10QSB 1 edg01q2.txt CVD EQUIPMENT CORPORATION 2ND QUARTER 2001 1 US SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ___6-30-01____ ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE EXCHANGE ACT For the transition period from _________________to_________________ Commission file number _____________2-97210-NY_______________________ CVD EQUIPMENT CORPORATION (Exact name of small business issuer as specified in its charter) NEW YORK (State or other jurisdiction of incorporation or organization) 11-2621692 (IRS Employer Identification Number) 1881 LAKELAND AVENUE, RONKONKOMA, NY 11779 (Address of principal executive offices) 631-981-7081 (Issuers Telephone Number) (Former name, former address, and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ___ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 3,015,325 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF 8-13-01 2 CVD EQUIPMENT CORPORATION NOTE TO FINANCIAL STATEMENTS FOR THE QUARTER ENDING JUNE 30, 2001 BASIS OF FINANCIAL STATEMENTS The financial data is subject to year end audit and does not claim to be a complete presentation since note disclosure under generally accepted accounting procedures is not included. Note disclosures required under generally accepted accounting procedures are included in the Company's audited financial statements filed as part of Form 10-KSB for the year ended December 31, 2000. Form 10-QSB should be read in conjunction with these financial statements. The results of operations for the three months are not necessarily indicative of those for the full year. In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present the financial position and the results of operation for the periods indicated. 3 MANAGEMENT'S DISCUSSION INTRODUCTION Statements contained in this Report on Form 10-QSB that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding industry trends, strategic business development, pursuit of new markets, competition, results from operations, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "intends", "plans", "anticipates", "believes", "expect to", or words of similar import. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, marketing success, product development, production, technological difficulties, manufacturing costs, and changes in economic conditions in the markets the Company serves. The Company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. FORWARD LOOKING STATEMENTS Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. These forward looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward looking statements, include, but are not limited to: competition in the Company's existing and potential future product lines of business; the Company's ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company's future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the company. Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward looking statements. REVENUE RECOGNITION CVD recognizes and identifies on its financial statements, revenue on a percent complete methodology for contracts falling under SOP 81-1 and recognizes revenues on a completed contract methodology for contracts falling under SAB 101. CVD feels this is the most accurate and consistent with the requirements of the two regulations. 4 MANAGEMENT'S DISCUSSION CONTINUED MARKETING Our marketing continues to focus on growing the business. CVD is constantly looking to expand our customer base and to improve and increase market share. We continue to explore new market segment opportunities, potential acquisitions as well as expanding our overall product offerings. In 2000, the semiconductor industry grew at an unprecedented rate. New end products and a drive to manufacture smaller chips on larger wafers, reducing manufacturing costs fueled growth. The semiconductor industry however is historically cyclic in nature and has now slowed. CVD believes that it has structured itself with our three divisions to partially compensate for this cyclic nature and 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 during a slow 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 to refurbished equipment as an alternate way to enhance their productivity. 