<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.
_____________________________________
FORM 10-KSB
ANNUAL REPORT
_____________________________________
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_____________________________________
Fiscal year ended December 31, 1997
Commission File No. 2-97210-NY
CVD EQUIPMENT CORPORATION
-------------------------
(Exact name of registrant as specified in charter)
New York 11-2621692
-------- ----------
(State of incorporation) (IRS Employer Identification No.)
1881 Lakeland Avenue, Ronkonkoma, New York 11779
------------------------------------------------
(Address of principal executive offices)
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 $.01 Per
Share, held by non-affiliates of February 28, 1998 was
approximately $2,165,850.
As of February 28, 1998 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 State 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 (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.
Subsequent to the close of the year, on March 13, 1998, the Company
closed on the sale of the vacant land it owned in Selden, New York.
(b) 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.
<PAGE> 3
(c) GENERAL NARRATIVE DESCRIPTION OF BUSINESS
The Company designs, develops, manufactures and markets (1) chemical
vapor deposition equipment, annealing furnaces and etching systems;
(2) gas flow control systems; and (3) 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.
The Company commenced operations in October, 1982. Equipment sales
currently range in price from $50,000 to over $1,000,000 per unit.
Approximately 90% of the Company's sales during 1997 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
Metalorganic 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, bellows
valves, stainless steel lines and fittings. The Company provides
such standard systems and also specifically engineered products for
particular 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 involved in electronic research such as universities
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 two employees whose
activities are supported by a staff of nine application engineers.
In 1997 the Company has engaged three new outside commissioned sales
representatives and have laid the foundation for additional
representatives during 1998.
In September, 1997, CVD Equipment opened a Web Site,
www.cvdequipment.com, to support CVD's expanded marketing program.
On December 31, 1997, the Company had a backlog of orders of
approximately $1.7 million as compared to $2.5 million on December
31, 1996. The backlog at December 31, 1997 is all current and is
expected to ship in 1998.
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
<PAGE> 5
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 research and development of new products as well as
the 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 1997 it
spent approximately $153,000 for engineering and new product
development. This compares with approximately $150,000 spent for
these purposes during 1996. As of December 31, 1997, 9 employees
were engaged on a full-time basis in engineering, improvement of
existing products and development of new products.
Patents and License Agreements
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.
In August, 1997, CVD signed a license agreement with IBM to sell
equipment using IBM's patented method for low temperature, low
pressure chemical vapor deposition of epitaxial layers (UHV/CVD).
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 who 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, 1997, the Company employed 34 full time
personnel, including 16 in manufacturing, 9 in engineering, research
and development (including efforts relating to the improvement of
existing products), 2 in marketing, and 7 in general management and
administration. One part-time worker was also on staff bringing
total employed to 35. The Company is not party to any collective
bargaining agreement and has 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. As of May, 1997, the Company maintains product
liability coverage.
(d) FOREIGN OPERATIONS
The Company's revenues derived from foreign exports was 2% of total
revenues in 1997.
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 $165,000 when the sale is
completed within the next twelve months of the contract date.
<PAGE> 7
Subsequent to the close of the year, on March 13, 1998 the Company
closed on the sale of the vacant land it owned in Selden, New York.
ITEM 3. LEGAL PROCEEDINGS
There are no legal issues open.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A shareholder's meeting was held in the third quarter of 1997 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.
Period High Low
January 1, 1996 through March 31, 1996 0.560 0.156
April 1, 1996 through June 30, 1996 1.060 0.625
July 1, 1996 through September 30, 1996 2.250 0.660
October 1, 1996 through December 31, 1996 1.625 1.187
January 1, 1997 through March 31, 1997 1.750 1.438
April 1, 1997 through June 30, 1997 1.938 1.750
July 1, 1997 through September 30, 1997 1.875 1.250
October 1, 1997 through December 31, 1997 1.875 1.625
The chart reflects inter-dealer prices, without retail mark-up,
markdown, or commission and does not represent actual transactions.
