10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2019
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ____ to _____

 Commission file number: 1-16525

CVD EQUIPMENT CORPORATION

(Name of Registrant in Its Charter)

New York	11-2621692
State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
355 South Technology Drive Central Islip, New York 11722 (Address of principal executive offices)

(631) 981-7081
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CVV	NASDAQ Capital Market

Indicate by check 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No☐      

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company      ☑	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                                                     ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,555,570 shares of Common Stock, $0.01 par value at August 5, 2019.

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Index

Part I - Financial Information
Item 1 – Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2019 and December 31, 2018	3
Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	4
Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	5
Notes to Consolidated Financial Statements	6
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	26
Item 4 – Controls and Procedures	26
Part II - Other Information	28
Item 1 – Legal Proceedings	28
Item 1A-Risk Factors	28
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3 – Defaults Upon Senior Securities	28
Item 4 – Mine Safety Disclosures	28
Item 5 – Other Information	28
Item 6 – Exhibits	28
Signatures	30
Exhibit Index	31

2

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

	(Unaudited)
	June 30, 2019		December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	8,580,564	$	11,439,361
Accounts receivable, net		2,066,025		4,065,220
Contract assets		1,654,467		1,357,797
Inventories, net		1,882,666		1,861,873
Other current assets		509,806		723,204
Total Current Assets		14,693,528		19,447,455
Property, plant and equipment, net		31,317,156		30,402,558
Deferred income taxes		2,802,414		2,104,414
Other assets		41,748		64,583
Intangible assets, net		461,058		495,552
Total Assets	$	49,315,904	$	52,514,562
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	1,149,879	$	713,194
Accrued expenses		1,730,518		1,503,309
Current maturities of long-term debt		865,464		857,590
Contract Liabilities		170,975		536,524
Deferred revenue		482,677		459,899
Total Current Liabilities		4,399,513		4,070,516
Long-term debt, net of current portion		11,716,283		12,051,720
Total Long-Term Liabilities		11,716,283		12,051,720
Total Liabilities		16,115,796		16,122,236
Commitments and contingencies		-		-
Stockholders’ Equity:
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,555,150 at June 30, 2019 and 6,535,888 at December 31, 2018		65,551		65,358
Additional paid-in capital		26,525,521		26,148,256
Retained earnings		6,609,036		10,178,712
Total Stockholders’ Equity		33,200,108		36,392,326
Total Liabilities and Stockholders’ Equity	$	49,315,904	$	52,514,562

The accompanying notes are an integral part of these consolidated financial statements

3

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue	$	4,918,118		$	6,435,278		$	8,395,378		$	15,589,111
Cost of revenue		4,425,279			5,319,060			8,290,280			10,711,979
Gross profit		492,839			1,116,218			105,098			4,877,132
Operating expenses
Research and development		176,920			128,117			341,000			224,923
Selling and shipping		227,117			399,249			504,424			912,724
General and administrative		1,632,022			1,968,465			3,368,110			4,208,530
Total operating expenses		2,036,059			2,495,831			4,213,534			5,346,177
Operating loss		(1,543,220	)		(1,379,613	)		(4,108,436	)		(469,045	)
Other income (expense):
Interest income		42,063			29,314			88,869			46,274
Interest expense		(126,270	)		(119,279	)		(240,806	)		(240,633	)
Total other expense, net		(84,207	)		(89,965	)		(151,937	)		(194,359	)
Loss before income tax		(1,627,427	)		(1,469,578	)		(4,260,373	)		(663,404	)
Income tax (benefit) expense		(234,697	)		(139,052	)		(690,697	)		108,718
Net loss	$	(1,392,730	)	$	(1,330,526	)	$	(3,569,676	)	$	(772,122	)
Basic loss per common share	$	(0.21	)	$	(0.21	)	$	(0.55	)	$	(0.12	)
Diluted loss per common share	$	(0.21	)	$	(0.21	)	$	(0.55	)	$	(0.12	)
Weighted average common shares Outstanding-basic		6,555,150			6,486,067			6,547,035			6,476,712
Weighted average common shares Outstanding-diluted		6,555,150			6,486,067			6,547,035			6,476,712

The accompanying notes are an integral part of these consolidated financial statements

4

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June,
	2019			2018
Cash flows from operating activities:
Net loss	$	(3,569,676	)	$	(772,122	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Stock-based compensation		377,457			424,015
Depreciation and amortization		554,579			544,158
Deferred income tax (benefit)/expense		(698,000	)		56,888
Provision for inventory obsolescence		50,000			-
(Increase)/decrease in operating assets
Accounts receivable		1,999,195			(663,864	)
Contract assets		(296,670	)		3,082,808
Inventories		(70,793	)		317,604
Other current assets		213,399			(47,204	)
Increase/(decrease) in operating liabilities
Accounts payable		436,684			52,290
Accrued expenses		227,209			(663,436	)
Contract liabilities		(365,549	)		(187,051	)
Deferred revenue		22,778			815,639
Total adjustments		2,450,289			3,731,847
Net cash (used in) provided by operating activities		(1,119,387	)		2,959,725
Cash flows from investing activities:
Capital expenditures		(1,434,682	)		(1,273,857	)
Other assets		22,835			(177,789	)
Net cash used in investing activities		(1,411,847	)		(1,451,646	)
Cash flows from financing activities
Payments of long-term debt		(327,563	)		(322,499	)
Net cash used in financing activities		(327,563	)		(322,499	)
Net (decrease) increase in cash and cash equivalents		(2,858,797	)		1,185,580
Cash and cash equivalents at beginning of period		11,439,361			14,210,909
Cash and cash equivalents at end of period	$	8,580,564		$	15,396,489
Supplemental disclosure of cash flow information:
Income taxes paid	$	-		$	395,000
Interest paid	$	240,806		$	242,324
Capitalization of right to use Asset	$	128,947		$	-

The accompanying notes are an integral part of these consolidated financial statements

5

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. They do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials not misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the three and six months ended June 30, 2019 are not necessarily indicative of the results that can be expected for the year ending December 31, 2019.

The consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at such date, but does not contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’ Annual Report on Form 10-K for the year ended December 31, 2018, including the accounting policies followed by the Company as set forth in Note 2 to the consolidated financial statements contained therein.

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period consolidated financial statements to conform to the current year presentation.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

On January 1, 2018, we adopted accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts not yet completed as of the adoption date. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted.

The adoption of ASC 606 did not have a significant impact on our Consolidated Financial Statements as of and for the three and six month periods ended June 30, 2018 and, as a result, comparisons of revenues and operating profits performance between periods are not affected by the adoption of this ASU.

The accompanying notes are an integral part of these consolidated financial statements

6

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within three to eighteen months from commencement of order acceptance. The Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

“Contract assets,” include unbilled amounts typically resulting from sales under contracts when revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amount may not exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle.

“Contract liabilities,” include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606.

The accompanying notes are an integral part of these consolidated financial statements

7

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

Research and development costs are expensed as incurred. Due to the highly technical nature of our projects, we use our technical staff in a dual role, and based on their contribution to the customer or research and development projects, their costs are charged accordingly to either cost of goods sold or research and development.

Recent Accounting Pronouncements 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016 the FASB issued ASU No. 2016-02, "Leases (Topic 842)" (ASU 2016-02). The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply.

The accompanying notes are an integral part of these consolidated financial statements

8

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. In addition, FASB has amended Topic 842 prior to it becoming effective. The effective date and transition requirements for these amendments to Topic 842 are the same as ASU 2016-02. The Company has one lease at its Denmark facility which currently expires at December 31, 2020 and has recognized a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term in the amount of $129,000.

We believe there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.

NOTE 3: CONCENTRATION OF CREDIT RISK

Cash and cash equivalents

The Company had cash and cash equivalents of $8.6 million and $11.4 million at June 30, 2019 and December 31, 2018, respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or money market accounts, all with maturities of less than three months. Cash equivalents were $7.5 million and $8.9 million at June 30, 2019 and December 31, 2018, respectively.

The Company places most of its temporary cash investments with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at June 30, 2019 and December 31, 2018 was $6,824,000 and $6,920,000, respectively.

Sales concentration

Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three and six months ended June 30, 2019, one customer represented 13% and 10% of revenues. For the three and six months ended June 30, 2018, a different customer represented approximately 37% and 43% of our revenues.

The accompanying notes are an integral part of these consolidated financial statements

9

NOTE 3: CONCENTRATION OF CREDIT RISK (continued)

Accounts receivable

The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. The Company also maintains allowances for anticipated losses. At June 30, 2019 two customers each exceeded 10% of the accounts receivable balance, representing 24% in total, and at December 31, 2018 two customers represented approximately 42% of the accounts receivable balance.

NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table represents a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2019 and 2018:

(in Thousands)

	Three Months Ended				Six Months Ended
Category	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Aerospace	$	1,003	$	2,205	$	1,216	$	6,079
Industrial		1,810		1,962		3,387		5,208
Research		1,102		1,014		1,954		1,875
Point in time		1,003		1,254		1,838		2,427
Net Revenue	$	4,918	$	6,435	$	8,395	$	15,589

Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

Changes in estimates for sales of systems occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s consolidated statements of operations. The table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three and six months ended June 30, 2019 and 2018, as well as the number of projects that comprise such changes. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.

The accompanying notes are an integral part of these consolidated financial statements

10

NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)

	Three Months Ended			Three Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	0		$	34
(Decrease) increase in revenue from net changes in input cost estimates	$	(61	)	$	(479	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(61	)	$	(445	)
Number of projects		26			15
Net change in estimate as a percentage of aggregate revenue for associated projects		(.9	%)		(9.2	%)

	Six Months Ended			Six Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	9		$	75
(Decrease) increase in revenue from net changes in input cost estimates	$	(240	)	$	(570	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(231	)	$	(495	)
Number of projects		26			10
Net change in estimate as a percentage of aggregate revenue for associated projects		(.5	%)		(8.8	%)

For the three and six months ended June 30, 2019 and 2018, revenue (decreased) increased by ($61,000) and ($231,000) in 2019, respectively, and ($445,000) and ($495,000) in 2018, respectively, from net changes in transaction prices, input cost estimates, product cost overruns and product cost forecast changes related to redesign of certain systems.

The accompanying notes are an integral part of these consolidated financial statements

11

NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)

Contract Assets and Liabilities

Contract assets consist of (i) retainage which represent the earned, but unbilled, portion for which payment is deferred by the customer until certain contractual milestones are met; and (ii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for long-term contracts. Contract liabilities consist of customer advances and billings in excess of revenue recognized.

During the six months ended June 30, 2019 and 2018, the increase (decrease) in contract assets of approximately $.3 million and ($3.1 million), respectively, was primarily caused by additional billed receivables during the 2018 period, for those projects that certain milestones had been reached.

NOTE 5: INVENTORIES, NET

Inventories consist of:

	June 30, 2019			December 31, 2018
Raw materials	$	1,701,667		$	2,016,488
Work-in-process		590,999			205,385
Finished goods		-			-
Gross inventories		2,292,666			2,221,873
Less reserve for obsolescence		(410,000	)		(360,000	)
Inventories, net	$	1,882,666		$	1,861,873

NOTE 6: ACCOUNTS RECEIVABLE, NET

Accounts receivable are presented net of an allowance for doubtful accounts of approximately $24,000 as of June 30, 2019 and December 31, 2018. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.

The accompanying notes are an integral part of these consolidated financial statements

12

NOTE 7: LONG-TERM DEBT

The Company had a revolving credit facility with HSBC Bank, USA, N.A. (“HSBC”) providing up to $7 million, although the Company had never utilized this facility. This credit facility expired on September 1, 2018.

The Company has a loan agreement with HSBC which is secured by a mortgage on our Central Islip, NY headquarters. The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022. The balances as of June 30, 2019 and December 31, 2018 were approximately $2.5 million and $2.7 million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5%.

On November 30, 2017, the Company purchased the premises located at 555 North Research Place, Central Islip, NY. The purchase price of the building was $13,850,000 exclusive of closing costs. The Company’s newly formed wholly-owned subsidiary, 555 N Research Corporation (the “Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of $10,387,500, which was used to finance a portion of the purchase price to acquire the premises located at 555 North Research Place, Central Islip, New York. The Loan was evidenced by the certain Note, dated November 30, 2017 (the “Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement (the “Mortgage”), dated November 30, 2017, as well as a collateral Assignment of Leases and Rents.

The Loan is payable in 60 consecutive equal monthly installments of $62,481 including interest and final balloon payment upon maturity in December 2022. The balance outstanding as of June 30, 2019 and December 31, 2018 were approximately $9.9 million and $10.0 million respectively. The Loan bears interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%. The maturity date for the Note is December 1, 2022. As a condition of the Bank making the Loan, the Company was required to guaranty Assignee’s obligations under the Loan pursuant that certain Unlimited Guaranty, dated November 30, 2017 (the “Guaranty”). On May 31, 2019, the Company entered into two sublease agreements for a portion of the CVD Materials facility. During the quarter ended June 30, 2019, the Company recognized $36,000 of rental income which commenced June 1, 2019. Commencing July 2019, the monthly rental income will increase to approximately $67,000 per month or approximately $800,000 per annum.

At December 31, 2018, the Company was not in compliance with the one financial covenant (fixed charge coverage ratio) contained in the Mortgage. On March 26, 2019 the Company received a waiver from HSBC until April 1, 2020. On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets covenant. The Company is in compliance with its obligations under the mortgage at June 30, 2019.

The accompanying notes are an integral part of these consolidated financial statements

13

NOTE 8: STOCK-BASED COMPENSATION EXPENSE

The Company recorded as part of selling and general administrative expense $179,000 and $378,000 during the three and six months ended June 30, 2019, respectively, and during the three and six months ended June 30, 2018, $201,000 and $424,000, respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments.

NOTE 9: INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S. Tax Reform significantly lowering the amount of current and future income tax expense primarily due to the reduction in the U.S. statutory tax rate from 35.0% to 21.0%. This provision went into effect on January 1, 2018 and resulted in the loss of our ability to take the domestic production activities deduction which has been repealed and requires us to remeasure our deferred tax assets and liabilities.

The provision for income taxes includes the following:

	Six Months Ended June 30,
	2019			2018
Current:
Federal	$	---		$	48,330
State		7,303			3,500
Total current provision		7,303			51,830
Deferred:
Federal	$	(698,000	)	$	56,888
State		------			----
Total deferred (benefit) provision		(698,000	)		56,888
Income tax expense (benefit) provision	$	(690,697	)	$	108,718

Tax Rate Reconciliation

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

	Six Months Ended
	June 30,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(895,428	)	$	(139,314	)
Foreign tax loss		28,175			82,715
State taxes		3,000			3,500
Difference between tax and book depreciation		48,144			39,827
Stock compensation		62,505			140,052
Other Permanent differences		62,907			(18,062	)
Income tax (benefit) expense	$	(690,697	)	$	108,718

The accompanying notes are an integral part of these consolidated financial statements

14

NOTE 9: INCOME TAXES (continued)

The Company’s foreign subsidiary, CVD Tantaline ApS incurred a loss of approximately $134,000 for the six months ended June 30, 2019 which would provide a $28,000 deferred tax asset, based on the standard corporate tax rate of 22% in Denmark. For the six months ended June 31, 2018 the Company had a loss of $394,000 with a deferred tax asset of $83,000. However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance has been necessary.

We continue to evaluate for potential utilization of the Company’s deferred tax asset on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the new CVD Materials segment and cost containment measures.

NOTE 10: EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Stock options to purchase 467,930 shares of common stock were outstanding and 227,930 were exercisable during the three and six months ended June 30, 2019. Stock options to purchase 387,930 shares were outstanding and 227,930 were exercisable during the three and six months ended June 30, 2018. For the three and six months ended June 31, 2019 and 2018, no shares were included in the diluted earnings per share calculation as their effect would have been anti-dilutive.

The dilutive potential common shares on warrants and options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.

NOTE 11: SEGMENT REPORTING

The Company operates through three (3) segments: CVD Equipment Corporation (“CVD”), Stainless Design Concepts (“SDC”) and CVD Materials Corporation (“Materials”). The CVD segment is utilized for chemical vapor deposition equipment manufacturing. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York for gas control systems. Materials is our new segment based on recent acquisitions, for providing quartzware and material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.

The accompanying notes are an integral part of these consolidated financial statements

15

NOTE 11: SEGMENT REPORTING (continued)

The Company’s corporate administration activities are reported in the Eliminations and Unallocated column. These activities primarily include intercompany profit, expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense.

Three Months Ended June 30,

(In thousands)

										Eliminations* and
2019	CVD			SDC			Materials			Unallocated			Consolidated
Assets	$	37,016		$	5,581		$	6,728		$	(9	)	$	49,316
Revenue		3,194			1,591			542			(409	)		4,918
Operating income/(loss)		(1,021	)		508			(130	)		(900	)		(1,543	)
Pretax income/(loss)		(1,013	)		515			(229	)		(900	)		(1,627	)
2018
Assets	$	37,403		$	3,481		$	17,481		$	(9	)	$	58,356
Revenue		5,635			844			358			(402	)		6,435
Operating income/(loss)		145			(243	)		(627	)		(655	)		(1,380	)
Pretax income/(loss)		145			(243	)		(627	)		(745	)		(1,470	)

Six Months Ended June 30,

(In thousands)

									Eliminations* and
2019	CVD			SDC		Materials			Unallocated			Consolidated
Revenue	$	5,213		$	2,678	$	970		$	(466	)	$	8,395
Operating income/(loss)		(2,558	)		682		(328	)		(1,904	)		(4,108	)
Pretax income/(loss)		(2,522	)		691		(525	)		(1,904	)		(4,260	)
2018
Revenue	$	12,341		$	3,104	$	730		$	(586	)	$	15,589
Operating income/(loss)		1,482			488		(1,140	)		(1,299	)		(469	)
Pretax income/(loss)		1,482			488		(1,140	)		(1,493	)		(663	)

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

The accompanying notes are an integral part of these consolidated financial statements

16

NOTE 12: SUBSEQUENT EVENT

On August 5, 2019, the Company entered into a Mortgage Modification Agreement, a Reaffirmation of Unlimited Continuing Guaranty, and a Note Modification Agreement with HSBC Bank USA.The Mortgage Modification Agreement amended the original Mortgage by removing the fixed charge coverage financial ratio financial covenant and replacing it with a minimum liquid Assets covenant as follows:

CVD Equipment Corporation and its consolidated subsidiaries shall own and maintain minimum Liquid Assets of (i) at least $3,000,000 at all times for the balance of the calendar year ending December 31, 2019 (ii) $3,250,000 as of March 31, 2020, (iii) $3,500,000 as of September 30, 2020, (iv) $3,750,000 as of March 31, 2021, (v) $4,000,000 as of September 30, 2021, and (vi) $4,000,000 as of each quarter end thereafter as determined by the Mortgagee. As used herein, the term "Liquid Assets" shall be deemed to mean assets of the following types and nature so long as such are not pledged, encumbered, hypothecated, subject to rights of offset or otherwise restricted:

In addition, the agreements provide for a cross default between the Company’s two existing HSBC Notes.

The accompanying notes are an integral part of these consolidated financial statements

17

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These 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. Past results are no guaranty of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” “will” and similar expressions are intended to identify forward-looking statements.

18

Results of Operations

Three and Six Months Ended June 30, 2019 vs. June 30, 2018

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenue	$	4,918,118		$	6,435,278		$	8,395,378		$	15,589,111
Cost of revenue		4,425,279			5,319,060			8,290,280			10,711,979
Gross profit		492,839			1,116,218			105,098			4,877,132
Operating expenses
Research and development		176,920			128,117			341,000			224,923
Selling and shipping		227,117			399,249			504,424			912,724
General and administrative		1,632,022			1,968,465			3,368,110			4,208,530
Total operating expenses		2,036,059			2,495,831			4,213,534			5,346,177
Operating loss		(1,543,220	)		(1,379,613	)		(4,108,436	)		(469,045	)
Other income (expense):
Interest income		42,063			29,314			88,869			46,274
Interest expense		(126,270	)		(119,279	)		(240,806	)		(240,633	)
Total other expense, net		(84,207	)		(89,965	)		(151,937	)		(194,359	)
Loss before income tax		(1,627,427	)		(1,469,578	)		(4,260,373	)		(663,404	)
Income tax (benefit) expense		(234,697	)		(139,052	)		(690,697	)		108,718
Net loss	$	(1,392,730	)	$	(1,330,526	)	$	(3,569,676	)	$	(772,122	)

19

Three Months Ended June 30, 2019 vs. June 30, 2018

Revenue

Our revenue for the three months ended June 30, 2019 was $4.9 million compared to $6.4 million for the three months ended June 30, 2018, resulting in a decrease of 23.6% which was primarily attributable to the completion of orders received from our then largest customer. This customer, in the aerospace industry from which we have previously secured multiple orders, represented $.7 million or approximately 13.8% of our revenue for the three months ended June 30, 2019 as compared to $2.7 million or approximately 42.2% of our revenue for the three months ended June 30, 2018.

