10QSB 1 ed10q013.txt CVD EQUIPMENT CORPORATION 3RD QUARTER 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 9-30-01 ( ) 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: 3,021,325 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF 11-13-01 1 CVD EQUIPMENT CORPORATION NOTE TO FINANCIAL STATEMENTS FOR THE QUARTER ENDING SEPTEMBER 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. 2 MANAGEMENT'S DISCUSSION INTRODUCTION Statements contained in this Report on Form 10-QSB that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding industry trends, strategic business development, pursuit of new markets, competition, results from operations, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "intends", "plans", "anticipates", "believes", "expect to", or words of similar import. Management cautions that forward- looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, marketing success, product development, production, technological difficulties, manufacturing costs, and changes in economic conditions in the markets the Company serves. The Company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. FORWARD LOOKING STATEMENTS Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. These forward looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward looking statements, include, but are not limited to: competition in the Company's existing and potential future product lines of business; the Company's ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company's future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the company. Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward looking statements. REVENUE RECOGNITION CVD recognizes and identifies on its financial statements, revenue on a percent complete methodology for contracts falling under SOP 81-1 and recognizes revenues on a completed contract methodology for contracts falling under SAB 101. CVD feels this is the most accurate and consistent methodology to meet the requirements of the two regulations. 3
CVD EQUIPMENT CORPORATION BALANCE SHEETS SEPTEMBER 30, 2001 SEPTEMBER 30 DECEMBER 31 2001 2000 (UNAUDITED) (AUDITED) ------------ ------------ ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 3,388,762 $ 600,621 ACCOUNTS RECEIVABLE, NET 762,098 2,002,540 COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 961,128 1,483,459 INVENTORY 197,576 454,898 OTHER CURRENT ASSETS 54,010 32,155 TOTAL CURRENT ASSETS 5,363,574 4,573,673 PROPERTY, PLANT AND EQUIPMENT 2,058,934 2,258,512 DEFERRED TAX ASSET 226,358 306,623 OTHER ASSETS 140,916 148,130 TOTAL ASSETS $ 7,789,782 $ 7,286,938 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES ACCOUNTS PAYABLE $ 153,919 $ 607,777 ACCRUED EXPENSES 779,219 685,839 BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS - 146,613 CURRENT MATURITIES OF LONG-TERM DEBT 15,529 18,135 TOTAL CURRENT LIABILITIES 948,667 1,458,364 LONG-TERM DEBT 868,384 959,570 TOTAL LIABILITIES 1,817,051 2,417,934 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY COMMON STOCK - $0.01 PAR VALUE -10,000,000 SHARES AUTHORIZED; 3,021,325 AND 3,000,750 SHARES ISSUED & OUTSTANDING 30,213 30,008 ADDITIONAL PAID-IN CAPITAL 2,878,686 2,848,420 RETAINED EARNINGS 3,063,832 1,990,576 TOTAL STOCKHOLDERS' EQUITY 5,972,731 4,869,004 TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 7,789,782 $ 7,286,938
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CVD EQUIPMENT CORPORATION STATEMENTS OF INCOME AND COMPREHENSIVE INCOME SEPTEMBER 30, 2001 THREE MONTHS ENDED SEPTEMBER 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ REVENUES REVENUE ON COMPLETED CONTRACTS $ 2,312,819 $ 1,596,144 REVENUE ON UNCOMPLETED CONTRACTS (44,118) 861,880 TOTAL REVENUES 2,268,701 2,458,024 COSTS OF REVENUES COST ON COMPLETED CONTRACTS 1,317,102 1,141,236 COST ON UNCOMPLETED CONTRACTS (10,156) 230,097 TOTAL COSTS OF REVENUES 1,306,946 1,371,333 GROSS PROFIT 961,755 1,086,691 OPERATING EXPENSES SELLING AND SHIPPING 141,357 123,967 GENERAL AND ADMINISTRATIVE 479,369 446,355 TOTAL OPERATING EXPENSES 620,726 570,322 OPERATING INCOME 341,029 516,369 OTHER INCOME (EXPENSE) INTEREST INCOME 18,562 12,921 INTEREST EXPENSE (15,492) (17,515) OTHER INCOME - (4,200) TOTAL OTHER INCOME (LOSS) 3,070 (8,794) INCOME BEFORE TAXES 344,099 507,575 INCOME TAX PROVISION (102,637) (187,730) NET INCOME 241,462 319,845 OTHER COMPREHENSIVE INCOME, NET OF TAX UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE - 14,145 COMPREHENSIVE INCOME $ 241,462 $ 333,990 EARNINGS PER SHARE BASIC $ 0.08 $ 0.11 DILUTED $ 0.07 $ 0.10 WEIGHTED AVERAGE SHARES BASIC 3,019,192 2,980,750 DILUTED 3,237,757 3,229,006
