CVD
EQUIPMENT CORPORATION
(Name
of
small business issuer in its charter)
New
York
(State
or jurisdiction of
incorporation or organization)
|
3559
(Primary
Standard Industrial
Classification
Code Number)
|
11-2621692
(I.R.S.
Employer Identification No.)
|
|
1860
Smithtown Avenue
Ronkonkoma,
New York 11779
(631)
981-7081
(Address,
including zip code, and telephone number, including area code,
of
registrant’s principal executive offices and principal place of
business)
|
|
|
Glen
Charles
Chief
Financial Officer
1860
Smithtown Avenue
Ronkonkoma,
New York 11779
(631)
981-7081
(Name,
address, including zip code, and telephone number, including area
code, of
agent for service)
|
|
|
Copies
to:
|
|
Irvin
Brum, Esq.
Adam
P. Silvers, Esq.
Ruskin
Moscou Faltischek, P.C.
1425
RexCorp Plaza, 15
th
Floor
Uniondale,
New York 11556
(516)
663-6600
|
|
Richard
H. Gilden, Esq.
Kramer
Levin Naftalis & Frankel LLP
1777
Avenue of the Americas
New
York, New York 10036
212-715-9100
|
Approximate
date of commencement of proposed sale to public:
As soon
as practicable after the effective date of this registration
statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box.
o
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
|
Amount
to be
Registered
|
Proposed
Maximum
Offering
Price
Per Share(2)
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
of
Registration
Fee(2)
|
Common
Stock, (par value
$0.01
per share)
|
2,875,000
shares(1)
|
$5.29
|
$15,208,750
|
$466.91
|
(1)
|
Includes
375,000 shares of common stock that may be purchased by the underwriter
from certain officers and directors to cover over-allotments, if
any.
|
(2)
|
Estimated
solely for the purpose of computing the registration fee pursuant
to Rule
457(c) under the Securities Act of 1933, as amended on the basis
of the
average high and low prices of the Registrant’s common stock on June 28,
2007, as reported by the American Stock Exchange.
|
The
Registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the Registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until this registration statement shall become effective
on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
THE
INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THIS
PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS FILED BY CVD
EQUIPMENT CORPORATION WITH THE SECURITIES AND EXCHANGE COMMISSION. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT
TO COMPLETION, DATED _______, 2007
Preliminary
Prospectus
2,500,000
shares of common stock
$______
per share
We
are
selling 2,500,000 shares of common stock.
Our
common stock currently trades on the American Stock Exchange under the symbol
“CVV.” On _______, 2007, the closing price of one share of our common stock was
$ .
Investing
in our common stock involves a high degree of risk.
See
“
Risk
Factors
”
beginning
on page 7
.
The selling shareholders identified in this prospectus have granted the
underwriters the right to purchase up to an additional 375,000 shares of common
stock at the public offering price, less the underwriting discount and
commissions, solely to cover over-allotment of shares. We will not receive
any
of the proceeds from the sale of these shares by the selling
shareholders.
|
|
Per
Share
|
|
Total
|
|
|
|
|
|
|
|
Public
offering price
|
|
$
|
|
|
$
|
|
|
Underwriting
discounts and commissions
|
|
$
|
|
|
$
|
|
|
Proceeds,
to us (before expenses)
|
|
$
|
|
|
$
|
|
|
The
underwriter expects to deliver the shares of common stock to purchasers on
or
about _______, 2007.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or passed upon the adequacy or
accuracy of this prospectus. Any representation to the contrary is a criminal
offense.
C.E.
UNTERBERG, TOWBIN
The
date
of this prospectus is ________, 2007.
TABLE
OF CONTENTS
Section
|
|
Page
|
Special
Note Regarding Forward-Looking Information
|
|
ii
|
Prospectus
Summary
|
|
1
|
Risk
Factors
|
|
7
|
Use
of Proceeds
|
|
16
|
Price
Range of Common Stock
|
|
17
|
Dividend
Policy
|
|
17
|
Capitalization
|
|
18
|
Selected
Consolidated Financial Data
|
|
19
|
Selected
Quarterly Consolidated Financial Data
|
|
20
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
21
|
Our
Business
|
|
35
|
Management
|
|
46
|
Executive
Compensation
|
|
49
|
Underwriting
|
|
55
|
Security
Ownership of Certain Beneficial Owners and Management
|
|
57
|
Description
of Securities
|
|
58
|
Legal
Matters
|
|
59
|
Experts
|
|
59
|
Where
You Can Find More Information
|
|
59
|
Glossary
of Industry Terms
|
|
60
|
Index
To Consolidated Financial Statements
|
|
62
|
You
should rely only on the information contained in this prospectus. We have not,
and the underwriter has not, authorized anyone to provide you with information
different from or in addition to that contained in this prospectus. If anyone
provides you with different or inconsistent information, you should not rely
on
it. We are offering to sell, and are seeking offers to buy, shares of common
stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this
prospectus, regardless of the time of delivery of this prospectus or of any
sale
of the common stock. Our business, financial conditions, results of operations
and prospects may have changed since that date.
SPECIAL
NOTE REGARDING FORWARD-LOOKING INFORMATION
The
prospectus and any prospectus supplement contain forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and Section 27A of the Securities Act of 1933, as
amended (the “Securities Act”). Forward-looking statements include those
regarding our goals, beliefs, plans or current expectations and other statements
regarding matters that are not historical facts. For example, when we use words
such as “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,”
“intend,” “should,” “would,” “could,” or “may,” or other words that convey
uncertainty of future events or outcome, we are making forward-looking
statements. Our forward-looking statements are subject to risks and
uncertainties. You should note that many important factors, some of which are
discussed elsewhere in this prospectus, could affect us in the future and could
cause our results to differ materially from those expressed in our
forward-looking
statements. You should read these factors, including the information under
“Risk
Factors”
beginning
on page 7, and the other cautionary statements made in this prospectus as being
applicable to all related forward-looking statements wherever they appear in
this prospectus. Further, forward-looking statements speak only as of the date
they are made, and unless required by law, we expressly disclaim any obligation
or undertaking to update publicly any of them in light of new information or
future events.
PROSPECTUS
SUMMARY
This
summary contains basic information about us and this offering. Because it is
a
summary, it does not contain all of the information that may be important to
you. You should read the entire prospectus carefully, including the section
entitled “Risk Factors” and our consolidated financial statements and the
related notes to those statements included in this prospectus. This prospectus
contains certain forward-looking statements. The cautionary statements made
in
this prospectus should be read as being applicable to all related
forward-looking statements wherever they appear in this prospectus. Our actual
results could differ materially from those discussed in this prospectus. See
“Special Note Regarding Forward-Looking Statements.” Please read “Glossary of
Industry Terms” included in this prospectus for definitions of certain terms
that are commonly used in our industry.
OUR
BUSINESS
We
design
and manufacture customized state-of-the-art equipment used in the development,
design and manufacture of advanced electronic components, materials and coatings
for research and industrial applications. We offer a broad range of chemical
vapor deposition, gas control and other equipment that is used by our customers
to research, design and manufacture semiconductors, solar cells, carbon
nanotubes, nanowires, LEDs and MEMS, and industrial coatings, as well as
equipment for surface mounting of components onto printed circuit boards. Our
proprietary products are generally customized to meet the particular
specifications of individual customers. We also offer a number of standardized
products that are based on the expertise and know how we have developed in
designing and manufacturing our customized products.
Based
on our 25 years of industry experience, we
provide
leading-edge design and manufacturing solutions to our customers.
We
use our engineering, design and manufacturing expertise to provide
technologically advanced equipment that enables laboratory and research
scientists to develop the precise processes for the manufacture of next
generation semiconductors and other electronic components. We also develop
and
manufacture production equipment based on our designs. We have built a
significant library of design expertise, know-how and innovative solutions
to
assist our customers in developing these intricate processes. This library
of
solutions, along with our vertically integrated manufacturing facilities, allows
us to provide superior design and manufacturing solutions to our customers
on a
cost effective basis.
For
the three-year period 2004 through 2006, our revenues increased from $9.9
million to $13.4 million, while our net pretax income increased from $196,000
to
$897,000. We plan to continue building on this growth through our expanded
product offerings, increased marketing efforts, increased foreign sales and
through current and expected product developments in our research laboratory.
In
the fourth quarter of 2006, we began implementing a strategy to target
opportunities in the research and development market, with a focus on
higher-growth applications such as carbon nanotubes, nanowires, MEMS and LEDs.
To expand our penetration into this market, we are introducing a line of
proprietary standardized products and systems initially targeted at this market.
Historically, we have manufactured our products for this market on a custom
one-at-a-time basis to meet our individual customer’s specific research
requirements. Our new proprietary systems leverage the technological expertise
that we have developed through designing these custom systems onto a
standardized basic core. This core can be easily adapted through a broad array
of available add-on options to meet the diverse product and budgetary
requirements of the research community. By manufacturing the basic core of
these
systems in higher volumes, we are able to reduce both the cost and delivery
time
for our systems. These systems, which we market and sell under the “EasyTube”
product line, are sold to researchers at universities and laboratories in the
United States and throughout the world.
We
also intend to continue growing the sales of our proprietary standard and custom
systems by building on the success of our installed customer base of
approximately 200 customers to whom we have sold systems within the last three
years. Our customer base includes several Fortune 500 companies. Historically,
revenues have grown primarily through sales to existing customers with
additional capacity needs or other new requirements, as well as to new
customers. During the year ended December 31, 2006, over 65% of our revenues
were derived from sales to repeat customers. We have generally gained new
customers through word of mouth, the movement of personnel from one company
to
another, and limited print advertising and trade show attendance. We are now
increasing the awareness of our company in the marketplace with results from
our
internal research laboratory, which we established in the third quarter of
2006,
as well as improved sales contacts from increased participation in trade shows.
We are also in the process of implementing a new Internet advertising strategy,
and plan to increase the size of our sales force.
The
core competencies we have developed in equipment and software design, as well
as
in systems manufacturing, are used to engineer our finished products. Our
proprietary Windows-based, real-time, software application allows for rapid
configuration, and provides our customers with powerful tools to understand,
optimize and repeatedly control their processes. Our vertically integrated
structure allows us to control the manufacturing process, from bringing raw
metal and components into our manufacturing facilities to shipping out finished
products. These factors significantly reduce our costs, improve our quality
and
reduce the time it takes from customer order to shipment of our
products.
OUR
COMPETITIVE STRENGTHS
We
believe we are a leader in the markets we serve as a result of the following
competitive strengths:
Technical
Expertise
.
We have
been designing and manufacturing state-of-the-art, innovative and proprietary
standard and custom chemical vapor deposition, gas control and related systems
for 25 years. We maintain a highly trained team of experienced mechanical,
chemical, electrical and software engineers, as well as manufacturing, testing
and support personnel. Our engineering group possesses core competencies in
product applications, software, system controls, chemical vapor deposition,
vacuum systems, ultra-high purity gas and chemical delivery, product heating
and
process chamber design. We believe this expertise enables us to provide high
quality, technically advanced, integrated and innovative solutions to our
customers, many of whom are on the leading edge of technology, research and
production.
Leveraging
our Experience.
We have
significantly enhanced our design and manufacturing expertise over the years
through the process of responding to customer requests for creative and often
unique equipment solutions. The equipment we design and manufacture in response
to these customer requests, and the engineering solutions we devise in doing
so,
remain proprietary to us. We use this equipment and these engineering solutions
to improve existing products, develop new products for other customers and
as
building blocks for our future equipment designs.
Experienced
Management Team
.
We
are
led by a highly experienced management team. Our CEO has over 40 years of
industry experience, including 25 years with our company. Our three division
managers have an average of over 16 years of process and equipment design
experience and an average of 12 years with our company or companies whose assets
we have acquired.
Vertical
Integration
.
We
employ a vertically integrated structure in our operations, from the design
and
manufacture of many of the sophisticated components used in our products, to
the
final assembly of our systems. For example, our machine shop fabricates the
frame, sheet metal and machined components that are incorporated into our
chemical vapor deposition, gas control systems and reflow ovens. We also
manufacture the quartzware utilized in our chemical vapor deposition systems,
as
well as the quartzware we sell for other customer requirements. All painting,
electrical and mechanical assembly and product testing is done by our personnel.
Our software engineers and programmers develop the software that runs our
products. This vertically integrated structure enables us to customize systems
to customer requirements, reduce delivery times of our products, maintain a
high
level of quality control, reduce the effect of supplier disruptions and deliver
a better and lower cost product.
Established
and Diversified Customer Base
.
We
have
long-standing relationships with many of our largest customers. In 2006, over
65% of our revenues resulted from sales to repeat customers. We sell to a
geographically diverse base of customers across a variety of markets, including
leading semiconductor and wafer manufacturers, research laboratories,
universities and industrial manufacturers. In 2006, our largest customer
accounted for approximately 9% of our revenue and in 2005, no single customer
accounted for more than 12% of our revenue. No other customer represented more
than 6.8% or 6.5% of our total revenue in 2005 or 2006, respectively. Our
largest customer was different in each of these years. We believe that our
diverse customer base helps to minimize our exposure to fluctuations in any
one
geographic location or market.
Proven
Acquisition Record
.
Over the
past eight years, we have developed a successful acquisition program designed
to
enhance our core competencies and expand our markets and product offerings.
To
date, we have completed and integrated four acquisitions.
GROWTH
STRATEGY
We
intend
to leverage our competitive strengths with a combination of internal and
external growth strategies.
Internal
Growth
-
Our
strategy for internal growth includes the following:
Expand
our growth opportunities in targeted research and development
markets.
With the
globalization of the world economy and the establishment or expansion of
government and corporate funded research and development laboratories and
university research laboratories around the world, we believe that these markets
will be a growing source of our revenues in the future.
Increase
our revenues from sales of our proprietary standard and custom systems by
leveraging our installed customer base.
We
presently have an installed customer base of approximately 200 customers to
whom
we have sold systems within the last three years. We intend to continue to
leverage our relationships with our existing customers to maximize system,
service and parts revenue from our installed customer base. We intend to
accomplish this by meeting the needs of these customers for new and replacement
systems as well as additional capacity. This will also include equipment and
services needed in connection with customer expansions or relocations throughout
the world.
Increase
sales through expanded trade show participation, Internet advertising and direct
sales contacts.
In
order
to increase sales globally, we intend to increase the number of trade shows
in
which we display our products and services, to increase our advertising presence
on the Internet and to increase the number of our sales personnel. We believe
that a combination of these methods will stimulate awareness of our broad range
of product offerings and capabilities.
Enhance
customer awareness of the results generated by our research laboratory.
Our
research laboratory, together with a number of leading universities with whom
we
partner, conducts cutting-edge research on the growth of carbon nanotubes and
nanowires. The results of this research could have far reaching implications
concerning the use and manufacture of carbon nanotubes and nanowires for many
markets. We intend to communicate the results of our research through trade
shows, research publications and customer visits. By so communicating, we intend
to increase awareness of our products and capabilities.
Partner
with university research laboratories to capitalize on the emerging
nanotechnology opportunity.
The
university research community is at the forefront of nanotechnology research,
and we are focused on providing state-of-the-art systems to this market that
will help bridge the gap between pioneering research and marketable
products. To help accomplish this, we have established relationships with
companies and research laboratories, such as the University of Cincinnati.
Our intention is that together we will leverage our collective expertise in
this
field, which will allow us to capitalize on commercial opportunities in the
future. This relationship has thus far produced leading edge results, including
what we believe are the largest carbon nanotube clusters yet
developed.
Expand
the level of research currently being performed in our research laboratory
for
applications having near-term requirements.
The
research we are performing with carbon nanotubes and nanowires is cutting edge
and, we believe, will enable carbon nanotubes and nanowires to be used in a
myriad of applications in a production environment. While researchers have
envisioned carbon nanotubes and nanowires having applications associated with
technologies and products that have yet to be invented, there are many
significant applications that are expected to be in use in the near future.
For
example, near term applications and uses for carbon nanotubes include: water
purification systems; sporting goods, body and tank armor; hydrogen storage;
sensors for biological and chemical systems; and batteries. According to Dr.
Clayton Teague, the director of the National Nanotechology Coordination Office,
the United States is the world leader in nanotechnology research and development
with a total investment by the federal government of more than $1.0 billion
per
year.
Increase
our paid contract research for nanotechnology applications.
The
federal commitment to nanotechnology research alone is currently in excess
of
$1.0 billion per year. We believe that contract research concerning carbon
nanotubes and nanowires, as well as related semiconductor research for
government, university and industry is a growing market that we can access.
To
accomplish this, we intend to leverage our contacts in this market as well
as
publicize our own laboratory results.
External
Growth -
We
intend
to continue to selectively seek strategic growth opportunities through
acquisitions and joint ventures. In evaluating these opportunities, our prime
objectives include enhancing our core competencies, providing complementary
product offerings and technologies, expanding our geographic footprint,
improving production efficiencies and increasing our customer base. Over the
past eight years, we have developed an acquisition program to accomplish our
goals, and have successfully completed and integrated four
acquisitions.
THE
OFFERING
Common
Stock Offered
|
2,500,000
shares of common stock
|
|
|
Common
Stock Outstanding After the Offering
|
5,803,500
shares of common stock (1)
|
|
|
Use
of Proceeds
|
We
intend to use the net proceeds from the offering for working capital
and
other general corporate purposes, including for possible product
or
business acquisitions in connection with the planned expansion of
our
business.
See
“
Use
of Proceeds
”.
|
|
|
Risk
Factors
|
The
securities offered involve a high degree of risk and immediate substantial
dilution. You should read carefully the factors discussed under
“Risk
Factors”
beginning on page 7 and the other information included in this
prospectus before investing in our securities.
|
|
|
AMEX
Trading Symbol
|
CVV
|
|
|
(1)
The number of shares excludes 280,000 shares of our common stock
issuable
upon exercise of options outstanding, and 335,250 shares of our common
stock available for future grants, under our stock option plans.
Unless
otherwise indicated, all information in this prospectus assumes that
the
underwriter’s overallotment option to purchase up to 375,000 shares of
common stock is not exercised.
|
OUR
CORPORATE INFORMATION
CVD
Equipment Corporation was incorporated in New York in 1982. Our principal
executive offices are located at 1860 Smithtown Avenue, Ronkonkoma, New York
11779. Our telephone number is 631-981-7081 and our principal website address
is
www.cvdequipment.com. The information found on or accessible through our website
is not part of this prospectus.
SUMMARY
CONSOLIDATED FINANCIAL DATA
We
derived the summary consolidated operating data set forth below for the years
ended December 31, 2004, 2005 and 2006 and the summary consolidated balance
sheet data as of December 31, 2005 and 2006 from our audited consolidated
financial statements and related notes thereto included in this prospectus.
We
derived the summary consolidated balance stock data as of December 31, 2004
from
our audited consolidated balance sheet not included in this prospectus.
The summary consolidated operating data for the three months ended March
31, 2006 and 2007 and the summary consolidated balance sheet data as of March
31, 2006 and 2007, have been derived from our unaudited consolidated financial
statements and related notes thereto included in this prospectus. The results
of
operations for the interim periods are not necessarily indicative of the results
to be expected for the full year or any future period.
The
following data should be read in conjunction with “
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
,”
and
our consolidated financial statements and related notes thereto included
elsewhere in this prospectus.
|
|
Year
Ended December 31,
|
|
Three
Months Ended
March
31,
|
|
Consolidated
Statements of Operations Data:
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(In
thousands, except per share data)
|
|
Revenues
|
|
$
|
9,874
|
|
$
|
11,225
|
|
$
|
13,356
|
|
$
|
3,211
|
|
$
|
3,811
|
|
Cost
of revenue
|
|
|
6,549
|
|
|
7,356
|
|
|
8,672
|
|
|
2,141
|
|
|
2,555
|
|
Operating
expenses
|
|
|
2,943
|
|
|
3,247
|
|
|
3,681
|
|
|
915
|
|
|
1,052
|
|
General
and administrative
|
|
|
2,252
|
|
|
2,531
|
|
|
2,925
|
|
|
718
|
|
|
773
|
|
Research
and development
|
|
|
410
|
|
|
500
|
|
|
513
|
|
|
130
|
|
|
175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
382
|
|
|
623
|
|
|
1,003
|
|
|
155
|
|
|
204
|
|
Net
income
|
|
|
71
|
|
|
391
|
|
|
604
|
|
|
113
|
|
|
96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
0.02
|
|
|
0.13
|
|
|
0.19
|
|
|
0.04
|
|
|
0.03
|
|
Diluted
|
|
|
0.02
|
|
|
0.12
|
|
|
0.19
|
|
|
0.03
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,039
|
|
|
3,098
|
|
|
3,169
|
|
|
3,133
|
|
|
3,285
|
|
Diluted
|
|
|
3,053
|
|
|
3,220
|
|
|
3,264
|
|
|
3,302
|
|
|
3,414
|
|
|
|
At
December 31,
|
|
At
March 31,
|
|
Balance
Sheet Data:
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
(In
thousands)
|
|
Cash
and cash equivalents
|
|
$
|
171
|
|
$
|
265
|
|
$
|
257
|
|
$
|
229
|
|
$
|
73
|
|
Working
capital
|
|
|
2,878
|
|
|
3,123
|
|
|
4,151
|
|
|
3,320
|
|
|
4,305
|
|
Total
assets
|
|
|
11,553
|
|
|
10,910
|
|
|
12,918
|
|
|
11,787
|
|
|
12,885
|
|
Total
current liabilities
|
|
|
2,713
|
|
|
1,748
|
|
|
2,274
|
|
|
2,426
|
|
|
1,985
|
|
Long-term
obligations
|
|
|
3,141
|
|
|
2,923
|
|
|
2,777
|
|
|
2,942
|
|
|
2,844
|
|
Total
shareholders’ equity
|
|
$
|
5,699
|
|
$
|
6,238
|
|
$
|
7,200
|
|
$
|
6,419
|
|
$
|
7,422
|
|
RISK
FACTORS
This
offering and an investment in our securities involves a high degree of risk.
You
should carefully consider the risks described below and the other information
in
this prospectus, including our consolidated financial statements and the related
notes thereto included in those statements, as well as our filings with the
Securities and Exchange Commission under the Exchange Act, before you purchase
any of our common stock. The risks and uncertainties described below are not
the
only ones we face. Additional risks and uncertainties not presently known to
us,
or that we currently deem immaterial, could negatively impact our business,
results of operations or financial condition in the future. If any of the
following risks and uncertainties develops into actual events, our business,
results of operations of financial condition could be adversely affected. In
those cases, the trading price of our securities could decline, and you may
lose
all or part of your investment.
Risks
Related to our Business and Industry
If
demand declines for chemical vapor deposition, gas control and related
equipment, or for carbon nanotube and nanowire deposition systems, our financial
position and results of operations could be materially adversely
affected.
Our
products are utilized in the research, development and production of
semiconductors and other electronic components such as solar cells, LEDs, carbon
nanotubes and nanowires and MEMS, and equipment for surface mounting of
components on to printed circut boards. They are also used to reflow solder
on
printed circuit boards. Revenue from sales of our equipment used for research
relating to, and manufacturing of, semiconductor and other electronic components
was approximately 74% of our consolidated revenue in the year ended December
31,
2006, and is derived primarily from sales of customized chemical vapor
deposition equipment, gas control systems, process equipment suitable for the
synthesis of a variety of one-dimensional nanostructures and nanomaterials.
A
significant part of our growth strategy involves continued expansion of the
sales of our products for research and development purposes by companies,
university and government-funded research laboratories, as well as for
production purposes. The availability of funds for these purposes may be subject
to budgetary and political restrictions, as well as cost-cutting measures by
manufacturers in the semiconductor and electronics industry.
If
the
availability of funds for research and development or the demand for capital
equipment in the semiconductor and electronics industry declines, the demand
for
our products would also decline and our financial position and results of
operations could be harmed.
The
ongoing volatility of the semiconductor and electronics industry may negatively
impact our business and results of operations and our corresponding ability
to
efficiently budget our expenses.
The
semiconductor and electronics industry is highly cyclical. The demand for our
products and the profitability of our products can change significantly from
period to period as a result of numerous factors, including, but not limited
to,
changes in:
|
·
|
the
availability of funds for research and
development;
|
|
·
|
global
and regional economic conditions;
|
|
·
|
governmental
budgetary and political
constraints;
|
|
·
|
changes
in the capacity utilization and production volume of manufacturers
of
semiconductors, silicon wafers, solar cells, LEDS surface mount technology
and MEMS;
|
|
·
|
the
profitability and capital resources of semiconductor and electronics
manufacturers; and
|
For
these
and other reasons, our results of operations for past periods may not
necessarily be indicative of future operating results.
Volatile
demand for our products may make it difficult for us to accurately budget our
expense levels, which are based in part on our projections of future
revenues.
Demand
for semiconductor and electronic manufacturing equipment and related consumable
products may be volatile as a result of sudden changes in supply and demand,
and
other factors in the manufacturing processes. Our orders tend to be more
volatile than our revenue, as any change in demand is reflected immediately
in
orders booked, which are net of cancellations, while revenue tends to be
recognized over multiple quarters as a result of procurement and production
lead
times, and the deferral of certain revenue under our revenue recognition
policies. The fiscal period in which we are able to recognize revenue is
also at times subject to the length of time that our customers require to
evaluate the performance of our equipment. This could cause our quarterly
operating results to fluctuate.
When
cyclical fluctuations result in lower than expected revenue levels, operating
results may be adversely affected and cost reduction measures may be necessary
in order for us to remain competitive and financially sound. During a down
cycle, we must be able to make timely adjustments to our cost and expense
structure to correspond to the prevailing market conditions. In addition,
during periods of rapid growth, we must be able to increase manufacturing
capacity and the number of our personnel to meet customer demand, which may
require additional liquidity. We can provide no assurance, that these
objectives can be met in a timely manner in response to changes within the
semiconductor and electronics industry cycles. If we fail to respond to
these cyclical changes, our business could be seriously harmed.
During
the most recent down cycle in the semiconductor and electronics industry in
2001, this industry experienced a significant decrease in capital
spending. We do not have long-term volume production contracts with our
customers, and we do not control the timing or volume of orders placed by our
customers. Whether and to what extent our customers place orders for any
specific products, and the mix and quantities of products included in those
orders are factors beyond our control. Insufficient orders would result in
under-utilization of our manufacturing facilities and infrastructure, and will
negatively affect our financial position and results of operations.
The
semiconductor and electronics processing equipment industry is competitive
and
we are relatively small in size and have fewer resources in comparison with
many
of our competitors
.
The
semiconductor and electronics processing equipment industry includes large
manufacturers with substantial financial, marketing and other resources to
develop new products and to support customers worldwide. Our future
performance depends, in part, upon our ability to continue to compete
successfully worldwide. Some of our competitors are diversified companies
that have substantially greater financial resources and more extensive research,
engineering, manufacturing, marketing and customer service and support
capabilities than we can provide. We face competition from companies whose
strategy is to provide a broad array of products, some of which compete with
the
products and services that we offer, as well as companies, universities and
research laboratories that have the capacity to design and build their own
equipment internally. These competitors may bundle their products and services
in a manner that may discourage customers from purchasing our products. In
addition, we face competition from smaller emerging semiconductor and
electronics processing equipment companies, whose strategy is to provide a
portion of the products and services that we offer at often lower prices than
ours, using innovative technology to sell products into specialized
markets. Loss of competitive position could impair our prices, customer
orders, revenue, gross margin and market share, any of which would negatively
affect our financial position and results of operations. Our failure to
compete successfully with these other companies would seriously harm our
business. There is a risk that larger, better-financed competitors will
develop and market more advanced products than those we currently offer, or
that
competitors with greater financial resources may decrease prices, thereby
putting us under financial pressure.
The
health and environmental effects of nanotechnology are unknown, and this
uncertainty could adversely affect the expansion of our
business.
The
health effects of nanotechnology are unknown. There is no scientific agreement
on the health effects of nanomaterials in general and carbon nanotubes, in
particular, but some scientists believe that in some cases, nanomaterials may
be
hazardous to an individual’s health or to the environment. The science of
nanotechnology is based on arranging atoms in such a way as to modify or build
materials not made in nature; therefore, the effects are unknown. Future
research into the effects of nanomaterials in general, and carbon nanotubes
in
particular, on health and environmental issues, may have an adverse effect
on
products incorporating nanotechnology. Since part of our growth strategy is
based on sales of research equipment for the production of carbon nanotubes
and
the sale of such materials, the determination that these materials are harmful
could adversely affect the expansion of our business.
Risks
Related to Our Company
We
may experience increasing price pressure.
Our
historical business strategy for many of our products has focused on product
performance and customer service rather than on price. As a result of budgetary
constraints, many of our customers are extremely price sensitive when purchasing
of capital equipment. In addition, in our Conceptronic/Research division, we
may
face increased pricing pressure on our standardized products from competitors
who have or are moving their manufacturing facilities to Asia. If we are unable
to realize prices that allow us to continue to compete on the basis of product
performance and customer service, our profit margins will be reduced.
We
may not be able to keep pace with the rapid change in the technology we use
in
our products.
We
believe that our continued success in the semiconductor and electronics
processing equipment industry depends, in part, on our ability to continually
improve existing technologies and to develop and manufacture new products and
product enhancements on a timely and cost-effective basis. We must be able
to
introduce these products and product enhancements into the market in a timely
manner, in response to customers’ demands for higher-performance research and
assembly equipment, customized to address rapid technological advances in
capital equipment designs.
Technological
innovations are inherently complex, and require long development cycles and
appropriate professional staffing. Our future business success depends on
our ability to develop and introduce new products (such as our Easy Tube product
line sold by our CVD/First Nano division), or new uses for existing products,
that successfully address changing customer needs. Our success also depends
on
our ability to achieve market acceptance of our new products. In order to
maintain our success in the marketplace, we may have to substantially increase
our expenditures on research and development. If we do not develop and introduce
new products, technologies or uses for existing products in a timely manner
and
continually find ways to reduce the cost of developing and producing them in
response to changing market conditions or customer requirements, our business
could be seriously harmed.
If
any of our customers cancel or fail to accept a large system order, our
financial position and results of operations could be materially and adversely
affected.
Our
backlog, which largely consists of orders for large customized systems that
include our chemical vapor deposition equipment and annealing and diffusion
furnaces, which are built to client specifications, can have system prices
of up
to approximately $1.0 million depending on the system configuration, specific
options included and any special requirements of the customer. Because all
of our backlogged orders are subject to cancellation or delay by the customer,
our backlog at any particular point in time is not necessarily representative
of
actual sales for succeeding periods, nor does our backlog provide any assurance
that we will realize a profit from completing these orders. Our financial
position and results of operations could be materially and adversely affected
should any large system order be cancelled prior to shipment, or not be accepted
by the customer due to non-conformity with product specifications or otherwise.
Likewise, a significant change in the liquidity or financial position of any
of
our customers that purchase large systems, could have a material impact on
the
collectibility of our accounts receivable and our future operating
results. Our backlog does not provide any assurance that we will realize a
profit from those orders, or indicate in which period revenue will be
recognized.
Our
success is highly dependent on the technical, sales, marketing and managerial
contributions of key individuals, including Leonard A. Rosenbaum, Chairman
of
the Board of Directors, Chief Executive Officer and President, and we may be
unable to retain these individuals or recruit others.
