UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2007
[_] 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 Small Business Issuer in Its Charter)
New York 11-2621692
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1860 Smithtown Avenue
Ronkonkoma, New York 11779
(Address including zip code of registrant's Principal Executive Offices)
(631) 981-7081
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Act:
Common Stock, Par value $0.01
-----------------------------
(Title of class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter 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 [X] No
[ ]
Indicate by check mark whether issuer is a large accelerated filer, an
accelerated filer or a non-accelerated filer See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act). (check
one)
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 3,335,000 shares of Common
Stock, $0.01 par value at August 3, 2007.
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Index
Part I - Financial Information
Item 1 - Financial Statements (Unaudited)
Consolidated Balance Sheets at June 30, 2007 (Unaudited) and December
31, 2006 2
Comparative Consolidated Statements of Operations (Unaudited) for the
three and six months ended June 30, 2007 and 2006 3
Comparative Consolidated Statements of Cash Flows (Unaudited) for the
six months ended June 30, 2007 and 2006 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Controls and Procedures 13
Part II - Other Information 14
Item 1 - Legal Proceedings 14
Item 2 - Changes in Securities and Use of Proceeds 14
Item 3 - Defaults Upon Senior Securities 14
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports Filed on Form 8-K 15
Signatures 16
Exhibit Index 17
Certification of Chief Executive Officer 18
Certification of Chief Financial Officer 19
Certification of Chief Executive Officer pursuant to U.S.C. Section 1350 20
Certification of Chief Financial Officer pursuant to U.S.C. Section 1350 21
EXPLANATORY NOTE
This Amendment No. 1 to the Registrant's Quarterly Report on Form 10-QSB
for the fiscal quarter ended June 30, 2007, originally filed August 6, 2007 (the
"Original Quarterly Report"), is being filed solely to amend Part I, Item 1.
This Amendment No. 1 speaks as of the original filing date of the Original
Quarterly Report and does not reflect events occurring after the filing date of
the Original Quarterly Report, or modify or update the disclosures therein in
any way, other than as required to amend Part I, Item 1. This Amendment No. 1
corrects the entries under the "Income Taxes Paid" and "Interest Paid" line
items in Registrant's Consolidated Statements of Cash Flows for the Six Months
ended June 30, 2006 and 2007 the headings of which had been transposed. No other
corrections to Registrant's financial statements have been made.
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2007
(Unaudited) December 31, 2006
----------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 199,621 $ 257,341
Accounts receivable, net 1,486,502 2,377,069
Investments 251,130 251,130
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,787,089 716,663
Inventories 2,903,676 2,704,506
Other current assets 178,251 118,300
------------- ---------------
Total current assets 6,806,269 6,425,009
Property, plant and equipment, net 5,029,155 4,778,807
Deferred income taxes 943,218 899,904
Other assets 632,115 708,114
Intangible assets, net 94,457 105,775
------------- ---------------
$ 13,505,214 $ 12,917,609
============= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 225,550 $ 223,653
Bank line of credit - 210,000
Short-term debt - 2,109
Accounts payable 556,093 640,771
Accrued expenses 785,211 686,771
Accrued professional fees - related party 35,000 35,000
Deferred revenue 12,881 212,250
Deferred tax liability 256,096 263,396
------------- ---------------
Total current liabilities 1,870,831 2,273,950
Long-term debt, net of current portion 2,790,933 2,776,801
Bank line of credit 585,000 -
Deferred tax liability 620,934 666,948
------------- ---------------
Total liabilities 5,867,698 5,717,699
------------- ---------------
Commitments and contingencies
--- ---
Stockholders' Equity
Common stock, par value $.01 per share, authorized 10,000,000
shares; issued and outstanding, 3,303,500 shares at
June 30, 2007 and 3,250,500 shares at December 31, 2006 33,035 32,505
Additional paid-in capital 3,581,213 3,405,474
Retained earnings 4,023,268 3,761,931
------------- ---------------
