U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________.
Commission File No. 0-14720-NY
CVD EQUIPMENT CORPORATION
(Exact name of registrant as specified in charter)
New York 11-2621692
(State of incorporation) (IRS Employer Identification No.)
1860 Smithtown Avenue, Ronkonkoma, New York 11779
(Address of principal executive offices)
631-981-7081
(Registrant's telephone number)
Securities Registered Pursuant to Section 12 (b) of the Act: NONE
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. [X]
The registrant's revenues for 2002 were $9,241,808
The aggregate market value of voting stock held by non-affiliates of the
registrant on February 28, 2003 was $1,668,315 based on a closing price of
$1.10 on that date.
As of February 28, 2003 there were 3,039,100 shares of Common Stock, Par
Value $.01 Per Share, Outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS................................................. 1
Introduction......................................... 1
General Development of Business...................... 1
The Organization..................................... 2
Information About Industry Segments.................. 3
General Narrative Description of Business............ 3
Principal Products................................... 3
Research and Development............................. 5
Industry Overview.................................... 5
Marketing............................................ 5
Patents and Copyrights............................... 5
Competition.......................................... 6
Customers............................................ 6
Foreign Operations................................... 7
Manufacturing Materials and Suppliers................ 7
Order Backlog........................................ 7
Employees............................................ 7
Insurance............................................ 7
Government Regulations............................... 8
Forward Looking Statements........................... 8
ITEM 2. DESCRIPTION OF PROPERTIES................................ 8
ITEM 3. LEGAL PROCEEDINGS........................................ 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...... 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS........................ 10
Market Information................................... 10
Dividends............................................ 10
Holders.............................................. 10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................... 11
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............. 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE................. 43
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....... 43
ITEM 10. EXECUTIVE COMPENSATION.................................. 44
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNER & MANAGEMENT..................................... 45
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......... 46
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K............................................ 47
1
PART I
ITEM 1. BUSINESS
INTRODUCTION
Statements contained in this Report on Form 10-KSB that are not historical
facts are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, including without
limitation, statements regarding industry trends, strategic business
development, pursuit of new markets, competition, results from operations,
and are subject to the safe harbor provisions created by that statute. A
forward-looking statement may contain words such as "intends", "plans",
"anticipates", "believes", "expect to", or words of similar import.
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause the Company's actual results to differ
materially from those projected. These risks and uncertainties include, but
are not limited to, marketing success, product development, production,
technological difficulties, manufacturing costs, and changes in economic
conditions in the markets the Company serves. The Company undertakes no
obligation to release revisions to forward-looking statements to reflect
subsequent events, changed circumstances, or the occurrence of unanticipated
events.
GENERAL DEVELOPMENT OF BUSINESS
CVD Equipment Corporation (the "Company") was incorporated under the laws of
New York State in October 1982. On September 11, 1985 the Company made an
initial public offering of 700,000 units underwritten by D. H. Blair & Co.,
44 Wall Street, New York, New York 10005, pursuant to which it received net
proceeds of $2,683,640.
In December 1998, the Company purchased at public auction the inventory,
tangible assets, intangible assets and intellectual property of Stainless
Design Corporation, Saugerties, NY, for $672,095.
On December 14, 1998, the Company entered into a contract with Kidco Realty
Corp. to purchase, for $1,400,000, the facility owned by Kidco Realty Corp.
located at 1117 Kings Highway, Saugerties, NY 12477 and formerly occupied by
Stainless Design Corporation. On April 29, 1999, the contract closed. The
purchase price was paid by cash funds from the Company in the amount of
$500,000 and Kidco Realty Corp. issuing a 30 year amortization, 7% interest,
10 year balloon, non recourse purchase money note and mortgage to the
Company in the amount of $900,000.
On December 23, 1998 the Company formed a new 100% owned subsidiary called
Stainless Design Concepts, Ltd. (SDC). The new subsidiary is located at
1117 Kings Highway, Saugerties, NY 12477. The new subsidiary manufactures
ultra high purity gas and chemical delivery control systems for the
semiconductor industry. On April 23, 1999, the new subsidiary was merged
into the Company as a wholly owned division.
On November 5, 1999 the Company formed another division called Equipment
Consulting Services (ECS). This new division is also located at 1117 Kings
Highway, Saugerties, NY 12477. The new division focuses on equipment
consulting and the refurbished semiconductor equipment market, a $1.5
billion industry.
On November 9, 2001 the Company acquired the assets of the Surface Mount
Technology division of Research Inc., known as Research International (RI).
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CVD's new division called Research International (RI) is located at 1860
Smithtown Avenue, Ronkonkoma, NY 11779. Research International is a leading
manufacturer of Surface Mount Technology (SMT) furnace equipment.
On March 7, 2002, the Company purchased a 50,000 square foot facility
located at 1860 Smithtown Avenue, Ronkonkoma, New York, 11779, from the
former owner Arrow Electronics, Inc. and in November 2002, we relocated from
the existing 20,000 square foot facility located at 1881 Lakeland Avenue,
Ronkonkoma, New York, which the Company plans to sublease. The total cost on
the new facility was $3,444,952, a purchase price of $2,161,875 and
$1,283,077 in renovations. The purchase and renovations were paid by cash
funds from the Company in the amount of $744,952 and GE Capital Public
Finance, Inc. issuing a 15 year amortization, 5.67% mortgage to the Company
in the amount of $2,700,000 pursuant to an installment sale agreement with
the Town of Islip Industrial Development Agency.
On June 17, 2002, the Company purchased substantially all the assets of
Conceptronic's Inc. Surface Mount Technology (SMT) business for $1,239,000.
The Company formed another division called Conceptronic, which was located
at Portsmouth, New Hampshire. During October 2002, the Company relocated the
division and merged it with our Research International Division to our
facility located at 1860 Smithtown Avenue, Ronkonkoma, New York. This new
division specializes in solder reflow ovens and rework stations for the
printed circuit board industry and chip scale package industry.
As evidenced by the Company's development of these new divisions, our growth
strategy is one of expanding revenues and increasing profits through
internal growth and acquisition. An important ingredient in our Strategic
Plan is to be an active player in the acquisitions environment. We look for
businesses that are:
* Synergistic in nature to our core business
* Complementary to our existing product lines
* Geared toward a start-up or turnaround situation
* Opportunistic for growth and profit development
In the year 2002, CVD Equipment Corporation was again named to Deloitte &
Touche's prestigious "Long Island Technology Fast 50" program, which ranks
the 50 fastest growing technology companies on Long Island.
Deloitte & Touche computed all calculations for revenue growth
rate with CVD having a five-year revenue growth rate of 185.79%.
The Long Island Technology Fast 50 program is sponsored by
Deloitte & Touche LLP, The Bank of New York, the Nasdaq Stock
Market, the Long Island Technology Center, the Long Island
Association, SUNY Stony Brook, Idea Alley, Long Island High
Technology Incubator at Stony Brook, Newsday, Certilman Balin
Adler & Hyman,LLP, Long Island Software & Technology Network, and
Invision.com.
CVD is a leading manufacturer of critical UHVCVD, MOCVD, PECVD, LPE, VPE,
RTP Etch, Gas & Chemical Delivery Systems, Belt Furnaces, Rework Stations
products and services for the Semiconductor, Telecommunications, Wireless,
Optoelectronics, MEMS, Solar Power and Surface Mount Technology markets. CVD
is proud to be recognized as a key player within Long Island's growing
technology sector.
THE ORGANIZATION
Each division, CVD, SDC/ECS , and Conceptronic/RI has their own operating
manager with sales and administration being handled by corporate managers.
Thus, each division operates reasonably autonomously on a day-to-day basis.
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Yet, there is an overall corporate coordination in the day-to-day
administration of the business, in setting policy and consistently applying
procedures.
INFORMATION ABOUT INDUSTRY SEGMENTS
The Company designs, develops, manufactures, markets, installs and services
equipment primarily for the semiconductor industry. The Company's products
include (1) both batch and single substrate systems used for depositing,
rapid thermal processing, annealing, diffusion and etching of semiconductor
films, (2) gas and liquid flow control systems, (3) ultra high purity gas
and chemical piping delivery systems, (4) fabricates standard and custom
quartzware, (5) equipment consulting and refurbishing of semiconductor
processing equipment, and (6) reflow furnaces and rework stations for
surface mounting of components onto printed circuit boards. The Company's
products are generally manufactured or customized to the particular
specifications of each of its customers.
GENERAL NARRATIVE DESCRIPTION OF BUSINESS
Semiconductor components are the fundamental electronic building blocks used
in modern electronic equipment and systems. These components are classified
as either discrete devices (such as transistors) or integrated circuits (in
which a number of transistors and other elements are combined to form a more
complicated electronic circuit). In an integrated circuit, these elements
are formed on a small "chip" of silicon or gallium arsenide, which is then
encapsulated in an epoxy, ceramic, or metal package having lead wires for
connection to a circuit board. The Company's products are used in the
manufacture of these components.
CVD DIVISION
Designs and manufacturers both standard and custom equipment for the
semiconductor industry. CVD has developed a fine reputation for producing
high quality products. CVD's equipment has leading edge technology and is
utilized for silicon germanium, silicon carbide, and gallium arsenide
processes. These processes are paramount in the optoelectric and wireless
communications arena.
SDC/ECS DIVISION
Designs and manufactures in their Class 100 cleanroom, ultra high purity Gas
and Chemical Delivery systems. Provides semiconductor equipment consulting
and refurbishing services. Their expertise crosses over many product lines
as well as manufactures, positioning the division to meet the changing
requirements of the industry. Their field service group provides for
contract maintenance, high purity fab and equipment installations and
equipment removal.
CONCEPTRONIC/RI DIVISION
Designs and manufactures solder reflow ovens and rework stations for the
printed circuit board industry and chip scale package industry. Their
product is marketed throughout the world.
PRINCIPAL PRODUCTS
Chemical Vapor Deposition (CVD) - is a process which passes a gaseous
compound over a target material surface that is heated to such a degree that
the compound decomposes and deposits a desired layer onto substrate
material. The process is accomplished by combining appropriate gases in a
reaction chamber, of the kind produced by the Company, at elevated
temperatures (typically 300 - 1500 degrees Celsius). The Company's Chemical
Vapor Deposition Systems are complete and include all necessary
4
instrumentation, subsystems and components. The systems include e mass flow
controllers, bellows valves, stainless steel lines and fittings. The
Company provides such standard systems and also specifically engineered
products for particular customer applications. Some of the standard systems
offered by the Company are for Silicon, Silicon-Germanium, Silicon Dioxide,
Silicon Nitride, Polysilicon, Liquid Phase Epitaxial, and Metalorganic
Chemical Vapor Deposition.