We
depend
on our senior executives, including Leonard A. Rosenbaum, our Chairman of the
Board of Directors, Chief Executive Officer and President, and certain key
managers as well as, engineering, research and development, sales, marketing
and
manufacturing personnel, who are critical to our business. We do not have
long-term employment agreements with our key employees. We presently have three
separate key person life insurance policies on the life of Leonard A. Rosenbaum,
for a total insured amount of $9 million, which may not be sufficient to cover
our loss of Mr. Rosenbaum’s services. Furthermore, larger competitors may be
able to offer more generous compensation packages to our executives and key
employees, and therefore we risk losing key personnel to those competitors.
If
we were to lose the services of any of our key personnel, our engineering,
product development, manufacturing and sales efforts could be slowed. We may
also incur increased operating expenses, and be required to divert the attention
of our senior executives to search for their replacements. The integration
of
any new personnel could disrupt our ongoing operations.
We
may not be able to hire or retain the number of qualified personnel,
particularly engineering personnel, required for our business, which would
harm
the development and sales of our products and limit our ability to grow.
Competition
in our industry for senior management, technical, sales, marketing and other
key
personnel is intense. If we are unable to retain our existing personnel, or
attract and train additional qualified personnel, our growth may be limited
due
to a lack of capacity to develop and market our products.
In
particular, we have, from time to time, experienced difficulty in hiring and
retaining skilled engineers with appropriate qualifications to support our
growth strategy. Our success depends on our ability to identify, hire, train
and
retain qualified engineering personnel with experience in equipment design.
Specifically, we need to continue to attract and retain mechanical, electrical,
software and field service engineers to work with our direct sales force to
technically qualify and perform on new sales opportunities and orders, and
to
demonstrate our products.
The
substantial lead-time required for ordering parts and materials may lead to
inventory problems.
The
lead-time for ordering parts and materials for some of our products can be
many
months. As a result, we must order some components based on forecasted demand.
If demand for our products lags significantly behind our forecasts, we may
order
more components than we require, which would result in cash flow problems as
well as excess or obsolete inventory.
Acquisitions
can result in an increase in our operating costs, divert management’s attention
away from other operational matters and expose us to other associated
risks.
We
continually evaluate potential acquisitions of businesses and technologies,
and
we consider targeted acquisitions that expand our core competencies to be an
important part of our future growth strategy. In the past, we have made
acquisitions of other businesses with synergistic products, services and
technologies, and plan to continue to do so in the future. An example of
this is our recent acquisition of the assets of First Nano, Inc. Acquisitions
involve numerous risks, which include but are not limited to:
|
·
|
difficulties
and increased costs in connection with the integration of the personnel,
operations, technologies and products of the acquired companies into
our
existing facilities and operations;
|
|
·
|
diversion
of management’s attention from other operational
matters;
|
|
·
|
failure
to commercialize the acquired
technology;
|
|
·
|
the
potential loss of key employees of the acquired
companies;
|
|
·
|
lack
of synergy, or inability to realize expected synergies, resulting
from the
acquisition;
|
|
·
|
the
risk that the issuance of our common stock, if any, in an acquisition
or
merger could be dilutive to our
shareholders;
|
|
·
|
the
inability to obtain and protect intellectual property rights in key
technologies; and
|
|
·
|
the
acquired assets becoming impaired as a result of technological
advancements or worse-than-expected performance of the acquired
assets.
|
Our
financial position and results of operations may be materially harmed if we
are
unable to recoup our investment in research and
development.
The
rapid
change in technology in our industry requires that we continue to make
substantial investments in research and development and selective acquisitions
of technologies and products, in order to enhance the performance and
functionality of our product line, to keep pace with competitive products and
to
satisfy customer demands for improved performance, features and
functionality. These efforts include those related to the development of
technology for the commercialization of carbon nanotubes. There can be no
assurance that revenue from future products or enhancements will be sufficient
to recover the development costs associated with such products, enhancements
or
acquisitions, or that we will be able to secure the financial resources
necessary to fund future research and development or acquisitions.
Research and development costs are typically incurred before we confirm the
technical feasibility and commercial viability of a product, and not all
development activities result in commercially viable products. In
addition, we cannot ensure that products or enhancements will receive market
acceptance, or that we will be able to sell these products at prices that are
favorable to us. Our business could be seriously harmed if we are unable
to sell our products at favorable prices, or if our products are not accepted
by
the markets in which we operate.
If
third parties violate our proprietary rights, in which we have made significant
investments, or accuse us of infringing upon their proprietary rights, such
events could result in a loss of value of some of our intellectual property
or
costly litigation.
Our
success is dependent in part on our technology and other proprietary
rights. We believe that while patents can be useful and may be utilized by
us in the future, they are not always necessary or feasible to protect our
intellectual property. The process of seeking patent protection is lengthy
and
expensive, and we cannot be certain that applications will actually result
in
issued patents or that issued patents will be of sufficient scope or strength
to
provide meaningful protection or commercial advantage to us. Instead, we
have historically protected our proprietary information and intellectual
property such as design specifications, blueprints, technical processes and
employee know-how, by limiting access to this confidential information and
trade
secrets and through the use of non-disclosure agreements. Other companies and
individuals, including our larger competitors, may develop technologies that
are
similar or superior to our technology, or design around the intellectual
property that we own or license. Our failure to adequately protect our
intellectual property, could result in the reduction or extinguishment of our
rights to such intellectual property. We also assert rights to certain
trademarks relating to certain of our products and product lines. We have not
filed trademark applications to protect such marks with any governmental agency,
including, but not limited to the U.S. Patent and Trademark Office. We claim
copyright protection for certain proprietary software and documentation, but
we
have not filed any copyright applications with the U.S. Copyright Office in
connection with those works. As a result, we can give no assurance that
our trademarks and copyrights will be upheld or successfully deter infringement
by third parties.
While
patent, copyright and trademark protection for our intellectual property may
be
important, we believe our future success in highly dynamic markets is most
dependent upon the technical competence and creative skills of our
personnel. We attempt to protect our trade secrets and other proprietary
information through confidentiality agreements with our customers, suppliers,
employees and consultants, and through other internal security measures.
However, these employees, consultants and third parties may breach these
agreements, and we may not have adequate remedies for wrongdoing. In
addition, the laws of certain territories in which we sell our products may
not
protect our intellectual property rights to the same extent as do the laws
of
the United States.
Occasionally,
we may receive communications from other parties asserting the existence of
patent rights or other intellectual property rights that they believe cover
certain of our products, processes, technologies or information. If such
cases arise, we will evaluate our position and consider the available
alternatives, which may include seeking licenses to use the technology in
question on commercially reasonable terms, or defending our position.
Nevertheless, we cannot ensure that we will be able to obtain licenses, or
if we
are able to obtain licenses, that such licenses will be on acceptable terms,
or
that litigation or other administrative proceedings will not occur.
Defending our intellectual property rights through litigation could be very
costly. If we are not able to negotiate the necessary licenses on
commercially reasonable terms or successfully defend our position, our financial
position and results of operations could be materially and adversely
affected.
Our
reputation and operating performance may be negatively affected if our products
are not timely delivered.
We
provide complex products that often require substantial lead-time for design,
ordering parts and materials, and for assembly and installation. The time
required to design, order parts and materials and to manufacture, assemble
and
install our products, may in turn lead to delays or shortages in the
availability of some products. If a product is delayed or is the subject of
shortage because of problems with our ability to design, manufacture or assemble
the product on a timely basis, or if a product or software otherwise fails
to
meet performance criteria, we may lose revenue opportunities entirely, or
experience delays in revenue recognition associated with a product or service.
In addition, we may incur higher operating expenses during the period required
to correct the problem.
Our
lengthy and variable sales cycle may make it difficult to predict our financial
results.
The
marketing, sale and manufacture of our products, often requires a lengthy sales
cycle ranging from several months to over one year before we can complete
production and delivery. The lengthy sales cycle makes forecasting the volume
and timing of sales difficult, and raises additional risks that customers may
cancel or decide not to enter into contracts. The length of the sales cycle
depends on the size and complexity of the project, the customer’s in-depth
evaluation of our products. and, in some cases, the protractedness of a bidding
process. Because a significant portion of our operating expenses are fixed,
we
may incur substantial expense before we earn associated revenue. If customer
cancellations occur, they could result in the loss of anticipated sales without
allowing us sufficient time to reduce our operating expenses.
We
anticipate continued growth in our revenues and operations during the next
few
years. If we fail to manage our growth effectively, we may experience difficulty
in filling customer orders, declining product quality, increased costs or other
operating challenges.
We
anticipate that continued growth of our operations will be required to satisfy
our projected increase in demand for our products and to avail ourselves of
new
market opportunities. The expanding scope of our business and the growth in
the
number of our employees, customers and products have placed and will continue
to
place a significant strain on our management, information technology systems,
manufacturing facilities and other resources. To properly manage our growth,
we
may need to hire additional employees, upgrade our existing financial and
reporting systems and improve our business processes and controls. We may also
be required to expand our manufacturing facilities or add new manufacturing
facilities. Failure to effectively manage our growth could make it difficult
to
manufacture our products and fill orders, as well as lead to declines in product
quality or increased costs; any of these would adversely impact our business
and
results of operations.
Historically,
we have only manufactured in unit or small batch quantities. If we receive
orders for a large number of our systems, we may not have the internal
manufacturing capacity to fill these orders on a timely basis, if at all, and
may be forced to subcontract or outsource some of the fabrication of these
systems to third parties. We cannot assure you that we will be able to
successfully subcontract or outsource the fabrication of our systems at a
reasonable cost to us, or that such third parties will adhere to our quality
control standards.
Our
business might be adversely affected by our dependence on foreign
business.
During
the year ended December 31, 2006, 31% of our revenues came from foreign exports
as compared with 29% for the year ended December 31, 2005.
Because
a
significant amount of our revenues are derived from international customers,
our
operating results could be negatively affected by a decline in the economies
of
any of the countries or regions in which we do business. Each region in
the global semiconductor and electronics equipment market exhibits unique
characteristics, which can cause capital equipment investment patterns to vary
significantly from period to period. Periodic local or international
economic downturns, trade balance issues and political instability, as well
as
fluctuations in interest and currency exchange rates, could negatively affect
our business and results of operations.
All
of
our sales historically have been priced in U.S. dollars. While our business
has
not been materially affected in the past by currency fluctuations, there is
a
risk that it may be materially adversely affected in the future. Such
risks includes possible losses due to both currency exchange rate fluctuations
and from possible social and political instability.
Failure
to comply with the United States Foreign Corrupt Practices Act could subject
us
to penalties and other adverse consequences.
We
are
subject to the United States Foreign Corrupt Practices Act, which generally
prohibits United States companies from engaging in bribery or other prohibited
payments to foreign officials for the purpose of obtaining or retaining
business. We have agreements with third parties and make sales in countries
known to experience corruption, extortion, bribery, pay-offs, theft and other
fraudulent practices. We can make no assurance, however, that our employees
or
other agents will not engage in such conduct for which we might be held
responsible. If our employees or other agents are found to have engaged in
such
practices, we could suffer severe penalties and other consequences that may
have
a material adverse effect on our business, financial condition and results
of
operations.
If
our critical suppliers fail to deliver sufficient quantities of quality
materials and components in a timely and cost-effective manner, it could
negatively affect our business.
We
do not
manufacture many components used in the production of our products, and
consequently, we use numerous unrelated suppliers of materials and
components. We generally do not have guaranteed supply arrangements with
our suppliers. Because of the variability and uniqueness of our customer’s
orders, we try to avoid maintaining an extensive inventory of materials and
components for manufacturing. While we are not dependent on any principal or
major supplier for most of our material and component needs, switching over
to
an alternative supplier may take significant amounts of time and added expense,
which could result in a disruption of our operations and adversely affect our
business.
It
is not
always practical or even possible to ensure that component parts are available
from multiple suppliers; accordingly, we procure some key parts from a single
supplier or a limited group of suppliers. During the semiconductor and
electronics market peak years, increases in demand for capital equipment
resulted in longer lead-times for many important system components, which caused
delays in meeting shipments to our customers. The delay in the shipment of
even a few systems could cause significant variations in our quarterly revenue,
operating results and the market value of our common stock.
We
cannot
assure you that our financial position and results of operations will not be
materially and adversely affected if, in the future, we do not receive in a
timely and cost-effective manner a sufficient quantity of quality component
parts and materials to meet our production requirements.
We
might require additional financing to expand our
operations.
We
may
require additional financing to further implement our growth plans. We
cannot assure you any additional financing will be available if and when
required, or, even if available, that it would not materially dilute the
ownership percentage of the then existing shareholders.
Cost
of compliance with Section 404 of the Sarbanes-Oxley Act could adversely affect
future operating results, the trading price of our common stock and failure
to
comply could result in loss of our stock market listing, civil penalties and
other liabilities.
Section
404 of the Sarbanes-Oxley Act requires management to certify that it has tested
and found the company’s internal controls to be effective. It is also
required that the company’s independent auditors attest that such management
representations are reasonably founded. The adequacy of internal controls
generally takes into consideration that the anticipated benefits of a control
should outweigh the cost of that control. Auditing standards related to
the internal control requirements of Section 404 of the Sarbanes Oxley Act
will
significantly increase the cost and time needed to comply with the requirements
of Section 404. Based upon the existing deadlines, we must fully comply
with all requirements of Section 404 (including provision of an auditor’s
attestation report), for our year ending December 31, 2008. Complying with
these requirements is very complex, costly and time consuming and, if we are
required to comply under the existing regulations, will have a material impact
on our operating results. Failure to comply could result in civil
penalties, loss of our listing on AMEX, and the imposition of possible
litigation.
We
face the risk of product liability claims.
The
manufacture and sale of our products, which in operation may involve the use
of
toxic materials and extreme temperatures, involve the risk of product liability
claims. For example, our rapid thermal processing systems are used to heat
semiconductor materials to temperatures in excess of 1000º Celsius. In addition,
a failure of one of our products at a customer site could interrupt the business
operations of our customer. Our existing insurance coverage limits may not
be
adequate to protect us from all liabilities that we might incur in connection
with the manufacture and sale of our products if a successful product liability
claim or series of product liability claims were brought against us.
We
are subject to environmental regulations, and our inability or failure to comply
with these regulations could adversely affect our
business.
We
are
subject to environmental regulations in connection with our business operations,
including regulations related to the development and manufacture of our products
and our customers’ use of our products. Our failure or inability to comply with
existing or future environmental regulations could result in significant
remediation liabilities, the imposition of fines or the suspension or
termination of development, manufacturing or use of certain of our products,
or
affect the operation of our facilities, use or value of our real property,
each
of which could damage our financial position and results of
operations.
Risks
Related to the Securities Offered Pursuant to this
Prospectus
Our
officers and directors may be able to block proposals for a change in control.
Leonard
A. Rosenbaum, our founder, President and Chief Executive Officer and a director,
beneficially owns approximately 40.5% of our outstanding common stock, 23.2%
after this offering, assuming no exercise of the overallotment option, and
our
officers and directors as a group beneficially own approximately 48.1% of our
outstanding common stock, 27.9% after this offering, assuming no exercise of
the
overallotment option, as of the date of this prospectus. Due to this
concentration of ownership, Mr. Rosenbaum may be able to prevail on all matters
requiring a shareholder vote, including:
|
·
|
the
election of directors;
|
|
·
|
the
amendment of our organizational documents;
or
|
|
·
|
the
approval of a merger, sale of assets or other major corporate
transaction.
|
We
do not intend to pay dividends on our common stock. You will realize a return
on
your investment only if our stock price appreciates and you
sell.
Our
policy is to retain earnings to provide funds for the operation and expansion
of
our business. We have never paid cash dividends on our common stock and do
not
anticipate that we will do so in the foreseeable future. The payment of
dividends in the future will depend on our growth, profitability, financial
condition and other factors that our Board of Directors may deem
relevant.
Because
our common stock has low trading volume and its public trading price has been
volatile, you may only be able to resell shares of our common stock at a loss.
During
the year ended December 31, 2006, the sale price of our common stock fluctuated
between $2.25 and $7.13 per share, with an average monthly trading volume during
such period of approximately 350,000 shares, ranging from a low of 49,400 shares
in March 2006 to 1,762,900 in December 2006. In addition to general market
volatility, many factors may have significant adverse effects on the market
price of our stock, including:
|
·
|
actual
or anticipated variations in quarterly operating
results;
|
|
·
|
changes
in financial estimates by securities analysts;
|
|
·
|
announcements
of significant acquisitions, strategic partnerships, joint ventures
or
capital commitments by us or our competitors;
|
|
·
|
issuance
of debt or equity securities;
|
|
·
|
new
products or services offered by us or our competitors;
and
|
|
·
|
other
events or factors, many of which are beyond our
control.
|
Broad
market and industry factors may negatively affect the market price of our common
stock, regardless of our actual operating performance. In the past, following
a
period of volatility in the market price of a company’s securities, securities
class action litigation has often been instituted against such companies. This
type of litigation, if instituted, could result in substantial costs and a
diversion of management’s attention and resources, which would harm our
business.
Shares
eligible for sale in the future could negatively effect our stock
price.
The
market price of our common stock could decline as a result of sales of a large
number of shares of our common stock, including sales of shares as a result
of
this offering, or the perception that these sales may occur. Leonard A.
Rosenbaum, our Chairman of the Board, President, and Chief Executive Officer,
beneficially owns approximately 40.5% of our outstanding common stock, prior
to
this offering. In the event Mr. Rosenbaum elects to sell a significant number
of
these shares on the open market following expiration of his lock-up agreement,
our stock price could be negatively affected. This may also make it more
difficult to raise funds through the issuance of debt or the sale of equity
securities.
Our
management will have broad discretion as to the use of proceeds from this
offering, and might not apply the proceeds in ways that increase the value
of
your investment.
Our
management will have broad discretion to use the net proceeds from this
offering, and you will be relying on the judgment of our management regarding
the application of these proceeds. We might not apply the net proceeds of this
offering in ways that you agree, or in ways that increase the value of your
investment. We expect to use the proceeds of this offering for general corporate
purposes and working capital, research and development and possible future
acquisition. See
“Use
of Proceeds”.
We have
not allocated these net proceeds for any specific purposes. Our management
might
not be able to yield a significant return, if any, on any investment of these
proceeds.
USE
OF PROCEEDS
In
this
offering, we estimate that the net proceeds to us from the sale of shares of
our
common stock will be approximately $_______, assuming a public offering price
of
$____ per share (the last reported sale price of our common stock on the AMEX
on
_____, 2007) and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us.
The
net
proceeds will be used for general corporate purposes. We will have broad
discretion as to the use of these proceeds and may apply them to product
development efforts, acquisitions or strategic alliances. We have no definitive
agreements with respect to future acquisitions or future strategic alliances
and
have no commitments with respect to these net proceeds.
We
will
not receive any of the proceeds from the sale of common stock, if any, by the
selling shareholders upon the exercise of the underwriter’s overallotment
option.
PRICE
RANGE OF COMMON STOCK
Our
common stock is traded on the American Stock Exchange (“AMEX”) under the symbol
CVV. The following table sets forth, for the periods indicated, the high and
low
closing prices per share of the common stock as reported on the
AMEX.
|
|
High
|
|
Low
|
|
Fiscal
Year 2005
|
|
|
|
|
|
|
|
First
Quarter ended March 31, 2005
|
|
$
|
5.25
|
|
$
|
0.91
|
|
Second
Quarter ended June 30, 2005
|
|
|
6.51
|
|
|
2.04
|
|
Third
Quarter ended September 30, 2005
|
|
|
4.30
|
|
|
1.90
|
|
Fourth
Quarter ended December 31, 2005
|
|
|
4.60
|
|
|
2.72
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2006
|
|
|
|
|
|
|
|
First
Quarter ended March 31, 2006
|
|
|
4.21
|
|
|
2.80
|
|
Second
Quarter ended June 30, 2006
|
|
|
4.22
|
|
|
2.80
|
|
Third
Quarter ended September 30, 2006
|
|
|
3.69
|
|
|
2.25
|
|
Fourth
Quarter ended December 31, 2006
|
|
|
7.13
|
|
|
3.09
|
|
|
|
|
|
|
|
|
|
Fiscal
Year 2007
|
|
|
|
|
|
|
|
First
Quarter ended March 31, 2007
|
|
|
6.21
|
|
|
4.90
|
|
Second
Quarter ended June 30, 2007
|
|
|
8.95
|
|
|
5.25
|
|
On
July
2, 2007, the last sale price of our common stock reported on the AMEX was $5.30
per share. As of July 2, 2007, we had approximately 76 holders of record of
our common stock.
DIVIDEND
POLICY
We
have
never paid dividends on our common stock and currently intend to retain any
future earnings for use in our business. There can be no assurance that we
will
ever pay dividends on our common stock. Our dividend policy with respect to
our
common stock is within the discretion of our Board of Directors, and its policy
with respect to dividends in the future will depend on numerous factors
including earnings, cash balances, financial requirements and general business
conditions.
CAPITALIZATION
The
following table sets forth our capitalization as of March 31, 2007. Our
capitalization is presented on an historical basis and on an as-adjusted basis
to give effect to the sale of 2,500,000 shares of common stock, based on an
assumed public offering price of _____ per share, as if the offering has been
completed as of March 31, 2007 and assuming:
|
·
|
the
net proceeds of the offering are $____ million, after deducting the
estimated underwriting discounts and commissions and estimated offering
expenses of $____; and
|
|
·
|
the
application of the net proceeds of this offering to the uses described
in
“Use
of Proceeds.”
|
The
following data should be read together with our consolidated financial
statements and the related notes thereto included elsewhere in this
prospectus.
|
|
March
31, 2007
(unaudited)
|
|
|
|
Actual
|
|
As
Adjusted
|
|
|
|
(Dollar
amounts in thousands,
except
per share data)
|
|
|
|
|
|
Long-Term
Debt, net of current portion
|
|
$
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
Common
stock, par value $0.01 per share, 10,000,000 shares authorized, 3,303,500
shares issued and outstanding
|
|
|
33
|
|
|
|
|
Preferred
stock, par value $0.01 per share; 500 shares Class A Preferred stock
authorized, no shares issued and outstanding; 250 shares Class B
Preferred
Stock authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
3,531
|
|
|
|
|
Retained
earnings
|
|
|
3,858
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
7,422
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
value per common share
|
|
|
2.25
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
book value per common share (2)
|
|
|
2.17
|
|
|
|
|
|
(1)
|
Includes
total shareholders’ equity and long-term
indebtedness.
|
|
(2)
|
Includes
options, the exercise prices of which were below the market price
of the
common stock as of March 31, 2007.
|
SELECTED
CONSOLIDATED FINANCIAL DATA
We
derived the consolidated operating data for the years ended December 31, 2002,
2003, 2004, 2005 and 2006 and the consolidated balance sheet data as of December
31, 2002, 2003, 2004, 2005 and 2006 from our audited consolidated financial
statements. The selected consolidated operating data for the years ended
December 31, 2004, 2005 and 2006 and the selected consolidated balance sheet
data as of December 31, 2005 and 2006 are derived from our audited
consolidated financial statements that appear elsewhere in this prospectus.
The
selected consolidated operating data for the years ended December 31, 2002
and
2003 and the selected consolidated balance sheet data as of December 31, 2002,
2003 and 2004, are derived from our audited financial statements not
incorporated into this prospectus. The selected consolidated operating data
as
and for the three months ended March 31, 2006 and 2007 and the selected
consolidated balance sheet data as of March 31, 2006 and 2007 are derived from
our unaudited financial statements which appear elsewhere in this prospectus.
Our historical results are not necessarily indicative of our results for any
future period.
The
following selected consolidated financial data should be read in conjunction
with the section of this prospectus entitled
“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
,”
and
our consolidated financial statements (including the related notes thereto)
included elsewhere in this prospectus.
|
|
Years
Ended December 31,
|
|
Three
Months Ended
March
31,
(Unaudited)
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
|
|
(In
thousands, except percentages and per share data)
|
|
|
|
|
|
Operating
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,242
|
|
$
|
9,788
|
|
$
|
9,874
|
|
$
|
11,225
|
|
$
|
13,356
|
|
$
|
3,211
|
|
$
|
3,811
|
|
Gross
profit
|
|
|
3,037
|
|
|
2,304
|
|
|
3,325
|
|
|
3,870
|
|
|
4,684
|
|
|
1,070
|
|
|
1,256
|
|
Gross
profit %
|
|
|
32.9
|
%
|
|
23.5
|
%
|
|
33.7
|
%
|
|
34.5
|
%
|
|
35.1
|
%
|
|
33.3
|
%
|
|
33.0
|
%
|
Operating
expenses
|
|
|
3,370
|
|
|
2,904
|
|
|
2,943
|
|
|
3,247
|
|
|
3,681
|
|
|
915
|
|
|
1,052
|
|
Operating
income (loss)
|
|
|
(334
|
)
|
|
(601
|
)
|
|
382
|
|
|
623
|
|
|
1,003
|
|
|
155
|
|
|
204
|
|
Other
income
|
|
|
544
|
|
|
310
|
|
|
26
|
|
|
51
|
|
|
116
|
|
|
75
|
|
|
5
|
|
Total
other income, expense net
|
|
|
432
|
|
|
102
|
|
|
(186
|
)
|
|
(167
|
)
|
|
(106
|
)
|
|
19
|
|
|
(48
|
)
|
Income
(loss) before tax (expense) benefit
|
|
|
98
|
|
|
(498
|
)
|
|
196
|
|
|
455
|
|
|
897
|
|
|
174
|
|
|
156
|
|
Net
income (loss)
|
|
|
168
|
|
|
(337
|
)
|
|
71
|
|
|
391
|
|
|
604
|
|
|
113
|
|
|
96
|
|
Earnings
(loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings (loss) per share
|
|
|
0.06
|
|
|
(0.11
|
)
|
|
0.02
|
|
|
0.13
|
|
|
0.19
|
|
|
0.04
|
|
|
0.03
|
|
Diluted
earnings (loss) per share
|
|
|
0.05
|
|
|
(0.11
|
)
|
|
0.02
|
|
|
0.12
|
|
|
0.19
|
|
|
0.03
|
|
|
0.03
|
|
|
|
At
December 31,
(In
thousands)
|
|
At
March 31,
(Unaudited)
|
|
|
|
2002
|
|
2003
|
|
2004
|
|
2005
|
|
2006
|
|
2006
|
|
2007
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
324
|
|
$
|
321
|
|
$
|
171
|
|
$
|
265
|
|
$
|
257
|
|
$
|
229
|
|
$
|
73
|
|
Working
capital
|
|
|
3,230
|
|
|
2,857
|
|
|
2,878
|
|
|
3,123
|
|
|
4,151
|
|
|
3,320
|
|
|
4,305
|
|
Total
assets
|
|
|
11,428
|
|
|
10,325
|
|
|
11,553
|
|
|
10,910
|
|
|
12,918
|
|
|
11,787
|
|
|
12,885
|
|
Total
current liabilities
|
|
|
1,948
|
|
|
1,360
|
|
|
2,713
|
|
|
1,748
|
|
|
2,274
|
|
|
2,426
|
|
|
1,985
|
|
Long-term
obligations
|
|
|
3,514
|
|
|
3,336
|
|
|
3,141
|
|
|
2,923
|
|
|
2,777
|
|
|
2,942
|
|
|
2,844
|
|
Total
shareholders’ equity
|
|
$
|
5,965
|
|
$
|
5,629
|
|
$
|
5,699
|
|
$
|
6,238
|
|
$
|
7,200
|
|
$
|
6,419
|
|
$
|
7,422
|
|
SELECTED
QUARTERLY CONSOLIDATED FINANCIAL DATA
The
following table presents unaudited quarterly financial information for each
of
the nine quarters ended March 31, 2007. In the opinion of
management, this information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation thereof. The
operating results are not necessarily indicative of results for any future
periods. Quarter-to-quarter comparisons should not be relied upon as indicators
of future performance. Our operating results are subject to quarterly
fluctuations as a result of a number of factors. See
“Risk
Factors.”
|
|
For
the Quarter Ended
|
|
|
|
2005
|
|
2006
|
|
2007
|
|
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Operating
Data:
|
|
(In
thousands, except percentages and
per share data)
|
|
Revenues
|
|
$
|
2,398
|
|
$
|
3,009
|
|
$
|
2,851
|
|
$
|
2,967
|
|
$
|
3,211
|
|
$
|
3,111
|
|
$
|
3,636
|
|
$
|
3,398
|
|
$
|
3,811
|
|
Gross
profit
|
|
|
771
|
|
|
1,214
|
|
|
937
|
|
|
947
|
|
|
1,070
|
|
|
1,066
|
|
|
1,417
|
|
|
1,131
|
|
|
1,256
|
|
Gross
profit %
|
|
|
32.2
|
%
|
|
40.4
|
%
|
|
32.9
|
%
|
|
31.9
|
%
|
|
33.3
|
%
|
|
34.3
|
%
|
|
39.0
|
%
|
|
33.3
|
%
|
|
33.0
|
%
|
Operating
expenses
|
|
|
711
|
|
|
799
|
|
|
882
|
|
|
855
|
|
|
915
|
|
|
942
|
|
|
963
|
|
|
861
|
|
|
1,052
|
|
Operating
income
|
|
|
60
|
|
|
415
|
|
|
55
|
|
|
92
|
|
|
155
|
|
|
125
|
|
|
454
|
|
|
270
|
|
|
204
|
|
Total
other income (expense)
|
|
|
(58
|
)
|
|
(46
|
)
|
|
(31
|
)
|
|
(32
|
)
|
|
19
|
|
|
(47
|
)
|
|
(48
|
)
|
|
(30
|
)
|
|
(48
|
)
|
Income
before tax
|
|
|
2
|
|
|
369
|
|
|
24
|
|
|
60
|
|
|
174
|
|
|
77
|
|
|
406
|
|
|
239
|
|
|
156
|
|
Net
income
|
|
|
1
|
|
|
293
|
|
|
35
|
|
|
62
|
|
|
113
|
|
|
23
|
|
|
229
|
|
|
239
|
|
|
96
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
|
¾
|
|
|
0.09
|
|
|
0.01
|
|
|
0.03
|
|
|
0.04
|
|
|
0.01
|
|
|
0.07
|
|
|
0.07
|
|
|
0.03
|
|
Diluted
earnings per share
|
|
|
¾
|
|
|
0.09
|
|
|
0.01
|
|
|
0.02
|
|
|
0.03
|
|
|
0.01
|
|
|
0.07
|
|
|
0.07
|
|
|
0.03
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
The
following discussion of our financial condition and results of operations should
be read in conjunction with our consolidated financial statements and the
related notes attached hereto. This discussion contains forward-looking
statements, which involve risk and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking statements
as a
result of certain factors including, but not limited to, those discussed in
“Risk Factors” and elsewhere in this prospectus.
