<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-KSB
ANNUAL REPORT
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PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Fiscal year ended December 31, 1996
Commission File No. 2-97210-NY
CVD EQUIPMENT CORPORATION
-------------------------
(Exact Name of registrant as specified in charter)
New York 11-2621692
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(State of Incorporation) (IRS Employer Identification No.)
1881 Lakeland Avenue, Ronkonkoma, New York 11779
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(Address of principal executive offices) (Zip Code)
(516) 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: NONE
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 |_|
The aggregate market value of Common Stock, Par Value $.0l Per
Share, held by non-affiliates on February 28, 1997 was approximately
$2,466,619.
As of February 28, 1997 there were 2,918,750 shares of Common Stock,
Par Value $.01 Per Share, outstanding.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
CVD Equipment Corporation (the "Company") was incorporated under the laws
of New York in 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.
On August 14, 1986, CVD Equipment Corporation received a $2,542,500
Industrial Development Authority (IDA) Bond Issue through the Town of
Brookhaven, New York in anticipation of the construction of a 42,000
square foot facility on approximately 10 acres of land. On March 29,
1988, plans for construction were abandoned due to declining real estate
conditions, and CVD Equipment Corporation negotiated a settlement on the
Industrial Development Bond issue that resulted in the termination of
the remaining unexpended funds for financing construction of the
facility and acquisition of machinery and equipment and has listed the
real property for sale. On March 21, 1997, CVD Equipment Corporation
entered into a contract for sale of approximately 10 acres of land. The
sale is expected to close within 12 months of the contract date.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company designs, manufactures and markets chemical vapor deposition
equipment, etching systems, and quartzware used in the semiconductor,
aerospace and other industries.
(c) NARRATIVE DESCRIPTION OF BUSINESS GENERAL
The Company designs, develops, manufactures and markets (i) chemical
vapor deposition equipment, annealing furnaces and etching systems;
(ii) gas flow control systems; and (iii) fabricates standard and
custom quartzware. The Company's products are generally sold to the
semiconductor and aerospace industries and are manufactured to the
particular specifications of each of its customers.
<PAGE> 3
The Company commenced operations in October, 1982. Equipment sales
currently range in price from $50,000 to $500,000 per unit.
Approximately 90% of the Company's sales during 1996 were for
equipment used to produce semiconductor materials. 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 integrated circuits.
PRODUCTS
Chemical Vapor Deposition Equipment - The Company offers advanced
Metal Organic Chemical Vapor Deposition Systems for sale to the
electronics industry. Chemical vapor deposition 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 <1000
degrees C). The Company's Chemical Vapor Deposition Systems are
complete and include all necessary instrumentation, subsystems and
components. The systems include mass flow controllers, bellow
valves, stainless steel lines and fittings. The Company provides
such standard systems and also specifically engineered products for
specific customer applications.
The Company's CVD systems are available in a variety of models which
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.
<PAGE> 4
The Company also offers Annealing Furnaces which are used to heat
materials to temperatures ranging from 300 degrees to 1500 degrees C
in a gaseous environment. The Annealing Furnace is equipped with an
automatic process controller permitting automatic process sequencing
and monitoring with safety alarm provisions.
Gas Flow Control Systems - The Company offers standard and
custom-designed gas cylinder storage cabinets and gas control
systems to provide safe storage and handling of pressurized gases.
System design allows for automatic or manual control from both a
local and remote location where the handling of explosive,
flammable, corrosive and toxic gases used in the manufacture of
semiconductor wafers can be hazardous.
Quartzware - The Company offers standard and custom fabricated
quartzware. The quartzware is used by CVD Equipment Corporation and
is also sold as a separate item to the semiconductor industry.
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 and to
institutions conducting research in the electronics area such as
college and industrial laboratories. The Company generates sales
from its sales office located in Ronkonkoma, New York. Sales of the
Company's products are made by a staff of three employees whose
activities are supported by a staff of seven application engineers.
On December 31, 1996, the Company had a backlog of orders of
approximately $2.5 million as compared to $1.9 million on December
31, 1995. The backlog at December 31, 1996 is all current and is
expected to be shipped in 1997.
The Company warrants its equipment for a period of six months after
shipment and passes along any warranties from original manufacturers
of components used in its products. The Company provides for its own
equipment servicing with in-house field service personnel.
Engineering and New Product Development
The processes utilizing chemical vapor deposition systems are
subject to technological change, and the Company's ability to
compete successfully depends upon, among other things, its ability
to anticipate and react to such change. Accordingly, the Company is
committed to the development of new products as well as the
<PAGE> 5
improvement of existing products. Although the Company does not
specifically segregate in its financial statement amounts expended
for product development, the Company estimates that during 1996 it
spent approximately $150,000 for engineering and new product
development. This compares with approximately $165,000, spent for
these purposes during 1995. As of December 31, 1996, 7 employees
were engaged on a full-time basis in engineering, improvement of
existing products and development of new products.
Patents
The Company has developed technology related to the automatic valve
shut-off system manufactured by the Company which has been granted
Patent No. 4,527,715. Although the Company believes that the patent
with respect to the automatic valve shut-off system provides it with
some competitive advantage, the Company does not believe the patent
protection is significant to any of its current business operations.
The Company believes that its business depends primarily upon the
technical know-how and experience of its employees.
Competition
The Company's business is subject to intense competition. The
Company is aware of five businesses which market a substantial
number of products comparable to the Company's. Many of the
Company's competitors (including customers which may elect to
manufacture systems for internal use) have financial, marketing and
other resources greater than the Company. The most significant
competitive factors with respect to the Company's products are
technical performance, quality control and price.
Manufacturing, Materials and Supplies
Most of the components used in the production of the Company's
products are not manufactured by the Company, but are purchased from
unrelated third-party manufacturers of such equipment. The Company
has no supply contracts covering the components which it uses to
manufacture its products.
<PAGE> 6
Employees
As of December 31, 1996, the Company employed 32 full time
personnel, including 17 in manufacturing, 7 in engineering, research
and development (including efforts relating to the
improvement of existing products), 3 in marketing, and 5 in general
management and administration One part-time worker was also on staff
bringing total employed to 33. 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. The Company maintains no product liability insurance
coverage because insurance covering the risks described above is not
available to the Company at a price acceptable to it.