The Company's CVD systems are available in a variety of models that can be
used in production and laboratory research. All models can be offered with
total system automation, a microprocessor control system, by which the user
can measure, predict and regulate gas flow, temperature, pressure and
chemical reaction rates, thus controlling the process in order to enhance
the quality of the materials produced. The Company's standard
microprocessor control system is extremely versatile and capable of
supporting the Company's complete product line and most custom system
requirements. The Company's CVD systems range in price from $100,000 to
$2,500,000.
Rapid Thermal Processing (RTP) - are used to heat semiconductor materials to
elevated temperatures of 1000 degrees Celsius at rapid rates of up to 200
degrees Celsius per second. The Company's RTP systems are offered for
implant activation, oxidation, silicide formation and many other processes.
The Company offers system that can operate both at atmospheric or reduced
pressures. A specific model of the Company's RTP system is used for Thermal
Desorption Spectroscopy which allows the semiconductor process engineer the
ability to analyze the deposited films between the many process steps used
in the complex fabrication process. The Company's RTP systems generally
range in price from $75,000 to $350,000.
Annealing and Diffusion Furnaces - are used for diffusion, oxidation,
implant anneal, solder reflow and other processes. The systems are normally
operated at atmospheric pressure with gaseous atmospheres related to the
process. An optional feature of the system allows for the heating element
to be moved away from the process chamber allowing the wafers to rapidly
cool or be heated in a controlled environment. Our cascade temperature
control system enables more precise control of the wafers. The systems are
equipped with an automatic process controller, permitting automatic process
sequencing and monitoring with safety alarm provisions. The Company's
Annealing and Diffusion Furnace systems generally range in price from
$75,000 to $650,000.
Gas and Liquid Control Systems - standard and custom-designed gas and liquid
control systems encompassing (1) gas cylinder storage cabinets, (2) custom
gas and chemical delivery systems, (3) gas and liquid valve manifold boxes
(VMB's) and (4) gas isolation boxes (GIB's) to provide safe storage and
handling of pressurized gases and chemicals. System design allows for
automatic or manual control from both a local and remote location. The
Company's Gas and Liquid Control Systems generally range in price from
$20,000 to $350,000.
Ultra High Purity Gas and Chemical Piping Delivery Systems - we provide
field installation of ultra high purity piping systems within a
semiconductor plant for the distribution of gases and chemicals to the
assorted process tools. As part of the field service group we also offer
repair service work on customer equipment.
Quartzware - we provide standard and custom fabricated quartzware used in
the Company's equipment and other customer tools. The Company also provides
repair and replacement of existing quartzware. Our customer quartzware spare
5
parts requirements have grown substantially, especially for non-company
related products.
Surface Mount Reflow Furnaces and Rework Stations-we provide a line of
standard and custom systems that are sold and serviced worldwide. There are
in excess of 3000 systems that have been manufactured to date that bear the
Conceptronic or Research International name.
RESEARCH AND DEVELOPMENT
The Company continues its efforts on several research and development
projects. We develop and customize equipment for numerous government,
university and industry research laboratories around the world. Very often
the research, design and development of custom equipment, which remains
proprietary to the Company, yields new products.
INDUSTRY OVERVIEW
In 2002, the industry continued the current slowdown. CVD believes that it
has organized and structured itself with the three divisions to partially
compensate for the cyclic nature and thereby smooth out the ups and downs.
The CVD division deals with large capital equipment, which sometimes suffers
in a down cycle. However, the CVD division also sells to research facilities
and universities that are not normally influenced in a significant way in a
down market. The SDC/ECS division supplies Gas and Chemical Delivery Systems
and refurbished equipment, which can be impacted during a down market.
However, the field service group within that division, usually adds field
service work and equipment refurbishing in a down market. And finally, the
Conceptronic/Research International division is a tangential manufacturing
operation to further create a more balanced and diversified platform of
products.
MARKETING
The Company's products are used in research and production applications by
the semiconductor industry. The Company sells its products primarily to
semiconductor manufacturers, institutions involved in electronic research
such as universities, government and industrial laboratories and to
electronic assembly manufacturers. During 2002, sales of the Company's
products were made by a staff of 6 employees and 20 sales representatives,
whose activities were supported, by a staff of 12 application engineers.
During 2002 the Company continued to work on expanding our product
offerings.
The Company's Web Sites: www.cvdequipment.com; www.stainlessdesign.com;
www.equipmentconsulting.com; www.researchintl.com; www.conceptronic.com
continue to see increased traffic. The Company focuses on being in the top
listings on many search engines, thus increasing the number of hits to our
web sites. The Company continuously receives inquiries as a result of the
web sites.
The Company warrants its equipment for a period of twelve to twenty four
months, depending on the product, after shipment and passes along any
warranties from original manufacturers of components used in its products.
The Company provides for its own equipment servicing with in-house field
service personnel. Warrantee costs have been historically insignificant.
PATENTS, COPYRIGHTS AND LICENSE AGREEMENTS
The Company believes that while patents are useful, and will be used at
times in the future, they are not critical or valuable in many cases on an
individual basis. We believe the collective value of the intangible
property of the Company is comprised of blueprints, specifications,
technical processes, cumulative employee knowledge, experience, copyrights
and patents.
6
During years 2000, 2001, and 2002 the Company has applied for several
copyrights associated with the intellectual properties of the former
Stainless Design Corporation. In addition, with the acquisition of the
assets of Conceptronic and Research International, the Company is now the
owner of several patents used in the surface mount technology business.
COMPETITION
The Company's business is subject to intense competition. The Company is
aware of other competitors that offer a substantial number of products
comparable to the Company's. Many
of the Company's competitors (including customers who may elect to
manufacture systems for internal use) have financial, marketing and other
resources greater than the Company's. To date, the Company has been able to
compete in markets that include these competitors, primarily on the basis of
price, technical performance, quality and delivery.
CUSTOMERS
The Company sells to a wide range of customers. Sales to a single customer
in a given year however can exceed 10%. In 2002, two customers represented
approximately 11% and 12% of sales whereas in 2001, two customers
represented approximately 8% and 10% each of sales. CVD's customers include
many of the largest semiconductor, telecommunications, and computer
companies in the world. Several of these major customers are as follows:
Advanced Technology Material Inc. Diamler Chrysler Corp. NASA
Agere Systems Inc. Dow Corning Nat'l Institute of Standards
Agilent Technologies General Semiconductor Nova Crystals
Air Products Hewlett Packard ON Semiconductor
Alpha Industries IBM Osram
Alpha Photonics Innosys Inc. Phillips Semiconductor
AMP Inc. INO Raytheon
Applied Materials Intelcore Samsung Electronics
ASML ITT SCI Sanmina
Astro Power Jabil Semitool
AXT Optoelectronics JDS Uniphase Sensors Unlimited
B.F. Goodrich Kinetics Silicon Valley Group Inc.
Bechtel Bettis Inc. Kopin Corporation STAR Center
BOC Liteon Thermco Systmes
Brookhaven National Labs Lockhead Martin Tokyo Electronics
Bruckner Lucent Technologies Tyco Electronics
China Nat'l Electronis Lumileds Lighting Veeco
Cornings Inc. MEMC Electronic Materials Watkins Johnson Company
Cree Microchip Technology
In addition, CVD's customers include many prominent universities as follows:
Australian National University Ohio State University University of Illinois
Carnegie Mellon University Pennsylvania State University University of Maryland
Case Western Reserve University Princeton University University of Rochester
Cornell University Rensselaer Polytechnic Institute University of South Florida
Harvard University Research Foundation of SUNY University of Wisconsin
Indian Institute of Science University Of Albany Virginia Polytechnic Institute
Louisiana Tech. University University of CA @Santa Barbara Yale University
7
FOREIGN OPERATIONS
The Company's revenues derived from foreign exports were 25% and 15% in 2002
and 2001 respectively.
MANUFACTURING MATERIALS AND SUPPLIES
The Company does not manufacture many components used in producing the
Company's products. They are purchased from unrelated third-party
manufacturers of such equipment. The Company has no supply contracts
covering these components. The Company is not dependent on a principal or
major supplier and alternate suppliers are available. The Company does not
use a large amount of raw or difficult to obtain materials that could cause
a problem in production of our equipment.
The Company has its own fully equipped machine shop to fabricate in house;
the most complex designed parts of our equipment. The Company recently
invested in additional CNC machines for the machine shop, thus further
increasing efficiencies while significantly reducing costs in production.
Similarly, the Company's own Quartz shop is capable of meeting our
quartzware needs.
Quality control is a fundamental critical component in our processes.
Materials procured on the outside and/or manufactured internally undergo a
rigorous quality control process to ensure that the parts meet or exceed the
most stringent specifications. All equipment, upon final assembly, undergoes
a final series of complete testing to ensure product performance.
ORDER BACKLOG
As of December 31, 2002 the Company's order backlog was $3,816,877 compared
to $1,389,004 on December 31, 2001. Included in the backlog are all accepted
customer purchase orders. Order backlog is usually a reasonable management
tool to indicate expected revenues and projected profits, however, it does
not provide an assurance of future achievement or profits as order
cancellations or delays are possible.
EMPLOYEES
As of December 31, 2002, the Company employed 110 full time personnel and 3
part time personnel of which 48 were in manufacturing, 23 in engineering
(including research and development and efforts related to product
improvement), 11 in field service, 6 in marketing and 25 in general
management and administration.
The Company is not party to any collective bargaining agreement and has had
no work stoppages. The Company believes that its employee relations are
good.
INSURANCE
Because the Company's products are used in connection with explosive,
flammable, corrosive and toxic gases, there are potential exposures to
personal injury as well as property damage, particularly if operated without
regard to the design limits of the systems and components.
The Company endeavors to minimize its product liability exposure by
engineering safety devices for its products, carefully monitoring incidents
involving its products to determine areas where safety improvements may be
made, and training programs in connection with its products.
8
The Company believes that their insurance coverage is adequate. The
following types of insurance coverage are carried by the Company:
* Product liability
* Property Contents
* General Liability
* Workers Compensation
* Transportation
* Directors and Officers
* Employee Benefits Liability
* Business Auto
* Umbrella
GOVERNMENT REGULATIONS
The Company knows of no government requirements for approval of the sale of
their products or services except in some export cases. At that time we
apply for the appropriate export license. As of December 31, 2002, there
was no pending government approvals.
The Company knows of no existing or probable governmental regulations that
would have a serious effect on our business.
Cost associated with compliance to environmental laws has not been
significant to the Company's business.