The Company paid no cash dividends during the period.
<PAGE> 8
(c) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's Common Stock as of
February 28, 1998 was approximately 400.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1997 Compared to 1996
New orders in 1997 totaled $3.1 million which was 46% lower than
1996's level of $5.7 million. The revenues produced a net profit of
$.6 million which was the second most profitable year ever reported
by the Company. Net earnings per share were $.22 in 1997 compared to
$.39 in 1996. In the past CVD Equipment Corporation has generally
manufactured customized equipment. In 1998 the Company intends to
start introducing a line of standard products as a supplement to our
custom systems. In September, 1997, CVD Equipment opened a Web
site, www.cvdeqipment.com to support the company's expanded
marketing program.
Revenue
Revenue for the year was $3.8 million which was a 24% decrease from
1996 of $5.0 million.
The type of sales in 1997 was similar to those of 1996. CVD shipped
approximately 7% to government associated entities, 15% to major
colleges and universities, 10% to research laboratories and another
45% was shipped to two significant Fortune 500 companies which
continue to rely on CVD for more of their equipment needs.
Costs and Expenses
In 1997 cost of sales increased to 64% from 60% in 1996. The main
reason for the increase in cost of sales was an increase in payroll
expenses (CVD averaged 34 employees in 1997 compared to 30 employees
in 1996) which was offset by a decrease in depreciation expenses.
An increasingly conservative approach to capitalizing labor will
continue to reduce depreciation expense in subsequent years.
Capitalized labor depreciation expense was $75,000 less in 1997
compared to 1996.
Selling and G & A expense were slightly higher by $15,812 in 1997
compared to 1996. Despite increases in payroll expenses,
stockholders expense, and advertising, CVD reduced expenditures in
<PAGE> 9
Interest expense dropped 82% as CVD paid all of its debt in 1997,
which had a principal balance of $135,000 ending in 1996.
Liquidity and Capital Resources
By year end 1997, CVD's cash position improved to $239,476 from
$67,212 at the beginning of the year. This was still accomplished
even though 1997 sales were lower than in 1996. This was mainly due
to less cash allocated toward CVD's debt. In 1997, $135,000 was
paid for principal, which brought debt down to a $0 balance,
compared to $569,000 being paid in 1996.
CVD entered into a contract in March, 1997, to sell its land in
Selden, NY. The contingencies in that contract have been satisfied.
With the proceeds from the sale of a property and being free of all
debts, CVD anticipates a very strong cash position in 1998.
Subsequent to the close of the year, on March 13, 1998, the Company
closed on the sale of the vacant land it owned in Selden, New York.
1996 Compared to 1995
The year 1996 was an exceptional one for CVD Equipment with records
set in many areas. New 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 its first systems to Taiwan and Australia and
continued its expansion into developing niches of the semiconductor
equipment market. New system designs are on the floor for further
expansion of our product line.
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.
A majority of the 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.
<PAGE> 10
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 careful 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 increased in 1996 as CVD added a salesman and
incurred commission expense that it did not have in 1995. G & A
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
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 aggresive 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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by ITEM 7 is incorporated by reference in
ITEM 13.