(d) FOREIGN OPERATIONS
The Company's revenues derived from foreign exports was less than
10% of total revenues in 1996.
ITEM 2. DESCRIPTION OF PROPERTIES
On June 1, 1991, CVD Equipment relocated its operations to its
present location in Ronkonkoma, New York. The 20,000 square foot
facility offers significant financial and operational benefits over
the Company's previous location. The Company signed a new 5-year
lease in 1996 which is scheduled to expire on July 31, 2001.
Management feels that the property is adequately covered by
insurance.
On March 21, 1997, CVD Equipment Corporation entered into a
contract for sale of approximately 10 acres of land. The Company
expects to realize a profit of approximately $150,000 when the sale
is completed within 12 months of the contract date.
<PAGE> 7
ITEM 3 LEGAL PROCEEDINGS
The Company is defending a claim by William Bruno arising out of
personal injuries alleged to have been sustained as the result of a
May 24, 1993 motorcycle accident which purportedly occurred in the
vicinity of vacant land located in Selden, New York, in which CVD
has an interest pursuant to a Lease Purchase Agreement.
Having reviewed the claim by Mr. Bruno, it is the conclusion of the
Corporation that no viable claims exist against the Corporation. The
incident appears to have taken place on a public road and the road
condition alleged to have been the cause of the accident would
apparently have been the responsibility of either the Town or a
third party. In any event, it appears that the Corporation's
liability insurance policy would be reasonably sufficient to cover
any contingency.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A shareholder's meeting was held in the third quarter of 1996 for
the primary purpose of re-electing directors.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
(a) PRINCIPAL MARKET
The stock continues to be traded on the OTC Bulletin Board and
reported in the OTC "Pink Sheets".
(b) STOCK PRICE AND DIVIDEND 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.
<PAGE> 8
Period High Low
------ ---- ---
January 1, 1995 through March 31, 1995 0.25 0.125
April 1, 1995 through June 30, 1995 0.25 0.125
July 1, 1995 through September 30, 1995 0.25 0.125
October 1, 1995 through December 31, 1995 0.25 0.125
January 1, 1996 through March 31, 1996 0.56 0.156
April 1, 1996 through June 30, 1996 1.06 0.625
July 1, 1996 through September 30, 1996 2.25 0.660
October 1, 1996 through December 31, 1996 1.625 1.187
The chart reflects inter-dealer prices, without retail mark-up,
mark-down, or commission and does not represent actual transactions.
The Company paid no cash dividends during the period.
(c) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's Common Stock as of
February 28, 1997 was approximately 500.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1996 Compared to 1995
The year 1996 was an exceptional one for CVD Equipment with records set in many
areas. New sale orders in 1996 were $5.7 million which were more than 67%
higher than 1995's level of $3.4 million. The heavy influx of new orders pushed
revenue past the $5.0 million mark for the year and was nearly double the 1995
level of $2.6 million. The higher revenues produced a net profit of more than
$1.1 million which is the best result ever reported by the company. Net
earnings per share were $.39 in 1996 compared to $.08 in 1995.
In 1996, CVD delivered it's first systems to Taiwan and Australia and continued
it's expansion into developing niches of the semiconductor equipment market. New
designs are on the floor for Low Pressure Chemical Vapor Deposition Systems
(LPCVD) and CVD's first system designed to handle Gallium Nitride depositions.
Revenue
Revenues for the year were $5.0 million which was 91% more than the 1995 level
of $2.6 million. The make-up of sales shifted heavily toward the commercial
side at the expense of government related jobs and non-semiconductor related
business. While government related agencies have averaged about 25% of CVD
sales, in 1996 that number was only 10%. Non-semiconductor business was less
than 10% after providing a much larger percentage in prior years.
<PAGE> 9
A majority of sales for 1996 were concentrated with two customers who were the
source of 70% of revenue. This reflects the confidence CVD has been developing
with major customers as we now are supplying more production line equipment.
Costs and expenses
Operating margins continued to be favorably impacted by a drop in Cost of Sales
to 60%. This is the third consecutive year of significant decreases. Payroll
expense was up substantially as CVD grew from 23 people at the end of 1995 to 32
people at the end of 1996. The Company has been cautious in adding personnel so
that sought after efficiency is not lost with the addition of new people. It is
encouraging that despite the significant personnel increase, payroll expense as
a percentage of sales was down to 26.8% from 36.5% one year earlier.
Selling expenses were incurred in 1996 as CVD added a salesman and incurred
commission expense that it did not have in 1995. G&A was also increased as many
payroll related overheads increased due to the change in headcount. However,
taken together, Selling and G&A expenses dropped as a percentage of sales from
22.8% to 16% in 1996.
Interest expense dropped nearly 60% as CVD continued to aggressively pay off
debt in 1996. By year end, debt was down to approximately $130,000 from $693,000
at the end of 1995. Subsequent to year end, another $35,000 has been paid
bringing the balance to under $100,000.
Liquidity and Capital Resources
1996 Compared To 1995
Despite the record earnings for 1996, cash at the end of the year was $67,212
compared to $240,842 at the end of 1995. The cash reduction reflects the
aggressive debt repayment program followed in 1996 as more than $564,000 was
paid back to BNL. Accounts receivable, however, were significantly higher at
year end by $290,163 versus year end 1995. A majority of the receivables will
be collected in the first quarter of 1997.
The Company continued to reduce inventory in 1996 as more than $120,000 was used
in production.
1995 COMPARED TO 1994
The year 1995 saw a decrease in overall sales but an increase in profitability
to a level not experienced since the Company went public. Year end 1994 saw
CVD's backlog at a low level of $1.3 million. Bookings in 1995 started slow but
began picking up in the third quarter leading to the strong surge in fourth
quarter orders. Following are the sales bookings by quarter:
<PAGE> 10
000's
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First Quarter $ 269
Second Quarter $ 579
Third Quarter $ 637
Fourth Quarter $ 1,939
By year end, the backlog was at $2.4 million. Some notable firsts occurred on
the sales side during 1995. CVD received it's first major system order from
Taiwan for a Liquid Phase Epitaxial Reactor. This system was delivered in
February 1996. CVD also designed and installed it's first Crystal Growing system
for growing Gallium Arsenide crystals. This piece of equipment further
integrates CVD toward the front end of the chip making process. The Company's
machines now not only provide the deposition on the wafers but can also produce
the ingots that are used for wafers.