FORWARD LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance, or achievements of the Company to be materially different from
any future results, performance, or achievements expressed or implied by
such forward looking statements. These forward looking statements were
based on various factors and were derived utilizing numerous important
assumptions and other important factors that could cause actual results to
differ materially from those in the forward looking statements. Important
assumptions and other factors that could cause actual results to differ
materially from those in the forward looking statements, include, but are
not limited to: competition in the Company's existing and potential future
product lines of business; the Company's ability to obtain financing on
acceptable terms if and when needed; uncertainty as to the Company's future
profitability, uncertainty as to the future profitability of acquired
businesses or product lines, uncertainty as to any future expansion of the
Company. Other factors and assumptions not identified above were also
involved in the derivation of these forward looking statements, and the
failure of such assumptions to be realized as well as other factors may also
cause actual results to differ materially from those projected. The Company
assumes no obligation to update these forward looking statements to reflect
actual results, changes in assumptions or changes in other factors affecting
such forward looking statements.
ITEM 2. DESCRIPTION OF PROPERTIES
On June 1, 1991, the Company relocated its operations to 1881 Lakeland
Avenue, Ronkonkoma, New York, a 20,000 square foot facility. The Company
signed a 5-year lease extension in 2000 that is scheduled to expire on July
31, 2006. The principle operations of CVD and its Conceptronic/RI division
9
has moved to its new location at 1860 Smithtown Avenue, Ronkonkoma, New
York. The Company plans to sublease the 1881 Lakeland Avenue, Ronkonkoma,
New York facility. Management feels that the property is adequately covered
by insurance and is in good condition.
On April 29, 1999, the Company purchased for $1,400,000, a 22,000 square
foot facility, situated on 5 acres of land located at 1117 Kings Highway,
Saugerties, NY 12477. Currently, the SDC and ECS divisions are located at
this facility. Management feels the property is adequately covered by
insurance and is in good condition.
On March 7, 2002, the Company purchased a 50,000 square foot facility for
$2,161,875 and made $1,283,077 in renovations, located at 1860 Smithtown
Avenue, Ronkonkoma, New York. Currently, the CVD and Conceptronic divisions
are located at this facility. Management feels the property is adequately
covered by insurance and is in good condition.
ITEM 3. LEGAL PROCEEDINGS
On September 24, 1999, the Company was named in a lawsuit. The nature of
this legal proceeding focused on the intellectual property obtained during
the purchase of assets of Stainless Design Corporation. On November 10,
1999, the Company responded with a counterclaim. It is legal counsels'
belief that the lawsuit against CVD is without merit and that our counter-
suit will be successful. The Company considers its potential exposure to be
negligible and covered by insurance.
On January 26, 2000, the Company initiated a lawsuit against a customer upon
certain outstanding bills and the customer responded with a counterclaim.
Settlement is pending upon terms favorable to CVD.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A shareholder's meeting was held in the third quarter of 2002 for the
primary purpose of re-electing directors and approving the selection of our
outside auditing firm.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
PRINCIPAL MARKET
The stock has been traded on the AMEX under the symbol CVV since June 2001.
Prior to June 2001, the stock was traded on the OTC Bulletin Board under the
symbol of CVDE.
STOCK PRICE INFORMATION
The Company's common stock first began to be publicly traded on September
11, 1985 and prior to that date the Company was privately held. The
following chart sets forth the high and low closing bid price of the Common
Stock for the indicated periods.
Period High Low
------ -------- --------
January 1, 2001 through March 31, 2001 5.063 3.500
April 1, 2001 through June 30, 2001 4.250 3.190
July 1, 2001 through September 30, 2001 3.590 2.080
October 1, 2001 through December 31, 2001 3.890 2.050
January 1, 2002 through March 31, 2002 3.100 2.300
April 1, 2002 through June 30, 2002 2.950 2.100
July 1, 2002 through September 30, 2002 2.290 1.540
October 1, 2002 through December 31, 2002 1.990 0.620
The chart reflects inter-dealer prices, without retail mark-up,
markdown, or commission and does not represent actual transactions.
DIVIDENDS
The Company paid no cash dividends during the period, nor does the Company
expect to pay a cash dividend in the near future. The Company's policy has
been to utilize cash in growing and expanding the business.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's Common Stock as of March 1,
2003 was approximately 587.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
2002 COMPARED TO 2001
The difference in 2002 financial data when compared to 2001 is mainly
attributed to the change in the industry and the start-up of the
Conceptronic division. In 2003 we expect to see growth for all divisions.
New orders in 2002 totaled $4.5 million for CVD, $3.0 million for SDC/ECS
and $4.4 million for Conceptronic/RI for a total of $11.9 million, which was
83% higher than 2001's level of new orders of $6.5 million. The revenues
produced a net profit of $168,202. Diluted net earnings per share were $.05
in 2002 compared to $.27 in 2001.
REVENUE
A decrease in volume resulted in revenue for the year being $9,241,808,
which was a 14.7% decrease from 2001 revenues of $10,839,993.
The type of sales in 2002 was similar to those of 2001. The Company shipped
approximately .5% to government associated entities, 22% to major colleges
and universities, .5% to research laboratories and another 77% was shipped
to significant Fortune 500 industrial companies.
COSTS AND EXPENSES
In 2002, cost of revenues as a percentage of revenues increased to 67% from
64% in 2001. The main reason for the 3% increase in cost of revenues as a
percentage of sales was an increase in payroll expenses. The Company
averaged 97 employees in 2002 compared to 79 employees in 2001. The actual
cost of revenues decreased from $6,940,080 in 2001 to $6,205,283 in 2002.
Of this $734,797 decrease, approximately $1,259,547 is attributed to
material, which is offset by a increase of $366,807 to salaries, $ 65,465 to
travel expense and $58,454 to real estate taxes.
Selling and shipping expense increased to $903,016 in 2002 from $675,247 in
2001. Of this $227,769 increase, approximately $97,261 is attributed to
salaries, $43,505 to commissions, $61,752 to royalties and $28,775 to travel
expenses.
General and Administrative expenses increased to $2,467,074 in 2002 from
$2,150,276 in 2001. Of this $316,798 increase, approximately $360,271 is
attributed to salaries, $29,494 to travel expense, $25,636 to building rent,
$26,300 to utilities, $10,968 to medical expense, $31,550 to employee
relocation expense, $18,750 to building depreciation, which is offset by a
decrease of $201,974 to legal fees.
Interest expense increased by $74,669 from 2001 to 2002, because the
Company's average outstanding debt increased, as a result of the mortgage on
the new building purchased in March 2002.
Other income increased to $543,527 in 2002 from $6,968 in 2001. Of this
$536,559 increase, $511,614 is attributed to cash received on the collection
of accounts receivable exceeding the
12
$369,000 booked as part of the purchase of the assets, which is a non-
recurring event.
LIQUIDITY AND CAPITAL RESOURCES
By year-end 2002, the Company's cash position decreased to $323,537 from
$2,361,150 at the beginning of the year. The decrease in cash is largely
attributed to the cash layout for the new building, which $531,852 was for
the building acquisition, $881,380 was for the purchase of certain assets
of the Surface Mount Technology (SMT) business and $877,624 in additional
salary expense.
In 2002, accounts receivable, net of the allowance, increased to $1,852,794
from $1,212,237 in 2001. This increase was attributable to timing of
customer payments and billings. Inventory increased to $2,023,487 from
$829,040, which was a result of the acquisition on the Conceptronic division
where $819,737 was due to inventory. The increase in inventory in 2002 was
mainly due to a increase in work in process of $ 199,495, an increase in raw
materials of $834,225 and an increase in finished goods of $160,727.
The Company believes that its cash and cash equivalents, cash flow from
operations and available credit facilities will be sufficient to meet its
working capital and investment requirements for the next twelve months.
However, future growth, including potential acquisitions, may require
additional funding, and from time to time the Company may need to raise
capital through additional equity or debt financing.
2001 COMPARED TO 2000
The difference in 2001 financial data when compared to 2000 is mainly
attributed to the growth of the CVD and SDC divisions and the start-up of
the Research International division. In 2002 we expect to see continued
growth for all four divisions.
New orders in 2001 totaled $2.1 million for CVD and $3.8 million for SDC and
$0.6 million for ECS for a total of $6.5 million, which was 58% lower than
2000's level of new orders of $15.3 million. The revenues produced a net
profit of $874,142. Diluted net earnings per share were $.27 in 2001
compared to $.29 in 2000. In the past the Company has generally
manufactured customized equipment. In 2001 the Company worked on further
developing a line of standard products to supplement to our custom systems
and we began shipping some of these products in 2001.
REVENUE
An increase in volume resulted in revenue for the year being $10,839,993,
which was a 14.1% increase from 2000 revenues of $9,504,181.
The type of sales in 2001 was similar to those of 2000. The Company shipped
approximately 12% to government associated entities, 19% to major colleges
and universities, 3% to research laboratories and another 66% was shipped to
significant Fortune 500 industrial companies.
COSTS AND EXPENSES
In 2001, cost of revenues as a percentage of revenues increased to 64% from
61% in 2000. The main reason for the 3% increase in cost of revenues as a
percentage of sales was an increase in payroll expenses. The Company
averaged 79 employees in 2001 compared to 63 employees in 2000. The actual
cost of revenues increased from $5,809,275 in 2000 to
13
$6,940,080 in 2001, an increase of $1,130,805. Of this increase, $484,787 is
attributable to increased purchases of material, and $514,731 to increases
in salaries.
Selling and shipping expense was higher by $109,236 in 2001 compared to
2000. This mainly resulted from a $100,075 increase in salaries.
General and Administrative expenses rose by $423,861 in 2001 compared to
2000. This resulted mainly from a $259,423 increase in salaries and an
increase in legal fees of $165,015.
Interest expense decreased by $5,818 from 2000 to 2001 as the Company's
average outstanding debt on the Saugerties facility decreased.
LIQUIDITY AND CAPITAL RESOURCES
By year-end 2001, the Company's cash position increased to $2,361,150 from
$600,621 at the beginning of the year. In addition to the year end cash
position, there were significant cash layouts during the year, $400,000 for
the acquisition of Research International, $257,500 for the acquisition of
the new building, and $386,374 for Federal taxes.
In 2001, accounts receivable, net of the allowance, decreased to $1,212,237
from $2,002,540 in 2000 while inventory increased to $829,040 from $454,898.
The increase in inventory was a result of the acquisition of the Research
International division where $650,000 was due to inventory. The decrease in
receivables from 2000 to 2001 was attributable to timing of customer
payments and billings. The increase in inventory in 2001 was mainly due to
a decrease in work in process of $117,847, an increase in raw materials of
$308,175 and an increase in finished goods of $183,814.