Introduction
Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operation (“MD&A”) is intended to facilitate an understanding of our
business and results of operations. MD&A consists of the following
sections:
|
·
|
Overview:
a summary of our business;
|
|
·
|
Results
of Operations: a discussion of operating
results;
|
|
·
|
Liquidity
and Capital Resources: an analysis of cash flows, sources and uses
of cash and financial position;
|
|
·
|
Contractual
Obligations and Commercial
Commitments;
|
|
·
|
Critical
Accounting Policies: a discussion of critical accounting policies
that require the exercise of judgments and
estimates;
|
|
·
|
Impact
of Recently Issued Accounting Pronouncements: a discussion of how
we may
be affected by recent pronouncements;
and
|
|
·
|
Quantitative
and Qualitative Disclosures About Market
Risk.
|
Overview
We
design
and manufacture customized state-of-the-art equipment used in the development,
design and manufacture of advanced electronic components, materials and coatings
for research and industrial applications. We offer a broad range of chemical
vapor deposition, gas control and other equipment that is used by our customers
to research, design and manufacture semiconductors, solar cells, carbon
nanotubes, nanowires, LEDs and MEMS and industrial coatings, as well as
equipment for surface mounting of components onto printed circuit boards. Our
proprietary products are customized to meet the particular specifications of
individual customers or manufactured as standardized products.
Based
on our 25 years of experience, we
provide
leading-edge design and manufacturing solutions to our customers.
We
use our engineering, design and manufacturing expertise to provide
technologically advanced equipment that enables laboratory and research
scientists to develop the precise processes for the manufacture of next
generation semiconductors and other electronic components as well as solar
and
energy applications and industrial applications. We also develop and manufacture
production equipment based on our designs. We have built a significant library
of design expertise, know-how and innovative solutions to assist our customers
in developing these intricate processes. This library of solutions, along with
our vertically integrated manufacturing facilities, allows us to provide
superior design and manufacturing solutions to our customers on a cost effective
basis.
For
the three-year period 2004 to 2006, our revenues increased from $9.9 million
to
$13.4 million while our net pretax income increased from $196,000 to $897,000.
We plan to continue building on this growth through expanded product offerings,
increased marketing efforts and increased foreign sales as well as through
current and expected product developments in our research laboratory.
In
the fourth quarter of 2006, we began implementing a strategy to target
opportunities in the research and development market, with a focus on
higher-growth applications such as carbon nanotubes, nanowires, MEMS and LEDs.
Our initial strategy is to introduce a line of proprietary standardized products
and systems targeted for this market. Historically, we have manufactured our
products for this market on a custom one-at-a-time basis to meet individual
customers’ specific research requirements. Our new proprietary systems leverage
the technological expertise we have developed through designing these custom
systems onto a standardized basic core. This core can be easily adapted through
a broad array of available add-on options to meet the diverse product and
budgetary requirements of the research community. By manufacturing the basic
core of these systems in higher volumes, we are able to reduce both the cost
and
delivery time for our systems. These systems, which we market and sell under
the
“EasyTube” product line, are sold to researchers at universities and
laboratories in the United States and throughout the world.
Our
core competencies in equipment design, as well as in software and systems
manufacturing are used to engineer our finished products. Our proprietary
Windows-based, real-time software application allows for rapid configuration
and
provides our customers with powerful tools to understand, optimize and
repeatedly control their processes. Our vertically integrated manufacturing
process allows us to control the process from the raw material stage, to when
we
send out finished products. This integrated process significantly reduces our
costs, improves our quality and reduces the time it takes to fill and ship
a
customer’s order.
In
the
fourth quarter of 2006, we began to broaden our First Nano product line and
pursue a significantly larger share of the research and development market
with
additional equipment platforms under the First Nano EasyTube brand name. We
have
begun to market, quote and manufacture these products. In July 2007, we plan
to
ship the first model of a new series of products intended for the research
and
development market. We believe we will be successful with the multiple new
products to be offered, as their design will be based on building blocks we
have
used in our previous systems over the years.
To
support the increase in our existing product sales and the development and
sales
of the new First Nano products, we will need to increase our manufacturing
capacity, hire additional personnel and expand our advertising, trade show
and
marketing budgets. Additionally, our First Nano research laboratory is being
expanded with both additional laboratory test equipment, and the new First
Nano
products for demonstration purposes, we believe that this will help us remain
in
the forefront of carbon nanotube and nanowire research and
production.
Operating
Divisions
We
conduct our operations through three divisions: (1) CVD, including the First
Nano product line (“CVD/First Nano”); (2) Stainless Design Concept (“SDC”); and
(3) Conceptronic, including the Research International product line
(“Conceptronic/Research”). Each division operates on a day-to-day basis with its
own operating manager, while product development, sales and administration
are
managed at the corporate level.
CVD/First
Nano
is a supplier of state-of-the-art chemical vapor deposition systems for use
in
the research and development and manufacturing of semiconductors, LEDs, carbon
nanotubes, nanowires, solar cells, MEMS and a number of industrial applications.
We use our expertise in the design and manufacture of chemical vapor deposition
systems to work with laboratory scientists to bring state-of-the-art processes
from the research laboratory into production, and to provide production
equipment based on our designs.
SDC
designs
and manufactures ultra-high purity gas and chemical delivery control systems
for
state-of-the-art semiconductor fabrication processes, LEDs, carbon nanotubes,
nanowires, solar cells and a number of industrial applications. Our systems
are
sold both on a stand-alone basis as well as together with our CVD/First Nano
systems. In addition, SDC’s field service group provides our customers with high
purity equipment installations, contract maintenance and equipment removal.
SDC
operates out of a 22,000 square foot facility fitted with Class 10 and Class
100
clean room manufacturing space.
Conceptronic/Research
designs
and manufactures reflow ovens and rework stations for the printed circuit board
assembly and semiconductor packaging industries. Our equipment is designed
to melt solder in a controlled process to form superior connections between
components, which creates complete electronic circuits for computers and
telecommunications systems, as well as for the automotive and defense
industries.
We
also offer customized products for complex applications within the printed
circuit board and other industries that use conveyor-type ovens in heating
and
drying applications.
Results
of Operations
The
following table sets forth certain operational data as a percentage of revenue
for the periods indicated:
|
|
Years
Ended December 31,
|
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of sales
|
|
|
66.3
|
%
|
|
65.5
|
%
|
|
64.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Gross
margin
|
|
|
33.7
|
%
|
|
34.5
|
%
|
|
35.1
|
%
|
Selling,
general and administrative expenses
|
|
|
29.8
|
%
|
|
28.9
|
%
|
|
27.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
3.9
|
%
|
|
5.5
|
%
|
|
7.5
|
%
|
Interest
and other income (expense), net
|
|
|
1.9
|
%
|
|
1.5
|
%
|
|
0.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
2.0
|
%
|
|
4.1
|
%
|
|
6.7
|
%
|
Income
tax (expense)
|
|
|
1.3
|
%
|
|
0.6
|
%
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
0.7
|
%
|
|
3.5
|
%
|
|
4.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended March 31, 2007 compared to Three Months Ended March 31,
2006
Revenue
We
recognize revenues and income using the percentage-of-completion method for
custom production-type contracts while revenues from other products are recorded
when such products are accepted and shipped. Revenues on custom production-type
contracts are recorded on the basis of our estimates of the
percentage-of-completion of individual contracts, commencing when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. Under this method, revenues are recognized based on costs
incurred to date compared with total estimated costs.
The
following table illustrates revenue by division for the three months ended
March 31, 2006 and 2007.
|
|
Three
Months Ended March 31,
|
|
|
|
Revenue
|
|
2006
|
|
2007
|
|
Increase
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
CVD/
First Nano division
|
|
$
|
1,862
|
|
$
|
2,113
|
|
$
|
251
|
|
|
13.5
|
%
|
SDC
division
|
|
|
683
|
|
|
823
|
|
|
140
|
|
|
20.5
|
%
|
Conceptronic/Research
division
|
|
|
799
|
|
|
931
|
|
|
132
|
|
|
16.5
|
%
|
Eliminations
|
|
|
(133
|
)
|
|
(56
|
)
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
3,211
|
|
$
|
3,811
|
|
$
|
600
|
|
|
18.7
|
%
|
Overall
revenue growth for the three-month period ended March 31, 2007, was 18.7%,
an
increase of $600,000 from the three months ended March 31, 2006. This increase
was primarily attributable to higher sales of our products across all divisions.
Gross
Profit
Gross
profit is the difference between revenue and cost of goods sold. Cost of goods
sold consists of purchased material, labor and overhead to manufacture equipment
or spare parts, cost of service, as well as factory and field support to
customers under warranty. It also includes installation and paid service
calls.
The
following table illustrates our gross profit by division for the three months
ended March 31, 2006 and 2007:
|
|
Three
Months Ended March 31,
|
|
|
|
Gross
Profit by Division
|
|
2006
|
|
2007
|
|
Increase
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
CVD/
First Nano division
|
|
$
|
872
|
|
$
|
874
|
|
$
|
2
|
|
|
0
|
%
|
SDC
division
|
|
|
70
|
|
|
163
|
|
|
93
|
|
|
132.9
|
%
|
Conceptronic/Research
division
|
|
|
128
|
|
|
219
|
|
|
91
|
|
|
71.1
|
%
|
Total
|
|
$
|
1,070
|
|
$
|
1,256
|
|
$
|
186
|
|
|
17.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
33.0
|
%
|
|
33.4
|
%
|
|
|
|
|
|
|
Our
gross
profit for the three months ended March 31, 2007 was $1.3 million, an increase
of $186,000 from the three months ended March 31, 2006. The increase was
primarily attributable to increased revenues and lower materials costs in our
SDC and Conceptronic/Research divisions which was offset by increased costs
incurred by CVD / First Nano as the result of our efforts to broaden the First
Nano EasyTube product line and pursue a significantly larger share of the
research and development market. Gross margin remained constant at 33% for
both
comparative periods, although revenue was higher for the three-month period
ended March 31, 2007.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses consist of the cost of employees,
consultants and contractors, as well as facility costs, sales commissions,
marketing expenses, legal and accounting fees and marketing
expenses.
The
following table illustrates our selling, general and administrative expenses
for
the three months ended March 31, 2006 and 2007:
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
|
2006
|
|
2007
|
|
Increase
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
CVD/
First Nano division
|
|
$
|
436
|
|
$
|
503
|
|
$
|
67
|
|
|
15.4
|
%
|
SDC
division
|
|
|
155
|
|
|
215
|
|
|
60
|
|
|
38.7
|
%
|
Conceptronic/Research
division
|
|
|
324
|
|
|
334
|
|
|
10
|
|
|
3.1
|
%
|
Total
|
|
$
|
915
|
|
$
|
1,052
|
|
$
|
137
|
|
|
15.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a Percentage of Revenue
|
|
|
28.5
|
%
|
|
27.6
|
%
|
|
|
|
|
|
|
Total
selling, general and administrative expenses as a percentage of revenue was
27.6% for the three months ended March 31, 2007 as compared to 28.5% for the
three months ended March 31, 2006. This decrease was primarily attributable
to
the higher revenues for the three months ended March 31, 2007 being partially
offset by a combination of an increase in trade show expenses, increased payroll
and benefit costs, increased general insurance and utility costs.
Operating
Income
Operating
income was $204,000 for the three months ended March 31, 2007, an increase
of
31.6% or $49,000, as compared to $155,000 for the three months ended March
31,
2006.
Other
Income
Other
income during the three months ended March 31, 2007 was $5,000 as compared
to
$75,000 during the three months ended March 31, 2006. This was primarily
attributable to the receipt of $70,000 during the three months ended March
31,
2006, which had been written off as uncollectible during 2004.
Income
Tax Provision
For
the
three months ended March 31, 2007, we recorded a current income tax expense
of
$118,000 that was reduced by a deferred tax benefit of $58,000.
2006
compared to 2005
Revenue
The
following table illustrates our revenue by division for the years ended December
31, 2005 and 2006:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
2005
|
|
2006
|
|
Increase
/
(Decrease)
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD/First
Nano division
|
|
$
|
4,589
|
|
$
|
6,903
|
|
$
|
2,314
|
|
|
50.4
|
%
|
SDC
division
|
|
|
3,034
|
|
|
3,650
|
|
|
616
|
|
|
20.3
|
%
|
Conceptronic/Research
division
|
|
|
4,611
|
|
|
3,387
|
|
|
(1,224
|
)
|
|
(26.5
|
%)
|
Eliminations
|
|
|
(1,009
|
)
|
|
(584
|
)
|
|
425
|
|
|
|
|
Revenues
|
|
$
|
11,225
|
|
$
|
13,356
|
|
$
|
2,131
|
|
|
19.0
|
%
|
Overall
growth in revenue in 2006 was 19%, an increase of $2.1 million from 2005. This
growth in revenue is primarily due to the continuing increase in demand for
our
customized chemical vapor deposition equipment from our CVD/First Nano division,
including sales of equipment from our First Nano product line which we acquired
in May 2005, and gas and chemical delivery systems from our SDC
division.
The
decrease in revenue of our Conceptronic/Research division was due primarily
to
increased competition and price pressures resulting from new manufacturers
based
in the Far East as well as the shifting of our competitors domestic
manufacturing facilities to the Far East, with the resulting cost reductions
and
lower selling prices of competitive products.
Gross
Profit
The
following table illustrates our gross profit by division for the years ended
December 31, 2005 and 2006:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit by Division
|
|
2005
|
|
2006
|
|
Increase
/
(Decrease)
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD/First
Nano division
|
|
$
|
1,936
|
|
$
|
2,960
|
|
$
|
1,024
|
|
|
52.9
|
%
|
SDC
division
|
|
|
577
|
|
|
935
|
|
|
358
|
|
|
62.0
|
%
|
Conceptronic/Research
division
|
|
|
1,357
|
|
|
789
|
|
|
(568
|
)
|
|
(41.9
|
%)
|
Total
|
|
$
|
3,870
|
|
$
|
4,684
|
|
$
|
814
|
|
|
21.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
34.5
|
%
|
|
35.1
|
%
|
|
|
|
|
|
|
Our
gross
profit in 2006 was $4.7 million, an increase of $0.8 million, or 21% over our
gross profit of $3.9 million for 2005. Increased revenues primarily drove the
increase. Gross margin was 35.1% in 2006 compared to 34.5% during the prior
year. We have continued to achieve higher gross margins over the last three
years, primarily as a result of our ability to spread our fixed costs over
increased revenues.
Selling,
General and Administrative Expenses
The
following table illustrates our selling, general and administrative expenses
by
division for the years ended December 31, 2005 and 2006:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
|
2005
|
|
2006
|
|
Increase/
(Decrease)
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD/First
Nano division
|
|
$
|
1,255
|
|
$
|
1,764
|
|
$
|
509
|
|
|
40.6
|
%
|
SDC
division
|
|
|
684
|
|
|
719
|
|
|
35
|
|
|
5.1
|
%
|
Conceptronic/Research
division
|
|
|
1,308
|
|
|
1,198
|
|
|
(110
|
)
|
|
(8.4
|
%)
|
Total
|
|
$
|
3,247
|
|
$
|
3,681
|
|
$
|
434
|
|
|
13.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a Percentage of Revenue
|
|
|
28.9
|
%
|
|
27.6
|
%
|
|
|
|
|
|
|
Total
selling, general and administrative expenses as a percentage of revenue
decreased to 27.6% in 2006 from 28.9% in 2005, as a result of higher revenues.
The increase of $0.4 million over 2005 was due primarily to a combination of
increased payroll and benefit costs, in addition to increased general insurance
and utility costs.
Other
Income
Other
income for 2006 increased by $65,000 or 127%, from $51,000 in 2005, primarily
due to the receipt of $92,400, which was previously written off as
uncollectible.
Income
Tax Provision
As
of
December 31, 2006, we had approximately $40,000 and $277,000 remaining of our
federal and state net operating loss carryforwards, respectively. In 2006,
we
recorded an income tax expense of $293,000, which was reduced by using $49,000
of available net operating losses. This resulted in an effective tax rate for
2006 of 32.6%. Our future effective income tax rate depends on various factors,
such as recognizing certain items as income and expenses for financial statement
purposes versus tax purposes, the level of expenses that are not deductible
for
tax purposes, changes in our deferred tax assets and liabilities, tax
legislation and the effectiveness of our tax planning strategies.
2005
compared to 2004
Revenue
The
following table illustrates our revenue by division for the year ended December
31, 2004 and 2005:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
2004
|
|
2005
|
|
Increase
/
(Decrease)
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD/First
Nano division
|
|
$
|
2,885
|
|
$
|
4,589
|
|
$
|
1,704
|
|
|
59.1
|
%
|
SDC
division
|
|
|
2,843
|
|
|
3,034
|
|
|
191
|
|
|
6.7
|
%
|
Conceptronic/Research
division
|
|
|
4,948
|
|
|
4,611
|
|
|
(337
|
)
|
|
(6.8
|
%)
|
Eliminations
|
|
|
(802
|
)
|
|
(1,009
|
)
|
|
(207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
9,874
|
|
$
|
11,225
|
|
$
|
1,351
|
|
|
13.7
|
%
|
Total
revenue for 2005 was $11.2 million, an increase of almost $1.4 million, or
13.7%, from $9.9 million for 2004. This was due primarily to the increase in
demand for customized chemical vapor deposition equipment from our CVD/First
Nano division, including the introduction of the First Nano product line, and
chemical delivery systems from our SDC division.
The
decrease in revenue of our Conceptronic/Research division was due primarily
to
increased competition and price pressures resulting from new manufacturers
based
in the Far East as well as the shifting of our competitors domestic
manufacturing facilities to the Far East, with the resulting cost reductions
and
lower selling prices of competitive products.
Gross
Profit
The
following table illustrates our gross profit by division for the years ended
December 31, 2004 and 2005:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit by Division
|
|
2004
|
|
2005
|
|
Increase
/
(Decrease)
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD/First
Nano division
|
|
$
|
959
|
|
$
|
1,936
|
|
$
|
977
|
|
|
101.9
|
%
|
SDC
division
|
|
|
836
|
|
|
577
|
|
|
(259
|
)
|
|
(31.0
|
%)
|
Conceptronic/Research
division
|
|
|
1,530
|
|
|
1,357
|
|
|
(173
|
)
|
|
(11.3
|
%)
|
Total
|
|
$
|
3,325
|
|
$
|
3,870
|
|
$
|
545
|
|
|
16.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Margin
|
|
|
33.7
|
%
|
|
34.5
|
%
|
|
|
|
|
|
|
Our
gross
profit was $3.9 million in 2005, an increase of 16% compared to a gross profit
of $3.3 million for 2004. The gross margin of the CVD/First Nano division
increased to 42% for 2005 compared to 33% in 2004. This increase was attributed
to the division's ability to spread our fixed costs over greater revenues,
as
well as our continuous efforts to reduce variable costs. The gross margin of
the
Conceptronic/Research division decreased slightly, while the gross margin of
the
SDC division decreased to 19.0% from 29.4% as a result of an unusually high
cost
of materials required for certain projects completed during 2005.
Selling,
General and Administrative Expenses
The
following table illustrates our selling, general and administrative expenses
by
division for the year ended December 31, 2004 and 2005:
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling,
General and Administrative Expenses
|
|
2004
|
|
2005
|
|
Increase
/
(Decrease)
|
|
%
|
|
|
|
(In
thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CVD/First
Nano division
|
|
$
|
944
|
|
$
|
1,255
|
|
$
|
311
|
|
|
32.9
|
%
|
SDC
division
|
|
|
641
|
|
|
684
|
|
|
43
|
|
|
6.7
|
%
|
Conceptronic/Research
division
|
|
|
1,358
|
|
|
1,308
|
|
|
(50
|
)
|
|
3.7
|
%
|
Total
|
|
$
|
2,943
|
|
$
|
3,247
|
|
$
|
304
|
|
|
10.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
a percent of revenue
|
|
|
29.8
|
%
|
|
28.9
|
%
|
|
|
|
|
|
|
Total
selling, general and administrative expenses increased by $300,000 to $3.2
million in 2005, as compared to $2.9 million in 2004. This was primarily due
to
a combination of increased payroll and benefit costs, as well as increased
general insurance and utility costs.
Other
Income
Other
income for the year ended December 31, 2005 was approximately $51,000 which
represented miscellaneous sources of revenue earned by the company, including
sale of scrap metal and parking space rental.
Income
Tax Provision
Our
income tax provision was reduced by $60,000 in 2005 from 2004. This reduction
was primarily attributable to the timing of recognition of revenue, which may
be
different for tax purposes as compared to financial statement
purposes.
Liquidity
and Capital Resources
March
31, 2007
As
of
March 31, 2007, we had aggregate working capital of approximately $4.3 million
as compared to almost $4.2 million at December 31, 2006, an increase of
$154,000. This increase was the result of $96,000 of net income increased by
certain non-cash charges, including $105,000 of amortization and depreciation,
$42,000 of stock compensation expense, $84,000 of net cash raised from the
exercise of stock options and $140,000 from equipment loans, less an investment
in equipment of $197,000 and changes in other assets and liabilities of
$117,000.
Accounts
receivable, net of allowance for doubtful accounts as of March 31, 2007 was
approximately $2.0 million as compared to $2.4 million as of December 31, 2006,
a decrease of approximately $421,000. This decrease is primarily attributable
to
timing of shipments and customer payments.
Inventory
as of March 31, 2007 was approximately $2.6 million, as compared to
approximately $2.7 million as of December 31, 2006, a decrease of $88,000 or
3.0%. Work-in-process remained the major component of our
inventory.
We
maintained a revolving line of credit with a bank permitting us to borrow on
a
revolving basis amounts up to $1,250,000. As of March 31, 2007, $205,000 was
outstanding on this facility. This line of credit was terminated as of June
1,
2007.
As
of
June 1, 2007, we entered into a new $2 million three-year revolving credit
facility with the same bank. Interest on the unpaid principal balance on this
facility accrues at either (i) LIBOR plus 2.5%, or (ii) the bank’s Prime Rate
plus .25%. Borrowings under the facility are secured by substantially all of
our
personal property.
We
also
had an equipment line of credit of $250,000 with the same bank through which
we
were permitted to borrow up to 100% of the purchase price of equipment. As
of
March 31, 2007, there was approximately $213,000 outstanding on this facility.
This line of credit was discontinued with the inception of the $2 million three
year revolving credit facility noted above.
The
table
below provides selected consolidated cash flow information for the periods
indicated:
|
|
Three
Months Ended March 31,
|
|
|
|
|
|
|
|
|
|
2006
|
|
2007
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
$
|
(346
|
)
|
$
|
(145
|
)
|
Net
cash used in investing activities
|
|
|
(143
|
)
|
|
(197
|
)
|
Net
cash provided by financing activities
|
|
|
452
|
|
|
157
|
|
Cash
Flows from Operating Activities
Cash
used
in our operating activities was $145,000 during the three months ended March
31,
2007 compared to $346,000 used during the three months ended March 31, 2006.
Net
cash used in our three months ended March 31, 2007 operating activities
consisted of cash provided by net income of $96,000 and $87,000 of non-cash
expense adjustments (including $105,000 of depreciation and amortization,
$42,000 of stock based compensation less $58,000 of deferred taxes and a $2,000
reduction in the reserve for doubtful accounts) offset by net changes in
operating assets and liabilities. The net changes in operating assets and
liabilities using cash was primarily an increase of $569,000 in costs in excess
of billings on uncompleted contracts less the cash that was provided by a
decrease in accounts receivable and inventory.
Cash
Flows from Investing Activities
We
used
$197,000 of cash during the three months ended March 31, 2007 primarily to
purchase capital equipment used in our machine shop. This compares to $142,000
of cash primarily used to design our proprietary software application process
during the three months ended March 31, 2006.
Cash
Flows from Financing Activities
Cash
provided by our financing activities was $157,000 during the three months ended
March 31, 2007. This consisted primarily of $84,000 from the exercise of stock
options and $140,000 received from an equipment loan, which was partially offset
by $61,000 paid on long-term debt.
This
compares to $452,000 of cash provided by financing activities during the three
months ended March 31, 2006 which consisted of $385,000 of net short-term bank
borrowings plus $115,000 received from an equipment loan and $14,000 from the
exercise of stock options which was partially offset by $62,000 paid on
long-term debt.
December
31, 2006
As
of
December 31, 2006, we had available cash and cash equivalents of $257,000
compared to $265,000 as of December 31, 2005. Our working capital increased
by
over $1.1 million to almost $4.2 million as of December 31, 2006 compared to
$3.1 million at December 31, 2005. The increase in working capital was primarily
a result of $604,000 of net income increased by certain non-cash charges,
including $358,000 of amortization and depreciation and $440,000 of other
non-cash expenses, plus $188,000 of net cash raised from the exercise of stock
options, less $238,000 of capital expenditures and $230,000 of payments of
long-term debt.
Accounts
receivable, net of allowance for doubtful accounts increased by approximately
$483,000 or 25.5% at December 31, 2006 to $2.4 million compared to $1.9 million
at December 31, 2005. This increase is primarily attributable to timing of
shipments and customer payments.
In
July
2006, we sold equipment to a customer for a purchase price of 104,482 shares
of
common stock. Between July 19, 2007 and July 31, 2007, we have the option to
demand that the customer make a cash payment of $251,130, the original purchase
price of the equipment, in exchange for the return of those shares. The
customer's obligation to make the payment upon our exercise of the option is
secured by a perfected lien upon the purchased equipment and the pledged common
stock. This transaction is reflected on our balance sheet as an investment.
Inventory
as of December 31, 2006 was approximately $2.7 million, representing an increase
of approximately $637,000 or 30.8% over the inventory balance of $2.1 million
as
of December 31, 2005. The increase in inventory was comprised primarily of
an
increase in work-in-process of approximately $662,000. The build-up of
work-in-process is indicative of an increase in orders that we are experiencing
in addition to our transition to building a more standardized product line
in
order to reduce the time needed to fill a customer's order. Custom orders still
comprise a majority of our revenues.
In
2006,
our credit line with a bank, which permitted us to borrow on a revolving basis,
was amended to reflect an increase in the amount we are permitted to borrow
from
$1 million to $1.25 million. As of December 31, 2006, the outstanding balance
on
this facility was $210,000 as compared to $100,000 at December 31, 2005. This
line of credit was terminated as of June 1, 2007 upon the entry into our new
$2
million, three year revolving credit facility.
We
also
had a $250,000 line of credit available for equipment purchases from the same
bank permitting us to borrow up to 100% of the purchase price of such equipment.
The amount borrowed was immediately converted into a five-year term loan bearing
interest at the bank's prime rate plus 1.25%. As of December 31, 2006, there
was
approximately $77,000 outstanding on this facility. Borrowings under this
facility were collateralized by the equipment purchased. This facility was
discontinued with the entry into our new $2 million revolving credit
facility.
The
table
below provides selected consolidated cash flow information for the periods
indicated:
|
|
Years
Ended December 31,
|
|
|
(In
thousands)
|
|
|
2004
|
|
2005
|
|
2006
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities
|
|
$(490)
|
|
$1,395
|
|
$
71
|
Net
cash used in investing activities
|
|
(351)
|
|
(486)
|
|
(239)
|
Net
cash (used in) provided by financing activities
|
|
690
|
|
(815)
|
|
160
|
Cash
Flows from Operating Activities
Cash
provided by our operating activities was $71,000 in 2006, compared to $1.4
million of cash provided by such activities during 2005 and $490,000 of cash
used in 2004. Cash provided by our 2006 operating activities consisted of
$604,000 of net income, $798,000 of non-cash expense adjustments (including
$358,000 of depreciation and amortization, $169,000 of stock-based compensation
and $272,000 of deferred taxes). These changes were offset by net changes in
operating assets and liabilities. The cash used in the net changes in operating
assets and liabilities was primarily used for an increase in accounts receivable
of $482,000, an increase in investments of $251,000 and an increase in inventory
of $552,000. In 2005, the $1.4 million of cash provided was primarily due to
a
decrease in both accounts receivable and costs in excess of billings on
uncompleted contracts. In 2004, cash was used as a result of an increase of
both
accounts receivables and costs in excess of billings on uncompleted
contracts.
Cash
Flows from Investing Activities
We
used
$239,000 of cash in 2006 primarily to purchase equipment used in the machine
shop and to purchase research and development equipment. This compares to
$486,000 and $351,000 of cash primarily used in 2005 and in 2004, respectively,
to design our proprietary software application process. Due to our decision
in
the fourth quarter in 2006 to broaden our First Nano EasyTube product line
to
pursue a significantly larger share of the research and development market
for
our products, we anticipate that our future outlays of cash for investing
activities will increase.
Cash
Flows from Financing Activities
Cash
provided by our financing activities was $160,000 in 2006, consisting primarily
of $188,000 from the exercise of stock options, $112,000 of net short-term
bank
borrowings on a line of credit and $90,000 received from an equipment loan.
This
was partially offset by $230,000 paid on long-term debt. This compares to
$815,000 of cash used in financing activities in 2005 primarily by the reduction
of net short-term debt of $750,000 and the payment of long-term debt in the
amount of $213,000 which was partially offset by $148,000 of cash received
from
the exercise of stock options. In 2004, cash provided by financing activities
was $690,000, primarily as a result of an increase in short-term debt of
$850,000, less payments of long-term debt of $160,000.
Contractual
Obligations and Commercial Commitments
We
had
the following contractual obligations and commercial commitments as of December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
than
|
|
|
|
|
|
More
than
|
|
Contractual
obligations
|
|
Total
|
|
1
year
|
|
1-3
years
|
|
3-5
years
|
|
5
years
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Building
Mortgages
|
|
$
|
2,886
|
|
$
|
169
|
|
$
|
1,130
|
|
$
|
375
|
|
$
|
1,212
|
|
Equipment
Leases
|
|
|
117
|
|
|
56
|
|
|
37
|
|
|
24
|
|
|
0
|
|
Total
contractual obligations
|
|
$
|
3,003
|
|
$
|
225
|
|
$
|
1,167
|
|
$
|
399
|
|
$
|
1,212
|
|
Off-Balance
Sheet Arrangements
As
of
December 31, 2006, we did not have any off-balance sheet arrangements as defined
under the applicable regulations of the Securities and Exchange Commission
(the
“SEC”).
Critical
Accounting Policies
The
MD&A discusses our consolidated financial statements that have been prepared
in conformity with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates are used when accounting for certain items such as revenues on
long-term contracts recognized on the percentage-of-completion method,
allowances for doubtful accounts, depreciation and amortization, tax provisions
and product warranties.
A
critical accounting policy is one that is both important to the presentation
of
our financial position and results of operations, and requires management’s most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. We
believe the following critical accounting policies affect the more significant
judgments and estimates used in the preparation of our consolidated financial
statements.
Revenue
and Income Recognition.
We
recognize revenues and income using the percentage-of-completion method for
custom production-type contracts while revenues from other products are recorded
when such products are accepted and shipped. Profits on custom production-type
contracts are recorded on the basis of our estimates of the
percentage-of-completion of individual contracts, commencing when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. Under this method, revenues are recognized based on costs
incurred to date compared with total estimated costs.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted
contracts,” represents revenues recognized in excess of amounts
billed.
The
liability, “Billings in excess of costs on uncompleted contracts,” represents
amounts billed in excess of revenues earned.
Inventory
Valuation.
We value
our inventory at the lower of cost (determined on the first-in, first-out
method) or market. We regularly review inventory quantities and record a
write-down for excess and obsolete inventory. The write-down is primarily based
on historical inventory usage adjusted for expected changes in product demand
and production requirements.
Deferred
Tax Asset and Liability.
Deferred
tax assets and liabilities are determined based on the estimated future tax
effects of temporary differences between the financial statements and tax bases
of assets and liabilities, as measured by the current enacted tax rates.
Deferred tax expense (benefit) is the result of changes in the deferred tax
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.
Allowance
for Doubtful Accounts.
