<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
Commission File No. 0-14720-NY
CVD EQUIPMENT CORPORATION
(Exact name of registrant as specified in charter)
New York 11-2621692
(State of incorporation) (IRS Employer Identification No.)
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:
Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. YES [ X ] NO [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. [X]
The registrant's net sales for 1998 were $3,037,258.
The aggregate market value of the voting stock held by non-affiliates on
April 12, 1999, based on a closing price of $1.00 on that date was
$1,416,900.
As of April 12, 1999 there were 2,918,750 shares of Common Stock, Par
Value $.01 Per Share, Outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Statements contained in this Report on Form 10-KSB that are not historical
facts are forward-looking statements within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, including without limitation,
statements regarding industry trends, strategic business development, pursuit
of new markets, competition, results from operations, and are subject to the
safe harbor provisions created by that statute. A forward-looking statement
may contain words such as "intends", "plans", "anticipates", "believes",
"expect to", or words of similar import. Management cautions that forward-
looking statements are subject to risks and uncertainties that could cause
the Company's actual results to differ materially from those projected.
These risks and uncertainties include, but are not limited to, marketing
success, product development, production, technological difficulties,
manufacturing costs, and changes in economic conditions in the markets the
Company serves. The Company undertakes no obligation to release revisions to
forward-looking statements to reflect subsequent events, changed circumstances,
or the occurrence of unanticipated events.
GENERAL DEVELOPMENT OF BUSINESS
CVD Equipment Corporation (the "Company") was incorporated under the laws of
New York State in October 1982. On September 11, 1985 the Company made an
initial public offering of 700,000 units underwritten by D. H. Blair & Co.,
44 Wall Street, New York, New York 10005, pursuant to which it received net
proceeds of $2,683,640.
On August 14, 1986, the Company 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. The Company 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 listed the real property for sale.
On March 13, 1998 the vacant land was sold.
Between December 11 and December 15, 1998, the Company purchased at public
auction the former inventory, tangible assets, intangible assets and
intellectual property of Stainless Design Corporation, Saugerties, NY, for
$672,095.
On December 14, 1998, the Company entered into a contract with Kidco Realty
Corp. to purchase, for $1,400,000, the facility owned by Kidco Realty Corp.
located at 1117 Old Kings Highway, Saugerties, NY 12477 and formerly occupied
by Stainless Design Corporation. The contract provides for leasing the 22,000
square foot facility, situated on 5 acres of land, until contract closing
which is expected to take place during the second quarter of 1999. The
purchase price will be paid by cash funds from the Company in the amount of
$500,000 and Kidco Realty Corp. issuing a 30 year amortization, 7% interest,
10 year balloon, non recourse purchase money note and mortgage to the Company
in the amount of $900,000.
On December 23, 1998 the Company formed a new 100% owned subsidiary called
Stainless Design Concepts, Ltd. The new subsidiary is located at 1117 Old
Kings Highway, Saugerties, NY 12477. The new subsidiary will be manufacturing
ultra high purity gas control systems for the semiconductor industry.
<PAGE> 3
INFORMATION ABOUT INDUSTRY SEGMENTS
The Company designs, develops, manufactures, markets, installs and services
equipment primarily for the semiconductor industry. The Company's products
include both batch and single substrate systems used for (1) depositing,
rapid thermal processing, annealing, diffusion and etching of semiconductor
films; (2) gas and liquid flow control systems; (3) ultra high purity gas and
chemical piping delivery systems and (4) fabricates standard and custom
quartzware. The Company's products are generally manufactured to the
particular specifications of each of its customers.
GENERAL NARRATIVE DESCRIPTION OF BUSINESS
Semiconductor components are the fundamental electronic building blocks used
in modern electronic equipment and systems. These components are classified
as either discrete devices (such as transistors) or integrated circuits (in
which a number of transistors and other elements are combined to form a more
complicated electronic circuit). In an integrated circuit, these elements are
formed on a small "chip" of silicon or gallium arsenide which is then
encapsulated in an epoxy, ceramic, or metal package having lead wires for
connection to a circuit board. The Company's products are used in the
manufacture of these components.
PRODUCTS
Chemical Vapor Deposition (CVD) - is a process which passes a gaseous
compound over a target material surface that is heated to such a degree that
the compound decomposes and deposits a desired layer onto substrate material.
The process is accomplished by combining appropriate gases in a reaction
chamber, of the kind produced by the Company, at elevated temperatures
(typically 300 - 1300 degrees Celsius). 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. Some of the standard systems offered by the Company
are for Silicon, Silicon-Germanium, Silicon Dioxide, Silicon Nitride,
Polysilicon, Liquid Phase Epitaxial, and Metalorganic Chemical Vapor
Deposition.
The Company's CVD systems are available in a variety of models that can be
used in production and laboratory research. All models can be offered with
total system automation, a microprocessor control system, by which the user
can measure, predict and regulate gas flow, temperature, pressure and chemical
reaction rates, thus controlling the process in order to enhance the quality
of the materials produced. The Company's standard microprocessor control
system is extremely versatile and capable of supporting the Company's complete
product line and most custom system requirements. The Company's CVD systems
generally range in price from $100,000 to $1,000,000.
Rapid Thermal Processing (RTP) - are used to heat semiconductor materials to
elevated temperatures of 1000 degrees Celsius at rapid rates of up to 200
degrees Celsius per second. The Company's RTP systems are offered for implant
activation, oxidation, silicide formation and many other processes. The
Company offers system that can operate both at atmospheric or reduced
pressures. A specific model of the Company's RTP system is used for Thermal
Desorption Spectroscopy which allows the semiconductor process engineer the
ability to analyze the deposited films between the many process steps used in
the complex fabrication process. The Company's RTP systems generally range in
price from $50,000 to $200,000.
<PAGE> 4
Annealing and Diffusion Furnaces - are used for diffusion, oxidation, implant
anneal, solder reflow and other processes. The systems generally at
atmospheric pressure with gaseous atmospheres related to the process. An
optional feature of the system allows for the heating element to be moved away
from the process chamber allowing the wafers to rapidly cool or be heated in a
controlled environment. Our cascade temperature control system enables more
precise control of the wafers. The systems are equipped with an automatic
process controller, permitting automatic process sequencing and monitoring
with safety alarm provisions. The Company's Annealing and Diffusion Furnace
systems generally range in price from $50,000 to $250,000.
Gas and Liquid Control Systems - The Company offers standard and custom
designed gas and liquid control systems encompassing, gas cylinder storage
cabinets, custom gas and chemical delivery systems, gas and liquid valve
manifold boxes (VMB's) and gas isolation boxes (GIB's) to provide safe storage
and handling of pressurized gases and chemicals. System design allows for
automatic or manual control from both a local and remote location. The
Company's Gas and Liquid Control Systems generally range in price from $10,000
to $150,000.
Ultra High Purity Gas and Chemical Piping Delivery Systems - the Company
provides field installation of ultra high purity piping systems within a
semiconductor plant for the distribution of gases and chemicals to the
assorted process tools. As part of this field service group we also offer
repair service work on customer tools.
Quartzware - The Company offers standard and custom fabricated quartzware used
in both the Company's equipment and other customer tools.
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. During 1998, the
Company generated sales from its sales office located in Ronkonkoma, New York.
During 1998, sales of the Company's products were made by a staff of two
employees and five sales representatives, whose activities were supported by a
staff of seven application engineers. During 1998 the Company worked on
expanding our product offering with some high-level standard platform products.
