CVD EQUIPMENT CORP (Form: 10-Q, Received: 08/14/2012 16:16:49)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the quarterly period ended June 30, 2012
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For the transition period from ____ to _____

Commission file number: 1-16525

CVD EQUIPMENT CORPORATION

(Exact Name of Registrant as specified in its charter)

New York	11-2621692
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1860 Smithtown Avenue
Ronkonkoma, New York	11779

(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code)

Indicate by check whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act).

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 5,992,495 shares of Common Stock, $0.01 par value at August 5, 2012.

______________________________________________________________________________

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Part I - Financial Information

Item 1 Financial Statements (Unaudited).
Consolidated Balance Sheets (Unaudited) at June 30, 2012 and December 31, 2011	3
Consolidated Statements of Operations (Unaudited) for the three and six m onths ended June 30, 2012 and 2011	4
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2012 and 2011	5
Notes to Unaudited Consolidated Financial Statements	6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3 Quantitative and Qualitative Disclosures About Market Risk	19
Item 4 Controls and Procedures	19
Part II - Other Information	21
Item 1 Legal Proceedings.	21
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds.	21
Item 3 Defaults Upon Senior Securities.	21
Item 4 Mine Safety Disclosures.	21
Item 5 Other Information.	21
Item 6 Exhibits.	22
Signatures	23
Exhibit Index	24

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets

	June 30, 2012		December 31, 2011
ASSETS
Current Assets:
Cash and cash equivalents	$	16,597,503	$	18,136,527
Accounts receivable, net		2,858,793		3,663,579
Costs and estimated earnings in excess of billings on uncompleted contracts		5,329,622		3,410,824
Inventories, net		2,947,262		2,232,073
Idle inventories		-		975,000
Deferred income taxes – current		192,246		189,510
Other current assets		596,171		150,803

Total Current Assets		28,521,597		28,758,316

Property, plant and equipment, net		13,090,837		7,948,957

Deferred income taxes – non-current		324,912		390,080

Restricted cash		1,000,000		1,000,000

Other assets		261,524		401,658

Intangible assets, net		45,790		49,967

Total Assets	$	43,244,660	$	38,548,978

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Current maturities of long-term debt	$	929,803	$	623,953
Billings in excess of costs and estimated earnings on uncompleted contracts		319,021		1,687,210
Accounts payable and accrued expenses		2,711,847		2,374,334
Accrued professional fees – related party		-		35,000
Deferred revenue		12,412		1,089,966

Total Current Liabilities		3,973,083		5,810,463

Long-term debt, net of current portion		7,856,457		2,547,842
Total Liabilities		11,829,540		8,358,305

Commitments and Contingencies		----		----

Stockholders’ Equity
Common stock - $0.01 par value – 10,000,000 shares authorized; 5,992,495 and 5,958,785 issued and outstanding at June 30, 2012 and December 31, 2011		59,925		59,589
Additional paid-in-capital		20,645,568		20,470,367
Retained earnings		10,709,627		9,660,717
Total Stockholders’ Equity		31,415,120		30,190,673

Total Liabilities and Stockholders’ Equity	$	43,244,660	$	38,548,978

The accompanying notes are an integral part of these consolidated financial statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations

	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011

Revenue	$	7,093,785		$	7,507,717		$	14,248,736		$	13,713,417

Cost of revenue		4,183,854			4,635,083			8,603,617			8,556,543

Gross profit		2,909,931			2,872,634			5,645,119			5,156,874

Operating expenses
Selling and shipping		328,869			235,730			710,799			522,249
General and administrative		1,376,390			1,420,267			2,656,226			2,521,034
Related party-professional fees		-			15,000			-			35,000
Loss on sale of building (Note 8)		693,818			--			693,818			--
Total operating expenses		2,399,077			1,670,997			4,060,843			3,078,283

Operating income		510,854			1,201,637			1,584,276			2,078,591

Other income (expense)
Interest income		8,839			2,665			15,720			6,000
Interest expense		(56,313	)		(48,923	)		(88,612	)		(102,655	)
Other income		17,260			8,055			29,052			92,459
Total other (expense)		(30,214	)		(38,203	)		(43,840	)		(4,196	)

Income before income taxes		480,640			1,163,434			1,540,436			2,074,395

Income tax expense		159,886			384,994			491,526			608,531

Net income	$	320,754		$	778,440		$	1,048,910		$	1,465,864

Basic income per common share	$	0.05		$	0.15		$	0.18		$	0.29

Diluted income per common share	$	0.05		$	0.14		$	0.17		$	0.28

Weighted average common shares outstanding basic		5,992,330			5,211,190			5,984,392			5,019,562

Effect of potential common share issuance:
Stock options		169,842			256,514			169,563			244,968

Weighted average common shares outstanding diluted		6,162,172			5,467,704			6,153,955			5,264,530

The accompanying notes are an integral part of these consolidated financial statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

	Six Months Ended June 30,
	2012			2011
Cash flows from operating activities:
Net Income	$	1,048,910		$	1,465,864
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Stock-based compensation expense		117,856			144,031
Loss on sale of building		693,818
Gain on sale of other fixed assets		(3,288	)		-
Depreciation and amortization		291,266			276,738
Deferred tax expense		62,432			74,076
Bad debt provision		(1,354	)		711
Increases/(decreases) in operating assets and liabilities:
Accounts receivable		806,140			(907,124	)
Costs and estimated earnings in excess of billings on uncompleted contracts		(1,918,798	)		125,890
Inventories, net		259,811			474,707
Other current assets		(445,368	)		(53,471	)
Customer deposits		-			(24,478	)
Increase (decrease) in operating liabilities:
Billings in excess of costs and estimated earnings on uncompleted contracts		(1,368,189	)		3,641,223
Accounts payable and accrued expenses		302,512			1,166,180
Deferred revenue		(1,077,553	)		156,138
Net cash (used in) provided by operating activities		(1,231,805	)		6,540,485

Cash flows from investing activities:
Capital expenditures		(7,724,948	)		(100,066	)
Proceeds from sale of building		1,582,323			-
Proceeds from sale of other fixed assets		21,500			-
Deposits		141,757			-
Net cash (used in) investing activities		(5,979,368	)		(100,066	)