Revenue
Sales for the year 1995 were down 22% from 1994 to $2.6 million. The increase in
new orders came too late in the year and could not outweigh the relative
slowness of the beginning of the year. Revenue for the fourth quarter was
approximately $1.0 million versus $1.6 million for the first nine months.
The make-up of sales continued along somewhat traditional lines in 1995. CVD
shipped approximately 25% of invoices to government associated entities. Another
20% was shipped to one significant Fortune 50 Company who continues to draw on
CVD for more of it's equipment needs. One surprising statistic was the 25% of
sales that came from non-semiconductor sources. The emphasis placed on using our
available engineering talent to build other types of equipment will continue
even as semiconductor equipment bookings pick up.
Despite the drop in sales, pre-tax profit rose to $240,000 from a reported loss
of $138,000 in 1994. This represents a profit of more than $.08 per share and is
the highest level that the Company has achieved since going public.
Costs and Expenses
A major reason for the increased profitability on decreased sales was the steady
improvement in cost of sales. In 1995, cost of sales dropped to 67% from 75% in
1994 and 83% in 1993. In 1994, the purchase to sales ratio was 30%, and in 1995
it was lowered to 21%. The reduction was the result of various factors including
better purchasing controls and manufacturing of some parts previously purchased.
<PAGE> 11
Payroll expense was another factor in the Company's profit improvement. Total
payroll was more than $200,000 less in 1995 than in 1994. The successful fourth
quarter points to the improved efficiencies of the work force which should carry
well into 1996. An increasingly conservative approach to capitalizing labor will
continue to reduce depreciation expense in subsequent years. In 1995,
depreciation expense was $35,000 less than in 1994, and this reduction will be
even greater in 1996. Interest expense was down nearly $9,000 in 1995 despite
higher rates, and recent bank pay downs should decrease interest even more in
1996. (See Note 13 Subsequent Events).
Total G & A expense was slightly lower in 1995 compared to 1994. Despite rising
costs, CVD managed to reduce expenditures in major areas like telephone,
insurance and utilities to below 1994 levels. Legal expense remained high with
more than $42,000 disbursed for legal services. However, the suit against CVD
has been dismissed, so 1996 should see the benefit of reduced legal expenses
associated with the law suit.
Liquidity and Capital Resources
1995 compared to 1994
By year end 1995, CVD's cash position improved to $240,842 from $59,080 at the
beginning of the year. This was accomplished by a combination of improved
earnings and a much slower debt reduction with BNL. Due to the relatively low
level of sales early in 1995, we were unable to allocate cash toward principal
reduction. As sales improved later in the year, we assigned a letter of credit
for more than $300,000 to BNL. This system was delivered in the first quarter of
1996.
The Company continued to reduce inventory in 1995 as more than $88,000 was used
in production.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by ITEM 7 is incorporated by reference in ITEM 13.
<PAGE> 12
CVD EQUIPMENT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB ITEM 7
Years Ended
DECEMBER 31, 1996 and 1995
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 13
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT.......................................... F-3
FINANCIAL STATEMENTS:
Consolidated balance sheets as of December 31, 1996 and 1995.......... F-4
Consolidated statements of income and retained earnings (accumulated
deficit) for the years ended December 31, 1996 and 1995............... F-5
Consolidated statements of cash flows for the years ended December 31,
1996 and 1995......................................................... F-6
Notes to consolidated financial statements............................ F-7-F-15
<PAGE> 14
F-3
[Letterhead of Albrecht, Viggiano, Zureck & Company, P.C.]
CERTIFIED PUBLIC ACCOUNTANTS
25 SUFFOLK COURT
HAUPPAUGE, NY 11788
(516) 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, 1996 and 1995, and
the related consolidated statements of income and retained earnings (accumulated
deficit), 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CVD Equipment
Corporation and Subsidiary as of December 31, 1996 and 1995 and the results of
its operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Hauppauge, New York
March 14, 1997
<PAGE> 15
F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
1996 1995
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ASSETS (Pledged)
Current
Cash and cash equivalents $ 67,212 $ 240,842
Accounts receivable 616,018 325,855
Costs and estimated earnings in excess of billings
on uncompleted contracts, net of allowance for
doubtful accounts 1,264,820 825,616
Inventories 39,759 160,597
Deferred tax asset, net of valuation allowance 67,736 -0-
Other current assets, net of accumulated
amortization 18,559 19,432
----------- -----------
2,074,104 1,572,342
----------- -----------
Property, Plant and Equipment, at cost - net of
accumulated depreciation and amortization 827,203 960,496
----------- -----------
Other Assets
Loan receivable - officer 500,000 494,934
Other assets 65,720 105,073
----------- -----------
565,720 600,007
----------- -----------
$ 3,467,027 $ 3,132,845
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Current maturities of long-term debt $ 135,695 $ 700,331
Accounts payable 120,162 168,211
Accrued expenses 120,290 237,515
Income and other taxes payable 53,297 17,907
Billings in excess of costs on uncompleted 41,090 142,693
contracts -- --
Total Current Liabilities 470,534 1,266,657
Long-Term Debt -0- 4,832
----------- -----------
470,534 1,271,489
----------- -----------
Stockholders' Equity
Common stock - $0.01 par - shares authorized
10,000,000; issued and outstanding 2,918,750 29,188 29,188
Additional paid-in capital 2,784,060 2,784,060
Retained earnings (accumulated deficit) 183,245 (951,892)
----------- -----------
2,996,493 1,861,356
----------- -----------
$ 3,467,027 $ 3,132,845
=========== ===========
See independent auditors' report and notes to financial statements