These products introduced in January 1999, our existing product line and the
additional products from the Saugarties, NY facility should enable the Company
to attract additional representatives for our products. In January 1999 the
Company started to also operate out of the Saugarties, NY facility where we
have now added three additional employees involved in sales.
In September 1997, the Company opened a Web Site; www.cvdequipment.com to
support the Company's expanded marketing program.
On December 31, 1998, the Company had a backlog of orders of approximately
$900,000 as compared to $1,700,000 on December 31, 1997. The backlog at
December 31, 1998 is current and is expected to ship in 1999.
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.
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PATENTS AND LISCENSE 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 that expires on August 27, 2002. 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. Patent
protection was not significant to previous business because the unique
products offered are custom built for a particular customer. As such, when
reviewing the cost and time required for patent protection, management
determined that future benefits were minimal. The Company believes that while
patents are useful, and will be used at times in the future, they are not
critical or valuable in many cases on an individual basis. We believe the
collective value of the intangible property of the Company is comprised of
blueprints, specifications, technical processes, cumulative employee
knowledge, experience and patents.
In August 1997, the Company signed a 5-year 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 other competitors that offer a substantial number of products
comparable to the Company's. Many of the Company's competitors (including
customers who may elect to manufacture systems for internal use) have
financial, marketing and other resources greater than the Company's. To date,
the Company has been able to compete in markets that include these
competitors, primarily on the basis of price, technical performance, quality
and delivery.
CUSTOMERS
The Company sells to a wide range of customers. Sales to a single customer in
a given year however can exceed 10%. In 1998, two customers represented
approximately 10% and 42% of sales whereas in 1997, two customers represented
approximately 27% and 18% of sales.
FOREIGN OPERATIONS
The Company's revenues derived from foreign exports were 4% of total revenues
in 1998.
<PAGE> 6
MANUFACTURING MATERIALS AND SUPPLIES
The Company does not manufacture many components used in producing the
Company's products. They are purchased from unrelated third-party
manufacturers of such equipment. The Company has no supply contracts
covering these components. The Company is not dependent on a principal or
major supplier and alternate suppliers are available. The Company does
not use a large amount of raw or difficult to obtain materials that could
cause a problem in production of our equipment.
EMPLOYEES
As of December 31, 1998, the Company employed 28 full time personnel,
including 13 in manufacturing, 7 in engineering, research and development
(including efforts relating to the improvement of existing products), 2 in
marketing, and 6 in general management and administration. Two part-time
workers was also on staff bringing total employed to 30. 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
personnel 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 believes that their insurance coverage is adequate. The following
types of insurance coverage is carried by the Company:
* Product liability (coverage started May, 1997)
* Property Contents
* General Liability
* Workers Compensation
* Transportation
* Directors and Officers
* Employee Benefits Liability
* Business Auto
* Umbrella
GOVERNMENT REGULATIONS
The Company knows of no government approval for the sale of their products or
services except in some export cases. At that time we apply for the
appropriate export license. As of December 31, 1997, there was no pending
government approvals.
The Company knows of no existing or probable governmental regulations that
would have a serious effect on our business.
Cost associated with compliance to environmental laws has not been significant
to the Company's business.
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FORWARD LOOKING STATEMENTS
Certain statements in this Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance, or
achievements of the Company to be materially different from any future results,
performance, or achievements expressed or implied by such forward looking
statements. These forward looking statements were based on various factors
and were derived utilizing numerous important assumptions and other important
factors that could cause actual results to differ materially from those in the
forward looking statements. Important assumptions and other factors that
could cause actual results to differ materially from those in the forward
looking statements, include, but are not limited to: competition in the
Company's existing and potential future product lines of business; the
Company's ability to obtain financing on acceptable terms if and when needed;
uncertainty as to the Company's future profitability, uncertainty as to the
future profitability of acquired businesses or product lines, uncertainty as
to any future expansion of the company. Other factors and assumptions not
identified above were also involved in the derivation of these forward looking
statements, and the failure of such assumptions to be realized as well as
other factors may also cause actual results to differ materially from those
projected. The Company assumes no obligation to update these forward looking
statements to reflect actual results, changes in assumptions or changes in
other factors affecting such forward looking statements.
YEAR 2000
The "Year 2000" issue is a result of computer systems that were programmed in
prior years using a two digit representation for the year. Consequently, in
the Year 2000, date sensitive computer programs may interpret the date "00" as
1900 rather than 2000. The Company has completed an assessment of its systems
affected by the Year 2000 issue and made the following determinations;
1. Readiness;
* Internal custom software - during the normal course of upgrading in 1998 and
early 1999, our internal custom software becomes Year 2000 compliant.
* Computers (hardware) - during the normal course of upgrading in 1998 and
early 1999 our computer systems become Year 2000 compliant.
* External standard software - during the normal course of upgrading in 1998
and early 1999, our external standard software becomes Year 2000 compliant.
* We have no manufacturing equipment with embedded technology (Non-IT), to
cause a Year 2000 problem.
* Manual back-up systems are easily implemented in all areas in the event of a
Year 2000 problem.
* The Company relies on third party service providers for services such as
telecommunications, Internet service and utilities. Interruption of these
services due to Year 2000 issues could affect the Company's operations.
* A review of our significant component suppliers to determine the extent to
which the Company is Year 2000 vulnerable has determined that sufficient
alternate suppliers are available.
* A review of our customer base does not indicate that a Year 2000 issue
should significantly adversely affect new order levels.
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2. The costs to address the company's Year 2000 issues;
* Based upon the company's current evaluation, there is no additional
significant cost being incurred with achieving Year 2000 compliance.
3. The risks of the company's Year 2000 issues;
* At this point in time, the company believes that it has minimum or no
exposure to Year 2000 problems.
4. The company's contingency plans;
* All systems can be manually backed up and the company can change suppliers
if required for purchases.
The conclusions herein are forward-looking statements and are based on
management's best estimates of future events. Risks of having a Year 2000
problem include the ability to discover and correct potential Year 2000
sensitive problems and the ability of third party service providers to bring
their systems into Year 2000 compliance.
ITEM 2. DESCRIPTION OF PROPERTIES
On June 1, 1991, the Company 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 that is scheduled to expire on July
31, 2001. Management feels that the property is adequately covered by
insurance and is in good condition.
On March 21, 1997, the Company entered into a contract for sale of
approximately 10 acres of land. The Company realized a gain of approximately
$165,000. (Selling Price $715,000 - Purchase Price $550,000).
On December 14, 1998, the Company entered into a contract to lease and to
subsequently purchase for $1,400,000, a 22,000 square foot facility, situated
on 5 acres of land located at 1117 Old Kings Highway, Saugerties, NY 12477.
The purchase is expected to take place during the second quarter of 1999.
ITEM 3. LEGAL PROCEEDINGS
There are no open legal issues.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A shareholder's meeting was held in the third quarter of 1998 for the primary
purpose of re-electing directors.
<PAGE> 9
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
PRINCIPAL MARKET
The stock continues to be traded on the OTC Bulletin Board and reported in the
OTC "Pink Sheets".
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.
<TABLE>
<CAPTION>
Period High Low
<S> <C> <C>
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
January 1, 1998 through March 31, 1998 1.875 1.375
April 1, 1998 through June 30, 1998 1.750 1.375
July 1, 1998 through September 30, 1998 1.563 0.750
October 1, 1998 through December 31, 1998 1.063 0.625
<FN>
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.