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CVD EQUIPMENT CORPORATION STATEMENTS OF INCOME AND COMPREHENSIVE INCOME SEPTEMBER 30, 2001 NINE MONTHS ENDED SEPTEMBER 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ REVENUES REVENUE ON COMPLETED CONTRACTS $ 7,555,984 $ 4,303,190 REVENUE ON UNCOMPLETED CONTRACTS 1,920,644 2,063,360 TOTAL REVENUES 9,476,628 6,366,550 COSTS OF REVENUES COST ON COMPLETED CONTRACTS 4,852,184 3,132,980 COST ON UNCOMPLETED CONTRACTS 910,627 853,432 TOTAL COSTS OF REVENUES 5,762,811 3,986,412 GROSS PROFIT 3,713,817 2,380,138 OPERATING EXPENSES SELLING AND SHIPPING 540,808 369,837 GENERAL AND ADMINISTRATIVE 1,593,078 1,180,456 TOTAL OPERATING EXPENSES 2,133,886 1,550,293 OPERATING INCOME 1,579,931 829,845 OTHER INCOME (EXPENSE) INTEREST INCOME 33,898 37,020 INTEREST EXPENSE (49,247) (53,057) OTHER INCOME 6,053 8,947 GAIN ON SALE OF FIXED ASSET 37,666 - TOTAL OTHER INCOME (LOSS) 28,370 (7,090) INCOME BEFORE TAXES 1,608,301 822,755 INCOME TAX PROVISION (535,047) (286,561) NET INCOME 1,073,254 536,194 OTHER COMPREHENSIVE INCOME, NET OF TAX UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE - 20,385 COMPREHENSIVE INCOME $ 1,073,254 $ 556,579 EARNINGS PER SHARE BASIC $ 0.36 $ 0.18 DILUTED $ 0.33 $ 0.17 WEIGHTED AVERAGE SHARES BASIC 3,011,054 2,980,750 DILUTED 3,280,030 3,190,691
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CVD EQUIPMENT CORPORATION STATEMENT OF CASH FLOWS SEPTEMBER 30, 2001 THREE MONTHS ENDED SEPTEMBER 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 241,462 $ 319,845 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: DEFERRED TAX BENEFIT (PROVISION) (56,284) 545 DEPRECIATION AND AMORTIZATION 63,791 73,317 LOSS ON SALE OF SECURITIES - 4,200 (INCREASE) DECREASE IN: ACCOUNTS RECEIVABLES 905,103 672,718 COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 406,212 (535,710) INVENTORY 61,631 27,231 OTHER CURRENT ASSETS (30,961) (24,336) OTHER ASSETS (19,722) (2,377) INCREASE (DECREASE) IN: ACCOUNTS PAYABLE (193,004) 46,088 ACCRUED EXPENSES 337,607 180,595 BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS - (13,774) NET CASH PROVIDED BY OPERATING ACTIVITIES 1,715,835 748,342 CASH FLOWS FROM INVESTING ACTIVITIES CAPITAL EXPENSEEQUIPMENT (14,280) (137,239) PROCEEDS FROM SALE OF SECURITIES - 65,800 NET CASH USED IN INVESTING ACTIVITIES (14,280) (71,439) CASH FLOWS FROM FINANCING ACTIVITIES PROCEEDS - CURRENT 256 310 PAYMENTS - LONGTERM (4,213) (4,782) PROCEEDS FROM EXERCISE OF STOCK OPTIONS 8,549 - NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 4,592 (4,472) NET INCREASE IN CASH AND CASH EQUIVALENTS 1,706,147 672,431 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE QUARTER 1,682,615 293,665 CASH AND CASH EQUIVALENTS AT THE END OF THE QUARTER $ 3,388,762 $ 966,096
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CVD EQUIPMENT CORPORATION STATEMENT OF CASH FLOWS SEPTEMBER 30, 2001 NINE MONTHS ENDED SEPTEMBER 30 2001 2000 (UNAUDITED) (UNAUDITED) ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME $ 1,073,254 $ 536,194 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: GAIN ON SALE OF FIXED ASSET (37,667) - DEFERRED TAX PROVISION (BENEFIT) 80,265 (18,065) DEPRECIATION AND AMORTIZATION 198,640 199,798 LOSS ON SALE OF SECURITIES 4,200 (INCREASE) DECREASE IN: ACCOUNTS RECEIVABLES 1,240,440 184,224 COST IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS 522,331 (519,059) INVENTORY 257,323 304,194 PREPAID INCOME TAXES - 12,808 OTHER CURRENT ASSETS (21,855) (6,347) OTHER ASSETS (29,154) 1,549 INCREASE (DECREASE) IN: ACCOUNTS PAYABLE (453,858) 78,969 ACCRUED EXPENSES 93,380 318,212 BILLINGS IN EXCESS OF COSTS ON UNCOMPLETED CONTRACTS (146,613) (48,522) NET CASH PROVIDED