5 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 REVENUE An increase in volume resulted in second quarter of 2001 revenue being $3,733,111 a 75% increase from second quarter of 2000 revenue of $2,133,096. COSTS AND EXPENSES The cost of revenue increased to $2,263,184 in second quarter of 2001 as compared to $1,411,168 in second quarter of 2000. Of this $852,016 increase, approximately $604,000 is attributed to material and $198,000 to salaries. Selling and shipping expenses increased to $213,328 in second quarter of 2001 from $123,468 in second quarter of 2000. Of this $89,860 increase, approximately $33,000 is attributed to salaries, $38,000 to commissions, $3,000 to advertising and $15,000 to freight expense. General and Administrative expenses increased to $616,436 in second quarter of 2001 from $388,449 in second quarter of 2000. Of this $227,987 increase, approximately $29,000 is attributed to legal fees, $67,000 to salaries, $9,000 to consultants, and $104,000 to bad debt. Interest expense decreased by $1,133 from $17,570 in second quarter of 2000 to $16,437 in second quarter of 2001, because the company's average outstanding debt decreased. Interest income decreased by $3,191 from $13,301 in second quarter of 2000 to $10,110 in second quarter of 2001, because the company sold some investments. Gain on sale of fixed asset increased by $37,666 from second quarter of 2000 to second quarter of 2001, because the company sold some fixed assets. 6 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2001 REVENUE An increase in volume resulted in six months of 2001 revenue being $7,207,927, an 84% increase from six months of 2000 revenue of $3,908,526. COSTS AND EXPENSES The cost of revenue increased to $4,455,865 in six months of 2001 as compared to $2,615,079 in six months of 2000. Of this $1,840,786 increase, approximately $1,314,000 is attributed to material and $405,000 to salaries. Selling and shipping expenses increased to $399,451 in six months of 2001 from $245,870 in six months of 2000. Of this $153,581 increase, approximately $48,000 is attributed to salaries, $65,000 to commissions, $13,000 to advertising and $23,000 to freight expense. General and Administrative expenses increased to $1,113,709 in six months of 2001 from $734,101 in six months of 2000. Of this $379,608 increase, approximately $51,000 is attributed to legal fees, $129,000 to salaries, $17,000 to consultants, $136,000 to bad debt and $11,000 to depreciation. Interest expense decreased by $1,787 from $35,542 in six months of 2000 to $33,755 in six months 2001, because the company's average outstanding debt decreased. Interest income decreased by $8,763 from $24,099 in six months of 2000 to $15,336 in six months of 2001, because the company sold some investments. Gain on sale of fixed asset increased by $37,666 from six months of 2000 to six months of 2001, because the company sold some fixed assets. LIQUIDITY AND CAPITAL RESOURCES By the end of the second quarter of 2001, the Company's cash position increased to $1,682,615 from $600,621 at the beginning of the year. The increase in cash is largely attributed to the increase in revenues. At the end of the second quarter of 2001, the Company's account receivable position decreased to $1,667,201 from $ 2,002,540 at the beginning of the year. This decrease was attributable to timing of customer payments and billings. At the close of the second quarter of 2001, the Company's backlog decreased to approximately $3,032,705 from approximately $5,508,802 at the beginning of the year. This decrease is attributed to an increase in shipments. 7
