10KSB 1 ed10ksb01.txt TEXT FILING 10KSB 2001 FOR 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 year ended December 31, 2001 [ ] 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 2001 were $10,839,993 The aggregate market value of voting stock held by non-affiliates of the registrant on March 1, 2002 was $3,422,343 based on a closing price of $2.30 on that date. As of March 1, 2002 there were 3,032,325 shares of Common Stock, Par Value $.01 Per Share, Outstanding. DOCUMENTS INCORPORATED BY REFERENCE TABLE OF CONTENTS PART I ITEM 1. BUSINESS.................................................... 1 Introduction........................................... 1 General Development of Business........................ 1 The Organization....................................... 2 Information About Industry Segments.................... 2 General Narrative Description of Business.............. 3 Principal Products..................................... 3 Research and Development............................... 4 Industry Overview...................................... 5 Marketing.............................................. 5 Patents and Copyrights................................. 5 Competition............................................ 6 Customers.............................................. 6 Foreign Operations..................................... 6 Manufacturing Materials and Suppliers.................. 7 Order Backlog.......................................... 7 Employees.............................................. 7 Insurance.............................................. 7 Government Regulations................................. 8 Forward Looking Statements............................. 8 ITEM 2. DESCRIPTION OF PROPERTIES................................... 9 ITEM 3. LEGAL PROCEEDINGS........................................... 9 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 9 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS............................ 10 Market Information.................................... 10 Dividends............................................. 10 Holders............................................... 10 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ....................... 11 ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 13 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................... 42 PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 42 ITEM 10. EXECUTIVE COMPENSATION..................................... 43 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNER & MANAGEMENT......................................... 44 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 45 PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K................................................ 46 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. In December 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. (SDC). 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 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 On November 9, 2001 the Company acquired the assets of the Surface Mount Technology division of Research Inc., known as Research International (RI). CVD's new division called Research International (RI) is located at 1860 Smithtown Avenue, Ronkonkoma, NY 11779. Research International is a leading manufacturer of Surface Mount Technology (SMT) furnace equipment. As evidenced by the Company's development of these new divisions, our growth strategy is one of expanding revenues and increasing profits through internal growth and acquisition. An important ingredient in our Strategic Plan is to be an active player in the acquisitions environment. We look for businesses that are: o Synergistic in nature to our core business o Complementary to our existing product lines o Geared toward a start-up or turnaround situation o Opportunistic for growth and profit development In the year 2001, CVD Equipment Corporation was again 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 76.5%. 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. 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, ECS , and RI has their own operating manager with sales and administration being handled by 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. 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, (5) equipment consulting and refurbishing of semiconductor processing equipment, and (6) reflow furnaces for surface mounting of components onto printed circuit boards. The Company's products are generally manufactured to the particular specifications of each of its customers. 3 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. 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. RI DIVISION Provides reflow furnaces to support world wide needs in the surface mounting of components onto printed circuit boards. PRINCIPAL 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 e 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 range in price from $100,000 to $2,500,000. 4 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. 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. Surface Mount Reflow Furnaces - we provide a line of standard and custom systems that are sold and serviced worldwide. There are in excess of 1500 systems that have been manufactured to date that bear the Research International name. RESEARCH AND DEVELOPMENT The Company continues its efforts on several research and development projects. We 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. 5 INDUSTRY OVERVIEW In 2001, the industry slowed down at an unprecedented rate. CVD believes that it has organized and structured itself with the four 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. The ECS division is usually impacted in a positive fashion in a down market, as customers look for alternative ways (refurbished equipment). And finally, the Research International division is a tangential manufacturing operation to further create a more balanced and diversified platform of products. 