</TABLE>
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
The number of holders of record of the Company's Common Stock as of April 12,
1999 was approximately 350.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1998 Compared to 1997
New orders in 1998 totaled $2.1 million, which was 32% lower than 1997's level
of $3.1 million. The revenues produced a net profit of $84,205. Diluted net
earnings per share were $.03 in 1998 compared to $.21 in 1997. In the past
the Company has generally manufactured customized equipment. In 1998 the
Company worked on developing a line of standard products as a supplement to
our custom systems. Three of the four products were introduced in January 1999.
In September 1997, the Company opened a Web site, www.cvdequipment.com to
support the company's marketing program.
REVENUE
A reduction in volume resulted in revenue for the year being $3,037,259,
which was a 20% decrease from 1997 revenues of $3,798,204.
The type of sales in 1998 were similar to those of 1997. The Company shipped
approximately 8% to government associated entities, 15% to major colleges and
universities, 1% to research laboratories and another 76% was shipped to
significant Fortune 500 industrial companies.
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COSTS AND EXPENSES
In 1998, cost of revenues as a percentage of revenues increased to 72% from 64%
in 1997. The main reason for the 8% increase in cost of revenues as a
percentage of sales was a 4% increase in payroll expenses. The Company
averaged 35 employees in 1998 compared to 34 employees in 1997. The actual
cost of revenues decreased from $2,440,460 in 1997 to $2,171,796 in 1998 due to
lower purchases of material.
Selling and shipping expense was higher by $44,406 in 1998 compared to 1997.
This mainly resulted from a $34,000 increase in salaries, an $18,000 increase
in sales commissions and reductions in advertising and freight
expense.
General and Administrative expenses rose by $91,462 in 1998 compared to 1997.
This resulted mainly from a $17,000 increase in insurance, a $36,000 increase
in salaries and employee benefits, and consulting fees of $21,000.
Interest expense decreased by $2,477 from 1997 to 1998 since the Company's
average debt outstanding decreased in 1998.
LIQUIDITY AND CAPITAL RESOURCES
By year-end 1998, the Company's cash position decreased to $127,849 from
$239,476 at the beginning of the year. However the Company purchased, for the
first time, $1,000,000 in securities available for sale in 1998.
In 1998, accounts receivable decreased to $347,126 from $394,065 in 1997 while
inventory increased to $422,280 from $135,807. The decrease in receivables
from 1998 to 1997 is associated with a decrease in revenues. The increase in
inventory in 1998 was mainly due to the $114,400 purchase of inventory of the
former Stainless Design Corporation and the completion of finished goods
totaling $235,348.
The net cash used in investing activities increased $833,853 in 1998 mainly due
to capital expenditures of $683,823. This increase includes the purchase of
the fixed assets of the former Stainless Design Corporation for $517,695.
In 1999, we expect to have sufficient cash flow from operations and do not
anticipate the need to raise additional funds.
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 the Company
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, the Company opened a Web site;
www.cvdequipment.com to support the company's expanded marketing program.
<PAGE> 11
REVENUE
A reduction in volume resulted in revenue for the year being $3.8 million,
which was a 24% decrease from 1996 of $5.0 million.
The type of sales in 1997 were similar to those of 1996. The Company 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.
COSTS AND EXPENSES
In 1997 cost of revenues increased to 64% from 60% in 1996. The main reason
for the 4% increase in cost of revenues was an 8% increase in payroll expenses
(The Company averaged 34 employees in 1997 compared to 30 employees in 1996)
which was offset by a 2% decrease in depreciation expenses.
In 1997, costs to revenues on completed contracts decreased to 66% from 77% in
1996 and increased to 60% in 1997 from 53% in 1996 for uncompleted contracts.
The percentage change between completed and uncompleted contracts in a given
year and from year-to-year are a result of differences in product mix and the
level of completed and uncompleted contracts on the reporting date.
Selling and shipping expense decreased by $17,000 in 1997 compared to 1996.
This mainly resulted from an increase in advertising of $13,000 and reductions
in salaries, sales commissions, and travel and entertainment of $6,000, $17,000
and $5,000 respectively.
General and Administrative expenses were higher by $32,000 in 1997 compared to
1996. This resulted mainly from increases in salaries of $55,000 and
reductions in bad debts of $27,000.
Interest expense dropped 82% as the Company paid off 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, the Company's cash position improved to $239,476 from
$67,212 at the beginning of the year, even though 1997 sales were lower than
in 1996. This was mainly due to less cash allocated toward the Company's debt.
In 1997, $135,000 was paid from principal, which brought debt down to a $0
balance, compared to $569,000 being paid in 1996.
In 1997, accounts receivable decreased to $394,065 from $616,018 in 1996 while
inventory increased to $135,807 from $39,759. The decrease in receivables and
increase in inventory from 1996 to 1997 is associated with a decrease in
revenues and the billing of a large contract.
Capital expenditures remained about the same for 1997 and 1996 $121,701 and
$134,362 respectively.
<PAGE> 12
On March 29,1988, plans for construction of a facility for the Company on the
10 acres of land CVD owned in Selden, NY were abandoned due to declining real
estate conditions. The Company negotiated a settlement on the Industrial
Development Bond issue that resulted in the termination of the remaining funds
for financing construction and acquisition of machinery and equipment. In
March 1997, the Company entered into a contract to sell the land. The
contingencies in that contract have been satisfied. With the proceeds from
the sale of a property and being free of all debts, the Company anticipates a
very strong cash position in 1998. In 1998, we expect to have sufficient cash
flow from operations and do not anticipate the need to raise additional funds.
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 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by ITEM 7 is incorporated by reference in ITEM 13.
<PAGE> 13
CVD EQUIPMENT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-KSB ITEM 7
Years ended December 31, 1998 and 1997
<PAGE> 14
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page No.
INDEPENDENT AUDITORS' REPORT F-3
FINANCIAL STATEMENTS:
Consolidated balance sheets as of December 31, 1998 and 1997 F-4
Consolidated statements of income and comprehensive income
for the years ended December 31, 1998 and 1997 F-5
Consolidated statements of stockholders' equity for the years ended
December 31, 1998 and 1997 F-6
Consolidated statements of cash flows for the years ended
December 31, 1998 and 1997 F-7
Notes to consolidated financial statements F-8
<PAGE> 15
F-3
A L B R E C H T, V I G G I A N O, Z U R E C K
& C O M P A N Y, P. C.
CERTIFIED PUBLIC ACCOUNTANTS
25 SUFFOLK COURT
HAUPPAUGE, NY 11788
(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 Subsidiaries (the Company) as of December 31, 1998 and 1997,
and the related consolidated statements of income and comprehensive income,
stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 Subsidiaries as of December 31, 1998 and 1997 and
the results of its operations and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.
- -/S/-Albrecht, Viggiano, Zureck & Company, P.C.
