsylvania State University Princeton University Rensselaer Polytechnic Institute Virginia Polytechnic Institute University of Albany University of Illinois University of California at Santa Barbara University of Maryland University of Rochester University of Wisconsin Yale University
FOREIGN OPERATIONS The Company's revenues derived from foreign exports were 3% and 12% in 2000 and 1999 respectively. MANUFACTURING MATERIALS AND SUPPLIES The Company does not manufacture many components used in producing the Company's products. They are purchased from unrelated third-party manufacturers of such equipment. The Company has no supply contracts covering these components. The Company is not dependent on a principal or major supplier and alternate suppliers are available. The Company does not use a large amount of raw or difficult to obtain materials that could cause a problem in production of our equipment. The Company has it's own fully equipped machine shop to fabricate in house, the most complex designed parts of our equipment. The Company recently purchased CNC machines for the machine shop, thus dramatically increasing efficiencies while significantly reducing costs in production. Similarly, the Company's own Quartz shop is capable of meeting our quartzware needs. Quality control is a fundamental critical component in our processes. Materials procured on 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 product performance. 7 ORDER BACKLOG As of December 31, 2000 the Company's order backlog was approximately $5,508,802 compared to approximately $1,317,522 on December 31,1999. Included in the backlog are all accepted customer 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. EMPLOYEES As of December 31, 2000, the Company employed 69 full time personnel and 4 part time personnel of which 31 were in manufacturing, 13 in engineering (including research and development and efforts related to product improvement), 9 in field service, 4 in marketing and 16 in general management and administration. The Company is not party to any collective bargaining agreement and has had no work stoppages. The Company believes that its employee relations are good. INSURANCE Because the Company's products are used in connection with explosive, flammable, corrosive and toxic gases, there are potential exposures to personnel injury as well as property damage, particularly if operated without regard to the design limits of the systems and components. The Company endeavors to minimize its product liability exposure by engineering safety devices for its products, carefully monitoring incidents involving its products to determine areas where safety improvements may be made, and training programs in connection with its products. The Company believes that their insurance coverage is adequate. The following types of insurance coverage is carried by the Company: * Product liability * Property Contents * General Liability * Workers Compensation * Transportation * Directors and Officers * Employee Benefits Liability * Business Auto * Umbrella GOVERNMENT REGULATIONS The Company knows of no government requirements for approval for the sale of their products or services except in some export cases. At that time we apply for the appropriate export license. As of December 31, 2000, there was no pending government approvals. The Company knows of no existing or probable governmental regulations that would have a serious effect on our business. Cost associated with compliance to environmental laws has not been significant to the Company's business. 8 FORWARD LOOKING STATEMENTS Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. These forward looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward looking statements, include, but are not limited to: competition in the Company's existing and potential future product lines of business; the Company's ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company's future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward looking statements. ITEM 2. DESCRIPTION OF PROPERTIES On June 1, 1991, the Company relocated its operations to its present location in Ronkonkoma, New York, a 20,000 square foot facility. The Company signed a 5-year lease extension in 2000 that is scheduled to expire on July 31, 2006. Currently, the CVD division is located at this facility. Management feels that the property is adequately covered by insurance and is in good condition. On April 29,1999, the Company purchased for $1,400,000, a 22,000 square foot facility, situated on 5 acres of land located at 1117 Kings Highway, Saugerties, NY 12477. Currently, the SDC and ECS divisions are located at this facility. Management feels the property is adequately covered by insurance and is in good condition. ITEM 3. 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 counsel's belief that the lawsuit against CVD is without merit and that our counter-suit will be successful. The Company considers it's potential exposure to be negligible and covered by insurance. On October 27, 1999, the Company initiated a lawsuit against a customer upon certain outstanding bills. The Company was awarded a judgement of $48,452 that covers the amount owed. However, the customer filed for bankruptcy protection and the customer's assets are in the process of being liquidated to help satisfy all creditors. We believe that CVD will be able to recover a portion of the outstanding judgement during 2001. This item is not considered to be material in nature. 9 On January 26, 2000, the Company initiated a lawsuit against a customer upon certain outstanding bills. The customer responded with a counterclaim that legal counsel believes to be without merit. This action is still pending and is not considered to be material in nature. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS A shareholder's meeting was held in the third quarter of 2000 for the primary purpose of re-electing directors and approving the selection of our outside auditing firm. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS PRINCIPAL MARKET The stock continues to be traded on the OTC Bulletin Board and reported in the OTC "Pink Sheets". STOCK PRICE INFORMATION The Company's common stock first began to be publicly traded on September 11, 1985 and prior to that date the Company was privately held. The following chart sets forth the high and low closing bid price of the Common Stock for the indicated periods.
Period High Low January 1, 1999 through March 31, 1999 1.125 0.875 April 1, 1999 through June 30, 1999 1.063 0.813 July 1, 1999 through September 30, 1999 0.875 0.688 October 1, 1999 through December 31, 1999 1.000 0.688 January 1, 2000 through March 31, 2000 3.750 0.875 April 1, 2000 through June 30, 2000 2.750 1.625 July 1, 2000 through September 30, 2000 5.375 2.000 October 1, 2000 through December 31, 2000 5.000 2.188 The chart reflects inter-dealer prices, without retail mark-up, markdown, or commission and does not represent actual transactions.