In 2002, we expect to have sufficient cash flow from operations and do not
anticipate the need to raise additional funds for the normal course of
business.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
14
CVD EQUIPMENT CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB ITEM 7
Years ended December 31, 2002 and 2001
15
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
INDEPENDENT AUDITORS' REPORT......................................... F-3
FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 2002 and 2001......... F-4
Consolidated Statements of Income
for the Years Ended December 31, 2002 and 2001..................... F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 2002 and 2001......................................... F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2002 and 2001......................................... F-7
Notes to Consolidated Financial Statements........................... F-8
16
F-3
A L B R E C H T , V I G G I A N O , Z U R E C K
& C O M P A N Y , P . C .
CERTIFIED PUBLIC ACCOUNTANTS
25 SUFFOLK COURT
HAUPPAUGE, NY 11788
(631) 434-9500
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
CVD Equipment Corporation
Ronkonkoma, New York
We have audited the accompanying consolidated balance sheets of CVD
Equipment Corporation and Subsidiary (the "Company") as of December 31, 2002
and 2001, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CVD
Equipment Corporation and Subsidiary as of December 31, 2002 and 2001 and
their results of operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United
States of America.
Hauppauge, New York
February 27, 2003
17
F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2002 and 2001
2002 2001
------------ ------------
ASSETS
Current Assets
Cash and cash equivalents $ 323,537 $ 2,361,150
Accounts receivable, net 1,852,794 1,212,237
Costs and estimated earnings in excess of billings
on uncompleted contracts 783,646 358,022
Inventories 2,023,487 829,040
Other current assets 194,232 20,269
------------ ------------
Total Current Assets 5,177,696 4,780,718
Property, Plant and Equipment, net 5,630,375 2,060,502
Deferred Income Taxes 344,074 268,623
Other Assets 138,974 350,286
Intangible Assets, net 136,393 88,781
------------ ------------
Total Assets $11,427,512 $ 7,548,910
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 177,124 $ 15,790
Short-term note payable 350,000 350,000
Accounts payable 938,056 153,332
Accrued expenses 336,702 378,231
Billings in excess of costs on uncompleted contracts 146,387 -0-
------------ ------------
Total Current Liabilities 1,948,269 897,353
Long-term Debt, net of current portion 3,513,783 864,100
------------ ------------
5,462,052 1,761,453
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock - $0.01 par value - 10,000,000 shares
authorized; 3,039,100 and 3,032,325 shares issued
and outstanding at December 31, 2002 and
2001, respectively 30,391 30,323
Additional paid-in capital 2,902,149 2,892,416
Retained earnings 3,032,920 2,864,718
------------ ------------
Total Stockholders' Equity 5,965,460 5,787,457
------------ ------------
Total Liabilities and Stockholders' Equity $11,427,512 $ 7,548,910
============ ============
See notes to consolidated financial statements.
18
F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2002 and 2001
2002 2001
------------ ------------
Revenue
Revenue on completed contracts $ 7,800,317 $ 9,009,323
Revenue on uncompleted contracts 1,441,491 1,830,670
------------ ------------
Total Revenue 9,241,808 10,839,993
------------ ------------
Costs of Revenue
Costs on completed contracts 5,440,484 6,060,054
Costs on uncompleted contracts 764,799 880,026
------------ ------------
Total Costs of Revenues 6,205,283 6,940,080
------------ ------------
Gross Profit 3,036,525 3,899,913
------------ ------------
Operating Expenses
Selling and shipping 903,016 675,247
General and administrative 2,467,074 2,150,276
------------ ------------
Total Operating Expenses 3,370,090 2,825,523
------------ ------------
(333,565) 1,074,390
------------ ------------
Other Income (Expense)
Interest income 25,221 52,644
Interest expense (139,343) (64,674)
Gain on sale of fixed assets 2,500 37,666
Other income 543,527 6,968
------------ ------------
Total Other Income 431,905 32,604
------------ ------------
Income Before Taxes 98,340 1,106,994
Income Tax Benefit (Provision) 69,862 (232,852)
------------ ------------
Net Income $ 168,202 $ 874,142
------------ ------------
Earnings Per Share
Basic $ 0.06 $ 0.29
Diluted $ 0.05 $ 0.27
Weighted Average Shares
Basic 3,036,530 3,014,744
Diluted 3,124,733 3,263,395
See notes to consolidated financial statements.
19
F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 2002 and 2001
Additional Total
Common Paid-In Retained Stockholders'
Stock Capital Earnings Equity
------------ ------------ ------------ ------------
Balance as of
December 31, 2000 $ 30,008 $ 2,848,420 $ 1,990,576 $ 4,869,004
Net income 874,142 874,142
Compensatory stock
Options 315 43,996 -0- 44,311
------------ ------------ ------------ ------------
Balance as of
December 31, 2001 $ 30,323 $ 2,892,416 $ 2,864,718 $ 5,787,457
Net income 168,202 168,202
Compensatory stock
Options 68 9,733 9,801
------------ ------------ ------------ ------------
Balance as of
December 31, 2002 $ 30,391 $ 2,902,149 $ 3,032,920 $ 5,965,460
============ ============ ============ ============
See notes to consolidated financial statements.
20
F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2002 and 2001
2002 2001
------------ ------------
Cash Flows from Operating Activities
Net income $ 168,202 $ 874,142
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Deferred tax (benefit) provision (75,451) 38,000
Depreciation and amortization 294,721 265,671
Gain on sale of fixed assets (2,500) (37,666)
Bad debt provision (8,447) 4,538
(Increase) decrease in:
Accounts receivable (632,110) 785,765
Costs and estimated earnings in excess
of billings on uncompleted contracts (425,624) 1,125,437
Inventory (1,194,447) (24,142)
Other current assets (173,963) 11,886
Other assets 118,007 (339,426)
Increase (decrease) in:
Accounts payable 784,724 (454,445)
Accrued expenses (41,529) (307,608)
Billings in excess of costs
on uncompleted contracts 146,387 (146,613)
------------ ------------
Net Cash (Used) Provided By Operating Activities (1,042,030) 1,795,539
------------ ------------
Cash Flows from Investing Activities
Capital expenditures (1,980,912) (126,781)
Proceeds from sale of fixed assets 2,500 145,275
------------ ------------
Net Cash (Used) Provided By Investing Activities (1,978,412) 18,494
------------ ------------
Cash Flows from Financing Activities
Proceeds from the exercise of options 9,801 44,311
Payments of long-term debt (133,222) (97,815)
Proceeds of long-term debt 1,106,250 -0-
------------ ------------
Net Cash Provided (Used) By Financing Activities 982,829 (53,504)
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (2,037,613) 1,760,529
Cash and Cash Equivalents at Beginning of Year 2,361,150 600,621
------------ ------------
Cash and Cash Equivalents at End of Year $ 323,537 $ 2,361,150
============ ============
See notes to consolidated financial statements.
21
F-8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies
Description of Business
CVD Equipment Corporation and Subsidiary (the "Company"), a New York
corporation, was organized and commenced operations in October 1982.
Principal business activities include the manufacturing of chemical vapor
deposition equipment, customized gas control systems, and a line of
furnaces, all of which are used primarily to produce semiconductors and
other electronic components. The Company engages in business throughout the
United States and the world.
Basis of Consolidation
The consolidated financial statements include the accounts of CVD Equipment
Corporation and its wholly-owned subsidiary. In December 1998, a
subsidiary, Stainless Design Concepts, Ltd., was formed as a New York
corporation. In April 1999, this subsidiary was merged into CVD Equipment
Corporation. The Company has one inactive subsidiary, CVD Materials
Corporation as of December 31, 2002. All significant intercompany accounts
and transactions have been eliminated in consolidation.
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 long-term contracts, allowance for doubtful accounts,
depreciation and amortization, taxes and warranties.
Revenue and Income Recognition
In December 1999, the SEC released Staff Accounting Bulletin No. 101 ("SAB
No. 101"), "Revenue Recognition in Financial Statements", providing the
staff's views in applying accounting principles generally accepted in the
United States to certain revenue recognition issues. The Company adopted
SAB No. 101, as amended in the fourth quarter of 2000 as required. The
adoption of SAB No. 101 did not have a material effect on the Company's
consolidated financial position, results of operations or cash flows.
The Company recognizes revenues and income using the percentage-of-
completion method for complex major products while revenues from other
products are recorded when such products are accepted and shipped. Profits
on contracts for complex major products are recorded on the basis of the
Company's estimates of the percentage-of-completion of individual contracts,
commencing when progress reaches a point where experience is sufficient to
estimate final results with reasonable accuracy. Under this method,
revenues are recognized based on costs incurred to date compared with total
estimated costs.
22
F-9
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue and Income Recognition (continued)
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed.
The liability, "Billings in excess of costs on uncompleted contracts,"
represents amounts billed in excess of revenues earned.
Inventories
Inventories are valued at the lower of cost or market. The Company uses a
cost system which approximates the first-in, first-out method.
Reclassifications
Certain items have been reclassified in the 2001 financial statements to
conform to the 2002 presentation. These reclassifications have no effect on
the net income previously reported.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes," ("SFAS
109") which requires the use of the liability method of accounting for
income taxes. Under this method, deferred tax assets and liabilities are
measured using enacted tax rates and laws that will be in effect when the
differences are expected to reverse. A valuation allowance is not
considered necessary by management, since it is more likely than not that
the deferred tax asset will be realized. An allowance may be necessary in
the future based on changes in economic conditions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated
depreciation and amortization. Expenditures for maintenance and repairs are
charged against operations as incurred. The cost of certain labor and
overhead which is expected to benefit future periods, has been capitalized
and amortized. Depreciation and amortization are computed by the straight-
line method for financial purposes over the following estimated useful
lives:
Estimated
Useful Life
-----------
Buildings 39 years
Building improvements 39 years
Machinery and equipment 8 years
Capitalized labor and overhead 3 years
Furniture and fixtures 8 years
Computer equipment 5 years
Transportation equipment 3 years
Leasehold improvements 3-10 years
23
F-10
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies (continued)
Impairment losses on long-lived assets, such as equipment and improvements,
are recognized when events or changes in circumstances indicate that the
undiscounted cash flows estimated to be generated by such assets are less
than their carrying value and, accordingly, all or a portion of such
carrying value may not be recoverable. Impairment losses are then measured
by comparing the fair value of assets to their carrying amounts.