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, institutions involved in electronic research such as universities, government and industrial laboratories and to electronic assembly manufacturers. During 2001, 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 2001 the Company continued to work on expanding our product offerings. The Company's Web Sites; www.cvdequipment.com; www.stainlessdesign.com; www.equipmentconsulting.com; www.researchintl.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. All the Company's Web Sites were redesigned and were released in the early part of 2002. 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 2002. We expect that this expansion will create a wider exposure to CVD and it's product lines. The Company warrants its equipment for a period of twelve 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 have been historically insignificant. PATENTS, COPYRIGHTS AND LICENSE AGREEMENTS 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). 6 During years 1999, 2000 and 2001 the Company has applied for several copyrights associated with the intellectual properties of the former Stainless Design Corporation. In addition, with the acquisition of the assets of the Research International, the Company is now the owner of several patents used in the surface mount technology business. COMPETITION The Company's business is subject to intense competition. The Company is aware of other competitors that offer a substantial number of products 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 2001, two customers represented approximately 8% and 10% of sales whereas in 2000, two customers represented approximately 10% each 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 Inc. Agere Systems Inc. Agilent Technologies Air Products Alpha Photonics Alpha Industries AMP Inc. Applied Material ASML Astro Power AXT Optoelectronics Bechtel Bettis Inc. B.F. Goodrich BOC Brookhaven National Labs Bruckner China Nat'l Electronics Corning Inc. Cree Dow Corning Hewlett Packard IBM Innosys Inc. INO ITT JDS Uniphase Kopin Corporation Lockheed Martin Lucent Technologies Lumileds Lighting MEMC Electronic Materials Microchip Technology NASA Nat'l Institute of Standards Nova Crystals Osram ON Semiconductor Phillips Semiconductor Raytheon Samsung Electronics SemiTool STAR Center Sensors Unlimited Silicon Valley Group Inc. Thermco Systems Tokyo Electronics Tyco Electronics Veeco Watkins Johnson Company
In addition, CVD's customers include many prominent universities as follows: Australian National University Carnegie Mellon University Case Western Reserve University Cornell University Indian Institute of Science Louisiana Tech. University Pennsylvania State University Princeton University Rensselaer Polytechnic Institute Research Foundation of SUNY Virginia Polytechnic Institute University of Albany University of Illinois University of California University of Maryland University of Rochester @Santa Barbara Yale University University of Wisconsin
FOREIGN OPERATIONS The Company's revenues derived from foreign exports were 15% and 3% in 2001 and 2000 respectively. 7 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 its 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. ORDER BACKLOG As of December 31, 2001 the Company's order backlog was $1,389,004 compared to $5,508,802 on December 31, 2000. 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, 2001, the Company employed 76 full time personnel and 4 part time personnel of which 36 were in manufacturing, 15 in engineering (including research and development and efforts related to product improvement), 8 in field service, 5 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 personal 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. 8 The Company believes that their insurance coverage is adequate. The following types of insurance coverage is carried by the Company: o Product liability o Property Contents o General Liability o Workers Compensation o Transportation o Directors and Officers o Employee Benefits Liability o Business Auto o Umbrella GOVERNMENT REGULATIONS The Company knows of no government requirements for approval of 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, 2001, 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. 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. 9 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. On November 5, 2001, the Company contracted to purchase a 50,000 Sq. Ft. facility located in Ronkonkoma, NY. Closing occurred in March 2002. The Research International division is located in this new facility. During the third quarter of 2002, the Company expects to relocate operations from the existing 20,000 Sq. Ft. Ronkonkoma facility, to the new location 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 counsels' belief that the lawsuit against CVD is without merit and that our counter-suit will be successful. The Company considers its 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. In 2001, all the assets of the customer were liquidated and used to partially pay administrative fees. There were no residual assets for the creditors. This item is not considered to be material in nature. 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 2001 for the primary purpose of re-electing directors and approving the selection of our outside auditing firm. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS PRINCIPAL MARKET The stock has been traded on the AMEX under the symbol CVV since June 2001. Prior to June 2001, the stock was traded on the OTC Bulletin Board under the symbol of CVDE. 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, 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 January 1, 2001 through March 31, 2001 5.063 3.500 April 1, 2001 through June 30, 2001 4.250 3.190 July 1, 2001 through September 30, 2001 3.590 2.080 October 1, 2001 through December 31, 2001 3.890 2.050 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, 2002 was approximately 613. 