DIVIDENDS The Company paid no cash dividends during the period, nor does the Company expect to pay a cash dividend in the near future. The Company's policy has been to utilize cash in growing and expanding the business. APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK The number of holders of record of the Company's Common Stock as of March 1, 2001 was approximately 400. 10 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2000 COMPARED TO 1999 The difference in 2000 financial data when compared to 1999 is mainly attributed to the growth of the CVD and SDC divisions and the start-up of the ECS division. In 2001 we expect to see continued growth for all three divisions. New orders in 2000 totaled $9.5 million for CVD and $5.6 million for SDC and $0.2 million for ECS for a total of $15.3 million, which was 155% higher than 1999's level of new orders of $6.0 million. The revenues produced a net profit of $928,679. Diluted net earnings per share were $.29 in 2000 compared to $.05 in 1999. In the past the Company has generally manufactured customized equipment. In 1999 the Company worked on developing a line of standard products as a supplement to our custom systems and began shipping some of these products in 2000. In September 1997, the Company opened a Web site, www.cvdequipment.com to support the Company's marketing program. In May 1999 the Company opened it's second web site, www.stainlessdesign.com and in November of 1999 a third wed site was added, www.equipmentconsulting.com. REVENUE An increase in volume resulted in revenue for the year being $9,504,181, which was a 79.5% increase from 1999 revenues of $5,295,859. The type of sales in 2000 were similar to those of 1999. The Company shipped approximately 1% to government associated entities, 6% to major colleges and universities, 5% to research laboratories and another 88% was shipped to significant Fortune 500 industrial companies. COSTS AND EXPENSES In 2000, cost of revenues as a percentage of revenues decreased to 61% from 65% in 1999. The main reason for the 4% decrease in cost of revenues as a percentage of sales was a decrease in payroll expenses. The Company averaged 63 employees in 2000 compared to 51 employees in 1999. The actual cost of revenues increased from $3,453,307 in 1999 to $5,809,275 in 2000, an increase of $2,355,968. Of this increase, $1,497,618 is attributable to increased purchases of material and $662,721 to increases in salaries. Selling and shipping expense was lower by $186 in 2000 compared to 1999. This mainly resulted from a $96,150 increase in commissions, a $22,254 increase in freight expense, which was offset by a decrease of $105,433 in salaries, and $11,820 decrease in travel. General and Administrative expenses rose by $418,448 in 2000 compared to 1999. This resulted mainly from a $182,071 increase in salaries and employee benefits, an increase in depreciation of $31,025, an increase in legal fees of $112,070, an increase of $39,012 in shareholder's expense and bad debt of $55,096. Interest expense increased by $16,816 from 1999 to 2000 as the Company's average outstanding debt increased in 2000 as a result of a mortgage on the SDC facility. 11 LIQUIDITY AND CAPITAL RESOURCES By year-end 2000, the Company's cash position increased to $600,621 from $91,714 at the beginning of the year. During year 2000, the Company sold the remaining $330,500 of securities it held at the end of 1999. In 2000, accounts receivable net of the allowance increased to $2,002,540 from $1,019,771 in 1999 while inventory decreased to $454,898 from $713,762. The increase in receivables from 2000 to 1999 is associated with an increase in revenues. The decrease in inventory in 2000 was mainly due to a decrease in work in process of $100,261 and a decrease in finished goods of $120,148. The net cash used in investing activities decreased $982,224 in 2000 mainly due to a reduction in capital expenditures. In 2001, we expect to have sufficient cash flow from operations and do not anticipate the need to raise additional funds. 1999 COMPARED TO 1998 In general, there is a material difference in the financial data from 1999 compared to 1998. For the most part the significant differences are attributed to the addition of Stainless Design Concepts. Furthermore, we expect to see continued improvements as a result of Stainless Design Concepts, as well as the addition of Equipment Consulting Services. New orders in 1999 totaled $2.7 million for CVD and $3.3 million for SDC or a total of $6.0 million, which was 185.7% higher than 1998's level of $2.1 million. The revenues produced a net profit of $160,541. Diluted net earnings per share were $.05 in 1999 compared to $.03 in 1998. In the past the Company has generally manufactured customized equipment. In 1999 the Company worked on developing a line of standard products as a supplement to our custom systems. Three of the four products were introduced in January 1999. In September 1997, the Company opened a Web site, www.cvdequipment.com to support the Company's marketing program. In May 1999 the Company opened it's second web site, www.stainlessdesign.com and in November of 1999 a third wed site was added, www.equipmentconsulting.com. REVENUE An increase in volume resulted in revenue for the year being $5,295,859, which was a 74.4% increase from 1998 revenues of $3,037,259. The type of sales in 1999 was similar to those of 1998. The Company shipped approximately 4% to government associated entities, 15% to major colleges and universities, 4% to research laboratories and another 77% was shipped to significant Fortune 500 industrial companies. COSTS AND EXPENSES In 1999, cost of revenues as a percentage of revenues decreased to 65% from 72% in 1998. The main reason for the 7% decrease in cost of revenues as a percentage of sales was a decrease in payroll expenses prior to the adjustment for SDC. The Company averaged 51 employees in 1999 compared to 35 employees in 1998. The actual cost of revenues increased from $2,171,796 in 1998 to $3,453,307 in 1999. This increase of $1,281,511, $706,357 is attributable to increased purchases of material, a $90,959 increase in utilities, $45,540 increase in rent expense, an increase of $238,714 in salaries, and a $58,859 increase in depreciation. 12 Selling and shipping expense was higher by $407,730 in 1999 compared to 1998. This mainly resulted from a $363,584 increase in salaries, a $25,840 increase in travel and increases in freight expense of $11,629. General and Administrative expenses rose by $507,291 in 1999 compared to 1998. This resulted mainly from a $20,937 increase in insurance, a $342,425 increase in salaries and employee benefits, an increase in consulting fees of $53,609, an increase in depreciation of $26,175, an increase in professional fees of $34,223, an increase in real estate taxes of $14,392, and a write off of bad debt of $22,410. Interest expense increased by $51,287 from 1998 to 1999 since the Company's average outstanding debt increased in 1999 as a result of it's mortgage of the SDC facility. LIQUIDITY AND CAPITAL RESOURCES By year-end 1999, the Company's cash position decreased to $91,714 from $127,489 at the beginning of the year. However the Company purchased $1,000,000 in securities available for sale in 1998. The Company divested itself of $650,000 in these securities during 1999. Of this, $500,000 was used for the purchase of the Saugerties facility. In 1999, accounts receivable increased to $1,019,771 from $347,126 in 1998 while inventory increased to $713,762 from $422,280. The increase in receivables from 1999 to 1998 is associated with an increase in revenues. The increase in inventory in 1999 was mainly due to the purchase of inventory to fill customer orders and the work in process of $286,000. The net cash used in investing activities increased $39,308 in 1999 mainly due to capital expenditures. In 2000, we expect to have sufficient cash flow from operations and do not anticipate the need to raise additional funds. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information called for by ITEM 7 is incorporated by reference in ITEM 13. 13 / F-1 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FORM 10-KSB ITEM 7 Years ended December 31, 2000 and 1999 14 / F-2