Cash flows from financing activities:
Net proceeds from stock options exercised		57,683			9,391,967
Proceeds from long-term debt		6,000,000			4,520
Payments of long-term debt		(385,534	)		(371,598	)
Net cash provided by financing activities		5,672,149			9,024,889

Net (decrease) increase in cash and cash equivalents		(1,539,024	)		15,465,308
Cash and cash equivalents at beginning of period		18,136,527			6,249,090

Cash and cash equivalents at end of period	$	16,597,503		$	21,714,398

Supplemental disclosure of cash flow information:
Income taxes paid	$	329,725		$	505,100
Interest paid	$	88,612		$	102,655

The accompanying notes are an integral part of these consolidated financial statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited financial statements for CVD Equipment Corporation and Subsidiary (collectively, “the Company”) 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-Q and Article 8 of Regulation S-X. 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 and six months ended June 30, 2012 are not necessarily indicative of the results that can be expected for the year ending December 31, 2012.

The balance sheet as of December 31, 2011 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. For further information, please refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, including the accounting policies followed by the Company as set forth in Note 2 to the consolidated financial statements contained therein.

All material intercompany transactions have been eliminated in consolidation. In addition, certain reclassifications have been made to prior period financial statements to conform to the current year presentation.

Subsequent events have been evaluated through the filing date of this Quarterly Report on Form 10-Q.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Income Recognition

The Company recognizes revenues 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.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The asset, “Cost 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 and estimated earnings on uncompleted contracts,” represents amounts billed in excess of revenues recognized.

Recent Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board issued Accounting Standards Update No. 2012-02 “Intangibles-Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment,” which affords an entity the option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that an indefinite-lived intangible asset is impaired. If, after assessing the totality of events and circumstances, an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further actions. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount.

The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this Accounting Standards Update, will not have a significant impact on the Company’s financial statements and related disclosures.

We believe there is no additional new accounting guidance adopted, but not yet effective that is relevant to the readers of our financial statements. However, there are numerous new proposals under development which, if and when enacted, may have a significant impact on our financial reporting.

NOTE 3: CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and 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. From time to time these temporary cash investments may exceed the Federal Deposit Insurance Corporation (“FDIC”) limit. At June 30, 2012 and December 31, 2011, the cash investments that exceeded the FDIC limit amounted to $3,878,000 and $4,249,000, respectively. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company assesses the financial strength of its customers and maintains allowances for anticipated losses.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4: UNCOMPLETED CONTRACTS

Costs and estimated earnings in excess of billings on uncompleted contracts are summarized as follows:

	June 30, 2012			December 31, 2011

Costs incurred on uncompleted contracts	$	14,299,833		$	11,253,624
Estimated earnings		13,096,063			10,120,760
		27,395,896			21,374,384
Billings to date		(22,385,295	)		(19,650,770	)
	$	5,010,601		$	1,723,614
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	5,329,622		$	3,410,824

Billings in excess of costs and estimated earnings on uncompleted contracts	$	(319,021)		$	(1,687,210)

Inventories consist of:

	June 30, 2012			December 31, 2011

Raw materials	$	1,877,191		$	1,986,880
Work-in-process		357,821			507,943
Finished goods		1,012,250			37,250
Totals		3,247,262			2,532,073
Less: Reserve for obsolescence		(300,000	)		(300,000	)
	$	2,947,262		$	2,232,073

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5: INVENTORIES (continued)

During the six months ended June 30, 2011, the Company recorded certain inventory write-downs of $560,000.

At December 31, 2011, the Company held $975,000 of equipment returned from a terminated contract recorded as Idle Inventories, which it had not been granted permission to use or sell as a result of pending litigation, as a separate line item on the balance sheet. The Company may now sell or otherwise dispose of the goods then referred to as Idle Inventories and as of June 30, 2012, this inventory is included in Finished goods.

NOTE 6: FAIR VALUE MEASUREMENTS

We determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy, and the three levels of inputs that may be used to measure fair value are as follows:

Level 1 inputs which include quoted prices in active markets for identical assets or liabilities.

Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

The following table summarizes, for each major category of assets and liabilities, the respective fair value and the classification by level of input within the fair value hierarchy:

	June 30, 2012								December 31, 2011
Description	Level (1)		Level (2)		Level (3)		Total		Level (1)		Level (2)		Level (3)		Total
Assets:
Cash equivalents	$	3,878,216	$	---	$	---	$	3,878,216	$	5,394,434	$	---	$	---	$	5,394,434

Total Liabilities	$	---	$	---	$	---	$	---	$	---	$	---	$	---	$	---

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts receivable are presented net of an allowance for doubtful accounts of $24,534 and $25,888 as of June 30, 2012 and December 31, 2011, respectively. The allowance is based on prior experience and management’s evaluation of the collectability of accounts receivable. Management believes the allowance is adequate. However, future estimates may change based on changes in future economic conditions.

NOTE 8: REAL ESTATE TRANSACTIONS

Having determined that larger operating facilities would be required to facilitate the growth of the Company’s operations and that the most efficient means to facilitate this growth would be to locate all Long Island operations in a single facility, on March 15, 2012, we closed title on the purchase of the premises located at 355 South Technology Drive, Central Islip, New York as the first phase of this process. After obtaining our new facilities, we sold our facility located at 979 Marconi Avenue, Ronkonkoma, New York where our Application Laboratory had been located; this transaction closed on April 26, 2012 for a selling price of approximately $1,659,000 and we incurred a capital loss of approximately $694,000. On May 31, 2012, we entered into a Contract of Sale to sell our headquarters located at 1860 Smithtown Avenue, Ronkonkoma, New York, and began the final phase in completing the relocation process. The sale price for the Smithtown Avenue facility is $3,875,000 (exclusive of closing costs) and as of June 30, 2012, the book value (net of depreciation) on this facility is approximately $2,800,000. The closing on the sale of the Smithtown Avenue facility is expected to occur no later than October 15, 2012.