Total stockholders' equity 7,637,516 7,199,910
------------- ---------------
$ 13,505,214 $ 12,917,609
============== ===============
The accompanying notes are an integral part of the consolidated financial statements
2
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2007 2006 2007 2006
---------------------- ------------------ ------------------ --------------------
Revenue $ 3,071,244 $ 3,111,132 $6,882,521 $6,322,605
Cost of revenue 1,899,693 2,044,806 4,455,022 4,186,182
----------- ----------- ---------- ---------
Gross profit 1,171,551 1,066,326 2,427,499 2,136,423
----------- ----------- ---------- ---------
Operating expenses
Selling and shipping 148,260 200,362 426,570 397,231
General and administrative 780,020 731,441 1,543,246 1,449,650
Related party - professional fees 25,000 10,000 35,000 10,000
----------- ----------- ---------- ---------
Total operating expenses 953,280 941,803 2,004,816 1,856,881
Operating income 218,271 124,523 422,683 279,542
----------- ----------- ---------- ---------
Other income (expense)
Interest income 34 387 61 408
Interest expense (52,300) (58,880) (105,773) (115,527)
Other income 34,309 11,285 39,403 86,754
----------- ----------- ---------- ---------
Total other (expense) (17,957) (47,208) (66,309) (28,365)
Income before income taxes 200,314 77,315 356,374 251,177
Income tax provision (35,387) (54,252) (95,037) (115,167)
----------- ----------- ---------- ---------
Net income $ 164,927 $ 23,063 261,337 $ 136,010
=========== =========== ========== ==========
Basic income per share $ 0.05 $ 0.01 $ 0.08 $ 0.04
=========== =========== ========== ==========
Diluted income per common share $ 0.05 $ 0.01 $ 0.08 $ 0.04
=========== =========== ========== ==========
Weighted average common shares
outstanding basic income per share 3,286,732 3,146,273 3,292,660 3,135,314
Effect of potential common share
issuances Stock options 151,480 155,102 139,432 158,769
----------- ----------- ---------- ---------
Weighted average common shares
outstanding diluted income per share 3,438,212 3,301,375 3,432,092 3,294,083
=========== =========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements
3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30
2007 2006
------------------------- -----------------------
Cash flows from operating activities
Net income $ 261,337 $ 136,010
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Stock based compensation expense 85,268 85,926
Depreciation and amortization 211,638 169,319
Deferred tax benefit (96,628) (99,043)
Bad debt provision (2,000) -
Changes in operating assets and liabilities:
Accounts receivable 892,566 (423,338)
Cost in excess of billings on uncompleted contracts (1,070,426) 207,000
Inventory (199,170) (544,114)
Other current assets (59,951) (49,180)
Accounts payable (84,678) 30,650
Accrued expenses 98,443 275,575
Deferred revenue (199,369) 239,486
------------ -----------
Net cash (used in) provided by operating activities (162,970) 28,291
------------ -----------
Cash flows from investing activities:
Capital expenditures (388,435) (191,064)
Deposits 13,766 -
------------ -----------
Net cash used in investing activities (374,669) (191,064)
------------ -----------
Cash flows from financing activities:
Proceeds from short-term borrowings 1,125,000 840,000
Payments of short-term borrowings (1,335,000) (400,000)
Proceeds from bank line of credit - long-term 585,000 -
Proceeds from long-term debt 139,510 115,309
Payments of long-term debt (125,591) (126,808)
Net proceeds from stock options exercised 91,000 43,750
------------ -----------
Net cash provided by financing activities 479,919 472,251
------------ -----------
Net (decrease) increase in cash and cash equivalents (57,720) 309,478
Cash and cash equivalents at beginning of period 257,341 265,454
------------ -----------
Cash and cash equivalents at end of period $ 199,621 $ 574,932
============ ============
Supplemental disclosure of cash flow information
Interest Paid $ 104,250 $ 119,198
Income Taxes Paid $ 101,447 $ 100
The accompanying notes are an integral part of the consolidated financial statements
4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited financial statements 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-QSB and
Item 310(b) of Regulation S-B. Accordingly, 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, 2007 are not
necessarily indicative of the results that can be expected for the year ending
December 31, 2007.