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. INDEPENDENT AUDITORS' REPORT ...................................... F-3 FINANCIAL STATEMENTS: Consolidated balance sheets as of December 31, 2000 and 1999....... F-4 Consolidated statements of income and comprehensive income for the years ended December 31, 2000 and 1999................ F-5 Consolidated statements of stockholders' equity for the years ended December 31, 2000 and 1999.................................... F-6 Consolidated statements of cash flows for the years ended December 31, 2000 and 1999.................................... F-7 Notes to consolidated financial statements......................... F-8
15 / F-3 F-3 A L B R E C H T , V I G G I A N O , Z U R E C K & C O M P A N Y , P . C . CERTIFIED PUBLIC ACCOUNTANTS 25 SUFFOLK COURT HAUPPAUGE, NY 11788 (631) 434-9500 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders CVD Equipment Corporation Ronkonkoma, New York We have audited the accompanying consolidated balance sheets of CVD Equipment Corporation and Subsidiaries (the Company) as of December 31, 2000 and 1999, and the related consolidated statements of income and comprehensive income, stockholders' equity, and cash flows for the years 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 audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 audits provide 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 Subsidiaries as of December 31, 2000 and 1999 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. /s/ Albrecht, Viggiano, Zureck & Co. Hauppauge, New York March 10, 2001 16 / F-4 F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 2000 1999 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 600,621 $ 91,714 Accounts receivable, net 2,002,540 1,019,771 Costs and estimated earnings in excess of billings on uncompleted contracts 1,483,459 490,214 Securities available-for-sale -0- 297,000 Inventories 454,898 713,762 Deferred income taxes -0- 17,490 Prepaid income taxes -0- 12,812 Other current assets 32,155 39,387 ------------ ------------ Total Current Assets 4,573,673 2,682,150 Property, Plant and Equipment 2,258,512 2,204,644 Deferred income Taxes 306,623 348,768 Other Assets 148,130 177,267 ------------ ------------ Total Assets $ 7,286,938 $ 5,412,829 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 607,777 $ 171,138 Accrued expenses 685,839 284,134 Billings in excess of costs on uncompleted contracts 146,613 67,504 Current maturities of long-term debt 18,135 16,936 ------------ ------------ Total Current Liabilities 1,458,364 539,712 Long-Term Debt 959,570 978,552 ------------ ------------ 2,417,934 1,518,264 Commitments and Contingencies Stockholders' Equity Common stock - $0.01 par value - 10,000,000 shares authorized; 3,000,750 and 2,918,750 shares issued and outstanding at December 31, 2000 and 1999, respectively 30,008 29,188 Additional paid-in capital 2,848,420 2,838,990 Retained earnings 1,990,576 1,061,897 Accumulated other comprehensive income -0- (35,510) ------------ ------------ Total Stockholders' Equity 4,869,004 3,894,565 ------------ ------------ Total Liabilities and Stockholders' Equity $ 7,286,938 $ 5,412,829 ============ ============ See notes to consolidated financial statements.
17 / F-5 F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Years ended December 31, 2000 and 1999 2000 1999 ------------ ------------ Revenues Revenue on completed contracts $ 6,828,603 $ 4,069,873 Revenue on uncompleted contracts 2,675,578 1,225,986 ------------ ------------ Total Revenues 9,504,181 5,295,859 Costs of Revenues Costs on completed contracts 4,479,213 2,824,775 Costs on uncompleted contracts 1,330,062 628,532 ------------ ------------ Total Costs of Revenues 5,809,275 3,453,307 ------------ ------------ Gross Profit 3,694,906 1,842,552 ------------ ------------ Operating Expenses Selling and shipping 566,011 566,197 General and administrative 1,726,415 1,307,967 ------------ ------------ Total Operating Expenses 2,292,426 1,874,164 ------------ ------------ 1,402,480 (31,612) ------------ ------------ Other Income (Expense) Interest income 43,667 46,231 Interest expense (70,492) (53,676) Loss on sale of securities (19,500) (4,875) Other income 18,014 2,130 ------------ ------------ Total Other Income (Expense) (28,311) (10,190) ------------ ------------ Income (Loss) Before Taxes 1,374,169 (41,802) Income Tax Provision (Benefit) 445,490 (202,343) ------------ ------------ Net Income 928,679 160,541 Other Comprehensive Income, Net of Tax Unrealized loss on securities -0- (47,945) ------------ ------------ Comprehensive Income $ 928,679 $ 112,596 ============ ============ Earnings Per Share Basic $ 0.31 $ 0.06 Diluted $ 0.29 $ 0.05 Weighted Average Shares Basic 2,963,972 2,918,750 Diluted 3,183,387 2,991,083 See notes to consolidated financial statements.
18 / F-6 F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2000 and 1999 Accumulated Additional Other Total Common Paid-In Comprehensive Retained Stockholders' Stock Capital Income Earnings Equity ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 1998 $ 29,188 $ 2,784,060 $ 12,435 $ 901,356 $ 3,727,039 Net income 160,541 160,541 Other comprehensive income, net of tax: Unrealized loss on securities: Unrealized holding loss arising during the year (51,211) (51,211) Less: reclassification adjustment for loss realized in net income 3,266 3,266 ------------ ------------ Net unrealized loss (47,945) (47,945) Total comprehensive income 112,596 Compensatory stock Options 54,930 54,930 ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 1999 $ 29,188 $ 2,838,990 $ (35,510) $ 1,061,897 $ 3,894,565 Net income 928,679 928,679 Total comprehensive income 35,510 35,510 Compensatory stock Options 820 9,430 10,250 ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 2000 $ 30,008 $ 2,848,420 $ -0- $ 1,990,576 $ 4,869,004 ------------ ------------ ------------ ------------ ------------ See notes to consolidated financial statements.
19 / F-7 F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2000 and 1999 2000 1999 ------------ ------------ Cash Flows from Operating Activities Net income $ 928,679 $ 160,541 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax provision (benefit) 42,145 (208,686) Depreciation and amortization 269,450 232,748 Compensatory stock options -0- 54,930 Bad debt provision 21,966 22,410 Loss on sale of securities 19,500 4,875 (Increase) decrease in: Accounts receivable (1,004,735) (695,055) Costs and estimated earnings in excess of billings on uncompleted contracts (993,245) 690,039 Inventory 258,864 (291,482) Prepaid income taxes 12,812 47,728 Other current assets 7,232 (6,175) Other assets (16,895) (56,640) Increase (decrease) in: Accounts payable 436,639 103,982 Accrued expenses 401,705 139,162 Billings in excess of costs on uncompleted contracts 79,109 20,511 ------------ ------------ Net Cash Provided By Operating Activities 463,226 218,888 ------------ ------------ Cash Flows from Investing Activities Capital expenditures (277,286) (1,574,135) Proceeds from sale of securities 330,500 645,125 ------------ ------------ Net Cash Provided (Used) In Investing Activities 53,214 (929,010) ------------ ------------ Cash Flows from Financing Activities Proceeds from the exercise of options 10,250 -0- Payments on short-term debt -0- (300,000) Proceeds from long-term debt -0- 986,400 Payments of long-term debt (17,783) (12,053) ------------ ------------ Net Cash (Used) Provided By Financing Activities (7,533) 674,347 ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents 508,907 (35,775) Cash and Cash Equivalents at Beginning of Year 91,714 127,489 ------------ ------------ Cash and Cash Equivalents at End of Year $ 600,621 $ 91,714 ============ ============ See notes to consolidated financial statements.