NOTE 9: LONG-TERM DEBT

On April 22, 2008, the Company entered into a three year Modified and Restated Revolving Credit Agreement (the “Credit Agreement”) with Capital One, N.A. (“Capital One” as the “Bank”) as successor to North Fork Bank, pursuant to which the Bank agreed to make revolving loans to the Company of up to $5 million until May 1, 2011 which was later extended to August 1, 2011. Interest on the unpaid principal balance on this facility accrued at either (i) the LIBOR rate plus 2.00% or (ii) the Bank’s prime rate minus .25%. This agreement contained certain financial and other covenants. Borrowings were collateralized by the Company’s assets.

The amount available under the Credit Agreement was $5,000,000 as of June 30, 2011. This Credit Agreement was terminated and satisfied in full.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9: LONG-TERM DEBT (continued)

On August 5, 2011, the Company entered into a $9.1 million credit agreement with HSBC Bank, USA, N.A. (“HSBC”), secured by substantially all of the Company's personal property, to replace its $5.0 million revolving credit agreement and $2.1 million of existing mortgages previously held by Capital One Bank, N.A., which was previously secured by substantially all of the Company’s personal property. This new agreement consists of a $7 million revolving credit facility and a $2.1 million five (5) year term loan. The revolving credit facility permits the Company to borrow on a revolving basis until August 5, 2014. Interest on the unpaid principal balance on this facility accrues at either (i) the London Interbank Offered Rate (“LIBOR”) plus 1.75% or (ii) HSBC’s prime rate minus 0.50%. Interest on the unpaid principal balance for the term loan, used to pay off the previous mortgages, accrues at a fixed rate of 3.045%. Borrowings under this term loan are additionally collateralized by $1 million of restricted cash deposits, provided that, so long as no event of default has occurred and is then continuing, HSBC will release $200,000 of the collateral on each anniversary of the closing date. This restricted cash is a separate line item on the balance sheet. The credit agreement also contains certain financial covenants with which the Company was in compliance at June 30, 2012.

Effective as of March 15, 2012, we closed on the purchase of a 120,000 square foot facility located at 355 S. Technology Drive, Central Islip, New York (the “Property”) through the Town of Islip Industrial Development Agency. The purchase price for the Property was $7,200,000 exclusive of closing costs. Pursuant to the terms of an Accommodation Agreement, we entered into a loan agreement with HSBC Bank, in the amount of $6,000,000 (the “Loan”), the proceeds of which were used to finance a portion of the purchase price on the Property. The Loan is secured by the mortgage against the Property. Interest presently accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or HSBC’s prime rate minus 0.50%. The loan matures on March 15, 2022.

NOTE 10: EQUITY ISSUANCES

On May 27, 2011, the Company completed a public offering of 967,950 shares of common stock at $10.50 per share. The net proceeds of $9,391,967 are being used for general corporate purposes, including working capital.

During the three and six months ended June 30, 2012 and June 30, 2011, the Company recorded as part of selling and general administrative expense, approximately $42,000 and $118,000 and $75,000 and $144,000 respectively, for the cost of employee and director services received in exchange for equity instruments based on the grant-date fair value of those instruments. This expense was recorded based upon the guidance of ASC 718, “Compensation–Stock Compensation.”

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: INCOME TAXES

The provision for income taxes includes the following:

	Six Months Ended June 30,
	2012		2011

Current:
Federal	$	386,909	$	457,042
State		42,185		77,413
Total Current Provision		429,094		534,455
Deferred:
Federal	$	47,302	$	101,857
State		15,130		(27,781	)
Total deferred		62,432		74,076
Income tax expense	$	491,526	$	608,531

We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed. Adjustments for differences between our tax provisions and tax returns are recorded when identified, which is generally in the third or fourth quarter of our subsequent year.

NOTE 12: EARNINGS PER SHARE

As per the Accounting Standards Classification section 260, basic earnings per share are computed by dividing net earnings available to common shareholders (the numerator) by the weighted average number of common shares (the denominator) for the period presented. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued.

Stock options to purchase 258,930 shares of common stock were outstanding and 208,930 were exercisable during the three and six months ended June 30, 2012. Stock options to purchase 403,550 shares were outstanding and 334,550 were exercisable during the three and six months ended June 30, 2011. At June 30, 2012 and June 30, 2011, all outstanding options were included in the diluted earnings per share calculation because the average market price was higher than the exercise price.

The dilutive potential common shares on warrants and options is calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potential dilutive effect of the securities.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13: LEGAL PROCEEDINGS

On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp. (“Taiwan Glass”) in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages ($5,816,000) against Taiwan Glass for breach of contract.

The Company believes that Taiwan Glass has no legal basis for unilaterally refusing to accept and pay for equipment specially manufactured for them and shipped to them by the Company. Taiwan Glass has interposed an answer and counterclaims denying these allegations and is seeking unspecified monetary damages. On April 12, 2012, Taiwan Glass filed a Motion seeking Partial Summary Judgment in the amount of $3,564,000 (representing the portion of the purchase price that it had previously paid to the Company). The Company is vigorously pursuing its claims against Taiwan Glass and defending against the counterclaims and Motion for Partial Summary Judgment by Taiwan Glass.

NOTE 14: SEGMENT REPORTING

The Company operates through (2) segments, CVD and SDC. 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. The Conceptronic division of the Company is no longer considered a segment and has been merged into the CVD division as a result of decreasing revenues coupled with the growth of CVD and SDC. The respective accounting policies of CVD and SDC 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 income or (loss) before taxes.

2012	CVD		SDC		Eliminations *			Consolidated
Revenue	$	6,505,330	$	976,951	$	(388,496	)	$	7,093,785
Pretax income		400,325		80,315					480,640
2011
Revenue	$	6,482,466	$	1,652,531	$	(627,280	)	$	7,507,717
Pretax income		858,632		304,802					1,163,434

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14: SEGMENT REPORTING (continued)

2012	CVD		SDC		Eliminations *			Consolidated
Revenue	$	12,722,329	$	2,450,893	$	(924,486	)	$	14,248,736
Pretax income		1,222,513		317,923					1,540,436
2011
Revenue	$	12,194,241	$	2,685,678	$	(1,166,502	)	$	13,713,417
Pretax income		1,710,438		363,957					2,074,395

*All elimination entries represent intersegment revenues eliminated in consolidation for external financial reporting.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for historical information contained herein, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include but are not limited to: competition in the Company’s existing and potential future product lines of business; the Company’s ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company’s future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Results of Operations

Three and Six Months Ended June 30, 2012 vs. Three and Six Months Ended June 30, 2011

Revenue for the three months ended June 30, 2012 was approximately $7,094,000 compared to approximately $7,508,000 for the three months ended June 30, 2011, a decrease of 5.5%. This decrease is a result of some of our efforts being diverted to our relocation to our new facility in Central Islip, New York. Revenue for the six months ended June 30, 2012 was approximately $14,249,000 compared to approximately $13,713,000 for the six months ended June 30, 2011, an increase of 3.9%.