The balance sheet as of December 31, 2006 has been derived from the audited
financial statements at such date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
The accounting policies followed by the Company are set forth in Note 2 to the
Company's consolidated financial statements in the December 31, 2006 Form
10-KSB.
For further information, please refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report of Form 10-KSB for
the year ended December 31, 2006.
Intercompany transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior period financial statements to
conform to the current period presentation.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of CVD Equipment
Corporation and its wholly owned subsidiary. In December 1998 , a subsidiary,
Stainless Design Concepts, Ltd., was formed as a New York Corporation. In April
1999, this subsidiary was merged into CVD Equipment Corporation. The Company has
one inactive subsidiary, CVD Materials Corporation as of December 31, 2006 and
2005. All significant intercompany accounts and transactions have been
eliminated in consolidation.
5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates are used when accounting for certain items such as revenues on
long-term contracts recognized on the percentage-of-completion method,
allowances for doubtful accounts, depreciation and amortization, tax provisions
and product warranties.
Revenue and Income Recognition
------------------------------
The Company recognizes revenues and income using the percentage-of-completion
method for custom production-type contracts while revenues from other products
are recorded when such products are accepted and shipped. Profits on custom
production-type contracts are recorded on the basis of the Company's estimates
of the percentage-of-completion of individual contracts, commencing when
progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. Under this method, revenues are recognized
based on costs incurred to date compared with total estimated costs.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less at the date of purchase to be cash
equivalents.
Investments
-----------
Investments in unconsolidated companies in which the Company owns less than a
20% interest or does not exercise a significant influence are carried at cost.
6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3: UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts are summarized
as follows:
June 30, 2007 December 31, 2006
------------- -----------------
(Audited)
Costs incurred on uncompleted contracts $ 1,959,177 $1,509,672
Estimated earnings 2,954,762 2,015,836
------------ ----------
5,039,946 3,525,508
Billings to date (3,252,857) (2,808,845)
------------ ------------
$ 1,787,089 $ 716,663
------------ ------------
Included in accompanying balance sheets
Under the following caption:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,787,089 $ 716,663
NOTE 4: INVENTORIES
Inventories consist of the following:
June 30, 2007 December 31, 2006
------------- -----------------
(Audited)
Raw materials $ 876,432 $ 860,085
Work-in-process 1,698,283 1,515,460
Finished goods 328,961 328,961
------------- -------------
$2,903,676 $ 2,704,506
------------- -------------
NOTE 5: BAD DEBTS
Accounts receivables are presented net of an allowance for doubtful accounts of
$5,217 and $7,217 as of June 30, 2007 and December 31, 2006 respectively. The
allowance is based on prior experience and management's evaluation of the
collectibility of accounts receivable. Management believes the allowance is
adequate. However, future estimates may change based on changes in economic
conditions.
7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 6: BANK LINE OF CREDIT
June 30, 2007 December 31, 2006
------------- -----------------
(Audited)
Short Term Borrowings $ --- $210,000
Long term Borrowings $585,000 ---
On June 1, 2007, the Company entered into a new three-year Revolving Credit
Agreement with a bank permitting it to borrow on a revolving basis amounts up to
$2,000,000 until June 1, 2010. Interest is payable on any unpaid principal
balance at a rate per annum to be elected by the Company which shall be equal to
either (1) the LIBOR Rate plus 2.50% or the bank's prime rate plus 1/4 of 1%.
The amount outstanding on the facility was $585,000 and $210,000 on June 30,
2007 and December 31, 2006 respectively. Borrowings are collateralized by the
Company's assets. Amounts outstanding as of December 31, 2006 were borrowed
under the Company's prior facility which is now terminated.