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 16
F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED
EARNINGS (ACCUMULATED DEFICIT)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues
Net sales $ 1,480,451 $ 1,210,636
Revenue on uncompleted contracts 3,537,071 1,417,295
----------- -----------
Total Revenues 5,017,522 2,627,931
----------- -----------
Costs and Revenues
Cost of goods sold 1,139,504 1,018,003
Costs on uncompleted contracts 1,872,613 732,799
----------- -----------
Total Cost of Revenues 3,012,117 1,750,802
----------- -----------
Gross Profit 2,005,405 877,129
Operating Expenses ----------- -----------
Selling and shipping 130,674 71,837
General and administrative 676,789 539,054
----------- -----------
Total Operating Expenses 807,463 610,891
----------- -----------
Income Before Interest and Other Expenses 1,197,942 266,238
----------- -----------
Interest
Income 37,105 34,251
Expense (26,924) (66,328)
----------- -----------
Net Interest Income (Expense) 10,181 (32,077)
----------- -----------
Other Income 1,278 6,011
----------- -----------
Income Before Taxes 1,209,401 240,172
Income Tax Expense 74,264 1,906
----------- -----------
Net Income 1,135,137 238,266
Accumulated Deficit at Beginning of Year (951,892) (1,190,158)
----------- -----------
Retained Earnings (Accumulated Deficit) at End of Year $ 183,245 $ (951,892)
=========== ===========
Net Income Per Share of Common Stock $ 0.39 $ 0.08
=========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding 2,918,750 2,918,750
=========== ===========
</TABLE>
See independent auditors' report and notes to financial statements.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 17
F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 1,135,137 $ 238,266
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred tax benefit (67,736) -0-
Bad debt expense 25,000 -0-
Depreciation and amortization 313,492 386,131
Increase in accrued interest on loan receivable - officer (5,066) (32,947)
Increase in accounts receivable, costs and
estimated earnings in excess of billings on uncompleted
contracts, other current assets and other assets (759,978) (423,696)
Decrease in inventories 120,838 88,588
(Decrease) increase in accounts payable, accrued expenses,
billings in excess of costs on uncompleted contracts, and
income and other taxes payable (231,487) 102,070
----------- -----------
Net Cash Provided By Operating Activities 530,200 358,412
----------- -----------
Cash Flows from Investing Activities
Increase in loan receivable - officer -0- (5,642)
Capital expenditures (134,362) (105,216)
----------- -----------
Net Cash Used In Investing Activities (134,362) (110,858)
----------- -----------
Cash Flows from Financing Activities
Payments on related party notes payable -0- (35,000)
Payments on debt (569,468) (30,792)
----------- -----------
Net Cash Used in Financing Activities (569,468) (65,792)
----------- -----------
Net (Decrease) Increase in Cash and Cash Equivalents (173,630) 181,762
Cash and Cash Equivalents at Beginning of Year 240,842 59,080
----------- -----------
Cash and Cash Equivalents at End of Year $ 67,212 $ 240,842
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes $ 104,000 $ 9,127
Interest 26,488 53,371
</TABLE>
See independent auditors' report and notes to financial statements.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 18
F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 1 - Summary of Significant Accounting Policies
Description of Business
CVD Equipment Corporation and Subsidiary (the Company), a New York corporation,
was organized and commenced operations in October 1982. Principal business
activities include the manufacturing of chemical vapor deposition equipment,
customized gas control systems, and hydrogen annealing and brazing furnaces, all
of which are used primarily to produce semiconductors and other electronic
components. The Company engages in business throughout the United States and
Asia.
Basis of Consolidation
The consolidated financial statements include the accounts of CVD Equipment
Corporation and its wholly-owned subsidiary, CVD Materials Corporation. CVD
Materials Corporation, a New York corporation, was inactive for the years ended
December 31, 1996 and 1995. The assets of CVD Materials Corporation were
completely written off as of December 31, 1994. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories
The Company's inventories balance represents raw materials. Inventories are
valued at the lower of cost or market. The Company uses a cost system which
approximates the first-in, first-out method. Materials used in work-in-process
are included in costs and estimated earnings in excess of billings on
uncompleted contracts. There were no finished goods in inventories.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts and the tax basis of existing assets
and liabilities.
Property, Plant and Equipment and Intangibles
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. The cost of certain labor and overhead, as well as software,
which is expected to benefit future periods, has been capitalized and amortized.
Depreciation and amortization are computed by the straight-line method for
financial purposes over the estimated useful lives of the assets.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 19
F-8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 1 - Summary of Significant Accounting Policies (continued)
Revenue and Income Recognition
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 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 labor
costs incurred to date compared with total estimated labor costs.
The asset, "Costs and estimated earnings in excess of billings on uncompleted
contracts," represents revenues recognized in excess of amounts billed, net of
an allowance for doubtful accounts.
The liability, "Billings in excess of costs on uncompleted contracts,"
represents amounts billed in excess of revenues earned.
Accounts Receivable
Accounts receivable are considered fully collectible and are presented net of a
zero allowance for doubtful accounts.
Product Warranty
The Company records warranty costs as incurred and does not provide for possible
future costs. Management estimates such costs to be insignificant.