During the three and six months ended June 30, 2012, we generated gross profits of approximately $2,910,000 and $5,645,000, respectively, resulting in gross profit margins of 41.0% and 39.6% as compared to the three and six months ended June 30, 2011, where we generated gross profits of approximately $2,873,000 and $5,157,000, respectively, resulting in gross profit margins of 38.3% and 37.6%. The increase in gross profit margin is primarily attributable to our continuing successful efforts in engineering and production to achieve greater efficiencies in the use of our labor costs and the utilization of volume purchase discounts on materials ordered.

Selling, General and Administrative Expenses

Selling and shipping expenses for the three and six months ended June 30, 2012 were approximately $329,000 and $711,000, respectively, or 4.6% and 5.0% of our revenue compared to $236,000 and 522,000, respectively, or 3.1% and 3.8% of our revenue for the three and six months ended June 30, 2011. The increases can be attributed to certain selling and shipping expenses such as commissions and freight which vary from period to period due to the timing of the shipments of systems as well as the hiring of additional personnel and attending more trade shows during the current three and six month periods compared to prior periods.

We incurred approximately $1,376,000 and $2,656,000 of general and administrative expenses or 19.4% and 18.6% of our revenue for the three and six months ended June 30, 2012, compared to approximately $1,435,000 and $2,556,000 or 19.1% and 18.6% of our revenue during the three and six months ended June 30, 2011.

During the three and six months ended June 30, 2012, we completed the sale of our facility located at 979 Marconi Avenue, Ronkonkoma, New York, where our application Laboratory was located. The selling price for the facility was approximately $1,659,000 and as a result, we incurred a long-term capital loss on the sale of approximately $694,000. This capital loss had an adverse effect of $.12 per share on our pre-tax earnings for the three and six months ended June 30, 2012.

On May 31, 2012, we entered into a Contract of Sale to sell our headquarters located at 1860 Smithtown Avenue, Ronkonkoma, New York, and began the final phase in completing the relocation process. The sale price for the Smithtown Avenue facility is $3,875,000 (exclusive of closing costs) and as of June 30, 2012, the book value (net of depreciation) on this facility is approximately $2,800,000. The closing on the sale of the Smithtown Avenue facility is expected to occur no later than October 15, 2012.

As a result of the foregoing factors, operating income was approximately $511,000 for the three months ended June 30, 2012 compared to operating income of $1,202,000 for the three months ended June 30, 2011, a decrease of 57.5%. If the loss on the sale of the Marconi Avenue facility had been excluded from the three months ended June 30, 2012, operating income would have been $1,205,000. Operating income for the six months ended June 30, 2012 was $1,584,000 compared to operating income of approximately $2,079,000 for the six months ended June 30, 2011, a decrease of 23.8%. If the loss on the sale of the Marconi Avenue facility had been excluded from the six months ended June 30, 2012, the operating income would have been $2,278,000, an increase of 9.6%.

Interest Expense, Net

Interest income for the three and six months ended June 30, 2012 was approximately $9,000 and $16,000, respectively, compared to approximately $3,000 and $6,000 for the three and six months ended June 30, 2011. Interest expense for the three and six months ended June 30, 2012 was approximately $56,000 and $89,000 compared to approximately $49,000 and $103,000 for the three and six months ended June 30, 2011. The primary sources of this interest expense are the mortgages on the three buildings that we own.

For the six months ended June 30, 2012, we recorded approximately $429,000 of current income tax expense and $62,000 of deferred tax expense. For the six months ended June 30, 2011, we recorded a current income tax expense of approximately $534,000 and $74,000 of deferred tax expense.

For the foregoing reasons, we reported net income of approximately $321,000 and $1,049,000 for the three and six months ended June 30, 2012 compared to net income of approximately $778,000 and $1,466,000 for the three and six month periods ended June 30, 2011. Inflation has not materially impacted the operations of our Company.

Liquidity and Capital Resources

As of June 30, 2012, we had aggregate working capital of approximately $24,549,000 compared to $22,948,000 of working capital at December 31, 2011, an increase of $1,601,000 and cash and cash equivalents of $16,598,000, compared to $18,137,000 at December 31, 2011, a decrease of $1,539,000. The increase in working capital was primarily the result of the increase of approximately $1,919,000 in costs and estimated earnings in excess of billings on uncompleted contracts and the reduction of approximately $1,368,000 in billings in excess of costs and estimated earnings on uncompleted contracts that was partially offset by the reduction in cash that was used to pay for the acquisition and renovations of our new facility in Central Islip, New York. The decrease in cash and cash equivalents can be primarily attributed to the costs associated with the acquisition and renovations of the facility in Central Islip, New York.

Accounts receivable, net, as of June 30, 2012 was $2,859,000 compared to $3,664,000 as of December 31, 2011. This decrease is primarily attributable to the timing of shipments and customer payments.

As of June 30, 2012, our backlog was approximately $10,058,000, a decrease of $6,140,000, or 37.9%, compared to $16,198,000 at December 31, 2011. During the six months ended June 30, 2012, we received approximately $8,109,000 in new orders. Timing for completion of the backlog varies depending on the product mix and can be as long as two years. Included in the backlog are all accepted purchase orders with the exception of those that are included in 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 of revenues or profits as order cancellations or delays are possible.

On August 5, 2011, the Company entered into a $9.1 million credit agreement with HSBC Bank, USA, N.A. secured by substantially all of the Company’s personal property. The agreement consists of a $7 million revolving credit loan and a $2.1 million five (5) year term loan. The revolving credit facility permits the Company to borrow on a revolving basis until August 5, 2014. Interest on the unpaid principal balance on this facility accrues at either (i) the LIBOR Rate plus 1.75% or (ii) the bank’s prime rate minus 0.50%. The term loan was used to pay off the mortgages previously held by Capital One Bank, NA. Interest on the unpaid principal balance accrues at a fixed rate of 3.045%. Borrowings under this term loan are collateralized by $1 million, provided that, so long as no event of default has occurred and is then continuing, the bank will release $200,000 of the collateral on each anniversary of the closing date. The credit agreement also contains certain financial covenants.