The revenue contributed for the three months ended June 30, 2019, by the CVD Equipment segment, of $3.2 million, which totaled 64.9% of our overall revenue, was 43.3% or $2.4 million less than the segment’s $5.6 million contribution made in the prior year, which totaled 87.6% of our overall revenue.

Revenue for our SDC segment increased to $1.3 million in three months ended June 30, 2019 as compared to $.4 million in three months ended June 30, 2018, an increase of $.9 million. The increase is primarily attributable to a higher sales activity level in 2019 as compared to the timing of orders within the first two quarters of 2018. In the first half of 2019, sales were $2.3 million as compared to $2.5 million in the first of 2018. The SDC segment represented 26.0% and 6.9% of our total revenue during the three months ended June 30, 2019 and 2018, respectively.

Revenues for our CVD Materials segment were $.4 million in the three months ended June 30, 2019 as compared to $.4 million for the three months ended June 30, 2018.

Gross Profit

Gross profit for the three months ended June 30, 2019 amounted to $.5 million, with a gross profit margin of 10.0%, compared to a gross profit of $1.1 million and a gross profit margin of 17.3% for the three months ended June 30, 2018. The decreased gross profit and gross profit margin were the result of the reduction in sales from our former largest customer, while costs, principally payroll, which decreased, remained at higher levels to support our anticipated expansion of the CVD Materials segment and future growth.

Research and Development, Selling and General and Administrative Expenses

Research and Development

Due to the technical development required on our custom orders, our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project. When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development. For the three months ended June 30, 2019, our research and development expenses totaled $177,000 compared to $128,000 for the three months ended June 30, 2018.

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Selling

Selling expenses were $.2 million or 4.6 % of the revenue for the three months ended June 30, 2019 as compared to $.4 million or 6.2% for the three months ended June 30, 2018. The decrease was a result of reduced employee related costs as a result of the reduction in overall sales. 

General and Administrative

General and administrative expenses for the three months ended June 30, 2019 were $1.6 million or 33.2% of revenue compared to $2.0 million or 30.6% for the three months ended June 30, 2018, a decrease of $.4 million. The decrease in these expenses is primarily the result of reductions in employees and the related payroll and benefit costs, as well as decreased outside systems and finance consulting costs.

Operating Loss

As a result of the decreased revenues and gross margins, we recorded an operating loss of ($1.5 million) for the three months ended June 30, 2019 as compared to an operating loss of ($1.4 million) for the three months ended June 30, 2018, which was driven primarily by the reduced revenue from our former largest customer, offset in part by actions taken to reduce operating and manufacturing costs.

Other (expenses)/Income

Other expenses were $84,000 and $90,000 for the three months ended June 30, 2019 and 2018, respectively. This reduction is the result of actions taken to invest significantly more of the Company’s cash into short-term treasury bills and certificates of deposits and thereby generating increased interest income of $13,000, while higher interest rates resulted in increased interest expense of $7,000.

Income Taxes

For the three months ended June 30, 2019, we recorded an income tax benefit of $235,000 as compared to an income tax benefit of $139,000 for the three months ended June 30, 2018. Commencing in 2018, our corporate tax rate was reduced to 21% as a result of The Tax Cuts and Jobs Act (“TCJA”) enacted December 22, 2017. For the three months ended June 30, 2019 and 2018, this rate was affected by permanent differences related to fixed and intangible assets, stock-based compensation and other items resulting in an effective tax rate of 14.4% and 9.5%, respectively.

21

We continue to evaluate for potential utilization of the Company’s deferred tax asset on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the new CVD Materials segment and cost containment measures.

Net loss

As a result of the foregoing factors, we reported a net loss of ($1.4 million), or ($0.21) per basic and diluted share, for the three months ended June 30, 2019, as compared to net loss of ($1.3 million), or ($0.21) per basic and diluted share for the three months ended June 30, 2018.

Six Months Ended June 30, 2019 vs. June 30, 2018

Revenue

Our revenue for the six months ended June 30, 2019 was $8.4 million compared to $15.6 million for the six months ended June 30, 2018, resulting in a decrease of 46.1% which was primarily attributable to the completion of orders received from our former largest customer. This customer, in the aerospace industry from which we had previously secured multiple orders, represented $1.4 million or approximately 16.2% of our revenue for the six months ended June 30, 2019 as compared to $7.1 million or approximately 45.4% of our revenue for the six months ended June 30, 2018.

The revenue contributed for the six months ended June 30, 2019, by the CVD Equipment segment, of $5.2 million, which totaled 62.1% of our overall revenue, was 57.8% or $7.1 million less than the segment’s $12.3 million contribution made in the prior year, which totaled 79.2% of our overall revenue.

Revenue for our SDC segment decreased to $2.3 million for the six months ended June 30, 2019 as compared to $2.5 million for the six months ended June 30, 2018, a decrease of 7.8%. The SDC segment represented 27.7% and 16.5% of our total revenue during the six months ended June 30, 2019 and 2018, respectively.

Revenues for our CVD Materials segment were $.9 million in the six months ended June 30, 2019 as compared to $.7 million for 2018.

Gross Profit

Gross profit for the six months ended June 30, 2019 amounted to $.1 million, with a gross profit margin of 1.3%, compared to a gross profit of $4.9 million and a gross profit margin of 31.3% for the six months ended June 30, 2018. The decreased gross profit and gross profit margin were the result of the reduction in sales from our former largest customer, while costs, principally payroll, which decreased, remained at higher levels to support our anticipated expansion of the CVD Materials segment and future growth.

22

Research and Development, Selling and General and Administrative Expenses

Research and Development

Due to the technical development required on our custom orders, our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project. When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development. For the six months ended June 30, 2019, our research and development expenses totaled $341,000 compared to $225,000 for the six months ended June 30, 2018.

Selling

Selling expenses were $.5 million or 6.0% of the revenue for the six months ended June 30, 2019 as compared to $.9 million or 5.8% for the six months ended June 30, 2018. The decrease was a result of lower employee related costs and commissions as a result of the reduction in overall sales. 

General and Administrative

General and administrative expenses for the six months ended June 30, 2019 were $3.4 million or 40.1% of revenue compared to $4.2 million or 27.0% for the six months ended June 30, 2018, a decrease of $.8 million. The decrease in these expenses is primarily the result of reductions in employees and the related payroll and benefit costs, as well as decreased outside systems and finance consulting costs.

Operating Loss

As a result of the decreased revenues and gross margins, we recorded an operating loss of ($4.1 million) for the six months ended June 30, 2019 as compared to an operating loss of ($.5 million) for the six months ended June 30, 2018, which was driven primarily by the reduced revenue from our former largest customer.

23

Other (expenses)/Income

Other expenses were $152,000 and $194,000 for the six months ended June 30, 2019 and 2018, respectively. This reduction is the result of actions taken to invest significantly more of the Company’s cash into short-term treasury bills and certificates of deposits and thereby generating increased interest income of $42,000.

Income Taxes

For the six months ended June 30, 2019, we recorded an income tax benefit of $691,000 as compared to an income tax expense of $109,000 for the six months ended June 30, 2018. Commencing in 2018, our corporate tax rate was reduced to 21% as a result of The Tax Cuts and Jobs Act (“TCJA”) enacted December 22, 2017. For the six months ended June 30, 2019 and 2018, this rate was affected by permanent differences related to fixed and intangible assets, stock-based compensation and other items resulting in an effective tax rate of 16.2% and 16.4%, respectively.     

We continue to evaluate for potential utilization of the Company’s deferred tax asset on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the new CVD Materials segment and cost containment measures.

Net loss

As a result of the foregoing factors, we reported net loss of ($3.6 million), or ($0.55) per basic and diluted share, for the six months ended June 30, 2019, as compared to net loss of ($.8 million), or ($0.12) per basic and diluted share for the six months ended June 30, 2018.

Liquidity and Capital Resources

As of June 30, 2019, we had aggregate working capital of $10.3 million compared to aggregate working capital of $15.4 million at December 31, 2018. Our cash and cash equivalents of at June 30, 2019 and December 31, 2018 were $8.6 million and $11.4 million, respectively. The decrease in working capital of $5.1 million is primarily attributable to the overall reduction in sales and resulting operating loss for the period and debt service payments of approximately $.6 million related to our investment in the CVD Materials building purchased on November 30, 2017. We have continued to invest in activities primarily related to preparing CVD Materials at the new location which we anticipate to be operational during the third quarter of 2019. Our total capital invested in the six months ended June 30, 2019 was $1.4 million, primarily related to building improvements and machinery for the CVD Materials operations and we also incurred operating costs of approximately $124,000, exclusive of interest expense, and net of $36,000 rental income which commenced June 2019. Commencing July 2019, the monthly rental income will increase to approximately $67,000 per month or approximately $800,000 per annum.

Accounts receivable, net of allowance for doubtful accounts, decreased by $2.0 million or 49.2% at June 30, 2019, to $2.1 million compared to $4.1 million at December 31, 2018. This decrease is principally due to the timing of shipments and customer payments.

Inventories as of June 30, 2019 and 2018 were essentially unchanged at approximately $1.9 million.

24

As previously reported, our Revolving Line of Credit expired on September 1, 2018. We have elected not to renew our credit line at this time because (a) renewal terms were not acceptable to us, (b) we have not borrowed on our line of credit in the past 10 years, and (c) we believed we had sufficient cash and cash equivalents to meet our working capital and capital expenditure requirements over the next twelve months.

We have a loan agreement with HSBC USA, N.A. (the “HSBC”) which is secured by a mortgage on our Central Islip headquarters at 355 South Technology Drive. The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022. The balances as of June 30, 2019 and December 31, 2018 were approximately $2.5 million and $2.7 million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5%.

On November 30, 2017, we purchased the premises located at 555 North Research Place, Central Islip, NY which is intended to house the CVD Materials segment. The purchase price of the land and the building was $13,850,000 exclusive of closing costs.

As part of the acquisition, our newly formed wholly-owned subsidiary, 555 N Research Corporation (the” Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of $10,387,500, which was used to finance a portion of the purchase price to acquire the premises located at 555 North Research Place, Central Islip, New York (the ”Premises”). The Loan was evidenced by the certain Note, dated November 30, 2017 (the ”Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement, dated November 30, 2017 (the “Mortgage”), as well as a collateral Assignment of Leases and Rents (“Assignment of Leases”).

The Loan is payable in 60 consecutive equal monthly installments of $62,481, including interest. The balances as of June 30, 2019 and December 31, 2018 were approximately $9.9 million and $10.0 million respectively. The Loan bears interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%. The maturity date for the Note is December 1, 2022. As a condition of the Bank making the Loan, we were required to guaranty Assignee’s obligations under the Loan.

At December 31, 2018, we were not in compliance with the single financial covenant (fixed charge coverage ratio) contained in the Mortgage. On March 26, 2019 the Company received a waiver from HSBC until April 1, 2020. On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets covenant. The Company is in compliance with its obligations under the mortgage at June 30, 2019.

At December 31, 2018 we had reduced our employee headcount by 15% to 197 as compared to December 31, 2017. At June 30, 2019 we have further reduced our headcount by 8% to 181 employees and we are continuing to evaluate our staffing levels to support the new CVD Materials facility which we anticipate to be operational during the third quarter of 2019, and the level of current and expected orders. While we continue to monitor and take action to reduce our expenses, we believe that our cash and cash equivalent positions and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months.

25

Off-Balance Sheet Arrangements.

We have no off-balance sheet arrangements at this time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).

Based on that review and evaluation, our Chief Executive Officer and Chief Financial Officer, along with others in our management, have determined that as of the end of the period covered by this Report on Form 10-Q, while improvements have been made since our December 31, 2018 year end, the disclosure controls and procedures were not effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosures. Specifically, at year end December 31, 2018, we had identified the following significant deficiencies in our disclosure controls: (1) we lack sufficient internal controls over monitoring the accounting activity and consolidation of our foreign subsidiary into our consolidated financial statements, (2) we have not fully integrated our new project accounting software into our general ledger accounting system and we continue to rely on manual reconciliations using electronic spreadsheets, and (3) we have a deficiency in internal controls regarding the estimation of costs on contracts in progress.

26

To remediate such deficiencies, we have implemented the following changes: (1) established stricter formal procedures with respect to how and when our management will communicate to the auditors and Audit Committee on a more timely basis, (2) is adopting sufficient written policies and procedures for accounting and financial reporting, (3) have appointed and /or designated additional qualified personnel to ensure timely filing of the reports that we file or submit under the Exchange Act, (4) added additional, multiple review levels, and (5) receive from the staff of the foreign subsidiary financial information on a weekly and monthly basis in order to monitor more closely. During the year ended December 31, 2018, we integrated three more entities into its accounting software and are planning the integration of the remaining two entities shortly. In addition, we have reevaluated our internal controls regarding the estimation of costs on contracts in progress and have implemented changes as needed. We continued to monitor and improve upon our operational and financial controls during the quarter ended June 30, 2019.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

27

CVD EQUIPMENT CORPORATION

PART II

OTHER INFORMATION

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Not applicable for Smaller Reporting Companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.     

Item 5. Other Information.

None.

Item 6. Exhibits

10.1* West side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.2* East side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.3 Mortgage Modification Agreement, dated August 5, 2019, by and between 555 N Research Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

28

10.4 Reaffirmation of Unlimited Continuing Guaranty, dated August 5, 2019 by and between CVD Equipment Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.5 Note Modification Agreement, dated August 5, 2019, by and between FAE Holdings 411519R and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

31.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019

31.2* Certification of Thomas McNeill, Chief Financial Officer, dated August 13, 2019

32.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* Certification of Thomas McNeill, Chief Financial Officer, dated August 13, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1** XBRL Instance.

101.SCH** XBRL Taxonomy Extension Schema.

101.CAL** XBRL Taxonomy Extension Calculation.

101.DEF** XBRL Taxonomy Extension Definition.

101.LAB** XBRL Taxonomy Extension Labels.

101.PRE** XBRL Taxonomy Extension Presentation.

________________

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

29

SIGNATURES

Pursuant to the requirements 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 13^th day of August 2019.

CVD EQUIPMENT CORPORATION
By:	/s/ Leonard A. Rosenbaum
	Leonard A. Rosenbaum
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Thomas McNeill
	Thomas McNeill
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

30

EXHIBIT INDEX

10.1* West side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.2* East side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.3 Mortgage Modification Agreement, dated August 5, 2019, by and between 555 N Research Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.4 Reaffirmation of Unlimited Continuing Guaranty, dated August 5, 2019 by and between CVD Equipment Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.5 Note Modification Agreement, dated August 5, 2019, by and between FAE Holdings 411519R and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

31.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019

31.2* Certification of Thomas McNeill, Chief Financial Officer, dated August 13, 2019

32.1* Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* Certification of Thomas McNeill, Chief Financial Officer, dated August 13, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1** XBRL Instance.

101.SCH** XBRL Taxonomy Extension Schema.

101.CAL** XBRL Taxonomy Extension Calculation.

101.DEF** XBRL Taxonomy Extension Definition.

101.LAB** XBRL Taxonomy Extension Labels.

101.PRE** XBRL Taxonomy Extension Presentation.

________________

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

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EX-10.1

Exhibit 10.1

LEASE

This Lease made this 31st day of May, 2019 by and between, 555 N RESEARCH CORPORATION, 355 South Technology Drive, Central Islip, New York 11722, hereinafter referred to as “Landlord” and ELM FREIGHT HANDLERS INC., D/B/A ELM GLOBAL LOGISTICS, 50 Emjay Blvd., Brentwood, New York 11717, hereinafter referred to as “Tenant”

 W I T N E S S E T H :

LOCATION:

1. The Landlord, for and in consideration of the rents, covenants, agreements and stipulations hereinafter mentioned, by these presents does hereby lease and rent unto the said Tenant and said Tenant hereby agrees to lease and take upon the terms and conditions which hereinafter appear, the following described property: the west side of the premises located at 555 North Research Place, Central Islip, New York 11722, consisting of +/- 45,000 square feet, as more particularly set forth on Schedule “A” annexed.

COMMENCEMENT OF TERM:

2. The term of this Lease and Tenant's obligation to pay rent shall commence on June 1, 2019.

TERM OF LEASE: 

3. The term of this Lease shall be for One (1) year and one (1) month and will end on June 30, 2020 (“Initial Term”).

LANDLORD'S NON-PERFORMANCE:

4. Anything to this Agreement to the contrary notwithstanding, the Landlord shall not be deemed in default with respect to the performances of any of the terms, covenants and conditions of this Lease if same shall be due to strikes, lockouts, civil commotion, warlike operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service of financing through Act of God or other cause beyond the control of the Landlord.

In the event that Landlord herein shall be delayed or hindered in, or prevented from the performance of any act required hereunder by reason of strike, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the Landlord delayed in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of such delay. The provision of this paragraph shall not operate to excuse Tenant from the prompt payment of rent, additional rent, or any other payments required by the terms of this Lease.

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Landlord shall not be liable for failure to give Tenant possession of the premises on the beginning date of the Term. Rent shall be payable as of the beginning of the Term unless the Landlord is unable to give possession. In that case, rent shall be payable when possession is available. Landlord will notify Tenant as of the date possession is available. The ending date of the term will not change.

RENT:

5. Tenant agrees to pay all rents and additional rents as hereinafter set forth, to Landlord or his agent at the offices of Landlord or his agent, or at such other place designated by Landlord or his agent, without any prior demand therefore and without any deduction or set-off whatsoever.

The Tenant shall pay rent as follows: (i) the annual rent of Four Hundred Twenty-Seven Thousand Five Hundred no/100 ($427,500.00) Dollars, plus additional rent as set forth herein, as an initial Annual Base Rent during the first year of this Lease, (ii) Thirty-Five Thousand Six Hundred Twenty-Five ($35,625.00) Dollars for the thirteenth month of this Lease, plus additional rent as set forth herein, and (iii) thereafter as provided at Article “6.”. Said rent is to be paid in monthly payments in advance on the first day of each and every month during the term aforesaid, as follows: Thirty-Five Thousand Six Hundred Twenty-Five ($35,625.00) Dollars, plus additional rent as set forth herein, during the first year of this Lease, and thereafter as provided at Article “6.”.

OPTION TO RENEW AND ADJUSTED BASE RENT: 

6. Provided Tenant is not in default under any of the other terms and conditions of this Lease, Tenant shall have four (4) options (individually an “Option”) to renew this Lease for consecutive 1-year periods (individually a “Renewal Term”). In order to exercise an Option, Tenant must give Landlord written notice thereof not less than six (6) months before the expiration of the Initial Term or the then expiring Renewal Term, whichever is applicable. Failure to timely exercise any Option automatically terminates any remaining options. When exercising an Option, Tenant shall complete and sign the “Exercise Lease Option” form, annexed hereto as Exhibit “A,” and shall provide such document to Landlord within the required timeframe. Tenant may exercise an Option without using the “Exercise Lease Option” form by notifying Landlord of its intent in writing, signed by the appropriate persons, with substantially the same content as contained in the “Exercise Lease Option” form. In the event Tenant does not use the provided form, Landlord shall acknowledge receipt of Tenant’s exercise; if Tenant does not receive an acknowledgement within two (2) weeks, it will be assumed Landlord did not receive Tenant’s exercise and Tenant should notify Landlord immediately. Any Renewal Term pursuant to an Option shall be on the same terms and conditions as are contained in this Lease, except that (i) the rent shall be adjusted as set forth herein and (ii) there shall be no rent concession. Commencing with the first Renewal Term of this Lease, the Base Rent set forth in Paragraph "5." shall be increased annually, on the commencement date of each Renewal Term (hereinafter referred to as the "Adjustment Date") by three (3%) percent over the Adjusted Base Rent lease year immediately preceding.

TAXES AND COMMON CHARGES:

7. The Tenant shall, as additional rent, pay to the Landlord 25.15 percent of all increases in real estate taxes (including PILOT), during the term of this Lease, including any Renewal Terms, over the base tax year. The base tax year shall be the 2018/2019 tax year. The PILOT Schedule is annexed hereto as Exhibit “C.” Potential increases in taxes are not limited to those shown on the PILOT Schedule.

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The Tenant shall also pay as additional rent the cost of common charges, as set forth in Schedule B, annexed hereto. The Landlord shall bill the Tenant periodically for the aforementioned charge, if any, which shall become due and payable upon receipt of such bill(s).

SECURITY DEPOSIT:

8. As security for the faithful performance by Tenant of all of the terms and conditions of this Lease, Tenant has this day deposited with the Landlord the sum of $71,250.00 which shall be returned to Tenant, without interest within thirty (30) days of the day set forth for the expiration of the later of the Initial Term or the Renewal Term of the last Option exercised herein (notwithstanding this Lease may be sooner terminated) provided, however, that Tenant has fully and faithfully carried out all of the terms, covenants and conditions on its part to be performed. Landlord shall have the right to apply all or any part of said deposit to cure any default of Tenant, and, if Landlord does so, Tenant shall upon demand, deposit with Landlord the amount so applied so that Landlord shall have the full deposit at all times during the term of this Lease.