<PAGE> 11
CVD EQUIPMENT CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB ITEM 7
Years ended December 31, 1997 and 1996
<PAGE> 12
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS:
Consolidated balance sheets as of December 31, 1997 and 1996 F-4
Consolidated statements of income and retained earnings
(accumulated deficit) for the years ended
December 31, 1997 and 1996 F-5
Consolidated statements of cash flows for the years ended
December 31, 1997 and 1996 F-6
<PAGE> 13
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,
1997 and 1996, 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, 1997 and 1996
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
February 27, 1998, except as
to Note 12, which is as of
<PAGE> 14
F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 239,476 $ 67,212
Accounts receivable 394,065 616,018
Officer loan receivable 499,154 -0-
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,391,021 1,264,820
Inventory 135,807 39,759
Deferred tax asset 197,334 67,736
Prepaid income taxes 66,729 -0-
Other current assets 44,362 18,559
----------- ------------
Total Current Assets 2,967,948 2,074,104
Property, Plant and Equipment 820,916 827,203
----------- ------------
Other Assets
Officer loan receivable -0- 500,000
Other assets 97,065 65,720
----------- ------------
97,065 565,720
----------- ------------
Total Assets $ 3,885,929 $ 3,467,027
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 96,312 $ 120,162
Accrued expenses 117,005 120,290
Deposit on a contract for the sale of
real estate 40,000 -0-
Income and other taxes payable 2,213 53,297
Billings in excess of costs on uncompleted
contracts -0- 41,090
Current maturities of long-term debt -0- 135,695
----------- ------------
Total Current Liabilities 255,530 470,534
----------- ------------
Commitments and Contingencies
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 817,151 183,245
----------- ------------
Total Stockholders' Equity 3,630,399 2,996,493
Total Liabilities and Stockholders' Equity $ 3,885,929 3,467,027
=========== ============
</TABLE>
<PAGE> 15
F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED
EARNINGS (ACCUMULATED DEFICIT)
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Revenues
Revenue on completed contracts $ 2,664,574 $ 1,480,451
Revenue on uncompleted contracts 1,128,630 3,537,071
----------- ------------
Total Revenues 3,793,204 5,017,522
----------- ------------
Costs and Revenues
Cost on completed contracts 1,763,005 1,139,504
Costs on uncompleted contracts 677,455 1,872,613
----------- ------------
Total Cost of Revenues 2,440,460 3,012,117
----------- ------------
Gross Profit 1,352,744 2,005,405
----------- ------------
Operating Expenses
Selling and shipping 114,061 130,674
General and administrative 709,214 676,789
----------- ------------
Total Operating Expenses 823,275 807,463
----------- ------------
Income Before Interest and Other Expenses 529,469 1,197,942
----------- ------------
Other Income (Expense)
Interest income 50,707 37,105
Interest expense (4,866) (26,924)
Other income 1,709 1,278
----------- ------------
Total Other Income 47,550 11,459
----------- ------------
Income Before Taxes 577,019 1,209,401
Income Tax Benefit (Provision) 56,887 (74,264)
----------- ------------
Net Income 633,906 1,135,137
Retained Earnings (Accumulated Deficit)
at Beginning of Year 183,245 (951,892)
----------- ------------
Retained Earnings at End of Year $ 817,151 $ 183,245
=========== ============
Net Income Per Share $ 0.22 $ 0.39
=========== ============
Weighted Average Number of Shares of
Common Stock Outstanding 2,918,750 2,918,750
=========== ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 16
F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997and 1996
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 633,906 $ 1,135,137
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred tax benefit (129,598) (67,736)
Depreciation and amortization 165,418 313,492
Loss on disposition of property -0- 50
(Increase) decrease in:
Accounts receivable 221,953 (290,163)
Costs and estimated earnings in excess
of billings on uncompleted contracts (126,201) (439,204)
Inventory (96,048) 120,838
Prepaid income taxes (66,729) -0-
Other current assets (25,803) 873
Other assets (60,041) (6,534)
Increase (decrease) in:
Accounts payable (23,850) (48,049)
Accrued expenses (3,285) (117,225)
Deposit on a contract for the sale of
real estate 40,000 -0-
Income and other taxes payable (51,084) 35,390
Billings in excess of costs
on uncompleted contracts (41,090) (101,603)
----------- ------------
Net Cash Provided By Operating Activities 437,548 535,266
----------- ------------
Cash Flows from Investing Activities
Officer loan receivable (7,888) (5,066)
Capital expenditures (121,701) (134,362)
----------- ------------
Net Cash Used In Investing Activities (129,589) (139,428)
----------- ------------
Cash Flows from Financing Activities
Payments on debt (135,695) (569,468)
----------- ------------
Net Cash Used in Financing Activities (135,695) (569,468)
----------- ------------
Net Increase (Decrease) in Cash
and Cash Equivalents 172,264 (173,630)
Cash and Cash Equivalents at Beginning of Year 67,212 240,842
----------- ------------
Cash and Cash Equivalents at End of Year $ 239,476 $ 67,212
=========== ============
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Income taxes $ 175,227 $ 104,000
Interest 6,007 26,488
</TABLE>
<PAGE> 17
F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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, 1997 and 1996. 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 Intangible Other Assets
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.