CVD EQUIPMENT CORPORATION BALANCE SHEETS JUNE 30, 2001 JUNE 30 DECEMBER 31 2001 2000 (UNAUDITED) (AUDITED) ------------ ------------ ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 1,682,615 $ 600,621 ACCOUNTS RECEIVABLE, NET 1,667,201 2,002,540 COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 1,367,340 1,483,459 INVENTORY 259,206 454,898 OTHER CURRENT ASSETS 23,048 32,155 ------------ ------------ TOTAL CURRENT ASSETS 4,999,410 4,573,673 PROPERTY, PLANT AND EQUIPMENT 2,096,323 2,258,512 DEFERRED TAX ASSET 170,074 306,623 OTHER ASSETS 133,315 148,130 ------------ ------------ TOTAL ASSETS $ 7,399,122 $ 7,286,938 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES ACCOUNTS PAYABLE $ 346,923 $ 607,777 ACCRUED EXPENSES 441,610 685,839 BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS - 146,613 CURRENT MATURITIES OF LONG-TERM DEBT 15,273 18,135 ------------ ------------ TOTAL CURRENT LIABILITIES 803,806 1,458,364 LONG-TERM DEBT 872,597 959,570 ------------ ------------ 1,676,403 2,417,934 ------------ ------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY COMMON STOCK - $0.01 PAR VALUE -10,000,000 SHARES AUTHORIZED; 3,015,325 AND 3,000,750 SHARES ISSUED & OUTSTANDING 30,153 30,008 ADDITIONAL PAID-IN CAPITAL 2,870,196 2,848,420 RETAINED EARNINGS 2,822,370 1,990,576 ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 5,722,719 4,869,004 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 7,399,122 $ 7,286,938 ============ ============
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CVD EQUIPMENT CORPORATION STATEMENTS OF INCOME AND COMPREHENSIVE INCOME JUNE 30, 2001 THREE MONTHS ENDED JUNE 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ REVENUES REVENUE ON COMPLETED CONTRACTS $ 3,441,977 $ 1,385,539 REVENUE ON UNCOMPLETED CONTRACTS 291,134 747,557 ------------ ------------ TOTAL REVENUES 3,733,111 2,133,096 ------------ ------------ COSTS OF REVENUES COST ON COMPLETED CONTRACTS 2,187,602 1,056,318 COST ON UNCOMPLETED CONTRACTS 75,582 354,850 ------------ ------------ TOTAL COSTS OF REVENUES 2,263,184 1,411,168 ------------ ------------ GROSS PROFIT 1,469,927 721,928 ------------ ------------ OPERATING EXPENSES SELLING AND SHIPPING 213,328 123,468 GENERAL AND ADMINISTRATIVE 616,436 388,449 ------------ ------------ TOTAL OPERATING EXPENSES 829,764 511,917 ------------ ------------ OPERATING INCOME 640,163 210,011 ------------ ------------ OTHER INCOME (EXPENSE) INTEREST INCOME 10,110 13,301 INTEREST EXPENSE (16,437) (17,570) OTHER INCOME 1,306 10,067 GAIN ON SALE OF FIXED ASSET 37,666 - ------------ ------------ TOTAL OTHER INCOME 32,645 5,798 ------------ ------------ INCOME BEFORE TAXES 672,808 215,809 INCOME TAX PROVISION (229,690) (75,579) ------------ ------------ NET INCOME 443,118 140,230 OTHER COMPREHENSIVE INCOME, NET OF TAX UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE - 6,240 ------------ ------------ COMPREHENSIVE INCOME $ 443,118 $ 146,470 ============ ============ EARNINGS PER SHARE BASIC $ 0.15 $ 0.05 DILUTED $ 0.13 $ 0.04 WEIGHTED AVERAGE SHARES BASIC 3,011,184 2,980,750 DILUTED 3,283,844 3,163,221
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CVD EQUIPMENT CORPORATION STATEMENTS OF INCOME AND COMPREHENSIVE INCOME JUNE 30, 2001 SIX MONTHS ENDED JUNE 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ REVENUES REVENUE ON COMPLETED CONTRACTS $ 5,243,165 $ 2,707,046 REVENUE ON UNCOMPLETED CONTRACTS 1,964,762 1,201,480 ------------ ------------ TOTAL REVENUES 7,207,927 3,908,526 ------------ ------------ COSTS OF REVENUES COST ON COMPLETED CONTRACTS 3,535,082 1,991,744 COST ON UNCOMPLETED CONTRACTS 920,783 623,335 ------------ ------------ TOTAL COSTS OF REVENUES 4,455,865 2,615,079 ------------ ------------ GROSS PROFIT 2,752,062 1,293,447 ------------ ------------ OPERATING EXPENSES SELLING AND SHIPPING 399,451 245,870 GENERAL AND ADMINISTRATIVE 1,113,709 734,101 ------------ ------------ TOTAL OPERATING EXPENSES 1,513,160 979,971 ------------ ------------ OPERATING INCOME 1,238,902 313,476 ------------ ------------ OTHER INCOME (EXPENSE) INTEREST INCOME 15,336 24,099 INTEREST EXPENSE (33,755) (35,542) OTHER INCOME 6,053 13,147 GAIN ON SALE OF FIXED ASSET 37,666 - ------------ ------------ TOTAL OTHER INCOME 25,300 1,704 ------------ ------------ INCOME BEFORE TAXES 1,264,202 315,180 INCOME TAX PROVISION (432,410) (98,831) ------------ ------------ NET INCOME 831,792 216,349 OTHER COMPREHENSIVE INCOME, NET OF TAX UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE - 6,240 ------------ ------------ COMPREHENSIVE INCOME $ 831,792 $ 222,589 ============ ============ EARNINGS PER SHARE BASIC $ 0.28 $ 0.07 DILUTED $ 0.25 $ 0.07 WEIGHTED AVERAGE SHARES BASIC 3,006,817 2,980,750 DILUTED 3,296,741 3,164,637