During the term of this Lease, whenever the rent charges increase Tenant shall promptly deposit such additional sums of money with Landlord so as to at all times maintain a security deposit equivalent to two (2) full months rent.

Tenant's failure to make such deposit within five (5) days after demand by Landlord shall at the option of the Landlord constitute a material breach of this Lease.

TRANSFER OF DEPOSIT:

9. In the event of a sale of the building or lease of the land on which it stands, subject to this Lease, the Landlord shall have the right to transfer this security to the vendee or Tenant and, provided such vendee acknowledges in writing the receipt of the security, the Landlord shall be considered released by the Tenant from all liability for the return of such security and the Tenant shall look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply to every transfer of security deposited under this Lease. This Lease shall not be mortgaged, assigned, or encumbered by the Tenant without the written consent of the Landlord and any attempt to do so shall be void. In the event of any rightful and permitted assignment of this Lease Agreement by Tenant, the said security deposit shall be deemed to be held by Landlord as a deposit made by the assignee, and Landlord, shall have no further liability to the assignor with respect to the return of the said security deposit, but shall return the security deposit, subject to the provisions of Section 8 hereof, to the then-current tenant at the end of the term.

SIGNS:

10. All Tenant's signs must be submitted to Landlord for written approval prior to installation. Tenant may install and maintain a sign advertising its business, provided that Tenant obtains the necessary permits from proper governmental authorities for the erection and maintenance of said sign, and the prior approval and consent of the Landlord as to size, design and location of the sign on the premises. Notwithstanding the foregoing, Tenant shall be permitted to install its sign on Landlord’s property abutting North Research Place (so as to be easily visible to drivers on North Research Place) provided (i) Landlord has full veto authority with regards to aesthetics and size limitation, (ii) such sign does not impair or diminish the right of the Landlord, its subsidiaries and affiliates, or other tenants with regards to their ability to place their own signs on the premises (including the building), (iii) such sign and installation comply with all local laws and codes, and (iv) Tenant is responsible for obtaining and maintaining, at its own cost and expense, any necessary municipal sign permit.

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USE OF PREMISES:

11. The premises shall be used solely for a Warehouse for storage of non-hazardous goods ONLY, and for no other use and for no other purpose. No hazardous liquids, hazardous materials, carcinogens, nor gases shall be permitted to be stored in the demised premises. No assembly, retail sales, showroom, nor any other uses whatsoever are permitted in the demised premises, except as set forth herein. Premises shall not be used for any illegal purposes nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance or increase the rate of insurance on premises, and subject to rights of other Tenant’s Leases. In the event that Tenant (or its agents, employees or invitees) engages in any conduct not authorized by this Lease, in addition to any other remedy at law or equity (including injunctive relief and/or termination of this Lease) Landlord shall be entitled to an additional sum of FIVE HUNDRED ($500.00) DOLLARS per day, as additional rent, for each and every day or portion thereof that Tenant is in violation of this Article after three business days notice to Tenant. Notwithstanding anything to the contrary set forth herein, Landlord acknowledges that some goods which may be stored at the Premises may contain ingredients that are hazardous or carcinogens, but Tenant shall be permitted to store such goods at the Premises provided such goods are stored in compliance with all applicable laws and codes. Notwithstanding anything to the contrary set forth herein, Tenant shall be permitted to use the designated office space within the premises (as depicted in the drawing of Schedule A) for office use by Tenant in connection with Tenant’s warehouse and distribution business and shall be permitted to use the premises for light assembly in connection with Tenant’s warehouse and distribution business, including but not limited to “pick and pack” assembly. Notwithstanding the foregoing, Landlord is under no obligation to provide Tenant with an office space and may remove such office space at any time.

TENANT’S ACCESS:

12. Tenant shall have the right to access and use the premises 24 hours per day, seven days per week, 52 weeks per year, subject to any limitations which may be imposed by the Town of Islip or any other federal, state, or local government. Landlord agrees that Tenant shall have the non-exclusive right to use the driveways on both the east side and the west side of the building of which the premises are a part at all times. Landlord shall keep such driveways in good condition and repair throughout the term of this Lease.

UTILITIES:

13. Tenant shall be solely responsible for and promptly pay all charges for heat, gas, electricity, water, and any other utility used or consumed in the leased premises. Landlord shall at Landlord’s option, either provide submetering, require tenant to setup its own account with the specific utility, or otherwise equitably apportion such charges (such as with regards to gas consumption, calculation may be based upon the actual time that each heating zone is on and therefore consuming gas). Tenant agrees to purchase and pay for the same as additional rent within five (5) days of the tender by Landlord of bills or invoices issued by Landlord for such. In no event shall Landlord be liable for an interruption or failure in the supply of any such utilities to the leased premises.

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LANDLORD'S MAINTENANCE:

14. Landlord agrees to keep in good order, the roof, exterior and structural interior walls, and building-wide systems (exclusive of all glass and/or plate glass). Notwithstanding the foregoing, where damage is caused by the negligence, malfeasance, or nonfeasance of Tenant or its agents, invitees, successors, or assigns, Tenant shall be liable to Landlord for the cost of repairs, as per Section 15 below. Landlord gives to Tenant exclusive control of demised premises and shall be under no obligation to inspect said premises. Tenant shall at once report in writing to Landlord any defective conditions known to him which Landlord is required to repair and failure to so report such defects shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such defect. Notwithstanding any provisions in this Lease to the contrary, Landlord shall not be responsible or liable to Tenant for any injury or damage from acts or omission of persons occupying the property adjoining the leased premises or any part of the building of which the leased premises is a part, or for any injury or damage resulting to the Tenant or its property from bursting, stoppage, or leaking of water, gas, electricity, sewer or steam pipes, or from any structural defect in the roof or exterior walls.

TENANT'S MAINTENANCE:

15. Tenant shall at all times keep the leased premises in good repair at his own expense including maintenance of exterior entrances, all glass, and partition doors, fixtures, equipment and appurtenances thereof (including lighting, heating, electric, and plumbing fixtures, and any air conditioning systems). Any and all repairs and improvements made to the demised premises by Tenant shall be made by duly licensed tradesmen and/or contractors and only with the consent of Landlord and in compliance with building and construction codes, ordinances and statutes. If Landlord is required to make repairs to any portion of the Building by reason of Tenant's negligent act or omission to act, Landlord may add the cost of each such repair to the rent which shall thereafter become due. Such costs shall be collectible as additional rent.

If the sprinkler system or any of its appliances shall be damaged or injured or not in proper working order by reason of any act or omission of Tenant, Tenant’s agents, servants, employees, licensees, or visitors, Tenant shall forthwith restore the same to good working condition at its own expense; and if any bureau, department, or official of the state or city government require or recommend that changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied by reason of Tenant’s business, or the location of Tenant’s partitions, trade fixtures, or other contents of the demised premises, Tenant shall, at Tenant’s expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment. All such work must be performed by a vendor selected or approved by Landlord.

AS IS CONDITION:

16. It is understood and agreed that neither the Landlord nor any agent of the Landlord has made any representations, warranties, or promises with respect either to the premises or as to its use, zoning, or any other thing regarding the same, or as to any other matter relating thereto, except as specifically stated herein or on Schedule A annexed hereto. The Tenant represents that he has inspected the premises, is familiar with it and agrees to take possession pursuant to the Lease "as is" condition at the term commencement date, except as set forth on Schedule A annexed hereto.

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TENANT'S ALTERATION: 

17. Tenant shall not make any alteration, additions or improvements in or to the demised premises or in or to the building of which they form a part, without the prior written consent of the Landlord (such consent shall not be unreasonably withheld), and all work done will be at the sole expense of the Tenant. Such work shall only be done by such Companies and personnel as Landlord in Landlord’s sole discretion may designate. Tenant agrees to carry such Workmen's Compensation and general liability insurance as Landlord may require.

Prior to the commencement of any such alterations, decorations, installations, repairs, additions, improvements or replacements, Tenant shall submit to Landlord, for Landlord's approval, plans and specifications (to be prepared by and at the expense of Tenant) of such proposed alterations, decorations, installations, repairs, additions, improvements or replacements, in detail, satisfactory to Landlord.

No structural alterations, installations, repairs, additions, improvements, replacements or work or any alterations, installations, repairs, additions, improvements, replacement or work to any utility system in or serving the Building or the premises shall be undertaken, started or begun by Tenant, its agents, servants or employees, unless and until Landlord has approved such plans and specifications; and no amendments or additions to such plans and specifications shall be made without the prior written approval of Landlord; provided, however, Landlord's review and/or approval of such plans and specifications or amendments or additions thereto shall not constitute a determination or acknowledgement by Landlord that such plans and specifications comply with applicable laws, rules, orders and regulations of governmental authorities.

All alterations, decorations, additions or improvements (including, but not limited to, paneling, partitions, railings, and the like) except movable trade fixtures, made by either party, shall become the property of the Landlord upon the termination of this Lease, unless Landlord shall elect otherwise, which election shall be made by giving a notice not less than five (5) days prior to the expiration or other termination of this Lease or any renewal or extension thereof. In the event Landlord shall elect otherwise, then such alteration, installation, addition or improvement made by Tenant upon the demised premises as Landlord shall elect shall be removed by Tenant and Tenant shall restore the demised premises to the original condition at Tenant's own cost and expense, prior to the expiration of the term.

Notwithstanding anything to the contrary set forth herein, Landlord acknowledges that Tenant will be installing pallet racking throughout the warehouse portion of the demised premises and Landlord hereby consents to the installation of such pallet racking. Tenant shall not be required to obtain any additional approval from Landlord in connection with the installation, repair or replacement of such pallet racking provided such pallet racking complies with all applicable state and local laws, regulations and codes and Tenant has, at Tenant’s own cost and expense, obtained any necessary municipal permits and certificates prior to such installation. Tenant agrees to repair any damage to the premises caused by the pallet racking, including filling any holes in the floor, prior to expiration of this Lease.

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MECHANIC'S LIENS:

18. The Landlord shall not be liable for any labor or materials furnished or to be furnished to the Tenant upon credit and no Mechanic's or other Lien for any such labor or materials shall attach to or effect the reversion or other estate or interest of the Landlord in and to the leased property. Whenever any Mechanic's Lien shall have been filed against the leased property, based on an act or interest of the Tenant or of anyone claiming through the Tenant, or if any Security Agreement shall have been filed for or affecting any materials, machinery, or fixtures used in the construction, repair, or operation thereof or annexed therein by the Tenant, the Tenant shall immediately take such action by bonding deposit, or payment as will remove the Lien or Security Agreement. If the Tenant has not removed the Lien within 30 days after notice to the Tenant, the Landlord may pay the amount of such Mechanic's Lien or Security Agreement and discharge same by deposit, and the amount so paid on deposit, with interest therein shall be deemed additional rent reserved under this Lease, and shall be payable forthwith with interest at the prevailing rate per annum from the date of such advance, and with the same remedies to the Landlord as in the case of default in the payment of rent as herein provided.

GARBAGE COLLECTION:

19. Tenant shall at its own cost and expense provide for the removal of all of its garbage and refuse by a refuse collection company acceptable to Landlord. The Tenant shall keep the premises clean (to the highest standards as shall be required by Landlord, in Landlord’s sole discretion), both inside and outside at its own expense, and will remove the garbage and other refuse from said premises. The Tenant shall not burn any material or rubbish of any description upon said premises. The Tenant also agrees to keep the area adjoining said warehouse, including the area behind the premises and around the dumpster, free from rubbish, dirt, ashes, garbage, and all other refuse. Tenant agrees to keep all accumulated rubbish in covered containers and to have same removed regularly, and to store the same in those areas designated by the Landlord from time to time for the storage of rubbish awaiting collection. In the event the Tenant fails to keep the demised premises and other portions heretofore described in the proper condition, the Landlord may cause the same to be done for the Tenant and the Tenant hereby agrees to pay the expenses thereof plus a service charge of fifteen (15%) percent on demand as additional rent.

SIDEWALKS:

20. The Tenant shall neither encumber nor obstruct the sidewalks adjoining said premises nor allow the same to be obstructed or encumbered in any manner. The Tenant shall not place or cause to be placed anything on the sidewalks or exterior of premises without written consent of the Landlord.

LATE CHARGES: 

21. Notwithstanding any other provisions contained in this Lease and in addition to any and all rights and remedies of the Landlord, Tenant shall pay as additional rent a late charge equivalent to five (5%) percent of any rent or other payment that is not paid within five (5) days of its due date, but no less than Five Hundred ($500.00) Dollars in each case of late payment, after three calendar days notice to Tenant.

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FIRE DAMAGE: 

22. If all or part of the leased premises is damaged or destroyed by fire or other casualty, this Lease and all of its terms, covenants and conditions shall, subject to the provisions hereinafter set forth, continue in full force and effect, and Landlord shall promptly repair such damage at Landlord’s sole cost and expense. Notwithstanding the foregoing, if such damage, in whole or in part, results from the negligence, malfeasance, or nonfeasance of Tenant or its agents, invitees, successors, or assigns, Tenant shall be liable for such damages and repairs.

In the event that the damage to the leased premises or to the premises of which the leased premises is a part is so extensive as to amount practically to the total destruction of the leased premises or the building, and either Landlord or Tenant may elect to terminate this Lease by giving written termination notice to the other party within sixty days after the occurrence of the destruction., and in such event, this Lease shall cease and the rent shall be apportioned to the time of the destruction, unless such destruction, in whole or in part, was the result of the negligence, malfeasance, or nonfeasance of Tenant or its agents, invitees, successors, or assigns. For the purpose of this paragraph, damage to fifty (50%) percent or more of the rentable area of the leased premises or the building (notwithstanding that the leased premises may not be damaged) shall be deemed total destruction of the premises.

Tenant acknowledges and agrees that Landlord will not carry insurance of any kind on Tenant's inventory, furniture and furnishings or any trade fixture, equipment, improvements, or appurtenances removable by Tenant under the provisions of this Lease, and that Landlord shall not be obligated to repair any damage thereto or replace the same.

Nothing herein contained shall relieve Tenant from any liability to Landlord or to its insurer in connection with any damage to the demised premises, or the building in which it is located, by fire or other casualty if Tenant shall be deemed legally liable in such respect.

The provisions of this section shall be considered as the express agreement governing any case of damage or destruction of the premises by fire or other casualty.

LIABILITY INSURANCE:

23. Tenant shall, during the entire term hereof, keep in full force and effect a policy of public liability and property damage insurance with respect to the leased premises, and the business operated by Tenant in the leased premises in which the limit of public liability shall not be less than Two Million ($2,000,000.00) Dollars per accident, and property damage liability shall not be less than One Million ($1,000,000.00) Dollars. The policy shall, in addition to naming Tenant insured, shall name Landlord and any person, firms, or corporations designated by Landlord as additional insureds on primary, non-contributory basis including waiver of subrogation applicable to General Liability & Umbrella/Excess Liability, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Landlord ten (10) days prior written notice. The insurance shall be in an insurance company approved by Landlord, and a copy of the policy or a certificate of insurance shall be delivered to Landlord within ten (10) days after the execution of this Lease. Upon a failure, after demand, of the Tenant to obtain the insurance policy described hereinabove, the Landlord is hereby authorized to obtain a policy of insurance in the limits set forth hereinabove on behalf of the Tenant and the premium for such policy shall be due and payable with the next installment of rent.

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Tenant agrees that it will not keep, use or offer for sale in or upon the leased premises any article which may be prohibited by the standard form of fire insurance policy. Tenant agrees to pay any increase in premium for fire and extended coverage insurance that may be charged during the term of this Lease on the amount of such insurance which may be carried by Landlord on said premises or the building of which they are a part, resulting from the type of merchandise sold by Tenant in the leased premises, whether or not Landlord has consented to same.

In the event the Tenant's occupancy causes any increase in premium of the Landlord's insurance rate and premium, the Tenant agrees to reimburse Landlord to the extent of such increase rate and premium. The Tenant also shall pay in such event any additional premium on the rent insurance policy that may be carried by the Landlord for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Landlord and shall be collectible as additional rent.

Tenant will indemnify Landlord and save it harmless from and against any kind and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the leased premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, tenants, or concessionaires. In case Landlord shall, without fault on its part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses, and reasonable attorney's fees incurred or paid by Landlord in connection with such litigation. Tenant shall also pay all costs, expenses and reasonable attorney's fees that may be incurred or paid by Landlord in enforcing the covenants and agreements in this Lease.

PLATE GLASS INSURANCE:

24. Tenant shall from the date that Tenant enters into possession of the demised premises, at its own cost and expense provide and keep all plate and other glass insurance. In the event that Tenant fails to comply, then Landlord may secure such insurance on behalf of the Tenant and Tenant agrees to pay premiums when rendered as additional rent. Tenant shall have the right to self-insure with regards to glass insurance, but Tenant shall not be relieved of its obligations to promptly, at its own cost and expense, replace any and all broken glass at the demised premises.

CONDEMNATION:

25. In the event that the whole of the building or the property upon which it is located shall be lawfully condemned or taken in any manner for any public or quasi-public use, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of the actual taking. In the event of a condemnation or taking of a substantial part of the demised premises so as to destroy the usefulness of the premises for the purpose for which the premises were leased, Tenant and Landlord shall each have the right, by delivery of notice in writing to the other within thirty (30) days after the vesting of title, to terminate this Lease and the term and estate hereby granted as of the date of actual vesting of title.

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PARTIAL CONDEMNATION:

26. In the event of a partial condemnation which is not substantial enough to destroy the usefulness of the premises for the purposes for which they were leased, or in the event the Lease shall not be terminated within the time hereinabove limited, Landlord shall promptly, but subject to reasonable delays, restore the demised premises to an architectural unit as nearly like its condition prior to such taking as shall be practicable, not including Tenant's fixtures, furnishing, floor coverings, equipment, stock, or other personalty, and this Lease shall continue in full force and effect, except that, effective as of the date of actual taking, the fixed minimum rent shall be diminished by the amount representing the part of said rent applicable to that portion, if any, of the demised premises which is so condemned or taken.

In the event of termination in any of the cases hereinabove provided, this Lease and the term and estate hereby granted shall expire as of each taking in the same manner and with the same effect as if that were the date hereinbefore set for the expiration of the term of this Lease, and the rent shall be apportioned as of such date.

CONDEMNATION PROCEEDING:

27. In the event of any condemnation or taking, whether or not this Lease shall be terminated, Landlord shall be entitled to receive the entire award in the condemnation proceeding without deduction therefrom for any estate vested by this Lease in Tenant, and Tenant shall receive no part of such award. Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in or to any such award or any part thereof.

NON-ASSIGNMENT:

28. This Lease may not be assigned nor shall any portion of the demised premises be sublet without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, so long as the use of the leased premises shall remain unchanged. For the purposes of this lease, the sale, voluntary transfer, or involuntary transfer of more than forty-nine percent of the ownership of the entity designated as Tenant shall be deemed an assignment of Lease. In the event Bill Conboy, Guarantor, no longer has a controlling ownership share of the entity designated as Tenant, the sale, voluntary transfer, or involuntary transfer of forty-nine percent or less of the ownership of the entity designated as Tenant shall be deemed an assignment of Lease. In the event of the voluntary sale of Tenant’s business (or substantially all of its assets or ownership interests) or its voluntary merger with another company, Landlord shall not unreasonably withhold its consent to an assignment of this lease, or a subletting of the leased premises, to the buyer of the business (or ownership interest), so long as the use of the leased premises shall remain unchanged. In the event that Landlord consents to any assignment, Tenant shall nonetheless remain jointly and severally liable together with the assignee, with regard to all Tenant obligations under this Lease.

REMOVAL: 

29. Tenant may (if not in default hereunder) prior to the expiration of this Lease or any extension thereof, remove all trade fixtures and equipment which he has placed in premises, provided Tenant repairs all damage to premises caused by such removal.

All alterations, decorations, additions or improvements made by the Tenant, or made by the Landlord on the Tenant's behalf by agreement under the Lease, shall remain the property of the Tenant for the term of the Lease or any extension or renewal thereof. Such alterations, decorations, additions and improvements shall not be removed from the premises without prior consent in writing from the Landlord.

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If after default in payment of rent or violation of any other provisions of this Lease, or upon the expiration of this Lease, the Tenant moves out or is dispossessed and fails to remove any trade fixture, signs or other property prior to such said default, removal, expiration of Lease, or prior to the issuance of warrant, then and in that event, the said fixtures, signs and property shall be deemed abandoned by Tenant and shall become the property of the Landlord, or Landlord may notify Tenant to remove same at Tenant's expense, and upon the failure of Tenant so to do, Landlord may, in addition to any other remedies available to it, remove said property as the duly authorized agent of Tenant, and store the same in the name and at the expense of Tenant or those claiming through or under any usual or proper form of warehouse receipt, whether or not authorizing the sale of said goods for non-payment of storage charges, without in any way being liable for trespass, conversion or negligence by reason of the acts of Landlord or anyone claiming under it or by reason of the negligence of any person in caring for such property while in storage, and Tenant will pay to Landlord upon demand any and all expenses and charges incurred upon such removal, irrespective of the length of time of storage.