<PAGE> 18
F-8
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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.
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.
Advertising Costs
The Company generally expenses advertising costs. Advertising
expenses included in selling and shipping expenses were $17,067 and
$4,229 in 1997 and 1996, respectively. As of December 31, 1997, the
Company recorded costs of $12,923 in Other Assets to develop a web
site.
Net Income Per Share
Net income 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 immaterial. There is no difference
between basic and diluted net income per share in accordance with the
Financial Accounting Standards Board Statement No. 128, "Earnings per
Share".
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments purchased
with a maturity of three months or less to be cash equivalents.
<PAGE> 19
F-9
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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 carrying value of the officer loan
receivable approximates fair value based on borrowing rates currently
available for loans with similar terms and maturities.
Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Note 2 - Uncompleted Contracts
Costs, estimated earnings, and billings on uncompleted contracts are
summarized as follows: 1997 1996
----------- ------------
Costs incurred on uncompleted contracts $ 896,859 $ 2,656,819
Estimated earnings 702,215 2,037,848
----------- ------------
1,599,074 4,694,667
Billings to date (208,053) (3,470,937)
----------- ------------
$ 1,391,021 $ 1,223,730
Included in accompanying balance sheets =========== ============
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,391,021 $ 1,264,820
Billings in excess of costs and estimated
earnings on uncompleted contracts -0- (41,090)
----------- ------------
$ 1,391,021 $ 1,223,730
Note 3 - Property, Plant and Equipment =========== ============
Major classes of property, plant and equipment consist of the
following: 1997 1996
----------- ------------
Land $ 550,939 $ 550,939
Machinery and equipment 87,712 211,111
Capitalized labor and overhead 1,213,577 1,768,262
Furniture and fixtures 210,448 186,441
Automobiles 24,557 24,557
Leasehold improvements 13,795 12,014
----------- ------------
2,101,028 2,753,324
Accumulated depreciation and amortization (1,280,112) (1,926,121)
----------- ------------
$ 820,916 $ 827,203
Depreciation and amortization expense =========== ============
relating to the above assets $ 127,988 $ 267,605
<PAGE> 20
F-10
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
Note 4 - Other Assets
Other assets consist of the following:
1997 1996
----------- ------------
Software $ 551,215 $ 540,345
Accumulated amortization (516,483) (479,053)
----------- ------------
Net software 34,732 61,292
Advertising costs 12,923 -0-
Demonstration equipment 36,640 -0-
Licensing agreement 10,000 -0-
Security deposits 2,770 2,700
Miscellaneous -0- 1,728
----------- ------------
Total other assets $ 97,065 $ 65,720
=========== ============
Software additions for the years 1997 and 1996 totaled $10,870 and
$5,068, respectively. The amortization of the software costs was
$37,430 and $45,887 in 1997 and 1996, respectively. Software costs are
amortized over three years. Advertising costs will be amortized over
five years beginning in 1998.