We
maintain an allowance for doubtful accounts for estimated losses resulting
from
the inability of our customers to make required payments. This allowance is
based on historical experience, credit evaluations, specific customer collection
history and any customer-specific issues we have identified. Since a significant
portion of our revenue is derived from the sale of high-value systems, a
significant dollar portion of our accounts receivable is often concentrated
in a
relatively small number of customers. A significant change in the liquidity
or
financial position of any one of these customers could have a material adverse
impact on the collectability of our accounts receivable and our future operating
results.
Product
Warranty.
We
provide a limited warranty, generally for 12 months, to our customers. While
our
warranty costs have historically been within our expectations and we believe
that the amounts accrued for warranty expenditures are sufficient for all
systems sold through December 31, 2006, we cannot guarantee that we will
continue to experience a similar level of predictability with regard to warranty
costs. In addition, technological changes or previously unknown defects in
raw
materials or components may result in more extensive and frequent warranty
service than anticipated, which could result in an increase in our warranty
expense.
Impact
of Recently Issued Accounting Pronouncements
In
February 2006, the Financial Accounting Standards Boards ("FASB") issued
Statement No. 155, Accounting for Certain Hybrid Financial Instruments, an
amendment of FASB No. 133, Accounting for Derivative Instruments and Hedging
Activities, and FASB No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. FASB No. 155 provides
the
framework for fair value re-measurement of any hybrid financial instrument
that
contains an embedded derivative that otherwise would require bifurcation, as
well as establishing a requirement to evaluate interests in securitized
financial assts to identify interests. FASB No. 155 further amends FASB No.
140
to eliminate the prohibition on a qualifying special purpose entity's holding
a
derivative financial instrument that pertains to a beneficial interest other
than another derivative financial instrument. The guidance in FASB No.155 also
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of FASB No. 133 and which concentrations of credit risk
in
the form of subordination are not embedded derivatives. This Statement is
effective for financial instruments acquired or issued after the beginning
of an
entity's first year that begins after September 15, 2006. FASB No. 155 is not
expected to have a material impact on our consolidated financial
statements.
In
March
2006, FASB issued Statement No. 156 ("FASB No. 156"), Accounting for the
Servicing of Financial Assets, an amendment of FASB Statement No. 140. FASB
No.
156 requires the recognition of a servicing asset or servicing liability under
certain circumstances when an obligation to service a financial asset occurs
by
entering into a service contract. FASB No.156 also requires all separately
recognized servicing assets and servicing liabilities to be initially measured
at fair value utilizing the amortization method or the fair market value method.
FASB No. 156 is effective at the beginning of the first year that begins after
September 15, 2006. FASB No. 156 is not expected to have a material effect
on
our consolidated financial statements.
In
June
2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109. This interpretation
clarifies the accounting for the uncertainty in income taxes recognized in
an
enterprise's financial statements in accordance with FASB Statement No. 109,
Accounting for Income Taxes. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition
and
measurement of a tax position taken or expected to be taken in a tax return.
This interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition. FASB Interpretation No. 48 is not expected to have a material impact
on our consolidated financial statements.
In
September 2006, FASB issued Statement No. 157, Fair Value Measurements. This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about
fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements. The other accounting
pronouncements affected include Statements No. 107, Disclosures about Fair
Value
of Financial Instruments; No. 115, Accounting for Certain Investments; No.
124,
Accounting for Certain Investments Held by Not-for-Profit Organizations; No.
133, Accounting for Derivative Instruments and Hedging Activities. Statement
No.
157 is effective for financial statements issued for fiscal years ending after
November 15, 2007 and interim periods within those fiscal years. Statement
No.
157 is not expected to have a material impact on our consolidated financial
statements.
In
February 2007, FASB issued Statement No. 159 ("FASB 159"), The Fair Value Option
for Financial Assets and Financial Liabilities - Including an Amendment of
FASB
Statement No. 115. The fair value option established by this statement permits
all entities to choose to measure eligible items at fair value at specified
election dates. A business entity shall report unrealized gains and losses
on
items for which the fair value option has been elected in earnings at each
subsequent reporting date. The measurement option is applied to:
|
·
|
Recognized
financial assets and financial liabilities except
for:
|
|
·
|
An
investment in a subsidiary that the entity is required to
consolidate
|
|
·
|
An
interest in a variable interest entity that the entity is required
to
consolidate
|
|
·
|
Employees'
and plans' obligations for pension benefits, other postretirement
benefits, post-employment benefits, employee stock option and stock
purchase plans, and other forms of deferred compensation
arrangements.
|
|
·
|
Financial
assets and financial liabilities recognized under leases as defined
in
FASB Statement No. 13, Accounting for
Leases.
|
|
·
|
Deposit
liabilities, withdrawable on demand, of banks, savings and loan
associates, credit unions, and other similar depository
institutions.
|
|
·
|
Financial
instruments that are in whole, or in part, classified by the user
as a
component of shareholders' equity.
|
|
·
|
Firm
commitments that would otherwise not be recognized at inception and
that
involve only financial instruments.
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·
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Nonfinancial
insurance contracts and warranties that the insurer can settle by
paying a
third party to provide those goods or
services.
|
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·
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Host
financial instruments resulting from separation of an embedded
nonfinancial derivative instrument from a nonfinancial hybrid
instrument.
|
The
fair
value option:
|
·
|
May
be applied instrument by instrument, with a few exceptions, such
as
investments other wise accounted for by the equity
method
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·
|
Is
irrevocable (unless a new election date
occurs)
|
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·
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Is
applied only to entire instruments and not to portions of
instruments
|
The
Statement is effective as of the beginning of an entity's first fiscal year
that
begins after November 15, 2007. FASB 159 is not expected to have a material
impact on our consolidated financial statements.
Quantitative
and Qualitative Disclosures About Market Risk
Foreign
Currency Risk
Currently,
we have no exposure to foreign currency risk as all our sales transactions,
assets and liabilities are denominated in the U.S. dollar.
Interest
Rate Risk
Our
exposure to interest rate risk is limited to interest earned from our money
market accounts and our interest expense on short-term and long-term borrowings.
Currently, this exposure is not significant. Substantial increases in short-term
and long-term borrowings to fund growth or make investments, combined with
actual changes in interest rates could adversely affect our future results
of
operations.
OUR
BUSINESS
We
design
and manufacture customized state-of-the-art equipment used in the development,
design and manufacture of advanced electronic components, materials and coatings
for research and industrial applications. We offer a broad range of chemical
vapor deposition, gas control and other equipment that is used by our customers
to research, design and manufacture semiconductors, solar cells, carbon
nanotubes, nanowires, LEDs and MEMS, and industrial coatings, as well as
equipment for surface mounting of components onto printed circuit boards. Our
proprietary products are generally customized to meet the particular
specifications of individual customers. We also offer a number of standardized
products that are based on the expertise and know how we have developed in
designing and manufacturing our customized products.
Based
on our 25 years of experience, we
provide
leading-edge design and manufacturing solutions to our customers.
We
use our engineering, design and manufacturing expertise to provide
technologically advanced equipment that enables laboratory and research
scientists to develop the precise processes for the manufacture of next
generation semiconductors and other electronic components. We also develop
and
manufacture production equipment based on our designs. We have built a
significant library of design expertise, know-how and innovative solutions
to
assist our customers in developing these intricate processes. This library
of
solutions, along with our vertically integrated manufacturing facilities, allows
us to provide superior design and manufacturing solutions to our customers
on a
cost effective basis.
For
the three-year period 2004 through 2006, our revenues increased from $9.9
million to $13.4 million, while our net pretax income increased from $196,000
to
$897,000. We plan to continue building on this growth through our expanded
product offerings, increased marketing efforts, increased foreign sales and
through current and expected product developments in our research laboratory.
In
the fourth quarter of 2006, we began implementing a strategy to target
opportunities in the research and development market, with a focus on
higher-growth applications such as carbon nanotubes, nanowires, MEMS and LEDs.
To expand our penetration into this market, we are introducing a line of
proprietary standardized products and systems initially targeted at this market.
Historically, we have manufactured our products for this market on a custom
one-at-a-time basis to meet our individual customer’s specific research
requirements. Our new proprietary systems leverage the technological expertise
that we have developed through designing these custom systems onto a
standardized basic core. This core can be easily adapted through a broad array
of available add-on options to meet the diverse product and budgetary
requirements of the research community. By manufacturing the basic core of
these
systems in higher volumes, we are able to reduce both the cost and delivery
time
for our systems. These systems, which we market and sell under the “EasyTube”
product line, are sold to researchers at universities and laboratories in the
United States and throughout the world.
We
also intend to continue growing the sales of our proprietary standard and custom
systems by building on the success of our installed customer base of
approximately 200 customers to whom we have sold systems within the last three
years. Our customer base includes several Fortune 500 companies. Historically,
revenues have grown primarily through sales to existing customers with
additional capacity needs or other new requirements, as well as to new
customers. During the year ended December 31, 2006, over 65% of our revenues
were derived from sales to repeat customers. We have generally gained new
customers through word of mouth, the movement of personnel from one company
to
another, and limited print advertising and trade show attendance. We are now
increasing the awareness of our company in the marketplace with results from
our
internal research laboratory, which we established in the third quarter of
2006,
as well as improved sales contacts from increased participation in trade shows.
We are also in the process of implementing a new Internet advertising strategy,
and plan to increase the size of our sales force.
The
core competencies we have developed in equipment and software design, as well
as
in systems manufacturing, are used to engineer our finished products. Our
proprietary Windows-based, real-time, software application allows for rapid
configuration, and provides our customers with powerful tools to understand,
optimize and repeatedly control their processes. Our vertically integrated
structure allows us to control the manufacturing process, from bringing raw
metal and components into our manufacturing facilities to shipping out finished
products. These factors significantly reduce our costs, improve our quality
and
reduce the time it takes from customer order to shipment of our
products.
OPERATING
DIVISIONS
We
conduct our operations through three divisions: (1) CVD, including the First
Nano product line (“CVD/First Nano”); (2) Stainless Design Concept (“SDC”); and
(3) Conceptronic, including the Research International product line
(“Conceptronic/Research”). Each division operates on a day-to-day basis with its
own operating manager, while product development, sales and administration
are
managed at the corporate level.
CVD/First
Nano
is a supplier of state-of-the-art chemical vapor deposition systems for use
in
the research, development and manufacturing of semiconductors, LEDs, carbon
nanotubes, nanowires, solar cells and a number of industrial applications.
We
utilize our expertise in the design and manufacture of chemical vapor deposition
systems to work with laboratory scientists to bring state-of-the-art processes
from the research laboratory into production, as well as to provide production
equipment based on our designs.
SDC
designs
and manufactures ultra-high purity gas and chemical delivery control systems
for
state-of-the-art semiconductor fabrication processes, LEDs, carbon nanotubes,
nanowires, solar cells and a number of industrial applications. Our systems
are
sold on a stand-alone basis, as well as together with our CVD/First Nano
systems. In addition, SDC’s field service group provides our customers with
ultra-high purity equipment installations, contract maintenance and equipment
removal. SDC operates out of a 22,000 square foot facility fitted with Class
10
and Class 100 clean room manufacturing space located in Saugerties, New
York.
We
believe that SDC’s gas management systems and application-specific chemical
delivery control systems are among the most advanced available. We further
believe that SDC is differentiated from our competitors, through our intimate
understanding of how the systems in which our products are incorporated are
actually used in field applications. We have gained this understanding as a
result of having designed and built complex process gas systems for CVD/First
Nano, as well as for many of the world’s leading semiconductor manufacturers,
research laboratories and universities.
Conceptronic/Research
designs
and manufactures reflow ovens and rework stations for the printed circuit board
assembly and semi-conductor packaging industries. Our equipment is
designed to melt solder in a controlled process to form superior connections
between components. This, in turn, creates complete electronic circuits for
computers and telecommunications systems, as well as for the automotive and
defense industries.
To
address pricing pressure in what is now a mature industry for standardized
reflow ovens, we have began to offer customized products for complex heating
and
drying applications. We expect that this will maintain and potentially improve
our future profit margins in this product line.
OUR
COMPETITIVE STRENGTHS
We
believe we are a leader in the markets we serve as a result of our following
competitive strengths:
Technical
Expertise
.
We have
been designing and manufacturing state-of-the-art, innovative and proprietary
standard and custom chemical vapor deposition, gas control and related systems
for 25 years. We maintain a highly trained team of experienced mechanical,
chemical, electrical and software engineers, as well as manufacturing, testing
and support personnel. Our engineering group possesses core competencies in
product applications, software, system controls, chemical vapor deposition,
vacuum systems, ultra-high purity gas and chemical delivery, product heating
and
process chamber design. We believe this expertise enables us to provide high
quality, technically advanced, integrated and innovative solutions to our
customers, many of whom are on the leading edge of technology, research and
production.
Leveraging
our Experience.
We have
significantly enhanced our design and manufacturing expertise over the years
through the process of responding to customer requests for creative and often
unique equipment solutions. The equipment we design and manufacture in response
to these customer requests and the engineering solutions we devise in doing
so
remain proprietary to us. We use this equipment and these engineering solutions
to improve existing products, develop new products for other customers and
as
building blocks for our future equipment designs.
Experienced
Management Team
.
We
are
led by a highly experienced management team. Our CEO has over 40 years of
industry experience, including 25 years with our company. Our three division
managers have an average of over 16 years of process and equipment design
experience and an average of 12 years with our company or companies whose assets
we have acquired.
Vertical
Integration
.
We
employ a vertically integrated structure in our operations, from the design
and
manufacture of many of the sophisticated components used in our products,
to the
final assembly of our systems. For example, our machine shop fabricates the
frame, sheet metal and machined components that are incorporated into our
chemical vapor deposition, gas control systems and reflow ovens. We also
manufacture the quartzware utilized in our chemical vapor deposition systems,
as
well as the quartzware we sell for other customer requirements. All painting,
electrical and mechanical assembly and product testing is done by our personnel.
Our software engineers and programmers develop the software that runs our
products. This vertically integrated structure enables us to customize systems
to customer requirements, reduce delivery times of our products, maintain
a high
level of quality control, reduce the effect of supplier disruptions and deliver
a better and lower cost product.
Established
and Diversified Customer Base
.
We
have
long-standing relationships with many of our largest customers. In 2006, over
65%
of
our
revenues resulted from sales to repeat customers. We sell to a geographically
diverse base of customers across a variety of markets, including leading
semiconductor and wafer manufacturers, research laboratories, universities
and
industrial manufacturers. In 2006, our largest customer accounted for
approximately 9% of our revenue and in 2005, no single customer accounted for
more than 12% of our revenue. No other customer represented more than 6.8%
or
6.5% of our total revenue in the years 2005 or 2006, respectively. Our largest
customer was different in each of these years.
The
geographic and market distribution of our revenues for the years 2005 and 2006
were as follows:
Geographic
|
|
2005
|
|
2006
|
|
|
|
(In
thousands)
|
|
North
America
|
|
$
|
8,178
|
|
$
|
9,522
|
|
Asia
|
|
|
2,244
|
|
|
2,209
|
|
Europe
|
|
|
789
|
|
|
1,194
|
|
South
America
|
|
|
12
|
|
|
418
|
|
Other
|
|
|
2
|
|
|
13
|
|
Market
|
|
2005
|
|
2006
|
|
|
|
(In
thousands)
|
|
Universities
& Research Laboratories
|
|
$
|
2,422
|
|
$
|
2,350
|
|
Semiconductor
and Electronics
|
|
|
7,065
|
|
|
7,539
|
|
Other
Industries
|
|
|
1,738
|
|
|
3,467
|
|
We
believe that our diverse customer base helps to minimize our exposure to
fluctuations in any one geographic location or market.
Proven
Acquisition Record
.
Over the
past eight years, we have developed a successful acquisition program designed
to
enhance our core competencies and to expand our markets and product offerings.
To date, we have completed and integrated four acquisitions:
|
·
|
In
1998, we acquired substantially all of the fixed assets and intellectual
property of Stainless Design Corporation, which became our SDC division.
This acquisition provided us with the ability to design and manufacture
ultra-high purity gas and chemical delivery systems and to provide
the gas
control systems used by CVD/First
Nano.
|
|
·
|
In
2001, we acquired certain assets and intellectual property of Research
International, Inc. This acquisition provided us with a line of conveyor
reflow ovens for standard and custom applications, as well as spare
parts.
|
|
·
|
In
2002, we acquired certain assets
and
intellectual property
of
Conceptronic
Inc., which we combined with the assets acquired from Research
International Inc. to create our Conceptronic/Research division.
This
acquisition provided us with additional reflow oven design and
manufacturing capability, printed circuit board rework stations,
as well
as spare parts.
|
|
·
|
In
2005, we acquired certain assets and intellectual property of First
Nano,
Inc. This acquisition provided us with (i) a better understanding
of the
research and development markets; (ii) new technology and know-how
related
to nanotechnology by nanomaterials synthesis; (iii) a recognized
name in
the field of nanotechnology and carbon nanotube products; and (iv)
the
ability to launch our own nanotube research
laboratory.
|
GROWTH
STRATEGY
We
intend
to leverage our competitive strengths with a combination of internal and
external growth strategies.
Internal
Growth
-
Our
strategy for internal growth includes the following:
Expand
our growth opportunities in targeted research and development
markets.
With the
globalization of the world economy, and the establishment or expansion of
government and corporate funded, research and development laboratories and
university research laboratories around the world, we believe that these markets
will be a growing source of our revenues in the future. To expand our
penetration into this market, we have focused our product development and
marketing efforts. We recently introduced a line of proprietary standardized
products and systems, initially targeted to higher-growth applications such
as
carbon nanotubes, nanowires, MEMS and LEDs. Historically, we manufactured
products for this market on a custom basis to meet our individual customer’s
specific research requirements. Our new proprietary systems leverage the
technological expertise we have developed through designing these custom
systems, onto a standardized basic core that can be easily adapted through
a
broad array of available add-on options to meet the diverse product and
budgetary requirements of the research community. By manufacturing the basic
core of these systems in higher volumes, we are able to reduce both the cost
and
delivery time for our systems.
Increase
our revenues from sales of our proprietary standard and custom systems by
leveraging our installed customer base.
We
presently have an installed customer base of approximately 200 customers to
whom
we have sold systems within the last three years. We intend to continue to
leverage our relationships with our existing customers to maximize system,
service and parts revenue from our installed customer base. We intend to
accomplish this by meeting the needs of these customers for new and replacement
systems as well as for additional capacity. This will also include equipment
and
services needed in connection with customer expansions or relocations throughout
the world.
Increase
sales through expanded trade show participation, Internet advertising and direct
sales contacts.
In
order
to increase sales globally, we intend to increase the number of trade shows
in
which we display our products and services, to increase our advertising presence
on the Internet and to increase the number of our sales personnel. We believe
that a combination of these methods will stimulate awareness of our broad range
of product offerings and capabilities.
Enhance
customer awareness of the results generated by our research laboratory.
Our
research laboratory, together with a number of leading universities with whom
we
partner, conducts cutting-edge research on the growth of carbon nanotubes and
nanowires. The results of this research could have far reaching implications
concerning the use and manufacture of carbon nanotubes and nanowires for many
markets. We intend to communicate the results of our research through trade
shows, research publications and customer visits. By so communicating, we intend
to increase awareness of our products and capabilities.
Partner
with university research laboratories to capitalize on the emerging
nanotechnology opportunity.
The
university research community is at the forefront of nanotechnology research,
and we are focused on providing state-of-the-art systems to this market that
will help bridge the gap between pioneering research and marketable
products. To help accomplish this, we have established relationships with
companies and research laboratories, such as the University of Cincinnati.
Our intention is that together we will leverage our collective expertise in
this
field, which will allow us to capitalize on commercial opportunities in the
future. This relationship has thus far produced leading edge results, including
what we believe are the largest carbon nanotube clusters yet
developed.
Expand
the level of research currently being performed in our research laboratory
for
applications having near-term requirements.
The
research we are performing with carbon nanotubes and nanowires is cutting edge
and, we believe, will enable carbon nanotubes and nanowires to be used in a
myriad of applications in a production environment. While researchers have
envisioned carbon nanotubes and nanowires having applications associated with
technologies and products that have yet to be invented, there are many
significant applications that are expected to be in use in the near future.
For
example, near term applications and uses for carbon nanotubes include: water
purification systems; sporting goods; body and tank armor; hydrogen storage;
sensors for biological and chemical systems; and batteries. According to Dr.
Clayton Teague, the director of the National Nanotechology Coordination Office,
the United States is the world leader in nanotechnology research and development
with a total investment by the federal government of more than $1.0 billion
per
year.
Increase
our paid contract research for nanotechnology applications.
The
federal commitment to nanotechnology research alone is currently in excess
of
$1.0 billion per year. We believe that contract research concerning carbon
nanotubes and nanowires, as well as related semiconductor research for
government, university and industry is a growing market that we can access.
To
accomplish this, we intend to leverage our contacts in this market as well
as
publicize our own laboratory results.
External
Growth -
We
intend
to continue to selectively seek strategic growth opportunities through
acquisitions and joint ventures. In evaluating these opportunities, our prime
objectives include enhancing our core competencies, providing complementary
product offerings and technologies, expanding our geographic footprint,
improving production efficiencies and increasing our customer base. Over the
past eight years, we have developed an acquisition program to accomplish our
goals, and have successfully completed and integrated four
acquisitions.
Within
each industry segment, we concentrate on areas where we can leverage our ability
to design and manufacture creative and often unique solutions.
INDUSTRY
BACKGROUND
We
provide products and services to four primary market segments: (i)
semiconductors and electronics; (ii) university, government and industry
research; (iii) industrial applications and (iv) solar and energy.
Semiconductor
and electronics market
We
sell
our products to manufacturers of semiconductor and electronics components.
Semiconductors and electronics control and amplify electrical signals, and
are
used in a broad range of products, including computers, communications
equipment, LEDs, MEMS, home appliances, automobiles, robotics, aircraft, space
vehicles and consumer and industrial products.
The
semiconductor and electronics market has experienced significant growth since
the early 1990s. This growth can be attributed in large part to the
increased demand for personal computers, the growth of the Internet, the
expansion of the communications industry (especially wireless communications)
and the emergence of new applications in consumer products. Further
fueling this growth, is the rapid expansion of smaller, less-expensive and
better-performing electronic consumer products, as well as traditional products
that now have more “intelligence”.
Although
the semiconductor and electronics market has experienced significant growth
over
the past 15 years, this growth has been cyclical. The market is
characterized by periods of under or over-supply for most semiconductors and
electronic products. When demand decreases, semiconductor and electronics
manufacturers typically slow their purchasing of capital equipment.
Conversely, when demand increases, so does capital spending. After a peak
in 2000, the semiconductor and electronics markets experienced a severe downturn
in 2001 that lasted through the first half of 2003. This resulted in a decline
in revenue for most manufacturers of semiconductor and electronics manufacturing
equipment. During the latter part of 2003, the market began to improve,
and it has continued to improve through the first-half of 2007.
University,
government and industry research market
We
sell
our products to university, government and industry laboratories that use our
products primarily to research, design and develop carbon nanotubes, nanowires
and next generation semiconductor and other electronic components.
Nanotechnology is defined as the design, characterization, production, and
application of structures, devices, and systems at the atomic and molecular
levels measuring between 1 and 100 nanometers (nm). One nanometer is one
billionth of a meter, approximately 80,000 times smaller than the width of
a
human hair. At the nanoscale level, the ratio between surface area and volume
changes, causing materials to defy their conventional properties and exhibit
unique and often unparalleled characteristics. Universities also use our
products for teaching purposes as a part of their curriculum.
Researchers
are at the forefront of the nanotechnology market, and are currently developing
state-of-the-art processes for applications that include carbon nanotubes,
nanowires and MEMS, as well as processes for semiconductor, electronic and
industrial applications. This research focus is being driven by two related
factors: first, existing technologies are rapidly approaching a technological
ceiling, which will prevent further increases in performance; and second, the
enabling tools that allow researchers to develop and fabricate products at
this
scale are now readily available—often designed and provided by us.
Government
funding has also played a role in expanding this research market. The National
Nanotechnology Initiative, for example, is a federal research and development
program established to coordinate multi-agency efforts in nanoscale science,
engineering, and technology. Established in the Clinton administration, it
received over $1.0 billion in 2006. Another example is the California
Nanotechnology Initiative, a state program that has called for a $4.6 billion
investment over the next ten years through a combination of private and public
financing.
Having
spent large amounts money on these state-of-the-art facilities to understand
the
science behind nanotechnology, research labs are becoming increasingly
interested in commercializing their investment through industrial and consumer
applications. We believe that we have the capabilities and infrastructure in
place to provide the tools that researchers need to productize their
investments. Innovations based on nanotechnology may lead to the creation of
computer chips and other devices that are thousands of times smaller than
current technologies permit. Industries impacted by nanoscience and
nanotechnology include life sciences, data storage, semiconductor,
telecommunications and materials sciences.
Industrial
applications
There
are
a number of companies that utilize our products and design expertise for custom
industrial applications in several different markets. Significant industrial
applications for chemical vapor deposition products are industrial coatings
and
carbon nanotube applications. Industrial coatings include; optical coatings
for
applications including filtering selected wavelengths of light and protecting
optical surfaces, as well as providing reflective or anti-reflective surfaces,
or for transmitting visible wavelengths of light while reflecting the
wavelengths that cause heat; coatings on cutting tools such as end mills and
drills to reduce wear and thereby increases the tool’s usable life; an emerging
application is environmentally friendly coatings that replace existing plating
operations for industrial fasteners. These fastener coatings prevent corrosion
and oxidation, while improving the fastener’s lubricity.
Industrial
applications for carbon nanotubes include spinning them into fabrics to make
stronger and lighter, Kevlar vests and improved armor in military vehicles.
The
strength to weight ratio for these nanotubes also makes them attractive for
structural components in applications like aircraft wings or wherever weight
reduction is desired. Applications also include air and water filtration,
microphones and cosmetics.
Solar
and energy market
Solar
electricity is generated using either photovoltaic or solar thermal technology
to extract energy from the sun. Photovoltaic electricity generating
systems directly convert the sun’s energy into electricity. Solar power
systems are used for residential, commercial and industrial applications, as
well as for customers who either have access to or are remote from the electric
utility grid. Other off-grid applications include road signs, highway call
boxes, and communications support along remote pipelines and telecommunications
equipment, as well as rural residential applications. Consumer applications
include outdoor lighting and handheld devices such as calculators.
Some
of
the processes in the manufacturing of solar cells require chemical vapor
deposition, and the solar industry is looking for unique cost-effective
solutions to meet the production and price targets needed to reduce our
dependency on hydrocarbon fuels. A market for research systems exists, to
develop higher efficiency solar cells and to reduce their manufacturing cost
through alternate methods. This research may lead to future production
systems.
In
the
energy market, applications include lithium batteries and superconducting tape.
Researchers are now developing superconducting tape to improve the transmission
of electricity. The tape is one-tenth the thickness of a human hair, and can
carry about 100 times the electric power of a copper wire of an equivalent
area.
Industrial uses for this tape could include electric motors, transformers,
transmission cables and levitated trains. We manufacture CVD reactors used
in
research and limited production to deposit superconducting layers.
THE
CHEMICAL VAPOR DEPOSITION PROCESS
Chemical
vapor deposition is a chemical process for depositing thin films of various
materials on a substrate. In a typical chemical vapor deposition process, the
substrate is exposed to one or more volatile chemical reactants, which decompose
on the substrate surface to produce the desired deposit. This is normally done
at elevated temperatures in a controlled environment. Frequently, volatile
byproducts are also produced, which are removed by gas flow through a reaction
chamber. This requires sophisticated design of the process chamber and precise
control of process gas flows, temperatures and pressure. Our extensive
experience in custom equipment design has enabled us to amass a significant
library of solutions for these intricate processes and we believe that we can
leverage our know-how and strong set of related core competencies for future
growth.
PRINCIPAL
PRODUCTS
The
following paragraphs describe our principal product lines:
Chemical
Vapor Deposition -
Our
chemical vapor deposition 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. Our standard microprocessor control system is extremely
versatile and capable of supporting the complete product line and most custom
system requirements. These chemical vapor deposition systems are priced at
up to
$1,000,000.
Rapid
Thermal Processing (“RTP”)
- Used
to heat semiconductor materials to elevated temperatures of 1,000 degrees
Celsius at rapid rates of up to 200 degrees Celsius per second. Our RTP systems
are offered for applications, including implant activation, oxidation, silicide
formation and other processes. We offer systems that can operate both at
atmospheric or reduced pressures. Our RTP systems generally are priced at up
to
$600,000.
Annealing
and Diffusion Furnaces
- Used
for diffusion, oxidation, implant anneal, solder reflow and other processes.
The
systems are normally operated at atmospheric pressure with gaseous atmospheres
related to the process. An optional feature of the system allows for the heating
element to be moved away from the process chamber allowing the wafers to rapidly
cool or be heated in a controlled environment. Our cascade temperature control
system enables more precise control of the wafer’s temperature. The systems are
equipped with an automatic process controller, permitting automatic process
sequencing and monitoring with safety alarm provisions. Our annealing and
diffusion furnace systems generally are priced at up to $900,000.
Ultra-high
Purity Gas and Liquid Control Systems
- Our
standard and custom designed gas and liquid control systems encompass gas
cylinder storage cabinets, custom gas and chemical delivery systems, gas and
liquid valve manifold boxes and gas isolation boxes provide safe storage and
handling of pressurized gases and chemicals. Our system design allows for
automatic or manual control from both a local and remote location. Our gas
and
liquid control systems are priced at up to $160,000. A customer order often
includes multiple systems. We also provide field installation within our
customer’s facility for the distribution of gases and chemicals to the assorted
process tools. As part of field service, we also offer repair service on
customer equipment.
Quartzware
- We
provide standard and custom fabricated quartzware used in our equipment and
other customer tools. We also provide repair and replacement of existing
quartzware.
Reflow
Furnaces and Rework Stations
- We
provide standard and custom systems for the printed circuit board and surface
mount technology industries. Our equipment is designed to melt solder in a
controlled process to form superior connections between components, creating
complete electronic circuits for computers and telecommunications systems,
as
well as for the automotive and defense industries.
SALES
AND MARKETING
Due
to
the highly technical nature of our products, we believe it is essential to
contact customers directly through our sales personnel and through a network
of
domestic and international independent sale representatives and distributors
specializing in semiconductor equipment and supplies. Our primary marketing
activities include direct sales contacts, participation in trade shows and
our
Internet websites. We are focusing our efforts on being in the top listings
on
many search engines in order to increase the number of “hits” to our
websites.
CUSTOMERS
We
are
continuing to work on expanding our product offerings. Many of these products
are used for research and development and in production applications. We sell
our products primarily to semiconductor manufacturers, institutions involved
in
semiconductor and electronic component research (such as universities,
government and industrial laboratories) and to electronic assembly
manufacturers. We have both an international and domestic installed customer
base of approximately 200 customers to whom we have sold systems within the
last
three years. For the year ended December 31, 2006 approximately 31% of our
revenues were generated from foreign exports compared to 29% for the year ended
December 31, 2005. Sales to a single customer in any one-year can exceed 10.0%
of our total sales; however, we are not dependent on any single customer. In
2006, one customer represented 9.0% of our total revenue. In 2005, another
customer, a distributor, represented 11.5% of our total revenue. No other
customer represented more than 6.5% or 6.8% of our total revenue in 2006 or
2005, respectively.