BANKRUPTCY:

30. If at any time prior to the commencement date of this Lease, or during any time thereafter, there shall be filed by or against Tenant in any Court pursuant to any statute either of the United States or of any state a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, and within thirty (30) days thereof Tenant fails to secure a discharge thereof or if Tenant makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, this Lease shall be deemed canceled and terminated, in which event neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or of an order of any Court shall be entitled to possession of the demised premises, and Landlord in addition to the other rights and remedies given herein and by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security, deposit, or money received by Landlord from Tenant or others in behalf of Tenant.

It is stipulated and agreed that in the event of the termination of this Lease pursuant to the above paragraph, Landlord shall forthwith notwithstanding any other provisions of this Lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the demised term and the then fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of three (3%) percent per annum. If such premises or any part thereof be re-let by the Landlord for the unexpired term of said Lease or any part thereof before presentation of proof of such liquidated damages to any Court, commission or tribunal, the amount of rent reserved upon such re-letting shall be deemed prima facie to be the fair and reasonable rental value for the part of the whole of the premises so re-let. Nothing herein contained shall limit or prejudice the right of the Landlord to prove and obtain as liquidated damages an amount equal to the maximum allowed by any statute or rule of law in effect at the time the proceedings in which such damages are to be proved, whether or not such amount be greater than, equal to, or less than the amount of the difference referred to above.

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RIGHT TO TERMINATE: 

31. (a) If Tenant shall default in the payment of any rent or other payments required of Tenant or any part thereof, and if Tenant fails to cure such default within five (5) days of notice to Tenant, or (b) if Tenant shall default in the performance of any other agreements or condition on its part to be performed, and if Tenant shall fail to cure said default within ten (10) days after notice of said default from Landlord, or (c) if any person shall levy upon, take, or attempt to take this leasehold interest or any part thereof upon execution, attachment or other process of law, or (d) if Tenant shall default with respect to any other Lease between it and Landlord which would entitle Landlord to cancel such other Lease, or (e) if Tenant shall fail to move into and take possession of the demised premises and open for business within thirty (30) days after substantial completion of the work by Landlord, then, in any of said cases (notwithstanding any license or any former breach of agreement or condition or waiver of the benefit hereof or consent in a former instance) Landlord lawfully may within thirty (30) days, or any time thereafter that such default remains uncured and without any further notice or demand, terminate this Lease and Tenant must forthwith quit and surrender the demised premises, but Tenant shall remain liable as hereinafter provided. Tenant may request an extension to cure any such default and Landlord may, in its sole discretion, grant such an extension, provided such extension shall only be effective if agree to in writing by Landlord.

LANDLORD'S REMEDIES:

32. If this Lease shall be terminated, as provided hereinabove: The Landlord may immediately, or any time thereafter, re-enter and resume possession of the demised premises and remove all persons and property therefrom either by summary dispossess proceedings or by a suitable action or proceeding at law or in equity, or by force or otherwise without being liable for any damages therefor. No re-entry by the Landlord shall be deemed an acceptance of a surrender of this Lease. The Landlord may re-let the whole or any part of the demised premises for a period equal to, or greater, or less than the remainder of the then term of this Lease, at such rental and upon such terms and concessions as the Landlord, shall deem reasonable, to any Tenant or Tenants which it may deem suitable and satisfactory for any use and purpose which it may deem appropriate. In no event shall the Landlord be liable in any respect for failure to re-let the demised premises or in the event of such re-letting for failure to collect the rent thereunder. Any sums received by the Landlord on a re-letting in excess of the rent reserved in this Lease shall belong to the Landlord.

In addition to any other rights or remedy which may be available, Landlord may, in the event of a breach or threatened breach on the part of the Tenant with respect to any of the covenants, agreements, terms, provisions or conditions on the part of or on behalf of Tenant to be kept, observed or performed, Landlord shall also have the right of injunction. The specified remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may lawfully be entitled at any time, and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not herein provided for.

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Tenant hereby waives a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the leased premises, and/or any claim of injury or damage.

In the event Landlord commences any proceedings for non-payment of rent, Tenant shall not interpose any counterclaim of whatever nature or description in any such proceedings. This shall not, however, be construed as a waiver of the Tenant's right to assert such claims in any separate action or actions brought by Tenant.

ACCESS TO PREMISES:

33. Landlord, its agents and representatives, may place a “For Sale” sign or a "For Rent" sign on the demised premises at any time. Landlord, its agents and representatives, may enter the premises at any reasonable time and upon reasonable notice to exhibit same to prospective purchasers or during the last six months of this lease to prospective Tenants; to inspect, repair, or maintain the premises; to inspect, repair, or maintain Landlord's adjoining property, if any; or at any time in case of emergency. Neither Tenant nor its agents or representatives shall replace, modify or add any lock to any door connecting the demised premises with the adjoining premises.

COLLECTION OF RENT:

34. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior or subsequent to the termination thereof.

TENANT'S CERTIFICATION:

35. Tenant agrees that at any time and from time to time within ten business (10) days following written notice from Landlord it will execute, acknowledge and deliver to Landlord or any proposed mortgagee or purchaser a statement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications), that there are no defenses or offsets thereto and the dates to which the rent and other charges have been paid in advance, if any, and stating whether or not the Landlord is in default in the performance of any covenant agreement, or condition contained in this Lease, and, if so, specifying each such default, it being intended that any such statement delivered pursuant to this section may be relied upon by any prospective purchaser of the fee or any mortgagee thereof or any assignee of any mortgage upon the fee of the demised premises.

The failure of the Tenant to execute, acknowledge and deliver to the Landlord a statement in accordance with the foregoing provisions of this section within the said ten (10) day period shall constitute an acknowledgment by the Tenant to any person entitled as aforesaid to rely thereupon that this Lease is unmodified and in full force and effect and that the rent and other charges have been duly and fully paid to and including the respective due dates immediately preceding the date of such notice and shall constitute a waiver of any defaults prior to the date of such notice.

 

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SUBORDINATION:

36. At the option of the Landlord or any successor Landlord or the holder of any mortgage affecting the fee of the demised premises, Tenant agrees that this Lease shall be subject and subordinate at all times to all ground Leases and underlying Leases, and to all mortgages, in any amounts, and all advances thereon which may now or hereafter affect such Leases, or the real property of which the premises form a part, and Tenant further agrees neither foreclosure of the mortgage affecting the fee title of the demised premises, nor the institution of any suits, actions, or other proceedings by the Landlord herein or any successor Landlord, or any foreclosure proceeding brought by the holder of any mortgage to recover possession of the leased property, shall by operation of law or otherwise result in the cancellation or termination of this Lease or the obligation of the Tenant hereunder, and Tenant covenants and agrees to attorn to the Landlord or to any successor to the Landlord's interest in the demised premises, or to such holder of such mortgage or to the purchaser of the mortgaged premises in foreclosure. This Lease is subject and subordinate to all mortgages which may now or hereafter affect such leases or the real property of which the demised premises form a part and to all renewals, modifications, consolidations, replacement and extension thereof. This clause shall be self-operative. In confirmation of such subordination Tenant shall execute promptly any certificate that Landlord or mortgagee may request. Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificates or certificate for and on behalf of Tenant.

The Tenant, upon request of any party in interest, shall execute promptly such instruments or certificates to carry out the intent of paragraph “35.” and paragraph “36.” above as shall be requested by the Landlord. Tenant’s failure to execute and deliver such instruments or certificates to Landlord within fifteen (15) days after the date of a written request by Landlord shall be deemed a material breach of this lease.

MONTH-TO-MONTH OCCUPANCY:

37. If the Tenant shall occupy said premises with the consent of the Landlord after the expiration of this Lease and rent is accepted from said Tenant, such occupancy and payment shall be construed as an extension of this Lease for the term of one (1) month only from the date of such expiration, and occupancy thereafter shall operate to extend the term of this Lease but for one (1) month at a time unless other terms of such extension are endorsed hereon in writing and signed by the parties hereto. In such event, if either Landlord or Tenant desires to terminate said occupancy at the end of any month after the termination of this Lease, the party so desiring to terminate the same shall give the other party at least thirty (30) days written notice to that effect. Failure on the part of the Tenant to give such notice shall obligate it to pay rent for an additional calendar month following the month in which the Tenant has vacated the demised premises. If such occupancy continues without the consent of the Landlord, Tenant shall pay to the Landlord as liquidated damages double the amount of rent at the highest rate specified in this Lease for the time Tenant retains possession of the premises or any part thereof after termination of the term by lapse of time or otherwise.

38. RESERVED

RIGHT OF REDEMPTION:

39. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not restrictive to those given by law.

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Tenant hereby expressly waives any and all rights of redemption (after actual eviction) granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause or in the event of Landlord obtaining possession of the leased premises by reason of the violation by Tenant of any of the covenants or conditions of this Lease, or otherwise.

SERVICE OF NOTICE:

40. Tenant hereby appoints as his agent to receive service of all dispossessory or distraint proceedings and notice thereunder and all notices required under this Lease, the person in charge of leased premises or any employee on premises; and if no person is in charge of or occupying said premises, then such service of notice may be made by attaching the same on the main entrance of said premises, a copy of all notices under this Lease shall also be sent to Tenant's last known address, if different from said premises.

Any notice by Tenant to Landlord must be served by certified or registered mail, postage prepaid addressed to Landlord at the address first hereinabove given or at such other address as Landlord may designate by written notice.

NO WAIVER:

41. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with his or its obligation hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof.

It is understood and agreed by the parties hereto that this Lease contains all the covenants, agreements, terms, provisions, and conditions relating to the leasing of the demised premises, and that the Landlord has not made and is not making and the Tenant in executing and delivering this Lease is not relying upon any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease.

BROKER:

42. Tenant represents and warrants to Landlord that Tenant has not hired, retained or dealt with any real estate broker, firm or salesman in connection with the transaction contemplated by this Lease, except Greiner-Maltz Company of Long Island, LLC. and Ashlind Properties, and purchaser will indemnify and hold Landlord harmless from any and all claims for brokerage fees or other commissions which may at any time be asserted against Landlord founded upon a claim that the aforesaid representation and warranty of Tenant is untrue, together with any and all losses, damages, costs, and expenses (including reasonable attorneys' fees and disbursements) relating to such claims or arising therefrom or incurred by Landlord in connection with the enforcement of this indemnification provision.

CONSTRUCTION LICENSE:

43. If any excavation shall be made upon land adjacent to the leased premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the leased premises for the purpose of doing such work as Landlord shall deem necessary to preserve the wall of the building of which the leased premises form a part from injury or damage and to support the same by proper foundations, without any claim for damages of indemnification against Landlord for diminution or abatement of rent.

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TENANT'S LIABILITY:

44. Tenant shall be responsible for and shall pay before delinquency all municipal, county or state taxes assessed during the term of this Lease against any personal property of any kind owned by or placed in, upon or about the leased premises by the Tenant.

LANDLORD'S LIABILITY:

45. Landlord shall not be liable for any damage to property of Tenant or of others located on the leased premises, nor for the loss of or damage to any property of Tenant or of others by theft or otherwise. Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, nor of leaks.

QUIET ENJOYMENT:

46. The Landlord covenants the Tenant, upon payment of the rent and additional rent above reserved, upon the due performance of the covenants and agreements herein contained, shall and may at all times during the term hereby granted, peaceably and quietly have, hold and enjoy the demised premises for the term of this Lease. However, the Landlord, shall have no liability whatsoever to the Tenant for any breach of this covenant occasioned by the acts or omissions of any transferee, successor, or assignee of the Landlord.

CURING TENANT'S DEFAULT:

47. If the Tenant shall default in the performance of any covenants or conditions in this Lease required to be performed by the Tenant, the Landlord may, after five business (5) days notice to the Tenant, or without notice, if, in the Landlord's opinion, an emergency exists, perform such covenant, or condition for the account and at the expense of the Tenant. If the Landlord shall incur any expense, including reasonable attorney's fees, in instituting, prosecuting or defending any action or proceeding instituted by reason of any default of the Tenant the Tenant shall reimburse the Landlord for the amount of such expense. Should the Landlord, pursuant to the Lease, become obligated to reimburse or otherwise pay its Landlord any sum of money in addition to the specific rent, the amount thereof shall be deemed additional rent and may, at the option of the Landlord, be added to any subsequent installment of the specific rent due and payable under this Lease, in which event, the Landlord shall have the remedies for default in the payment thereof provided by this Lease. The provisions of this paragraph shall survive the termination of this Lease.

TENANT'S OBLIGATIONS:

48. That the Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State, and Local Governments and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with said premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the New York Board of Fire Underwriters, or any other similar body, at Tenant's own cost and expense. The Tenant assumes all legal responsibility for the acts and conduct of its agents, employees and visitors, and will not violate any laws, rules or regulations of the premises.

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Tenant agrees that at all times during the term of this Lease it shall at its own cost and expense:

a) Keep the demised premises and signs in good, neat and clean condition.

b) Load and unload its merchandise, equipment and supplies only during hours specified by Landlord and will not park trucks or delivery vehicles outside the demised premises so as to unreasonably interfere with the use of any driveways, walks, roadways, highways, streets, or parking areas.

c) Permit no act or practice which may tend to injure the demised premises and the appurtenances of the building or any equipment or display located thereon or be a nuisance to other Tenants; nor keep merchandise on or obstruct the driveways, walks, roadways, highways, streets, parking areas, or other areas outside the demised premises; nor conduct or permit any fire, bankruptcy auction, or "going out of business" sales; nor change the exterior lighting; nor permit any loudspeakers, sound amplifiers, phonographs, radio or television broadcasts, etc. to be heard outside the demised premises; nor use any advertising medium that may constitute a nuisance; nor perform any act or carry on any practice which may damage, mar, or deface the demised premises or any other part of the building; nor change (whether by alteration, replacement, rebuilding, or otherwise) the exterior color and/or architectural treatment of the demised premises or of the building in which the same are located, or any part thereof.

d) Obtain and maintain in effect all permits and licenses necessary for the operation of Tenant's business as herein provided.

e) The Tenant further agrees as follows:

1) No aerial shall be erected on the roof or exterior walls of the premises or on the grounds without first obtaining in each instance the written consent of the Landlord (permission shall not be unreasonably withheld). Any aerial so installed without such written permission shall be subject to removal at Tenants expense without notice at any time.

2) Tenant shall keep the premises at a temperature sufficiently high to prevent freezing of water in pipes and fixtures.

3) The plumbing facilities shall not be used for any other purpose than that for which they are constructed and no foreign substance of any kind shall be thrown therein; and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant who shall, or whose employees, agents or invitees shall have caused it.

4) Neither Tenant nor Tenant's employees or agents shall solicit business in the common use areas or distribute any handbills or other advertising matter in such areas.

5) Tenant parking shall be limited to eight (8) parking spaces.

f) To comply with all further rules and regulations for the use and occupancy of the building as Landlord, in its sole discretion, from time to time promulgates. Landlord shall have no liability for violation by any other Tenant of the building or any rules or regulations nor shall such violations or the waiver thereof excuse Tenant from compliance.

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g) Tenant shall maintain and replace, if necessary, the plumbing, septic, heating, ventilation and air conditioning systems and equipment.

h) The Tenant shall, at the termination of this tenancy, at its own expense, repair any damage to the premises resulting from the tenancy.

LEGAL FEES

49. In the event any action is taken to enforce any of the provisions of this Agreement (including, but not limited to: summary proceedings; collection proceedings; or any other actions or proceedings at law or in equity) then the unsuccessful Party shall pay to the other the costs, reasonable fees and expenses of legal counsel incurred in taking such action. In those instances where Landlord is the successful party, such fees, costs and expenses shall be deemed additional rent.

ENTIRE AGREEMENT

50. This Lease contains the entire agreement between the parties and shall not be modified in any manner except by an instrument in writing executed by the parties. If any term or provision of this Lease, or the application thereof, to any person or circumstances shall to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

The Parties hereto represent and warrant that they are duly organized under the laws of the State of New York, that they are in good standing and not in violation of any laws thereof. The Parties hereto further represent and warrant that they are duly authorized to enter into this Lease and that each person executing this Lease is duly authorized to do so by their respective companies.

BINDING EFFECT:

51. All rights and liabilities herein given to or imposed upon the respective parties herein shall extend to and bind the several respective heirs, executors, administrators, successors and assigns of the said parties; and if there shall be more than one Tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to the benefit of any assignee of Tenant unless the assignment to such assignee has been approved by Landlord in writing as provided herein.

CAPTIONS: 

52. The captions, section numbers, article numbers, etc. appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles of this Lease nor in any way affect this Lease.

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NON-OFFER:   

53. The submission of this Lease for examination does not constitute an offer to Lease, a reservation of, or option for the leased premises, and this Lease becomes effective as a Lease only upon execution and delivery thereof by Landlord to Tenant.

RENT CONCESSION:

54. Provided that Tenant shall not default pursuant to the terms of this Lease, Landlord hereby waives rent for the month of June 2020.

LIMITATION OF LANDLORD'S LIABILITY:

55. If the Landlord or any successor in interest be an individual, joint venture, tenancy in common, co-partnership, unincorporated association, or other unincorporated aggregate of individuals, then anything elsewhere to the contrary notwithstanding, Tenant shall look solely to the interest and property of Landlord in the land and building of which the leased premises are a part for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of the Lease to be observed and/or performed by Landlord, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies.

PAYMENTS:

56. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent (including additional rent) herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check be deemed an accord and satisfaction, and Landlord may accept any such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for in this Lease or otherwise available at law.

In the event rent is paid by check, same shall be subject to collection, and in the event that any check is not honored for payment, for any reason whatsoever, the Tenant agrees to forthwith pay an amount equal to the amount of said check by certified check, bank check, money order, or cash, together with the sum of Fifty ($50.00) Dollars to the defray Landlord's expenses as a result thereof. In the event any further checks of the Tenant shall subsequently not be honored for payment, then the charge for each of such subsequent checks shall be the sum of One Hundred ($100.00) Dollars. These charges shall be deemed additional rent reserved and shall be collectible with the same remedies as available in the event of nonpayment of rent. Additionally, in the event two or more checks shall not be honored for payment, for any reason whatsoever, at Landlord's option all future payments which shall come due throughout the balance of the term of this Lease shall be by certified check, bank check, money order, or cash only.

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this 31^st day of May, 2019

555 N RESEARCH CORPORATION		ELM FREIGHT HANDLERS INC., D/B/A ELM GLOBAL LOGISTICS
(Landlord)		(Tenant)
BY:	/S/ Leonard A. Rosenbaum	BY:	/S/ Joseph W. Conboy
	Leonard A. Rosenbaum, President		Joseph W. Conboy, President

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EX-10.2

Exhibit 10.2

LEASE

This Lease made this 31^st day of May, 2019 by and between, 555 N RESEARCH CORPORATION, 355 South Technology Drive, Central Islip, New York 11722, hereinafter referred to as “Landlord” and ELM FREIGHT HANDLERS INC., D/B/A ELM GLOBAL LOGISTICS, 50 Emjay Blvd., Brentwood, New York 11717, hereinafter referred to as “Tenant”

 W I T N E S S E T H :

LOCATION:

1. The Landlord, for and in consideration of the rents, covenants, agreements and stipulations hereinafter mentioned, by these presents does hereby lease and rent unto the said Tenant and said Tenant hereby agrees to lease and take upon the terms and conditions which hereinafter appear, the following described property: the east side of the premises located at 555 North Research Place, Central Islip, New York 11722, consisting of +/- 40,000 square feet, as more particularly set forth on Schedule “A” annexed.

COMMENCEMENT OF TERM:

2. The term of this Lease and Tenant's obligation to pay rent shall commence on July 1, 2019.

TERM OF LEASE: 

3. The term of this Lease shall be for One (1) year and will end on June 30, 2020 (“Initial Term”).

LANDLORD'S NON-PERFORMANCE:

4. Anything to this Agreement to the contrary notwithstanding, the Landlord shall not be deemed in default with respect to the performances of any of the terms, covenants and conditions of this Lease if same shall be due to strikes, lockouts, civil commotion, warlike operation, invasion, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, inability to obtain any material, service of financing through Act of God or other cause beyond the control of the Landlord.

In the event that Landlord herein shall be delayed or hindered in, or prevented from the performance of any act required hereunder by reason of strike, lockouts, labor troubles, inability to procure materials, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the Landlord delayed in performing work or doing acts required under the terms of this Lease, then performance of such act shall be excused for the period of such delay. The provision of this paragraph shall not operate to excuse Tenant from the prompt payment of rent, additional rent, or any other payments required by the terms of this Lease.