Software Capitalization
The Company follows Statement of Position 98-1, Accounting for Costs of
Computer Software Developed or Obtained for Internal Use. This standard
requires certain direct development costs associated with internal-use
software to be capitalized including external direct costs of material and
services and payroll costs for employees devoting time to the software
projects. These costs totaled $57,931 and $10,886 for the years ended
December 31, 2002 and 2001, respectively, and are included in Other Assets.
All software is amortized straight-line over its useful life of three years.
Amortization expense related to software totaled $19,014 and $26,391 for the
years ended December 31, 2002 and 2001, respectively.
Intangible Assets
The cost of intangible assets is being amortized on a straight-line basis
over their useful lives ranging from 5 to 15 years. Amortization expense
recorded by the Company in 2002 and 2001 totaled $8,948 and $5,512,
respectively.
Bad Debts
Accounts receivable are presented net of an allowance for doubtful accounts
of $18,057 and $26,504 as of December 31, 2002 and 2001, respectively. The
allowance is based on prior experience and management's evaluation of the
collectibility of accounts receivable. Management believes the allowance is
adequate. However, further additions may be necessary based on changes in
economic conditions.
Product Warranty
The Company records warranty costs as incurred and does not provide for
possible future costs. Management estimates such costs not to be material
based on prior experience. However, it is reasonably possible that this
estimate may change in the future.
Advertising Costs
The Company expenses advertising costs which are not expected to benefit
future periods. Advertising expenses included in selling and shipping
expenses were $21,139 and $18,217 in 2002 and 2001, respectively. The
Company capitalizes certain advertising costs included in Other Assets,
totaling $63,849, to develop a web site and to print brochures expected to
be used in the future. Capitalized advertising costs are amortized straight-
line over three years. Amortization expense related to advertising costs
totaled $11,729 and $16,586 in 2002 and 2001, respectively.
24
F-11
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies (continued)
Interest Capitalization
The Company follows the policy of capitalizing interest as a component of
the cost of property, plant and equipment constructed for its own use. This
amount is included in building improvements. During the years ended
December 31, 2002 and 2001, the Company capitalized interest of
approximately $77,000 and $-0-, respectively.
Basic and Diluted Earnings (Loss) Per Share
The Company presents "basic" earnings per common share and, if applicable,
"diluted" earnings per common share pursuant to the provisions of Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"). Basic earnings per common share is calculated by dividing net income
or loss applicable to common stock by the weighted average number of common
shares outstanding during each period. The calculation of diluted earnings
per common share is similar to that of basic earnings per share, except that
the denominator is increased to include the number of additional common
shares that would have been outstanding if all potentially dilutive common
shares, such as those issuable upon the exercise of stock options, were
issued during the period.
A reconciliation of the weighted-average number of common shares outstanding
used in the calculations of basic and diluted earnings per share follows.
2002 2001
---------------------------- ----------------------------
Basic Dilutive Basic Dilutive
------------ ------------ ------------ ------------
Weighted-average number of
common shares outstanding 3,036,530 3,036,530 3,014,744 3,014,744
============ ============
Dilutive options to purchase
common shares outstanding 88,203 248,651
------------ ------------
3,124,733 3,263,395
============ ============
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.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash, cash equivalents, and accounts
receivable. The Company places its cash equivalents with high credit-
quality financial institutions and invests its excess cash primarily in
money market instruments. The Company has established guidelines relative
to credit ratings and maturities that seek to maintain safety and liquidity.
The Company sells products and services to various companies across several
industries in the ordinary course of business. The Company routinely
assesses the financial strength of its customers and maintains allowances
for anticipated losses. See Note 14 for concentration details.
25
F-12
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, other assets, accounts payable and accrued
expenses, approximate fair value due to the relatively short maturity of
these instruments. The fair value of securities available-for-sale is
estimated based on quoted market prices. The carrying value of long-term
debt approximates fair value based on borrowing rates currently available
for loans with similar terms and maturities.
Stock-Based Compensation
The Company accounts for stock options as prescribed by Accounting
Principles Board ("APB") Opinion No. 25 and includes pro forma information
in the stock-based compensation footnote, as permitted by Financial
Accounting Standards Board ("FASB") Statement No. 123, Accounting for Stock-
Based Compensation ("SFAS 123"). In March 2000, the FASB issued FASB
Interpretation No. 44, "Accounting For Certain Transactions Involving Stock-
an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44 clarifies the
application of APB No. 25 and among other issues clarifies the definition of
an employee for purposes of applying APB Opinion No. 25. The Company
adopted FIN 44 in the first quarter of 2001 with no material effect on the
Company's consolidated financial position, results of operations or cash
flows. As discussed in Note 10, there were no options granted during 2002
and 2001.
Shipping and Handling
It is the Company's policy to include freight in total sales. The amount
included in sales was $18,784 and $16,480 for the years ended December 31,
2002 and 2001, respectively. Included in selling and shipping is $49,708
and $68,670 for shipping and handling costs for 2002 and 2001, respectively.
Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 141, "Business Combinations" ("SFAS 141") and No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS No. 141 provides
new guidance on the accounting for a business combination at the date a
business combination is completed. Specifically, it requires use of the
purchase method of accounting for all business combinations initiated after
June 30, 2001, thereby eliminating use of the pooling-of-interest method.
SFAS No. 142 establishes new guidance on how to account for goodwill and
intangible assets after a business combination is completed. Among other
things, it requires that goodwill and certain other intangible assets will
no longer be amortized and will be tested for impairment at least annually
and written down only when impaired. This statement applies to existing
goodwill and intangible assets, beginning with fiscal years starting after
December 15, 2001. The Company has adopted SFAS No.141 and No.142 effective
January 1, 2002 but it does not have a material impact on the Company's
financial position, results of operations, or cash flows.
In August 2002, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets",
("SFAS 144"). This standard supersedes SFAS 121, "Accounting for the
Impairment or Long- Lived Assets to Be Disposed Of,"
26
F-13
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Standards (continued)
and provides a single accounting model for long-lived assets to be disposed
of. This standard significantly changes the criteria that would have to be
met to classify an asset as held-for-sale. This distinction is important
because assets to be disposed of are stated at the lower of their fair
values or carrying amounts and depreciation is no longer recognized. The
new rules will also supercede the provisions of APB Opinion 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions, " ("APB 30") with regard to reporting the effects of a
disposal of a segment of a business and will require expected future
operating losses from discontinued operations to be displayed in
discontinued operations in the period in which the losses are incurred,
rather than as of the measurement date as presently required by APB 30.
This statement is effective for fiscal years beginning after December 15,
2001. The Company does not expect that the adoption of SFAS 144 will have a
material impact on its operations or financial position.
In April 2002, the FASB issued Statement No. 145 ("SFAS 145") "Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections," which supercedes FASB issued Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt," FASB issued
Statement No. 44," Accounting for Intangible Assets of Motor Carriers," and
FASB issued Statement No. 64, "Extinguishment of Debt Made to Satisfy
Sinking-Fund Requirements." This statement also amends FASB issued
Statement No. 13, "Accounting for Leases," to eliminate as inconsistency
between the required accounting for sale-leaseback transactions and the
required accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This statement
also amends other existing pronouncements to make various technical
corrections, clarify meanings or describe the applicability under changed
conditions. SFAS 145 requires gains and losses from the extinguishment of
debt to be classified as extraordinary items only if they meet the criteria
in Accounting Principal Board Opinion No. 30, "Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions."
This statement also requires lease modifications that have economic effects
similar to sale-leaseback transactions to be accounted for in the same
manner as sale-leaseback transactions. The provisions in SFAS 145 relating
to sale-leaseback transactions are effective as of May 15, 2002. The
remaining provisions in SFAS 145 will be effective for the Company beginning
in fiscal 2003. The Company does not expect the provisions of SFAS 145 to
have a material impact, if any, on the Company's consolidated financial
statements.
In July 2002, the FASB issued Statement No. 146 ("SFAS 146"), "Accounting
for Costs Associated with Exit or Disposal Activities." SFAS No. 146
nullifies the guidance in EITF Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Under EITF No. 94-
3, an entity recognized a liability for an exit cost on the date that the
entity committed itself to an exit plan. In SFAS No. 146, the FASB
acknowledges that an entity's commitment to a plan does not, by itself,
create a present obligation to the other parties that meets the definition
of a liability and requires
27
F-14
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 1 - Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Standards (continued)
that a liability for a cost that is associated with an exit or disposal
activity be recognized when the liability is incurred. It also establishes
that fair value is the objective for the initial measurement of the
liability. SFAS No. 146 will be effective for exit or disposal activities
that are initiated after December 31, 2002. The adoption of this standard
is not expected to have a material effect on the financial position or
results of operations of the Company.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires
the accounting for and disclosure of guarantees and clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies." The disclosure
requirements of this interpretation are effective for periods ending after
December 15, 2002 and for accounting for guarantees for periods beginning
after December 15, 2002. The adoption of the disclosure requirements of
this standard as of December 31, 2002 had no impact on the Company's
financial position or results of operations. The Company is currently
assessing the impact that the adoption of the recognition and measurement
provisions of this standard will have on its financial statements for future
periods but does not expect that the adoption of these provisions will have
a material effect on its financial position and results of operations.
In December 2002, the FASB issued Statement No. 148 ("SFAS 148"),
"Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS
No. 148 is effective for fiscal years ending after December 15, 2002 and
amends SFAS No. 123 to provide for alternative methods of transition to a
voluntary change to the fair value based method of accounting for stock-
based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosure in
both annual and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the method used on
reported results. The Company has accounted for stock-based employee
compensation using the intrinsic value method under APB No. 25.