Hauppauge, New York
March 26, 1999
<PAGE> 16
F-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 127,489 $ 239,476
Accounts receivable 347,126 394,065
Officer loan receivable -0- 499,154
Costs and estimated earnings in excess of billings
on uncompleted contracts 1,180,253 1,391,021
Securities available-for-sale 1,018,340 -0-
Inventory 422,280 135,807
Land held for resale -0- 550,939
Deferred tax asset -0- 197,334
Prepaid income taxes 60,540 66,729
Other current assets 33,212 44,362
------------ ------------
Total Current Assets 3,189,240 3,518,887
Property, Plant and Equipment 832,171 269,977
Deferred Tax Asset 140,082 -0-
Other Assets 151,713 97,065
------------ ------------
Total Assets $ 4,313,206 $ 3,885,929
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings $ 300,000 $ -0-
Accounts payable 67,156 96,312
Accrued expenses 144,972 117,005
Deposit on a contract for the sale of land -0- 40,000
Income and other taxes payable -0- 2,213
Billings in excess of costs on uncompleted contracts 46,993 -0-
Deferred tax liability 5,905 -0-
Current maturities of long-term debt 4,004 -0-
------------ ------------
Total Current Liabilities 569,030 255,530
Long-Term Debt 17,137 -0-
------------ ------------
586,167 255,530
------------ ------------
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 901,356 817,151
Accumulated other comprehensive income 12,435 -0-
------------ ------------
Total Stockholders' Equity 3,727,039 3,630,399
------------ ------------
Total Liabilities and Stockholders' Equity $ 4,313,206 $ 3,885,929
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE> 17
F-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Revenues
Revenue on completed contracts $ 1,773,389 $ 2,664,574
Revenue on uncompleted contracts 1,263,870 1,128,630
------------ ------------
Total Revenues 3,037,259 3,793,204
------------ ------------
Costs of Revenues
Costs on completed contracts 1,378,823 1,763,005
Costs on uncompleted contracts 792,973 677,455
------------ ------------
Total Costs of Revenues 2,171,796 2,440,460
------------ ------------
Gross Profit 865,463 1,352,744
------------ ------------
Operating Expenses
Selling and shipping 158,467 114,061
General and administrative 800,676 709,214
------------ ------------
Total Operating Expenses 959,143 823,275
------------ ------------
(93,680) 529,469
------------ ------------
Other Income (Expense)
Interest income 86,374 50,707
Interest expense (2,389) (4,866)
Gain on sale of land 164,442 -0-
Other income 1,871 1,709
------------ ------------
Total Other Income 250,298 47,550
------------ ------------
Income Before Taxes 156,618 577,019
Income Tax Benefit (Provision) (72,413) 56,887
------------ ------------
Net Income 84,205 633,906
Other Comprehensive Income, Net of Tax
Unrealized gains on securities 12,435 -0-
------------ ------------
Comprehensive Income $ 96,640 $ 633,906
============ ============
Earnings Per Share
Basic $ 0.03 $ 0.22
Diluted $ 0.03 $ 0.21
Weighted Average Shares
Basic 2,918,750 2,918,750
Diluted 2,994,610 2,996,463
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE> 18
F-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Comprehensive Retained Stockholders'
Stock Capital Income Earnings Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1996 $ 29,188 $ 2,784,060 $ -0- $ 183,245 $ 2,996,493
Net income 633,906 633,906
------------ ------------ ------------ ------------ ------------
Balance as of
December 31, 1997 29,188 2,784,060 -0- 817,151 3,630,399
------------
Net income 84,205 84,205
Other comprehensive
Income, net of tax:
Unrealized gains on
securities 12,435 12,435
------------
Total comprehensive
income 96,640
------------ ------------ ------------ ------------ ------------
Balance as of
December 31, 1998 $ 29,188 $ 2,784,060 $ 12,435 $ 901,356 $ 3,727,039
============ ============ ============ ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE> 19
F-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 84,205 $ 633,906
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred tax provision (benefit) 57,252 (129,598)
Depreciation and amortization 148,732 165,418
Gain on disposition of land (164,442) -0-
(Increase) decrease in:
Accounts receivable 46,939 221,953
Costs and estimated earnings
in excess of billings on uncompleted contracts 210,768 (126,201)
Inventory (286,473) (96,048)
Prepaid income taxes 6,189 (66,729)
Other current assets 11,150 (25,803)
Other assets (86,751) (60,041)
Increase (decrease) in:
Accounts payable (29,156) (23,850)
Accrued expenses 27,967 (3,285)
Deposit on a contract for the sale of land (40,000) 40,000
Income and other taxes payable (2,213) (51,084)
Billings in excess of costs
on uncompleted contracts 46,993 (41,090)
------------ ------------
Net Cash Provided By Operating Activities 31,160 437,548
------------ ------------
Cash Flows from Investing Activities
Proceeds from disposition of land 720,000 -0-
Officer loan receivable -0- (7,888)
Capital expenditures (683,442) (121,701)
Purchase of securities available-for-sale (1,000,000) -0-
------------ ------------
Net Cash Used In Investing Activities (963,442) (129,589)
------------ ------------
Cash Flows from Financing Activities
Proceeds from short-term borrowings 300,000 -0-
Proceeds from automobile loan 25,693 -0-
Payments on automobile loan (4,552) (135,695)
Proceeds from officer loan receivable 499,154 -0-
------------ ------------
Net Cash Provided (Used) By Financing Activities 820,295 (135,695)
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents (111,987) 172,264
Cash and Cash Equivalents at Beginning of Year 239,476 67,212
------------ ------------
Cash and Cash Equivalents at End of Year $ 127,489 $ 239,476
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE> 20
F-8
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies
Description of Business
CVD Equipment Corporation and Subsidiaries (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 subsidiaries, CVD Materials Corporation and
Stainless Design Concepts, Ltd. In December 1998, a new subsidiary, Stainless
Design Concepts, Ltd., was formed as a New York corporation. The subsidiaries
were inactive for the years ended December 31, 1998 and 1997. 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.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income. Comprehensive income consists
of net income and other comprehensive income; the latter includes unrealized
gains and losses on available-for-sale securities and is presented in the
Consolidated Statements of Stockholders' Equity. The adoption of SFAS No. 130
had no effect on stockholders' equity. Prior year financial statements have
been reclassified to conform to the SFAS No. 130 requirements.
Inventories
Inventories are valued at the lower of cost or market. The Company uses a
cost system which approximates the first-in, first-out method. Materials used
in work-in-process are included in costs and estimated earnings in excess of
billings on uncompleted contracts.
Securities Available-For-Sale
The Company evaluates its investment policies consistent with Financial
Accounting Standards Board Statement (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Accordingly, investment securities
are classified as available-for-sale securities and carried at fair value,
with temporary unrealized gains and losses reported in accumulated other
comprehensive income as a separate component of stockholders' equity.
<PAGE> 21
F-9
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies (continued)
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. A valuation allowance is not considered necessary by
management, since it is more likely than not that the deferred tax asset will
be realized. An allowance may be necessary in the future based on changes in
economic conditions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and amortization. The cost of certain labor and overhead which is expected to
benefit future periods, has been capitalized and amortized. Depreciation and
amortization are computed by the straight-line method for financial purposes
over the estimated useful lives of the assets.
Software
In 1998, the Company adopted Statement of Position 98-1, Accounting for Costs
of Computer Software Developed or Obtained for Internal Use. Such software
totaled $33,023 and is included in Other Assets. Prior to 1998, software was
capitalized if it was expected to benefit future periods. The total
capitalized as of December 31, 1997 amounted to $551,215. All software is
amortized straight-line over three years. Amortization expense of $25,795 and
$37,430 was recorded for the years ended December 31, 1998 and 1997,
respectively.
Intangible Assets
In December 1998, the Company paid $15,000 for the right to use the trade
name, "Stainless Design". This amount is included in Other Assets and will be
amortized straight-line over ten years. Also in December 1998, the Company
purchased engineering drawings for $25,000, which is included in Other Assets
to be amortized straight-line over 15 years. Patents obtained in 1998
amounted to $3,400 and will be amortized over 20 years. As of December 31,
1998 and 1997, the Company recorded in Other Assets a license agreement
costing $10,000. The license agreement is being amortized over its life of 5
years. Amortization expense recorded by the Company in 1998 and 1997 for
these intangibles totaled $2,000 and $-0-, respectively.