Our
customer base is also geographically diverse. In 2006, our sales in North
America, Asia, Europe, South America and other locations represented 71.3%,
16.5%, 8.9%, 3.1% and 0.2%, respectively, of our total revenues. In 2005, sales
in the geographic markets represented 72.9%, 20.0%, 7.0%, 0.01% and 0%,
respectively, of our total revenues.
CUSTOMER
SUPPORT AND PARTS
We
upgrade, repair and provide replacement parts for products purchased by our
customers, as well as for similar products acquired from other sources. We
believe that a key element in our success has been our focus on customer
service. We offer our customers both on-site and in-house training in the use
of
our products. We also offer the on-site support expertise of our technicians
and
engineers with real-world expertise in systems design and engineering. On-site
services can be arranged to assist with planned system upgrades.
For
2005
and 2006, we derived approximately 11.2% and 12.0% respectively, of our total
revenues from these activities.
PRODUCT
WARRANTIES
We
warrant our equipment for a period of twelve months after shipment, depending
on
the product, and pass along any warranties from original manufacturers of
components used in our products. We provide for our own equipment servicing
with
in-house field service personnel. Warranty costs, including those incurred
in
2006, have been historically insignificant and expensed as
incurred.
COMPETITION
We
are
subject to intense competition. We are aware of competitors that offer a
substantial number of products comparable to ours. Many of our competitors
(including customers who elect to manufacture systems for internal use) have
financial, marketing and other resources greater than ours. To date, we believe
that each one of our three operating divisions has been able to compete in
markets that include these competitors, primarily on the basis of technical
performance, quality, delivery and price.
CVD/First
Nano
competes
primarily with in-house design and engineering personnel at research and
university laboratories with the capacity to design and build their own
equipment internally. Due to budgetary and funding constraints, many of these
customers are extremely price sensitive. CVD/First Nano also competes with
companies that have substantially greater financial, marketing and other
resources to develop new products and support customers worldwide, as well
as
smaller competitors. We believe that our systems are among the most advanced
available.
SDC
competes
with companies
that are
larger than our company and have substantially greater financial, marketing
and
other resources than we do.
We
believe that SDC’s gas management and chemical delivery control systems are
among the most advanced available. We further believe that SDC is differentiated
from our competitors through our intimate understanding of how the systems
in
which our products are incorporated are actually used in field applications.
We
have gained this understanding as a result of having designed and built complex
process gas systems for CVD/First Nano as well as for a number of the world’s
leading semiconductor manufacturers, research laboratories and universities.
Conceptronics/Research’s
proprietary
reflow ovens and rework stations are used by the printed circuit board assembly
and semi-conductor packaging industries. Conceptronics/Research also
offers customized products for complex applications within the printed circuit
board and other industries that use conveyor-type ovens in heating and drying
applications. Our in-house design and engineering personnel develop leading
edge
technology for sale at competitive prices. Conceptronics/Research competes
with
companies that are larger than our company and have substantially greater
financial, marketing and other resources than we do. We believe that our reflow
ovens and rework stations are among the most advanced available having leveraged
our experience in designing and building customized products for our
customers.
ASSEMBLY
AND SOURCES OF SUPPLY
We
do not
manufacture many components used in producing our products. Most of these
components are purchased from unrelated suppliers. We do not have any supply
contracts covering these components, although we are not dependent on a
principal or major supplier and alternate suppliers are available. Subject
to
lead times, the components and raw materials we use in manufacturing our
products are readily obtainable.
We
have a
fully equipped machine shop that we use to fabricate in-house most of the metal
components, including the most complex designed parts of our equipment. Our
investment in computer numerical control (CNC) machines for our machine shop
has
increased our efficiencies while significantly reducing costs in production.
Similarly, our quartz fabrication capability is sufficient to meet our
quartzware needs.
Materials
procured from the outside or manufactured internally undergo a rigorous quality
control process to ensure that the parts meet or exceed our requirements and
those of our customers. Upon final assembly, all equipment undergoes a final
series of testing to ensure product performance.
BACKLOG
At
December 31, 2006 our order backlog was approximately $3.6 million compared
to
approximately $2.7 million at December 31 2005, an increase of 34.6%. The
increase is primarily attributable to our CVD/First Nano division. The timing
for completion of the backlog varies depending on the product mix; however,
there is generally a one to six month lag in the completion and shipping of
backlogged product. Included in the backlog are all accepted purchase orders
with the exception of those that are included in our percentage-of-completion.
Order backlog is usually a reasonable management tool to indicate expected
revenues and projected profits; however, it does not provide an assurance of
future achievement or profits as order cancellations or delays are possible.
While our backlog orders are subject to cancellation, we generally require
our
customers to make progress payments upon satisfaction of certain milestones
throughout the design and manufacture of our customized products, and upon
certain circumstances, our standard products.
INTELLECTUAL
PROPERTY
Our
success is dependent in part on our technology and other proprietary
rights. We have historically protected our proprietary information and
intellectual property such as design specifications, blueprints, technical
processes and employee know-how through the use of non-disclosure agreements.
We
also maintain and/or assert rights in certain trademarks relating to certain
of
our products and product lines, and claim copyright protection for certain
proprietary software and documentation.
While
patent, copyright and trademark protection for our intellectual property may
be
important, we believe our future success in highly dynamic markets is most
dependent upon the technical competence and creative skills of our
personnel. We attempt to protect our trade secrets and other proprietary
information through confidentiality agreements with our customers, suppliers,
employees and consultants and through other security measures.
RESEARCH
AND DEVELOPMENT
We
continue to concentrate our efforts on several research and development
projects. We develop and customize equipment for industry and government,
university and industry research laboratories around the world. Our research,
design and development of equipment, which remains proprietary to us, is used
to
improve our existing products and develop new products for customers. The
amounts spent on research and development were $513,000 (3.8% of revenue) and
$500,000 (4.5% of revenue) for the years ended December 31, 2006 and December
31, 2005, respectively.
GOVERNMENT
REGULATION
We
are
subject to a variety of federal, state and local government regulations, such
as
environmental, labor and export control. We believe that we have obtained all
necessary permits to operate our business and that we are in material compliance
with all laws and regulations applicable to us.
We
are
not aware of any government regulations or requirements necessary for the sale
of our products, other than certain approvals or permits which may be required
for us to export certain of our products to certain foreign
countries.
EMPLOYEES
At
December 31, 2006, we had 108 employees, 106 of which were full time and two
that were part time. We had 60 people in manufacturing, 22 in engineering
(including research and development and efforts related to product improvement)
seven in field service, five in sales and marketing and 14 in general management
and administration. We consider our relations with our employees to be
satisfactory.
LEGAL
PROCEEDINGS
In
September 1999, we were named in a lawsuit filed by Precision Flow Technologies,
Inc. (“PFT”), in the United States District Court for the Northern District of
New York, relating to comments allegedly made by our President and Chief
Executive Officer, Leonard A. Rosenbaum, concerning the intellectual property
obtained in the purchase of assets of Stainless Design Corporation. We promptly
filed a counterclaim for unauthorized use of our intellectual property and
filed
a complaint against the President of PFT (these two actions have been
consolidated) alleging the same acts as set forth in the counterclaim. The
plaintiff is seeking monetary damages and injunctive relief. In our
counterclaim, we are also seeking monetary damages and injunctive relief. All
pre-trial disclosure has been completed. We withdrew certain of our
counterclaims following the completion of discovery and the court has dismissed
certain of the claims which had been asserted by PFT. No trial date has been
set.
In
May
2002, we instituted a new action against PFT and certain of its employees,
in
the United States District for the Northern District of New York seeking
injunctive relief and monetary damages based upon copyright violations. A motion
by PFT to dismiss this action which had been pending since June 2002, was denied
in March 2007. On May 25, 2007 PFT’s motion for reconsideration was likewise
denied. On June 11, 2007, PFT filed its answer in which no counterclaims have
been asserted against us. Pre-trial disclosure has not yet been
completed.
Management’s
attention may be diverted as a result of these actions. Furthermore, we may
incur significant legal fees, including legal fees of PFT, in the event we
suffer a negative outcome in connection with these actions.
DESCRIPTION
OF PROPERTY
We
maintain our headquarters at 1860 Smithtown Avenue, Ronkonkoma, New York, where
we own a 50,000 square foot manufacturing facility that we purchased in November
2002. Our CVD/First Nano and Conceptronic/Research divisions operate out of
this
facility. Our SDC division operates out of a 22,000 square foot manufacturing
facility fitted with Class 10 and Class 100 clean room manufacturing space
situated on five acres of land which we purchased in December 1998 and is
located at 1117 Kings Highway, Saugerties, New York. Both facilities are in
good
operating condition and we believe they are adequate to meet our present needs.
In
March,
2002, we received from General Electric Capital Public Finance, Inc. a $2.7
million mortgage loan, secured by the real property, building and improvements
to finance and improve our facility in Ronkonkoma, New York. This mortgage
loan,
which had an outstanding balance as of December 31, 2006 of $2,075,148, is
payable in equal monthly installments of $22,285 including, interest at 5.67%
per annum, pursuant to an industrial development bond purchase agreement with
the Town of Islip Industrial Development Agency. The final payment is due in
March 2017.
In
April,
1999, we received from Kidco Realty Corporation a $900,000 purchase money
mortgage loan, secured by the real property, building and improvements
comprising our facility in Saugerties, New York. The mortgage loan had an
outstanding balance as of December 31, 2006 of $810,508 and is payable in equal
monthly installments of $5,988 including interest at 7% per annum. The entire
principal balance is due in May 2009.
MANAGEMENT
The
following table sets forth the names, ages and positions within the company
of
each of our directors and executive officers:
Name
|
|
Age
|
|
Position(s)
with the Company
|
Leonard
A. Rosenbaum
|
|
61
|
|
Chairman
of the Board of Directors, Chief Executive Officer and
President
|
|
|
|
|
|
Alan
H. Temple, Jr.
|
|
74
|
|
Director
and Chairman—Compensation Committee
|
|
|
|
|
|
Martin
J. Teitelbaum
|
|
57
|
|
Director
and Assistant Secretary
|
|
|
|
|
|
Conrad
J. Gunther
|
|
60
|
|
Director
and Chairman—Audit Committee
|
|
|
|
|
|
Bruce
T. Swan
|
|
75
|
|
Director
and Chairman—Nominating, Governance and Compliance
Committee
|
|
|
|
|
|
Glen
R. Charles
|
|
53
|
|
Chief
Financial Officer and Secretary
|
Leonard
A. Rosenbaum
Leonard
A. Rosenbaum founded the company in 1982 and has been our President, Chief
Executive Officer and has served as Chairman of the Board of Directors since
that time. From 1971 until 1982, Mr. Rosenbaum was President, director and
a
principal shareholder of Nav-Tec Industries, Inc., a manufacturer of
semiconductor processing equipment similar to the type of some of the equipment
that we currently manufacture. From 1966 to 1971, Mr. Rosenbaum was employed
by
a division of General Instrument Corporation, a manufacturer of semiconductor
materials and equipment.
Alan
H. Temple, Jr.
Alan
H. Temple, Jr. has served as a member of our Board of Directors since 1987.
Mr.
Temple earned an MBA at Harvard University and has been President of Harrison
Homes Inc., a building and consulting firm located in Pittsford, New York since
1977.
Martin
J. Teitelbaum
Martin
J. Teitelbaum has served as a member of our Board of Directors since 1985.
Mr.
Teitelbaum is an attorney who, since 1988, has conducted his own private
practice, the Law Offices of Martin J. Teitelbaum. Prior to establishing his
own
firm, Mr. Teitelbaum was a partner at Guberman & Teitelbaum from 1977 to
1987. Mr. Teitelbaum currently acts as our Assistant Secretary. Mr. Teitelbaum
earned a B.A. in Political Science from the State University of New York at
Buffalo and a Juris Doctor from Brooklyn Law School.
Conrad
J. Gunther
Conrad
J. Gunther has served as a member of our Board of Directors since 2000. Mr.
Gunther has extensive experience in mergers and acquisitions and in raising
capital through both public and private means. He also has extensive experience
in executive management in the banking industry. He also serves on the board
of
directors of GVC Venture Corp., all public companies. For the past five years,
Mr. Gunther has been the President of E-Billsolutions, Inc., a company that
provides credit card processing to Internet, mail order and telephone order
merchants.
Bruce
T. Swan
Bruce
T. Swan has served as a member of our Board of Directors since September 2003.
Mr. Swan has extensive banking, export and international credit experience
and
has been retired for more than five years. He previously has held the positions
of Deputy Manager at Brown Brothers Harriman and Co., Assistant Treasurer at
Standard Brands Incorporated, Assistance Treasurer at Monsanto Corporation,
Vice
President and Treasurer at AM International Inc. and President and Founder
of
Export Acceptance Company, LLC. Mr. Swan earned his MBA from Harvard University
and is a former adjunct faculty member of New York University’s Stern School of
Business Administration.
Glen
R. Charles
Glen
R. Charles has been our Chief Financial Officer and Secretary since January
2004. From 2002 until 2004, he was the Director of Financial Reporting for
Jennifer Convertibles, Inc., the owner and licensor of the largest group of
sofabed specialty retail stores in the United States. From 1994 to 2002, Mr.
Charles was the Chief Financial Officer of Trans Global Services, Inc., a
provider of temporary technical services to the aerospace, aircraft, electronics
and telecommunications markets. Mr. Charles has also conducted his own business
in the private practice of accounting. Mr. Charles is a Certified Public
Accountant and earned his B.S. in Accounting from the State University of New
York at Buffalo.
Board
of Directors
The
primary responsibilities of our Board of Directors are to provide oversight,
strategic guidance, counseling and direction to our management. Our Board of
Directors meets on a regular basis and additionally as required. Written or
electronic materials are distributed in advance of meetings as a general rule
and our Board of Directors schedules meetings with, and presentations from,
members of our senior management on a regular basis and as
required.
Our
Board
of Directors consists of five members, three of which have been determined
to be
independent under the rules of the American Stock Exchange. Section 121 of
the
American Stock Exchange Company Guide requires that a majority of our Board
of
Directors be comprised of members who are independent.
Committees
of our Board of Directors
We
have a
standing Audit Committee, Stock Option and Compensation Committee and
Nominating, Governance and Compliance Committee.
Audit
Committee
The
members of the Audit Committee are Conrad J. Gunther, Alan H. Temple, Jr. and
Bruce T. Swan. Our Board of Directors has determined that Messrs. Gunther,
Temple and Swan are “independent” under Rule 10A-3(b) of the Exchange Act. The
Board of Directors has determined that Mr. Gunther is an “audit committee
financial expert” within the meaning of Item 407(d)(s) of Regulation S-K
promulgated under the Exchange Act.
Our
Audit
Committee recommends our independent accountants for appointment to audit our
financial statements and to perform services related to the audit, review the
scope and results of the audit, review with management and the independent
accountants our annual and quarterly operating results, consider the adequacy
of
the internal accounting procedures and controls, consider the effect of such
procedures and controls on the accountants’ independence and establish policies
for business values, ethics and employee relations.
Stock
Option and Compensation Committee
The
Stock
Option and Compensation Committee was formed through the merger in 2006 of
the
Stock Option Committee and Compensation Committee. The Stock Option and
Compensation Committee currently consists of Conrad J. Gunther, Alan H. Temple,
Jr., Bruce T. Swan and Martin J. Teitelbaum. The Stock Option and Compensation
Committee has broad discretion in determining the persons to whom stock options
are to be granted and the terms and conditions of the award, including the
type
of award, the exercise price and term and restrictions and forfeiture
conditions. The Committee also reviews, approves and makes recommendations
regarding the company's compensation policies, practices and procedures. All
of
the members of the Stock Option and Compensation Committee currently qualify
as
independent under the rules of the American Stock Exchange.
Nominating,
Governance and Compliance Committee
The
Nominating Governance and Compliance Committee consists of Bruce T. Swan, Conrad
J. Gunther, Martin J. Teitelbaum and Alan H. Temple Jr. This Committee's role
is
to make recommendations to the full Board of Directors as to the size and
composition of the Board of Directors and to make recommendations as to
particular nominees. All members of the Nominating, Governance and Compliance
Committee currently qualify as independent under the rules of the American
Stock
Exchange.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Martin
J.
Teitelbaum serves as a director and our outside general counsel. The company
incurred legal fees for Mr. Teitelbaum’s professional services of approximately
$34,000 and $35,000 for the years ended December 31, 2006 and 2005,
respectively. As of December 31, 2006 and 2005, unpaid legal fees of
approximately $43,000 and $35,000 respectively were due Mr. Teitelbaum for
services rendered.
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
Overview
of Objectives
Our
Stock
Option and Compensation Committee of the Board of Directors establishes
compensation policies, plans and programs to accomplish three objectives:
|
·
|
to
keep, incentivize and reward highly capable and well-qualified
executives;
|
|
·
|
to
focus executives’ efforts on increasing long-term shareholder value;
and
|
|
·
|
to
reward executives at levels which are competitive with the marketplace
for
similar positions and consistent with the performance of each executive
and of our company.
|
Our
executive compensation program is designed to reward an individual’s success in
meeting and exceeding performance in various leadership functions, coupled
with
the ability to enhance long-term shareholder value. Some of the key elements
in
considering an executive’s level of success are the executive’s:
|
·
|
effectiveness
as it relates to our overall financial, operational, and strategic
goals;
|
|
·
|
the
individual’s level of responsibility and the nature and scope of these
responsibilities;
|
|
·
|
contribution
to our financial results;
|
|
·
|
effectiveness
in leading initiatives to increase customer value and overall
productivity;
|
|
·
|
contribution
to our commitment to corporate responsibility, as well as, compliance
with
applicable laws, regulations, and the highest ethical standards;
and
|
|
·
|
commitment
to community service and leadership.
|
Elements
of Compensation
Our
executive compensation program includes the following elements:
|
·
|
annual
compensation
which
is comprised of base salary, cash bonus, and other annual types of
compensation; and
|
|
·
|
long-term
compensation
which
may include the award of stock options, and similar long-term
compensation.
|
Each
year, the Stock Option and Compensation Committee performs an evaluation of
each
executive, which includes among other things, a review of the contribution
and
performance over the past year, strengths, weaknesses, and development plans.
Following this presentation, input, as needed, is obtained from other senior
officers or supervisory personnel. A discussion is held and the Stock Option
and
Compensation Committee makes its own assessment and determines the compensation
of each executive. The committee continually strives to balance annual and
long-term compensation by examining the entire compensation package of each
executive.
Annual
Compensation
Each
compensation element is specifically designed to meet the objectives outlined
above. As such, in determining the annual compensation budget for the current
year and in fixing levels of executive compensation, the committee considered:
|
·
|
our
performance relative to our growth and profitability goals and its
peers’
performance, both in the local geographic area and in institutions
with
similar lending portfolios;
|
|
·
|
the
relative individual performance of each executive;
and
|
Base
Salary
In
establishing a base salary for executives, the following factors were
considered: (i) the duties, complexities, specialization, and
responsibilities of the position; (ii) the level of experience and/or
training required; (iii) the impact of the executive’s decision-making
authority; and (iv) the compensation for positions having similar scope and
accountability within and outside the company.
The
Stock
Option and Compensation Committee, where it deems appropriate, may review
publicly available local, regional, and national compensation data to benchmark
executive compensation. We believe that executive talent extends beyond our
direct competitors and industry; therefore, the data may include a broad
comparison group. While benchmarking provides a very useful tool, the Stock
Option and Compensation Committee understands that an effective compensation
program is based primarily on performance; therefore, adjustments to base salary
benchmarks are driven primarily by individual performance and our projected
cash
needs.
Annual
Incentive Compensation
The
Stock
Option and Compensation Committee believes that incentive-based compensation
helps to align our overall goals with the individual goals of the executive.
From time to time, we provide the opportunity for executives and certain key
employees to earn annual incentive compensation, which is awarded in the form
of
cash bonuses (primarily at the end of the year). Each award is based on the
achievement of company-wide and departmental goals, together with individual
performance objectives and is determined by recommendation of the Chief
Executive Officer and is approved by the Stock Option and Compensation
Committee.
Other
Annual Compensation
Our
Chief
Executive Officer, Leonard Rosenbaum, has been granted the use of a
company-owned vehicle. The use of the company-owned vehicle provides an
expense-saving opportunity, as this vehicle is used for business-related travel
as needed, helping to cut out-of-pocket travel expenses.
Long-Term
Compensation
The
Stock
Option and Compensation Committee continually strives to achieve a balance
between promoting strong annual growth and ensuring long-term viability and
success. To reinforce the importance of balancing these views, executives are
provided both short-term and long-term incentives.
Stock
Options
Our
Stock
Option and Compensation Committee believes that shareholder value of our company
can be further increased by aligning the financial interests of our key
executives and certain other employees with those of our shareholders. Awards
of
stock options pursuant to our Stock Option Plans (the “Plans”) are intended to
meet this objective and constitute the long-term incentive portion of executive
compensation. Participation in the Plans is specifically approved by the
committee and consists of our employees.
The
option price paid by the executive to exercise the option is generally the
fair
market value of our common stock on the day the option is granted. Options
granted typically have a three to four year vesting period. The executive may
exercise the vested options generally within a seven-year period from the
original grant date. The options gain value over that time only if the market
price of our stock increases. The committee believes the Plans focus the
attention and efforts of executive management and employees upon increasing
long-term stockholder value. The Stock Option and Compensation Committee awards
and approves grants of options to key executives and employees in amounts it
believes are adequate to achieve the desired objectives. The total number of
shares available for award in each plan year is specified in the Plans. Grants
may be offered at any time during the year or may occur more frequently. There
were no grants to the named executive officers in 2006.
Our
stock
option plans are a vital component of a total compensation program that is
designed to recognize, motivate, and encourage company leaders to sustain a
high
level of performance, which will ultimately enhance our long-term success.
Other
Long-Term Compensation
We
offer
a variety of health and welfare programs to all eligible employees. The
executives generally are eligible for the same benefit programs on the same
basis as other employees. The health and welfare programs are intended to
protect employees against catastrophic loss and encourage a healthy lifestyle.
Our health and welfare programs include medical, prescription and dental. We
provide short-term disability coverage to every full time employee in New York,
at no cost to the employee.
We
offer
a 401(k) plan to all eligible employees, including executives. The 401(k) plan
is funded by contributions of participating employees. We do not offer any
matching contributions to the participants in this plan.
Employment
Agreements and Change of Control
At
present, there are no employment or change in control agreements in effect
between us and our executive officers.
Executive
Compensation
The
base
salary levels for 2006 for named executive officers were as follows: Leonard
A.
Rosenbaum, our President and Chief Executive Officer, $162,742 per year; and
Glen R. Charles, Chief Financial Officer and Secretary, $115,337 per year.
President
and CEO.
Leonard
A. Rosenbaum is our President and Chief Executive Officer. Based upon input
and
analysis of the Compensation Committee, the total compensation for
Mr. Rosenbaum was set at $190,880 as shown on the summary compensation
table below. Mr. Rosenbaum’s 2006 base salary was $162,742 as shown on the
summary compensation table below. Mr. Rosenbaum also received additional
annual compensation in the amount of $28,138, also shown on the summary
compensation table below.
The
Stock
Option and Compensation Committee meets independently of the Chief Executive
Officer to determine total compensation for the Chief Executive Officer. The
committee recognizes that the Chief Executive Officer has overall responsibility
for the performance of the company. Therefore, our performance may have a direct
impact upon the Chief Executive Officer’s compensation. The base compensation
for Mr. Rosenbaum in 2006 was based on the company’s overall performance
and profitability while considering its relation to compensation levels for
other executives of companies our size. Other factors considered include
long-range plan goals for earnings, projected cash requirements, capital,
liquidity and the operational performance. Although company performance has
improved each year since 2004, the Stock Option and Compensation Committee,
with
Mr. Rosenbaum’s approval, decided not to pay Mr. Rosenbaum a bonus in 2006.
The
Stock
Option and Compensation Committee believes that Mr. Rosenbaum’s salary is
well-justified because Mr. Rosenbaum was instrumental in providing the
direction and guidance needed for our expansion into additional markets (such
as
our First Nano product line), and because Mr. Rosenbaum provides the
leadership necessary to continually manage and grow our business. He plays
the
lead role in guiding the executive team and our strategic direction.
Chief
Financial Officer and Secretary
.
Glen R.
Charles is our Chief Financial Officer and Secretary. Based upon input and
analysis of the Stock Option and Compensation Committee, the total compensation
for Mr. Charles was set at $120,400 as shown on the summary compensation
table below. Mr. Charles’ base salary was $115,337, as shown on the summary
compensation table below. Mr. Charles’ received additional annual
compensation in the amount of $5,063 also shown on the summary compensation
table below.
Mr. Charles
is responsible for all of our financial planning and management. His knowledge
and expertise is critical to our day-to-day functions, as well as, our continued
growth and expansion. The Stock Option and Compensation Committee believes
that
Mr. Charles’ is well deserving of his compensation package, due to his vast
experience and commitment to the company.
Summary
Compensation Table
The
following table sets forth for each of the named executive officers:
(i) the dollar value of base salary and bonus earned during the years ended
December 31, 2006, 2005 and 2004; (ii) the aggregate grant date fair
value of stock and option awards granted during such year; (iii) the dollar
value of earnings under non-equity incentive plans; (iv) the change in
pension value and non-qualified deferred compensation earnings for such year;
(v) all other compensation for the year; and (vi) the dollar value of
total compensation for such year.
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Option
Awards
($)
(1)
|
|
All
Other
Compen-
sation
($)
|
|
Total
($)
|
|
Leonard
A. Rosenbaum,
|
|
|
2006
|
|
$
|
162,742
|
|
$
|
28,138
|
|
|
--
|
|
$
|
190,880
|
|
President
and Chief Executive Officer
|
|
|
2005
|
|
|
162,742
|
|
|
--
|
|
|
--
|
|
|
162,742
|
|
|
|
|
2004
|
|
|
162,742
|
|
|
--
|
|
|
|
|
|
162,742
|
|
Glen
R. Charles,
|
|
|
2006
|
|
|
115,337
|
|
$
|
5,063
|
|
|
--
|
|
$
|
120,400
|
|
Chief
Financial Officer and Secretary
|
|
|
2005
|
|
|
110,000
|
|
|
--
|
|
|
--
|
|
|
110,000
|
|
|
|
|
2004
|
|
|
105,269
|
|
|
--
|
|
|
--
|
|
|
105,269
|
|
(1)
Amounts shown do not reflect compensation actually received by the named
executive officer. Instead, the amounts shown are the compensation costs
recognized by us in 2006 for option awards as determined pursuant to FAS 123(R).
These compensation costs reflect option awards granted prior to 2006. The
assumptions used to calculate the value of option awards are set forth under
Note 13 of the Notes to Consolidated Financial Statements.
Grants
of Plan-Based Awards
We
did
not grant any stock options or stock awards to the named executive officers
during 2006.
Outstanding
Equity Awards at Year-End
The
following table sets forth the outstanding equity awards to our named executive
officers at the end of 2006.
|
|
Option
Awards
|
|
Name
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Leonard
A. Rosenbaum, President and Chief Executive Officer
|
|
|
10,000
|
|
|
--
|
|
|
2.00
|
|
|
8/1/2007
|
|
|
|
|
15,000
|
|
|
--
|
|
|
1.40
|
|
|
9/23/2010
|
|
|
|
|
7,000
|
|
|
14,000
|
|
|
4.10
|
|
|
9/13/2012
|
|
Glen
R. Charles, Chief Financial Officer and Secretary
|
|
|
3,750
|
|
|
11,250
|
|
|
2.26
|
|
|
6/16/2012
|
|
Option
Exercises and Stock Vested
There
were no option awards or stock awards exercised by the named executive officers
during 2006.
Pension
Benefits
We
did
not provide any pension benefits to the named executive officers during 2006.
Nonqualified
Deferred Compensation
We
did
not pay any nonqualified deferred compensation to any named executive officer
during 2006.
Director
Compensation
The
following table represents director compensation for 2006.
Name
|
|
Option
Awards
($)
|
|
Total
($)
|
|
Alan
H. Temple Jr.
|
|
|
28,138
|
|
|
28,138
|
|
Martin
J. Teitelbaum
|
|
|
28,138
|
|
|
28,138
|
|
Conrad
J. Gunther
|
|
|
28,138
|
|
|
28,138
|
|
Bruce
T. Swan
|
|
|
28,138
|
|
|
28,138
|
|
(1)
Amounts shown do not reflect compensation actually received by the named
director. Instead, the amounts shown are the compensation costs recognized
by us
in 2006 for option awards as determined pursuant to FAS 123(R) These
compensation costs reflect option awards granted prior to 2006. The assumptions
used to calculate the value of option awards are set forth under Note 13 of
the
Notes to Consolidated Financial Statements.
Our
directors are not regularly compensated for being on the Board of Directors
and
the directors did not receive any compensation in 2006. Leonard A. Rosenbaum,
a
director and employee of the company, is compensated by the company in
connection with his employment as our President and Chief Executive Officer.
Mr.
Rosenbaum’s compensation as President and Chief Executive Officer is set forth
in the summary compensation table above. The Stock Option and Compensation
Committee, which is comprised of all of the members of the Board of Directors
with the exception of Leonard A. Rosenbaum, has the authority to grant stock
options to members from time to time. No stock options were granted to directors
in 2006. In September, 2005, the Stock Option and Compensation Committee granted
non-qualified stock options to purchase 21,000 shares of the company’s common
stock to each member of the Board of Directors. These options were issued at
a
grant price equal to the then current market price of $4.10. These options
became exercisable as to 33.3% of the underlying shares on December 13, 2005.
The options become exercisable with respect to the remaining 14,000 underlying
shares with options to purchase 1,750 shares becoming exercisable every three
months beginning January 13, 2007. These options expire on September 13,
2012.
Stock
Option and Compensation Committee Interlocks and Insider
Participation
The
Stock
Option and Compensation Committee is presently comprised of Messrs. Alan H.
Temple Jr., Conrad J. Gunther, Bruce T. Swan and Martin J. Teitelbaum, who
are
not, and were not during our last fiscal year, officers or employees of the
company.
We
have
not had any transactions during 2006, nor are there any currently proposed
transactions, in which any of the foregoing directors will have a direct or
indirect material interest.
UNDERWRITING
Subject
to the terms and conditions set forth in an underwriting agreement among us
and
the underwriter, C.E. Unterberg, Towbin, LLC, the underwriter has
agreed to purchase from us all of the shares of common stock offered by us
through this offering. C.E. Unterberg Towbin, LLC’s address is 350 Madison
Avenue, 11
th
Floor,
New York, New York 10017.
The
underwriting agreement provides that the obligations of the underwriter are
subject to certain conditions, including the approval of legal matters by its
counsel. The nature of the underwriter’s obligations is that it is committed to
purchase and pay for all of the shares of common stock offered by us through
this offering, other than shares of our common stock covered by the over
allotment option described below.
Public
Offering Price and Dealers Concession
The
underwriter proposes initially to offer the shares of common stock offered
by
this prospectus directly to the public for the offering price per share set
forth on the cover page of this prospectus, and to certain dealers at that
price
less a concession not in excess of $[ ] per share. After
commencement of this offering, the underwriter may change the offering price
and discount. No such change will alter the amount of proceeds to be
received by us as set forth on the cover page of this prospectus.