Note 2- Supplemental Cash Flow Information
2002 2001
------------ ------------
Cash paid during the year for:
Income taxes, net of refunds $ 268,422 $ 419,831
Interest 194,412 64,674
Non-cash operating and financing:
Acquisition of property and equipment $ 3,818,900 $ -0-
Less: loan proceeds (1,837,988) -0-
------------ ------------
Net cash outlay $ 1,980,912 $ -0-
============ ============
28
F-15
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 2- Supplemental Cash Flow Information (continued)
2002 2001
------------ ------------
Inventory received as a part of acquisition $ -0- $ (650,000)
Less: Note issued for inventory -0- 350,000
------------ ------------
Net Cash Used $ -0- $ 300,000
============ ============
Note 3 - Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted contracts are summarized as
follows:
2002 2001
------------ ------------
Costs incurred on uncompleted contracts $ 764,799 $ 880,026
Estimated earnings 676,692 950,644
------------ ------------
1,441,491 1,830,670
Billings to date (804,232) (1,472,648)
------------ ------------
$ 637,259 $ 358,022
============ ============
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 783,646 $ 358,022
Billings in excess of costs and estimated
earnings on uncompleted contracts (146,387) -0-
------------ ------------
$ 637,259 $ 358,022
============ ============
Note 4 - Inventory
Inventories consist of the following:
2002 2001
------------ ------------
Raw materials $ 1,223,019 $ 388,794
Work-in-process 267,679 68,184
Finished goods 532,789 372,062
------------ ------------
$ 2,023,487 $ 829,040
============ ============
29
F-16
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 5 - Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
2002 2001
------------ ------------
Land $ 760,000 $ 60,000
Buildings 2,815,839 1,353,964
Building Improvements 1,373,624 85,027
Machinery and equipment 1,181,851 894,945
Capitalized labor and overhead 216,602 316,131
Furniture and fixtures 214,921 156,116
Computer equipment 180,991 161,374
Transportation equipment 74,709 99,266
------------ ------------
6,818,537 3,126,823
Accumulated depreciation and amortization (1,188,162) (1,066,321)
------------ ------------
$ 5,630,375 $ 2,060,502
============ ============
Depreciation and amortization expense $ 249,030 $ 217,182
============ ============
Note 6 - Intangible Assets
Intangible assets consist of the following:
2002 2001
------------ ------------
Licensing Agreement $ 10,000 $ 10,000
Patents and Copyrights 32,019 21,950
Intellectual Property 100,000 75,000
Other 21,492 -0-
------------ ------------
163,511 106,950
Accumulated Amortization (27,118) (18,169)
------------ ------------
$ 136,393 $ 88,781
============ ============
Note 7 - Acquisition of Assets
On November 8, 2001, the Company purchased assets for the Surface Mount
Technology (SMT) business. The allocation of the purchase price was as
follows: $650,000 of Inventory, $50,000 of intangible assets and $50,000
of fixed assets. This acquisition was recorded as a purchase business
combination in accordance with Financial Accounting Standards No. 141
("SFAS No. 141"), "Business Combinations". Intangible assets recorded
associated with this acquisition are being amortized over their
estimated useful life of 15 years.
On June 17, 2002, the Company purchased additional assets for the
Surface Mount Technology (SMT) business. The allocation of the purchase
price was as follows: $820,000 of inventory, $369,000 of accounts
receivable, $25,000 of intangible assets and $25,000 of fixed assets.
This acquisition was recorded as a purchase business combination in
accordance with SFAS No. 141, "Business Combinations". Intangible
assets recorded associated with this acquisition are being amortized
over their estimated useful life of 15 years.
30
F-17
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 8 - Financing Arrangements
The Company has a line of credit facility with a bank which allows the
Company to borrow up to $650,000 until June 1, 2003. Interest is
payable on any unpaid principal balance at the bank's prime rate plus
0.75%. As of December 31, 2002 and 2001, $-0- was outstanding on this
facility. The Company has an additional $350,000 credit line that is
being utilized to secure a letter of credit. Borrowings are
collateralized by the Company's assets.
Note 9 - Long-term Debt
Long-term debt consists of the following:
2002 2001
------------ ------------
KIDCO REALTY CORP.
$900,000 purchase money mortgage secured by real
property, building and improvements in Saugerties,
New York; payable in equal monthly installments of
$5,988, including interest at 7% per annum; entire
principal comes due in May 2009. $ 863,116 $ 874,129
GENERAL ELECTRIC CAPITAL CORPORATION
$2,700,000 mortgage payable secured by real
property, building and improvements in Ronkonkoma,
New York; payable in equal monthly installments of
$22,285, including interest at 5.67% per annum;
pursuant to an installment sale agreement with the
Town of Islip Industrial Development Agency; final
payment due March 2017. 2,600,015 -0-
NISSAN MOTOR ACCEPTANCE CORP.
Collateralized by a lien on the Company's
automobile; payable in 60 monthly installments of
$495 including interest of 5.9% per annum; final
payment made December 2002. -0- 5,761
NORTH FORK BANK
Sixty month installment note; payable in monthly
installments of $4,922, including interest at 7.74%
per annum; final payment due October 2007;
collateralized by equipment costing $244,239. 227,776 -0-
------------ ------------
3,690,907 879,890
Less: Current maturities 177,124 15,790
------------ ------------
$ 3,513,783 $ 864,100
============ ============
31
F-18
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 9 - Long-term Debt (continued)
Future maturities of long-term debt as follows:
2003 $ 177,124
2004 177,382
2005 200,031
2006 212,946
2007 207,088
2008 to maturity 2,716,336
------------
$ 3,690,907
============
Note 10 - Short-term Note Payable
A note payable in the amount of $350,000 was issued for the acquisition of
assets for the Company's Surface Mount Technology business. Interest is
provided at 5.5% per annum.
Note 11 - Income Taxes
The provision (benefit) for income taxes include the following:
2002 2001
------------ ------------
Current:
Federal $ -0- $ 186,926
State 5,589 7,926
------------ ------------
Total Current Provision 5,589 194,852
------------ ------------
Deferred:
Federal 30,008 158,246
State (105,459) (120,246)
------------ ------------
Total Deferred (Benefit) Provision (75,451) 38,000
------------ ------------
$ (69,862) $ 232,852
============ ============
The Company has a state investment tax credit carryforward of $273,057 that
may be offset against future state tax liabilities through the year 2016 and
other state tax credits totaling $186,222 which may be carried forward
indefinitely.
The difference between the provision for income taxes at the Company's
effective income tax rate and the federal statutory rate of 34% is as
follows:
2002 2001
------------ ------------
Statutory rate 34% 34%
State taxes, net of Federal Benefits 7% 7%
Investment tax credits and other (112%) (20%)
Totals (71%) 21%
32
F-19
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 11 - Income Taxes (continued)
The tax effects of temporary differences giving rise to significant portions
of deferred taxes are as follows:
2002 2001
------------ ------------
Allowance for doubtful accounts $ 6,992 $ 10,393
Inventory capitalization 73,503 21,312
Deferred revenue (262,015) (167,116)
Net Operating Loss 64,122 -0-
Depreciation and amortization (126,144) (66,652)
Investment tax credit 575,953 460,067
Other 11,663 10,619
Net Deferred Tax Asset $ 344,074 $ 268,623
Note 12 - Stock-Based Compensation
On June 15, 1989, the Company instituted a non-qualified stock option plan
(the "Plan"). In connection therewith, 700,000 shares of the Company's
common stock are reserved for issuance pursuant to options that may be
granted under the Plan through June 30, 2004. On June 3, 1996, the Company
issued 84,000 options which expire ten years from the date of grant. None
of these options were exercisable until June 3, 1999. The option price was
less than the fair market value per share on the date the 1996 options were
granted. On April 15, 1998, 140,000 options were granted to employees under
this plan. Options granted in 1998 vest straight-line over a four-year
period following the date of grant and expire five years after the date of
grant. On July 16, 1999, 52,500 options were granted to employees under
this Plan. Options granted in 1999 vest incrementally over a four-year
period following the date of grant and expire seven years after the date of
grant. On February 2, 2000, 242,000 options were granted to employees under
this plan. On May 7, 2000 and August 8, 2000, a total of 80,000 options
were granted to employees. On October 26, 2000, 3,500 options were granted
to employees. All options vest over a four-year period. All options
granted in 2000 expire seven years after the date of grant. The option
price for options granted in 1999 and 2000 is an amount per share of not
less than the fair market value per share on the date the option is granted.
In July 2001, the shareholders approved a non-qualified stock option plan
covering key employees, officers, directors and other persons that may be
considered as service providers to the Company. Options will be awarded by
the Board of Directors or by a committee appointed by the board. Under the
plan, an aggregate of 300,000 shares of common stock, $.01 par value of
Company are reserved for issuance or transfer upon the exercise of options
which are granted. Unless otherwise provided in the option agreement
options granted under the plan shall become exercisable in 25% installments
commencing one year from the anniversary date of the grant. The purchase
price of the common stock under each option shall be no lower than the
average bid price per share, calculated on a monthly basis, that the Common
Stock (as reported by AMEX) traded during the calendar year immediately
preceding the year in which the option is granted. The stock options
generally expire five years after the date of grant. The stock option plan
shall terminate on July 22, 2011. No options have been granted under the
July 2001 plan.
33
F-20
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 12 - Stock-Based Compensation (continued)
A summary of stock option activity related to the Company's Plan is as follows:
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Period Period Period Outstanding Exercisable
------------ ------------ ------------ ------------ ------------ ------------
Year ended December 31, 2001
Number of shares 510,000 -0- 31,575 -0- 478,425 130,749
Weighted average exercise price
per share $ 1.65 $ -0- $ 1.40 $ -0- $ 1.67 $ 1.55
Year ended December 31, 2002
Number of shares 478,425 -0- 6,775 75,000 396,650 208,300
Weighted average exercise price
per share $ 1.67 $ -0- $ 1.45 $ 1.80 $ 1.65 $ 1.57
There were no options issued during 2002 and 2001.
The following table summarizes information about the options at December 31, 2002.
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Number Remaining Exercisable Number Exercisable
Price Outstanding Life Price Exercisable Price
------------------ ------------ ------------ ------------ ------------ ------------
$0.13 - $1.00 49,500 3.55 years $ 1.00 28,500 $ 1.00
$1.51 - $1.75 278,650 2.74 years $ 1.66 151,250 $ 1.59
$2.00 - $2.75 65,000 4.50 years $ 2.00 27,500 $ 2.00
$3.00 - $3.25 3,500 4.50 years $ 3.25 1,050 $ 3.25
Note 13 - Defined Contribution Plan
On August 1, 1998, the Company adopted a 401(k) Plan for the benefit of all
eligible employees. All employees as of the effective date of the 401(k)
Plan became eligible. An employee who became employed after August 1, 1998,
would become a participant after three months of continuous service.
Participants may elect to contribute from their compensation any amount up
to the maximum deferral allowed by the Internal Revenue Code. Employer
contributions are optional. During the years ended December 31, 2002 and
2001, the Company incurred 401(k) administrative costs totaling $3,471 and
$2,478 respectively. No employer contribution has been made for 2002 and
2001.
Note 14 - Concentration of Credit Risk
Cash
The Company places most of its temporary cash investments with one financial
institution. Balances normally exceed the Federal Deposit Insurance
Corporation limit. The Company has not experienced any loss to date as a
result of this policy.
34
F-21
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 14 - Concentration of Credit Risk (continued)
Significant Customers
The Company's sales encompass markets wherein the demands of any one
customer may vary greatly due to changes in technology. In 2002, the
Company had two customers, which represented approximately 23% of sales.