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.
<PAGE> 22
F-10
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies (continued)
Bad Debts
Management estimates that all accounts receivable are fully collectible based
on past history. An allowance may be necessary in the future based on changes
in economic conditions.
Product Warranty
The Company records warranty costs as incurred and does not provide for
possible future costs. Management estimates such costs to be insignificant
based on prior experience. However, it is reasonably possible that this
estimate may change in the future.
Advertising Costs
The Company expenses advertising costs which are not expected to benefit
future periods. Advertising expenses included in selling and shipping expenses
were $12,845 and $17,067 in 1998 and 1997, respectively. As of December 31,
1998 and 1997, the Company's capitalized advertising costs included in Other
Assets totaled $28,661 and $12,923, respectively, to develop a web site and to
print brochures expected to be used in the future. Capitalized advertising
costs are amortized over three years. Amortization expense related to
advertising costs totaled $4,308 and $-0- in 1998 and 1997, respectively.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. This pronouncement requires the reporting of two net
income per share figures: basic net income per share and diluted net income
per share. Basic net income is calculated by dividing net income by the
weighted-average number of common shares outstanding during the period.
Diluted net income per share is computed by dividing net income by the sum of
the weighted-average number of common shares outstanding during the period
plus the dilutive effect of shares issuable through stock options.
A reconciliation of the weighted-average number of common shares outstanding
used in the calculations of basic and diluted earnings per share follows.
<TABLE>
<CAPTION>
1998 1997
Basic Dilutive Basic Dilutive
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted-average number of
common shares outstanding 2,918,750 2,918,750 2,918,750 2,918,750
============ ============
Dilutive options to purchase
common shares outstanding 75,860 77,713
------------ ------------
2,994,610 2,996,463
============ ============
</TABLE>
The effect of 140,000 options granted in 1998 at an exercise price of $1.50
was not included in the computation of diluted earnings per share for the year
ended December 31, 1998 because they are anti-dilutive.
<PAGE> 23
F-11
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 1 - Summary of Significant Accounting Policies (continued)
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.
The Company places its most of temporary cash investments with one financial
institution and normally exceeds the FDIC limit. The Company has not
experienced any losses to date resulting from this policy.
Fair Value of Financial Instruments
The carrying amounts of financial instruments including cash and cash
equivalents, accounts receivable, other assets, accounts payable and accrued
expenses, approximate fair value due to the relatively short maturity of these
instruments. The fair value of securities available-for-sale is estimated
based on quoted market prices. The carrying values of short-term borrowings
and the officer loan receivable approximate fair value based on borrowing
rates currently available for loans with similar terms and maturities.
Stock-Based Compensation
The Company accounts for stock options as prescribed by Accounting Principles
Board Opinion No. 25 and includes pro forma information in the stock-based
compensation footnote, as permitted by Financial Accounting Standards Board
Statement No. 123, Accounting for Stock-Based Compensation ("SFAS 123").
Accordingly, no compensation cost is recognized for stock options granted to
employees since the option exercise price is not less than the market price
underlying stock on the date of grant.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
Note 2- Supplemental Cash Flow Information
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash paid during the year for:
Income taxes, net of refunds $ 11,185 $ 175,227
Interest 1,394 6,007
Noncash investing activities:
Unrealized gains on securities, net of tax $ 12,435 $ -0-
</TABLE>
<PAGE> 24
F-12
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 3 - Uncompleted Contracts
<TABLE>
<CAPTION>
Costs, estimated earnings, and billings on uncompleted
contracts are summarized as follows:
1998 1997
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 792,973 $ 896,859
Estimated earnings 470,897 702,215
------------ ------------
1,263,870 1,599,074
Billings to date (130,610) (208,053)
------------ ------------
$ 1,133,260 $ 1,391,021
============ ============
Included in accompanying balance sheets
under the following captions:
Costs and estimated earnings in excess
of billings on uncompleted contracts $ 1,180,253 $ 1,391,021
Billings in excess of costs and estimated
earnings on uncompleted contracts (46,993) -0-
------------ ------------
$ 1,133,260 $ 1,391,021
============ ============
</TABLE>
<TABLE>
<CAPTION>
Note 4 - Securities Available-For-Sale
Securities available-for-sale consist of the following:
1998 1997
------------ ------------
<S> <C> <C>
Corporate preferred bonds:
Maturing in 2038 $ 750,000 $ -0-
Maturing in 2098 250,000 -0-
------------ ------------
Cost $ 1,000,000 $ -0-
Fair value 1,018,340 -0-
</TABLE>
At December 31, 1998, corporate preferred bonds have been categorized as
available-for-sale and stated at fair value. The Company recorded an unrealized
holding gain of $18,340 for the year ended December 31, 1998, which is shown
net of deferred taxes of $5,905 in accumulated other comprehensive income.
Note 5 - Inventory
<TABLE>
<CAPTION>
Inventory consists of the following:
1998 1997
------------ ------------
<S> <C> <C>
Raw materials $ 186,932 $ 135,807
Finished goods 235,348 -0-
------------ ------------
$ 422,280 $ 135,807
============ ============
</TABLE>
<PAGE> 25
F-13
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 6 - Property, Plant and Equipment
<TABLE>
<CAPTION>
Major classes of property, plant and equipment consist of the following:
1998 1997
------------ ------------
<S> <C> <C>
Machinery and equipment $ 636,880 $ 87,712
Capitalized labor and overhead 1,032,772 1,213,577
Furniture and fixtures 152,216 133,182
Computer equipment 90,655 77,266
Transportation equipment 50,750 24,557
Leasehold improvements 15,733 13,795
------------ ------------
1,979,006 1,550,089
Accumulated depreciation and amortization (1,146,835) (1,280,112)
------------ ------------
$ 832,171 $ 269,977
============ ============
Depreciation and amortization expense $ 116,629 $ 127,988
============ ============
</TABLE>
Land to be disposed of in 1998 totaling $550,939 was reclassified from
property, plant and equipment to "Land Held for Resale" as of December 31, 1997.
Note 7 - Short-Term Borrowings
The Company has a revolving line of credit agreement with a bank which allows
the Company to borrow up to $500,000. In 1998, the Company borrowed $300,000
under this line of credit. Interest only on the unpaid principal balance at the
bank's prime rate plus 0.75% is payable on January 1, 1999 and on the first day
each month thereafter until June 1, 1999 when all unpaid principal and interest
shall be due in full. No borrowings were outstanding as of December 31, 1997.
The borrowings are collateralized by the Company's assets, other than costs and
estimated earnings in excess of billings on uncompleted contracts.
Note 8 - Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1998 1997
------------ ------------
<S> <C> <C>
NISSAN MOTOR ACCEPTANCE CORP.