Over-allotment
Option
Certain
selling shareholders have granted the underwriter an option to buy up to 375,000
additional shares of common stock. The underwriter may exercise this option
solely for the purpose of covering over-allotments, if any, made in connection
with this offering. The underwriter has 30 days from the date of this prospectus
to exercise this option. If the underwriter exercises this option, it will
purchase additional shares approximately in proportion to the amount specified
in the table below.
We
will
not receive any of the proceeds from the sale of these shares by the selling
shareholders.
Name
of Selling Shareholder
|
Shares
of Common Stock Subject to Overallotment Option
|
Leonard
A. Rosenbaum
|
|
Alan
H. Temple Jr.
|
|
Martin
J. Teitelbaum
|
|
Conrad
J. Gunther
|
|
Bruce
T. Swan
|
|
Glen
R. Charles
|
|
|
(1)
|
Assumes
all shares of common stock offered are hereby
sold.
|
Underwriting
Compensation
The
underwriting discount is equal to the public offering price per share of common
stock less the amount paid by the underwriter to us per share of common
stock. The following table summarizes the compensation to be paid to the
underwriter by us in connection with this offering. The following amounts are
shown assuming both no exercise and full exercise of the underwriter’s option to
purchase additional shares.
|
|
Paid
by CVD Equipment Corporation
|
|
|
|
No
Exercise
|
|
Full
Exercise
|
|
Per
Share
|
|
$
|
-
|
|
$
|
-
|
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
Other
Offering Expenses, Acceptance and Delivery
We
estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $_____________. The offering
of
the shares is made for delivery, when, as and if accepted by the underwriter
and
subject to prior sale and to withdrawal, cancellation or modification of the
offering without notice. The underwriter reserves the right to reject an order
for the purchase of our shares in whole or in part.
Indemnification
of Underwriter
We
have
agreed to indemnify the underwriter against certain civil liabilities, including
liabilities under the Securities Act, and, where such indemnification is
unavailable, contribute to payments the underwriter may be required to make
in
connection with these liabilities.
Lock-Up
Arrangements
We
and
certain of our directors and senior executive officers holding an aggregate
of
approximately ___________ shares of our common stock and the holders of options
to purchase approximately ________ shares of our common stock have entered
into
lock-up agreements pursuant to which they have agreed not to, directly or
indirectly, issue, sell, agree to sell, grant any option or contract for the
sale of, pledge or otherwise dispose of, or, in any manner, transfer all or
a
portion of any shares of common stock or any securities convertible into or
exercisable or exchangeable for common stock or any interest therein owned
as of
the date hereof or hereafter acquired for a period of 90 days after the date
of
this prospectus without the prior written consent of C.E. Unterberg, Towbin,
LLC. C.E. Unterberg, Towbin, LLC has advised us that it has no present intention
to release any of the shares subject to the lock-up agreements prior to the
expiration of the lock-up period.
Stabilization
and Other Transactions
In
connection with this offering, the underwriter may engage in transactions that
stabilize, maintain or otherwise affect the market price of our common stock.
These transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Securities Exchange Act,
pursuant to which the underwriter may make any bid for, or purchase, common
stock for the purpose of stabilizing the market price. The underwriter also
may
create a short position by selling more common stock in connection with this
offering than it is committed to purchase from us, and in such case may purchase
common stock in the open market following completion of this offering to cover
all or a portion of such short position. In addition, the underwriter may impose
“penalty bids” whereby it may reclaim from a dealer participating in this
offering, the selling concession with respect to the common stock that it
distributed in this offering, but which was subsequently purchased for the
accounts of the underwriter in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
common stock at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required and,
if
they are undertaken, they may be discontinued at any time.
SECURITY
OWNERSHIP OF CERTAIN
BENEFICIAL
OWNERS AND MANAGEMENT
The
following table sets forth, as of June 30, 2007, information regarding the
beneficial ownership of our common stock by (a) each person who is known to
us
to be the owner of more than five percent of our common stock, (b) each of
our
directors, (c) each of the named executive officers and (d) all directors and
executive officers as a group. For purposes of this table, a person or group
of
persons is deemed to have beneficial ownership of any shares that such person
has the right to acquire within 60 days of June 30, 2007.
Name
and Address of Beneficial
Owner (7)
|
|
Amounts
and Nature of
Beneficial Ownership(1)
|
|
Percent
of Class (1)
|
Leonard
A. Rosenbaum
|
|
1,354,100(2)
|
|
40.5%
|
Alan
H. Temple, Jr.
|
|
172,250(3)
|
|
5.2
|
Martin
J. Teitelbaum
|
|
63,250(4)
|
|
1.9
|
Conrad
J. Gunther
|
|
37,250(2)
|
|
1.1
|
Bruce
T. Swan
|
|
26,250(5)
|
|
*
|
Glen
R. Charles
|
|
7,500(6)
|
|
*
|
Directors
and Executive Officers as a group (five persons)
|
|
1,660,600
|
|
48.1
|
*
Less than one percent.
(1)
Does not include the effect of the exercise by the underwriter of its option
to
buy 375,000 shares of common stock to cover over-allotments, if
any.
(2)
Includes options to purchase 37,250 shares of common stock. Does not include
options to purchase 8,750 shares of common stock.
(3)
Includes options to purchase 17,250 shares of common stock. Does not include
options to purchase 8,750 shares of common stock.
(4)
Includes 2,000 shares held by Mr. Teitelbaum’s wife as to which Mr. Teitelbaum’s
disclaims beneficial ownership and options to purchase 37,250 shares of common
stock. Does not include options to purchase 8,750 shares of common
stock.
(5)
Includes options to purchase 12,250 shares of common stock. Does not include
options to purchase 8,750 shares of common stock.
(6)
Includes options to purchase 7,500 shares of common stock. Does not include
options to purchase 7,500 shares of common stock.
(7)
All
addresses are c/o CVD Equipment Corporation, 1860 Smithtown Road, Ronkonkoma,
New York 11779.
DESCRIPTION
OF SECURITIES
Our
certificate of incorporation authorizes the issuance of 10,000,000 shares of
common stock, $0.01 par value per share. There were 3,303,500 shares of common
stock issued and outstanding as of July 2, 2007. There were also 500 shares
of
Class A preferred stock, $0.01 par value per share and 250 of Class B preferred
stock, $0.01 par value per share authorized under our certificate of
incorporation.
Common
Stock
Holders
of shares of common stock are entitled to one vote for each share on all matters
to be voted on by the shareholders, and do not have cumulative voting rights.
Holders of shares of common stock are entitled to share ratably in dividends,
if
any, as may be declared from time to time by the Board of Directors in its
discretion, from funds legally available therefore. In the event of a
liquidation, dissolution, or winding up of our company, the holders of shares
of
common stock are entitled to share pro rata all assets remaining after payment
in full of all liabilities. Holders of common stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption with
respect to such shares.
Preferred
Stock
By
their
terms, all of the shares of Class A Preferred Stock and Class B Preferred Stock
were redeemed for one cent ($0.01) per share on July 2, 1990 and July 1, 1988
respectively. All such shares were cancelled and may not be
reissued.
Transfer
Agent and Registrar
The
transfer agent and registrar for our common stock is Continental Stock Transfer
& Trust Company. Its telephone number is 212-509-4000.
LEGAL
MATTERS
The
validity of the shares of common stock offered hereby will be passed on for
us
by Ruskin Moscou Faltischek, P.C. Legal matters in connection with this offering
will be passed upon for C.E. Unterberg, Towbin LLC by Kramer Levin Naftalis
& Frankel LLP.
EXPERTS
Our
audited financial statements as of December 31, 2006 and for the two years
ended
December 31, 2006 and 2005 included herein and in the related registration
statement have been so included in reliance on the report of Moore Stephens,
P.C., an independent registered public accounting firm, given on the authority
of said firm as experts in auditing and accounting in giving said
reports.
WHERE
YOU CAN FIND MORE INFORMATION
We
file
reports, proxy statements and other documents with the SEC. You may read and
copy any document we file with the SEC at the public reference facilities the
SEC maintains at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You
may
also obtain copies of these materials by mail from the Public Reference Section
of the SEC at 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms.
The
SEC
also maintains a website, the address of which is http://www.sec.gov. That
website also contains our annual, quarterly and special reports, proxy
statements, information statements and other information.
This
prospectus is part of a registration statement that we filed with the SEC.
You
can obtain a copy of the registration statement from the SEC at any address
listed above or from the SEC’s website.
GLOSSARY
OF INDUSTRY TERMS
Annealing
:
a heat
treatment wherein a material is altered, causing changes in its properties
such
as strength and hardness.
Carbon
Nanotubes
:
a
single wall carbon nanotube is a one-atom thick sheet of graphite (called
graphene) rolled up into a seamless cylinder with diameter of the order of
a
nanometer. Due to the ultra-small diameter (sub-100 nm), in theory, they should
provide faster switching than any of today's semiconductor structures. Due
to
their strength to weight relationship they are attractive in applications such
as a replacement material for Kevlar used in personnel protection vests.
Chemical
Vapor Deposition
:
a
deposition process commonly used to produce thin films for manufacturing items
such as advanced semiconductors, LEDs, solar cells and for coatings in
Industrial applications. The coatings are deposited as a result of a chemical
reaction between vapors from gases, liquid or solid reactants. This normally
occurs at an elevated temperature in the vicinity of the substrate. CVD
processes include, among other, atmospheric pressure CVD, low pressure CVD
and
plasma enhanced CVD and metal-organic CVD.
Surface
Mount Technology (SMT):
a
method
used to connect packaged microchip to a printed board, no through-holes in
the
printed circuit board are required, packaged leads are soldered to the board
surface.
Diffusion
:
high
temperature (>800 degrees Celsius) operation performed on semiconductor
wafers to cause the motion of dopant atoms to be introduced deeper into the
semiconductor wafer.
Implant
activition:
activates
the dopant atoms implanted into semiconductor material.
Implant
anneal:
anneal
applied after implantation to activate implanted dopants and to repair
implantation damage. It is usually carred out in a Rapid mThermal Processing
(RTP) system because it requires a precise short duration at an elevated
temperature to avoid dopant redistribution.
LEDs
:
Light
emitting diodes: a light-emitting diode (LED) is a semiconductor device that
emits visible light when an electric current passes through it. LEDs are
available in different colors, Red, Green, Amber, etc. and are used where cost
effective, energy efficient and long life indicators and lighting is
required.
Micro-Electro-Mechanical
Systems (MEMS):
the
integration of mechanical elements, sensors, actuators, and electronics on
a
common substrate through micro-fabrication technology.
Nanowire
:
a
single wire, micrometer scale in length and sub-micrometer (10 -100 nm) in
diameter, piece of crystalline material such as silicon, zinc oxide and gallium.
It has a very high surface to volume ratio and may be the possible building
blocks of functional digital systems in future semiconductor devices and
LEDs.
Oxidation:
is
the
growth of a native oxide through oxidation of a solid’s surface, this is
normally done at an elevated temperature. Thermal oxidation of silicon for
example results in a very high quality silicon dioxide, SiO2, formed on the
silicon surface - most other semiconductors do not form a device quality thermal
oxide , hence the term “oxidation” is almost synonymous with the thermal
oxidation of silicon.
Quartzware:
Quartz
process tubes and fixturing for the substrate(s) or wafers is commonly referred
to as quartzware. Parts made from quartz have very low impurities, are stable
at
elevated temperatures and do not react with almost all of the reactants used
in
chemical vapor deposition making quartz the material of choice for most chemical
vapor deposition processes.
Rapid
Thermal Processing
(
RTP
):
refers
to a systems ability to rapidly heat, typically to temperatures up to 1200
Celsius in several seconds, a substrate.
Reflow
Oven:
a
machine
used primarily for melting solder and allowing it to then solidify for
electrically connecting electronic components on a printed circuit
board.
Rework
Station:
a
system
that allows for the removal and replacement of an electronic component on a
printed circuit board.
Silicide
Formation:
a
silicon
reaction with a more electropositive element or radical, usually a metal, to
form a new compound.
Solar
Cell:
a
semiconductor device that converts light energy into electrical
energy.
Solder
reflow:
a
process
of heating and melting solder that has been screen printed onto a printed
circuit board in order to bond chips and other components to the board. Surface
mount chips (SMT) use the reflow method.
Ultra
High Purity:
a
level
of purity in a system which contains a very low concentration of
contaminants.
Wafer:
usually
a
circular slice of single-crystal semiconductor material less than 1mm in
thickness and form 1” to 12” in diameter that is used in manufacturing of
semiconductor devices and integrated circuits.
CVD
EQUIPMENT CORPORATION
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
Audited
Consolidated Financial Statements
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-2
|
Consolidated
Statements of Operations for each of the three years in the period
ended
December 31, 2006
|
F-3
|
Consolidated
Statements of Shareholders’ Equity for the years ending 2006, 2005 and
2004
|
F-4
|
Consolidated
Statements of Cash Flows for each of the three years in the period
ended
December 31, 2006
|
F-5
|
Notes
to the Audited Consolidated Financial Statements
|
F-6
|
|
|
Unaudited
Consolidated Financial Statements
|
|
|
|
Consolidated
Balance Sheets as of March 31, 2007 (Unaudited) and December 31,
2006
|
F-26
|
Comparative
Consolidated Statements of Operations (Unaudited) for the three
months
ended March 31, 2007 and 2006
|
F-27
|
Comparative
Consolidated Statements of Cash Flows (Unaudited) for the three
months
ended March 31, 2007 and 2006
|
F-28
|
Notes
to the Unaudited Consolidated Financial Statements
|
F-29
|
REPORT
OF ACCOUNTANTS
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Stockholders of
CVD
Equipment Corporation
Ronkonkoma,
NY
We
have audited the consolidated balance sheets of CVD Equipment Corporation and
Subsidiary as of December 31, 2006 and 2005, and the related consolidated
statements of operations, stockholders’ equity and cash flows for each of the
three years in the period ended December 31, 2006. These consolidated 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 the standards of the Public Company
Accounting Oversight Board (United States). 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
consolidated 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 consolidated financial position of CVD
Equipment Corporation and Subsidiary as of December 31, 2006 and 2005, and
the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2006, in conformity with U.S.
generally accepted accounting principles.
/s/
MOORE STEPHENS, P.C.
Certified
Public Accountants
Cranford,
New Jersey
March
9, 2007
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Balance Sheets
December
31, 2006 and 2005
|
|
2006
|
|
2005
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
257,341
|
|
$
|
265,454
|
|
Accounts
receivable, net
|
|
|
2,377,069
|
|
|
1,893,665
|
|
Investments
|
|
|
251,130
|
|
|
-
|
|
Cost
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
716,663
|
|
|
595,067
|
|
Inventories
|
|
|
2,704,506
|
|
|
2,067,255
|
|
Other
current assets
|
|
|
118,300
|
|
|
49,597
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
6,425,009
|
|
|
4,871,038
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
4,778,807
|
|
|
5,090,536
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes - non-current
|
|
|
899,904
|
|
|
241,988
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
708,114
|
|
|
610,304
|
|
|
|
|
|
|
|
|
|
Intangible
assets, net
|
|
|
105,775
|
|
|
96,141
|
|
Total
Assets
|
|
$
|
12,917,609
|
|
$
|
10,910,007
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
223,653
|
|
$
|
217,204
|
|
Short-term
notes payable
|
|
|
210,000
|
|
|
100,000
|
|
Short-term
debt
|
|
|
2,109
|
|
|
-
|
|
Accounts
payable
|
|
|
640,771
|
|
|
639,619
|
|
Accrued
expenses
|
|
|
686,771
|
|
|
642,115
|
|
Accrued
professional fees - related party
|
|
|
35,000
|
|
|
35,260
|
|
Deferred
revenue
|
|
|
212,250
|
|
|
114,140
|
|
Deferred
tax liability-current
|
|
|
263,396
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
2,273,950
|
|
|
1,748,338
|
|
Long-term
Debt, net of current portion
|
|
|
2,776,801
|
|
|
2,923,424
|
|
Deferred
tax liability - long-term
|
|
|
666,948
|
|
|
-
|
|
Total
Liabilities
|
|
|
5,717,699
|
|
|
4,671,762
|
|
|
|
|
|
|
|
|
|
Commitments
and Contingencies
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
|
Common
stock - $0.01 par value -10,000,000 shares authorized; issued &
outstanding, 3,250,500 shares at December 31, 2006 and 3,127,800
shares at
December 31, 2005
|
|
|
32,505
|
|
|
31,278
|
|
Additional
paid-in capital
|
|
|
3,405,474
|
|
|
3,049,362
|
|
Retained
earnings
|
|
|
3,761,931
|
|
|
3,157,605
|
|
Total
Stockholders' Equity
|
|
|
7,199,910
|
|
|
6,238,245
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
12,917,609
|
|
$
|
10,910,007
|
|
The
accompanying notes are an integral part of the consolidated financial
statements
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Statements of Operations
For
the Years Ending December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
13,355,778
|
|
$
|
11,225,316
|
|
$
|
9,873,592
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of revenue
|
|
|
8,671,839
|
|
|
7,355,679
|
|
|
6,548,946
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
4,683,939
|
|
|
3,869,637
|
|
|
3,324,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
Selling
and shipping
|
|
|
756,122
|
|
|
716,377
|
|
|
691,281
|
|
General
and administrative
|
|
|
2,899,702
|
|
|
2,495,432
|
|
|
2,225,250
|
|
Related
party - professional fees
|
|
|
25,000
|
|
|
35,260
|
|
|
26,464
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
3,680,824
|
|
|
3,247,069
|
|
|
2,942,995
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
1,003,115
|
|
|
622,568
|
|
|
381,651
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
866
|
|
|
763
|
|
|
752
|
|
Interest
expense
|
|
|
(223,509
|
)
|
|
(219,255
|
)
|
|
(212,547
|
)
|
Other
income
|
|
|
116,441
|
|
|
51,405
|
|
|
26,001
|
|
Total
other (expense), net
|
|
|
(106,202
|
)
|
|
(167,087
|
)
|
|
(185,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income tax
|
|
|
896,913
|
|
|
455,481
|
|
|
195,857
|
|
Income
tax (expense)
|
|
|
(292,587
|
)
|
|
(64,570
|
)
|
|
(125,133
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
604,326
|
|
$
|
390,911
|
|
$
|
70,724
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per common share
|
|
$
|
0.19
|
|
$
|
0.13
|
|
$
|
0.02
|
|
Diluted
earnings per common share
|
|
$
|
0.19
|
|
$
|
0.12
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding basic earnings per share
|
|
|
3,169,177
|
|
|
3,097,698
|
|
|
3,039,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding diluted earnings per
share
|
|
|
3,263,533
|
|
|
3,220,097
|
|
|
3,053,494
|
|
The
accompanying notes are an integral part of the consolidated financial
statements
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Statements of Shareholders Equity
For
the Years Ending 2006, 2005 and 2004
|
|
Common
Stock
|
|
Additional
Paid
-In
Capital
|
|
Retained
Earnings
|
|
Total
Stockholders'
Equity
|
|
|
|
Shares
|
|
Amount
|
|
Balance
- December 31, 2003
|
|
|
3,039,100
|
|
$
|
30,391
|
|
$
|
2,902,149
|
|
$
|
2,695,970
|
|
$
|
5,628,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
70,724
|
|
|
70,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2004
|
|
|
3,039,100
|
|
$
|
30,391
|
|
$
|
2,902,149
|
|
$
|
2,766,694
|
|
$
|
5,699,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
88,700
|
|
|
887
|
|
|
147,213
|
|
|
|
|
|
148,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
390,911
|
|
|
390,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2005
|
|
|
3,127,800
|
|
$
|
31,278
|
|
$
|
3,049,362
|
|
$
|
3,157,605
|
|
$
|
6,238,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
122,700
|
|
|
1,227
|
|
|
186,848
|
|
|
|
|
|
188,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based compensation expense
|
|
|
|
|
|
|
|
|
169,264
|
|
|
|
|
|
169,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
|
|
|
|
|
604,326
|
|
|
604,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- December 31, 2006
|
|
|
3,250,500
|
|
$
|
32,505
|
|
$
|
3,405,474
|
|
$
|
3,761,931
|
|
$
|
7,199,910
|
|
The
accompanying notes are an integral part of the consolidated financial
statements
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Statements of Cash Flows
For
the Years Ending December 31,
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
604,326
|
|
$
|
390,911
|
|
$
|
70,724
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
358,050
|
|
|
350,143
|
|
|
356,884
|
|
Stock
based compensation expense
|
|
|
169,264
|
|
|
-
|
|
|
-
|
|
Deferred
tax provision
|
|
|
272,428
|
|
|
58,755
|
|
|
139,619
|
|
Bad
debt provision
|
|
|
(1,380
|
)
|
|
(15,131
|
)
|
|
4,430
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(482,024
|
)
|
|
496,723
|
|
|
(559,942
|
)
|
Investments
|
|
|
(251,130
|
)
|
|
-
|
|
|
-
|
|
Cost
in excess of billings on uncompleted Contracts
|
|
|
(121,596
|
)
|
|
515,295
|
|
|
(534,628
|
)
|
Inventory
|
|
|
(552,354
|
)
|
|
(243,802
|
)
|
|
(397,602
|
)
|
Other
current assets
|
|
|
(68,703
|
)
|
|
61,146
|
|
|
(36,496
|
)
|
Accounts
payable
|
|
|
11,152
|
|
|
(86,087
|
)
|
|
205,181
|
|
Accrued
expenses
|
|
|
132,508
|
|
|
165,445
|
|
|
158,655
|
|
Customer
Deposits
|
|
|
-
|
|
|
(298,152
|
)
|
|
277,557
|
|
Billing
in excess of costs on uncompleted contracts
|
|
|
-
|
|
|
-
|
|
|
(174,068
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
70,541
|
|
|
1,395,246
|
|
|
(489,686
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(224,903
|
)
|
|
(485,961
|
)
|
|
(350,590
|
)
|
Deposits
|
|
|
(13,762
|
)
|
|
-
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(238,665
|
)
|
|
(485,961
|
)
|
|
(350,580
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
of short-term borrowings
|
|
|
1,690,309
|
|
|
685,000
|
|
|
1,425,000
|
|
Payments
of short-term borrowings
|
|
|
(1,578,199
|
)
|
|
(1,435,000
|
)
|
|
(575,000
|
)
|
Proceeds
of long-term debt
|
|
|
90,000
|
|
|
-
|
|
|
26,460
|
|
Payments
of long-term debt
|
|
|
(230,174
|
)
|
|
(213,394
|
)
|
|
(186,221
|
)
|
Net
proceeds from stock options exercised
|
|
|
188,075
|
|
|
148,100
|
|
|
-
|
|
Net
cash provided by (used in) financing activities
|
|
|
160,011
|
|
|
(815,294
|
)
|
|
690,239
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(8,113
|
)
|
|
93,991
|
|
|
(150,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of year
|
|
|
265,454
|
|
|
171,463
|
|
|
321,490
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
257,341
|
|
$
|
265,454
|
|
$
|
171,463
|
|
The
accompanying notes are an integral part of the consolidated financial
statements
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
1 - Business Description
CVD
Equipment Corporation and Subsidiary (the “Company”), a New York corporation,
was organized and commenced operations in October 1982. Its principal business
activities include the manufacturing of chemical vapor deposition equipment,
customized gas control systems, the manufacturing of process equipment suitable
for the synthesis of a variety of one-dimensional nanostructures and
nanomaterials and a line of furnaces all of which are used primarily to produce
semiconductors and other electronic components. The Company engages in business
throughout the United States and the world.
Note
2 - Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of CVD Equipment
Corporation and its wholly owned subsidiary. In December 1998 , a subsidiary,
Stainless Design Concepts, Ltd., was formed as a New York Corporation. In April
1999, this subsidiary was merged into CVD Equipment Corporation. The Company
has
one inactive subsidiary, CVD Materials Corporation as of December 31, 2006,
2005
and 2004. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use
of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Estimates are used when accounting for certain items such as revenues on
long-term contracts recognized on the percentage-of-completion method,
allowances for doubtful accounts, depreciation and amortization, tax provisions
and product warranties.
Revenue
and Income Recognition
The
Company recognizes revenues and income using the percentage-of-completion method
for custom production-type contracts while revenues from other products are
recorded when such products are accepted and shipped. Profits on custom
production-type contracts are recorded on the basis of the Company’s estimates
of the percentage-of-completion of individual contracts, commencing when
progress reaches a point where experience is sufficient to estimate final
results with reasonable accuracy. Under this method, revenues are recognized
based on costs incurred to date compared with total estimated
costs.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted
contracts,” represents revenues recognized in excess of amounts billed. The
liability, “Billings in excess of costs on uncompleted contracts,” represents
amounts billed in excess of revenues earned.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Investments
Investments
in unconsolidated companies in which the Company owns less then a 20% interest
or otherwise does not exercise a significant influence are carried at
cost.
Inventories
Inventories
are valued at the lower of cost (determined on the first-in, first-out method)
or market.
Reclassifications
Certain
items have been reclassified in the 2005 financial statements to conform to
the
2006 presentation. These reclassifications have no effect on the net income
previously reported.
Income
Taxes
Deferred
tax assets and liabilities are determined based on the estimated future tax
effects of temporary differences between the financial statements and tax bases
of assets and liabilities, as measured by the current enacted tax rates.
Deferred tax expense (benefit) is the result of changes in the deferred tax
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, net of accumulated depreciation and
amortization. Expenditures for maintenance and repairs are charged against
operations as incurred. The cost of certain labor and overhead which is expected
to benefit future periods has been capitalized and amortized. Depreciation
and
amortization are computed by the straight-line method for financial statement
purposed over the following estimated useful lives:
|
Estimated
Useful
Life
|
|
(years)
|
Buildings
|
39
|
Building
improvements
|
5-39
|
Machinery
and equipment
|
8
|
Furniture
and fixtures
|
8
|
Computer
equipment
|
5
|
Transportation
equipment
|
3
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Software
Capitalization
The
Company follows Statement of Position 98-1, Accounting for Costs of Computer
Software Developed or Obtained for Internal Use. This standard requires certain
direct development costs associated with internal-use software to be capitalized
including external direct costs of material and services and payroll costs
for
employees devoting time to the software projects. These costs totaled $123,115,
$252,483 and $269,596 for the years ended December 31, 2006, 2005 and 2004
respectively and are included in Other Assets. All software is amortized
straight-line over its useful life of three years. Amortization expense related
to software totaled $37,194, $47,446 and $40,299 for the years ended December
31, 2006, 2005, and 2004 respectively.
Intangible
Assets
The
cost
of intangible assets is being amortized on a straight-line basis over their
useful lives ranging from 5 to 15 years. Amortization expense recorded by the
Company in 2006, 2005 and 2004 totaled $18,027, $13,416 and $13,419
respectively.
Bad
Debts
Accounts
receivables are presented net of an allowance for doubtful accounts of $7,217,
$8,597 and $23,728 as of December 31, 2006, 2005 and 2004 respectively. The
allowance is based on prior experience and management’s evaluation of the
collectibility of accounts receivable. Management believes the allowance is
adequate. However, future estimates may change based on changes in economic
and
customer conditions.
Product
Warranty
The
Company records warranty costs as incurred and does not provide for possible
future costs. Management estimates such costs not to be material based on prior
experience. However, it is reasonably possible that this estimate may change
in
the future.
Advertising
Costs
The
company expenses advertising and trade show costs which are not expected to
benefit future periods. These expenses which are included in selling and
shipping expenses were $57,508, $53,492 and $25,822 in 2006, 2005 and 2004
respectively.
Earnings
Per Share
Basic
net
earnings per common share is computed by dividing the net income by the weighted
average number of shares of common stock outstanding during each period. Diluted
earnings per share reflects the dilutive effect of the assumed exercise of
options. Items which may dilute earnings per share in future periods are
disclosed in Note 13.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Cash
and Cash Equivalents
The
Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less at the date of purchase to be cash
equivalents.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash, cash equivalents, and accounts receivable.
The
Company places its cash equivalents with high credit-quality financial
institutions and invests its excess cash primarily in money market instruments.
The Company has established guidelines relative to credit ratings and maturities
that seek to maintain stability and liquidity. The Company sells products and
services to various companies across several industries in the ordinary course
of business. The Company routinely assesses the financial strength of its
customers and maintains allowances for anticipated losses. Generally, the
Company does not require collateral or other security to support trade
receivables.. See Note 15 for concentration details.
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 long-term debt approximates fair value based
on borrowing rates currently available for loans with similar terms and
maturities.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123-R
“Share-Based Payment” using the modified prospective method. SFAS No. 123-R
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based upon the grant date fair value
of those awards. Under the modified prospective method of adopting SFAS No.
123-R, the Company recognized compensation cost for all share-based payments
granted after January 1, 2006, plus any awards granted to employees prior to
January 1, 2006 that remain unvested at that time. Under this method of
adoption, no restatement of prior periods is made.
Prior
to
January 1, 2006 the Company recognized the cost of employee services received
in
exchange for equity instruments in accordance with Accounting Principles Board
Opinion No. 25 “Accounting for Stock Issued Employees” (APB 25). APB 25 required
the use of the intrinsic value method, which measures compensation cost as
the
excess, if any, of the quoted market price of the stock over the amount the
employee must pay for the stock. Compensation expense was measured under APB
25
on the date the shares were granted. Under APB 25, no compensation expense
was
recognized for stock options.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Shipping
and Handling
It
is the
Company’s policy to include freight in total sales. The amount included in sales
was $34,214, $33,540 and $18,304 for the years ended December 31, 2006, 2005
and
2004 respectively. Included in selling and shipping is $98,138, $87,844 and
$58,629 for shipping and handling costs for 2006, 2005 and 2004
respectively.
Recently
Issued Accounting Standards
In
February 2006, the Financial Accounting Standards Boards (“FASB”) issued
Statement No. 155,
Accounting
for Certain Hybrid Financial Instruments,
an
amendment of FASB No. 133,
Accounting
for Derivative Instruments and Hedging Activities,
and FASB
No. 140,
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
FASB No.
155 provides the framework for fair value re-measurement of any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, as well as establishing a requirement to evaluate interests in
securitized financial assts to identify interests. FASB No. 155 further amends
FASB No. 140 to eliminate the prohibition on a qualifying special purpose
entity’s holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. The guidance in
FASB No.155 also clarifies which interest-only strips and principal-only strips
are not subject to the requirements of FASB No. 133 and which concentrations
of
credit risk in the form of subordination are not embedded derivatives. This
Statement is effective for financial instruments acquired or issued after the
beginning of an entity’s first fiscal year that begins after September 15, 2006.
FASB No. 155 is not expected to have a material impact on the Company’s
consolidated financial statements.
In
March
2006, FASB issued Statement No. 156 (“FASB No. 156”),
Accounting
for the Servicing of Financial Assets,
an
amendment of FASB Statement No. 140. FASB No. 156 requires the recognition
of a
servicing asset or servicing liability under certain circumstances when an
obligation to service a financial asset occurs by entering into a service
contract. FASB No.156 also requires all separately recognized servicing assets
and servicing liabilities to be initially measured at fair value utilizing
the
amortization method or the fair market value method. FASB No. 156 is effective
at the beginning of the first fiscal year that begins after September 15, 2006.
FASB No. 156 is not expected to have a material effect on the Company’s
consolidated financial statements.