BY OPERATING ACTIVITIES 2,776,486 1,048,155 CASH FLOWS FROM INVESTING ACTIVITIES CAPITAL EXPENSEEQUIPMENT (80,026) (234,092) PROCEEDS FROM SALE OF SECURITIES - 65,800 PROCEEDS FROM SALE OF FIXED ASSET 155,000 - NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 74,974 (168,292) CASH FLOWS FROM FINANCING ACTIVITIES PAYMENTS (PROCEEDS) - CURRENT (2,605) 907 PAYMENTS - LONGTERM (91,185) (14,138) PROCEEDS FROM EXERCISE OF STOCK OPTIONS 30,471 7,750 NET CASH USED IN FINANCING ACTIVITIES (63,319) (5,481) NET INCREASE IN CASH AND CASH EQUIVALENTS 2,788,141 874,382 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 600,621 91,714 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $ 3,388,762 $ 966,096
8 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2001 REVENUE A decrease in volume resulted in third quarter of 2001 revenue being $2,268,701 a 8% decrease from third quarter of 2000 revenue of $2,458,024. COSTS AND EXPENSES The cost of revenue decreased to $1,306,946 in third quarter of 2001 as compared to $1,371,333 in third quarter of 2000. Of this $64,387 decrease, approximately $195,850 is attributed to material, which is offset by an increase of $122,000 to salaries and $15,000 to travel. Selling and shipping expenses increased to $141,357 in third quarter of 2001 from $123,967 in third quarter of 2000. Of this $17,390 increase, approximately $17,000 is attributed to salaries. General and Administrative expenses increased to $479,369 in third quarter of 2001 from $446,355 in third quarter of 2000. Of this $33,014 increase, approximately $128,000 is attributed to legal fees, $46,000 to salaries, $18,000 to accountant fees, which is offset by a decrease of $31,000 to shareholders expense and $ 121,000 to bad debt. Interest expense decreased by $2,023 from $17,515 in third quarter of 2000 to $15,492 in third quarter of 2001, because the company's average outstanding debt decreased. Interest income increased by $5,641 from $12,921 in third quarter of 2000 to $18,562 in third quarter of 2001, coinciding with the company's increased cash position. 9 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2001 REVENUE An increase in volume resulted in nine months of 2001 revenue being $9,476,628 a 49% increase from nine months of 2000 revenue of $6,366,550. COSTS AND EXPENSES The cost of revenue increased to $5,762,811 in nine months of 2001 as compared to $3,986,412 in nine months of 2000. Of this $1,776,399 increase, approximately $1,118,000 is attributed to material and $527,000 to salaries. Selling and shipping expenses increased to $540,808 in nine months of 2001 from $369,837 in nine months of 2000. Of this $170,971 increase, approximately $66,000 is attributed to salaries, $65,000 to commissions, $14,000 to advertising and $22,000 to freight expense. General and Administrative expenses increased to $1,593,078 in nine months of 2001 from $1,180,456 in nine months of 2000. Of this $412,622 increase, approximately $179,000 is attributed to legal fees, $175,000 to salaries, $16,000 to bad debt and $6,000 to depreciation. Interest expense decreased by $3,810 from $53,057 in nine months of 2000 to $49,247 in nine months 2001, because the company's average outstanding debt decreased. Interest income decreased by $3,122 from $37,020 in nine months of 2000 to $33,898 in nine months of 2001, because the company sold some investments. Gain on sale of fixed asset increased by $37,666 from nine months of 2000 to nine months of 2001, because the company sold some fixed assets. LIQUIDITY AND CAPITAL RESOURCES By the end of the third quarter of 2001, the Company's cash position increased to $3,388,762 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 third quarter of 2001, the Company's account receivable position decreased to $762,098 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 third quarter of 2001, the Company's backlog decreased to approximately $1,456,535 from approximately $5,508,802 at the beginning of the year. This decrease is attributed to a decrease in order levels. 10 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 November 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