11 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2001 COMPARED TO 2000 The difference in 2001 financial data when compared to 2000 is mainly attributed to the growth of the CVD and SDC divisions and the start-up of the Research International division. In 2002 we expect to see continued growth for all four divisions. New orders in 2001 totaled $2.1 million for CVD and $3.8 million for SDC and $0.6 million for ECS for a total of $6.5 million, which was 58% lower than 2000's level of new orders of $15.3 million. The revenues produced a net profit of $874,142. Diluted net earnings per share were $.27 in 2001 compared to $.29 in 2000. In the past the Company has generally manufactured customized equipment. In 2001 the Company worked on further developing a line of standard products to supplement to our custom systems and we began shipping some of these products in 2001. REVENUE An increase in volume resulted in revenue for the year being $10,839,993, which was a 14.1% increase from 2000 revenues of $9,504,181. The type of sales in 2001 was similar to those of 2000. The Company shipped approximately 12% to government associated entities, 19% to major colleges and universities, 3% to research laboratories and another 66% was shipped to significant Fortune 500 industrial companies. COSTS AND EXPENSES In 2001, cost of revenues as a percentage of revenues increased to 64% from 61% in 2000. The main reason for the 3% increase in cost of revenues as a percentage of sales was an increase in payroll expenses. The Company averaged 79 employees in 2001 compared to 63 employees in 2000. The actual cost of revenues increased from $5,809,275 in 2000 to $6,940,080 in 2001, an increase of $1,130,805. Of this increase, $484,787 is attributable to increased purchases of material, and $514,731 to increases in salaries. Selling and shipping expense was higher by $109,236 in 2001 compared to 2000. This mainly resulted from a $100,075 increase in salaries. General and Administrative expenses rose by $423,861 in 2001 compared to 2000. This resulted mainly from a $259,423 increase in salaries and an increase in legal fees of $165,015. Interest expense decreased by $5,818 from 2000 to 2001 as the Company's average outstanding debt on the Saugerties facility decreased. 12 LIQUIDITY AND CAPITAL RESOURCES By year-end 2001, the Company's cash position increased to $2,361,150 from $600,621 at the beginning of the year. In addition to the year end cash position, there were significant cash layouts during the year, $400,000 for the acquisition of Research International, $257,500 for the acquisition of the new building, and $386,374 for Federal taxes. In 2001, accounts receivable, net of the allowance, decreased to $1,212,237 from $2,002,540 in 2000 while inventory increased to $829,040 from $454,898. The increase in inventory was a result of the acquisition of the Research International division where $650,000 was due to inventory. The decrease in receivables from 2001 to 2000 was attributable to timing of customer payments and billings. The increase in inventory in 2001 was mainly due to a decrease in work in process of $117,847, an increase in raw materials of $308,175 and an increase in finished goods of $183,814. In 2002, we expect to have sufficient cash flow from operations and do not anticipate the need to raise additional funds for the normal course of business. 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 its 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. 13 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 shareholders' 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. 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 worth 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. In 2001, 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 14 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FORM 10-KSB ITEM 7 Years ended December 31, 2001 and 2000 15 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page No. INDEPENDENT AUDITORS' REPORT....................................... F-3 FINANCIAL STATEMENTS: Consolidated Balance Sheets as of December 31, 2001 and 2000....... F-4 Consolidated Statements of Income for the Years Ended December 31, 2001 and 2000................... F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001 and 2000....................................... F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2001 and 2000....................................... F-7 Notes to Consolidated Financial Statements......................... F-8 16 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 Subsidiary (the Company) as of December 31, 2001 and 2000, 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 Subsidiary as of December 31, 2001 and 2000 and the results of its operations and its cash flows for the years then ended, in conformity with auditing standards generally accepted in the United States of America. /S/ Albrecht, Viggiano, Zureck & Company, P.C. Hauppauge, New York February 15, 2002, except for Note 16, as to which the date is March 7, 2002 17 F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS December 31, 2001 and 2000 2001 2000 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 2,361,150 $ 600,621 Accounts receivable, net 1,212,237 2,002,540 Costs and estimated earnings in excess of billings on uncompleted contracts 358,022 1,483,459 Inventories 829,040 454,898 Other current assets 20,269 32,155 ------------ ------------ Total Current Assets 4,780,718 4,573,673 Property, Plant and Equipment, net 2,060,502 2,258,512 Deferred Income Taxes 268,623 306,623 Other Assets 439,067 148,130 ------------ ------------ Total Assets $ 7,548,910 $ 7,286,938 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 153,332 $ 607,777 Accrued expenses 378,231 685,839 Billings in excess of costs on uncompleted contracts -0- 146,613 Current maturities of long-term debt 365,790 18,135 ------------ ------------ Total Current Liabilities 897,353 1,458,364 Long-Term Debt, net of current portion 864,100 959,570 ------------ ------------ 1,761,453 2,417,934 ------------ ------------ Commitments and Contingencies Stockholders' Equity Common stock - $0.01 par value - 10,000,000 shares authorized; 3,032,325 and 3,000,750 shares issued and outstanding at December 31, 2001 and 2000, respectively 30,323 30,008 Additional paid-in capital 2,892,416 2,848,420 Retained earnings 2,864,718 1,990,576 ------------ ------------ Total Stockholders' Equity 5,787,457 4,869,004 ------------ ------------ Total Liabilities and Stockholders' Equity $ 7,548,910 $ 7,286,938 See notes to consolidated financial statements.