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Landlord shall not be liable for failure to give Tenant possession of the premises on the beginning date of the Term. Rent shall be payable as of the beginning of the Term unless the Landlord is unable to give possession. In that case, rent shall be payable when possession is available. Landlord will notify Tenant as of the date possession is available. The ending date of the term will not change.

RENT:

5. Tenant agrees to pay all rents and additional rents as hereinafter set forth, to Landlord or his agent at the offices of Landlord or his agent, or at such other place designated by Landlord or his agent, without any prior demand therefore and without any deduction or set-off whatsoever.

The Tenant shall pay rent as follows: (i) the annual rent of Three Hundred Eighty Thousand ($380,000.00) Dollars, plus additional rent as set forth herein, as an initial Annual Base Rent during the first year of this Lease and (ii) thereafter as provided at Article “6.”. Said rent is to be paid in monthly payments in advance on the first day of each and every month during the term aforesaid, as follows: Thirty-One Thousand Six Hundred Sixty-Six and 67/100 ($31,666.67) Dollars, plus additional rent as set forth herein, during the first year of this Lease, and thereafter as provided at Article “6.”.

OPTION TO RENEW AND ADJUSTED BASE RENT: 

6. Provided Tenant is not in default under any of the other terms and conditions of this Lease, Tenant shall have four (4) options (individually an “Option”) to renew this Lease for consecutive 1-year periods (individually a “Renewal Term”). In order to exercise an Option, Tenant must give Landlord written notice thereof not less than six (6) months before the expiration of the Initial Term or the then expiring Renewal Term, whichever is applicable. Failure to timely exercise any Option automatically terminates any remaining options. When exercising an Option, Tenant shall complete and sign the “Exercise Lease Option” form, annexed hereto as Exhibit “A,” and shall provide such document to Landlord within the required timeframe. Tenant may exercise an Option without using the “Exercise Lease Option” form by notifying Landlord of its intent in writing, signed by the appropriate persons, with substantially the same content as contained in the “Exercise Lease Option” form. In the event Tenant does not use the provided form, Landlord shall acknowledge receipt of Tenant’s exercise; if Tenant does not receive an acknowledgement within two (2) weeks, it will be assumed Landlord did not receive Tenant’s exercise and Tenant should notify Landlord immediately. Any Renewal Term pursuant to an Option shall be on the same terms and conditions as are contained in this Lease, except that (i) the rent shall be adjusted as set forth herein and (ii) there shall be no rent concession. Commencing with the first Renewal Term of this Lease, the Base Rent set forth in Paragraph "5." shall be increased annually, on the commencement date of each Renewal Term (hereinafter referred to as the "Adjustment Date") by three (3%) percent over the Adjusted Base Rent lease year immediately preceding.

TAXES AND COMMON CHARGES:

7. The Tenant shall, as additional rent, pay to the Landlord 22.36 percent of all increases in real estate taxes (including PILOT), during the term of this Lease, including any Renewal Terms, over the base tax year. The base tax year shall be the 2018/2019 tax year. The PILOT Schedule is annexed hereto as Exhibit “C.” Potential increases in taxes are not limited to those shown on the PILOT Schedule.

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The Tenant shall also pay as additional rent the cost of common charges, as set forth in Schedule B, annexed hereto. The Landlord shall bill the Tenant periodically for the aforementioned charge, if any, which shall become due and payable upon receipt of such bill(s).

SECURITY DEPOSIT:

8. As security for the faithful performance by Tenant of all of the terms and conditions of this Lease, Tenant has this day deposited with the Landlord the sum of $63,333.34 which shall be returned to Tenant, without interest within thirty (30) days of the day set forth for the expiration of the later of the Initial Term or the Renewal Term of the last Option exercised herein (notwithstanding this Lease may be sooner terminated) provided, however, that Tenant has fully and faithfully carried out all of the terms, covenants and conditions on its part to be performed. Landlord shall have the right to apply all or any part of said deposit to cure any default of Tenant, and, if Landlord does so, Tenant shall upon demand, deposit with Landlord the amount so applied so that Landlord shall have the full deposit at all times during the term of this Lease.

During the term of this Lease, whenever the rent charges increase Tenant shall promptly deposit such additional sums of money with Landlord so as to at all times maintain a security deposit equivalent to two (2) full months rent.

Tenant's failure to make such deposit within five (5) days after demand by Landlord shall at the option of the Landlord constitute a material breach of this Lease.

TRANSFER OF DEPOSIT:

9. In the event of a sale of the building or lease of the land on which it stands, subject to this Lease, the Landlord shall have the right to transfer this security to the vendee or Tenant and, provided such vendee acknowledges in writing the receipt of the security, the Landlord shall be considered released by the Tenant from all liability for the return of such security and the Tenant shall look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply to every transfer of security deposited under this Lease. This Lease shall not be mortgaged, assigned, or encumbered by the Tenant without the written consent of the Landlord and any attempt to do so shall be void. In the event of any rightful and permitted assignment of this Lease Agreement by Tenant, the said security deposit shall be deemed to be held by Landlord as a deposit made by the assignee, and Landlord, shall have no further liability to the assignor with respect to the return of the said security deposit, but shall return the security deposit, subject to the provisions of Section 8 hereof, to the then-current tenant at the end of the term.

SIGNS:

10. All Tenant's signs must be submitted to Landlord for written approval prior to installation. Tenant may install and maintain a sign advertising its business, provided that Tenant obtains the necessary permits from proper governmental authorities for the erection and maintenance of said sign, and the prior approval and consent of the Landlord as to size, design and location of the sign on the premises. Notwithstanding the foregoing, Tenant shall be permitted to install its sign on Landlord’s property abutting North Research Place (so as to be easily visible to drivers on North Research Place) provided (i) Landlord has full veto authority with regards to aesthetics and size limitation, (ii) such sign does not impair or diminish the right of the Landlord, its subsidiaries and affiliates, or other tenants with regards to their ability to place their own signs on the premises (including the building), (iii) such sign and installation comply with all local laws and codes, and (iv) Tenant is responsible for obtaining and maintaining, at its own cost and expense, any necessary municipal sign permit.

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USE OF PREMISES:

11. The premises shall be used solely for a Warehouse for storage of non-hazardous goods ONLY, and for no other use and for no other purpose. No hazardous liquids, hazardous materials, carcinogens, nor gases shall be permitted to be stored in the demised premises. No assembly, retail sales, showroom, nor any other uses whatsoever are permitted in the demised premises, except as set forth herein. Premises shall not be used for any illegal purposes nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance or increase the rate of insurance on premises, and subject to rights of other Tenant’s Leases. In the event that Tenant (or its agents, employees or invitees) engages in any conduct not authorized by this Lease, in addition to any other remedy at law or equity (including injunctive relief and/or termination of this Lease) Landlord shall be entitled to an additional sum of FIVE HUNDRED ($500.00) DOLLARS per day, as additional rent, for each and every day or portion thereof that Tenant is in violation of this Article after three business days notice to Tenant. Notwithstanding anything to the contrary set forth herein, Landlord acknowledges that some goods which may be stored at the Premises may contain ingredients that are hazardous or carcinogens, but Tenant shall be permitted to store such goods at the Premises provided such goods are stored in compliance with all applicable laws and codes. Notwithstanding anything to the contrary set forth herein, Tenant shall be permitted to use the designated office space within the premises (as depicted in the drawing of Schedule A) for office use by Tenant in connection with Tenant’s warehouse and distribution business and shall be permitted to use the premises for light assembly in connection with Tenant’s warehouse and distribution business, including but not limited to “pick and pack” assembly. Notwithstanding the foregoing, Landlord is under no obligation to provide Tenant with an office space and may remove such office space at any time.

TENANT’S ACCESS:

12. Tenant shall have the right to access and use the premises 24 hours per day, seven days per week, 52 weeks per year, subject to any limitations which may be imposed by the Town of Islip or any other federal, state, or local government. Landlord agrees that Tenant shall have the non-exclusive right to use the driveways on both the east side and the west side of the building of which the premises are a part at all times. Landlord shall keep such driveways in good condition and repair throughout the term of this Lease.

UTILITIES:

13. Tenant shall be solely responsible for and promptly pay all charges for heat, gas, electricity, water, and any other utility used or consumed in the leased premises. Landlord shall at Landlord’s option, either provide submetering, require tenant to setup its own account with the specific utility, or otherwise equitably apportion such charges (such as with regards to gas consumption, calculation may be based upon the actual time that each heating zone is on and therefore consuming gas). Tenant agrees to purchase and pay for the same as additional rent within five (5) days of the tender by Landlord of bills or invoices issued by Landlord for such. In no event shall Landlord be liable for an interruption or failure in the supply of any such utilities to the leased premises.

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LANDLORD'S MAINTENANCE:

14. Landlord agrees to keep in good order, the roof, exterior and structural interior walls, and building-wide systems (exclusive of all glass and/or plate glass). Notwithstanding the foregoing, where damage is caused by the negligence, malfeasance, or nonfeasance of Tenant or its agents, invitees, successors, or assigns, Tenant shall be liable to Landlord for the cost of repairs, as per Section 15 below. Landlord gives to Tenant exclusive control of demised premises and shall be under no obligation to inspect said premises. Tenant shall at once report in writing to Landlord any defective conditions known to him which Landlord is required to repair and failure to so report such defects shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such defect. Notwithstanding any provisions in this Lease to the contrary, Landlord shall not be responsible or liable to Tenant for any injury or damage from acts or omission of persons occupying the property adjoining the leased premises or any part of the building of which the leased premises is a part, or for any injury or damage resulting to the Tenant or its property from bursting, stoppage, or leaking of water, gas, electricity, sewer or steam pipes, or from any structural defect in the roof or exterior walls.

TENANT'S MAINTENANCE:

15. Tenant shall at all times keep the leased premises in good repair at his own expense including maintenance of exterior entrances, all glass, and partition doors, fixtures, equipment and appurtenances thereof (including lighting, heating, electric, and plumbing fixtures, and any air conditioning systems). Any and all repairs and improvements made to the demised premises by Tenant shall be made by duly licensed tradesmen and/or contractors and only with the consent of Landlord and in compliance with building and construction codes, ordinances and statutes. If Landlord is required to make repairs to any portion of the Building by reason of Tenant's negligent act or omission to act, Landlord may add the cost of each such repair to the rent which shall thereafter become due. Such costs shall be collectible as additional rent.

If the sprinkler system or any of its appliances shall be damaged or injured or not in proper working order by reason of any act or omission of Tenant, Tenant’s agents, servants, employees, licensees, or visitors, Tenant shall forthwith restore the same to good working condition at its own expense; and if any bureau, department, or official of the state or city government require or recommend that changes, modifications, alterations, or additional sprinkler heads or other equipment be made or supplied by reason of Tenant’s business, or the location of Tenant’s partitions, trade fixtures, or other contents of the demised premises, Tenant shall, at Tenant’s expense, promptly make and supply such changes, modifications, alterations, additional sprinkler heads or other equipment. All such work must be performed by a vendor selected or approved by Landlord.

AS IS CONDITION:

16. It is understood and agreed that neither the Landlord nor any agent of the Landlord has made any representations, warranties, or promises with respect either to the premises or as to its use, zoning, or any other thing regarding the same, or as to any other matter relating thereto, except as specifically stated herein or on Schedule A annexed hereto. The Tenant represents that he has inspected the premises, is familiar with it and agrees to take possession pursuant to the Lease "as is" condition at the term commencement date, except as set forth on Schedule A annexed hereto.

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TENANT'S ALTERATION: 

17. Tenant shall not make any alteration, additions or improvements in or to the demised premises or in or to the building of which they form a part, without the prior written consent of the Landlord (such consent shall not be unreasonably withheld), and all work done will be at the sole expense of the Tenant. Such work shall only be done by such Companies and personnel as Landlord in Landlord’s sole discretion may designate. Tenant agrees to carry such Workmen's Compensation and general liability insurance as Landlord may require.

Prior to the commencement of any such alterations, decorations, installations, repairs, additions, improvements or replacements, Tenant shall submit to Landlord, for Landlord's approval, plans and specifications (to be prepared by and at the expense of Tenant) of such proposed alterations, decorations, installations, repairs, additions, improvements or replacements, in detail, satisfactory to Landlord.

No structural alterations, installations, repairs, additions, improvements, replacements or work or any alterations, installations, repairs, additions, improvements, replacement or work to any utility system in or serving the Building or the premises shall be undertaken, started or begun by Tenant, its agents, servants or employees, unless and until Landlord has approved such plans and specifications; and no amendments or additions to such plans and specifications shall be made without the prior written approval of Landlord; provided, however, Landlord's review and/or approval of such plans and specifications or amendments or additions thereto shall not constitute a determination or acknowledgement by Landlord that such plans and specifications comply with applicable laws, rules, orders and regulations of governmental authorities.

All alterations, decorations, additions or improvements (including, but not limited to, paneling, partitions, railings, and the like) except movable trade fixtures, made by either party, shall become the property of the Landlord upon the termination of this Lease, unless Landlord shall elect otherwise, which election shall be made by giving a notice not less than five (5) days prior to the expiration or other termination of this Lease or any renewal or extension thereof. In the event Landlord shall elect otherwise, then such alteration, installation, addition or improvement made by Tenant upon the demised premises as Landlord shall elect shall be removed by Tenant and Tenant shall restore the demised premises to the original condition at Tenant's own cost and expense, prior to the expiration of the term.

Notwithstanding anything to the contrary set forth herein, Landlord acknowledges that Tenant will be installing pallet racking throughout the warehouse portion of the demised premises and Landlord hereby consents to the installation of such pallet racking. Tenant shall not be required to obtain any additional approval from Landlord in connection with the installation, repair or replacement of such pallet racking provided such pallet racking complies with all applicable state and local laws, regulations and codes and Tenant has, at Tenant’s own cost and expense, obtained any necessary municipal permits and certificates prior to such installation. Tenant agrees to repair any damage to the premises caused by the pallet racking, including filling any holes in the floor, prior to expiration of this Lease.

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MECHANIC'S LIENS:

18. The Landlord shall not be liable for any labor or materials furnished or to be furnished to the Tenant upon credit and no Mechanic's or other Lien for any such labor or materials shall attach to or effect the reversion or other estate or interest of the Landlord in and to the leased property. Whenever any Mechanic's Lien shall have been filed against the leased property, based on an act or interest of the Tenant or of anyone claiming through the Tenant, or if any Security Agreement shall have been filed for or affecting any materials, machinery, or fixtures used in the construction, repair, or operation thereof or annexed therein by the Tenant, the Tenant shall immediately take such action by bonding deposit, or payment as will remove the Lien or Security Agreement. If the Tenant has not removed the Lien within 30 days after notice to the Tenant, the Landlord may pay the amount of such Mechanic's Lien or Security Agreement and discharge same by deposit, and the amount so paid on deposit, with interest therein shall be deemed additional rent reserved under this Lease, and shall be payable forthwith with interest at the prevailing rate per annum from the date of such advance, and with the same remedies to the Landlord as in the case of default in the payment of rent as herein provided.

GARBAGE COLLECTION:

19. Tenant shall at its own cost and expense provide for the removal of all of its garbage and refuse by a refuse collection company acceptable to Landlord. The Tenant shall keep the premises clean (to the highest standards as shall be required by Landlord, in Landlord’s sole discretion), both inside and outside at its own expense, and will remove the garbage and other refuse from said premises. The Tenant shall not burn any material or rubbish of any description upon said premises. The Tenant also agrees to keep the area adjoining said warehouse, including the area behind the premises and around the dumpster, free from rubbish, dirt, ashes, garbage, and all other refuse. Tenant agrees to keep all accumulated rubbish in covered containers and to have same removed regularly, and to store the same in those areas designated by the Landlord from time to time for the storage of rubbish awaiting collection. In the event the Tenant fails to keep the demised premises and other portions heretofore described in the proper condition, the Landlord may cause the same to be done for the Tenant and the Tenant hereby agrees to pay the expenses thereof plus a service charge of fifteen (15%) percent on demand as additional rent.

SIDEWALKS:

20. The Tenant shall neither encumber nor obstruct the sidewalks adjoining said premises nor allow the same to be obstructed or encumbered in any manner. The Tenant shall not place or cause to be placed anything on the sidewalks or exterior of premises without written consent of the Landlord.

LATE CHARGES: 

21. Notwithstanding any other provisions contained in this Lease and in addition to any and all rights and remedies of the Landlord, Tenant shall pay as additional rent a late charge equivalent to five (5%) percent of any rent or other payment that is not paid within five (5) days of its due date, but no less than Five Hundred ($500.00) Dollars in each case of late payment, after three calendar days notice to Tenant.

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FIRE DAMAGE: 

22. If all or part of the leased premises is damaged or destroyed by fire or other casualty, this Lease and all of its terms, covenants and conditions shall, subject to the provisions hereinafter set forth, continue in full force and effect, and Landlord shall promptly repair such damage at Landlord’s sole cost and expense. Notwithstanding the foregoing, if such damage, in whole or in part, results from the negligence, malfeasance, or nonfeasance of Tenant or its agents, invitees, successors, or assigns, Tenant shall be liable for such damages and repairs.

In the event that the damage to the leased premises or to the premises of which the leased premises is a part is so extensive as to amount practically to the total destruction of the leased premises or the building, and either Landlord or Tenant may elect to terminate this Lease by giving written termination notice to the other party within sixty days after the occurrence of the destruction., and in such event, this Lease shall cease and the rent shall be apportioned to the time of the destruction, unless such destruction, in whole or in part, was the result of the negligence, malfeasance, or nonfeasance of Tenant or its agents, invitees, successors, or assigns. For the purpose of this paragraph, damage to fifty (50%) percent or more of the rentable area of the leased premises or the building (notwithstanding that the leased premises may not be damaged) shall be deemed total destruction of the premises.

Tenant acknowledges and agrees that Landlord will not carry insurance of any kind on Tenant's inventory, furniture and furnishings or any trade fixture, equipment, improvements, or appurtenances removable by Tenant under the provisions of this Lease, and that Landlord shall not be obligated to repair any damage thereto or replace the same.

Nothing herein contained shall relieve Tenant from any liability to Landlord or to its insurer in connection with any damage to the demised premises, or the building in which it is located, by fire or other casualty if Tenant shall be deemed legally liable in such respect.

The provisions of this section shall be considered as the express agreement governing any case of damage or destruction of the premises by fire or other casualty.

LIABILITY INSURANCE:

23. Tenant shall, during the entire term hereof, keep in full force and effect a policy of public liability and property damage insurance with respect to the leased premises, and the business operated by Tenant in the leased premises in which the limit of public liability shall not be less than Two Million ($2,000,000.00) Dollars per accident, and property damage liability shall not be less than One Million ($1,000,000.00) Dollars. The policy shall, in addition to naming Tenant insured, shall name Landlord and any person, firms, or corporations designated by Landlord as additional insureds on primary, non-contributory basis including waiver of subrogation applicable to General Liability & Umbrella/Excess Liability, and shall contain a clause that the insurer will not cancel or change the insurance without first giving the Landlord ten (10) days prior written notice. The insurance shall be in an insurance company approved by Landlord, and a copy of the policy or a certificate of insurance shall be delivered to Landlord within ten (10) days after the execution of this Lease. Upon a failure, after demand, of the Tenant to obtain the insurance policy described hereinabove, the Landlord is hereby authorized to obtain a policy of insurance in the limits set forth hereinabove on behalf of the Tenant and the premium for such policy shall be due and payable with the next installment of rent.

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Tenant agrees that it will not keep, use or offer for sale in or upon the leased premises any article which may be prohibited by the standard form of fire insurance policy. Tenant agrees to pay any increase in premium for fire and extended coverage insurance that may be charged during the term of this Lease on the amount of such insurance which may be carried by Landlord on said premises or the building of which they are a part, resulting from the type of merchandise sold by Tenant in the leased premises, whether or not Landlord has consented to same.

In the event the Tenant's occupancy causes any increase in premium of the Landlord's insurance rate and premium, the Tenant agrees to reimburse Landlord to the extent of such increase rate and premium. The Tenant also shall pay in such event any additional premium on the rent insurance policy that may be carried by the Landlord for its protection against rent loss through fire. Bills for such additional premiums shall be rendered by Landlord and shall be collectible as additional rent.

Tenant will indemnify Landlord and save it harmless from and against any kind and all claims, actions, damages, liability and expense in connection with loss of life, personal injury and/or damage to property arising from or out of any occurrence in, upon or at the leased premises or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, tenants, or concessionaires. In case Landlord shall, without fault on its part, be made a party to any litigation commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless and shall pay all costs, expenses, and reasonable attorney's fees incurred or paid by Landlord in connection with such litigation. Tenant shall also pay all costs, expenses and reasonable attorney's fees that may be incurred or paid by Landlord in enforcing the covenants and agreements in this Lease.