Note 5 - Long-Term Debt
1997 1996
----------- ------------
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,
paid in full June 30, 1997. $ -0- $ 130,863
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 made in August 1997. -0- 4,832
----------- ------------
-0- 135,695
Less: Current maturities -0- 135,695
----------- ------------
Long-term debt net of current maturities $ -0- $ -0-
=========== ============
<PAGE> 21
F-11
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
Note 6 - Income Taxes
The provision (benefit) for income taxes include the following:
1997 1996
----------- ------------
Current:
Federal $ 64,423 $ 133,000
State 8,288 9,000
----------- ------------
Total current provision 72,711 142,000
----------- ------------
Deferred:
Federal 4,593 (58,822)
State (134,191) (8,914)
----------- ------------
Total deferred benefit (129,598) (67,736)
----------- ------------
$ (56,887) $ 74,264
=========== ============
The Company has an investment tax credit carryforward for federal tax
purposes of $18,864 that may be offset against future federal tax
liabilities through the year 2004, and a state investment tax credit
carryforward of $135,949 that may be offset against future state tax
liabilities through the year 2012.
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 $-0- and $227,239 has been established against net deferred
tax assets of $197,334 and $294,975 as of December 31, 1997 and 1996,
respectively.
<PAGE> 22
F-12
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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.
1997 1996
----------- ------------
Earnings before income taxes $ 577,019 $ 1,209,401
Add (deduct):
State tax provision (8,288) (9,000)
Nondeductible expenses 14,485 18,134
Net operation loss carryforward -0- (662,168)
Timing differences due to:
Use of accelerated depreciation methods
for tax purposes (56,587) 50,619
Bad debts (25,000) 25,000
Capitalization of additional costs to
inventory for tax purposes (1,034) (10,223)
Tax basis loss on assets sold (52,037) (157,051)
Use of accelerated amortization methods
for tax purposes (10,925) (3,423)
Other -0- (4,928)
----------- ------------
Taxable Income $ 437,633 $ 456,361
=========== ============
Federal taxes at statutory rate $ 148,795 $ 155,163
Investment tax credit carryforward (83,444) (22,163)
Other (928) -0-
----------- ------------
Federal Tax Provision $ 64,423 $ 133,000
=========== ============
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 future rental commitments are as follows:
For the year ending December 31, 1998 $ 123,245
1999 126,942
2000 130,751
2001 77,589
Rental expense for operating leases including the above lease amounted
<PAGE> 23
F-13
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
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, 84,000 additional options were granted under this plan. Options
vest over a four-year period. No options were exercised in 1997 or
1996. 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 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 years ended December 31, 1997 or 1996.
Note 9 - Concentration of Credit Risk
Significant Customers
The Company's sales encompass markets wherein the demands of any one
customer may vary greatly due to changes in technology. In 1997, the
Company had two significant customers which represented approximately
27% and 18%, respectively, of sales and 72% and less than 1%,
respectively, of the total accounts receivable and costs and estimated
earnings in excess of billings on uncompleted contracts at December 31,
1997. One of these customers represented 61% of sales in 1996 and 57%
of the total accounts receivable and costs and estimated earnings in
excess of billings on uncompleted contracts at December 31, 1996.
Export Sales
Export sales to unaffiliated customers represented approximately 2% and
8% of sales for the years ended December 31, 1997 and 1996,
respectively. Export sales in 1997 and 1996 were primarily to
customers in Asia. All contracts are denominated in U.S. dollars. The
Company does not enter into any foreign exchange contracts.
<PAGE> 24
F-14
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
Note 9 - Concentration of Credit Risk (continued)
Cash Equivalents
The Company places its temporary cash investments with one financial
institution and normally exceeds the SIPC limit. The Company has not
experienced any losses to date resulting from this policy.
Note 10 - Related Party Transactions
As of December 31, 1997 and 1996, the Company's president and major
stockholder owed $499,154 and $500,000, 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. 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 $8,734 and $1,542 as of December 31, 1997 and 1996,
respectively, and is included in Other Current Assets.
The general counsel for the Company is also a director. The Company
incurred legal fees for his professional services of approximately
$20,000 and $14,829 for the years ended December 31, 1997 and 1996,
respectively.