In
June
2006, FASB issued Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement No.
109.
This
interpretation clarifies the accounting for the uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement No. 109,
Accounting
for Income Taxes
.
This
interpretation prescribes a recognition threshold and measurement attribute
for
the financial statement recognition and measurement of a tax position taken
or
expected to be taken in a tax return. This interpretation also provides guidance
on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FASB Interpretation No. 48 is not expected
to have a material impact on the Company’s consolidated financial
statements.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
In
September 2006, FASB issued Statement No. 157,
Fair
Value Measurements
.
This
Statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles, and expands disclosures about
fair
value measurements. This Statement applies under other accounting pronouncements
that require or permit fair value measurements. The other accounting
pronouncements affected include Statements No. 107,
Disclosures
about Fair Value of Financial Instruments
;
No.
115,
Accounting
for Certain Investments
;
No.
124,
Accounting
for Certain Investments Held by Not-for-Profit Organizations
;
No.
133,
Accounting
for Derivative Instruments and Hedging Activities.
Statement No. 157 is effective for financial statements issued for fiscal years
after November 15, 2007 and interim periods within those fiscal years. Statement
No. 157 is not expected to have a material impact on the Company’s consolidated
financial statements.
In
September 2006, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 108 (“SAB 108”) which provides guidance on the consideration of the
effects of prior year misstatements when quantifying misstatements in current
year financial statements. SAB 108 recommends using both the “rollover” and
“iron curtain” approaches when quantifying misstatements from prior years to
determine materiality. If the misstatement in the current year financial
statements is material after the application of both the “rollover” and “iron
curtain” approaches, the prior year financial statements should be corrected,
even though such revision previously was and continues to be immaterial to
the
prior year financial statements. If the cut-off error that existed in the prior
year was not discovered until the current year, a separate analysis of the
prior
year (and any other prior year in which previously undiscovered errors existed)
would need to be performed to determine whether such prior year financial
statements were materially misstated. If a material misstatement did occur,
then
the prior year financial statements would need to be restated. SAB 108 is
effective for fiscal years ended after November 15, 2006. SAB 108 is not
expected to have a material impact on the Company’s consolidated financial
statements.
In
February 2007, FASB issued Statement No. 159 (“FASB 159”),
The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
Amendment of FASB Statement No. 115.
The fair
value option established by this statement permits all entities to choose to
measure eligible items at fair value at specified election dates. A business
entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting date.
The
measurement option is applied to:
1.
|
Recognized
financial assets and financial liabilities except
for:
|
|
a.
|
An
investment in a subsidiary that the entity is required to
consolidate.
|
|
b.
|
An
interest in a variable interest entity that the entity is required
to
consolidate.
|
|
c.
|
Employees’
and plans’ obligations for pension benefits, other postretirement
benefits, post-employment benefits, employee stock option and stock
purchase plans, and other forms of deferred compensation
arrangements.
|
|
d.
|
Financial
assets and financial liabilities recognized under leases as defined
in
FASB Statement No. 13,
Accounting
for Leases.
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
|
e.
|
Deposit
liabilities, withdrawable on demand, of banks, savings and loan
associates, credit unions, and other similar depository
institutions.
|
|
f.
|
Financial
instruments that are in whole, or in part, classified by the user
as a
component of shareholders’ equity.
|
2.
|
Firm
commitments that would otherwise not be recognized at inception and
that
involve only financial instruments.
|
3.
|
Nonfinancial
insurance contracts and warranties that the insurer can settle by
paying a
third party to provide those goods or
services.
|
4.
|
Host
financial instruments resulting from separation of an embedded
nonfinancial derivative instrument from a nonfinancial hybrid
instrument.
|
The
fair
value option:
1.
|
May
be applied instrument by instrument, with a few exceptions, such
as
investments other wise accounted for by the equity
method.
|
2.
|
Is
irrevocable (unless a new election date
occurs).
|
3.
|
Is
applied only to entire instruments and not to portions of
instruments.
|
The
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. FASB 159 is not expected to have a material
impact on the Company’s consolidated financial statements.
Note
3 - Supplemental Cash Flow Information
During
2006, certain assets in property, plant and equipment, with a net book value
of
$84,897 were reclassified into inventory. Options to purchase 10,000 common
shares were issued to an employee. The option price for all options granted
was
equal to or greater than the fair market value per share on the date the option
was granted and no compensation cost was recognized.
During
2005, options to purchase 176,500 common shares were issued to certain employees
and members of the board of directors. The option price for all options granted
in 2005 was equal to or greater than the fair market value per share on the
date
the option was granted and no compensation cost was recognized.
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Income
taxes, net of refunds
|
|
$
|
10,047
|
|
$
|
4,509
|
|
$
|
3,256
|
|
Interest
|
|
|
222,861
|
|
|
212,547
|
|
|
222,580
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
4 - Investments
The
Company sold equipment to a Customer for a purchase price of one hundred four
thousand, four hundred eighty two (104,482) shares of common stock, par value
$.001 per share. Between July 19, 2007 and July 31, 2007, the Company has the
option to demand that the Customer make cash payment i.e.: two hundred fifty-one
thousand, one hundred thirty 00/100 U.S. dollars ($251,130) for the equipment,
the amount that would have been required had the Customer made cash payment
for
the equipment on July 19, 2006 in exchange for the return of said stock. The
Customer’s obligation to make such payment pursuant to the terms of the option
is secured by a perfected lien upon the subject equipment and the Company’s
right to execute upon the aforesaid common stock. In the event the Customer
does
not make full payment, the Company has also reserved the right to maintain
plenary proceedings against the Customer for the purpose of recovering such
sums
as may be due as well as the right to obtain a deficiency judgment in the event
that the collateral in the equipment and stock is insufficient to discharge
said
obligation.
Note
5 - Uncompleted Contracts
Costs,
estimated earnings, and billings on uncompleted contracts are summarized as
follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Costs
incurred on uncompleted contracts
|
|
$
|
1,509,672
|
|
$
|
961,735
|
|
$
|
1,142,057
|
|
Estimated
earnings
|
|
|
2,015,836
|
|
|
901,390
|
|
|
1,084,166
|
|
|
|
|
3,525,508
|
|
|
1,863,125
|
|
|
2,226,223
|
|
Billings
to date
|
|
|
(2,808,845
|
)
|
|
(1,268,058
|
)
|
|
(1,115,861
|
)
|
|
|
$
|
716,663
|
|
$
|
595,067
|
|
$
|
1,110,362
|
|
|
|
|
|
|
|
|
|
|
|
|
Included
in accompanying balance sheets
|
|
|
|
|
|
|
|
|
|
|
Under
the following captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and estimated earnings in excess
|
|
|
|
|
|
|
|
|
|
|
of
billings on uncompleted contracts
|
|
$
|
716,663
|
|
$
|
595,067
|
|
$
|
1,110,362
|
|
Billings
in excess of costs and estimated
|
|
|
|
|
|
|
|
|
|
|
earnings
on uncompleted contracts
|
|
|
---
|
|
|
---
|
|
|
---
|
|
|
|
$
|
716,663
|
|
$
|
595,067
|
|
$
|
1,110,362
|
|
Note
6 - Inventory
December
31,
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
860,085
|
|
$
|
849,355
|
|
$
|
628,934
|
|
Work-in-process
|
|
|
1,515,460
|
|
|
854,115
|
|
|
686,325
|
|
Finished
goods
|
|
|
328,961
|
|
|
363,785
|
|
|
508,194
|
|
|
|
$
|
2,704,506
|
|
$
|
2,067,255
|
|
$
|
1,823,453
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
7 - Property, Plant and Equipment
Major
classes of property, plant and equipment consist of the following:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
760,000
|
|
$
|
760,000
|
|
$
|
760,000
|
|
Buildings
|
|
|
2,815,839
|
|
|
2,815,839
|
|
|
2,815,839
|
|
Building
improvements
|
|
|
1,398,054
|
|
|
1,394,976
|
|
|
1,378,552
|
|
Machinery
and equipment
|
|
|
1,379,656
|
|
|
1,347,842
|
|
|
1,246,470
|
|
Capitalized
labor and overhead
|
|
|
216,602
|
|
|
216,602
|
|
|
216,602
|
|
Furniture
and fixtures
|
|
|
236,419
|
|
|
226,022
|
|
|
224,542
|
|
Computer
equipment
|
|
|
250,419
|
|
|
221,635
|
|
|
201,377
|
|
Transportation
equipment
|
|
|
74,709
|
|
|
74,709
|
|
|
74,709
|
|
Demo
equipment
|
|
|
-
|
|
|
42,776
|
|
|
-
|
|
Lab
equipment
|
|
|
-
|
|
|
42,121
|
|
|
-
|
|
Totals
at Cost
|
|
|
7,131,698
|
|
|
7,142,487
|
|
|
6,918,091
|
|
Accumulated
depreciation and amortization
|
|
|
(2,352,910
|
)
|
|
(2,051,951
|
)
|
|
(1,765,074
|
)
|
|
|
$
|
4,778,788
|
|
$
|
5,090,536
|
|
$
|
5,153,017
|
|
Depreciation
and amortization expense
|
|
$
|
300,924
|
|
$
|
287,404
|
|
$
|
294,901
|
|
During
2006, certain assets in property, plant and equipment, with a net book value
of
$84,897 were reclassified into inventory.
Note
8 - Intangible Assets
Intangible
assets are summarized as follows:
December
31, 2006
Intangible
Asset
|
|
Weighted
Average Amortization Period
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
of Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
Agreement
|
|
|
5
|
|
|
10,000
|
|
|
10,000
|
|
|
0
|
|
Patents
& Copyrights
|
|
|
14
|
|
|
32,019
|
|
|
16,924
|
|
|
15,095
|
|
Intellectual
Property
|
|
|
15
|
|
|
100,000
|
|
|
36,669
|
|
|
63,331
|
|
Certifications
|
|
|
3
|
|
|
27,661
|
|
|
4,610
|
|
|
23,051
|
|
Other
|
|
|
5
|
|
|
21,492
|
|
|
17,194
|
|
|
4,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
11
|
|
|
191,172
|
|
|
85,397
|
|
|
105,775
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
December
31, 2005
Intangible
Asset
|
|
Weighted
Average Amortization Period
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
of Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
Agreement
|
|
|
5
|
|
|
10,000
|
|
|
10,000
|
|
|
0
|
|
Patents
& Copyrights
|
|
|
14
|
|
|
32,019
|
|
|
14,472
|
|
|
17,547
|
|
Intellectual
Property
|
|
|
15
|
|
|
100,000
|
|
|
30,002
|
|
|
69,998
|
|
Other
|
|
|
5
|
|
|
21,492
|
|
|
12,896
|
|
|
8,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
13
|
|
|
163,511
|
|
|
67,370
|
|
|
96,141
|
|
December
31, 2004
Intangible
Asset
|
|
Weighted
Average Amortization Period
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
of Accumulated Amortization
|
|
|
|
|
|
|
|
|
|
|
|
Licensing
Agreement
|
|
|
5
|
|
|
10,000
|
|
|
10,000
|
|
|
0
|
|
Patents
& Copyrights
|
|
|
14
|
|
|
32,019
|
|
|
12,021
|
|
|
19,998
|
|
Intellectual
Property
|
|
|
15
|
|
|
100,000
|
|
|
23,335
|
|
|
76,665
|
|
Other
|
|
|
5
|
|
|
21,492
|
|
|
8,597
|
|
|
12,895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
13
|
|
|
163,511
|
|
|
53,953
|
|
|
109,558
|
|
The
estimated amortization expense related to intangible assets for each of the
five
succeeding fiscal years and thereafter as of December 31, 2006 is as
follows:
Year
Ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
$
|
22,638
|
|
2008
|
|
|
18,339
|
|
2009
|
|
|
12,229
|
|
2010
|
|
|
7,619
|
|
2011
|
|
|
7,619
|
|
Thereafter
|
|
|
37,331
|
|
|
|
|
|
|
Total
|
|
$
|
105,775
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
9 - Financing Arrangements
The
Company has a line of credit with a bank which allows the Company to borrow
up
to $1,250,000 until June 1, 2007. Interest is payable on any unpaid principal
balance at the bank’s prime rate plus ¾ of 1%. The balances outstanding on this
facility as of December 31, 2006, 2005 and 2004 were $210,000 and $100,000
and
$850,000 respectively. The prime rate was 8.25%, 7.25% and 5.25% at December
31,
2006, 2005 and 2004 respectively. The weighted average interest rate on the
Company’s short-term borrowings for 2006, 2005 and 2004 was 7.96%, 6.19% and
5.46%
respectively.
Note
10 - Long-term Debt
Long-term
debt consists of the following:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
KIDCO
REALTY CORP.
|
|
|
|
|
|
|
|
|
|
|
$900,000
purchase money mortgage secured by
real
property, building and improvements in
Saugerties,
New York; payable in equal monthly
installments
of $5,988 including interest at 7%
per
annum; entire principal comes due in
May
2009.
|
|
$
|
810,508
|
|
$
|
825,068
|
|
$
|
838.645
|
|
|
|
|
|
|
|
|
|
|
|
|
GENERAL
ELECTRIC CAPITAL CORPORATION
|
|
|
|
|
|
|
|
|
|
|
$2,700,000
mortgage payable secured by real
property,
building and improvements in
Ronkonkoma,
New York; payable in equal
monthly
installments of $22,285, including
interest
at 5.67% per annum; pursuant to an
installment
sale agreement with the Town of
Islip
Industrial Development Agency; final
payment
due March 2017.
|
|
|
2,075,148
|
|
|
2,220,402
|
|
|
2,357,668
|
|
|
|
|
|
|
|
|
|
|
|
|
NORTH
FORK BANK
|
|
|
|
|
|
|
|
|
|
|
Sixty
month installment note; payable in
monthly
installments of $4,922, including
interest
at 7.74% per annum; final payment
due
August 2007; collateralized by
equipment
costing $244,239.
|
|
|
37,768
|
|
|
90,900
|
|
|
140,087
|
|
|
|
|
|
|
|
|
|
|
|
|
NORTH
FORK BANK
|
|
|
|
|
|
|
|
|
|
|
Sixty
month installment note, payable
in
monthly installments of $1,776, including
interest
at 6.75% per annum; final payment due
January
2011, collateralized by equipment
costing
$90,000.
|
|
|
77,030
|
|
|
---
|
|
|
---
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
|
|
2006
|
|
2005
|
|
2004
|
|
KEY
EQUIPMENT FINANCE
|
|
|
|
|
|
|
|
|
|
|
Twenty-four
month installment note, payable
|
|
|
|
|
|
|
|
|
|
|
in
monthly installments if $1,123, including
interest
at 1.9% per annum; final payment due
May
2006, collateralized by software
costing
$26,460.
|
|
|
---
|
|
$
|
4,258
|
|
|
17,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,000,454
|
|
|
3,140,628
|
|
|
3,354,022
|
|
Less:
Current maturities
|
|
|
223,653
|
|
|
217,204
|
|
|
213,394
|
|
|
|
$
|
2,776,801
|
|
$
|
2,923,424
|
|
$
|
3,140,628
|
|
Future
maturities oflong-term debt as follows:
Year
ended December 31, 2007
|
|
$
|
223,653
|
|
Year
ended December 31, 2008
|
|
|
197,123
|
|
Year
ended December 31, 2009
|
|
|
969,252
|
|
Year
ended December 31, 2010
|
|
|
202,446
|
|
Year
ended December 31, 2011
|
|
|
196,184
|
|
Thereafter
|
|
|
1,211,796
|
|
|
|
$
|
3,000,454
|
|
Note
11 - Earnings per Share
The
calculation of basic and diluted weighted average common shares outstanding
is
as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
Weighted
average common shares outstanding basic earnings per share
|
|
|
3,169,177
|
|
|
3,097,698
|
|
|
3,039,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of potential common share issuance:
|
|
|
|
|
|
|
|
|
|
|
Stock
options
|
|
|
94,356
|
|
|
122,399
|
|
|
14,394
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
|
3,263,533
|
|
|
3,220,097
|
|
|
3,053,494
|
|
Outstanding
options to purchase 117,500, 136,000 and 305,900 shares at December 31, 2006,
December 31, 2005, and December 31, 2004 respectively, were not included in
the
earnings per share calculation, because the exercise price was higher than
the
market price.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
12 - Income Taxes
The
provision (benefit) for income taxes includes the following:
|
|
2006
|
|
2005
|
|
2004
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
18,437
|
|
$
|
----
|
|
$
|
----
|
|
State
|
|
|
1,722
|
|
|
5,815
|
|
|
(14,486
|
)
|
Total
Current Provision
|
|
|
20,159
|
|
|
5,815
|
|
|
(14,486
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
223,888
|
|
|
81,305
|
|
|
85,638
|
|
State
|
|
|
48,540
|
|
|
(22,550
|
)
|
|
53,981
|
|
Total
Deferred Provision
|
|
|
272,428
|
|
|
58,755
|
|
|
139,619
|
|
|
|
$
|
292,587
|
|
$
|
64,570
|
|
$
|
125,133
|
|
The
Company has New York State investment tax credit carryforwards of approximately
$263,000 that may be offset against future state tax liabilities through the
year 2019 and other state tax credits totaling approximately $327,000 which
may
be carried forward indefinitely. The Company accounts for investment tax credits
primarily by the flow-through method.
As
of
December 31, 2006, the Company had federal and state net operating loss (NOL’s)
carryforwards totaling approximately $40,000 and $277,000, respectively. These
NOL’s were incurred in the 2003 tax year and may be used to offset taxable
income in future periods through 2023. Current federal and state income tax
expenses are net of tax benefits from net operating loss carry forwards of
approximately $163,000 and $143,000 respectively.
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:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Statutory
rate
|
|
|
34%
|
|
|
34%
|
|
|
34%
|
|
State
taxes, net of federal benefits
|
|
|
7%
|
|
|
5%
|
|
|
7%
|
|
Benefit
of federal and state net operating loss carryforwards
|
|
|
(6%
|
)
|
|
(23%
|
)
|
|
--
|
|
Investment
and other tax credits
|
|
|
(2%
|
)
|
|
(
2%
|
)
|
|
23%
|
|
Totals
|
|
|
33%
|
|
|
14%
|
|
|
64%
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
The
tax
effects of temporary differences giving rise to significant portions of deferred
taxes are as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
$
|
2,834
|
|
$
|
3,377
|
|
$
|
9,320
|
|
Inventory
capitalization
|
|
|
103,435
|
|
|
76,330
|
|
|
67,353
|
|
Deferred
revenue
|
|
|
(791,821
|
)
|
|
(354,066
|
)
|
|
(425,860
|
)
|
Net
operating loss
|
|
|
34,600
|
|
|
26,790
|
|
|
222,555
|
|
Depreciation
and amortization
|
|
|
(173,123
|
)
|
|
(225,141
|
)
|
|
(190,376
|
)
|
Investment
and other tax credits
|
|
|
589,768
|
|
|
588,908
|
|
|
579,213
|
|
Compensation
costs
|
|
|
66,487
|
|
|
--
|
|
|
--
|
|
Vacation
Accrual
|
|
|
129,720
|
|
|
118,130
|
|
|
28,963
|
|
Other
|
|
|
7,660
|
|
|
7,660
|
|
|
9,575
|
|
Net
deferred tax (liability) asset
|
|
$
|
(30,440
|
)
|
$
|
241,988
|
|
$
|
300,743
|
|
Management
believes the deferred tax asset will more likely than not be realized. In
assessing the likelihood of realization, management considers estimates of
future taxable income. However, it is at least reasonably possible that
management’s estimate of future realization may change in future
periods.
Note
13 - Stock Option Plans
On
June
15, 1989 the Company instituted a non-qualified stock option plan (the “Plan”).
In connection therewith, 700,000 shares of the Company’s common stock are
reserved for issuance pursuant to options that may be granted under the Plan
through June 30, 2009. On June 3, 1996, the Company issued 84,000 options which
expire ten years from the date of grant. None of these options were exercisable
until June 3, 1999. The option price was less than the fair market value per
share on the date the 1996 options were granted. On April 15, 1998, 140,000
options were granted to employees under this plan. Options granted in 1998
vest
straight-line over a four-year period following the date of grant and expire
five years after the date of grant. On July 16, 1999, 52,500 options were
granted to employees under this Plan. Options granted in 1999 vest incrementally
over four-year periods following the date of grant and expire seven years after
the date of grant. On February 2, 2000, 242,000 options were granted to
employees under this plan. On May 7, 2000 and August 8, 2000, a total of 80,000
options were granted to employees. On October 26, 2000, 3,500 options were
granted to employees. All options vest over a four-year period. All options
granted in 2000 expire seven years after the date of grant. The option price
for
options granted in 1999 and 2000 is an amount per share of not less than the
fair market value per share on the date the option is granted. On April 1,
2003,
the Company granted 12,500 options to employees under this plan which expire
April 1, 2008, and on September 23, 2003 granted 75,000 options to directors
which expire on September 23, 2010. On June 17, 2005 and August 4, 2005, 56,500
and 15,000 options respectively, were granted to employees under this plan,
which expire on June 16, 2012 and August 3, 2012. All of these options vest
equally over a four-year period. On September 13, 2005 105,000 options were
granted to directors which vest over three years and expire on September 12,
2012. On June 22, 2006 10,000 options which vest equally over a four-year period
were granted to an employee under the plan which expires on June 21,
2013.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
13 - Stock Option Plans (continued)
In
November 2006, the Company registered a non-qualified stock option plan that
the
shareholders had approved in July 2001, covering key employees, officers,
directors and other persons that may be considered as service providers to
the
Company. Options will be awarded by the Board of Directors or by a committee
appointed by the board. Under the plan, an aggregate of 300,000 shares of
Company common stock, $.01 par value, are reserved for issuance or transfer
upon
the exercise of options which are granted. Unless otherwise provided in the
option agreement, options granted under the plan shall become exercisable in
25%
installments commencing one year from the anniversary date of the
grant.
The
purchase price of the common stock under each option shall be no lower than
the
average bid price per share, calculated on a monthly basis, that the common
stock (as reported by AMEX) traded during the calendar year immediately
preceding the year in which the option is granted. The stock options generally
expire five years after the date of grant. The stock option plan shall terminate
on July 22, 2011. No options have been granted under the July 2001
plan.
A
summary
of stock option activity related to the Company’s Plan is as
follows:
Year
Ended
|
|
Beginning
Balance Outstanding
|
|
Granted
During Period
|
|
Exercised
During Period
|
|
Cancelled
During Period
|
|
Ending
Balance Outstanding
|
|
Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
365,400
|
|
|
0
|
|
|
0
|
|
|
10,000
|
|
|
355,400
|
|
|
296,650
|
|
Weighted
average exercise price per share
|
|
$
|
1.69
|
|
|
0
|
|
|
0
|
|
$
|
1.75
|
|
$
|
1.69
|
|
$
|
1.68
|
|
December
31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
355,400
|
|
|
176,500
|
|
|
88,700
|
|
|
0
|
|
|
443,200
|
|
|
276,700
|
|
Weighted
average exercise price per share
|
|
$
|
1.69
|
|
$
|
3.42
|
|
$
|
1.67
|
|
|
0
|
|
$
|
2.39
|
|
$
|
2.03
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
443,200
|
|
|
10,000
|
|
|
122,700
|
|
|
7,500
|
|
|
323,000
|
|
|
196,875
|
|
Weighted
average exercise price per share
|
|
$
|
2.39
|
|
$
|
3.00
|
|
$
|
1.53
|
|
$
|
2.26
|
|
$
|
2.73
|
|
$
|
2.30
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL
December
31, 2006, 2005 and 2004
The
following table summarizes information about the options at December 31,
2006.
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Exercise
Price
Range
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual
Life
(years)
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
$1.25
- $1.50
|
|
|
55,000
|
|
|
3.74
|
|
$
|
1.40
|
|
|
55,000
|
|
$
|
1.40
|
|
$1.51
- $1.75
|
|
|
48,000
|
|
|
.09
|
|
$
|
1.75
|
|
|
48,000
|
|
$
|
1.75
|
|
$2.00
- $2.75
|
|
|
76,500
|
|
|
3.55
|
|
$
|
2.16
|
|
|
41,625
|
|
$
|
2.07
|
|
$3.00
- $3.25
|
|
|
28,500
|
|
|
5.31
|
|
$
|
3.07
|
|
|
7,250
|
|
$
|
3.16
|
|
$3.75
- $4.00
|
|
|
10,000
|
|
|
1.25
|
|
$
|
3.88
|
|
|
10,000
|
|
$
|
3.88
|
|
$4.00
- $4.25
|
|
|
105,000
|
|
|
5.70
|
|
$
|
4.10
|
|
|
35,000
|
|
$
|
4.10
|
|
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123-R
“Share-Based Payment” using the modified prospective method. SFAS No. 123-R
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based upon the grant date fair value
of those awards. Under the modified prospective method of adopting SFAS No.
123-R, the Company recognized compensation cost for all share-based payments
granted after January 1, 2006, plus any awards granted to employees prior to
January 1, 2006 that remain unvested at that time. Under this method of
adoption, no restatement of prior periods is made.
Prior
to
January 1, 2006 the Company recognized the cost of employee services received
in
exchange for equity instruments in accordance with Accounting Principles Board
Opinion No. 25 “Accounting for Stock Issued Employees” (APB 25). APB 25 required
the use of the intrinsic value method, which measures compensation cost as
the
excess, if any, of the quoted market price of the stock over the amount the
employee must pay for the stock. Compensation expense was measured under APB
25
on the date the shares were granted. Under APB 25, no compensation expense
was
recognized for stock options.
The
intrinsic value of the 122,700 and 88,700 options exercised during the years
ended December 31, 2006 and 2005, was $188,075 and $148,100
respectively.
During
the current period ended December 31, 2006 the Company recorded into selling
and
general administrative expense approximately $169,000, for the cost of employee
services received in exchange for equity instruments based on the grant-date
fair value of those instruments in accordance with the provisions of SFAS No.
123-R.
During
the periods ended December 31, 2005 and December 31, 2004 had the cost of
employee services received in exchange for equity instruments been recognized
based on the grant-date fair value of those instruments in accordance with
the
provisions of SFAS No. 123. The Company’s net income and earnings per share
would have been impacted as shown in the following table.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
There
were no options granted in 2004.The weighted average grant date fair value
of
options granted during 2005 was $3.42.
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
390,911
|
|
$
|
70,724
|
|
|
|
|
|
|
|
|
|
Add:
Stock-based employee compensation
expense
included in reported net income,
net
of related tax effects
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
Deduct:
Total stock-based employee
compensation
expense determined under
fair
value based method for all awards, net
of
related tax effects
|
|
$
|
(92,284
|
)
|
$
|
(71,978
|
)
|
|
|
|
|
|
|
|
|
Pro-forma
net income (loss)
|
|
$
|
298,627
|
|
$
|
(1,254
|
)
|
Earnings
per share:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Basic-as
reported
|
|
$
|
.13
|
|
$
|
.02
|
|
Basic-pro
form
|
|
$
|
.10
|
|
$
|
.00
|
|
|
|
|
|
|
|
|
|
Diluted
-as reported
|
|
$
|
.12
|
|
$
|
.02
|
|
Diluted
-pro forma
|
|
$
|
.09
|
|
$
|
.00
|
|
The
fair
value used in the pro forma data was estimated by using the Black-Scholes
option-pricing model which took into account as of the grant date, the exercise
price and the expected life of the option, the current price of the underlying
stock and its expected volatility, expected dividends on the stock and the
risk-free interest rate for the expected term of the option. The following
is
the average of the data used for the following items.
|
|
Risk-Free
|
|
|
|
Expected
|
|
Expected
|
|
Year
Ended
|
|
Interest
Rate
|
|
Expected
Life
|
|
Volatility
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
2.5
|
%
|
|
3.9
Years
|
|
|
126.54
|
%
|
|
None
|
|
December
31, 2005
|
|
|
2.5
|
%
|
|
5.7
Years
|
|
|
126.54
|
%
|
|
None
|
|
Note
14 - Defined Contribution Plan
On
August
1, 1998, the Company adopted a 401(k) Plan for the benefit of all eligible
employees. All employees as of the effective date of the 401(k) Plan became
eligible. An employee who became employed after August 1, 1998, would become
a
participant after three months of continuous service.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Participants
may elect to contribute from their compensation any amount up to the maximum
deferral allowed by the Internal Revenue Code. Employer contributions are
optional. During the years ended December 31, 2006, 2005 and 2004 the Company
incurred administrative costs totaling $2,394, $1,805 and $2,530 respectively.
No employer contribution has been made for 2006, 2005 or 2004.
Note
15 - Concentration of Credit Risk
Cash
The
Company places most of its temporary cash investments with two financial
institutions. Balances may exceed the Federal Deposit Insurance Corporation
limit. The amount at risk at December 31, 2006, at December 31, 2005 and
December 31, 2004 was approximately $157,000, $165,000 and $71,000
respectively.
The Company has not experienced any loss to date as a result of this
policy.
Significant
Customers
The
Company’s sales encompass markets wherein the demands of any one customer may
vary greatly due to changes in technology. In 2006, one customer, from the
CVD
division, represented $1,204,000 or 9% of our total revenues and approximately
$281,000 or 11% of our total billed and unbilled receivables at December 31,
2006. In 2005, one customer, from the Conceptronic division represented
approximately $1,347,000 or 12% of the Company’s total revenue for that year and
$417,000 or 22% of the Company’s total billed and unbilled receivables at
December 31, 2005. One other customer from the CVD division represented
approximately $284,000 or 15% of the total billed and unbilled receivables
at
December 31, 2005. In 2004, one customer from the Conceptronic division
represented approximately 17% of the Company’s total revenue and 16% of the
Company’s total billed and unbilled receivables at December 31,
2004.
Export
Sales
Export
sales to unaffiliated customers represented approximately 31%, 29% and 32%
of
sales for the years ended December 31, 2006, 2005 and 2004 respectively, Export
sales in 2006 were primarily to customers in Europe and Asia. In 2005 and 2004
export sales 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
16 - Related Party Transactions
The
general counsel for the Company is also a director. The Company incurred legal
fees for his professional services of approximately $25,000, $35,000 and $26,000
for the years ended December 31, 2006, 2005 and 2004 respectively. As of
December 31, 2006, 2005 and 2004 the Company owed the general counsel
approximately $35,000, $35,000 and $41,000 respectively.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
Note
17 - Other Income
Other
income for the year ended December 31, 2006 was approximately $116,000. In
2004,
the Company wrote off a sale to a customer that filed a voluntary petition
for
relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, in
the
United States Bankruptcy Court for the District of Delaware. In 2006, the
liquidating trust distributed $92,400 to the Company, which represented 33%
of
the claim.
Note
18 - Segment Reporting
The
Company adopted SFAS 131, “Disclosures about Segments of an Enterprise and
Related Information.” The Company operates through (3) segments, CVD, SDC and
Conceptronic. The CVD division is utilized for silicon, silicon germanium,
silicon carbide and gallium arsenide processes. SDC is the Company’s ultra-high
purity manufacturing division in Saugerties, New York. Conceptronic is a
manufacturer of Surface Mount Technology equipment. The accounting policies
of
CVD, SDC and Conceptronic are the same as those described in the summary of
significant accounting policies (see Note 2). The Company evaluates performance
based on several factors, of which the primary financial measure is earnings
before taxes.