18 F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF Years ended December 31, 2001 and 2000 2001 2000 ------------ ------------ Revenues Revenue on completed contracts $ 9,009,323 $ 6,828,603 Revenue on uncompleted contracts 1,830,670 2,675,578 ------------ ------------ Total Revenues 10,839,993 9,504,181 ------------ ------------ Costs of Revenues Costs on completed contracts 6,060,054 4,479,213 Costs on uncompleted contracts 880,026 1,330,062 ------------ ------------ Total Costs of Revenues 6,940,080 5,809,275 ------------ ------------ Gross Profit 3,899,913 3,694,906 ------------ ------------ Operating Expenses Selling and shipping 675,247 566,011 General and administrative 2,150,276 1,726,415 ------------ ------------ Total Operating Expenses 2,825,523 2,292,426 ------------ ------------ 1,074,390 1,402,480 ------------ ------------ Other Income (Expense) Interest income 52,644 43,667 Interest expense (64,674) (70,492) Gain on sale of fixed assets 37,666 -0- Loss on sale of securities -0- (19,500) Other income 6,968 18,014 ------------ ------------ Total Other Income (Expense) 32,604 (28,311) ------------ ------------ Income Before Taxes 1,106,994 1,374,169 Income Tax Provision 232,852 445,490 ------------ ------------ Net Income $ 874,142 $ 928,679 ============ ============ Earnings Per Share Basic $ 0.29 $ 0.31 Diluted $ 0.27 $ 0.29 Weighted Average Shares Basic 3,014,744 2,963,972 Diluted 3,263,395 3,183,387 See notes to consolidated financial statements.
19 F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 2001 and 2000 Accumulated Additional Other Total Common Paid-In Comprehensive Retained Stockholders' Stock Capital Income Earnings Equity ------------ ------------ ------------ ------------ ------------ 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 Net income 874,142 874,142 Compensatory stock Options 315 43,996 -0- -0- 44,311 ------------ ------------ ------------ ------------ ------------ Balance as of December 31, 2001 $ 30,323 $ 2,892,416 $ -0- $ 2,864,718 $ 5,787,457 ============ ============ ============ ============ ============ See notes to consolidated financial statements.
20 F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2001 and 2000 2001 2000 ------------ ------------ Cash Flows from Operating Activities Net income $ 874,142 $ 928,679 Adjustments to reconcile net income to net cash provided by operating activities: Deferred tax provision 38,000 42,145 Depreciation and amortization 265,671 269,450 Gain on sale of fixed assets (37,666) -0- Bad debt provision 4,538 21,966 Loss on sale of securities -0- 19,500 (Increase) decrease in: Accounts receivable 785,765 (1,004,735) Costs and estimated earnings in excess of billings on uncompleted contracts 1,125,437 (993,245) Inventory (24,142) 258,864 Prepaid income taxes -0- 12,812 Other current assets 11,886 7,232 Other assets (339,426) (16,895) Increase (decrease) in: Accounts payable (454,445) 436,639 Accrued expenses (307,608) 401,705 Billings in excess of costs on uncompleted contracts (146,613) 79,109 ------------ ------------ Net Cash Provided By Operating Activities 1,795,539 463,226 ------------ ------------ Cash Flows from Investing Activities Capital expenditures (126,781) (277,286) Proceeds from sale of securities -0- 330,500 Proceeds from sale of fixed assets 145,275 -0- ------------ ------------ Net Cash Provided In Investing Activities 18,494 53,214 ------------ ------------ Cash Flows from Financing Activities Proceeds from the exercise of options 44,311 10,250 Payments of long-term debt (97,815) (17,783) ------------ ------------ Net Cash Used By Financing Activities (53,504) (7,533) ------------ ------------ Net Increase in Cash and Cash Equivalents 1,760,529 508,907 Cash and Cash Equivalents at Beginning of Year 600,621 91,714 ------------ ------------ Cash and Cash Equivalents at End of Year $ 2,361,150 $ 600,621 ============ ============ See notes to consolidated financial statements.
21 F-8 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 1 - Summary of Significant Accounting Policies Description of Business CVD Equipment Corporation and Subsidiary (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 subsidiary. In December 1998, a subsidiary, Stainless Design Concepts, Ltd., was formed as a New York corporation. In April 1999, this subsidiary was merged into CVD Equipment Corporation. The Company has one inactive subsidiary, CVD Materials Corporation as of December 31, 2001. 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. Reclassifications Certain items have been reclassified in the 2000 financial statements to conform to the 2001 presentation. These reclassifications have no effect on the net income previously reported. 22 F-9 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 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 $10,886 and $27,853 for the years ended December 31, 2001 and 2000, respectively, and are included in Other Assets. All software is amortized straight-line over three years. Amortization expense related to software totaled $26,391 and $20,731 for the years ended December 31, 2001 and 2000, 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. During 2001, the Company acquired intellectual property in connection with the acquisition of the Research International division. The cost of the intellectual property was $50,000 and is being amortized over fifteen years on a straight-line basis. Amortization expense recorded by the Company in 2001 and 2000 for these intangibles totaled $5,167. 