Note 11 - Commitments and Contingencies
Line of Credit
In May 1997, the Company entered into a revolving line of credit
agreement with a bank which allows the Company to borrow up to $500,000
at the bank's prime rate plus 0.75% until June 1, 1998. No borrowings
are outstanding as of December 31, 1997. Any borrowings would be
collateralized by the Company's assets, other than costs and estimated
earnings in excess of billings on uncompleted contracts, and guaranteed
by the Company's president and major stockholder as long as the officer
loan receivable remains outstanding.
Sale of Land
On March 21, 1997, the Company entered into a contract for the sale of
its vacant land owned in Selden, New York, for $720,000. The Company
recorded a liability of $40,000 representing a nonrefundable deposit
from the purchaser. The balance is due at closing which is expected to
take place in March 1998.
Note 12 - Subsequent Events
On March 13, 1998, the Company closed on the sale of the vacant land it
owned in Selden, New York for the contract price discussed in Note 11.
On March 16, 1998, the officer loan receivable discussed in Note 10 and
<PAGE> 25
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
<PAGE> 26
S-2
[Letterhead of Albrecht, Viggiano, Zureck, & Company, 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, 1997 and 1996.
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, 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
February 27, 1998
<PAGE> 27
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, 1997 and 1996
<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> <C>
1997:
Leonard A. Rosenbaum,
President
Maturity: January 1, 2007
Interest: 7% per annum $ 500,000 $ -0- $ 846 $ -0- $ 499,154
1996:
Leonard A. Rosenbaum,
President
Maturity: January 1, 2007
Interest: 7% per annum 494,934 30,388 25,322 -0- 500,000
<PAGE> 28
S-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE V
PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1997 and 1996
</TABLE>
<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>
1997:
Land $ 550,939 $ 550,939
Machinery and equipment 211,111 $ 10,541 $ (133,940) 87,712
Capitalized labor and
overhead 1,768,262 85,372 (640,057) 1,213,577
Furniture and fixtures 186,441 24,007 210,448
Automobiles 24,557 24,557
Leasehold improvements 12,014 1,781 13,795
----------- ---------- ------------ -----------
$ 2,753,324 $ 121,701 $ (773,997) $ 2,101,028
=========== ========== ============ ===========
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
=========== ========== ============ ===========
</TABLE>
<PAGE> 29
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, 1997 and 1996
<TABLE>
<CAPTION>
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
------------------------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
1997:
Machinery, equipment and
capitalized labor and
overhead $ 1,742,808 $ 113,945 $ (773,997) $ 1,082,756
Furniture and fixtures 146,742 13,829 160,571
Automobiles 24,557 24,557
Leasehold improvements 12,014 214 12,228
------------ ------------ ------------ -----------
$ 1,926,121 $ 127,988 $ (773,997) $ 1,280,112
============ ============ ============ ===========
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
============ ============ ============ ===========
</TABLE>
<PAGE> 30
S-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARY
FORM 10-KSB, SCHEDULE IX
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 1997 and 1996
Col. A Col. B
Charges to Costs and Expenses
Item 1997 1996
<PAGE> 31
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 52 President and 1982
Chief Executive Officer
Alan H. Temple, Jr. 64 None 1986
Sharon M. Canese 37 Chief Financial Officer/ 1998
Secretary
Martin J. Teitelbaum 48 Assistant Secretary 1985
Albert G. Metzler 50 None 1993
Leonard A. Rosenbaum founded the Company in October, 1982 and has
been its 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
<PAGE> 32
Alan H. Temple, Jr. has, since 1977, been President of Harrison
Homes, Inc. Pittsford, New York, a building and consulting firm.