Net Income or Loss Per Share
Net income or loss per share is calculated based on the weighted average number
of shares of common stock outstanding during the year. Outstanding options were
not included in the weighted average number of outstanding shares as their
effect would be either immaterial or antidilutive.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 20
F-9
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 2 - Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted contracts are summarized
as follows:
1996 1995
----------- -----------
Costs incurred on uncompleted contracts $ 3,680,475 $ 2,211,689
Estimated earnings 1,014,192 (15,976)
----------- -----------
4,694,667 2,195,713
Billings to date 3,470,937 1,512,790
----------- -----------
$ 1,223,730 $ 682,923
=========== ===========
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,264,820 $ 825,616
Billings in excess of costs and
estimated earnings on uncompleted contracts (41,090) (142,693)
----------- -----------
$ 1,223,730 $ 682,923
=========== ===========
Costs and estimated earnings in excess of billings on uncompleted contracts are
reported net of an allowance for doubtful accounts of $25,000 and $-0- as of
December 31, 1996 and 1995, respectively
Note 3 - Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
Estimated
1996 1995 Useful Lives
---- ---- ------------
Land $ 550,939 $ 550,939
Machinery and equipment 211,111 532,656 4-8 years
Capitalized labor and overhead 1,768,262 2,311,325 3-4 years
Furniture and fixtures 186,441 159,571 8 years
Automobiles 24,557 29,266 3 years
Leasehold improvements 12,014 218,574 5 years
---------- -----------
2,753,324 3,802,331
Less: Accumulated depreciation
and amortization 1,926,121 2,841,835
---------- -----------
$ 827,203 $ 960,496
========== ===========
Depreciation and amortization
expense relating to the above $ 267,605 $ 339,492
assets ========== ===========
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 21
F-10
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 4 - Other Assets
Other assets consist of the following:
1996 1995
--------- ---------
Software $ 540,345 $ 535,277
Less: Accumulated amortization 479,053 433,166
--------- ---------
Net software 61,292 102,111
--------- ---------
IDA loan costs 16,040 16,040
Less: Accumulated amortization (16,040) (16,040)
--------- ---------
Net IDA loan costs -0- -0-
--------- ---------
Patents and trademarks 3,275 3,275
Less: Accumulated amortization (3,275) (3,275)
--------- ---------
Net patents and trademarks -0- -0-
Security deposits 2,700 2,962
Miscellaneous 1,728 -0-
--------- ---------
Total other assets $ 65,720 $ 105,073
========= =========
Software additions for the years 1996 and 1995 totaled $5,068 and $61,447,
respectively. The amortization of the software costs was $45,887 and $46,639 in
1996 and 1995, respectively. Software costs are amortized over three years.
There were no additions to the IDA loan costs or patents and trademarks for 1996
or 1995.
Note 5 - Long-Term Debt
1996 1995
----------- ---------
BANCA NAZIONALE DEL LAVORO
Collateralized by a lien on the Company's
assets; payable in monthly installments of
$25,000 plus interest at the prime rate until
June 30, 1997 $ 130,863 $ 693,000
FORD MOTOR CREDIT CORP
Collateralized by a lien on the Company's
automobile; payable in 48 monthly installments
of $622 including interest of 7.9% per annum;
final payment due August 1997 4,832 12,163
----------- ---------
135,695 705,163
Less: Current maturities 135,695 700,331
----------- ---------
$ -0- $ 4,832
=========== =========
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 22
F-11
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 5 - Long-Term Debt (continued)
As of December 31, 1996, Banca Nazionale del Lavoro has extended the final
maturity date from December 1, 1996 to June 30, 1997.
All long-term debt matures in 1997.
Note 6 - Income Taxes
The provision for income taxes include the following for the year ended December
31, 1996.
1996 1995
--------- -------------
Current:
Federal $ 133,000 -0-
State 9,000 1,906
Deferred tax benefit:
Federal (58,822) -0-
State (8,914) -0-
--------- ------------
$ 74,264 $ 1,906
========= ============
The Company had net operating loss carryforwards at December 31, 1995 for tax
purposes that were offset against current taxable income and fully utilized in
1996.
The Company has investment tax credit carryforwards for tax purposes amounting
to $102,155 that may be offset against future tax liabilities through the year
2004 which expire as follows:
Amount of investment
tax credit carryforward $ 22,335 $ 25,000 $ 26,600 $ 28,220
Year of origination 1985 1987 1988 1989
Year of expiration 2000 2002 2003 2004
Deferred income taxes are recognized for differences between the bases of assets
and liabilities for financial statement and income tax purposes. The difference
in income between financial reporting and income tax purposes relates primarily
to the use of different depreciation methods for book and tax purposes. A
valuation allowance equal to $227,238 and $680,500 has been established against
net deferred tax assets of $294,975 and $680,500 as of December 31, 1996 and
1995, respectively.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 23
F-12
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 6 - Income Taxes (continued)
The effective tax rate on income taxes was less than the federal statutory rate.
The following summary reconciles taxes at the federal statutory rate with the
actual taxes.
1996 1995
-------------- ------------
Earnings before income taxes $ 1,209,401 $ 238,266
Add: Nondeductible expenses 18,134 15,658
Timing differences due to:
Use of accelerated depreciation methods
for tax purposes 50,619 55,267
Allowance for doubtful accounts 25,000 -0-
----------- -----------
1,303,154 309,191
Less: Capitalization of additional costs to
inventory for tax purposes (10,223) 1,495
Net operation loss carryforward (662,168) (285,901)
Tax basis of assets sold (157,051) (10,316)
Abatement of tax penalties (4,928) -0-
Timing difference due to use of different
amortization methods for tax purposes (3,423) (14,469)
----------- -----------
Taxable Income $ 465,361 $ -0-
=========== ===========
Federal taxes at statutory rate $ 155,163 $ -0-
Investment tax credit carryforward (22,163) -0-
----------- -----------
Federal Tax Provision $ 133,000 $ -0-
=========== ===========
Note 7 - Commitments
Leases
On August 1, 1996, the Company renewed its lease for a term of five years
expiring on July 31, 2001 for its headquarters and operations in Ronkonkoma, New
York. Minimum rental commitments for the next five years are as follows:
For the year ending December 31, 1997 $ 119,656
1998 123,245
1999 126,942
2000 130,751
2001 77,589
Rental expense for operating leases including the above lease amounted to
$118,178 and $115,327 for 1996 and 1995, respectively.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 24
F-13
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 8 - Non-Qualified Stock Option Plans
The Company instituted a non-qualified stock option plan in December 1986
whereby options can be granted from time to time for up to 300,000 shares of the
Company's $0.01 par value common stock. All full time employees except Leonard
A. Rosenbaum, President, are eligible to receive options, which are granted by
the Stock Option Committee designated by the Company's Board of Directors. The
exercise price of options granted would have been the lowest trading price of
the Company's common stock in the year of grant. The plan terminated on December
31, 1996.
In June 1989, the Company instituted a non-qualified stock option plan for key
employees whereby options can be granted from time to time for up to 700,000
shares of the Company's $0.01 par value common stock. In 1996, no options were
exercised and 84,000 additional options were granted under the plan. Options
vest over a four year period. The plan shall terminate on June 15, 1999.