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CVD EQUIPMENT CORPORATION STATEMENT OF CASH FLOWS JUNE 30, 2001 THREE MONTHS ENDED JUNE 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 443,118 $ 140,230 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: GAIN ON SALE OF FIXED ASSET (37,667) DEFERRED TAX PROVISION (benefit) 68,275 (5,815) DEPRECIATION AND AMORTIZATION 67,960 64,661 (INCREASE) DECREASE IN: ACCOUNTS RECEIVABLES 747,940 (740,273) COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 156,145 21,128 INVENTORY 208,725 43,851 OTHER CURRENT ASSETS 8,385 14,507 OTHER ASSETS (1,772) (3,203) INCREASE (DECREASE) IN: ACCOUNTS PAYABLE (169,705) 66,089 ACCRUED EXPENSES (44,045) 89,832 BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS (39,248) (93,284) ------------ ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,408,111 (402,277) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES CAPITAL EXPENSE.EQUIPMENT (48,082) (83,943) PROCEEDS FROM SALE OF FIXED ASSET 155,000 - ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 106,918 (83,943) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES (PAYMENTS) PROCEEDS - CURRENT (3,181) 303 PAYMENTS - LONGTERM (81,983) (4,721) PROCEEDS FROM EXERCISE OF STOCK OPTIONS 10,974 6,750 ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (74,190) 2,332 ------------ ------------ NET DECREASE IN CASH AND CASH EQUIVALENTS 1,440,839 (483,888) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE QUARTER 241,776 777,553 ------------ ------------ CASH AND CASH EQUIVALENTS AT THE END OF THE QUARTER $ 1,682,615 $ 293,665 ============ ============
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CVD EQUIPMENT CORPORATION STATEMENT OF CASH FLOWS JUNE 30, 2001 SIX MONTHS ENDED JUNE 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 831,792 $ 216,349 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: GAIN ON SALE OF FIXED ASSET (37,667) DEFERRED TAX PROVISION (benefit) 136,549 (18,610) DEPRECIATION AND AMORTIZATION 134,849 126,481 (INCREASE) DECREASE IN: ACCOUNTS RECEIVABLES 335,337 (488,494) COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 116,119 16,651 INVENTORY 195,692 276,963 PREPAID INCOME TAXES - 12,808 OTHER CURRENT ASSETS 9,106 17,989 OTHER ASSETS (9,432) 3,926 INCREASE (DECREASE) IN: ACCOUNTS PAYABLE (260,854) 32,881 ACCRUED EXPENSES (244,227) 137,617 BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS (146,613) (34,748) ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 1,060,651 299,813 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES CAPITAL EXPENSE.EQUIPMENT (65,746) (96,853) PROCEEDS FROM SALE OF FIXED ASSET 155,000 - ------------ ------------ NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 89,254 (96,853) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES (PAYMENTS) PROCEEDS - CURRENT (2,861) 597 PAYMENTS - LONGTERM (86,972) (9,356) PROCEEDS FROM EXERCISE OF STOCK OPTIONS 21,922 7,750 ------------ ------------ NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (67,911) (1,009) ------------ ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 1,081,994 201,951 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 600,621 91,714 ------------ ------------ CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 1,682,615 $ 293,665 ============ ============
12 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 13th day of August 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/ Mitchell Drucker Chief Financial Officer Mitchell Drucker