20 / F-8 F-8 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 1 - Summary of Significant Accounting Policies Description of Business CVD Equipment Corporation and Subsidiaries (the Company), a New York corporation, was organized and commenced operations in October 1982. Principal business activities include the manufacturing of chemical vapor deposition equipment, customized gas control systems, and hydrogen annealing and brazing 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. Basis of Consolidation The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly-owned subsidiaries. In December 1998, a new 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 had one subsidiary, CVD Materials Corporation as of December 31, 2000. All significant intercompany accounts and transactions have been eliminated in consolidation. Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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. Comprehensive Income In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. Comprehensive income consists of net income and other comprehensive income; the latter includes unrealized gains and losses on available-for-sale securities and is presented in the Consolidated Statements of Stockholders' Equity. The adoption of SFAS No. 130 had no effect on stockholders' equity. Inventories Inventories are valued at the lower of cost or market. The Company uses a cost system which approximates the first-in, first-out method. 21 / F-9 F-9 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 1 - Summary of Significant Accounting Policies (continued) Securities Available-For-Sale The Company evaluates its investment policies consistent with Financial Accounting Standards Board Statement (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, investment securities are classified as available-for-sale securities and carried at fair value, with temporary unrealized gains and losses reported in accumulated other comprehensive income as a separate component of stockholders' equity. Realized gains and losses on sales of securities classified as available-for-sale are determined using the specific identification method. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the tax basis of existing 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 less accumulated depreciation and amortization. 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 purposes over the estimated useful lives of the assets. Software Capitalization In 1998, the Company adopted 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 $27,853 and $11,957 for the years ended December 31, 2000 and 1999, respectively, and are included in Other Assets. All software is amortized straight-line over three years. Amortization expense related to software totaled $20,731 and $16,320 for the years ended December 31, 2000 and 1999, respectively. Intangible Assets In December 1998, the Company paid $15,000 for the right to use the trade name, "Stainless Design". This amount is included in Other Assets and amortized straight-line over ten years. Also in December 1998, the Company purchased engineering drawings for $25,000, which is included in Other Assets and amortized straight-line over 15 years. As of December 31, 1999 and 1998, the Company recorded in Other Assets a license agreement costing $10,000. The license agreement is being amortized over its life of 5 years. Amortization expense recorded by the Company in 2000 and 1999 for these intangibles totaled $5,212. 22 / F-10 F-10 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 1 - Summary of Significant Accounting Policies (continued) Revenue and Income Recognition The Company recognizes revenues and income using the percentage-of- completion method for complex major products while revenues from other products are recorded when such products are shipped. Profits on contracts for complex major products 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. Bad Debts Accounts receivable are presented net of an allowance for doubtful accounts of $21,966 and $22,410 as of December 31, 2000 and 1999, 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, further additions may be necessary 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 to be insignificant based on prior experience. However, it is reasonably possible that this estimate may change in the future. Advertising Costs The Company expenses advertising costs which are not expected to benefit future periods. Advertising expenses included in selling and shipping expenses were $1,938 and $3,796 in 2000 and 1999, respectively. As of December 31, 2000 and 1999, the Company's capitalized advertising costs included in Other Assets totaled $62,681 and $59,566, respectively, 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 $19,855 and $9,554 in 2000 and 1999, respectively. 23 / F-11 F-11 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 1 - Summary of Significant Accounting Policies (continued) Earnings Per Share In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, Earnings per Share. This pronouncement requires the reporting of two net income per share figures: basic net income per share and diluted net income per share. Basic net income is calculated by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income by the sum of the weighted-average number of common shares outstanding during the period plus the dilutive effect of shares issuable through stock options. A reconciliation of the weighted-average number of common shares outstanding used in the calculations of basic and diluted earnings per share follows.
2000 1999 Basic Dilutive Basic Dilutive ------------ ------------ ------------ ------------ Weighted-average number of common shares outstanding 2,963,972 2,963,972 2,918,750 2,918,750 ============ ============ Dilutive options to purchase common shares outstanding 219,802 72,333 ------------ ------------ 3,183,387 2,991,083 ============ ============
The effects of 52,500 options granted in 1999 at an exercise price $1.00 were not included in the computation of diluted earnings per share for the year ended December 31, 1999 because they are anti-dilutive. The effects of 3,500 options granted in 2000 at an exercise price of $3.25 were not included in the computation of diluted earnings per share for the year ended December 31, 2000 because they are anti-dilutive. Cash and Cash Equivalents The Company considers all highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. The Company places most of temporary cash investments with one financial institution and normally exceeds the FDIC limit. The Company has not experienced any losses to date resulting from this policy. 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. 24 / F-12 F-12 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 1 - Summary of Significant Accounting Policies (continued) Stock-Based Compensation The Company accounts for stock options as prescribed by Accounting Principles Board Opinion No. 25 and includes pro forma information in the stock-based compensation footnote, as permitted by Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123"). Accordingly, no compensation cost is recognized for stock options granted in 2000 and 1999 since the option exercise price is not less than the market price of the underlying stock on the date of grant. In 1999, compensation cost is recognized for stock options granted to Directors before December 15, 1998 based upon the fair market value of the options granted. In 1999, compensation cost is also recognized for stock options granted to the President before December 15, 1998 at an exercise price less than the market price of the underlying stock on the date of the grant.