PLATE GLASS INSURANCE:

24. Tenant shall from the date that Tenant enters into possession of the demised premises, at its own cost and expense provide and keep all plate and other glass insurance. In the event that Tenant fails to comply, then Landlord may secure such insurance on behalf of the Tenant and Tenant agrees to pay premiums when rendered as additional rent. Tenant shall have the right to self-insure with regards to glass insurance, but Tenant shall not be relieved of its obligations to promptly, at its own cost and expense, replace any and all broken glass at the demised premises.

CONDEMNATION:

25. In the event that the whole of the building or the property upon which it is located shall be lawfully condemned or taken in any manner for any public or quasi-public use, this Lease and the term and estate hereby granted shall forthwith cease and terminate as of the date of the actual taking. In the event of a condemnation or taking of a substantial part of the demised premises so as to destroy the usefulness of the premises for the purpose for which the premises were leased, Tenant and Landlord shall each have the right, by delivery of notice in writing to the other within thirty (30) days after the vesting of title, to terminate this Lease and the term and estate hereby granted as of the date of actual vesting of title.

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PARTIAL CONDEMNATION:

26. In the event of a partial condemnation which is not substantial enough to destroy the usefulness of the premises for the purposes for which they were leased, or in the event the Lease shall not be terminated within the time hereinabove limited, Landlord shall promptly, but subject to reasonable delays, restore the demised premises to an architectural unit as nearly like its condition prior to such taking as shall be practicable, not including Tenant's fixtures, furnishing, floor coverings, equipment, stock, or other personalty, and this Lease shall continue in full force and effect, except that, effective as of the date of actual taking, the fixed minimum rent shall be diminished by the amount representing the part of said rent applicable to that portion, if any, of the demised premises which is so condemned or taken.

In the event of termination in any of the cases hereinabove provided, this Lease and the term and estate hereby granted shall expire as of each taking in the same manner and with the same effect as if that were the date hereinbefore set for the expiration of the term of this Lease, and the rent shall be apportioned as of such date.

CONDEMNATION PROCEEDING:

27. In the event of any condemnation or taking, whether or not this Lease shall be terminated, Landlord shall be entitled to receive the entire award in the condemnation proceeding without deduction therefrom for any estate vested by this Lease in Tenant, and Tenant shall receive no part of such award. Tenant hereby expressly assigns to Landlord any and all right, title and interest of Tenant now or hereafter arising in or to any such award or any part thereof.

NON-ASSIGNMENT:

28. This Lease may not be assigned nor shall any portion of the demised premises be sublet without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned or delayed, so long as the use of the leased premises shall remain unchanged. For the purposes of this lease, the sale, voluntary transfer, or involuntary transfer of more than forty-nine percent of the ownership of the entity designated as Tenant shall be deemed an assignment of Lease. In the event Bill Conboy, Guarantor, no longer has a controlling ownership share of the entity designated as Tenant, the sale, voluntary transfer, or involuntary transfer of forty-nine percent or less of the ownership of the entity designated as Tenant shall be deemed an assignment of Lease. In the event of the voluntary sale of Tenant’s business (or substantially all of its assets or ownership interests) or its voluntary merger with another company, Landlord shall not unreasonably withhold its consent to an assignment of this lease, or a subletting of the leased premises, to the buyer of the business (or ownership interest), so long as the use of the leased premises shall remain unchanged. In the event that Landlord consents to any assignment, Tenant shall nonetheless remain jointly and severally liable together with the assignee, with regard to all Tenant obligations under this Lease.

REMOVAL: 

29. Tenant may (if not in default hereunder) prior to the expiration of this Lease or any extension thereof, remove all trade fixtures and equipment which he has placed in premises, provided Tenant repairs all damage to premises caused by such removal.

All alterations, decorations, additions or improvements made by the Tenant, or made by the Landlord on the Tenant's behalf by agreement under the Lease, shall remain the property of the Tenant for the term of the Lease or any extension or renewal thereof. Such alterations, decorations, additions and improvements shall not be removed from the premises without prior consent in writing from the Landlord.

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If after default in payment of rent or violation of any other provisions of this Lease, or upon the expiration of this Lease, the Tenant moves out or is dispossessed and fails to remove any trade fixture, signs or other property prior to such said default, removal, expiration of Lease, or prior to the issuance of warrant, then and in that event, the said fixtures, signs and property shall be deemed abandoned by Tenant and shall become the property of the Landlord, or Landlord may notify Tenant to remove same at Tenant's expense, and upon the failure of Tenant so to do, Landlord may, in addition to any other remedies available to it, remove said property as the duly authorized agent of Tenant, and store the same in the name and at the expense of Tenant or those claiming through or under any usual or proper form of warehouse receipt, whether or not authorizing the sale of said goods for non-payment of storage charges, without in any way being liable for trespass, conversion or negligence by reason of the acts of Landlord or anyone claiming under it or by reason of the negligence of any person in caring for such property while in storage, and Tenant will pay to Landlord upon demand any and all expenses and charges incurred upon such removal, irrespective of the length of time of storage.

BANKRUPTCY:

30. If at any time prior to the commencement date of this Lease, or during any time thereafter, there shall be filed by or against Tenant in any Court pursuant to any statute either of the United States or of any state a petition in bankruptcy or insolvency or for reorganization or for the appointment of a receiver or trustee of all or a portion of Tenant's property, and within thirty (30) days thereof Tenant fails to secure a discharge thereof or if Tenant makes an assignment for the benefit of creditors, or petitions for or enters into an arrangement, this Lease shall be deemed canceled and terminated, in which event neither Tenant nor any person claiming through or under Tenant or by virtue of any statute or of an order of any Court shall be entitled to possession of the demised premises, and Landlord in addition to the other rights and remedies given herein and by virtue of any other provision herein or elsewhere in this Lease contained or by virtue of any statute or rule of law, may retain as liquidated damages any rent, security, deposit, or money received by Landlord from Tenant or others in behalf of Tenant.

It is stipulated and agreed that in the event of the termination of this Lease pursuant to the above paragraph, Landlord shall forthwith notwithstanding any other provisions of this Lease to the contrary, be entitled to recover from Tenant as and for liquidated damages an amount equal to the difference between the rent reserved hereunder for the unexpired portion of the demised term and the then fair and reasonable rental value of the demised premises for the same period. In the computation of such damages the difference between any installment of rent becoming due hereunder after the date of termination and the fair and reasonable rental value of the demised premises for the period for which such installment was payable shall be discounted to the date of termination at the rate of three (3%) percent per annum. If such premises or any part thereof be re-let by the Landlord for the unexpired term of said Lease or any part thereof before presentation of proof of such liquidated damages to any Court, commission or tribunal, the amount of rent reserved upon such re-letting shall be deemed prima facie to be the fair and reasonable rental value for the part of the whole of the premises so re-let. Nothing herein contained shall limit or prejudice the right of the Landlord to prove and obtain as liquidated damages an amount equal to the maximum allowed by any statute or rule of law in effect at the time the proceedings in which such damages are to be proved, whether or not such amount be greater than, equal to, or less than the amount of the difference referred to above.

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RIGHT TO TERMINATE: 

31. (a) If Tenant shall default in the payment of any rent or other payments required of Tenant or any part thereof, and if Tenant fails to cure such default within five (5) days of notice to Tenant, or (b) if Tenant shall default in the performance of any other agreements or condition on its part to be performed, and if Tenant shall fail to cure said default within ten (10) days after notice of said default from Landlord, or (c) if any person shall levy upon, take, or attempt to take this leasehold interest or any part thereof upon execution, attachment or other process of law, or (d) if Tenant shall default with respect to any other Lease between it and Landlord which would entitle Landlord to cancel such other Lease, or (e) if Tenant shall fail to move into and take possession of the demised premises and open for business within thirty (30) days after substantial completion of the work by Landlord, then, in any of said cases (notwithstanding any license or any former breach of agreement or condition or waiver of the benefit hereof or consent in a former instance) Landlord lawfully may within thirty (30) days, or any time thereafter that such default remains uncured and without any further notice or demand, terminate this Lease and Tenant must forthwith quit and surrender the demised premises, but Tenant shall remain liable as hereinafter provided. Tenant may request an extension to cure any such default and Landlord may, in its sole discretion, grant such an extension, provided such extension shall only be effective if agree to in writing by Landlord.

LANDLORD'S REMEDIES:

32. If this Lease shall be terminated, as provided hereinabove: The Landlord may immediately, or any time thereafter, re-enter and resume possession of the demised premises and remove all persons and property therefrom either by summary dispossess proceedings or by a suitable action or proceeding at law or in equity, or by force or otherwise without being liable for any damages therefor. No re-entry by the Landlord shall be deemed an acceptance of a surrender of this Lease. The Landlord may re-let the whole or any part of the demised premises for a period equal to, or greater, or less than the remainder of the then term of this Lease, at such rental and upon such terms and concessions as the Landlord, shall deem reasonable, to any Tenant or Tenants which it may deem suitable and satisfactory for any use and purpose which it may deem appropriate. In no event shall the Landlord be liable in any respect for failure to re-let the demised premises or in the event of such re-letting for failure to collect the rent thereunder. Any sums received by the Landlord on a re-letting in excess of the rent reserved in this Lease shall belong to the Landlord.

In addition to any other rights or remedy which may be available, Landlord may, in the event of a breach or threatened breach on the part of the Tenant with respect to any of the covenants, agreements, terms, provisions or conditions on the part of or on behalf of Tenant to be kept, observed or performed, Landlord shall also have the right of injunction. The specified remedies to which Landlord may resort hereunder are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Landlord may lawfully be entitled at any time, and Landlord may invoke any remedy allowed at law or in equity as if specific remedies were not herein provided for.

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Tenant hereby waives a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the leased premises, and/or any claim of injury or damage.

In the event Landlord commences any proceedings for non-payment of rent, Tenant shall not interpose any counterclaim of whatever nature or description in any such proceedings. This shall not, however, be construed as a waiver of the Tenant's right to assert such claims in any separate action or actions brought by Tenant.

ACCESS TO PREMISES:

33. Landlord, its agents and representatives, may place a “For Sale” sign or a "For Rent" sign on the demised premises at any time. Landlord, its agents and representatives, may enter the premises at any reasonable time and upon reasonable notice to exhibit same to prospective purchasers or during the last six months of this lease to prospective Tenants; to inspect, repair, or maintain the premises; to inspect, repair, or maintain Landlord's adjoining property, if any; or at any time in case of emergency. Neither Tenant nor its agents or representatives shall replace, modify or add any lock to any door connecting the demised premises with the adjoining premises. Additionally, Tenant acknowledges that it has been informed that Landlord may require occasional access through the ground level drive-in garage door located within the demised premises, and it is agreed that, upon reasonable notice to tenant, landlord shall have the right to such access.

COLLECTION OF RENT:

34. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior or subsequent to the termination thereof.

TENANT'S CERTIFICATION:

35. Tenant agrees that at any time and from time to time within ten business (10) days following written notice from Landlord it will execute, acknowledge and deliver to Landlord or any proposed mortgagee or purchaser a statement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, that the same is in full force and effect as modified and stating the modifications), that there are no defenses or offsets thereto and the dates to which the rent and other charges have been paid in advance, if any, and stating whether or not the Landlord is in default in the performance of any covenant agreement, or condition contained in this Lease, and, if so, specifying each such default, it being intended that any such statement delivered pursuant to this section may be relied upon by any prospective purchaser of the fee or any mortgagee thereof or any assignee of any mortgage upon the fee of the demised premises.

The failure of the Tenant to execute, acknowledge and deliver to the Landlord a statement in accordance with the foregoing provisions of this section within the said ten (10) day period shall constitute an acknowledgment by the Tenant to any person entitled as aforesaid to rely thereupon that this Lease is unmodified and in full force and effect and that the rent and other charges have been duly and fully paid to and including the respective due dates immediately preceding the date of such notice and shall constitute a waiver of any defaults prior to the date of such notice.

 

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SUBORDINATION:

36. At the option of the Landlord or any successor Landlord or the holder of any mortgage affecting the fee of the demised premises, Tenant agrees that this Lease shall be subject and subordinate at all times to all ground Leases and underlying Leases, and to all mortgages, in any amounts, and all advances thereon which may now or hereafter affect such Leases, or the real property of which the premises form a part, and Tenant further agrees neither foreclosure of the mortgage affecting the fee title of the demised premises, nor the institution of any suits, actions, or other proceedings by the Landlord herein or any successor Landlord, or any foreclosure proceeding brought by the holder of any mortgage to recover possession of the leased property, shall by operation of law or otherwise result in the cancellation or termination of this Lease or the obligation of the Tenant hereunder, and Tenant covenants and agrees to attorn to the Landlord or to any successor to the Landlord's interest in the demised premises, or to such holder of such mortgage or to the purchaser of the mortgaged premises in foreclosure. This Lease is subject and subordinate to all mortgages which may now or hereafter affect such leases or the real property of which the demised premises form a part and to all renewals, modifications, consolidations, replacement and extension thereof. This clause shall be self-operative. In confirmation of such subordination Tenant shall execute promptly any certificate that Landlord or mortgagee may request. Tenant hereby constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any such certificates or certificate for and on behalf of Tenant.

The Tenant, upon request of any party in interest, shall execute promptly such instruments or certificates to carry out the intent of paragraph “35.” and paragraph “36.” above as shall be requested by the Landlord. Tenant’s failure to execute and deliver such instruments or certificates to Landlord within fifteen (15) days after the date of a written request by Landlord shall be deemed a material breach of this lease.

MONTH-TO-MONTH OCCUPANCY:

37. If the Tenant shall occupy said premises with the consent of the Landlord after the expiration of this Lease and rent is accepted from said Tenant, such occupancy and payment shall be construed as an extension of this Lease for the term of one (1) month only from the date of such expiration, and occupancy thereafter shall operate to extend the term of this Lease but for one (1) month at a time unless other terms of such extension are endorsed hereon in writing and signed by the parties hereto. In such event, if either Landlord or Tenant desires to terminate said occupancy at the end of any month after the termination of this Lease, the party so desiring to terminate the same shall give the other party at least thirty (30) days written notice to that effect. Failure on the part of the Tenant to give such notice shall obligate it to pay rent for an additional calendar month following the month in which the Tenant has vacated the demised premises. If such occupancy continues without the consent of the Landlord, Tenant shall pay to the Landlord as liquidated damages double the amount of rent at the highest rate specified in this Lease for the time Tenant retains possession of the premises or any part thereof after termination of the term by lapse of time or otherwise.

OPTION FOR EARLY TERMINATION:

38. Tenant shall have the option to terminate its tenancy effective as of December 30, 2019 (i.e. the end of the sixth (6^th) month of the original term of this Lease) provided that Tenant has notified Landlord in writing (in accordance with Section 40 hereof) and Landlord has received such Notice at least two (2) months prior (i.e. on or before October 30, 2019), and further provided that Tenant shall not default pursuant to the terms of this Lease.

14

RIGHT OF REDEMPTION:

39. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative but not restrictive to those given by law.

Tenant hereby expressly waives any and all rights of redemption (after actual eviction) granted by or under any present or future laws in the event of Tenant being evicted or dispossessed for any cause or in the event of Landlord obtaining possession of the leased premises by reason of the violation by Tenant of any of the covenants or conditions of this Lease, or otherwise.

SERVICE OF NOTICE:

40. Tenant hereby appoints as his agent to receive service of all dispossessory or distraint proceedings and notice thereunder and all notices required under this Lease, the person in charge of leased premises or any employee on premises; and if no person is in charge of or occupying said premises, then such service of notice may be made by attaching the same on the main entrance of said premises, a copy of all notices under this Lease shall also be sent to Tenant's last known address, if different from said premises.

Any notice by Tenant to Landlord must be served by certified or registered mail, postage prepaid addressed to Landlord at the address first hereinabove given or at such other address as Landlord may designate by written notice.

NO WAIVER:

41. No failure of Landlord to exercise any power given Landlord hereunder, or to insist upon strict compliance by Tenant with his or its obligation hereunder, and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof.

It is understood and agreed by the parties hereto that this Lease contains all the covenants, agreements, terms, provisions, and conditions relating to the leasing of the demised premises, and that the Landlord has not made and is not making and the Tenant in executing and delivering this Lease is not relying upon any warranties, representations, promises or statements, except to the extent that the same are expressly set forth in this Lease.

BROKER:

42. Tenant represents and warrants to Landlord that Tenant has not hired, retained or dealt with any real estate broker, firm or salesman in connection with the transaction contemplated by this Lease, except Greiner-Maltz Company of Long Island, LLC. and Ashlind Properties, and purchaser will indemnify and hold Landlord harmless from any and all claims for brokerage fees or other commissions which may at any time be asserted against Landlord founded upon a claim that the aforesaid representation and warranty of Tenant is untrue, together with any and all losses, damages, costs, and expenses (including reasonable attorneys' fees and disbursements) relating to such claims or arising therefrom or incurred by Landlord in connection with the enforcement of this indemnification provision.

15

CONSTRUCTION LICENSE:

43. If any excavation shall be made upon land adjacent to the leased premises, or shall be authorized to be made, Tenant shall afford to the person causing or authorized to cause such excavation, license to enter upon the leased premises for the purpose of doing such work as Landlord shall deem necessary to preserve the wall of the building of which the leased premises form a part from injury or damage and to support the same by proper foundations, without any claim for damages of indemnification against Landlord for diminution or abatement of rent.

TENANT'S LIABILITY:

44. Tenant shall be responsible for and shall pay before delinquency all municipal, county or state taxes assessed during the term of this Lease against any personal property of any kind owned by or placed in, upon or about the leased premises by the Tenant.

LANDLORD'S LIABILITY:

45. Landlord shall not be liable for any damage to property of Tenant or of others located on the leased premises, nor for the loss of or damage to any property of Tenant or of others by theft or otherwise. Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, gas, electricity, water, rain, nor of leaks.

QUIET ENJOYMENT:

46. The Landlord covenants the Tenant, upon payment of the rent and additional rent above reserved, upon the due performance of the covenants and agreements herein contained, shall and may at all times during the term hereby granted, peaceably and quietly have, hold and enjoy the demised premises for the term of this Lease. However, the Landlord, shall have no liability whatsoever to the Tenant for any breach of this covenant occasioned by the acts or omissions of any transferee, successor, or assignee of the Landlord.

CURING TENANT'S DEFAULT:

47. If the Tenant shall default in the performance of any covenants or conditions in this Lease required to be performed by the Tenant, the Landlord may, after five business (5) days notice to the Tenant, or without notice, if, in the Landlord's opinion, an emergency exists, perform such covenant, or condition for the account and at the expense of the Tenant. If the Landlord shall incur any expense, including reasonable attorney's fees, in instituting, prosecuting or defending any action or proceeding instituted by reason of any default of the Tenant the Tenant shall reimburse the Landlord for the amount of such expense. Should the Landlord, pursuant to the Lease, become obligated to reimburse or otherwise pay its Landlord any sum of money in addition to the specific rent, the amount thereof shall be deemed additional rent and may, at the option of the Landlord, be added to any subsequent installment of the specific rent due and payable under this Lease, in which event, the Landlord shall have the remedies for default in the payment thereof provided by this Lease. The provisions of this paragraph shall survive the termination of this Lease.

16

TENANT'S OBLIGATIONS:

48. That the Tenant shall promptly execute and comply with all statutes, ordinances, rules, orders, regulations and requirements of the Federal, State, and Local Governments and of any and all their Departments and Bureaus applicable to said premises, for the correction, prevention, and abatement of nuisances or other grievances, in, upon, or connected with said premises during said term; and shall also promptly comply with and execute all rules, orders and regulations of the New York Board of Fire Underwriters, or any other similar body, at Tenant's own cost and expense. The Tenant assumes all legal responsibility for the acts and conduct of its agents, employees and visitors, and will not violate any laws, rules or regulations of the premises.

Tenant agrees that at all times during the term of this Lease it shall at its own cost and expense:

a) Keep the demised premises and signs in good, neat and clean condition.

b) Load and unload its merchandise, equipment and supplies only during hours specified by Landlord and will not park trucks or delivery vehicles outside the demised premises so as to unreasonably interfere with the use of any driveways, walks, roadways, highways, streets, or parking areas.

c) Permit no act or practice which may tend to injure the demised premises and the appurtenances of the building or any equipment or display located thereon or be a nuisance to other Tenants; nor keep merchandise on or obstruct the driveways, walks, roadways, highways, streets, parking areas, or other areas outside the demised premises; nor conduct or permit any fire, bankruptcy auction, or "going out of business" sales; nor change the exterior lighting; nor permit any loudspeakers, sound amplifiers, phonographs, radio or television broadcasts, etc. to be heard outside the demised premises; nor use any advertising medium that may constitute a nuisance; nor perform any act or carry on any practice which may damage, mar, or deface the demised premises or any other part of the building; nor change (whether by alteration, replacement, rebuilding, or otherwise) the exterior color and/or architectural treatment of the demised premises or of the building in which the same are located, or any part thereof.

d) Obtain and maintain in effect all permits and licenses necessary for the operation of Tenant's business as herein provided.

e) The Tenant further agrees as follows:

1) No aerial shall be erected on the roof or exterior walls of the premises or on the grounds without first obtaining in each instance the written consent of the Landlord (permission shall not be unreasonably withheld). Any aerial so installed without such written permission shall be subject to removal at Tenants expense without notice at any time.