So that we may expand our engineering, manufacturing, administration and Application Laboratory to further support the increase in our existing product sales and the development and sales of new products, on March 16, 2012, effective as of March 15, 2012, we closed on the purchase of a 120,000 square foot facility located in Central Islip, New York 11722 (the “Property”) through the Town of Islip Industrial Development Agency, (the “Islip IDA”). This building will replace our two Ronkonkoma facilities which total 63,275 square feet. The transaction was structured pursuant to Section 1031 of the Internal Revenue Code, as amended, as a reverse tax deferred exchange. In order to avail ourselves of certain real estate and sales tax abatements, the purchase took the form of an assignment and lease purchase agreement with fee title continuing to be vested in the Islip IDA. The property was purchased from SJA Industries, LLC. The purchase price for the Property was $7,200,000, exclusive of closing costs.

Pursuant to the terms of an Accommodation Agreement, we entered into a loan agreement with HSBC Bank, USA, N.A. in the amount of $6,000,000, (the “Loan”), the proceeds of which were used to finance a portion of the purchase price of the Central Islip facility. The Loan is secured by the mortgage against that facility. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or HSBC’s prime rate minus 0.50%. The Loan matures on March 15, 2022.

On April 26, 2012, we closed on the sale of our facility located at 979 Marconi Avenue, Ronkonkoma, New York 11779 which housed our Application Laboratory to K.A.V. Realty Associates, LLC. The selling price for the Premises was $1,659,375, exclusive of closing costs.

We may also raise additional funds in the event we determine in the future to effect one or more acquisitions of businesses, technologies or products. In addition, we may elect to raise additional funds even before we need them if the conditions for raising capital are favorable. On February 14, 2011, we filed a shelf registration statement on Form S-3 with the United States Securities and Exchange Commission (“SEC”) to register shares of our common stock and other securities for sale, giving us the opportunity to pursue possible future fundraising of up to $20 million (the “Registration Amount”) when needed or otherwise considered appropriate at prices and on terms to be determined at the time of any such offerings. This shelf registration was declared effective by the SEC on February 28, 2011. In May 2011, we sold securities under the shelf registration statement having an aggregate value of $10,163,475.

We believe we have an ample amount of cash, positive operating cash-flow and available credit facilities at June 30, 2012, to meet our working capital and investment requirements for the next twelve months .

Off-Balance Sheet Arrangements.

We have no off-balance sheet arrangements at this time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Item 4. Controls and Procedures .

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). As required by Rule 13a-15(b) under the Exchange Act, management of the Company, under the direction of our Chief Executive Officer and Chief Financial Officer, reviewed and performed an evaluation of the effectiveness of design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Report”).

Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer, along with our management, have determined that as of the end of the period covered by the Report on Form 10-Q, the disclosure controls and procedures were and are effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding disclosures.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the internal controls over financial reporting.

Limitations on the Effectiveness of Controls

We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

CVD EQUIPMENT CORPORATION

Item 1. Legal Proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3. Defaults Upon Senior Securities.

Item 4. Mine Safety Disclosures.

Item 5. Other Information.

The exhibits below are hereby furnished to the SEC as part of this report:

	10.1	Contract of Sale, dated May 31, 2012, between the Company and Glomel LLC.

	31.1	Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 14, 2012.


	31.2	Certification of Glen R. Charles, Chief Financial Officer, dated August 14, 2012.


	32.1	Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 14, 2012, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


	32.2	Certification of Glen R. Charles, Chief Financial Officer, dated August 14, 2012, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.


	101.INS**	XBRL Instance.


	101.SCH**	XBRL Taxonomy Extension Schema.


	101.CAL**	XBRL Taxonomy Extension Calculation.


	101.DEF**	XBRL Taxonomy Extension Definition.


	101.LAB**	XBRL Taxonomy Extension Labels.


	101.PRE**	XBRL Taxonomy Extension Presentation.

**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise not subject to liability under these sections.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 14 th day of August 2012.

	CVD EQUIPMENT CORPORATION

	By:	/s/ Leonard A. Rosenbaum
		Leonard A. Rosenbaum
		Chief Executive Officer, President and Chairman
		(Principal Executive Officer)

	By:	/s/ Glen R. Charles
		Glen R. Charles
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

EXHIBIT NUMBER	DESCRIPTION

10.1	Contract of Sale, dated May 31, 2012, between the Company and Glomel LLC*

31.1	Certification of Chief Executive Officer *

31.2	Certification of Chief Financial Officer *

32.1	Certification of Chief Executive Officer pursuant to U.S.C. Section 1350 *

32.2	Certification of Chief Financial Officer pursuant to U.S.C. Section 1350 *

101.INS**	XBRL Instance.

101.SCH**	XBRL Taxonomy Extension Schema.

101.CAL**	XBRL Taxonomy Extension Calculation.

101.DEF**	XBRL Taxonomy Extension Definition.

101.LAB**	XBRL Taxonomy Extension Labels.

101.PRE**	XBRL Taxonomy Extension Presentation.

CONTRACT OF SALE

CONTRACT OF SALE, made and entered into this 31st day of May, 2012, by and between CVD EQUIPMENT CORPORATION , (hereinafter referred to as "Seller"), a New York Corporation with offices at 1860 Smithtown Avenue, Ronkonkoma, New York 11779, and GLOMEL LLC, (hereinafter referred to as "Purchaser"), with offices at 300 Suburban Avenue, Deer Park, New York.

1. PREMISES .

The Purchaser hereby agrees to buy from the Seller, and the Seller hereby agrees to sell to the Purchaser, the property, including the building and improvements thereon (except to the extent excluded below), more particularly described in "Schedule A" annexed, hereinafter as the "subject premises," and also known as:

Street Addresses: 1860 Smithtown Avenue, Ronkonkoma, NY

Tax Map Designation: 0500-127.00-02.00-060.000

together with Seller's interest, if any, in streets and unpaid awards as hereinbelow set forth, all upon the terms and conditions set forth herein.