Note 2- Supplemental Cash Flow Information 2000 1999 ------------ ------------ Cash paid (received) during the year for: Income taxes, net of refunds $ (794) $ (41,384) Interest 70,492 9,682 Noncash investing activities: Unrealized gains (losses) on securities, net of tax $ -0- $ (47,945)
Note 3 - Uncompleted Contracts Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows: 2000 1999 ------------ ------------ Costs incurred on uncompleted contracts $ 1,330,062 $ 628,532 Estimated earnings 1,633,470 606,011 ------------ ------------ 2,963,532 1,234,543 Billings to date (1,626,686) (811,833) ------------ ------------ $ 1,336,846 $ 422,710 Included in accompanying balance sheets under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts $ 1,483,459 $ 490,214 Billings in excess of costs and estimated earnings on uncompleted contracts (146,613) (67,504) ------------ ------------ $ 1,336,846 $ 422,710 ============ ============
25 F-13 F-13 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999
Note 4 - Securities Available-For-Sale Securities available-for-sale consist of the following: 2000 1999 ------------ ------------ Corporate preferred bonds: Maturing in 2038 $ -0- $ 350,000 Cost $ -0- $ 350,000 ------------ ------------ Fair value $ -0- $ 297,000 At December 31, 1999, corporate preferred bonds have been categorized as available-for-sale and stated at fair value. The Company recorded an unrealized holding loss of $51,211 for the year December 31, 1999, which is shown net of a deferred tax asset of $17,490 in accumulated other comprehensive income. All bonds were sold during 2000.
Note 5 - Inventory Inventories consist of the following: 2000 1999 ------------ ------------ Raw materials $ 80,619 $ 119,074 Work-in-process 186,031 286,292 Finished goods 188,248 308,396 ------------ ------------ $ 454,898 $ 713,762 ============ ============
Note 6 - Property, Plant and Equipment Major classes of property, plant and equipment consist of the following: 2000 1999 ------------ ------------ Land $ 61,620 $ 61,620 Buildings 1,463,551 1,463,551 Machinery and equipment 819,523 633,744 Capitalized labor and overhead 753,239 753,239 Furniture and fixtures 157,472 156,283 Computer equipment 149,001 108,136 Transportation equipment 99,266 50,750 Leasehold improvements 47,222 46,285 ------------ ------------ 3,550,894 3,273,608 Accumulated depreciation and amortization (1,292,382) (1,068,964) ------------ ------------ $ 2,258,512 $ 2,204,644 ============ ============ Depreciation and amortization expense $ 223,418 $ 201,662 ============ ============
26 / F-14 F-14 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 7 - Short-Term Borrowings The Company has a line of credit facility with a bank which allows the Company to borrow up to $500,000 until June 1, 2001. Interest is payable on any unpaid principal balance at the bank's prime rate plus 0.75%. Borrowings are collateralized by the Company's assets. As of December 31, 2000 and 1999, no amounts were outstanding on this facility.
Note 8 - Long-Term Debt Long-term debt consists of the following: 2000 1999 ------------ ------------ 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 on May 1, 2009. $ 884,399 $ 893,977 THE DIME SAVINGS BANK $86,400 note payable secured by real property and condominium unit in Saugerties, New York; payable in equal monthly installments of $846, including interest at 8.29% per annum until August 2004, when interest converts to a fixed rate equal to the 5-year United States Treasury Bill rate plus 2.86%; final payment due August 1, 2014. 82,112 85,198 NISSAN MOTOR ACCEPTANCE CORP. Collateralized by a lien on the Company's automobile; payable in 60 monthly installments of $495 including interest of 5.9% per annum; final payment due February 5, 2003. 11,194 16,313 ------------ ------------ 977,705 995,488 Less: Current maturities 18,135 16,936 ------------ ------------ $ 959,750 $ 978,552 ============ ============ Future maturities of long-term debt are as follows: 2001 $ 18,135 2002 20,372 2003 16,768 2004 17,105 2005 18,403 2006 to maturity 886,922 ------------ $ 977,705
27 / F-15 F-15 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 9 - Income Taxes
The provision (benefit) for income taxes include the following: 2000 1999 ------------ ------------ Current: Federal $ 375,268 $ 5,265 State 28,077 1,078 ------------ ------------ Total current provision 403,345 6,343 ------------ ------------ Deferred: Federal 28,793 (17,176) State 13,352 (191,510) ------------ ------------ Total deferred provision (benefit) 42,145 (208,686) ------------ ------------ $ 445,490 $ (202,343) ============ ============
The Company has a state investment tax credit carryforward of $112,892 that may be offset against future state tax liabilities through the year 2015 and other state tax credits totaling $202,619 which may be carried forward indefinitely.
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: 2000 1999 ------------ ------------ Income taxes at statutory rate $ 467,217 $ (14,213) State taxes 21,512 1,635 Investment tax credits and other (43,239) (189,765) ------------ ------------ Provision (Benefit) for Income Taxes $ 445,490 $ (202,343) ============ ============
The tax effects of temporary differences giving rise to significant portions of deferred taxes are as follows: 2000 1999 ------------ ------------ Allowance for doubtful accounts $ 8,566 $ 4,482 Inventory capitalization 17,081 13,743 Capital loss carryforward -0- 1,306 Compensatory stock options 523 10,986 Depreciation and amortization (35,058) (2,124) Investment tax credit 315,511 320,375 ------------ ------------ Deferred Tax Asset $ 306,623 $ 348,768 ============ ============
28 / F-16 F-16 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 10 - Stock-Based Compensation 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 3, 2004. 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. 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.