In October 1995, the Financial Accounting Standards Board issued FASB 123,
Accounting for Stock-Based Compensation, which is effective for years beginning
after December 15, 1995. As permitted under FASB 123, the Company has elected
not to adopt the fair value based method of accounting for its stock-based
compensation plans, but will continue to account for such compensation under the
provisions of APB Opinion No. 25. Accordingly, no compensation expense has been
recognized for stock options awarded. Had compensation cost for the Company's
plan been determined consistent with the methodology prescribed under SFAS No.
123, there would have been no significant impact on the Company's operations
for the year ended December 31, 1996.
Note 9 - Segment Information and Significant Customers
Significant Customers
The Company considers itself to be in a single industry defined as the
manufacturing of equipment for use in the production of semi-conductors and
related products. In 1996 and 1995, the Company had one significant customer
which represented 61% and 21%, respectively, of sales and 57% and 29% of the
total accounts receivable and costs and estimated earnings in excess of billings
on uncompleted contracts at the respective year-ends.
Export Sales
Export sales to unaffiliated customers totaled $421,021 and $168,670 or 8% and
6% of sales for the years ended December 31, 1996 and 1995, respectively. Export
sales in 1996 and 1995 were primarily to customers in Asia. All contracts are
denominated in U.S. dollars. The Company does not enter into any foreign
exchange contracts.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 25
F-14
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 10 - Related Party Transactions
As of December 31, 1996 and 1995, Mr. Rosenbaum owed $500,000 and $494,934,
respectively, to the Company. Original debt was payable on demand with interest
at the prime rate plus one percent. The debt was renegotiated on December 19,
1996, so that interest only was due on January 1, 1997, for the twelve days
ended December 31, 1996 and thereafter, the debt shall be payable in equal
monthly installments of $3,008 consisting of principal and interest at the fixed
rate of 7.0% on the first day of each month beginning February 1, 1997 with the
remaining principal balance to be due and payable on January 1, 2007. The
interest accrued on the debt totaled $1,542 and $161,940 as of December 31, 1996
and 1995, respectively.
Martin J. Teitelbaum is a Director and General Counsel for the Company. The
company incurred legal fees for his professional services of $14,829 and
$16,025 for the years ended December 31, 1996 and 1995, respectively.
Note 11 - Contingencies
Cash
The Company places its temporary cash investments with one financial institution
and often exceeds the FDIC limit.
Product Liability Insurance
Currently, the Company maintains no product liability insurance on the products
it manufactures and sells. Previous attempts to secure this coverage have proven
too costly for the Company.
Note 12 - Disclosures About Fair Value of Financial Instruments
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Fair value estimates are based on many judgments. These estimates
are subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumption could significantly affect the estimates.
Fair value estimates do not apply to the value of anticipated future business
and the value of assets and liabilities that are not considered financial
instruments in accordance with generally accepted accounting principles.
Significant assets that are not considered financial instruments include
premises and equipment.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 26
F-15
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 12 - Disclosures About Fair Value of Financial Instruments (continued)
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments", requires the Company to disclose estimated fair
values of its financial instruments. Financial instruments are defined as cash,
evidence of an ownership in an entity, or a contract that conveys or imposes on
an entity the contractual right or obligation to either receive or deliver cash
or another financial instrument.
Fair value is defined as the amount at which such financial instruments could be
exchanged in a current transaction between willing parties, other than in a
forced sale or liquidation, and is best evidenced by a quoted price, if one
exists. Fair value estimates, methods and assumptions are set forth below for
the Company's financial instruments.
Cash, Accounts Receivable, Accounts Payable, Accrued Expenses, Billings in
Excess of Costs on Uncompleted Contracts and Costs and Estimated Earnings in
Excess of Billings on Uncompleted Contracts
The carrying amounts approximate fair value because of the short maturity of
those instruments.
Loan Receivable - Officer
The carrying amount of this variable rate loan is a reasonable estimate of its
fair value.
Current Maturities of Long-Term Debt
The fair value of the Company's current maturities of long-term debt is
estimated based on the current rates offered to the Company for debt of the same
remaining maturity.
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 27
INDEX TO SUPPLEMENTARY FINANCIAL SCHEDULES
Page No.
--------
Independent Auditors' Report on Supplementary Information................ S-2
Supplementary Financial Schedules:
II. Amounts receivable from related parties and
underwriters, promoters, and employees other
than related parties............................................ S-3
V. Property, plant and equipment................................... S-4
VI. Accumulated depreciation and amortization
of property, plant and equipment................................ S-5
IX. Supplementary income statement information...................... S-6
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 28
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
(516) 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, 1996 and 1995.