Excluded from this sale are: All trade fixtures, equipment, and personal property used in the conduct of the business of Seller and/or CVD Materials Corporation, including, without limitation, furniture, partitions, workstations, phone system, alarm system, contents of computer server room, gas tanks, exhaust system (including duct work, controls, blowers, etc.), high purity stainless steel process gas plumbing, process chilled water system, dock truck lights, pallet racks, wall racks, shelving, refrigerators, portable electrical generators, transformers, distribution panels, and wiring supplying Seller’s equipment. Seller shall cap any loose or disconnected wires in connection with its removal of electrical equipment and/or wiring.

2. STREETS AND ASSIGNMENT OF UNPAID AWARD. This sale includes all of Seller's ownership and rights, if any, in any land lying in the bed of any street or highway, opened or proposed, in front of or adjoining the premises to the center line thereof. It also includes any right of Seller to any unpaid award by reason of any taking by condemnation and/or for any damage to the premises by reason of change of grade of any street or highway. Seller will deliver at no additional cost to Purchaser, at closing, or thereafter, on demand, any documents in Seller’s possession which Purchaser may reasonably require to collect any such award and damages. This paragraph shall survive the closing.

3. PURCHASE PRICE. The purchase price to be paid by the Purchaser to the Seller for the subject premises shall be Three Million Eight Hundred Seventy Five Thousand ($3,875,000.00) Dollars. Seller and Purchaser acknowledge that no portion of the Purchase Price is allocated to the Personal Property, if any, transferred pursuant to this contract.

4. TERMS OF PAYMENT . The purchase price shall be paid by the Purchaser, as follows:

One Hundred Ninety Three Thousand Seven Hundred Fifty ($193,750.00) Dollars to be paid upon the execution of this Contract; and.

Three Million Six Hundred Eighty One Thousand Two Hundred Fifty ($3,681,250.00) Dollars payable at closing of title.

5. ACCEPTABLE FUNDS . All money payable under this Contract shall be either:

Good certified checks of Purchaser or official check of any bank, savings bank trust company, or savings and loan association having a banking office in the State of New York, payable to the order of Seller, or as Seller shall otherwise direct;

At Seller’s option, such wire transfers as Seller may direct; and/or

As directed to in writing by Seller's attorney, not less than three (3) business days prior to closing.

6. MONEY PAID ON CONTRACT TO BE HELD IN ESCROW.

a. All monies paid on this Contract shall be held in escrow by the Seller's attorney, Martin J. Teitelbaum, in an Attorney Escrow Account maintained at HSBC (Smithtown Branch) until the closing of title or otherwise disbursed pursuant to the terms of this Contract. Neither party shall be entitled to interest upon the escrow funds held in accordance with this paragraph, except in the event that the Escrowee in his sole discretion shall decide to deposit said fund into an non-IOLA interest bearing account in which event the party who shall be entitled to the escrow funds shall be entitled to any interest which has accrued on said fund, and the party receiving said interest shall be liable for any income taxes thereon. The Escrow Agent shall not be liable for any action taken or omitted hereunder except in the case of its willful misconduct and shall not be made a party to any lawsuit in his capacity as Escrow Agent except as a stakeholder. The Escrow Agent shall not be bound by any modification, cancellation or rescission of this Contract unless in writing and signed by the other parties hereto. In no event, however, shall any modification of this Contract which shall affect the rights or duties of the Escrow Agent, be binding on the Escrow Agent unless the Escrow Agent shall have given his prior written consent. Purchaser waives any right which the Purchaser might have to file a Notice of Pendency with respect to any controversy which may arise between the parties, except in an actionseeking specific performance of the conveyance of the subject premises. If there shall be any dispute or controversy between the Seller and Purchaser, the Escrow Agent shall have the right (i) to represent Seller and/or (ii) to deposit the escrow fund in a Court of competent jurisdiction pursuant to CPLR Article 26. Upon deposit of the said Escrow Fund in Court, the Escrow Agent is hereby authorized to retain his disbursements in connection with such deposit or interpleader filing fees and service of process therewith.

b. At the closing, such proceeds and the interest thereon, if any shall be paid by escrowee to Seller, or Seller’s assigns. If for any reason the closing does not occur and either party makes a written demand upon Escrowee for payment of such amount, Escrowee shall give written notice to the other party of such demand. If Escrowee does not receive a written objection from the other party to the proposed payment within five (5) business days after the giving of such notice, Escrowee is hereby authorized to make such payment. If Escrowee does not receive such written objection within such five (5)business day period or if for any other reason Escrowee in good faith shall elect not to make such payment, Escrowee shall continue to hold such amount until otherwise directed by written instructions from the parties to this contract or a final and non-appealable judgment of a court. However, Escrowee shall have the right at any time to deposit the escrowed proceeds and interest thereon, if any, with the Court, as aforesaid. Escrowee shall give written notice of such deposit to Seller and Purchaser. Upon such deposit Escrowee shall be relieved and discharged of all further obligations and responsibilities hereunder. If the Down Payment is deposited in a money market account, dividends thereon shall be treated, for purpose of this Section, as interest.

c. The parties acknowledge that Escrowee is acting solely as a stakeholder at their request and for their convenience, that the duties of Escrowee hereunder are purely ministerial in nature and shall be expressly limited to the safekeeping and disposition of the Down Payment in accordance with the provisions of this contract, that Escrowee shall not be deemed to the agent of either of the parties, and that Escrowee shall not be liable to either of the parties for any act or omission on its part unless taken or suffered in bad faith, in willful disregard of this contract or involving gross negligence. Seller and Purchaser shall jointly and severally indemnify and hold Escrowee harmless from and against all costs, claims and expenses, including reasonable attorneys’ fees, incurred in connection with the performance of Escrowee’s duties hereunder, except with respect to actions or omissions taken or suffered by Escrowee in bad faith, in willful disregard of this contract or involving gross negligence on the part of Escrowee.

d. Escrowee has acknowledged agreement to these provisions by signing in the place indicated on the signature page of this Contract.

e. If Escrowee is Seller’s attorney, Escrowee or any member of its firm shall be permitted to act as counsel for Seller in any dispute as to the disbursement of the Down Payment or any other dispute between the parties whether or not Escrowee is in possession of the Down Payment and continues to act as Escrowee.

f. Escrowee may act or refrain from acting in respect of any matter referred to in this section in full reliance upon and with the advice of counsel which may be selected by it (including any member of its firm) and shall be fully protected in so acting or refraining from action upon the advice of such counsel.