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, 1999 Number of shares 224,000 52,500 -0- 10,000 266,500 116,500 Weighted average exercise price per share $ 0.99 $ 1.00 $ -0- $ 1.51 $ 0.97 $ 0.51 Year ended December 31, 2000 Number of shares 266,500 325,500 82,000 -0- 510,000 72,250 Weighted average exercise price per share $ 0.97 $ 0.67 $ 0.125 $ -0- $ 1.65 $ 1.43
The weighted-average per share fair value of the options granted during 2000 and 1999 was estimated as $1.37 and $0.23, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2000 1999 ------------ ------------ Risk-free interest rate 5.74-6.52% 5.50% Expected option life 7 years 7 years Expected volatility 80% 30% Expected dividend yield 0% 0%
29 / F-17 F-17 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 10 - Stock-Based Compensation (continued)
The following table summarizes information about the options at December 31, 2000: Options Outstanding Options Exercisable ------------------------------------------------------------ ---------------------------- Weighted Weighted Weighted Average Average Average Exercise Number Remaining Exercisable Number Exercisable Price Outstanding Life Price Exercisable Price ------------- ------------ ------------ ----------- ------------ ------------ $0.13 - $1.00 54,500 5.55 years $ 0.97 7,250 $ 0.76 $1.51 - $1.75 372,000 4.76 years $ 1.67 65,000 $ 1.51 $2.00 - $2.75 80,000 6.47 years $ 2.00 -0- $ 2.00 $3.00 - $3.25 3,500 6.50 years $ 3.25 -0- $ 3.25
Had compensation expense for the Company's stock-based compensation plan been determined consistent with SFAS 123, net income and earnings per share would be decreased to the pro forma amounts indicated below: 2000 ------------ Net income As reported $ 928,679 Pro forma 895,118 Earnings per share - basic As reported $ 0.31 Pro forma 0.30 Earnings per share - diluted As reported $ 0.29 Pro forma 0.28
Note 11 - 401(k) 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 year ended December 31, 2000 and 1999, the Company incurred 401(k) administrative costs totaling $1,990 and $1,944, respectively. No employer contribution has been made for 2000 and 1999. 30 / F-18 F-18 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 12 - Concentration of Credit Risk Significant Customers The Company's sales encompass markets wherein the demands of any one customer may vary greatly due to changes in technology. In 2000 and 1999, the Company had one significant customer, which represented approximately 10% and 13%, respectively, of sales and 71% of the total accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts at December 31, 1999. The Company had a second significant customer, which represented approximately 10% of sales in 2000, and a different major customer which represented approximately 14% of sales in 1999. No one customer was considered significant to accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts at December 31, 2000. Export Sales Export sales to unaffiliated customers represented approximately 3% and 12% of sales for the years ended December 31, 2000 and 1999, respectively. Export sales in 2000 and 1999 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 13 - 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 $20,000 for the years ended December 31, 2000 and 1999, respectively. As of December 31, 2000 and 1999, the Company owed the general counsel $26,000 and $20,000, respectively. Note 14 - Segment Reporting In 1999, the Company adopted SFAS 131, Disclosures about Segments of an Enterprise and Related Information. As a result, Stainless Design Concepts ("SDC"), which was a subsidiary of the Company as of December 31, 1998, operated as a segment of the Company as of December 31, 1999. SDC is the Company's ultra-high purity manufacturing division in Saugerties, New York. In November 1999, a new division called Equipment Consulting Services (ECS) was formed. Operations commenced in January 2000. ECS is the Company's equipment refurbishing division located in Saugerties, New York. The accounting policies of SDC and ECS are the same as those described in the summary of significant accounting policies (see Note 1). 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, 2000 and for the year then ended:
CVD SDC ECS Eliminations Consolidated ------------ ------------ ------------ ------------ ------------ Assets $ 5,881,800 $ 3,097,070 $ 320,309 $(2,012,241) $ 7,286,938 ============ ============ ============ ============ ============ Revenues $ 5,244,358 $ 4,396,850 $ 99,545 $ (236,572) $ 9,504,181 Interest income 41,350 2,317 -0- -0- 43,667 Interest expense 988 69,504 -0- -0- 70,492 Depreciation and amortization 144,998 124,452 -0- -0- 269,450 Capital expenditures 205,191 72,095 -0- -0- 277,286 Pretax earnings (loss) 1,346,371 255,987 (228,189) -0- 1,374,169 ============ ============ ============ ============ ============
31 / F-19 F-19 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000 and 1999 Note 15 - Commitments and Contingencies Leases The Company rents its headquarters and operations in Ronkonkoma, New York under a lease expiring on July 31, 2006. Minimum future rental commitments are as follows: Year ending December 31, 2001 $ 137,588 2002 144,000 2003 145,800 2004 150,170 2005 154,665 Thereafter 91,777 ------------ $ 824,000 ============
Rental expense under the above operating lease totaled $130,751 and $126,942 for 2000 and 1999, respectively. 32 / S-1
INDEX TO SUPPLEMENTARY FINANCIAL SCHEDULES Page No. Independent Auditors' Report on Supplementary Information S-2 Supplementary Financial Schedules: II. Valuation and qualifying accounts S-3 III. Amounts receivable from related parties and underwriters, promoters, and employees other than related parties S-4 IV. Property, plant and equipment S-5 V. Accumulated depreciation and amortization of property, plant and equipment S-6 VI. Supplementary income statement information S-7
33 / S-2 S-2 A L B R E C H T , V I G G I A N O , Z U R E C K & C O M P A N Y , P . C . CERTIFIED PUBLIC ACCOUNTANTS 25 SUFFOLK COURT HAUPPAUGE, NY 11788 (631) 434-9500 INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION To the Board of Directors and Stockholders CVD Equipment Corporation Ronkonkoma, New York We have audited and reported separately herein on the consolidated financial statements of CVD Equipment Corporation and subsidiaries (the Company) as of and for the years ended December 31, 2000 and 1999. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements of the Company taken as a whole. The supplementary information included in Form 10-KSB, Schedules II, III, IV, V and VI is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole. /s/ Albrecht, Viggiano, Zureck & Co. Hauppauge, New York March 10, 2001 34 / S-3 S-3
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES FORM 10-KSB, SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2000 and 1999 Additions ---------------------------- Balance at (1) Charged (2) Charged Balance Beginning to Costs and to Other at End Deducted from Assets of Period Expenses Accounts Deductions of Period ------------------------------------ ------------ ------------ ------------ ------------ ------------ Allowance for net unrealized gains (losses) on securities: Year ended December 31, 2000 $ (53,000) $ $ $ 53,000 $ -0- Year ended December 31, 1999 18,340 -0- -0- (71,340) (53,000) Allowance for doubtful accounts: Year ended December 31, 2000 22,410 (444) 21,966 Year ended December 31, 1999 -0- 22,410 -0- -0- 22,410