Sharon M. Canese joined CVD Equipment Corporation 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. Teitel-
baum 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 Secre-
tary. 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 three times during 1997. Mr.Rosenbaum,
Mr.Temple, Mrs. Canese, Mr. Teitelbaum and Mr. Metzler 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 Principal Annual
Position Year Compensation
--------------------- ---- ------------
Leonard A. Rosenbaum 1997 $211,342
President and Chief 1996 $139,126
Executive Officer 1995 $132,571
<PAGE> 33
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 84,000 options were granted, and no options were exercised
from this plan in 1996 and 1997.
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.
<PAGE> 34
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS 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, 1998:
Amount and
Title Nature of
Of Name and Address of Beneficial Percentage
Class Beneficial Owner Ownership (1) of Class
------ -------------------- ------------- ----------
Common Leonard A. Rosenbaum 1,270,450 43.5%
Stock 1881 Lakeland Avenue
Ronkonkoma, NY 11779
Common Alan H. Temple Jr. 145,000 5.0%
Stock 10 Harrison Circle
Pittsford, NY 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, 1998, information
concerning the beneficial ownership of each class of equity securi-
ty by each director and all directors and officers of the company
as a group:
Amount and
Title Nature of
Of Name and Address of Beneficial Percentage
Class Beneficial Owner Ownership (1) of Class
------ -------------------- ------------- ----------
Common Leonard A. Rosenbaum 1,270,450 43.5%
Stock 1881 Lakeland Avenue
Ronkonkoma, NY 11779
Common Martin J. Teitelbaum 2,000 (2) *
Stock 329 Middle Country Road
<PAGE> 35
Common Alan H. Temple, Jr. 145,000 (3) 5.0%
Stock 10 Harrison Circle
Pittsford, NY 14534
Common Albert Metzler 57,400 (4) 2.0%
Stock 85 Shellbank Place
Rockville Centre, NY 11570
Common All Directors and 1,474,850 50.5%
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) Includes and aggregate of 13,000 shares held by Mr. Temple's wife,
as to which he disclaims beneficial interest.
(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.
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
<PAGE> 36
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 A. 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 $3,008.44 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.
Subsequent to the close of the year, on March 16, 1998 Leonard
Rosenbaum paid in full the remaining balance of his loan.
During 1997, the Company incurred approximately $20,000 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.
<PAGE> 37
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORT 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 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, 1997 and 1996....................... F-4
Statements of Operations & Retained Earnings
(Accumulated Deficit) Years Ended
December 31, 1997 and 1996.................................. F-5
Statements of Cash Flows
Years Ended December 31, 1997 and 1996...................... F-6
Summary of Accounting Policies.............................. F-7 - F-8
<PAGE> 38
(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> 39
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
____30th day of March 1998_______.
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
Leonard A. Rosenbaum Officer and Director
__/S/_Alan_H._Temple,_Jr.______________Director
Alan H. Temple, Jr.
__/S/_Martin_J._Teitelbaum_____________Director
Martin J. Teitelbaum
__/S/_Sharon_M._Canese_________________Chief Financial Officer
Sharon M. Canese
__/S/_Albert_G._Metzler________________Director
Albert G. Metzler
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 239,476
<SECURITIES> 0
<RECEIVABLES> 1,785,087
<ALLOWANCES> 0
<INVENTORY> 135,807
<CURRENT-ASSETS> 2,967,948
<PP&E> 2,101,028
<DEPRECIATION> 1,280,112
<TOTAL-ASSETS> 3,885,929
<CURRENT-LIABILITIES> 255,530
<BONDS> 0
0
0
<COMMON> 2,813,248
<OTHER-SE> 817,151
<TOTAL-LIABILITY-AND-EQUITY> 3,885,929
<SALES> 2,664,574
<TOTAL-REVENUES> 3,793,204
<CGS> 2,440,460
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 823,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,866
<INCOME-PRETAX> 577,019
<INCOME-TAX> (56,887)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 633,906
<EPS-PRIMARY> .22
<EPS-DILUTED> 0
</TABLE>