7. SUBJECT TO PROVISIONS . The premises are to be transferred subject to:

Laws and governmental regulations that affect the use and maintenance of the premises, provided that they are not violated by the buildings and improvements erected on the premises,

Consents for the erection of any structures on, under or above any streets on which the premises abut,

Any state of facts an accurate survey may show, provided same does not render title unmarketable,

Covenants, easements, restrictions, declarations of record, if any, provided same do not violate existing structures or the use thereof. The violations of any covenant and restriction by the existing improvements shall not be deemed an objection to title provided the title company insuring title shall agree to insure that such improvements may remain in their present location as long as same shall stand.

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller represents and warrants to Purchaser as follows:

Seller is not a “foreign person” as defined in the Code Withholding section.

Seller is a corporation that has been duly organized and is in good standing under the law of the state of its formation.

Seller has taken all necessary action to authorize the execution, delivery and performance of this contract and has the power and authority to execute, deliver and perform this contact and communicate the transaction contemplated hereby. The person signing this contract on behalf of Seller is authorized to do so. Assuming this contract has been duly authorized executed and delivered by each of the other part(ies) to this contract, this contract and all obligations of Seller hereunder are legal, valid and binding obligations of Seller, enforceable in accordance with the terms of this contract, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law)

The execution and delivery of this contract and the performance of its obligations hereunder by Seller will not, to Seller’s knowledge, conflict with any provision of any law or regulation or which Seller is subject or any agreement or instrument to which Seller is a party or by which it is bound or any order or decree applicable to Seller or result in the creation or imposition of any lien on any of Seller’s assets or property which would materially and adversely affect the ability of Seller to carry out the terms of this contract.

The Premises constitute one tax lot.

Seller has not received written notice of and has no knowledge of any action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Seller with respect to the Premises, including with respect to environmental violations, matters or conditions which if adversely determined could individually or in the aggregate materially interfere with the consummation of the transaction contemplated by this contract.

Seller is not a, and is not acting directly or indirectly for or on behalf of any person, group, entity or nation named by any Executive Order of the United States Treasury Department as a terrorist, “Specifically Designated National and Blocked Persons, or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule or regulation that is enforced or administered by the Office of Foreign Assets control and seller is not engaged in this transaction, directly or indirectly on behalf of, or instigating or facilitating this transaction, directly or indirectly on behalf of any such person, group, entity, or nation.

To Seller’s knowledge, there are no underground fuel storage tanks at the Premises.

Seller has received no notice of, and has no knowledge of, any actual or proposed taking in condemnation of all or any part of the Premises.

Except as specifically set forth herein, none of Sellers representations or warranties shall survive the Closing. No claim for a misrepresentation or breach of warranty of Seller shall be actionable or payable if the breach in questions results from or is based on a condition, state of facts or other matter which was actually known to Purchaser prior the Closing.For the purpose of this Section, the phrase “to Seller’s knowledge” shall mean the actual knowledge of any officer or director without any special investigation.

Except where limited specifically to the date of this contract or other date, the representations and warranties made by Seller in his contract are made as of the date of execution and delivery of this contract.

MORTGAGE COMMITMENT CONTINGENCY

The obligation of Purchaser to purchase under this Contract is conditioned upon issuance on or before forty five (45) days after a fully executed copy of this contract is given to Purchaser or Purchaser’s attorney in the manner set forth herein (the “Commitment Date”), of a written commitment from an Institutional Lender pursuant to which such Institutional Lender agrees to make a first mortgage loan, to Purchaser, at Purchaser’s sole cost and expense of Two Million Nine Hundred Thousand $2,900,000.00 Dollars for a term of at least ten (10) years (or such lesser sum or shorter term as Purchaser shall be willing to accept) at the prevailing fixed or adjustable rate of interest and on other customary commitment terms (the “Commitment”). To the extent a Commitment is conditioned on the sale of Purchaser’s (or Mercer Tool Corp.’s) current building, payment, of any outstanding debt, no material adverse change in Purchaser’s financial condition (or the financial condition of Mercer Tool Corp. or any other guarantor) or any other customary conditions, Purchaser accepts the risk that such conditions may not be met; however, a commitment conditioned on the Institutional Lender’s approval of an appraisal shall not be deemed a “Commitment” hereunder, until an appraisal is approved (and if that does not occur before the Commitment Date) Purchaser may cancel under Subparagraph 9.e., unless the Commitment Date is extended. Once a Commitment is issued, Purchaser is bound under this Contract even if the lender fails or refuses to fund the loan for any reason.

Purchaser shall (i) make prompt application to one or, at Purchaser’s election, more than one Institutional Lender, for such mortgage loan; (ii) furnish accurate and complete information regarding Purchasers, Purchaser’s (and Mercer Tool Corp.) principals, and members of their families, as required, (iii) pay all fees, points and charges required in connection with such application and loan, (iv) pursue such application with diligence(including the securing of such environmental reports required by such Institutional Lender), (v) provide such Institutional Lender with a Guaranty of Mercer Tool Corp. if required by such Institutional Lender a condition of granting a Commitment, and (vi) cooperate in good faith with such Institutional Lender(s) to obtain a Commitment. Purchaser shall accept a Commitment meeting the terms set forth herein and shall comply with all requirements of such Commitment (or any other commitment) accepted by Purchaser. Purchaser shall furnish Seller with a copy of the commitment promptly after receipt thereof.

Prompt submission by Purchaser of an application to a mortgage broker registered pursuant to Article 12-D of the New York Banking Law (Mortgage Broker) shall constitute full compliance with the terms and conditions as forth in this paragraph with regards to the requirement that the application be made to an Institutional Lender, provide that such Mortgage broker promptly submits such application to such Institutional Lender(s), and that Purchaser is otherwise in compliance with the requirements of this paragraph. Purchaser shall cooperate in good faith with such Mortgage broker to obtain a commitment from such Institutional Lender(s).

