10QSB 1 edg03q1.txt 10 QSB FOR CVD EQUIPMENT CORP 1ST QUARTER 2003 1 US SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ____3-31-03_____ ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE EXCHANGE ACT For the transition period from _______________ to ________________ Commission file number _____________2-97210-NY____________________ CVD EQUIPMENT CORPORATION (Exact name of small business issuer as specified in its charter) NEW YORK (State or other jurisdiction of incorporation or organization) 11-2621692 (IRS Employer Identification Number) 1860 SMITHTOWN AVENUE, RONKONKOMA, NY 11779 (Address of principal executive offices) 631-981-7081 (Issuers Telephone Number) (Former name, former address, and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 3,039,100 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF 5-14-03 2 CVD EQUIPMENT CORPORATION NOTE TO FINANCIAL STATEMENTS FOR THE QUARTER ENDING MARCH 31, 2003 BASIS OF FINANCIAL STATEMENTS The financial data is subject to year end audit and does not claim to be a complete presentation since note disclosure under generally accepted accounting procedures is not included. Note disclosures required under generally accepted accounting procedures are included in the Company's audited financial statements filed as part of Form 10-KSB for the year ended December 31, 2002. Form 10-QSB should be read in conjunction with these financial statements. The results of operations for the three months are not necessarily indicative of those for the full year. In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to fairly present the financial position and the results of operation for the periods indicated. 3 MANAGEMENT'S DISCUSSION INTRODUCTION Statements contained in this Report on Form 10-QSB that are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including without limitation, statements regarding industry trends, strategic business development, pursuit of new markets, competition, results from operations, and are subject to the safe harbor provisions created by that statute. A forward-looking statement may contain words such as "intends", "plans", "anticipates", "believes", "expect to", or words of similar import. Management cautions that forward-looking statements are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, marketing success, product development, production, technological difficulties, manufacturing costs, and changes in economic conditions in the markets the Company serves. The Company undertakes no obligation to release revisions to forward-looking statements to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events. FORWARD LOOKING STATEMENTS Certain statements in this Management's Discussion and Analysis of Financial Condition and Results of Operations constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward looking statements. These forward looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward looking statements, include, but are not limited to: competition in the Company's existing and potential future product lines of business; the Company's ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company's future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the company. Other factors and assumptions not identified above were also involved in the derivation of these forward looking statements, and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward looking statements. REVENUE RECOGNITION CVD recognizes and identifies on its financial statements, revenue on a percent complete methodology for contracts falling under SOP 81-1 and recognizes revenues on a completed contract methodology for contracts falling under SAB 101. CVD feels this is the most accurate and consistent methodology to meet the requirements of the two regulations. 4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS MARCH 31 DECEMBER 31 2003 2002 (UNAUDITED) (AUDITED) ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 371,708 $ 323,537 Accounts receivable, net 2,500,692 1,852,794 Cost in excess of billings on ucompleted contracts 947,906 783,646 Inventories 1,640,221 2,023,487 Other current assets 232,833 194,232 Total Current Assets 5,693,360 5,177,696 Property, Plant and Equipment, net 5,592,732 5,630,375 Deferred Income Taxes 344,074 344,074 Other Assets 153,043 138,974 Intangible Assets, net 133,038 136,393 Total Assets $11,916,247 $11,427,512 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 1,377,569 $ 938,056 Accrued expenses 497,241 336,702 Billings in excess of costs on uncompleted contracts - 146,387 Short-term notes payable 350,000 350,000 Short-term borrowings 50,000 - Current maturities of long-term debt 179,907 177,124 Total Current Liabilities 2,454,717 1,948,269 Long-term Debt, net of current portion 3,467,748 3,513,783 Total Liabilities 5,922,465 5,462,052 Commitments and Contingencies Stockholders' Equity Common stock - $0.01 par value -10,000,000 shares authorized; 3,039,100 shares issued & outstanding 30,391 30,391 Additional paid-in capital 2,902,149 2,902,149 Retained earnings 3,061,242 3,032,920 Total Stockholders' Equity 5,993,782 5,965,460 Total Liabilities and Stockholders' Equity $11,916,247 $11,427,512
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CVD EQUIPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED MARCH 31 2003 2002 (UNAUDITED) (AUDITED) ------------ ------------ Revenue Revenue on completed contracts $ 2,530,781 $ 1,215,023 Revenue on uncompleted contracts 1,096,356 674,896 Total Revenue 3,627,137 1,889,919 Costs of Revenue Cost on completed contracts 2,130,790 931,667 Cost on uncompleted contracts 523,495 317,649 Total Costs of Revenues 2,654,285 1,249,316 Gross Profit 972,852 640,603 Operating Expenses Selling and shipping 353,993 175,402 General and administrative 580,498 494,226 Total Operating Expenses 934,491 669,628 Operating Income(Loss) 38,361 (29,025) Other Income (Expense) Interest income 124 9,828 Interest expense (62,969) (23,002) Gain on sale of fixed assets - 2,500 Other income 67,976 16,488 Total Other Income 5,131 5,814 Income(Loss) Before Taxes 43,492 (23,211) Income Tax Provision(Benefit) (15,170) 9 Net Income(Loss) 28,322 (23,202) Earnings Per Share Basic $ 0.01 $ (0.01) Diluted $ 0.01 $ (0.01) Weighted Average Shares Basic 3,039,100 3,032,325 Diluted 3,050,228 3,209,801