NOTE 7: STOCK COMPENSATION EXPENSE
On January 1, 2006, the Company adopted the provisions of SFAS No. 123-R
"Share-Based Payment" using the modified prospective method. SFAS No. 123-R
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based upon the grant date fair value
of those awards. Under the modified prospective method of adopting SFAS No.
123-R, the Company recognized compensation cost for all share-based payments
granted after January 1, 2006, plus any awards granted to employees prior to
January 1, 2006 that remain unvested at that time. Under this method of
adoption, no restatement of prior periods is made.
During the three and six months ended June 30, 2007 and June 30, 2006, the
Company recorded into selling and general administrative expense approximately
$44,000 and $85,000 and $33,000 and $86,000 respectively for the cost of
employee services received in exchange for equity instruments based on the
grant-date fair value of those instruments in accordance with the provisions of
SFAS No. 123-R.
8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 8: INCOME TAXES
The provision (benefit) for income taxes includes the following:
Six Months Ended Six Months Ended
June 30, 2007 June 30, 2006
------------- -------------
Current:
Federal $ 166,981 $ 214,087
State 24,684 123
-------------- ------------
Total Current Provision 191,665 214,210
Deferred:
Federal (88,423) (78,504)
State ( 8,205) (20,539)
--------------- ------------
Total Deferred (Benefit) (96,628) (99,043)
--------------- ------------
$ 95,037 $ 115,167
--------------- ------------
All of the Company's federal net operating loss (NOL'S) carry forwards of
approximately $40,000 have been utilized and $276,000 of the Company's $277,000
state net operating loss (NOL'S) carry forwards have been utilized through June
30, 2007.
NOTE 9: SUBSEQUENT EVENTS
The Company sold equipment to a Customer for a purchase price of one hundred
four thousand, four hundred eighty two (104,482) shares of common stock, par
value $.001 per share. Between July 19, 2007 and July 31, 2007, the Company has
the option to demand that the Customer make cash payment i.e.: two hundred
fifty-one thousand, one hundred thirty 00/100 U.S. dollars ($251,130) for the
equipment, the amount that would have been required had the Customer made cash
payment for the equipment on July 19, 2006 in exchange for the return of said
stock.The Customer's obligation to make such payment pursuant to the terms of
the option is secured by a perfected lien upon the subject equipment and the
Company's right to execute upon the aforesaid common stock. In the event the
Customer does not make full payment, the Company has also reserved the right to
maintain plenary proceedings against the Customer for the purpose of recovering
such sums as may be due as well as the right to obtain a deficiency judgment in
the event that the collateral in the equipment and stock is insufficient to
discharge said obligation.
The parties agreed to extend the option to demand cash payment to the period
between December 1, 2007 and March 12, 2008.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and accompanying notes filed as part of this
report.
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.
Results of Operations
Three and Six Months Ended June 30, 2007 vs.
Three and Six Months Ended June 30,2006
-----------------------------------------------
Revenue for the three and six month periods ended June 30, 2007 was
approximately $3,071,000 and $6,883,000 respectively, compared to approximately
$3,111,000 and $6,323,000 respectively for the three month and six month periods
ended June 30, 2006. This represents a decrease of 1.3% for the comparable three
month period and an 8.9% increase for the comparable six month period. While
demand for our customized CVD systems and equipment provided by the First Nano
product line remains strong, revenues for the current three and six month period
were increasingly impacted throughout the three and six month periods by the
Company's decision to utilize some of its resources towards broadening the First
Nano product line, which it anticipates will add to the Company's long-term
growth and profitability.
The Company generated gross profits of approximately $1,171,000 and $2,427,000
resulting in gross profit margins of 38.0% and 35.3% for the three and six
months ended June 30, 2007 compared to gross profits of approximately $1,066,000
and $2,136,000 resulting in gross profit margins of 34.3% and 33.8% for the
three and six months ended June 30, 2006. The increase is primarily
atttributable to the gross profit margins related to the product mix comprising
the Company's sales.