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, V, VI and
IX 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
March 14, 1997
<PAGE> 29
S-3
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- --------------------------------- ---------- ---------- ---------------------- ----------
Deductions
----------------------
Balance at (1) (2) Balance at
Beginning Amounts Amounts End of
Name of Debtor of Period Additions Collected Written off Period
- --------------------------------- ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1996:
Leonard A. Rosenbaum, President
Maturity: January 1, 2007
Interest: 7% per annum $ 494,934 $ 30,388 $ 25,322 $ -0- $ 500,000
1995:
Leonard A. Rosenbaum, President
Term: Demand
Interest: Prime + 1% per annum 456,344 38,590 -0- -0- 494,934
</TABLE>
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 30
S-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
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
- -------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1996:
Land $ 550,939 $ 550,939
Machinery and equipment 532,656 $ 45,363 $ (366,908) 211,111
Capitalized labor and overhead 2,311,325 62,129 (605,192) 1,768,262
Furniture and fixtures 159,571 26,870 186,441
Automobiles 29,266 (4,709) 24,557
Leasehold improvements 218,574 (206,560) 12,014
----------- ----------- ----------- -----------
$ 3,802,331 $ 134,362 $(1,183,369) $ 2,753,324
=========== =========== =========== ===========
1995:
Land $ 550,939 $ 550,939
Machinery and equipment 961,433 $ 1,040 $ (429,817) 532,656
Capitalized labor and overhead 2,211,796 99,529 2,311,325
Furniture and fixtures 154,921 4,650 159,571
Automobiles 29,266 29,266
Leasehold improvements 218,574 218,574
----------- ----------- ----------- -----------
$ 4,126,929 $ 105,219 $ (429,817) $ 3,802,331
=========== =========== =========== ===========
</TABLE>
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 31
S-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- -------------------------------- ---------- ---------- ----------- ----------
Additions
Balance at Charged to Other Balance at
Beginning Costs and Changes - End of
Description of Period Expenses Add (Deduct) Period
- -------------------------------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
1996:
Machinery, equipment and
capitalized labor
and overhead $2,463,950 $ 250,959 $ (972,101) $1,742,808
Furniture and fixtures 134,755 11,987 146,742
Automobiles 24,510 4,091 (4,044) 24,557
Leasehold improvements 218,620 568 (207,174) 12,014
---------- ---------- ----------- ----------
$2,841,835 $ 267,605 $(1,183,319) $1,926,121
========== ========== =========== ==========
1995:
Machinery, equipment and
capitalized labor
and overhead $2,574,513 $ 319,254 $ (429,817) $2,463,950
Furniture and fixtures 125,316 9,439 134,755
Automobiles 16,324 8,186 24,510
Leasehold improvements 216,007 2,613 218,620
---------- ---------- ----------- ----------
$2,932,160 $ 339,492 $ (429,817) $2,841,835
========== ========== =========== ==========
</TABLE>
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 32
S-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE IX
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 1996 and 1995
Col. A Col. B
- ------------------------------------- -----------------------------
Charges to Costs and Expenses
-----------------------------
Item 1996 1995
---- ---------- ---------
1. Amortization of intangible assets $ 45,887 $ 46,639
See independent auditors' report.
ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C., CERTIFIED PUBLIC ACCOUNTANTS
<PAGE> 33
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, with respect to each director, his age,
present position with the Company, principal occupation during the
past five years, other directorships, if any, and the year he first
became a director of the Company.
Position With Director
Name of Director Age the Company Since
- ---------------- --- ------------- --------
Leonard A. Rosenbaum 51 President and 1982
Chief Executive Officer
Alan H. Temple, Jr. 63 None 1986
Joseph J. Saccardi 48 Chief Financial Officer 1991
Secretary
Martin J. Teitelbaum 47 Assistant Secretary 1985
Albert G. Metzler 49 None 1993
Leonard A. Rosenbaum founded the Company in October, 1982 and has been it's
President and 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 and a director and principal stockholder of Nav-Tec Industries,
Inc.,Hauppauge, New York, a manufacturer of semiconductor processing equipment
similar to the type of equipment presently manufactured by the Company. Nav-Tec
Industries, Inc. 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, Westbury, New York,
a manufacturer of semiconductor materials and equipment.
Alan H. Temple, Jr. has, since 1977, been President of Harrison Homes,
Inc.,Pittsford, New York, a building and consulting firm.
Joseph J. Saccardi joined CVD Equipment on February 25, 1991. Prior to joining
CVD, Mr. Saccardi was Vice-President, Finance and Administration at the Festo
Corporation for a period of 7 years. Mr. Saccardi has also held the position of
Director of Financial Planning at Teleprompter Corporation (1979-1983) and
Manager of Financial Analysis at United States Lines (1975- 1979).
<PAGE> 34
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.
Since January 1, 1987 he has served as the Assistant Secretary. Mr. Teitelbaum
serves as General Counsel to CVD Equipment Corporation.
Albert G. Metzler has, since 1972, been Sales Manager of R.S. Crum & Co., a
distributor of valves and valve fittings. Mr. Metzler was formerly a director
from 9/28/83 to 5/29/86. R.S. Crum is a supplier to CVD Equipment Corporation.
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 two times during 1996. All meetings were attended by
Messrs. Rosenbaum, Temple, Saccardi, Teitelbaum, Metzler.
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.
<PAGE> 35
SUMMARY COMPENSATION TABLE
Name and Principal Annual
Position Year Compensation
------------------ ---- ------------
Leonard A. Rosenbaum 1996 $139,126
President and Chief 1995 $132,571
Executive Officer 1993 $134,786
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.
The Company adopted a non-qualified stock option plan in December,
1986 for eligible salaried employees. Options will be awarded by the
Board of Directors or by a committee appointed by the Board. Under
the Plan, an aggregate of 300,000 shares of Common Stock, $.01 par
value, of the Company are reserved for issuance or transfer upon the
exercise of options which are granted. Unless otherwise provided in
the Option Agreement, an option granted under the plan shall become
exercisable in 25% installments commencing one year from the
anniversary date of the grant. The purchase price of an option shall
be the lowest price per share that the common stock traded during
the calendar year in which the option is granted. The plan
terminated on December 31, 1996.
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 the average bid price per share,
calculated on a monthly basis, that the Common Stock (as reported by
NASDAQ) traded during the calendar year immediately preceding the
year in which the option is granted. The Plan shall terminate on
June 15, 1999.
In 1996 no options were exercised from this plan, and 84,000
options were granted.
<PAGE> 36
Other than the one remaining non-qualified stock option plan, the
Company has no pension or profit sharing plan or other contingent
forms of remuneration.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information concerning persons who are
known by the Company to own beneficially more than 5% of any class
of the Company's voting shares on March 1, 1997:
Amount and
Title Nature of
of Name and Address of Beneficial Percentage
Class Beneficial Owner Ownership (1) of Class
----- ---------------- ------------- --------
Common Leonard A. Rosenbaum 1,280,450 43.9%
1881 Lakeland Avenue
Ronkonkoma, NY 11779
Common Alan H. Temple, Jr. 147,000 5.0%
10 Harrison Circle
Pittsford, N.Y. 14534
(1) Except as noted, all shares are beneficially owned, and the sole voting
and investment power is held, by the persons named.