Collateralized by a lien on the Company's automobile;
payable in 60 monthly installments of $495 including
interest of 5.9% per annum; final payment due
February 5, 2003. $ 21,141 $ -0-
Less: Current maturities 4,004 -0-
------------ ------------
$ 17,137 $ -0-
============ ============
</TABLE>
<TABLE>
<CAPTION>
Future maturities of long-term debt are as follows:
<S> <C>
1999 $ 4,004
2000 5,071
2001 5,378
2002 5,704
984
-------
$21,141
=======
</TABLE>
<PAGE> 26
F-14
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 9 - Income Taxes
<TABLE>
<CAPTION>
The provision (benefit) for income taxes include the following:
1998 1997
------------ ------------
<S> <C> <C>
Current:
Federal $ 11,161 $ 64,423
State 4,000 8,288
------------ ------------
Total current provision 15,161 72,711
------------ ------------
Deferred:
Federal 50,359 4,593
State 6,893 (134,191)
------------ ------------
Total deferred provision (benefit) 57,252 (129,598)
------------ ------------
$ 72,413 $ (56,887)
============ ============
</TABLE>
The Company has a state investment tax credit carryforward of $135,098 that
may be offset against future state tax liabilities through the year 2013.
<TABLE>
<CAPTION>
The difference between the provision for income taxes at the Company's
effective income tax rate and the federal statutory rate of 34% is as follows:
1998 1997
------------ ------------
<S> <C> <C>
Income taxes at statutory rate $ 47,170 $ 196,186
State taxes 9,712 40,391
Nondeductible expenses 4,807 14,485
Investment tax credits 10,724 (80,710)
Release of valuation allowance -0- (227,239)
------------ ------------
Provision (Benefit) for Income Taxes $ 72,413 $ (56,887)
============ ============
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences giving rise to significant portions
of deferred taxes are as follows:
1998 1997
------------ ------------
<S> <C> <C>
Allowance for doubtful accounts $ -0- $ (10,500)
Inventory capitalization (8,660) 434
Depreciation and amortization 13,644 52,590
Investment tax credit 135,098 154,810
------------ ------------
Deferred Tax Asset $ 140,082 $ 197,334
============ ============
</TABLE>
A deferred tax liability of $5,905 is recorded in current liabilities to
reflect the tax effects of temporary differences arising from unrealized gains
on securities available-for-sale as of December 31, 1998.
<PAGE> 27
F-15
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 10 - Stock-Based Compensation
On June 15, 1989, the Company instituted a non-qualified stock option plan
(the "Plan"). In connection therewith, 700,000 shares of the Company's common
stock are reserved for issuance pursuant to options that may be granted under
the Plan through June 15, 1999. On June 3, 1996, the Company issued 84,000
options which expire ten years from the date of grant. None of these options
are exercisable until June 3, 1999. On April 15, 1998, 140,000 options were
granted to employees under this Plan. The option price for options granted in
1998 is an amount per share of not less than the fair market value per share
on the date the option is granted. Options granted in 1998 vest straight-line
over a four-year period following the date of grant and expire five years after
the date of grant.
<TABLE>
A summary of stock option activity related to the Company's Plan is as follows:
<CAPTION>
Beginning Granted Exercised Canceled Ending
Balance During During During Balance
Outstanding Period Period Period Outstanding Exercisable
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Number of shares 84,000 0 0 0 84,000 0
Weighted average exercise
price per share $ 0.125 $ 0 $ 0 $ 0 $ 0.125 $ 0
Year ended December 31, 1998
Number of shares 84,000 140,000 0 0 224,000 0
Weighted average exercise
price per share $ 0.125 $ 1.50 $ 0 $ 0 $ 0.984 $ 0
</TABLE>
<TABLE>
The weighted-average per share fair value of the options granted during 1998
was estimated as $1.50 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions:
<CAPTION>
1998
--------
<S> <S>
Risk-free interest rate 4.5%
Expected option life 5 years
Expected volatility 267%
Expected dividend yield 0%
</TABLE>
<TABLE>
The weighted-average remaining contractual lives of the options outstanding at
December 31, 1998 are as follows:
<CAPTION>
Weighted-
Average
Range of Remaining
Number Exercise Contractual
Outstanding Prices Life
------------- ----------- ------------
<C> <C> <C>
84,000 $ 0.125 7.50 years
140,000 1.50 4.25 years
</TABLE>
<PAGE> 28
F-16
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 11 - 401(k) Plan
On August 1, 1998, the Company adopted a 401(k) Plan for the benefit of all
eligible employees. All employees as of the effective date of the 401(k) Plan
became eligible. An employee who became employed after August 1, 1998, would
become a participant after three months of continuous service.
Participants may elect to contribute from their compensation any amount up to
the maximum deferral allowed by the Internal Revenue Code. Employer
contributions are optional. During the year ended December 31, 1998, the
Company incurred 401(k) costs totaling $1,038.
Note 12 - 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 1998, the Company had two
significant customers which represented approximately 42% and 10%,
respectively, of sales and 71% and 0%, respectively, of the total accounts
receivable and costs and estimated earnings in excess of billings on
uncompleted contracts at December 31, 1998. 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.
Export Sales
Export sales to unaffiliated customers represented approximately 4% and 2% of
sales for the years ended December 31, 1998 and 1997, respectively. Export
sales in 1998 and 1997 were primarily to customers in Asia. All contracts are
denominated in U.S. dollars. The Company does not enter into any foreign
exchange contracts.
Note 13 - Related Party Transactions
As of December 31, 1997, the Company's president and major stockholder owed
$499,154 to the Company. The loan was paid in full on March 16, 1998.
Interest only was due on January 1, 1997, for the twelve days ended December
31, 1996. Thereafter, the debt was 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 due and payable on January 1, 2007. The interest accrued on the debt
totaled $8,734 as of December 31, 1997 and was 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 for each of
the years ended December 31, 1998 and 1997, respectively. As of December 31,
1998 and 1997, the Company owed the general counsel $40,000 and $20,000,
respectively.
<PAGE> 29
F-17
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
Note 14 - Commitments and Contingencies
Leases
<TABLE>
The Company rents its headquarters and operations in Ronkonkoma, New York
under a lease expiring on July 31, 2001. Minimum future rental commitments
are as follows:
<CAPTION>
<S> <C>
1999 $ 126,942
2000 130,751
2001 77,589
</TABLE>
In addition, the Company leases the facility occupied by its new wholly-owned
subsidiary in Saugerties, New York, under a month-to-month lease until the
facility is purchased. The monthly rent expense under such lease is $5,375.
Rental expense for operating leases totaled $123,245 and $119,656 for 1998 and
1997, respectively.
Purchase of Facility
On December 14, 1998, the Company entered into a contract for the purchase of
a 22,000 square foot facility on approximately five acres of land in
Saugerties, New York, for $1,400,000. The Company recorded $10,000 in Other
Assets representing a nonrefundable deposit to the seller. The balance is due
at closing which is expected to take place during the first six months of 1999.
The seller will issue a 30-year mortgage for $900,000 to the Company at 7%
interest.
<PAGE> 30
INDEX TO SUPPLEMENTARY FINANCIAL SCHEDULES
Page No.
Independent Auditors' Report on Supplementary Information S-2
Supplementary Financial Schedules:
II. Valuation and qualifying accounts S-3
III. Amounts receivable from related parties and
underwriters, promoters, and employees other
than related parties S-4
IV. Property, plant and equipment S-5
V. Accumulated depreciation and amortization
of property, plant and equipment S-6
VI. Supplementary income statement information S-7
<PAGE> 31
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 subsidiaries (the Company) as of
and for the years ended December 31, 1998 and 1997.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements of the Company taken as a whole. The
supplementary information included in Form 10-KSB, Schedules II, III, IV, V
and VI is presented for purposes of additional analysis and is not a required
part of the basic consolidated financial statements. Such information has
been subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
- -/S/-Albrecht, Viggiano, Zureck & Company, P.C.