23 F-10 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 1 - Summary of Significant Accounting Policies (continued) Revenue and Income Recognition In December 1999, the SEC released SAB No. 101, "Revenue Recognition in Financial Statements", providing the staff's views in applying accounting principles generally accepted in the United States to certain revenue recognition issues. The Company adopted SAB No. 101, as amended in the fourth quarter of 2000 as required. The adoption of SAB No. 101 did not have a material effect on the Company's consolidated financial position, results of operations or cash flows. 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 accepted and 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 $26,504 and $21,966 as of December 31, 2001 and 2000, 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 not to be material 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 $18,217 and $1,938 in 2001 and 2000, respectively. As of December 31, 2001 and 2000, the Company's capitalized advertising costs included in Other Assets totaled $63,849 and $62,681, 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 $16,586 and $19,855 in 2001 and 2000, respectively. 24 F-11 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 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. 2001 2000 ---------------------- ---------------------- Basic Dilutive Basic Dilutive --------- --------- --------- --------- Weighted-average number of common shares outstanding 3,014,744 3,014,744 2,963,972 2,963,972 ========= ========= Dilutive options to purchase common shares outstanding 248,651 219,415 --------- --------- 3,263,395 3,183,387 ========= ========= The effects of 3,500 options granted in 2000 at an exercise price $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. Concentration of Credit Risk The Company places most of temporary cash investments with financial institutions and normally exceeds the FDIC limit. The Company has not experienced any losses to date resulting from this policy. The Company performs ongoing credit evaluations of its customers' financial position and the risk with respect to trade receivables is further mitigated by the fact that the Company's customer base is diversified. 25 F-12 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 1 - Summary of Significant Accounting Policies (continued) Fair Value of Financial Instruments The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, other assets, accounts payable and accrued expenses, approximate fair value due to the relatively short maturity of these instruments. The fair value of securities available-for-sale is estimated based on quoted market prices. The carrying value of long-term debt approximates fair value based on borrowing rates currently available for loans with similar terms and maturities. Stock-Based Compensation The Company accounts for stock options as prescribed by Accounting Principles Board ("APB") Opinion No. 25 and includes pro forma information in the stock-based compensation footnote, as permitted by Financial Accounting Standards Board ("FASB") Statement No. 123, Accounting for Stock- Based Compensation ("SFAS 123"). Accordingly, no compensation cost is recognized for stock options granted in 2001 and 2000 since the option exercise price is not less than the market price of the underlying stock on the date of grant. In 2000, compensation cost is recognized for stock options granted to Directors before December 15, 1999 based upon the fair market value of the options granted. In 2000, compensation cost is also recognized for stock options granted to the President before December 15, 1999 at an exercise price less than the market price of the underlying stock on the date of the grant. In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting For Certain Transactions Involving Stock- an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB No. 25 and among other issues clarifies the definition of an employee for purposes of applying APB Opinion No. 25. The Company adopted FIN 44 in the first quarter of 2001 with no material effect on the Company's consolidated financial position, results of operations or cash flows. As discussed in Note 10, there were no options granted during 2001. Recent Accounting Pronouncements In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets". SFAS No. 141 provides new guidance on the accounting for a business combination at the date a business combination is completed. Specifically, it requires use of the purchase method of accounting for all business combinations initiated after June 30, 2001, thereby eliminating use of the pooling-of-interest method. SFAS No. 142 establishes new guidance on how to account for goodwill and intangible assets after a business combination is completed. Among other things, it requires that goodwill and certain other intangible assets will no longer be amortized and will be tested for impairment at least annually and written down only when impaired. This statement will apply to existing goodwill and intangible assets, beginning with fiscal years starting after December 15, 2001. Early adoption of the statement will be permitted for companies with a fiscal year beginning after March 15, 2001, for which the first quarter financial statements have not been issued. The Company is currently evaluating these statements but does not expect that they will have a material impact on the Company's financial position, results of operations, or cash flows. 26 F-13 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 1 - Summary of Significant Accounting Policies (continued) Shipping and Handling It is the Company's policy to include freight in total sales. The amount included in sales was $16,480 and $15,957 for the years ended December 31, 2001 and 2000, respectively. Included in Selling and Shipping is $68,670 and $50,281 for shipping and handling costs for 2001 and 2000, respectively.