10
Selling and shipping expenses for the three months ended June 30, 2007 and 2006
were $148,260 and $200,362 respectively, representing a 26.0% decrease. This
decrease is attributed directly to a decrease in sales commissions. Sales
concluded in the current period were primarily by our direct sales personnel and
therefore were not subject to outside sales commissions.
Selling and shipping expenses for the six months ended June 30, 2007 were
approximately $427,000 compared to $397,000 for the six months ended June 30,
2006. This increase of 7.4% is primarily attributable to a $47,000 increase in
trade show expenses which corresponds to the implementation of the Company's
sales marketing program.
The Company incurred approximately $805,000 and $1,578,000 of general and
administrative expenses during the three and six months ended June 30, 2007,
compared to the approximately $741,000 and $1,460,000 of general and
administrative expenses incurred in the three and six months ended June 30, 2006
representing increases of 8.7% and 8.1% or approximately $64,000 and $118,000.
This increase is primarily attributable to increases in employee benefit costs,
professional fees, insurance and energy costs.
As a result of the foregoing factors, operating income was $218,000 and $423,000
for the three and six months ended June 30, 2007 respectively. This represents
an increase of 75.2% and 51.2% compared to operating income of $125,000 and
$280,000 for the three and six month periods ended June 30, 2006.
Interest expense for the three and six months ended June 30, 2007 was
approximately $52,000 and $106,000 respectively compared to approximately
$59,000 and $116,000 for the three and six months ended June 30, 2006. The
decreases of 11.2% and 8.4% in interest expense are due to reduced borrowing by
the Company.
Other income during the three months ended June 30, 2007 was approximately
$34,000 compared to $11,000 for the three months ended June 30, 2006. This was
primarily the result of the receipt of $28,000 which was previously written off
as uncollectible in 2004.
Other income during the six months ended June 30, 2007 was approximately $39,000
compared to approximately $87,000 for the corresponding period one year ago.
This was the result of the receipt of $70,000 during the quarter ended March 31,
2006 which was previously written off as uncollectible in 2004.
For the three and six months ended June 30, 2007, the Company recorded a current
income tax expense of approximately $74,000 and $192,000 respectively, that was
reduced by the deferred tax benefit of approximately $39,000 and $97,000.
The Company reported net income of approximately $165,000 for the current three
month period compared to net income of approximately $23,000 for the same
period, one year ago. This increase was primarily due to the increased gross
profit margins experienced during the current three month period.
11
For the six month period ended June 30, 2007, the Company reported net income of
approximately $261,000 an increase of 92.1% as compared to net income of
$136,000 for the six months ended June 30, 2006. This is a result of increased
revenues and increased gross profit margins for the current six month period.
Liquidity and Capital Resources
As of June 30, 2007, the Company had an aggregate working capital of
approximately $4,935,000 compared to $4,151,000 at December 31, 2006 an increase
of $784,000. This increase was the primarily the result of $585,000 being
reclassified from short term borrowing to long term as a result of the new three
year Revolving Credit Agreement in addition to the increases in costs and
estimated earnings in excess of billings on uncompleted contracts of
approximately $1,070,000 and inventory of $199,000 partially offset by a
decrease in accounts receivable of $891,000.
Accounts receivable at June 30, 2007 was $1,486,502 compared to $2,377,069 at
December 31, 2006. This decrease is primarily attributable to the timing of
shipments and customer payments.
As of June 30, 2007, the Company's backlog was approximately $2,435,000, a
decrease of $1,130,000 or 31.7% compared to $3,565,000 at December 31, 2006.
Timing for completion of the backlog varies depending on the product mix,
however, there is generally a one to six month lag in the completion and
shipping of backlogged product. Backlog from quarter to quarter can vary based
on the timing of order placements and shipments.