Hauppauge, New York
March 26, 1999
<PAGE> 32
S-3
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Additions
--------------------------
Balance at (1) Charged (2) Charged Balance
Beginning to Costs and to Other at End
Deducted from Assets of Period Expenses Accounts Deductions of Period
- ---------------------------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Allowance for Net Unrealized Gains
on Securities:
Year ended December 31, 1998 $ -0- $ -0- $ 18,340(a) $ -0- $ 18,340
Year ended December 31, 1997 -0- -0- -0- -0- -0-
</TABLE>
(a) Net unrealized gains on securities recorded in stockholders' equity.
<PAGE> 33
S-4
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
FORM 10-KSB, SCHEDULE III
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
Years ended December 31, 1998 and 1997
<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>
1998:
Leonard A. Rosenbaum, President
Maturity: January 1, 2007
Interest: 7% per annum $ 499,154 $ -0- $ 499,154 $ -0- $ -0-
1997:
Leonard A. Rosenbaum, President
Maturity: January 1, 2007
Interest: 7% per annum $ 500,000 $ -0- $ 846 $ -0- $ 499,154
</TABLE>
<PAGE> 34
S-5
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
FORM 10-KSB, SCHEDULE IV
PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1998 and 1997
<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>
1998:
Machinery and equipment $ 87,712 $ 549,168 $ 636,880
Capitalized labor and overhead 1,213,577 69,101 $ (249,906) 1,032,772
Furniture and fixtures 133,182 19,034 152,216
Computer equipment 77,266 13,389 90,655
Transportation equipment 24,557 26,193 50,750
Leasehold improvements 13,795 1,938 15,733
------------ ------------ ------------ ------------
$ 1,550,089 $ 678,823 $ (249,906) $ 1,979,006
============ ============ ============ ============
1997:
Land $ 550,939 $ (550,939)(a)$ -0-
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 129,537 3,645 133,182
Computer equipment 56,904 20,362 77,266
Transportation equipment 24,557 24,557
Leasehold improvements 12,014 1,781 13,795
------------ ------------ ------------ ------------
$ 2,753,324 $ 121,701 $(1,324,936) $ 1,550,089
============ ============ ============ ============
<FN>
(a) Land to be disposed of in 1998 was reclassified from property, plant and
equipment to "Land Held for Resale".
</TABLE>
<PAGE> 35
S-6
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
FORM 10-KSB, SCHEDULE V
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
Years ended December 31, 1998 and 1997
<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>
1998:
Machinery, equipment and
capitalized labor and overhead $ 1,082,756 $ 94,727 $ (249,906) $ 927,577
Furniture and fixtures 126,987 1,926 128,913
Computer equipment 33,584 14,831 48,415
Transportation equipment 24,557 4,366 28,923
Leasehold improvements 12,228 779 13,007
------------ ------------ ------------ ------------
$ 1,280,112 $ 116,629 $ (249,906) $ 1,146,835
============ ============ ============ ============
1997:
Machinery, equipment and
capitalized labor and overhead $ 1,742,808 $ 113,945 $ (773,997) $ 1,082,756
Furniture and fixtures 125,046 1,941 126,987
Computer equipment 21,696 11,888 33,584
Transportation equipment 24,557 24,557
Leasehold improvements 12,014 214 12,228
------------ ------------ ------------ ------------
$ 1,926,121 $ 127,988 $ (773,997) $ 1,280,112
============ ============ ============ ============
</TABLE>
<PAGE> 36
S-7
CVD EQUIPMENT CORPORATION AND SUBSIDIARIES
FORM 10-KSB, SCHEDULE VI
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
Col. A Col.B
- ------------------------------------------ ----------------------------
Charges to Costs and Expenses
-----------------------------
Item 1998 1997
------------- ------------ ------------
<S> <C> <C>
Amortization of software, advertising
costs and other intangible assets $ 32,103 $ 37,430
</TABLE>
<PAGE> 37
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There are no changes or disagreements.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth, with respect to each officer and/or director,
his/her age, present position with the Company, principal occupation during
the past five years, other directorships, if any, and the year he/she first
became an officer and/or a director of the company.
<TABLE>
<CAPTION>
Officer/
Position with Director
Name of Officer/Director Age the Company Since
- ------------------------- --- ------------------------ ---------
<S> <S> <S> <S>
Leonard A. Rosenbaum 53 President and 1982
Chief Executive Officer
Alan H. Temple, Jr. 65 None 1986
Sharon Canese 38 Chief Financial Officer/ 1998
Secretary
Martin J. Teitelbaum 49 Assistant Secretary 1985
Albert G. Metzler 51 None 1993
</TABLE>
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 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.
Sharon Canese joined the Company on September 11, 1991. Prior to joining CVD,
Mrs. Canese was Assistant Controller of Transcontrol Corporation for a period
of four years. Mrs. Canese has also held the position of Financial Analyst
of the Financial Planning Department at Eaton Corporation/AIL Division from
1983 to 1987.
Martin J. Teitelbaum was a partner in the law firm of Guberman and Teitelbaum,
Smithtown, New York from February 1977 through December 1987. From January
1988 to date, Mr. Teitelbaum has been principal attorney for the Law Offices
of Martin J. Teitelbaum. Mr. Teitelbaum became a director of the Company in
1985. From September 23, 1986 to December 31, 1986 he served as Corporate
Secretary and served again as Corporate Secretary from August 1997 to February
1998. Since January 1, 1987 he has served as the Assistant Secretary. Mr.
Teitelbaum serves as General Counsel to the Company.
<PAGE> 38
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 the Company. On January
4, 1999, Mr. Metzler resigned as Sales Manager of R.S. Crum & Co. and was
employed full time by Stainless Design Concepts, Ltd., the Company's 100%
owned subsidiary.
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 1998. 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.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Principal Annual Stock Options
Position Year Compensation Granted
- -------------------------- ------ ------------- -------------
<S> <C> <C> <C>
Leonard A. Rosenbaum 1998 $163,742 -0-
President and Chief 1997 $211,342 -0-
Executive Officer 1996 $139,126 30,000 *
<FN>
* The stock options granted in 1996: vest 100% in 1999, have an exercise
price of $.125, expire 10 years from date of grant and represent 36%
of the number of options granted that year.
</TABLE>
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. The plan terminated on December 31, 1996. There
are no outstanding options under this plan.
In June 1989, the shareholders approved a non-qualified stock option plan
covering key employees, officers and directors. Options will be awarded by
the Board of Directors or by a committee appointed by the board.
Under the plan an aggregate of 700,000 shares of common stock, $.01 par value
of the Company are reserved for issuance or transfer upon the exercise of
options which are granted. Unless otherwise provided in the Option Agreement,
an option granted under the plan shall become exercisable in 25% installments
commencing one year from the anniversary date of the grant. The purchase
price of the Common Stock under each option shall be no lower than the average
bid price per share, calculated on a monthly basis, that the Common Stock (as
reported by Nasdaq) traded during the calendar year immediately preceding the
year in which the option is granted. The stock options generally expire five
years after the date of grant. The stock option plan shall terminate on
June 15, 1999.
<PAGE> 39
In 1996 a total of 84,000 options were granted which do not vest until 1999 at
which time they vest 100%. In 1998, 140,000 options were granted to employees
other than executive officers or directors. The options vest at 25% per year
starting in 1999. To date no options have been exercised under this plan.