Note 2- Supplemental Cash Flow Information 2001 2000 ------------ ------------ Cash paid (received) during the year for: Income taxes, net of refunds $ 419,831 $ (794) Interest 64,674 70,492 Noncash operating and financing: Inventory received as a part of Research International acquisition $ (650,000) $ -0- Less: Note issued for inventory 350,000 -0- ------------ ------------ Net Cash Used 300,000 -0- ------------ ------------
Note 3 - Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows: 2001 2000 ------------ ------------ Costs incurred on uncompleted contracts $ 880,026 $ 1,330,062 Estimated earnings 950,644 1,633,470 ------------ ------------ 1,830,670 2,963,532 Billings to date (1,472,648) (1,626,686) ------------ ------------ $ 358,022 $ 1,336,846 ============ ============ Included in accompanying balance sheets under the following captions: Costs and estimated earnings in excess of billings on uncompleted contracts $ 358,022 $ 1,483,459 Billings in excess of costs and estimated earnings on uncompleted contracts -0- (146,613) ------------ ------------ $ 358,022 $ 1,336,846 ============ ============
27 F-14 CVD EQUIPMENT CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 4 - Securities Available-For-Sale 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: 2001 2000 ------------ ------------ Raw materials $ 388,794 $ 80,619 Work-in-process 68,184 186,031 Finished goods 372,062 188,248 ------------ ------------ $ 829,040 $ 454,898 ============ ============
Note 6 - Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following: 2001 2000 ------------ ------------ Land $ 60,000 $ 61,620 Buildings 1,353,964 1,463,551 Machinery and equipment 894,945 819,523 Capitalized labor and overhead 316,131 753,239 Furniture and fixtures 156,116 157,472 Computer equipment 161,374 149,001 Transportation equipment 99,266 99,266 Leasehold improvements 85,027 47,222 ------------ ------------ 3,126,823 3,550,894 Accumulated depreciation and amortization (1,066,321) (1,292,382) ------------ ------------ $ 2,060,502 $ 2,258,512 ============ ============ Depreciation and amortization expense $ 217,182 $ 223,418 ============ ============
Note 7 - Short-Term Borrowings The Company has a line of credit facility with a bank which allows the Company to borrow up to $650,000 until June 1, 2002. Interest is payable on any unpaid principal balance at the bank's prime rate plus 0.75%. As of December 31, 2001 and 2000, no amounts were outstanding on this facility. The Company has an additional $350,000 credit line that is utilized as a letter of credit to secure the $350,000 debt to Research Inc. (Note 8). Borrowings are collateralized by the Company's assets. 28 F-15 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 8 - Long-Term Debt
Long-term debt consists of the following: 2001 2000 ------------ ------------ 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. $ 874,129 $ 884,399 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 made in 2001. -0- 82,112 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. 5,761 11,194 RESEARCH INC. $350,000 note payable for the acquisition of assets from Research Inc. to be paid in full by November 2002 at 5.5% interest. Amount to be reduced by any service warranty work provided by CVD Equipment Corp. 350,000 -0- ------------ ------------ 1,229,890 977,705 Less: Current maturities 365,790 18,135 ------------ ------------ $ 864,100 $ 959,570 ============ ============
Future maturities of long-term debt are as follows: 2002 $ 365,790 2003 12,793 2004 12,662 2005 13,578 2006 14,559 2007 to maturity 810,508 ------------ $ 1,229,890 ============ 29 F-16 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 9 - Income Taxes The provision (benefit) for income taxes include the following: 2001 2000 ------------ ------------ Current: Federal $ 186,926 $ 375,268 State 7,926 28,077 ------------ ------------ Total Current Provision 194,852 403,345 ------------ ------------ Deferred: Federal 158,246 28,793 State (120,246) 13,352 ------------ ------------ Total Deferred Provision 38,000 42,145 ------------ ------------ $ 232,852 $ 445,490 ============ ============ The Company has a state investment tax credit carryforward of $273,057 that may be offset against future state tax liabilities through the year 2016 and other state tax credits totaling $186,222 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: 2001 2000 ------------ ------------ Income taxes at statutory rate $ 376,377 $ 467,217 State taxes 7,926 21,512 Investment tax credits and other (151,451) (43,239) ------------ ------------ Provision for Income Taxes $ 232,852 $ 445,490 ============ ============ The tax effects of temporary differences giving rise to significant portions of deferred taxes are as follows: 2001 2000 ------------ ------------ Allowance for doubtful accounts $ 10,393 $ 8,566 Inventory capitalization 21,312 17,081 Deferred revenue (167,116) -0- Compensatory stock options -0- 523 Depreciation and amortization (66,652) (35,058) Investment tax credit 460,067 315,511 Other 10,619 -0- ------------ ------------ Deferred Tax Asset $ 268,623 $ 306,623 ============ ============ 30 F-17 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 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. In July 2001, the shareholders approved a non-qualified stock option plan covering key employees, officers, directors and other persons that maybe considered as service providers to the Company. Options will be awarded by the Board of Directors or by a committee appointed by the board. Under the plan, an aggregate of 300,000 shares of common stock, $.01 par value of Company are reserved for issuance or transfer upon the exercise of options which are granted. Unless otherwise provided in the option agreement 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 July 22, 2011. No options have been granted under the July 2001 plan. 31 F-18 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 10 - Stock-Based Compensation (Continued)
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, 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 Year ended December 31, 2001 Number of shares 510,000 -0- 31,575 -0- 478,425 130,749 Weighted average exercise price per share $ 1.65 $ -0- $ 1.40 $ -0- $ 1.67 $ 1.55 The weighted-average per share fair value of the options granted during 2000 was estimated as $1.37 on the date of grant using the Black-Scholes option-pricing model with the following weighted- average assumptions: 2000 ------------ Risk-free interest rate 5.74 - 6.52% Expected option life 7 years Expected volatility 80% Expected dividend yield 0% There were no options issued during 2001.