35 / S-4 S-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES FORM 10-KSB, SCHEDULE III AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES Years ended December 31, 2000 and 1999 Col. A Col. B Col. C Col. D Col. E ------------------------------------ ------------ ------------ ------------ ------------ ------------ Deductions ---------------------------- Balance at (1) (2) Balance at Beginning Amounts Amounts End of Name of Debtor of Period Additions Collected Written off Period ------------------------------------ ------------ ------------ ------------ ------------ ------------ Year ended December 31, 2000 $ -0- $ -0- $ -0- $ -0- $ -0- Year ended December 31, 1999 $ -0- $ -0- $ -0- $ -0- $ -0-
36 / S-5 S-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES FORM 10-KSB, SCHEDULE IV PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 2000 and 1999 Col. A Col. B Col. C Col. D Col. E ------------------------------------ ------------ ------------ ------------ ------------ Balance at Other Balance at Beginning Additions Changes - End of Description of Period at Cost Add (Deduct) Period ------------------------------------ ------------ ------------ ------------ ------------ 2000: Land $ 61,620 $ 61,620 Building 1,463,551 1,463,551 Machinery and equipment 633,744 $ 193,779 $ (8,000) 819,523 Capitalized labor and overhead 753,239 753,239 Furniture and fixtures 156,283 1,189 157,472 Computer equipment 108,136 40,865 149,001 Transportation equipment 50,750 48,516 99,266 Leasehold improvements 46,285 937 47,222 ------------ ------------ ------------ ------------ $ 3,273,608 $ 285,286 $ (8,000) $ 3,550,894 ============ ============ ============ ============ 1999: Land $ -0- $ 61,620 $ 61,620 Building -0- 1,463,551 1,463,551 Machinery and equipment 636,880 1,164 $ (4,300) 633,744 Capitalized labor and overhead 1,032,772 (279,533) 753,239 Furniture and fixtures 152,216 4,067 156,283 Computer equipment 90,655 17,481 108,136 Transportation equipment 50,750 50,750 Leasehold improvements 15,733 30,552 46,285 ------------ ------------ ------------ ------------ $ 1,979,006 $ 1,578,435 $ (283,833) $ 3,273,608 ============ ============ ============ ============
37 / S-6 S-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES FORM 10-KSB, SCHEDULE V ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 2000 and 1999 Col. A Col. B Col. C Col. D Col. E ------------------------------------ ------------ ------------ ------------ ------------ Additions Balance at Charged to Other Balance at Beginning Costs and Changes - End of Description of Period Expenses Add (Deduct) Period ------------------------------------ ------------ ------------ ------------ ------------ 2000: Building $ 18,764 $ 37,527 $ 56,291 Machinery, equipment and capitalized labor and overhead 798,222 140,861 939,083 Furniture and fixtures 132,637 3,923 136,560 Computer equipment 64,493 20,056 84,549 Transportation equipment 37,654 16,817 54,471 Leasehold improvements 17,194 4,234 21,428 ------------ ------------ ------------ ------------ $ 1,068,964 $ 223,418 $ $ 1,292,382 ============ ============ ============ ============ 1999: Building $ -0- $ 18,764 $ 18,764 Machinery, equipment and capitalized labor and overhead 927,577 150,178 $ (279,533) 798,222 Furniture and fixtures 128,913 3,724 132,637 Computer equipment 48,415 16,078 64,493 Transportation equipment 28,923 8,731 37,654 Leasehold improvements 13,007 4,187 17,194 ------------ ------------ ------------ ------------ $ 1,146,835 $ 201,662 $ (279,533) $ 1,068,964 ============ ============ ============ ============
38 / S-7 S-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES FORM 10-KSB, SCHEDULE VI SUPPLEMENTARY INCOME STATEMENT INFORMATION Years ended December 31, 2000 and 1999 Col A. Col. B ------------------------------- ------------------------------- Charges to Costs and Expenses ------------------------------- Item 2000 1999 -------- ------------ ------------ 1. Amortization of software, advertising costs and other intangible assets $ 46,032 $ 31,086
39 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, with respect to each officer and/or director, his/her age, present position with the Company, principal occupation during the past five years, other directorships, if any, and the year he/she first became an officer and/or a director of the Company. Officer/ Position with Director Name of Officer/Director Age the Company Since ------------------------ ----- ------------------------- --------- Leonard A. Rosenbaum 55 President and 1982 Chief Executive Officer Alan H. Temple, Jr. 67 None 1986 Mitchell Drucker 52 Chief Financial Officer 1999 Sharon Canese 40 Secretary 1998 Martin J. Teitelbaum 51 Assistant Secretary 1985 Conrad Gunther 52 None 2000
Leonard A. Rosenbaum founded the Company in October 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, a 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. Nav-Tec Industries suspended operations, as related to the type of equipment presently manufactured by the Company, in 1984. From 1966 through 1971, Mr. Rosenbaum was employed by a division of General Instrument, a manufacturer of semiconductor materials and equipment. Alan H. Temple, Jr. has been President, since 1977, of Harrison Homes, Inc. Pittsford, NY, a building and consulting firm. Mitchell Drucker joined the Company on April 19,1999. Prior to joining the CVD, Mr. Drucker was General Manager of Infoserve Corporation for a period of 11 years. Mr. Drucker also held the position of Vice President of Bankers Trust Company from 1976-1984. In addition, Mr. Drucker has had a variety of engagements in the manufacturing and consulting arena. Sharon Canese joined the Company on September 11, 1991. Prior to joining CVD, Mrs. Canese was Assistant Controller of Transcontrol Corporation for a period of four years. Mrs. Canese has also held the position of Financial Analyst of the Financial Planning Department at Eaton Corporation/AIL Division from 1983 to 1987. Martin J. Teitelbaum was a partner in the law firm of Guberman and Teitelbaum, Smithtown, New York from February 1977 through December 1987. From January 1988 to date, Mr. Teitelbaum has been principal attorney for the Law Offices of Martin J. Teitelbaum. Mr. Teitelbaum became a director of the Company in 1985. From September 23, 1986 to December 31, 1986 he served as Corporate Secretary and served again as Corporate Secretary from August 1997 to February 1998. Since January 1, 1987 he has served as the Assistant Secretary. Mr. Teitelbaum serves as General Counsel to the Company. Conrad Gunther was elected to the Board of Directors at the Annual meeting in 2000. Mr. Gunther is president of C J Gunther & Associates. He is also a Managing Director of the Allied Group. Mr. Gunther also held the position of EVP & COO of North Fork Bancorporation. In addition, Mr. Gunther previously held the position of EVP and Division Manager of European American Bancorp. 40 All directors hold office until the next annual meeting of stockholders of the Company or until their successors are elected and qualify. The Board of Directors met three times in the year 2000. Mr. Rosenbaum, Mr. Temple, Mrs. Canese, Mr. Teitelbaum and Mr. Gunther attended all meetings. ITEM 10. EXECUTIVE COMPENSATION Remuneration The following table sets forth certain information as to each of the Company's most highly compensated executive officers whose cash compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE Name and Principal Annual Stock Options Position Year Compensation Granted ---------------------------- ------ ------------ ------------- Leonard A. Rosenbaum 2000 $ 170,434 10,000 President and Chief 1999 $ 163,742 -0- Executive Officer 1998 $ 163,742 -0-