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 MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Set forth below is certain information concerning persons who are known by the
Company to own beneficially more than 5% of any class of the Company's voting
shares on March 1, 1999:
<TABLE>
<CAPTION>
Amount & Nature
Title Of Name and Address of Of Beneficial Percentage
Class Beneficial Owner Ownership (1) of Class
- ---------- -------------------------- ----------------- ----------
<S> <S> <C> <C>
Common Leonard A. Rosenbaum 1,270,450 43.5%
Stock 1881 Lakeland Avenue
Ronkonkoma, NY 11779
Common Alan H. Temple Jr. 172,000 5.9%
Stock 10 Harrison Circle
Pittsford, NY 14534
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of March 1, 1999, 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:
<TABLE>
<CAPTION>
Amount & Nature
Title Of Name and Address of Of Beneficial Percentage
Class Beneficial Owner Ownership (1) of Class
- ---------- -------------------------- ----------------- ----------
<S> <S> <C> <C>
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
Smithtown, NY 11787
Common Alan H. Temple, Jr. 172,000 (3) 5.9%
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 Officers 1,501,850 51.5%
Stock as a group (four persons)
<FN>
* 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.
</TABLE>
<PAGE> 40
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 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, the Company 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, the Company
has been released from this guaranty.
As of December 31, 1995, as a result of payments by the Company based upon the
guaranty, Leonard A. Rosenbaum was indebted to the Company 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 the Company. The agreement called for Leonard Rosenbaum to
make monthly payments starting February 1, 1997 in the amount of $3,008
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 on March 16, 1998 Leonard Rosenbaum
paid in full the remaining balance of his loan.
During 1998, 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. Teitelbaum.
<PAGE> 41
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
1. Exhibits - The following Exhibits are filed as part of, or incorporated by
reference into, this report on Form 10-KSB
(3) Articles of incorporation and by-laws
(4) Instruments defining the rights of holders, including indentures
(9) Voting trust agreement
(10) Material Contracts
(11) Statement re: Computation of per share earnings
(13) Annual or quarterly reports, Form 10-QSB
(18) Letter on change in accounting principles
(19) Previously unfiled documents
(21) Subsidiaries of registrant
(22) Published report regarding matters submitted to vote
(23) Consent of experts and counsel
(24) Power of Attorney
(28) Information from reports furnished to state insurance authorities
(99) Additional exhibits
All items included by reference.
2. Financial Statements - The following consolidated financial statement of
CVD Equipment Corporation and report of Independent Accountants are filed
as part of this Report on Form 10-KSB and should be read in conjunction
with the related notes thereto, included herein.
The following financial statements of CVD Equipment Corporation are
included in Part II, Item 7:
Report of Independent Certified Public Accountants....................F-3
Balance Sheets - December 31, 1998 and 1997...........................F-4
Statements of Income And Comprehensive Income
Years Ended December 31, 1998 and 1997...........................F-5
Statements of Stockholders Equity.....................................F-6
Statements of Cash Flows
Years Ended December 31, 1998 and 1997...........................F-7
Notes to the Financial Statements...............................F-8 - F-17
3. Financial Statement Schedules
Report of Independent Certified Public Accountants.....................S-2
Schedules:
II Valuation And Qualifying Accounts.................................S-3
III Amounts receivable from Related Parties and Underwriters,
Promoters, and Employees other than Related Parties,..............S-4
IV Property, Plant and Equipment.....................................S-5
V Accumulated depreciation and amortization of Property,
Plant and Equipment...............................................S-6
VI Supplementary Income Statement Information........................S-7
<PAGE> 42
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.
4. Reports on Form 8-K - The Registrant filed on Form 8-K during the last
quarter of the fiscal year ended December 31, 1998, as follows:
The Company filed this report dated December 11, 1998 to disclose certain
information related to the purchase at public auction between December 11
and December 15, 1998 of the former inventory, tangible assets, intangible
assets and intellectual property of Stainless Design Corporation (SDC),
Saugerties, NY, for $672,095. The Company has also entered into a contract
to purchase the facility formerly occupied by Stainless Design Corporation,
1117 Old Kings Highway, Saugerties, NY 12477.
The filing was made as an asset acquisition only, as the circumstances
involved did not support a finding that the assets constituted a business
acquisition. Some of the circumstances involved to support an asset
acquisition were:
* Production operations had ceased prior to the bank's auction. Production
was started up by the Company on orders received by the Company after
January 11, 1999.
* Marketing activities had been winding down for a considerable time period
before the auction and ceased prior to the auction. All marketing and
sales activities were started back up by the Company.
* The customer base was not intact at the time of the auction. The Company
did not rely on any customer commitments or promises prior to January 4,
1999. The Company had no conversations with previous or potential
customers prior to the auction.
* The 100 plus employee base was slowly laid off for a considerable time
prior to the auction and therefore was not in tact at the time of the
auction. The Company had no commitments from former employees to become
employees of the Company prior to the auction.
* The inventory acquired consisted of mainly of parts that could be used in
the Company's existing business. There was virtually no finished goods
inventory or work in progress.
* The manufacturing equipment consisted mainly of welding equipment that
immediately could be used by the Company in our existing production
activities.
* The acquisition was treated as a new start-up activity using management
personnel from the Company.
* The current customer base consists of many customers that both the
Company and SDC were previously selling to.
* The current level of business is significantly below the former SDC level.
* The current level of employment is significantly below the former SDC
level.
* The Company did not acquire the Accounts Receivables of SDC.
* The Company did not become responsible for the Accounts Payable or other
liabilities of SDC.
* The Company did not continue or start a relationship with the former
lender.
* Many of the products sold by SDC were custom engineered for the customer.
The Company has been using our engineering personnel to design these
products.
* Future plans are based on sales growth of the Company's products, new
products, former SDC products and custom designed systems to meet new
customer requirements.
<PAGE> 43
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
To the Board of Directors
CVD Equipment Corporation
Ronkonkoma, NY
We consent to the use of our report dated March 26, 1999 included herein and
to the reference to our firm under the heading "Experts" in this Form 10-KSB.
/S/ ALBRECHT, VIGGIANO, ZURECK & COMPANY, P.C.
Hauppauge, New York
April 12, 1999
<PAGE> 44
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 12th day of
April 1999.
CVD EQUIPMENT CORPORATION
By: /s/ Leonard A. Rosenbaum
Leonard A. Rosenbaum
President and Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Leonard A. Rosenbaum President, Chief Executive Officer and Director
Leonard A. Rosenbaum
/s/ Alan H. Temple, Jr. Director
Alan H. Temple, Jr.
/s/ Martin J. Teitelbaum Director
Martin J. Teitelbaum
/s/ Sharon Canese Chief Financial Officer
Sharon Canese
/s/ Albert G. Metzler Director
Albert G. Metzler
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 127,489
<SECURITIES> 1,018,340
<RECEIVABLES> 1,527,379
<ALLOWANCES> 0
<INVENTORY> 422,280
<CURRENT-ASSETS> 3,189,240
<PP&E> 1,979,006
<DEPRECIATION> 1,146,835
<TOTAL-ASSETS> 4,313,206
<CURRENT-LIABILITIES> 569,030
<BONDS> 0
0
0
<COMMON> 2,813,248
<OTHER-SE> 913,791
<TOTAL-LIABILITY-AND-EQUITY> 4,313,206
<SALES> 1,773,389
<TOTAL-REVENUES> 3,037,259
<CGS> 2,171,796
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 959,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,389
<INCOME-PRETAX> 156,618
<INCOME-TAX> 72,413
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,205
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