These customers represented 19% of total billed and unbilled receivables at
December 31, 2002. In 2001, the Company had one customer, which represented
approximately 10% of sales. This customer represented 19% of total billed
and unbilled receivables at December 31, 2001. Another customer represented
25% of total billed and unbilled receivables at December 31, 2001. This
customer represented an immaterial percentage of sales in 2001.
Export Sales
Export sales to unaffiliated customers represented approximately 25% and 15%
of sales for the years ended December 31, 2002 and 2001, respectively.
Export sales in 2002 and 2001 were primarily to customers in Asia. All
contracts are denominated in U.S. dollars. The Company does not enter into
any foreign exchange contracts.
Note 15 - Related Party Transactions
The general counsel for the Company is also a director. The Company
incurred legal fees for his professional services of approximately $75,000
and $94,000 for the years ended December 31, 2002 and 2001, respectively.
As of December 31, 2002 and 2001, the Company owed the general counsel
$75,000 and $36,274, respectively.
Note 16 - Other Income
Other income consists of approximately $512,000 in cash received on the
collection of accounts receivable exceeding the $369,000 booked as part of
the purchase of assets as discussed more fully in Note 7.
Note 17 - Segment Reporting
In 1999, the Company adopted SFAS 131, Disclosures about Segments of an
Enterprise and Related Information. As a result, Stainless Design Concepts
("SDC"), which was a subsidiary of the Company as of December 31, 1998,
operated as a segment of the Company as of December 31, 1999. SDC is the
Company's ultra-high purity manufacturing division in Saugerties, New York.
In November 1999, a division called Equipment Consulting Services ("ECS")
was formed. Operations commenced in January 2000. ECS is the Company's
equipment refurbishing division located in Saugerties, New York. During
2001, the Company created a division called Research International ("RI");
the new division is located at 1860 Smithtown Avenue, Ronkonkoma New York.
RI is a manufacturer of Surface Mount Technology equipment. During the year
2002, the Company created Conceptronic. During the fourth quarter 2002, the
Company combined the operations of SDC and ECS, and Conceptronic and RI and
now these divisions are being reported under SDC and Conceptronic,
respectively. The accounting policies of SDC and Conceptronic are the same
as those described in the summary of significant accounting policies (see
Note 1). The Company evaluates performance based on several factors, of
which the primary financial measure is earnings before taxes.
35
F-22
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2002 and 2001
Note 17 - Segment Reporting (continued)
The following table presents certain information regarding the Company's segments at December 31, 2002 and for
the year then ended:
CVD SDC Conceptronic Eliminations Consolidated
------------ ------------ ------------ ------------ ------------
Assets $ 9,104,444 $ 2,633,539 $ 3,219,312 $(3,529,783) $11,427,512
Revenues $ 3,522,634 $ 3,347,722 $ 3,027,232 $ (655,780) $ 9,241,808
Interest income 24,681 540 -0- 25,221
Interest expense 56,420 60,840 22,083 139,343
Depreciation and amortization 134,283 147,560 12,878 294,721
Capital expenditures 3,775,438 10,123 33,339 3,818,900
Pretax earnings (loss) (86,315) (322,519) 507,174 98,340
Note 18 - Commitments and Contingencies
Leases
The Company rents its former headquarters and operations in Ronkonkoma,
New York under a lease expiring on July 31, 2006. Minimum future rental
commitments are as follows:
Year ending December 31, 2003 $ 145,800
2004 150,170
2005 154,665
2006 91,777
------------
$ 542,412
============
Rental expense under the above operating lease totaled $144,000 and
$137,589 for 2002 and 2001, respectively. The company plans to sublease
this facility.
Legal Proceedings
On September 24, 1999 the Company was named in a lawsuit. The nature of
this legal proceeding focused on the intellectual property obtained
during the purchase of assets of Stainless Design Corporation. On
November 10, 1999, the Company responded with a counterclaim. It is
legal counsels' belief that the lawsuit against the Company is without
merit. The Company considers its potential exposure to be negligible
and/or covered by insurance.
Note 19 - Subsequent Events
In January 2003, the Company utilized, against the line of credit
discussed in Note 8, an additional $250,000 for a letter of credit.
This reduces the amount the company has available to borrow to $400,000
until June 1, 2003.
36
INDEX TO SUPPLEMENTARY FINANCIAL SCHEDULES
Page No.
--------
Independent Auditors' Report on Supplementary Information.... S-2
Supplementary Financial Schedules:
II. Valuation and qualifying accounts.............. S-3
III. Amounts receivable from related parties and
underwriters, promoters, and employees other
than related parties.......................... S-4
IV. Property, plant and equipment.................. S-5
V. Accumulated depreciation and amortization
of property, plant and equipment.............. S-6
VI. Supplementary income statement information..... S-7
37
S-2
A L B R E C H T , V I G G I A N O , Z U R E C K
& C O M P A N Y , P . C .
CERTIFIED PUBLIC ACCOUNTANTS
25 SUFFOLK COURT
HAUPPAUGE, NY 11788
(631) 434-9500
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTARY INFORMATION
---------------------------------------------------------
To the Board of Directors and Stockholders
CVD Equipment Corporation
Ronkonkoma, New York
We have audited and reported separately herein on the consolidated
financial statements of CVD Equipment Corporation and subsidiary (the
Company) as of and for the years ended December 31, 2002 and 2001.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements of the Company taken as a whole. The
supplementary information included in Form 10-KSB, Schedules II, III,
IV, V and VI is presented for purposes of additional analysis and is not
a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the
audits of the basic consolidated financial statements and, in our
opinion, is fairly stated in all material respects in relation to the
basic consolidated financial statements taken as a whole.
Hauppauge, New York
February 27, 2003
38
S-3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2002 and 2001
Additions
----------------------------
Balance at (1) Charged (2) Charged Balance
Beginning to Costs and to Other at End
Deducted from Assets of Period Expenses Accounts Deductions of Period
----------------------------------- ------------ ------------ ------------ ------------ ------------
Allowance for net unrealized gains
(losses) on securities:
Year ended December 31, 2002 $ -0- $ -0-
Year ended December 31, 2001 -0- -0-
Allowance for doubtful accounts:
Year ended December 31, 2002 26,504 (8,447) 18,057
Year ended December 31, 2001 21,966 4,538 26,504
39
S-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE III
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Years ended December 31, 2002 and 2001
Col. A Col. B Col. C Col. D Col. E
----------------------------------- ------------ ------------ ---------------------------- ------------
Deductions
----------------------------
Balance at (1) (2) Balance at
Beginning Amounts Amounts End of
Name of Debtor of Period Additions Collected Deductions Period
----------------------------------- ------------ ------------ ------------ ------------ ------------
Year ended December 31, 2002 $ -0- $ -0- $ -0- $ -0- $ -0-
Year ended December 31, 2001 $ -0- $ -0- $ -0- $ -0- $ -0-
40
S-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE IV
PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 2002 and 2001
Col. A Col. B Col. C Col. D Col. E
----------------------------------- ------------ ------------ ------------ ------------
Balance at Other Balance at
Beginning Additions Changes - End of
Description of Period at Cost Add(Deduct) Period
----------------------------------- ------------ ------------ ------------ ------------
2002:
Land $ 60,000 $ 700,000 $ 760,000
Building 1,353,964 1,461,875 2,815,839
Machinery and equipment 894,945 290,006 $ (3,100) 1,181,851
Capitalized labor and overhead 316,131 (99,529) 216,602
Furniture and fixtures 156,116 58,805 214,921
Computer equipment 161,374 19,617 180,991
Transportation equipment 99,266 (24,557) 74,709
Building improvements 85,027 1,288,597 1,373,624
------------ ------------ ------------ ------------
$ 3,126,823 $ 3,818,900 $ (127,186) $ 6,818,537
============ ============ ============ ============
2001:
Land $ 61,620 $ (1,620) $ 60,000
Building 1,463,551 $ 600 (110,187) 1,353,964
Machinery and equipment 819,523 75,422 894,945
Capitalized labor and overhead 753,239 (437,108) 316,131
Furniture and fixtures 157,472 581 (1,937) 156,116
Computer equipment 149,001 12,373 161,374
Transportation equipment 99,266 99,266
Leasehold improvements 47,222 37,805 85,027
------------ ------------ ------------ ------------
$ 3,550,894 $ 126,781 $ (550,852) $ 3,126,823
============ ============ ============ ============
41
S-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE V
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 2002 and 2001
Col. A Col. B Col. C Col. D Col. E
----------------------------------- ------------ ------------ ------------ ------------
Additions
Balance at Charged to Other Balance at
Beginning Costs and Charges - End of
Description of Period Expenses Add(Deduct) Period
----------------------------------- ------------ ------------ ------------ ------------
2002:
Building $ 86,763 $ 53,459 $ 140,222
Machinery, equipment and capitalized
labor and overhead 630,613 127,244 $ (102,629) 655,228
Furniture and fixtures 139,932 7,226 147,158
Computer equipment 106,846 20,814 127,660
Transportation equipment 75,008 16,172 (24,560) 66,620
Building improvements 27,159 24,115 51,274
------------ ------------ ------------ ------------
$ 1,066,321 $ 249,030 $ (127,189) $ 1,188,162
============ ============ ============ ============
2001:
Building $ 56,291 $ 36,122 $ (5,650) $ 86,763
Machinery, equipment and capitalized
labor and overhead 939,083 128,638 (437,108) 630,613
Furniture and fixtures 136,560 3,857 (485) 139,932
Computer equipment 84,549 22,297 106,846
Transportation equipment 54,471 20,537 75,008
Leasehold improvements 21,428 5,731 27,159
------------ ------------ ------------ ------------
$ 1,292,382 $ 217,182 $ (443,243) $ 1,066,321
============ ============ ============ ============
42
S-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE VI
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 2002 and 2001
Col. A Col. B
------------------------------------------- ----------------------------
Charges to Costs and Expenses
----------------------------
Item 2002 2001
---- ------------ ------------
1. Amortization of software, advertising
costs, intangible assets, and other assets $ 45,693 $ 48,489
43
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There are no changes or disagreements.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, with respect to each officer and/or director,
his/her age, present position with the Company, principal occupation during
the past five years, other directorships, if any, and the year he/she first
became an officer and/or a director of the company.
Officer/
Position with Director
Name of Officer/Director Age the Company Since
------------------------- --- --------------- --------
Leonard A. Rosenbaum 57 President & CEO 1982
Alan H. Temple, Jr. 69 None 1986
Sharon Canese 42 CFO & Secretary 1998
Martin J. Teitelbaum 53 Assistant Secretary 1985
Conrad Gunther 54 None 2000
Leonard A. Rosenbaum founded the Company in October 1982 and has been its
President, Chief Executive Officer and a Director since that date. From
1971 until the time of his affiliation with the Company in 1982, Mr.