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 1, 1997, 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:
<PAGE> 37
Amount and
Title Nature of
of Name and Address Beneficial (1) Percentage
Class Beneficial Owner Ownership of Class
- ----- ---------------- --------- --------
Common Leonard A. Rosenbaum 1,280,450 43.9%
Stock 1881 Lakeland Avenue
Ronkonkoma, NY 11779
Common Martin J. Teitelbaum 2,000 (2) *
Stock 329 Middle Country Road
Smithtown, NY 11787
Common Alan H. Temple, Jr. 147,000 5.0%
Stock 10 Harrison Circle
Pittsford, NY 14534
Common Joseph J. Saccardi 32,000 (3) 1.1%
Stock 1881 Lakeland Avenue
Ronkonkoma, NY 11779
Common Albert Metzler 54,900 (4) 1.0%
Stock 85 Shellbank Place
Rockville Centre, NY 11570
Common All Directors and 1,516,350 51.9%
Stock Officers as a group
(four persons)
* Less than .1%
(1) Except as noted, all shares are beneficially owned, and the sole voting
and investment power is held by the persons named.
(2) Shares are held by Mr. Teitelbaum's wife and beneficial ownership
thereof is disclaimed by Mr. Teitelbaum.
(3) 22,000 shares are held by Mr. Saccardi for his minor children, as to
which he disclaims beneficial ownership.
(4) Includes an aggregate of 9,900 shares held by Mr. Metzler in
custody for his minor children as to which he disclaims beneficial
interest
c) CHANGES IN CONTROL
The Company knows of no contractual arrangements which may at a subsequent
date result in a change of Company control.
<PAGE> 38
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In February, 1986 the Company lent $980,000 to an unaffiliated real estate
partnership collateralized by a mortgage on 72 acres of vacant land in
Suffolk County, New York which included approximately 25 acres Leonard
A. Rosenbaum, the Company's president, agreed to purchase as a site for
a new plant. In August, 1986, $965,000 was exchanged for approximately
25 acres of land, approximately 10 acres which was purchased by the
Company for its new plant and approximately 15 acres of which were
purchased by Leonard A. Rosenbaum in exchange for a promissory note of
$548,207. The promissory note, which was payable on demand was
collateralized by the 14.8 acres of land owned by Mr. Rosenbaum.
In November 1987, Leonard Rosenbaum personally borrowed $650,000 from The
Bank of New York and used the proceeds to pay off the remaining debt he
had with the Company. In order for Mr. Rosenbaum to secure this note, CVD
Equipment Corporation had to provide the bank with a corporate guaranty.
In the course of a paydown and refinancing of this obligation during the
first quarter of 1995, CVD Equipment Corporation has been released from
this guaranty.
As of December 31, 1995, as a result of payments by CVD based upon the
guaranty, Leonard Rosenbaum was indebted to CVD Equipment Corporation for
$494,934 which included interest at prime plus 1%, all of which was due
and payable upon demand.
On December 19, 1996, Leonard Rosenbaum entered into a
Modification/Extension agreement with CVD Equipment Corporation. The
agreement calls for Leonard Rosenbaum to make monthly payments starting
February 1, 1997 in the amount of $3008.44 consisting of reduction of
principal and 7% per annum interest. Other terms of the agreement call
for any outstanding principal balance due to be paid either at time of
sale of the property or no later than January 1, 2007.
On March 21, 1997, Leonard Rosenbaum entered into a contract for sale of
the land. Upon completion of the land sale within the next year, it is
expected that the remaining balance of the loan will be repaid in full.
During 1996, the Company incurred $14,829 in legal fees to Martin J.
Teitelbaum. Mr. Teitelbaum, a director of the Company, is the principal
attorney for the law offices of Martin J. Teitelbaum.
<PAGE> 39
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM
10-KSB
(A) 1. EXHIBITS
(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 10QSB
(18) Letter on change in accounting principles
(19) Previously unfiled documents
(21) Subsidiaries of the 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.
(a).2 Financial Statements
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, 1996, and 1995................... F-4
Statements of Operations & Retained Deficit
Years Ended December 31, 1996, and 1995.................. F-5
Statements of Cash Flows
Years Ended December 31, 1996, and 1995.................. F-6
Summary of Accounting Policies.......................... F-7--F-8
Notes to the Financial Statements....................... F-9--F-15
<PAGE> 40
(a) 3. Financial Statement Schedules
Report of Independent Certified Public
Accountants.............................................. S-2
Schedules:
II. Amounts receivable from Related Parties and
Underwriters, Promoters and Employees other
Than Related Parties..................................... S-3
V. Property, Plant and Equipment............................ S-4
VI. Accumulated depreciation and amortization
of property, plant and equipment......................... S-5
IX. Supplementary Income Statement Information............... S-6
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.
<PAGE> 41
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 26th day of March 1997.
CVD EQUIPMENT CORPORATION
By /s/ Leonard A. Rosenbaum
-------------------------
Leonard A. Rosenbaum
President
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
Leonard A. Rosenbaum Director
/s/ Alan H. Temple, Jr. Director
--------------------------------
Alan H. Temple, Jr.
/s/ Martin J. Teitelbaum Director
--------------------------------
Martin J. Teitelbaum
Chief Financial
/s/ Joseph J. Saccardi Officer and
-------------------------------- Director
Joseph J. Saccardi
/s/ Albert G. Metzler Director
--------------------------------
Albert G. Metzler
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 67,212
<SECURITIES> 0
<RECEIVABLES> 1,880,838
<ALLOWANCES> 0
<INVENTORY> 39,759
<CURRENT-ASSETS> 2,074,104
<PP&E> 2,753,324
<DEPRECIATION> 1,926,121
<TOTAL-ASSETS> 3,467,027
<CURRENT-LIABILITIES> 470,534
<BONDS> 0
0
0
<COMMON> 2,813,248
<OTHER-SE> 183,245
<TOTAL-LIABILITY-AND-EQUITY> 3,467,027
<SALES> 1,480,451
<TOTAL-REVENUES> 5,017,522
<CGS> 3,012,117
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 807,463
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,924
<INCOME-PRETAX> 1,209,401
<INCOME-TAX> 74,264
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,135,137
<EPS-PRIMARY> .39
<EPS-DILUTED> 0
</TABLE>