Revolving Credit Facility and Borrowings
On June 1, 2007, the Company entered into a three year Revolving Credit
Agreement with a bank permitting it to borrow on a revolving basis amounts up to
$2,000,000 until June 1, 2010, at which time it will be subject to renewal. The
loan bears interest on any unpaid principal balance at a rate to be elected by
the Company, which shall be equal to either (1) the LIBOR Rate plus 2.50% or (2)
the bank's prime rate plus 1/4 of 1%. This agreement contains certain financial
and other covenants, with which we were in compliance at June 30, 2007. As of
June 30, 2007, $585,000 was outstanding on this facility. Borrowings are
collateralized by the Company's assets.
The Company had an equipment line of credit of $250,000 with that same bank.
This line of credit was discontinued as of June 1, 2007 with the inception of
the three year Revolving Credit Agreement previously discussed.
The Company believes that its cash, cash equivalents and available credit
facilities will be sufficient to meet its working capital and investment
requirements for the next twelve months.
12
However, we have determined that in order to allow our business to grow more
aggressively, we will need to raise additional capital. For this reason, we are
considering raising capital through equity financing. The Company filed a
Registration Statement on Form S-1 with the Securities and Exchange Commission
on July 3, 2007. As of the date hereof, the Registration Statement has not been
declared effective by the Securities and Exchange Commission; nor is there
assurance that such Registration Statement will ever be declared effective. In
addition, any final decision to raise additional capital will depend on market
conditions, order levels, opportunities presented to us and other factors
including our ability to have the Registration Statement declared effective by
the Securities and Exchange Commission.
Item 3. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures, as required by Exchange
Act Rule 13a-15, as of the end of the period covered by this report. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures were effective to insure
that information required to be disclosed by us in reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the SEC's rules and forms.
Changes in Internal Controls
There were no significant changes in the Company's internal controls over
financial reporting that occurred during the six months ended June 30, 2007 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.
13
CVD EQUIPMENT CORPORATION
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
In September 1999, the Company was named in a lawsuit filed by Precision Flow
Technologies, Inc. ("PFT"), in the United States District Court for the Northern
District of New York, relating to comments allegedly made by the Company's
President and Chief Executive Officer, Leonard A. Rosenbaum, concerning the
intellectual property obtained in the purchase of assets of Stainless Design
Corporation. The Company promptly filed a counterclaim for unauthorized use of
its intellectual property and filed a complaint against the President of PFT
(these two actions have been consolidated) alleging the same acts as set forth
in the counterclaim. The plaintiff is seeking monetary damages and injunctive
relief. In the Company's counterclaim, it are also seeking monetary damages and
injunctive relief. All pre-trial disclosure has been completed. The Company
withdrew certain of its counterclaims following the completion of discovery and
the court has dismissed certain of the claims which had been asserted by PFT. No
trial date has been set. In May 2002, the Company instituted a new action
against PFT and certain of its employees, in the United States District for the
Northern District of New York seeking injunctive relief and monetary damages
based upon copyright violations. A motion by PFT to dismiss this action which
had been pending since June 2002, was denied in March 2007. On May 25, 2007
PFT's motion for reconsideration was likewise denied. On June 11, 2007, PFT
filed its answer in which no counterclaims have been asserted against the
Company. Pre-trial disclosure has not yet been completed.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
14
Item 6. Exhibits
(a) Exhibits filed with this report:
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to U.S.C. Section 1350
15
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 6th day of August 2007.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
--------------------------
Leonard A. Rosenbaum
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Glen R. Charles
--------------------------
Glen R. Charles
Chief Financial Officer
(Principal Financial and
Accounting Officer)
16
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
31.1 Certification of Chief Executive Officer
31.2 Certification of Chief Financial Officer
32.1 Certification of Chief Executive Officer pursuant to U.S.C. Section 1350
32.2 Certification of Chief Financial Officer pursuant to U.S.C. Section 1350