Rosenbaum was President, a Director and principal stockholder of Nav-Tec
Industries, a manufacturer of semiconductor processing equipment similar to
the type of equipment presently manufactured by the Company. Nav-Tec
Industries suspended operations, as related to the type of equipment
presently manufactured by the Company, in 1984. From 1966 through 1971, Mr.
Rosenbaum was employed by a division of General Instrument, a manufacturer
of semiconductor materials and equipment.
Alan H. Temple, Jr. has been President, since 1977, of Harrison Homes, Inc.
Pittsford, NY, a building and consulting firm.
Sharon Canese joined the Company on September 11, 1991. Prior to joining
CVD, Mrs. Canese was Assistant Controller of Transcontrol Corporation for a
period of four years. Mrs. Canese has also held the position of Financial
Analyst of the Financial Planning Department at Eaton Corporation/AIL
Division from 1983 to 1987.
Martin J. Teitelbaum was a partner in the law firm of Guberman and
Teitelbaum, Smithtown, New York from February 1977 through December 1987.
From January 1988 to date, Mr. Teitelbaum has been principal attorney for
the Law Offices of Martin J. Teitelbaum. Mr. Teitelbaum became a director
of the Company in 1985. From September 23, 1986 to December 31, 1986 he
served as Corporate Secretary and served again as Corporate Secretary from
August 1997 to February 1998. Since January 1, 1987 he has served as the
Assistant Secretary. Mr. Teitelbaum serves as General Counsel to the
Company.
Conrad Gunther was elected to the Board of Directors at the Annual meeting
in 2000. Mr. Gunther is president of C J Gunther & Associates. He is the
President of Electronic Vistas Inc., (EVI). Mr. Gunther also held the
position of EVP & COO of North Fork Bancorporation. In addition, Mr. Gunther
previously held the position of EVP and Division Manager of European
American Bancorp.
44
All directors hold office until the next annual meeting of stockholders of
the Company or until their successors are elected and qualify.
The Board of Directors met three times in the year 2002. Mr. Rosenbaum,
Mr. Temple, Mr. Teitelbaum and Mr. Gunther attended all meetings.
ITEM 10. EXECUTIVE COMPENSATION
Remuneration
The following table sets forth certain information as to each of the
Company's most highly compensated executive officers whose cash compensation
exceeded $100,000.
SUMMARY COMPENSATION TABLE
----------------------------
Name and Principle Annual Stock Options
Position Year Compensation Granted
--------------------- ------ ------------ -------------
Leonard A. Rosenbaum 2002 $ 185,478 -0-
President and Chief 2001 $ 184,057 -0-
Executive Officer 2000 $ 170,434 10,000
The Company owns life insurance on the life of Leonard A. Rosenbaum in the
amount of $2,000,000. The Company is the sole beneficiary of said policy.
In June 1989, the shareholders approved a non-qualified stock option plan
covering key employees, officers and directors. Options will be awarded by
the Board of Directors or by a committee appointed by the board.
Under the plan an aggregate of 700,000 shares of common stock, $.01 par
value of the Company are reserved for issuance or transfer upon the exercise
of options which are granted. Unless otherwise provided in the Option
Agreement, an option granted under the plan shall become exercisable in 25%
installments commencing one year from the anniversary date of the grant.
The purchase price of the Common Stock under each option shall be no lower
than the average bid price per share, calculated on a monthly basis, that
the Common Stock (as reported by AMEX) traded during the calendar year
immediately preceding the year in which the option is granted. The stock
options generally expire five years after the date of grant. The stock
option plan shall terminate on June 30, 2004.
In 1996 a total of 84,000 options were granted which did not vest until 1999
at which time they vested 100%. In 1998, 140,000 options were granted to
employees other than executive officers or directors. The options vest at
25% per year starting in 1999. In 1999 a total of 52,500 options were
granted to employees other than executive officers or directors. The options
vest at varying rates starting in 2000. In 2000 a total of 325,500 options
were granted to employees, executive officers and directors. These options
vest at varying rates. To date 120,350 options have been exercised under
this plan.
In July 2001, the shareholders approved a non-qualified stock option plan
covering key employees, officers, directors and other persons that maybe
considered as service providers to the company. Options will be awarded by
the Board of Directors or by a committee appointed by the board.
Under the plan an aggregate of 300,000 shares of common stock, $.01 par
value of the
45
Company are reserved for issuance or transfer upon the exercise of options
which are granted. Unless otherwise provided in the Option Agreement, an
option granted under the plan shall become exercisable in 25% installments
commencing one year from the anniversary date of the grant. The purchase
price of the Common Stock under each option shall be no lower than the
average bid price per share, calculated on a monthly basis, that the Common
Stock (as reported by AMEX) traded during the calendar year immediately
preceding the year in which the option is granted. The stock options
generally expire five years after the date of grant. The stock option plan
shall terminate on July 22, 2011.
No options have been granted under the July 2001 plan.
Other than the two non-qualified stock option plans, the Company has no
pension or profit sharing plan or other contingent forms of remuneration.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information concerning persons who are known by
the Company to own beneficially more than 5% of any class of the Company's
voting shares on February 28, 2003:
Amount & Nature
Title Of Name and Address of Of Beneficial Percentage
Class Beneficial Owner Ownership of Class
------- ----------------------- --------------- ----------
Common Leonard A. Rosenbaum 1,300,450 42.8%
Stock 1860 Smithtown Avenue
Ronkonkoma, NY 11779
Common Alan H. Temple Jr. 196,000 6.4%
Stock 10 Harrison Circle
Pittsford, NY 14534
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of February 28, 2003, information
concerning the beneficial ownership of each class of equity security by each
director and all directors and officers of the Company as a group:
Amount & Nature
Title Of Name and Address of Of Beneficial Percentage
Class Beneficial Owner Ownership (1) of Class
------- ----------------------- --------------- ----------
Common Leonard A. Rosenbaum 1,300,450 42.8%
Stock 1860 Smithtown Avenue
Ronkonkoma, NY 11779
Common Martin J. Teitelbaum 26,000 (2) *
Stock 329 Middle Country Road
Smithtown, NY 11787
Common Alan H. Temple, Jr. 196,000 (3) 6.4%
Stock 10 Harrison Circle
Pittsford, NY 14534
Common All Directors and Officers 1,522,450 50.1%
Stock as a group (three persons)
* Less than 1%
46
(1) Except as noted, all shares are beneficially owned, and the sole voting
and investment power is held by the persons named.
(2) Includes 2000 shares held by Mr. Teitelbaum's wife and beneficial
ownership thereof is disclaimed by Mr. Teitelbaum.
(3) Includes and aggregate of 21,000 shares held by Mr. Temple's wife, as to
which he disclaims beneficial interest.
CHANGES IN CONTROL
The Company knows of no contractual arrangements that may at a subsequent
date result in a change of Company control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2002, the Company incurred approximately $75,000 in legal fees to
Martin J. Teitelbaum a director of the Company and principal attorney for
the law offices of Martin J. Teitelbaum.
47
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
1. Exhibits - The following Exhibits are filed as part of, or incorporated
by reference into, this report on Form 10-KSB
(3) Articles of incorporation and by-laws
(4) Instruments defining the rights of holders, including indentures
(9) Voting trust agreement
(10) Material Contracts
(11) Statement re: Computation of per share earnings
(13) Annual or quarterly reports, Form 10-QSB
(18) Letter on change in accounting principles
(19) Previously unfiled documents
(21) Subsidiaries of registrant
(22) Published report regarding matters submitted to vote
(23) Consent of experts and counsel
(24) Power of Attorney
(28) Information from reports furnished to state insurance authorities
(99) Additional exhibits
All items included by reference.
2. Financial Statements - The following consolidated financial statement
of CVD Equipment Corporation and report of Independent Accountants are
filed as part of this Report on Form 10-KSB and should be read in
conjunction with the related notes thereto, included herein.
The following financial statements of CVD Equipment Corporation are
included in Part II, Item 7:
Report of Independent Certified Public Accountants............. F-3
Balance Sheets - December 31, 2002 and 2001.................... F-4
Statements of Income Years Ended December 31, 2002 and 2001.... F-5
Statements of Stockholders Equity.............................. F-6
Statements of Cash Flows
Years Ended December 31, 2002 and 2001.................... F-7
Notes to the Financial Statements..............................F-8-F-22
3. Financial Statement Schedules
Report of Independent Certified Public Accountants............. S-2
Schedules:
II. Valuation and Qualifying Accounts......................... S-3
III. Amounts receivable from Related Parties and Underwriters,
Promoters, and Employees other than Related Parties....... S-4
IV. Property, Plant and Equipment............................. S-5
V. Accumulated depreciation and amortization of Property,
Plant and Equipment....................................... S-6
VI. Supplementary Income Statement Information................ S-7
All other schedules are omitted because they are not applicable,
or not required, or because information is included in the
consolidated financial statements or notes thereto.
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, this
28th day of March 2003.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Leonard A. Rosenbaum President, Chief Executive Officer and Director
Leonard A. Rosenbaum
/s/ Alan H. Temple, Jr. Director
Alan H. Temple, Jr.
/s/ Martin J. Teitelbaum Director and Assistant Secretary
Martin J. Teitelbaum
/s/ Sharon Canese Chief Financial Officer and Secretary
Sharon Canese
/s/ Conrad Gunther Director
Conrad Gunther
49
Certifications Pursuant to Rule 13A-14 or 15D-14 of the Securities exchange
act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
I, Leonard A. Rosenbaum, certify that:
1. I have reviewed this annual report on Form 10-KSB of CVD Equipment
Corporation;
2. Based upon my knowledge, this annual 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 annual report.
3. Based upon my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, the registrant's auditors and
the audit committee of the registrants' board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b. Any Fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: March 28, 2003
/s/ Leonard A. Rosenbaum
----------------------------------------
President, Chief Executive Officer and Director
50
Certifications Pursuant to Rule 13A-14 or 15D-14 of the Securities exchange
act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
I, Sharon Canese, certify that:
1. I have reviewed this annual report on Form 10-KSB of CVD Equipment
Corporation;
2. Based upon my knowledge, this annual 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 annual report.
3. Based upon my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
annual report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c. Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, the registrant's auditors and
the audit committee of the registrants' board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weakness in internal controls; and
b. Any Fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls.
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Dated: March 28, 2003
/s/ Sharon Canese
----------------------------------------
Chief Financial Officer and Secretary