The
following table presents certain information regarding the Company’s segments as
of December 31, 2006 and for the year then ended:
|
|
CVD
|
|
SDC
|
|
Conceptronic
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
11,946,392
|
|
$
|
2,364,017
|
|
$
|
2,693,397
|
|
$
|
(4,086,197
|
)
|
$
|
12,917,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
6,902,521
|
|
$
|
3,650,190
|
|
$
|
3,386,998
|
|
$
|
(583,931
|
)
|
$
|
13,355,778
|
|
Interest
Income
|
|
|
231
|
|
|
635
|
|
|
-0-
|
|
|
|
|
|
866
|
|
Interest
Expense
|
|
|
77,934
|
|
|
68,002
|
|
|
77,573
|
|
|
|
|
|
223,509
|
|
Depreciation
and amortization
|
|
|
214,254
|
|
|
119,574
|
|
|
24,222
|
|
|
|
|
|
358,050
|
|
Capital
expenditures
|
|
|
205,294
|
|
|
19,609
|
|
|
-0-
|
|
|
|
|
|
224,903
|
|
Pretax
earnings (loss)
|
|
|
1,233,982
|
|
|
148,627
|
|
|
(485,696
|
)
|
|
|
|
|
896,913
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2006, 2005 and 2004
The
following table presents certain information regarding the Company’s segments as
of December 31, 2005 and for the year then ended:
|
|
CVD
|
|
SDC
|
|
Conceptronic
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
9,736,996
|
|
$
|
2,060,657
|
|
$
|
2,741,119
|
|
$
|
(3,628,765
|
)
|
$
|
10,910,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
4,589,205
|
|
$
|
3,033,751
|
|
$
|
4,611,452
|
|
$
|
(1,009,092
|
)
|
$
|
11,225,316
|
|
Interest
Income
|
|
|
522
|
|
|
241
|
|
|
-0-
|
|
|
|
|
|
763
|
|
Interest
Expense
|
|
|
77,056
|
|
|
65,213
|
|
|
76,986
|
|
|
|
|
|
219,255
|
|
Depreciation
and amortization
|
|
|
201,481
|
|
|
124,195
|
|
|
24,467
|
|
|
|
|
|
350,143
|
|
Capital
expenditures
|
|
|
476,371
|
|
|
9,590
|
|
|
-0-
|
|
|
|
|
|
485,961
|
|
Pretax
earnings (loss)
|
|
|
640,331
|
|
|
(165,301
|
)
|
|
(19,549
|
)
|
|
|
|
|
455,481
|
|
The
following table presents certain information regarding the Company’s segments as
of December 31, 2004 and for the year then ended:
|
|
CVD
|
|
SDC
|
|
Conceptronic
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
10,026,533
|
|
$
|
2,604,804
|
|
$
|
2,878,597
|
|
$
|
(3,956,771
|
)
|
$
|
11,553,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,885,410
|
|
$
|
2,843,293
|
|
$
|
4,948,170
|
|
$
|
(803,281
|
)
|
$
|
9,873,592
|
|
Interest
Income
|
|
|
-0-
|
|
|
752
|
|
|
-0-
|
|
|
|
|
|
752
|
|
Interest
Expense
|
|
|
76,678
|
|
|
59,190
|
|
|
76,679
|
|
|
|
|
|
212,547
|
|
Depreciation
and amortization
|
|
|
201,958
|
|
|
130,876
|
|
|
24,050
|
|
|
|
|
|
356,884
|
|
Capital
expenditures
|
|
|
36,721
|
|
|
8,150
|
|
|
3,015
|
|
|
|
|
|
47,886
|
|
Pretax
earnings (loss)
|
|
|
(38,052
|
)
|
|
140,380
|
|
|
93,529
|
|
|
|
|
|
195,857
|
|
Note
19 - Commitments and Contingencies
Legal
Proceedings
On
September 24, 1999 the Company was named in a lawsuit. The nature of this legal
proceeding focused on the intellectual property obtained during the purchase
of
assets of Stainless Design Corporation. On November 10, 1999, the Company
responded with a counterclaim. It is the Company’s legal counsels’ belief that
the lawsuit against the Company is without merit. The Company considers its
potential exposure to be negligible and/or covered by insurance.
In
May
2002, the Company instituted a new action against Precisionflow Technologies,
Inc., in the United States District for the Northern District of New York also
seeking injunctive relief and monetary damages based upon additional copyright
violations. A motion by Precisionflow Technologies, Inc. to dismiss this action
has been pending since June 2002.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Balance Sheets
|
|
March
31, 2007
|
|
|
|
|
|
(Unaudited)
|
|
December
31, 2006
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
72,502
|
|
$
|
257,341
|
|
Accounts
receivable, net
|
|
|
1,956,018
|
|
|
2,377,069
|
|
Investments
|
|
|
251,130
|
|
|
251,130
|
|
Cost
in excess of billings on uncompleted contracts
|
|
|
1,285,618
|
|
|
716,663
|
|
Inventories
|
|
|
2,616,893
|
|
|
2,704,506
|
|
Other
current assets
|
|
|
107,760
|
|
|
118,300
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
6,289,921
|
|
|
6,425,009
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
4,919,667
|
|
|
4,778,807
|
|
Deferred
income taxes - non-current
|
|
|
910,614
|
|
|
899,904
|
|
Other
assets
|
|
|
664,631
|
|
|
708,114
|
|
Intangible
assets, net
|
|
|
100,116
|
|
|
105,775
|
|
Total
Assets
|
|
$
|
12,884,949
|
|
$
|
12,917,609
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
$
|
236,710
|
|
$
|
223,653
|
|
Short-term
notes payable
|
|
|
205,000
|
|
|
210,000
|
|
Short-term
debt
|
|
|
-
|
|
|
2,109
|
|
Accounts
payable
|
|
|
634,251
|
|
|
640,771
|
|
Accrued
expenses
|
|
|
650,151
|
|
|
686,771
|
|
Accrued
professional fees - related party
|
|
|
10,000
|
|
|
35,000
|
|
Deferred
revenue
|
|
|
-
|
|
|
212,250
|
|
Deferred
tax liability - current
|
|
|
248,912
|
|
|
263,396
|
|
Total
current liabilities
|
|
|
1,985,024
|
|
|
2,273,950
|
|
Long-term
debt, net of current portion
|
|
|
2,843,865
|
|
|
2,776,801
|
|
Deferred
tax liability - long-term
|
|
|
634,080
|
|
|
666,948
|
|
Total
liabilities
|
|
|
5,462,969
|
|
|
5,717,699
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
---
|
|
|
---
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
Common
stock-$0.01par value-10,000,000 shares authorized;
|
|
|
|
|
|
|
|
issued
and outstanding, 3,298,500 shares at March 31, 2007
|
|
|
|
|
|
|
|
and
3,250,500 at December 31, 2006
|
|
|
32,985
|
|
|
32,505
|
|
Additional
paid-in capital
|
|
|
3,530,655
|
|
|
3,405,474
|
|
Retained
earnings
|
|
|
3,858,340
|
|
|
3,761,931
|
|
Total
Stockholders' Equity
|
|
|
7,421,980
|
|
|
7,199,910
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
12,884,949
|
|
$
|
12,917,609
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Statements of Operations
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,811,277
|
|
$
|
3,211,473
|
|
|
|
|
|
|
|
|
|
Cost
of Revenue
|
|
|
2,555,330
|
|
|
2,141,376
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,255,947
|
|
|
1,070,097
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Selling
and shipping
|
|
|
278,310
|
|
|
196,869
|
|
General
and administrative
|
|
|
763,226
|
|
|
718,209
|
|
Related
party - professional fees
|
|
|
10,000
|
|
|
-
|
|
Total
operating expenses
|
|
|
1,051,536
|
|
|
915,078
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
204,411
|
|
|
155,019
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
27
|
|
|
21
|
|
Interest
expense
|
|
|
(53,473
|
)
|
|
(56,647
|
)
|
Other
income
|
|
|
5,094
|
|
|
75,469
|
|
Total
other income (expense)
|
|
|
(48,352
|
)
|
|
18,843
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
156,059
|
|
|
173,862
|
|
|
|
|
|
|
|
|
|
Income
tax provision
|
|
|
(59,650
|
)
|
|
(60,915
|
)
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
96,409
|
|
$
|
112,947
|
|
|
Basic
income per common share
|
|
$
|
0.03
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
Diluted
income per common share
|
|
$
|
0.03
|
|
$
|
0.03
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
basic
income per share
|
|
|
3,284,589
|
|
|
3,132,689
|
|
|
|
|
|
|
|
|
|
Effect
of potential common share issuance:
|
|
|
|
|
|
|
|
Stock
options
|
|
|
129,203
|
|
|
169,537
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
|
|
|
|
|
diluted
income per share
|
|
|
3,413,792
|
|
|
3,302,226
|
|
The
accompanying notes are an integral part of the consolidated financial
statements
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
96,409
|
|
$
|
112,947
|
|
Adjustments
to reconcile net income to net cash provided by (used in) operating
activities:
|
|
|
|
|
|
|
|
Stock
based compensation expense
|
|
|
41,661
|
|
|
53,413
|
|
Depreciation
and amortization
|
|
|
105,150
|
|
|
81,758
|
|
Deferred
tax provision
|
|
|
(58,062
|
)
|
|
58,998
|
|
Bad
debt provision
|
|
|
(2,000
|
)
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
423,050
|
|
|
(113,557
|
)
|
Cost
in excess of billings on uncompleted contracts
|
|
|
(568,955
|
)
|
|
(452,019
|
)
|
Inventory
|
|
|
87,613
|
|
|
(304,956
|
)
|
Other
current assets
|
|
|
10,540
|
|
|
(40,984
|
)
|
Other
assets
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(6,520
|
)
|
|
214,047
|
|
Accrued
expenses
|
|
|
(61,619
|
)
|
|
(135,371
|
)
|
Deferred
revenue
|
|
|
(212,250
|
)
|
|
179,228
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) operating activities
|
|
|
(144,983
|
)
|
|
(346,496
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(210,633
|
)
|
|
(142,649
|
)
|
Deposits
|
|
|
13,766
|
|
|
-
|
|
Net
cash (used in) investing activities
|
|
|
(196,867
|
)
|
|
(142,649
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from short-term borrowings
|
|
|
800,000
|
|
|
535,000
|
|
Payments
of short-term borrowings
|
|
|
(805,000
|
)
|
|
(150,000
|
)
|
Proceeds
from loans
|
|
|
139,510
|
|
|
115,309
|
|
Payments
of long-term debt
|
|
|
(61,499
|
)
|
|
(61,967
|
)
|
Net
proceeds from stock options exercised
|
|
|
84,000
|
|
|
14,000
|
|
Net
cash provided by financing activities
|
|
|
157,011
|
|
|
452,342
|
|
|
|
|
|
|
|
|
|
Net
(decrease) in cash and cash equivalents
|
|
|
(184,839
|
)
|
|
(36,803
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
257,341
|
|
|
265,454
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
72,502
|
|
$
|
228,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
$
|
101,447
|
|
$
|
100
|
|
Interest
paid
|
|
$
|
52,776
|
|
$
|
53,295
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE
1:
BASIS
OF
PRESENTATION
The
accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-QSB
and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary in order to make the interim financials not misleading
have
been included and all such adjustments are of a normal recurring nature. The
operating results for the three months ended March 31, 2007 are not necessarily
indicative of the results that can be expected for the year ending December
31,
2007.
The
balance sheet as of December 31, 2006 has been derived from the audited
financial statements at such date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements.
The
accounting policies followed by the Company are set forth in Note 2 to the
Company’s consolidated financial statements in the December 31, 2006 Form
10-KSB.
For
further information, please refer to the consolidated financial statements
and
footnotes thereto included in the Company's Annual Report of Form 10-KSB for
the
year ended December 31, 2006.
Intercompany
transactions have been eliminated in consolidation.
Certain
reclassifications have been made to prior period financial statements to conform
to the current year presentation.
NOTE
2:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
and Income Recognition
The
Company recognizes revenues and income using the percentage-of-completion method
for custom production-type contracts while revenues from other products are
recorded when such products are accepted and shipped. Profits on custom
production-type contracts are recorded on the basis of the Company’s estimates
of the percentage-of-completion of individual contracts commencing when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. Under this method, revenues are recognized based on costs
incurred to date compared with total estimated costs.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted
contracts,” represents revenues recognized in excess of amounts
billed.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2:
(continued)
The
liability, “Billings in excess of costs on uncompleted contracts” represents
amounts billed in excess of revenues earned.
Cash
and Cash Equivalents
The
Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less at the date of purchase to be cash
equivalents.
Investments
Investments
in unconsolidated companies in which the Company owns less than a 20% interest
or otherwise does not exercise a significant influence are carried at
cost.
NOTE
3:
UNCOMPLETED
CONTRACTS
Costs,
estimated earnings and billings on uncompleted contracts are summarized as
follows:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
(Unaudited)
|
|
|
|
Costs
incurred on uncompleted contracts
|
|
$
|
1,690,364
|
|
$
|
1,509,672
|
|
Estimated
earnings
|
|
|
2,495,770
|
|
|
2,015,836
|
|
|
|
|
4,186,134
|
|
|
3,525,508
|
|
Billings
to date
|
|
|
(2,900,516
|
)
|
|
(2,808,845
|
)
|
|
|
$
|
1,285,618
|
|
$
|
716,663
|
|
Included
in accompanying balance sheets
|
|
|
|
|
|
|
|
Under
the following captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
$
|
1,285,618
|
|
$
|
716,663
|
|
Billings
in excess of costs and estimate earnings on uncompleted
contracts
|
|
|
---
|
|
|
---
|
|
|
|
|
1,285,618
|
|
$
|
716,663
|
|
NOTE
4:
INVENTORY
Inventories
consist of the following:
|
|
March
31, 2007
|
|
December
31, 2006
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
902,854
|
|
|
860,085
|
|
Work-in-process
|
|
|
1,385,078
|
|
|
1,515,460
|
|
Finished
goods
|
|
|
328,961
|
|
|
328,961
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,616,893
|
|
$
|
2,704,506
|
|
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5:
BAD
DEBTS
Accounts
receivables are presented net of an allowance for doubtful accounts of $5,217
and $7,217 as of March 31, 2007 and December 31, 2006 respectively. The
allowance is based on prior experience and management’s evaluation of the
collectibility of accounts receivable. Management believes the allowance is
adequate. However, future estimates may change based on changes in economic
conditions.
NOTE
6:
SHORT
TERM BORROWINGS
March
31, 2007
|
|
December
31, 2006
|
(Unaudited)
|
|
|
|
|
|
$205,000
|
|
$210,000
|
The
Company has a line of credit with a bank permitting it to borrow on a revolving
basis amounts up to $1,250,000 until June 1, 2007 at which time it will be
subject to renewal. Interest is payable on any unpaid principal balance at
the
bank’s prime rate plus ¾ of 1%. The prime rate was 8.25% and the amount
outstanding on the facility was $205,000 and $210,000 on March 31, 2007 and
December 31, 2006 respectively. Borrowings are collateralized by the Company's
assets.
The
Company has a line of credit for equipment purchases from the same bank
permitting it to borrow up to 100% of the purchase price of the equipment up
to
$250,000. The amount borrowed is immediately converted into a five-year term
loan at the bank’s prime rate plus 1 1/4%. As of March 31, 2007, there was
approximately $213,000 outstanding on this facility. Borrowings are
collateralized by the equipment purchased.
NOTE
7:
STOCK
COMPENSATION EXPENSE
On
January 1, 2006, the Company adopted the provisions of SFAS No. 123-R
“Share-Based Payment” using the modified prospective method. SFAS No. 123-R
requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based upon the grant date fair value
of those awards. Under the modified prospective method of adopting SFAS No.
123-R, the Company recognized compensation cost for all share-based payments
granted after January 1, 2006, plus any awards granted to employees prior to
January 1, 2006 that remain unvested at that time. Under this method of
adoption, no restatement of prior periods is made.
During
the three months ended March 31, 2007 and March 31, 2006, the Company recorded
into selling and general administrative expense approximately $42,000 and
$53,000 respectively for the cost of employee services received in exchange
for
equity instruments based on the grant-date fair value of those instruments
in
accordance with the provisions of SFAS No. 123-R.
CVD
EQUIPMENT CORPORATION AND SUBSIDIARY
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8:
INCOME
TAXES
The
provision (benefit) for income taxes includes the following:
|
|
Three
Months Ended
|
|
|
|
March
31, 2007
|
|
|
|
(Unaudited)
|
|
Current:
|
|
|
|
|
Federal
|
|
$
|
108,921
|
|
State
|
|
|
8,791
|
|
Total
Current Provision
|
|
|
117,712
|
|
Deferred:
|
|
|
|
|
Federal
|
|
|
(73,677
|
)
|
State
|
|
|
15,615
|
|
Total
Deferred (Benefit)
|
|
|
(58,062
|
)
|
|
|
$
|
59,650
|
|
All
of
the Company’s federal net operating loss (NOL’S) carry forwards of approximately
$40,000 have been utilized and $276,000 of the Company’s $277,000 state net
operating loss (NOL’S) carry forwards have been utilized through March 31, 2007.
For the three months ended March 31, 2007, the Company recorded a current income
tax expense of approximately $118,000, which related to various federal, state
and local taxes.
PROSPECTUS
2,500,000
Shares of Common Stock
CVD
EQUIPMENT CORPORATION
______________,
2007
We
have
not authorized any dealer, salesperson or other person to provide any
information or make any representations about CVD Equipment Corporation except
the information or representations contained in this prospectus. You should
not
rely on any additional information or representations if made.
This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy any securities:
·
|
|
except
the common stock offered by this
prospectus;
|
·
|
|
in
any jurisdiction in which the offer or solicitation is not
authorized;
|
·
|
|
in
any jurisdiction where the dealer or other salesperson is not qualified
to
make the offer or solicitation;
|
·
|
|
to
any person to whom it is unlawful to make the offer or solicitation;
or
|
·
|
|
to
any person who is not a United States resident or who is outside
the
jurisdiction of the United States.
|
The
delivery of this prospectus or any accompanying sale does not imply
that:
·
|
|
there
have been no changes in the affairs of CVD Equipment Corporation
after the
date of this prospectus; or
|
·
|
|
the
information contained in this prospectus is correct after the date
of this
prospectus.
|
Dealer
Prospectus Delivery Obligation
Until
________, 2007, dealers effecting transactions in these securities, whether
or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to dealers’ obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or
subscriptions.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Our
Certificate of Incorporation provides that a director shall not be personally
liable to the company or its shareholders for monetary damages relating to
a
breach of fiduciary duty as a director, unless a judgment or other final
adjudication adverse to him establishes that his acts or omissions were in
bad
faith or involved intentional misconduct or a knowing violation of law or that
he personally gained in fact a financial profit or other advantage to which
he
was not legally entitled or that his acts violated Section 719 of the New York
Business Corporation Law. Any repeal or modification of what is set forth
hereinabove will not adversely affect any right or protection of a director
of
the company existing at the time of such repeal or modification with respect
to
acts or omissions occurring prior to such repeal or modification. The effect
of
this provision is to eliminate the rights of the company and its shareholders
(through shareholders' derivative suits on behalf of the company) to recover
monetary damages against a director for breach of the fiduciary duty of care
as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in certain limited situations. This provision does not limit
or
eliminate the rights of the company or any shareholder to seek non-monetary
relief such as an injunction or rescission in the event of a breach of a
director's duty of care. These provisions will not alter the liability of
directors under federal securities laws. Section 722 of the New York Business
Corporation Law empowers a New York corporation to indemnify any person, made,
or threatened to be made, a party to an action or proceeding other than one
by
or in the right of the corporation to procure a judgment in its favor, whether
civil or criminal, including an action by or in the right of any other
corporation of any type or kind, domestic or foreign, or any partnership, joint
venture, trust, employee benefit plan or other enterprise, which any director
or
officer of the corporation served in any capacity at the request of the
corporation, by reason of the fact that he, his testator or intestate, was
a
director or officer of the corporation, or served such other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
in
any capacity, against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorney's fees actually and necessarily incurred
as a result of such action or proceeding, or any appeal therein, if such
director or officer acted, in good faith, for a purpose which he reasonably
believed to be in, or in the case of service for any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise,
not opposed to, the best interests of the corporation and, in criminal actions
or proceedings, in addition, had no reasonable cause to believe that his conduct
was unlawful. In addition, Section 722 of the New York Business Corporation
Law
states that a New York corporation may indemnify any person made, or threatened
to be made, a party to an action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he, his testator
or
intestate, is or was a director or officer of the corporation, or is or was
serving at the request of the corporation as a director or officer of any other
corporation of any type of kind, domestic or foreign, of any partnership, joint
venture, trust, employee benefit plan or other enterprise, against amounts
paid
in settlement and reasonable expenses, including attorneys' fees, actually
and
necessarily incurred by him in connection with the defense or settlement of
such
action, or in connection with an appeal therein if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in,
or,
in the case of service for any other corporation or any partnership, joint
venture, trust, employee benefit plan or other enterprise, not opposed to,
the
best interests of the corporation, except that no indemnification under this
paragraph shall be made in respect of (1) a threatened action, or a pending
action which is settled or otherwise disposed of, or (2) any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court on which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion
of
the settlement amount and expenses as the court deems proper.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
(the
"Act") may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the SEC such indemnification is against public policy
as
expressed in the Act and is, therefore, unenforceable.
The
company maintains directors and officers and employment practices liability
insurance. The current annual premium for such insurance is approximately
$24,375, all of which is paid by us.
OTHER
EXPENSES OF ISSUANCE AND DISTRIBUTION
The
following table sets forth the various expenses to be incurred in connection
with the registration of the securities being registered hereby, all of which
will be borne by us. All amounts shown are estimates except the SEC registration
fee.
SEC
Registration Fee
|
|
$
|
|
|
NASD
Fee
|
|
|
|
|
Transfer
Agent’s and Registrar Fees
|
|
|
|
|
[AMEX
/ NASDAQ Listing Fee]
|
|
|
|
|
Printing
and engraving expenses
|
|
|
|
|
Legal
Fees and Expenses
|
|
|
|
|
Accounting
Fees and Expenses
|
|
|
|
|
Miscellaneous
|
|
|
|
|
Total
Expenses
|
|
$
|
|
|
RECENT
SALES OF UNREGISTERED SECURITIES
None.
EXHIBITS
Exhibit
|
|
Description
|
|
|
|
1.1
|
|
Underwriting
Agreement**
|
3.1
|
|
Articles
of Incorporation of the Company*
|
3.2
|
|
By-laws
of the Company*
|
5.1
|
|
Opinion
of Ruskin Moscou Faltischek, P.C.**
|
10.1
|
|
1989
Key Employee Stock Option Plan**
|
10.2
|
|
Form
of 2001 Stock Option Plan*
|
10.3
|
|
Purchase
at public auction the inventory, tangible assets, intangible assets
and
intellectual property of Stainless Design Corporation incorporated
herein
by reference to our form 8-K filed on December 31,
1998.
|
10.4
|
|
Purchase
Agreement
relating to
a 22,000 square foot facility from Kidco Realty
incorporated hereby be reference to our Form 8-K filed on December
31,
1998.
|
10.5
|
|
Purchase
Agreement
relating to
a 50,000 square foot facility from Arrow Electronics
incorporated hereby be reference to our Form 8-K filed on November
12,
2001.
|
10.6
|
|
Purchase
Agreement
relating to
substantially all of the assets of Research Inc.’s
Surface Mount Technology business incorporated herein by reference
to our
Form 8-K filed on November 12, 2001.
|
10.7
|
|
Purchase
Agreement
relating to
substantially all of the assets of Conceptronic Inc.’s
Surface Mount Technology business incorporated herein by reference
to our
Form 8-K filed on July 1, 2002.
|
10.8
|
|
Revolving
Credit Agreement between CVD Equipment Corporation and North Fork
Bank
dated June 1, 2007 incorporated herein by reference to our Form 8-K
filed
on June 6, 2007.
|
21.1
|
|
Subsidiaries
incorporated herein by reference to our Form 10-KSB for the year
ended
December 31, 2006.
|
23.1
|
|
Consent
of Moore Stephens, P.C.*
|
23.2
|
|
Consent
of Ruskin Moscou Faltischek, P.C.**
|
|
|
|
|
|
*
Filed herewith
**
To be filed by amendment
|
UNDERTAKINGS
(a)
|
The
undersigned Registrant hereby
undertakes:
|
|
(1)
|
To
file, during any period in which offers or sales are being made,
a
post-effective amendment to this registration
statement:
|
|
(i)
|
To
include any prospectus required by Section 10(a) (3) of the Securities
Act
of 1933, as amended (the “Securities
Act”);
|
|
(ii)
|
To
reflect in the prospectus any facts or events arising after the
effective
date of this registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent
a
fundamental change in the information set forth in this registration
statement. Notwithstanding the foregoing, any increase or decrease
in the
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation
from
the low or high end of the estimated maximum offering range may
be
reflected in the form of prospectus filed with the SEC pursuant
to Rule
424(b) if, in the aggregate, the changes in volume and price represent
no
more than 20 percent change in the maximum aggregate offering price
set
forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
|
|
(iii)
|
To
include any material information with respect to the plan of distribution
not previously disclosed in this registration statement or any
material
change to such information in this registration
statement;
|
provided
,
however
,
that
paragraphs (1) (i), (1) (ii) and (1) (iii) do not apply if the information
required to be included in a post-effective amendment by those paragraphs
is
contained in periodic reports filed with or furnished to the SEC by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) that are incorporated by reference
in this registration statement.
|
(2)
|
That,
for the purposes of determining any liability under the Securities
Act,
each post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of
such securities at the time shall be deemed to be the initial bona
fide
offering thereof.
|
|
(3)
|
To
remove from registration by means of a post-effective amendment
any of the
securities being registered which remain unsold at the termination
of the
offering.
|
|
(5)
|
That
for the purpose of determining liability under the Securities Act
of 1933
to any purchaser:
|
|
(i)
|
If
the registrant is relying on Rule
430B:
|
|
(A)
|
Each
prospectus filed by the registrant pursuant to Rule 424 (b)(3)
shall be
deemed to be part of the registration statement as of the date
the filed
prospectus was deemed part of and included in the registration
statement;
and
|
|
(B)
|
Each
prospectus required to be filed pursuant to Rule 424(b)(2),
(b)(5), or
(b)(7) as part of a registration statement in reliance on Rule
430B
relating to an offering made pursuant to Rule 415(a)(1)(i),
(vii) or (x)
for the purpose of providing the information required by Section
10(a) of
the Securities Act of 1933 shall be deemed to be part of and
included in
the registration statement as of the earlier of the date such
form of
prospectus is first used after effectiveness or the date of
the first
contract of sale of securities in the offering described in
the
prospectus. As provided in Rule 430B, for liability purposes
of the issuer
and any person that is at that date an underwriter, such date
shall be
deemed to be a new effective date of the registration statement
relating
to the securities in the registration statement to which that
prospectus
relates, and the offering of such securities at that time shall
be deemed
to be the initial
bona
fide
offering thereof.
Provided,
however,
that no statement made in a registration statement or prospectus
that is
part of the registration statement or made in a document incorporated
or
deemed incorporated by reference into the registration statement
or
prospectus that is part of the registration statement will,
as to a
purchaser with a time of contract of sale prior to such effective
date,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or
made in any such document immediately prior to such effective
date;
or
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(ii)
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If
the registrant is subject to Rule 430C, each prospectus filed
pursuant to
Rule 424(b) as part of a registration statement relating to
an offering,
other than registration statements relying on Rule 430B or
other than
prospectuses filed in reliance on Rule 430A, shall be deemed
to be part of
and included in the registration statement as of the date it
is first used
after effectiveness.
Provided,
however,
that no statement made in a registration statement or prospectus
that is
part of the registration statement or made in a document incorporated
or
deemed incorporated by reference into the registration statement
or
prospectus that is part of the registration statement will,
as to a
purchaser with a time of contract of sale prior to such first
use,
supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement
or
made in any such document immediately prior to such date of
first
use.
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(6)
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That,
for the purpose of determining liability of the registrant
under the
Securities Act of 1933 to any purchaser in the initial
distribution of the
securities: The undersigned registrant undertakes that
in a primary
offering of securities of the undersigned registrant pursuant
to this
registration statement, regardless of the underwriting
method used to sell
the securities to the purchaser, if the securities are
offered or sold to
such purchaser by means of any of the following communications,
the
undersigned registrant will be a seller to the purchaser
and will be
considered to offer or sell such securities to such
purchaser:
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(i)
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Any
preliminary prospectus or prospectus of the undersigned
registrant
relating to the offering required to be filed pursuant
to Rule
424;
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(ii)
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Any
free writing prospectus relating to the offering prepared
by or on behalf
of the undersigned registrant or used or referred to by
the undersigned
registrant;
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(iii)
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The
portion of any other free writing prospectus relating to
the offering
containing material information about the undersigned registrant
or its
securities provided by or on behalf of the undersigned
registrant;
and
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(iv)
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Any
other communication that is an offer in the offering made
by the
undersigned registrant to the
purchaser.
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(b)
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The
undersigned registrant hereby undertakes that, for purposes
of determining
any liability under the Securities Act of 1933, each filing
of the
registrant’s annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable,
each filing of an
employee benefit plan’s annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by
reference in the
registration statement shall be deemed to be a new registration
statement
relating to the securities offered therein, and the offering
of such
securities at that time shall be deemed to be the initial
bona
fide
offering thereof.
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(c)
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Insofar
as indemnification for liabilities arising under the Securities
Act may be
permitted to directors, officers and controlling persons
of the Registrant
pursuant to the indemnification provisions described herein,
or otherwise,
the Registrant has been advised that in the opinion of
the SEC such
indemnification is against public policy as expressed in
the Securities
Act and is, therefore, unenforceable. In the event that
a claim for
indemnification against such liabilities (other than the
payment by the
Registrant of expenses incurred or paid by a director,
officer or
controlling person of the Registrant in the successful
defense of any
action, suit or proceeding) is asserted by such director,
officer or
controlling person in connection with the securities being
registered, the
Registrant will, unless in the opinion of its counsel the
matter has been
settled by controlling precedent, submit to a court of
appropriate
jurisdiction the question whether such indemnification
by it is against
public policy as expressed in the Securities Act and will
be governed by
the final adjudication of such
issue.
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SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and authorized this registration statement
to be signed on its behalf by the undersigned on
July
3,
2007
.
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CVD
EQUIPMENT
CORPORATION
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By:
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/s/ Glen
Charles
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Glen
Charles
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Chief
Financial Officer and Controller
(Principal
Financial and Accounting
Officer)
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Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
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Title
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Date
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/s/
Leonard A. Rosenbaum
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Chairman
of the Board, President,
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Leonard
A. Rosenbaum
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Chief
Executive Officer and Director (Principal Officer)
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/s/
Glen
J. Charles
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Chief
Financial Officer and Controller
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Glen
J. Charles
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(Principal
Financial and Accounting Officer)
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/s/
Martin J. Teitelbaum
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Director
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Martin
J. Teitelbaum
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/s/
Alan H. Temple,
Jr.
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Director
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Alan
H. Temple, Jr.
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/s/
Conrad
Gunther
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Director
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Conrad
Gunther
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/s/
Bruce T.
Swan
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Director
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Bruce
T. Swan
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