The following table summarizes information about the options at December 31, 2001 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 51,000 4.55 years $ 1.00 15,300 $ 1.00 $1.51 - $1.75 343,925 3.96 years $ 1.68 101,099 $ 1.57 $2.00 - $2.75 80,000 5.47 years $ 2.00 14,000 $ 2.00 $3.00 - $3.25 3,500 5.50 years $ 3.25 350 $ 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 32 F-19 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 10 - Stock-Based Compensation (Continued) for the year ended December 31, 2000 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 years ended December 31, 2001 and 2000, the Company incurred 401(k) administrative costs totaling $2,478 and $1,990 respectively. No employer contribution has been made for 2001 and 2000. 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 2001, the Company had one customer, which represented approximately 10% of sales. This customer represented 19% of total billed and unbilled receivables at December 31, 2001. Another customer represented 25% of total billed and unbilled receivables at December 31, 2001. This customer represented an inmaterial percentage of sales in 2001. In 2000, the Company had two significant customers which each represented 10% of sales. No one customer was considered significant to total billed and unbilled receivables at December 31, 2000. 33 F-20 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 Note 12 - Concentration of Credit Risk (Continued) Export Sales Export sales to unaffiliated customers represented approximately 15% and 3% of sales for the years ended December 31, 2001 and 2000, respectively. Export sales in 2001 and 2000 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 $94,000 and $30,000 for the years ended December 31, 2001 and 2000, respectively. As of December 31, 2001 and 2000, the Company owed the general counsel $36,274 and $26,000, 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 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. During 2001, the Company created another division called Research International ("RI"); the new division is located at 1881 Lakeland Avenue, Ronkonkoma New York. RI is a manufacturer of Surface Mount Technology equipment. The accounting policies of SDC,ECS and RI 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, 2001 and for the year then ended:
CVD SDC ECS RI Elim. Consol. ------------ ------------ ------------ ------------ ------------ ------------ Assets $ 6,038,553 $ 2,461,687 $ 380,407 $ 772,947 $(2,104,684) $ 7,548,910 ============ ============ ============ ============ ============ ============ Revenues $ 5,477,685 $ 4,784,149 $ 935,333 $ 31,327 $ (388,501) $10,839,993 Interest income 51,039 1,605 -0- -0- 52,644 Interest expense 515 64,159 -0- -0- 64,674 Depreciation and amortization 119,271 140,822 1,993 3,585 265,671 Capital expenditures 17,144 21,832 33,205 54,600 126,781 Pretax earnings (loss) 912,943 505,312 (184,469) (126,792) 1,106,994 ============ ============ ============ ============ ============ ============
34 F-21 CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2001 and 2000 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, 2002 $ 144,000 2003 145,800 2004 150,170 2005 154,665 2006 91,777 ------------ $ 686,412 ============ Rental expense under the above operating lease totaled $137,589 and $130,751 for 2001 and 2000, respectively. Legal Proceedings On September 24, 1999 the Company was named in a lawsuit. The nature of this legal proceeding focused on the intellectual property obtained during the purchase of assets of Stainless Design Corporation. On November 10,1999, the Company responded with a counterclaim. It is legal counsels' belief that the lawsuit against the Company is without merit. The Company considers its potential exposure to be negligible and/or covered by insurance. Note 16- Subsequent Events Purchase of Facility On March 7, 2002, the Company purchased a 50,000 square foot facility in Ronkonkoma New York and will relocate from the existing 20,000 square foot facility. Included in Other Assets at December 31, 2001 is a $257,500 deposit on this facility. The total cost of the new facility will be approximately $3 million including approximately $1 million in renovations. The purchase and improvements will be financed, in part, with a $2.7 million mortgage which will be payable over 15 years at 5.67% per annum. The Company plans to sublease their existing facility. 35 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 36 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 subsidiary (the Company) as of and for the years ended December 31, 2001 and 2000. 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 & Company, P.C. Hauppauge, New York February 15, 2002, except for Note 16, as to which the date is March 7, 2002 37 S-3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY FORM 10-KSB, SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2001 and 2000 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, 2001 $ -0- $ -0- Year ended December 31, 2000 (53,000) $ (53,000) -0- Allowance for doubtful accounts: Year ended December 31, 2001 21,966 $ 4,538 26,504 Year ended December 31, 2000 22,410 (444) 21,966
38 S-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY FORM 10-KSB, SCHEDULE III AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES Years ended December 31, 2001 and 2000 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, 2001 $ -0- $ -0- $ -0- $ -0- $ -0- Year ended December 31, 2000 $ -0- $ -0- $ -0- $ -0- $ -0-