The Company owns life insurance on the life of Leonard A. Rosenbaum in the amount of $2,000,000. The Company is the sole beneficiary of said policy. In June 1989, the shareholders approved a non-qualified stock option plan covering key employees, officers and directors. Options will be awarded by the Board of Directors or by a committee appointed by the board. Under the plan an aggregate of 700,000 shares of common stock, $.01 par value of the Company are reserved for issuance or transfer upon the exercise of options which are granted. Unless otherwise provided in the Option Agreement, an option 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 Nasdaq) 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 June 30, 2004. In 1996 a total of 84,000 options were granted which did not vest until 1999 at which time they vested 100%. In 1998, 140,000 options were granted to employees other than executive officers or directors. The options vest at 25% per year starting in 1999. In 1999 a total of 52,500 options were granted to employees other than executive officers or directors. The options vest at varying rates starting in 2000. In 2000 a total of 325,500 options were granted to employees, executive officers and directors. These options vest at varying rates. To date 82,250 options have been exercised under this plan. Other than the one non-qualified stock option plan, the Company has no pension or profit sharing plan or other contingent forms of remuneration. 41 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Set forth below is certain information concerning persons who are known by the Company to own beneficially more than 5% of any class of the Company's voting shares on March 1, 2001:
Amount & Nature Title Of Name and Address Of Of Beneficial Percentage Class Beneficial Owner Ownership of Class -------- ----------------------- ----------------- -------- Common Leonard A. Rosenbaum 1,300,450 (1) 43.3% Stock 1881 Lakeland Avenue Ronkonkoma, NY 11779 Common Alan H. Temple Jr. 192,000 6.4% Stock 10 Harrison Circle Pittsford, NY 14534
SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth as of March 1, 2001, information concerning the beneficial ownership of each class of equity security by each director and all directors and officers of the Company as a group:
Amount & Nature Title Of Name and Address Of Of Beneficial Percentage Class Beneficial Owner Ownership of Class -------- ----------------------- ----------------- -------- Common Leonard A. Rosenbaum 1,300,450 (1) 43.3% Stock 1881 Lakeland Avenue Ronkonkoma, NY 11779 Common Martin J. Teitelbaum 26,000 (2) * Stock 329 Middle Country Road Smithtown, NY 11787 Common Alan H. Temple, Jr. 192,000 (3) 6.4% Stock 10 Harrison Circle Pittsford, NY 14534 Common Mitchell Drucker 23,900 (1) * Stock 42 Blackmore Lane East Islip, NY 11730 Common All Directors and Officers 1,542,350 51.4% Stock as a group (four persons) * Less than 1% (1) Except as noted, all shares are beneficially owned, and the sole voting and investment power is held by the persons named. (2) Shares are held by Mr. Teitelbaum's wife and beneficial ownership thereof is disclaimed by Mr. Teitelbaum. (3) Includes and aggregate of 21,000 shares held by Mr. Temple's wife, as to which he disclaims beneficial interest.
CHANGES IN CONTROL The Company knows of no contractual arrangements that may at a subsequent date result in a change of Company control. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During 2000, the Company incurred approximately $26,000 in legal fees to Martin J. Teitelbaum a director of the Company and principal attorney for the law offices of Martin J. Teitelbaum. 42 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K 1. Exhibits - The following Exhibits are filed as part of, or incorporated by reference into, this report on Form 10-KSB (3) Articles of incorporation and by-laws (4) Instruments defining the rights of holders, including indentures (9) Voting trust agreement (10) Material Contracts (11) Statement re: Computation of per share earnings (13) Annual or quarterly reports, Form 10-QSB (18) Letter on change in accounting principles (19) Previously unfiled documents (21) Subsidiaries of registrant (22) Published report regarding matters submitted to vote (23) Consent of experts and counsel (24) Power of Attorney (28) Information from reports furnished to state insurance authorities (99) Additional exhibits All items included by reference. 2. Financial Statements - The following consolidated financial statement of CVD Equipment Corporation and report of Independent Accountants are filed as part of this Report on Form 10-KSB and should be read in conjunction with the related notes thereto, included herein. The following financial statements of CVD Equipment Corporation are included in Part II, Item 7: Report of Independent Certified Public Accountants........ F-3 Balance Sheets - December 31, 2000 and 1999............... F-4 Statements of Income and Comprehensive Income Years Ended December 31, 2000 and 1999............... F-5 Statements of Stockholders Equity......................... F-6 Statements of Cash Flows Years Ended December 31, 2000 and 1999............... F-7 Notes to the Financial Statements....................... F-8-F-17 3. Financial Statement Schedules Report of Independent Certified Public Accountants........ S-2 Schedules: II. Valuation and Qualifying Accounts......................... S-3 III. Amounts receivable from Related Parties and Underwriters, Promoters, and Employees other than Related Parties,...... S-4 IV. Property, Plant and Equipment............................. S-5 V. Accumulated depreciation and amortization of Property, Plant and Equipment....................................... S-6 VI. Supplementary Income Statement Information................ S-7 All other schedules are omitted because they are not applicable, or not required, or because information is included in the consolidated financial statements or notes thereto. 43 A L B R E C H T , V I G G I A N O , Z U R E C K & C O M P A N Y , P . C . CERTIFIED PUBLIC ACCOUNTANTS 25 SUFFOLK COURT HAUPPAUGE, NY 11788 (631) 434-9500 To the Board of Directors and Stockholders CVD Equipment Corporation We consent to the use of our reports included herein and to the reference to our firm under the heading "experts" in the Form 10-KSB. /s/ Albrecht, Viggiano, Zureck & Co. Hauppauge, New York March 27, 2001 44 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 27th day of March 2001. CVD EQUIPMENT CORPORATION By: /s/ Leonard A. Rosenbaum Leonard A. Rosenbaum President and Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Leonard A. Rosenbaum President, Chief Executive Officer and Director Leonard A. Rosenbaum /s/ Alan H. Temple, Jr. Director Alan H. Temple, Jr. /s/ Martin J. Teitelbaum Director Martin J. Teitelbaum /s/ Mitchell Drucker Chief Financial Officer Mitchell Drucker /s/ Sharon Canese Secretary Sharon Canese /s/ Conrad Gunther Director Conrad Gunther