2) Tenant shall keep the premises at a temperature sufficiently high to prevent freezing of water in pipes and fixtures.

3) The plumbing facilities shall not be used for any other purpose than that for which they are constructed and no foreign substance of any kind shall be thrown therein; and the expense of any breakage, stoppage, or damage resulting from a violation of this provision shall be borne by Tenant who shall, or whose employees, agents or invitees shall have caused it.

17

4) Neither Tenant nor Tenant's employees or agents shall solicit business in the common use areas or distribute any handbills or other advertising matter in such areas.

5) Tenant parking shall be limited to eight (8) parking spaces.

f) To comply with all further rules and regulations for the use and occupancy of the building as Landlord, in its sole discretion, from time to time promulgates. Landlord shall have no liability for violation by any other Tenant of the building or any rules or regulations nor shall such violations or the waiver thereof excuse Tenant from compliance.

g) Tenant shall maintain and replace, if necessary, the plumbing, septic, heating, ventilation and air conditioning systems and equipment.

h) The Tenant shall, at the termination of this tenancy, at its own expense, repair any damage to the premises resulting from the tenancy.

LEGAL FEES

49. In the event any action is taken to enforce any of the provisions of this Agreement (including, but not limited to: summary proceedings; collection proceedings; or any other actions or proceedings at law or in equity) then the unsuccessful Party shall pay to the other the costs, reasonable fees and expenses of legal counsel incurred in taking such action. In those instances where Landlord is the successful party, such fees, costs and expenses shall be deemed additional rent.

ENTIRE AGREEMENT

50. This Lease contains the entire agreement between the parties and shall not be modified in any manner except by an instrument in writing executed by the parties. If any term or provision of this Lease, or the application thereof, to any person or circumstances shall to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law.

The Parties hereto represent and warrant that they are duly organized under the laws of the State of New York, that they are in good standing and not in violation of any laws thereof. The Parties hereto further represent and warrant that they are duly authorized to enter into this Lease and that each person executing this Lease is duly authorized to do so by their respective companies.

BINDING EFFECT:

51. All rights and liabilities herein given to or imposed upon the respective parties herein shall extend to and bind the several respective heirs, executors, administrators, successors and assigns of the said parties; and if there shall be more than one Tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein. No rights, however, shall inure to the benefit of any assignee of Tenant unless the assignment to such assignee has been approved by Landlord in writing as provided herein.

18

CAPTIONS: 

52. The captions, section numbers, article numbers, etc. appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe, or describe the scope or intent of such sections or articles of this Lease nor in any way affect this Lease.

NON-OFFER:   

53. The submission of this Lease for examination does not constitute an offer to Lease, a reservation of, or option for the leased premises, and this Lease becomes effective as a Lease only upon execution and delivery thereof by Landlord to Tenant.

RENT CONCESSION:

54. Provided that Tenant does not exercise its right to early termination (see Section 38 above), further provided that Tenant exercises its first Option to renew this Lease pursuant to Section 6 above, and further provided that Tenant shall not default pursuant to the terms of this Lease, Landlord hereby waives rent for the month of July 2020.

LIMITATION OF LANDLORD'S LIABILITY:

55. If the Landlord or any successor in interest be an individual, joint venture, tenancy in common, co-partnership, unincorporated association, or other unincorporated aggregate of individuals, then anything elsewhere to the contrary notwithstanding, Tenant shall look solely to the interest and property of Landlord in the land and building of which the leased premises are a part for the satisfaction of Tenant's remedies for the collection of a judgment (or other judicial process) requiring the payment of money by Landlord in the event of any default or breach by Landlord with respect to any of the terms, covenants and conditions of the Lease to be observed and/or performed by Landlord, and no other property or assets of Landlord shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant's remedies.

PAYMENTS:

56. No payment by Tenant or receipt by Landlord of a lesser amount than the monthly rent (including additional rent) herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement or statement on any check be deemed an accord and satisfaction, and Landlord may accept any such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for in this Lease or otherwise available at law.

In the event rent is paid by check, same shall be subject to collection, and in the event that any check is not honored for payment, for any reason whatsoever, the Tenant agrees to forthwith pay an amount equal to the amount of said check by certified check, bank check, money order, or cash, together with the sum of Fifty ($50.00) Dollars to the defray Landlord's expenses as a result thereof. In the event any further checks of the Tenant shall subsequently not be honored for payment, then the charge for each of such subsequent checks shall be the sum of One Hundred ($100.00) Dollars. These charges shall be deemed additional rent reserved and shall be collectible with the same remedies as available in the event of nonpayment of rent. Additionally, in the event two or more checks shall not be honored for payment, for any reason whatsoever, at Landlord's option all future payments which shall come due throughout the balance of the term of this Lease shall be by certified check, bank check, money order, or cash only.

19

IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this 31^st day of May, 2019

555 N RESEARCH CORPORATION		ELM FREIGHT HANDLERS INC., D/B/A ELM GLOBAL LOGISTICS
(Landlord)		(Tenant)
BY:	/S/ Leonard A. Rosenbaum	BY:	/S/ Joseph W. Conboy
	Leonard A. Rosenbaum, President		Joseph W. Conboy, President

20

EX-31.1

Exhibit 31.1

Certifications of Principal Executive Officer

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-Q of CVD Equipment Corporation;

2. Based upon my knowledge, this 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 report;

3. Based upon my knowledge, the financial statements, and other financial information included in this 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 report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b. Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 13, 2019

   /s/ Leonard A. Rosenbaum

----------------------------------------

President, Chief Executive Officer and Director

EX-31.2

Exhibit 31.2

Certifications of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas McNeill, certify that:

1. I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation;

2. Based upon my knowledge, this 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 report;

3. Based upon my knowledge, the financial statements, and other financial information included in this 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 report.

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

b. Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; 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 over financial reporting.

Dated: August 13, 2019

   /s/ Thomas McNeill

----------------------------------------

Thomas McNeill

EX-32.1

Exhibit 32.1

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, Leonard A. Rosenbaum, President and Chief Executive Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending June 30, 2019 of CVD Equipment Corporation (the “Form 10-Q") fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.

Dated: August 13, 2019                             /s/    Leonard A. Rosenbaum

 Leonard A. Rosenbaum

 Chief Executive Officer

 (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

I, Thomas McNeill, Chief Financial Officer of CVD Equipment Corporation, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge, the quarterly report on Form 10-Q for the period ending June 30, 2019 of CVD Equipment Corporation (the “Form 10-Q") fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of CVD Equipment Corporation.

Dated: August 13, 2019                            /s/    Thomas McNeill

Thomas McNeill

Chief Financial Officer

(Principal Financial Officer)

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Aug. 05, 2019
Document Information [Line Items]
Entity Registrant Name	CVD EQUIPMENT CORP
Entity Central Index Key	0000766792
Trading Symbol	cvv
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		6,555,570
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Amendment Flag	false
Title of 12(b) Security	Common Stock

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
ASSETS
Cash and cash equivalents	$ 8,580,564	$ 11,439,361
Accounts receivable, net	2,066,025	4,065,220
Contract assets	1,654,467	1,357,797
Inventories, net	1,882,666	1,861,873
Other current assets	509,806	723,204
Total Current Assets	14,693,528	19,447,455
Property, plant and equipment, net	31,317,156	30,402,558
Deferred income taxes	2,802,414	2,104,414
Other assets	41,748	64,583
Intangible assets, net	461,058	495,552
Total Assets	49,315,904	52,514,562
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts payable	1,149,879	713,194
Accrued expenses	1,730,518	1,503,309
Current maturities of long-term debt	865,464	857,590
Contract Liabilities	170,975	536,524
Deferred revenue	482,677	459,899
Total Current Liabilities	4,399,513	4,070,516
Long-term debt, net of current portion	11,716,283	12,051,720
Total Long-Term Liabilities	11,716,283	12,051,720
Total Liabilities	16,115,796	16,122,236
Commitments and contingencies
Stockholders’ Equity:
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,555,150 at June 30, 2019 and 6,535,888 at December 31, 2018	65,551	65,358
Additional paid-in capital	26,525,521	26,148,256
Retained earnings	6,609,036	10,178,712
Total Stockholders’ Equity	33,200,108	36,392,326
Total Liabilities and Stockholders’ Equity	$ 49,315,904	$ 52,514,562

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	6,555,150	6,535,888
Common stock, shares outstanding (in shares)	6,555,150	6,535,888

XML

Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Revenue	$ 4,918,118	$ 6,435,278	$ 8,395,378	$ 15,589,111
Cost of revenue	4,425,279	5,319,060	8,290,280	10,711,979
Gross profit	492,839	1,116,218	105,098	4,877,132
Operating expenses
Research and development	176,920	128,117	341,000	224,923
Selling and shipping	227,117	399,249	504,424	912,724
General and administrative	1,632,022	1,968,465	3,368,110	4,208,530
Total operating expenses	2,036,059	2,495,831	4,213,534	5,346,177
Operating loss	(1,543,220)	(1,379,613)	(4,108,436)	(469,045)
Other income (expense):
Interest income	42,063	29,314	88,869	46,274
Interest expense	(126,270)	(119,279)	(240,806)	(240,633)
Total other expense, net	(84,207)	(89,965)	(151,937)	(194,359)
Loss before income tax	(1,627,427)	(1,469,578)	(4,260,373)	(663,404)
Income tax (benefit) expense	(234,697)	(139,052)	(690,697)	108,718
Net loss	$ (1,392,730)	$ (1,330,526)	$ (3,569,676)	$ (772,122)
Basic loss per common share (in dollars per share)	$ (0.21)	$ (0.21)	$ (0.55)	$ (0.12)
Diluted loss per common share (in dollars per share)	$ (0.21)	$ (0.21)	$ (0.55)	$ (0.12)
Weighted average common shares Outstanding-basic (in shares)	6,555,150	6,486,067	6,547,035	6,476,712
Weighted average common shares Outstanding-diluted (in shares)	6,555,150	6,486,067	6,547,035	6,476,712

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash flows from operating activities:
Net loss	$ (3,569,676)	$ (772,122)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Stock-based compensation	377,457	424,015
Depreciation and amortization	554,579	544,158
Deferred income tax (benefit)/expense	(698,000)	56,888
Provision for inventory obsolescence	50,000
(Increase)/decrease in operating assets
Accounts receivable	1,999,195	(663,864)
Contract assets	(296,670)	3,082,808
Inventories	(70,793)	317,604
Other current assets	213,399	(47,204)
Increase/(decrease) in operating liabilities
Accounts payable	436,684	52,290
Accrued expenses	227,209	(663,436)
Contract liabilities	(365,549)	(187,051)
Deferred revenue	22,778	815,639
Total adjustments	2,450,289	3,731,847
Net cash (used in) provided by operating activities	(1,119,387)	2,959,725
Cash flows from investing activities:
Capital expenditures	(1,434,682)	(1,273,857)
Other assets	22,835	(177,789)
Net cash used in investing activities	(1,411,847)	(1,451,646)
Cash flows from financing activities
Payments of long-term debt	(327,563)	(322,499)
Net cash used in financing activities	(327,563)	(322,499)
Net (decrease) increase in cash and cash equivalents	(2,858,797)	1,185,580
Cash and cash equivalents at beginning of period	11,439,361	14,210,909
Cash and cash equivalents at end of period	8,580,564	15,396,489
Supplemental disclosure of cash flow information:
Income taxes paid		395,000
Interest paid	240,806	242,324
Capitalization of right to use Asset	$ 128,947

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements for CVD Equipment Corporation and Subsidiaries (collectively “the Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form

10

-Q and Article

8

of Regulation S-

X.

They do

not

include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the interim financials

not

misleading have been included and all such adjustments are of a normal recurring nature. The operating results for the

three

and

six

months ended

June 30, 2019

are

not

necessarily indicative of the results that can be expected for the year ending

December 31, 2019.

The consolidated balance sheet as of

December 31, 2018

has been derived from the audited consolidated financial statements at such date, but does

not

contain all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’ Annual Report on Form

10

-K for the year ended

December 31, 2018,

including the accounting policies followed by the Company as set forth in Note

2

to the consolidated financial statements contained therein.

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period consolidated financial statements to conform to the current year presentation.

XML

Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

On

January 1, 2018,

we adopted accounting standard ASC

606,

Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts

not

yet completed as of the adoption date. Results for reporting periods beginning

January 1, 2018

are presented under ASC

606,

while prior period amounts were

not

adjusted.

The adoption of ASC

606

did

not

have a significant impact on our Consolidated Financial Statements as of and for the

three

and

six

month periods ended

June 30, 2018

and, as a result, comparisons of revenues and operating profits performance between periods are

not

affected by the adoption of this ASU.

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within

three

to

eighteen

months from commencement of order acceptance. The Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

“Contract assets,” include unbilled amounts typically resulting from sales under contracts when revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amount

may

not

exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle.

“Contract liabilities,” include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC

606.

Research and development costs are expensed as incurred. Due to the highly technical nature of our projects, we use our technical staff in a dual role, and based on their contribution to the customer or research and development projects, their costs are charged accordingly to either cost of goods sold or research and development.

Recent Accounting Pronouncements

In

June 2016,

the FASB issued ASU

2016

-

13,

F

inancial Instruments – Credit Losses (Topic

326

)

, which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this update are effective for fiscal years beginning after

December 15, 2019

and interim periods within those annual periods. Early adoption for fiscal years beginning after

December 15, 2018

is permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In

February 2016

the FASB issued ASU

No.

2016

-

02,

"Leases (Topic

842

)" (ASU

2016

-

02

). The primary difference between previous GAAP and ASU

2016

-

02

is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or

not

to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of

12

months or less, a lessee is permitted to make an accounting policy election by class of underlying asset

not

to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU

2016

-

02

is effective for fiscal years beginning after

December 15, 2018.

Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities

may

elect to apply.

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. In addition, FASB has amended Topic

842

prior to it becoming effective. The effective date and transition requirements for these amendments to Topic

842

are the same as ASU

2016

-

02.

The Company has

one

lease at its Denmark facility which currently expires at

December 31, 2020

and has recognized a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term in the amount of

$129,000

.

We believe there is

no

additional new accounting guidance adopted, but

not

yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted,

may

have a significant impact on our financial reporting.

XML

Note 3 - Concentration of Credit Risk

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

NOTE 3: CONCENTRATION OF CREDIT RISK

Cash and cash equivalents

The Company had cash and cash equivalents of

$8.6

million and

$11.4

million at

June 30, 2019

and

December 31, 2018,

respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or money market accounts, all with maturities of less than

three

months. Cash equivalents were

$7.5

million and

$8.9

million at

June 30, 2019

and

December 31, 2018,

respectively.

The Company places most of its temporary cash investments with financial institutions, which from time to time

may

exceed the Federal Deposit Insurance Corporation limit. The amount at risk at

June 30, 2019

and

December 31, 2018

was

$6,824,000

and

$6,920,000,

respectively.

Sales concentration

Revenue from a single customer in any

one

period can exceed

10%

of our total revenues. During the

three

and

six

months ended

June 30, 2019,

one

customer represented

13%

and

10%

of revenues. For the

three

and

six

months ended

June 30, 2018,

a different customer represented approximately

37%

and

43%

of our revenues.

Accounts receivable

The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. The Company also maintains allowances for anticipated losses. At

June 30, 2019

two

customers each exceeded

10%

of the accounts receivable balance, representing

24%

in total, and at

December 31, 2018

two

customers represented approximately

42%

of the accounts receivable balance.

XML

Note 4 - Revenue From Contracts With Customers

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Revenue from Contract with Customer [Text Block]

NOTE 4: REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table represents a disaggregation of revenue from contracts with customers for the

three

and

six

months ended

June 30, 2019

and

2018:

(in Thousands)

	Three Months Ended				Six Months Ended
Category	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Aerospace	$	1,003	$	2,205	$	1,216	$	6,079
Industrial		1,810		1,962		3,387		5,208
Research		1,102		1,014		1,954		1,875
Point in time		1,003		1,254		1,838		2,427
Net Revenue	$	4,918	$	6,435	$	8,395	$	15,589

Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

Changes in estimates for sales of systems occur for a variety of reasons, including but

not

limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates

may

have a material effect on the Company’s consolidated statements of operations. The table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the

three

and

six

months ended

June 30, 2019

and

2018,

as well as the number of projects that comprise such changes. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.

	Three Months Ended			Three Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	0		$	34
(Decrease) increase in revenue from net changes in input cost estimates	$	(61	)	$	(479	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(61	)	$	(445	)
Number of projects		26			15
Net change in estimate as a percentage of aggregate revenue for associated projects		(.9	%)		(9.2	%)

	Six Months Ended			Six Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	9		$	75
(Decrease) increase in revenue from net changes in input cost estimates	$	(240	)	$	(570	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(231	)	$	(495	)
Number of projects		26			10
Net change in estimate as a percentage of aggregate revenue for associated projects		(.5	%)		(8.8	%)

For the

three

and

six

months ended

June 30, 2019

and

2018,

revenue (decreased) increased by (

$61,000

) and (

$231,000

) in

2019,

respectively, and (

$445,000

) and (

$495,000

) in

2018,

respectively, from net changes in transaction prices, input cost estimates, product cost overruns and product cost forecast changes related to redesign of certain systems.

Contract Assets and Liabilities

Contract assets consist of (i) retainage which represent the earned, but unbilled, portion for which payment is deferred by the customer until certain contractual milestones are met; and (ii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for long-term contracts. Contract liabilities consist of customer advances and billings in excess of revenue recognized.

During the

six

months ended

June 30, 2019

and

2018,

the increase (decrease) in contract assets of approximately

$.3

million and (

$3.1

million), respectively, was primarily caused by additional billed receivables during the

2018

period, for those projects that certain milestones had been reached.

XML

Note 5 - Inventories, Net

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

NOTE 5: INVENTORIES, NET

Inventories consist of:

	June 30, 2019			December 31, 2018
Raw materials	$	1,701,667		$	2,016,488
Work-in-process		590,999			205,385
Finished goods		-			-
Gross inventories		2,292,666			2,221,873
Less reserve for obsolescence		(410,000	)		(360,000	)
Inventories, net	$	1,882,666		$	1,861,873

XML

Note 6 - Accounts Receivable, Net

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 6: ACCOUNTS RECEIVABLE, NET

Accounts receivable are presented net of an allowance for doubtful accounts of approximately

$24,000

as of

June 30, 2019

and

December 31, 2018.

The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates

may

change based on changes in future economic conditions.

XML

Note 7 - Long-term Debt

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Long-term Debt [Text Block]

NOTE 7: LONG-TERM DEBT

The Company had a revolving credit facility with HSBC Bank, USA, N.A. (“HSBC”) providing up to

$7

million, although the Company had never utilized this facility. This credit facility expired on

September 1, 2018.

The Company has a loan agreement with HSBC which is secured by a mortgage on our Central Islip, NY headquarters. The loan is payable in

120

consecutive equal monthly installments of

$25,000

in principal plus interest and a final balloon payment upon maturity in

March 2022.

The balances as of

June 30, 2019

and

December 31, 2018

were approximately

$2.5

million and

$2.7

million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus

1.75%

or Prime less

0.5%.

On

November 30, 2017,

the Company purchased the premises located at

555

North Research Place, Central Islip, NY. The purchase price of the building was

$13,850,000

exclusive of closing costs. The Company’s newly formed wholly-owned subsidiary,

555

N Research Corporation (the “Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of

$10,387,500,

which was used to finance a portion of the purchase price to acquire the premises located at

555

North Research Place, Central Islip, New York. The Loan was evidenced by the certain Note, dated

November 30, 2017 (

the “Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement (the “Mortgage”), dated

November 30, 2017,

as well as a collateral Assignment of Leases and Rents.

The Loan is payable in

60

consecutive equal monthly installments of

$62,481

including interest and final balloon payment upon maturity in

December 2022.

The balance outstanding as of

June 30, 2019

and

December 31, 2018

were approximately

$9.9

million and

$10.0

million respectively. The Loan bears interest for each Interest Period (as defined in the Note), at the fixed rate of

3.9148%.

The maturity date for the Note is

December 1, 2022.

As a condition of the Bank making the Loan, the Company was required to guaranty Assignee’s obligations under the Loan pursuant that certain Unlimited Guaranty, dated

November 30, 2017 (

the “Guaranty”). On

May 31, 2019,

the Company entered into

two

sublease agreements for a portion of the CVD Materials facility. During the quarter ended

June 30, 2019,

the Company recognized

$36,000

of rental income which commenced

June 1, 2019.

Commencing

July 2019,

the monthly rental income will increase to approximately

$67,000

per month or approximately

$800,000

per annum.

At

December 31, 2018,

the Company was

not

in compliance with the

one

financial covenant (fixed charge coverage ratio) contained in the Mortgage. On

March 26, 2019

the Company received a waiver from HSBC until

April 1, 2020.