39 S-5 CVD EQUIPMENT CORPORATION AND SUBSIDIARY FORM 10-KSB, SCHEDULE IV PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 2001 and 2000
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 ------------------------------- ------------ ------------ ------------ ------------ 2001: Land $ 61,620 $ (1,620) $ 60,000 Building 1,463,551 $ 600 (110,187) 1,353,964 Machinery and equipment 819,523 75,422 894,945 Capitalized labor and overhead 753,239 (437,108) 316,131 Furniture and fixtures 157,472 581 (1,937) 156,116 Computer equipment 149,001 12,373 161,374 Transportation equipment 99,266 99,266 Leasehold improvements 47,222 37,805 85,027 ------------ ------------ ------------ ------------ $ 3,550,894 $ 126,781 $ (550,852) $ 3,126,823 ============ ============ ============ ============ 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 ============ ============ ============ ============
40 S-6 CVD EQUIPMENT CORPORATION AND SUBSIDIARY FORM 10-KSB, SCHEDULE V ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT Years ended December 31, 2001 and 2000
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 ------------------------------- ------------ ------------ ------------ ------------ 2001: Building $ 56,291 $ 36,123 $ (5,651) $ 86,763 Machinery, equipment and capitalized labor and overhead 939,083 128,638 (437,108) 630,613 Furniture and fixtures 136,560 3,857 (485) 139,932 Computer equipment 84,549 22,297 106,846 Transportation equipment 54,471 20,537 75,008 Leasehold improvements 21,428 5,731 27,159 ------------ ------------ ------------ ------------ $ 1,292,382 $ 217,183 $ (443,244) $ 1,066,321 ============ ============ ============ ============ 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 ============ ============ ============ ============
41 S-7 CVD EQUIPMENT CORPORATION AND SUBSIDIARY FORM 10-KSB, SCHEDULE VI SUPPLEMENTARY INCOME STATEMENT INFORMATION Years ended December 31, 2001 and 2000
Col. A Col. B Charges to Costs and Expenses Item 2001 2000 ----- ------------ ------------ 1. Amortization of software, advertising costs and other intangible assets $ 48,489 $ 46,032
42 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There are no changes or disagreements. 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 56 President & CEO 1982 Alan H. Temple, Jr. 68 None 1986 Mitchell Drucker 53 Chief Financial Officer 1999 Sharon Canese 41 Secretary 1998 Martin J. Teitelbaum 52 Assistant Secretary 1985 Conrad Gunther 53 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 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. 43 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 the President of Electronic Vistas Inc., (EVI). 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. 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 four times in the year 2001. Mr. Rosenbaum, Mr. Temple, 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 2001 $ 184,057 -0- President and Chief 2000 $ 170,434 10,000 Executive Officer 1999 $ 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 113,575 options have been exercised under this plan. 44 In July 2001, the shareholders approved a non-qualified stock option plan covering key employees, officers, directors and other persons that maybe considered as service providers to the company. Options will be awarded by the Board of Directors or by a committee appointed by the board. Under the plan an aggregate of 300,000 shares of 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 July 22, 2011. No options have been granted under the July 2001 plan. Other than the two non-qualified stock option plan, the Company has no pension or profit sharing plan or other contingent forms of remuneration. 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, 2002:
Amount & Nature Title Of Name and Address of Of Beneficial Percentage Class Beneficial Owner Ownership of Class Common Leonard A. Rosenbaum 1,300,450 42.9% Stock 1881 Lakeland Avenue Ronkonkoma, NY 11779 Common Alan H. Temple Jr. 194,000 6.4% Stock 10 Harrison Circle Pittsford, NY 14534
45 SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth as of March 1, 2002, 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 (1) of Class Common Leonard A. Rosenbaum 1,300,450 42.9% 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. 194,000 (3) 6.4% Stock 10 Harrison Circle Pittsford, NY 14534 Common Mitchell Drucker 23,900 (1) * Stock 307 Quail Drive Marmora, NJ 08223 Common All Directors and 1,544,350 50.9% Stock Officersas 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) Includes 2000 shares 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 2001, the Company incurred approximately $94,000 in legal fees to Martin J. Teitelbaum a director of the Company and principal attorney for the law offices of Martin J. Teitelbaum. 46 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, 2001 and 2000........................ F-4 Statements of Income and Comprehensive Income Years Ended December 31, 2001 and 2000......................... F-5 Statements of Stockholders Equity.................................. F-6 Statements of Cash Flows Years Ended December 31, 2001 and 2000......................... F-7 Notes to the Financial Statements............................. F-8-F-21 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. 47 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 2002. 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