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CVD EQUIPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31 2003 2002 (UNAUDITED) (AUDITED) ------------ ------------ CASH Flows from Operating Activities Net Income(Loss) $ 28,322 $ (23,202) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 90,221 66,976 Gain on sale of fixed assets - (2,500) Bad debt provision (3,311) (2,047) (Increase) decrease in: Accounts receivable (644,588) (24,140) Cost in excess of billings on uncompleted contracts (164,260) (31,533) Inventory 383,266 25,866 Other current assets (38,599) (55,478) Other assets (24,095) 217,181 Increase (decrease) in: Accounts payable 439,516 55,557 Accrued expenses 160,537 (93,144) Billing in excess of costs on uncompleted contracts (146,387) 11,632 Net Cash Provided By Operating Activities 80,622 145,168 Cash Flows from Investing Activities Capital expenditures (39,200) (602,874) Proceeds from sale of fixed assets - 2,500 Net Cash Used in Investing Activities (39,200) (600,374) Cash Flows from Financing Activities Proceeds from short-term borrowings 50,000 - Payments of long-term debt (43,251) (16,284) Net Cash Provided (Used) By Financing Activities 6,749 (16,284) Net Increase(Decrease) in Cash and cash Equivalents 48,171 (471,490) Cash and Cash Equivalents at the Beginning of the Quarter 323,537 2,361,150 Cash and Cash Equivalents at the End of the Quarter $ 371,708 $ 1,889,660
7 ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2003 REVENUE An increase in volume resulted in first quarter of 2003 revenue being $3,627,137, a 92% increase from first quarter of 2002 revenue of $1,889,919. COSTS AND EXPENSES The cost of revenue increased to $2,654,285 in first quarter of 2003 as compared to $1,249,316 in first quarter of 2002. Of this $1,404,969 increase, approximately $1,070,000 is attributed to material, $9,000 to freight in, $183,000 to salaries, $24,000 to utilities and $18,000 to real estate taxes. Selling and shipping expenses increased to $353,993 in first quarter of 2003 from $175,402 in first quarter of 2002. Of this $178,591 increase, approximately $155,000 is attributed to commissions and $31,000 to freight out expense, which is offset by a decrease of $10,000 to advertising expense. General and Administrative expenses increased to $580,498 in first quarter of 2003 from $494,226 in first quarter of 2002. Of this $86,272 increase, approximately $90,000 to salaries, $5,000 to travel expense and $6,300 to depreciation, which is offset by a decrease of $7,600 to legal fees and $9,300 to consulting fees. Interest expense increased by $39,967 from $23,002 in first quarter of 2002 to $62,969 in first quarter of 2003, because the company's average outstanding debt increased, as a result of the mortgage on the new building purchased in March 2002. Other income increased by $51,488 from first quarter of 2002 to first quarter of 2003. Of this increase, $64,000 is attributed to collection of accounts receivable exceeding the $369,000 booked as part of the purchase of the assets. LIQUIDITY AND CAPITAL RESOURCES By the end of the first quarter of 2003, the Company's cash position increased to $371,708 from $323,537 at the beginning of the year. The increase in cash is mainly attributed to the daily operating activities. At the end of the first quarter of 2003, the Company's account receivable position increased to $2,500,692 from $ 1,852,794 at the beginning of the year. This increase was attributable to timing of customer payments and billings. At the close of the first quarter of 2003, the Company's backlog decreased to approximately $1,827,563 from approximately $3,816,877 at the beginning of the year. This decrease is mainly attributed to shipments delayed from the fourth quarter of 2002 to the first quarter of 2003. This delay resulted from the reduction in productivity of the CVD and Conceptronic divisions due 8 to their relocation to the new facility in the fourth quarter of 2002. The Company believes that its cash and cash equivalents, cash flow from operations and available credit facilities will be sufficient to meet its working capital and investment requirements for the next twelve months. However, future growth, including potential acquisitions, may require additional funding, and from time to time the Company may need to raise capital through additional equity or debt financing. 9 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 14th day of May 2003. CVD EQUIPMENT CORPORATION By: /s/ Leonard A. Rosenbaum Leonard A. Rosenbaum President, Chief Executive Officer and Director 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/ Sharon Canese Chief Financial Officer and Secretary Sharon Canese 10 Certifications Pursuant to Rule 13A-14 or 15D-14 of the Securities exchange act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Leonard A. Rosenbaum, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of CVD Equipment Corporation; 2. Based upon my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based upon my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, the registrant's auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b. Any Fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 14, 2003 /s/ Leonard A. Rosenbaum ---------------------------------------- President, Chief Executive Officer and Director 11 Certifications Pursuant to Rule 13A-14 or 15D-14 of the Securities exchange act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Sharon Canese, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of CVD Equipment Corporation; 2. Based upon my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report. 3. Based upon my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a. Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date. 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, the registrant's auditors and the audit committee of the registrants' board of directors (or persons performing the equivalent functions): a. All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and b. Any Fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: May 14, 2003 /s/ Sharon Canese ---------------------------------------- Chief Financial Officer and Secretary