On

August 5, 2019,

the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets covenant. The Company is in compliance with its obligations under the mortgage at

June 30, 2019.

XML

Note 8 - Stock-based Compensation Expense

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

NOTE 8: STOCK-BASED COMPENSATION EXPENSE

The Company recorded as part of selling and general administrative expense

$179,000

and

$378,000

during the

three

and

six

months ended

June 30, 2019,

respectively, and during the

three

and

six

months ended

June 30, 2018,

$201,000

and

$424,000,

respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments.

XML

Note 9 - Income Taxes

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 9: INCOME TAXES

On

December 22, 2017,

the Tax Cuts and Jobs Act was enacted in the U.S. Tax Reform significantly lowering the amount of current and future income tax expense primarily due to the reduction in the U.S. statutory tax rate from

35.0%

to

21.0%.

This provision went into effect on

January 1, 2018

and resulted in the loss of our ability to take the domestic production activities deduction which has been repealed and requires us to remeasure our deferred tax assets and liabilities.

The provision for income taxes includes the following:

	Six Months Ended June 30,
	2019			2018
Current:
Federal	$	---		$	48,330
State		7,303			3,500
Total current provision		7,303			51,830
Deferred:
Federal	$	(698,000	)	$	56,888
State		------			----
Total deferred (benefit) provision		(698,000	)		56,888
Income tax expense (benefit) provision	$	(690,697	)	$	108,718

Tax Rate Reconciliation

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

	Six Months Ended
	June 30,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(895,428	)	$	(139,314	)
Foreign tax loss		28,175			82,715
State taxes		3,000			3,500
Difference between tax and book depreciation		48,144			39,827
Stock compensation		62,505			140,052
Other Permanent differences		62,907			(18,062	)
Income tax (benefit) expense	$	(690,697	)	$	108,718

The Company’s foreign subsidiary, CVD Tantaline ApS incurred a loss of approximately

$134,000

for the

six

months ended

June 30, 2019

which would provide a

$28,000

deferred tax asset, based on the standard corporate tax rate of

22%

in Denmark. For the

six

months ended

June

31,

2018

the Company had a loss of

$394,000

with a deferred tax asset of

$83,000.

However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance has been necessary.

We continue to evaluate for potential utilization of the Company’s deferred tax asset on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the new CVD Materials segment and cost containment measures.

XML

Note 10 - Earnings Per Share

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE 10: EARNINGS PER SHARE

Basic earnings per share is computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Stock options to purchase

467,930

shares of common stock were outstanding and

227,930

were exercisable during the

three

and

six

months ended

June 30, 2019.

Stock options to purchase

387,930

shares were outstanding and

227,930

were exercisable during the

three

and

six

months ended

June 30, 2018.

For the

three

and

six

months ended

June

31,

2019

and

2018,

no

shares were included in the diluted earnings per share calculation as their effect would have been anti-dilutive.

The dilutive potential common shares on warrants and options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.

XML

Note 11 - Segment Reporting

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

NOTE 11: SEGMENT REPORTING

The Company operates through

three

(

3

) segments: CVD Equipment Corporation (“CVD”), Stainless Design Concepts (“SDC”) and CVD Materials Corporation (“Materials”). The CVD segment is utilized for chemical vapor deposition equipment manufacturing. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York for gas control systems. Materials is our new segment based on recent acquisitions, for providing quartzware and material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.

The Company’s corporate administration activities are reported in the Eliminations and Unallocated column. These activities primarily include intercompany profit, expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense.

Three Months Ended

June

3

0

,

(

In

thousands

)

										Eliminations* and
2019	CVD			SDC			Materials			Unallocated			Consolidated
Assets	$	37,016		$	5,581		$	6,728		$	(9	)	$	49,316
Revenue		3,194			1,591			542			(409	)		4,918
Operating income/(loss)		(1,021	)		508			(130	)		(900	)		(1,543	)
Pretax income/(loss)		(1,013	)		515			(229	)		(900	)		(1,627	)
201 8
Assets	$	37,403		$	3,481		$	17,481		$	(9	)	$	58,356
Revenue		5,635			844			358			(402	)		6,435
Operating income/(loss)		145			(243	)		(627	)		(655	)		(1,380	)
Pretax income/(loss)		145			(243	)		(627	)		(745	)		(1,470	)

Six Months Ended

June 30,

(In thousands)

									Eliminations* and
2019	CVD			SDC		Materials			Unallocated			Consolidated
Revenue	$	5,213		$	2,678	$	970		$	(466	)	$	8,395
Operating income/(loss)		(2,558	)		682		(328	)		(1,904	)		(4,108	)
Pretax income/(loss)		(2,522	)		691		(525	)		(1,904	)		(4,260	)
2018
Revenue	$	12,341		$	3,104	$	730		$	(586	)	$	15,589
Operating income/(loss)		1,482			488		(1,140	)		(1,299	)		(469	)
Pretax income/(loss)		1,482			488		(1,140	)		(1,493	)		(663	)

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

XML

Note 12 - Subsequent Event

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE 12: SUBSEQUENT EVENT

On

August 5, 2019,

the Company entered into a Mortgage Modification Agreement, a Reaffirmation of Unlimited Continuing Guaranty, and a Note Modification Agreement with HSBC Bank USA.The Mortgage Modification Agreement amended the original Mortgage by removing the fixed charge coverage financial ratio financial covenant and replacing it with a minimum liquid Assets covenant as follows:

CVD Equipment Corporation and its consolidated subsidiaries shall own and maintain minimum Liquid Assets of (i) at least

$3,000,000

at all times for the balance of the calendar year ending

December 31, 2019 (

ii)

$3,250,000

as of

March 31, 2020, (

iii)

$3,500,000

as of

September 30, 2020, (

iv)

$3,750,000

as of

March 31, 2021, (

v)

$4,000,000

as of

September 30, 2021,

and (vi)

$4,000,000

as of each quarter end thereafter as determined by the Mortgagee. As used herein, the term "Liquid Assets" shall be deemed to mean assets of the following types and nature so long as such are

not

pledged, encumbered, hypothecated, subject to rights of offset or otherwise restricted:

In addition, the agreements provide for a cross default between the Company’s

two

existing HSBC Notes.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

On

January 1, 2018,

we adopted accounting standard ASC

606,

Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts

not

yet completed as of the adoption date. Results for reporting periods beginning

January 1, 2018

are presented under ASC

606,

while prior period amounts were

not

adjusted.

The adoption of ASC

606

did

not

have a significant impact on our Consolidated Financial Statements as of and for the

three

and

six

month periods ended

June 30, 2018

and, as a result, comparisons of revenues and operating profits performance between periods are

not

affected by the adoption of this ASU.

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within

three

to

eighteen

months from commencement of order acceptance. The Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

“Contract assets,” include unbilled amounts typically resulting from sales under contracts when revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amount

may

not

exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle.

“Contract liabilities,” include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC

606.

Research and Development Expense, Policy [Policy Text Block]

Research

and

Development

Research and development costs are expensed as incurred. Due to the highly technical nature of our projects, we use our technical staff in a dual role, and based on their contribution to the customer or research and development projects, their costs are charged accordingly to either cost of goods sold or research and development.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

June 2016,

the FASB issued ASU

2016

-

13,

F

inancial Instruments – Credit Losses (Topic

326

)

, which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this update are effective for fiscal years beginning after

December 15, 2019

and interim periods within those annual periods. Early adoption for fiscal years beginning after

December 15, 2018

is permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In

February 2016

the FASB issued ASU

No.

2016

-

02,

"Leases (Topic

842

)" (ASU

2016

-

02

). The primary difference between previous GAAP and ASU

2016

-

02

is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or

not

to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of

12

months or less, a lessee is permitted to make an accounting policy election by class of underlying asset

not

to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU

2016

-

02

is effective for fiscal years beginning after

December 15, 2018.

Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities

may

elect to apply.

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. In addition, FASB has amended Topic

842

prior to it becoming effective. The effective date and transition requirements for these amendments to Topic

842

are the same as ASU

2016

-

02.

The Company has

one

lease at its Denmark facility which currently expires at

December 31, 2020

and has recognized a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term in the amount of

$129,000

.

We believe there is

no

additional new accounting guidance adopted, but

not

yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted,

may

have a significant impact on our financial reporting.

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Note 4 - Revenue From Contracts With Customers (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Disaggregation of Revenue [Table Text Block]

	Three Months Ended				Six Months Ended
Category	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Aerospace	$	1,003	$	2,205	$	1,216	$	6,079
Industrial		1,810		1,962		3,387		5,208
Research		1,102		1,014		1,954		1,875
Point in time		1,003		1,254		1,838		2,427
Net Revenue	$	4,918	$	6,435	$	8,395	$	15,589

Contract with Customer, Asset and Liability [Table Text Block]

	Three Months Ended			Three Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	0		$	34
(Decrease) increase in revenue from net changes in input cost estimates	$	(61	)	$	(479	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(61	)	$	(445	)
Number of projects		26			15
Net change in estimate as a percentage of aggregate revenue for associated projects		(.9	%)		(9.2	%)

	Six Months Ended			Six Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	9		$	75
(Decrease) increase in revenue from net changes in input cost estimates	$	(240	)	$	(570	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(231	)	$	(495	)
Number of projects		26			10
Net change in estimate as a percentage of aggregate revenue for associated projects		(.5	%)		(8.8	%)

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Note 5 - Inventories, Net (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	June 30, 2019			December 31, 2018
Raw materials	$	1,701,667		$	2,016,488
Work-in-process		590,999			205,385
Finished goods		-			-
Gross inventories		2,292,666			2,221,873
Less reserve for obsolescence		(410,000	)		(360,000	)
Inventories, net	$	1,882,666		$	1,861,873

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Note 9 - Income Taxes (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	Six Months Ended June 30,
	2019			2018
Current:
Federal	$	---		$	48,330
State		7,303			3,500
Total current provision		7,303			51,830
Deferred:
Federal	$	(698,000	)	$	56,888
State		------			----
Total deferred (benefit) provision		(698,000	)		56,888
Income tax expense (benefit) provision	$	(690,697	)	$	108,718

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Six Months Ended
	June 30,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(895,428	)	$	(139,314	)
Foreign tax loss		28,175			82,715
State taxes		3,000			3,500
Difference between tax and book depreciation		48,144			39,827
Stock compensation		62,505			140,052
Other Permanent differences		62,907			(18,062	)
Income tax (benefit) expense	$	(690,697	)	$	108,718

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Note 11 - Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2019

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

										Eliminations* and
2019	CVD			SDC			Materials			Unallocated			Consolidated
Assets	$	37,016		$	5,581		$	6,728		$	(9	)	$	49,316
Revenue		3,194			1,591			542			(409	)		4,918
Operating income/(loss)		(1,021	)		508			(130	)		(900	)		(1,543	)
Pretax income/(loss)		(1,013	)		515			(229	)		(900	)		(1,627	)
201 8
Assets	$	37,403		$	3,481		$	17,481		$	(9	)	$	58,356
Revenue		5,635			844			358			(402	)		6,435
Operating income/(loss)		145			(243	)		(627	)		(655	)		(1,380	)
Pretax income/(loss)		145			(243	)		(627	)		(745	)		(1,470	)

									Eliminations* and
2019	CVD			SDC		Materials			Unallocated			Consolidated
Revenue	$	5,213		$	2,678	$	970		$	(466	)	$	8,395
Operating income/(loss)		(2,558	)		682		(328	)		(1,904	)		(4,108	)
Pretax income/(loss)		(2,522	)		691		(525	)		(1,904	)		(4,260	)
2018
Revenue	$	12,341		$	3,104	$	730		$	(586	)	$	15,589
Operating income/(loss)		1,482			488		(1,140	)		(1,299	)		(469	)
Pretax income/(loss)		1,482			488		(1,140	)		(1,493	)		(663	)

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - Accounting Standards Update 2016-02 [Member]	Jan. 01, 2019 USD ($)
Operating Lease, Right-of-Use Asset	$ 129,000
Operating Lease, Liability, Total	$ 129,000

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Note 3 - Concentration of Credit Risk (Details Textual)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Cash and Cash Equivalents, at Carrying Value, Ending Balance	$ 8,580,564	$ 15,396,489	$ 8,580,564	$ 15,396,489	$ 11,439,361	$ 14,210,909
Cash Equivalents, at Carrying Value, Total	7,500,000		7,500,000		8,900,000
Cash, Uninsured Amount	$ 6,824,000		$ 6,824,000		$ 6,920,000
Customer Concentration Risk [Member] | Revenue Benchmark [Member]
Number Of Major Customers	1		1
Concentration Risk, Percentage	13.00%	37.00%	10.00%	43.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number Of Major Customers			2		2
Concentration Risk, Percentage			24.00%		42.00%

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Note 4 - Revenue From Contracts With Customers (Details Textual) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Contract with Customer, Cumulative Catch-up Adjustment to Revenue, Change in Estimate of Transaction Price and Input Costs	$ (61,000)		$ (445,000)	$ (231,000)	$ (495,000)
Increase (Decrease) in Contract with Customer, Asset		$ 300,000		$ 296,670	$ (3,082,808)

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Note 4 - Revenue From Contracts With Customers - Disaggregation of Revenue (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net Revenue	$ 4,918,118	$ 6,435,278	$ 8,395,378	$ 15,589,111
Transferred at Point in Time [Member]
Net Revenue	1,003,000	1,254,000	1,838,000	2,427,000
Aerospace [Member]
Net Revenue	1,003,000	2,205,000	1,216,000	6,079,000
Industrial [Member]
Net Revenue	1,810,000	1,962,000	3,387,000	5,208,000
Research [Member]
Net Revenue	$ 1,102,000	$ 1,014,000	$ 1,954,000	$ 1,875,000

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Note 4 - Revenue From Contracts With Customers - Changes in Estimates (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Increase in revenue from net changes in transaction prices	$ 0	$ 34,000	$ 9,000	$ 75,000
(Decrease) increase in revenue from net changes in input cost estimates	(61,000)	(479,000)	(240,000)	(570,000)
Net (decrease) increase in revenue from net Changes in estimates	$ (61,000)	$ (445,000)	$ (231,000)	$ (495,000)
Number of projects	26	15	26	10
Net change in estimate as a percentage of aggregate revenue for associated projects	(0.90%)	(9.20%)	(0.50%)	(8.80%)

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Note 5 - Inventories, Net - Components of Inventories (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Raw materials	$ 1,701,667	$ 2,016,488
Work-in-process	590,999	205,385
Finished goods
Gross inventories	2,292,666	2,221,873
Less reserve for obsolescence	(410,000)	(360,000)
Inventories, net	$ 1,882,666	$ 1,861,873

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Note 6 - Accounts Receivable, Net (Details Textual) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Accounts Receivable, Allowance for Credit Loss, Ending Balance	$ 24,000	$ 24,000

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Note 7 - Long-term Debt (Details Textual)			3 Months Ended	6 Months Ended
	Jul. 01, 2019 USD ($)	Nov. 30, 2017 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Sep. 01, 2018 USD ($)
Payments to Acquire Property, Plant, and Equipment, Total				$ 1,434,682	$ 1,273,857
Rental Income, Nonoperating			$ 36,000
Subsequent Event [Member]
Monthly Rental Income	$ 67,000
Annual Rental Income	$ 800,000
HSBC Bank Mortgage Loan [Member]
Debt Instrument, Number of Payments				120
Debt Instrument, Periodic Payment, Total				$ 25,000
Long-term Debt, Total			2,500,000	$ 2,500,000		$ 2,700,000
HSBC Bank Mortgage Loan [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate				1.75%
HSBC Bank Mortgage Loan [Member] | Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate				0.50%
HSBC Bank Second Mortgage Loan [Member]
Debt Instrument, Number of Payments				60
Debt Instrument, Periodic Payment, Total				$ 62,481
Long-term Debt, Total			$ 9,900,000	$ 9,900,000		$ 10,000,000
Debt Instrument, Face Amount		$ 10,387,500
Debt Instrument, Interest Rate, Stated Percentage			3.9148%	3.9148%
HSBC Bank Second Mortgage Loan [Member] | Premises at 555 North Research Place, Central Islip, NY [Member]
Payments to Acquire Property, Plant, and Equipment, Total		$ 13,850,000
HSBC Bank [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity							$ 7,000,000

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Note 8 - Stock-based Compensation Expense (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Selling, General and Administrative Expenses [Member]
Share-based Payment Arrangement, Expense	$ 179,000	$ 201,000	$ 378,000	$ 424,000

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Note 9 - Income Taxes (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Net Income (Loss) Attributable to Parent, Total	$ (1,392,730)	$ (1,330,526)	$ (3,569,676)	$ (772,122)
CVD Tantaline ApS [Member] | DENMARK
Net Income (Loss) Attributable to Parent, Total			134,000	394,000
Deferred Tax Assets, Gross, Total	$ 28,000	$ 83,000	$ 28,000	$ 83,000
CVD Tantaline ApS [Member] | DENMARK | Foreign Tax Authority [Member] | The Danish Ministry of Taxation [Member]
Effective Income Tax Rate Reconciliation, at Foreign Statutory Income Tax Rate, Percent	22.00%		22.00%

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Note 9 - Income Taxes - Components of Income Taxes (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Federal				$ 48,330
State			7,303	3,500
Total current provision			7,303	51,830
Federal			(698,000)	56,888
State
Total deferred (benefit) provision			(698,000)	56,888
Income tax expense (benefit) provision	$ (234,697)	$ (139,052)	$ (690,697)	$ 108,718

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Note 9 - Income Taxes - Effective Income Tax Rate Reconciliation (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income tax provision at federal statutory rate (21%)			$ (895,428)	$ (139,314)
Foreign tax loss			28,175	82,715
State taxes			3,000	3,500
Difference between tax and book depreciation			48,144	39,827
Stock compensation			62,505	140,052
Other Permanent differences			62,907	(18,062)
Income tax expense (benefit) provision	$ (234,697)	$ (139,052)	$ (690,697)	$ 108,718

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Note 9 - Income Taxes - Effective Income Tax Rate Reconciliation (Details) (Parentheticals)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Income tax, rate	21.00%	21.00%

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Note 10 - Earnings Per Share (Details Textual) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance	467,930	387,930	467,930	387,930
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercisable, Number	227,930	227,930	227,930	227,930
Share-based Payment Arrangement, Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	0	0	0

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Note 11 - Segment Reporting (Details Textual)	6 Months Ended
	Jun. 30, 2019
Number of Operating Segments	3

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Note 11 - Segment Reporting - Segment Information (Details) - USD ($)		3 Months Ended		6 Months Ended
		Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Assets		$ 49,315,904	$ 58,356,000	$ 49,315,904	$ 58,356,000	$ 52,514,562
Revenue		4,918,118	6,435,278	8,395,378	15,589,111
Operating income/(loss)		(1,543,220)	(1,379,613)	(4,108,436)	(469,045)
Pretax income/(loss)		(1,627,427)	(1,469,578)	(4,260,373)	(663,404)
Intersegment Eliminations [Member]
Assets	[1]	(9,000)	(9,000)	(9,000)	(9,000)
Revenue	[1]	(409,000)	(402,000)	(466,000)	(586,000)
Operating income/(loss)	[1]	(900,000)	(655,000)	(1,904,000)	(1,299,000)
Pretax income/(loss)	[1]	(900,000)	(745,000)	(1,904,000)	(1,493,000)
CVD [Member] | Operating Segments [Member]
Assets		37,016,000	37,403,000	37,016,000	37,403,000
Revenue		3,194,000	5,635,000	5,213,000	12,341,000
Operating income/(loss)		(1,021,000)	145,000	(2,558,000)	1,482,000
Pretax income/(loss)		(1,013,000)	145,000	(2,522,000)	1,482,000
SDC [Member] | Operating Segments [Member]
Assets		5,581,000	3,481,000	5,581,000	3,481,000
Revenue		1,591,000	844,000	2,678,000	3,104,000
Operating income/(loss)		508,000	(243,000)	682,000	488,000
Pretax income/(loss)		515,000	(243,000)	691,000	488,000
Materials [Member] | Operating Segments [Member]
Assets		6,728,000	17,481,000	6,728,000	17,481,000
Revenue		542,000	358,000	970,000	730,000
Operating income/(loss)		(130,000)	(627,000)	(328,000)	(1,140,000)
Pretax income/(loss)		$ (229,000)	$ (627,000)	$ (525,000)	$ (1,140,000)

[1] All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

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Note 12 - Subsequent Event (Details Textual) - USD ($)	Oct. 01, 2021	Sep. 30, 2021	Mar. 31, 2021	Sep. 30, 2020	Mar. 31, 2020	Dec. 31, 2019
Forecast [Member] | HSBC Bank [Member]
Mortgage Modification Agreement, Requirement, Minimum Liquid Assets	$ 4,000,000	$ 4,000,000	$ 3,750,000	$ 3,500,000	$ 3,250,000	$ 3,000,000