If all Institutional Lenders to whom applications were made deny such applications in writing prior to the Commitment Date, Purchaser may cancel this contract by giving Notice thereof to Seller by the earlier of within five (5) business days from the date of such denial(s) or within five (5) business days after the Commitment Date, with a copy of such denials (together witha copy of the application and all supporting documents), provided that Purchaser has complied with all its obligations under this paragraph.

If no Commitment is issued by the Institutional Lender on or before the commitment Date, then, unless Purchaser has accepted a written commitment from an Institutional Lender that does not conform to the terms set forth in this paragraph, Purchaser may cancel this contract by giving Notice to Seller within 5 business days after the Commitment Date, provided that such Notice includes the name and address of the Institutional Lender(s) to whom application was made together with a copy of the application and all supporting documents, and provided that Purchaser has complied with all its obligations under this paragraph.

If this contract is canceled by Purchaser pursuant to this paragraph, neither party shall thereafter have any further rights against , or obligations or liabilities to, the other by reason of this Contract, except that (i) the Downpayment shall be promptly refunded to Purchaser and those provisions which, by the express terms of this Contract survive cancellation, shall survive.

If Purchaser fails to give timely Notice of cancellation or if Purchaser accepts a written commitment from an Institutional Lender that does not conform to the terms set forth in this paragraph, then Purchaser shall be deemed to have waived Purchasers’ right to cancel this Contract and to receive a refund of the Downpayment by reason of the contingency contained in this paragraph.

If Seller has not received a copy of a commitment from an Institutional Lender accepted by Purchaser by the Commitment Date nor received a timely Notice of Cancelation as aforesaid, Seller may, at Seller’s option, either deem the Contract to no longer be subject to financing or may cancel this Contract by giving Notice to Purchaser within 5 business days after such Notice, which cancellation shall become effective unless Purchaser delivered a copy of such commitment to Seller within 10 business days after the Commitment Date. After such cancellation neither party shall have any further rights against, or obligations or liability to, the other by reason of this contract, except that the Downpayment shall be promptly refunded to Purchaser (provided Purchaser has complied with all of its obligations under this Contract) and except as set forth herein, and (ii) those provisions which by the express terms of this Contract survive cancellation, shall survive.

The attorneys for the parties are hereby authorized to give and receive on behalf of their clients all Notices and deliveries under this paragraph.

For purposes of the contract the term “Institutional Lender” shall mean any bank, savings bank, private banker, trust company savings and loan association, credit union or similar banking institution whether organized under the laws of the State of New York , the United States or any other state, foreign banking corporation licensed by the Superintendent of Banks of New York or regulated by the Comptroller of the Currency to transact business in New York State; mortgage broker licensed pursuant to Article 12-D of the Banking law, and any instrumentality created by the United States or any state with the power to make mortgage loans.

For purposes of this paragraph, Purchaser shall be deemed to have been given a fully executed copy of this contract on the day of receipt of same, electronically or otherwise.

10. SELLER IS NOT THE CURRENT FEE OWNER : Purchaser acknowledges that Seller does not currently own fee title to the Premises, but is the contract vendee pursuant to an Installment Sale Agreement dated as of March 1, 2002, between the Town of Islip Industrial Development Agency and CVD Equipment Corporation. At or prior to Closing, Seller shall at its sole cost and expense use diligent efforts to cause the IDA to convey the premises to Seller in accordance with the terms of the Installment Sales Agreement so as to permit the Seller to convey fee title to Purchaser in accordance with the terms of this Contract.

11. REVERSE 1031 EXCHANGE :

(a) Purchaser acknowledges it has been informed that Seller intends to perform a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code. Purchaser consents to an assignment of this contract by Seller ("Exchangor") to First American Exchange Company, a Qualified Intermediary (QI), to effectuate the exchange. Purchaser agrees to cooperate in such exchange provided that Purchaser shall thereby incur no additional cost or liability.

(b) Seller acknowledges that it has been informed that Purchaser intends to perform a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code. Seller consents to an assignment of this contract by Purchaser ("Exchangor") to a Qualified Intermediary (QI), to effectuate the exchange. Seller agrees to cooperate in such exchange provided that Purchaser shall thereby incur no additional cost or liability, and further provided that Closing shall not be delayed as a result thereof.

12. TITLE COMPANY OBJECTIONS . Purchaser's attorney shall order a title search within five (5)business days from the date of Contract and arrange for copies of said report to be sent by the title company directly to Seller's attorney. In the event that there are objections to title, Purchaser shall notify the Seller of same, and the Seller shall have, at the Seller's option, a reasonable time to remove said objections. If the objections cannot be cleared, then the Seller shall return the downpayment made, together with the net cost of title search and the net cost of any survey in connection herewith, and thereafter neither party shall have any further right against the other. Seller is not required to bring any action or proceeding or otherwise incur any expense whatsoever to render title marketable or insurable.

Seller shall be obligated to comply with any violations noted or issued, with respect to the Premises, by any governmental department having authority as to the Premises ( A Violations @ ) provided: (i) such Violation is noted or issued on or prior to the date hereof; and (ii) the aggregate cost to comply with the Violations does not exceed $50,000. If the cost of Violations, which Seller may be obligated to comply with, exceeds $50,000, as determined by Seller = s contractor, engineer or other consultant, then the following shall apply: (1) Seller shall notify Purchaser of its intent to either comply or not comply with such Violations; (2) if Seller agrees to comply it shall be entitled to reasonable adjournments of the Closing Date to accomplish same; (3) if Seller elects not to comply Purchaser shall have the right to either: (a) terminate this Contract and receive a refund of the Downpayment; or (b) take title to the Premises subject to a $50,000 credit in the purchase price. Purchaser must elect within five (5) business days after Seller = s notice that it will not comply or Purchaser shall be conclusively deemed to have elected option (b). Notwithstanding the foregoing, if the cost of complying with Violations, which Seller may be obligated to comply with, is $50,000 or less Seller may elect to comply with such Violations or credit Purchaser an amount equal to the cost of compliance, as reasonably determined by Purchaser = s contractor, engineer or other consultant

13. TITLE COMPANY APPROVAL . At the Closing, Seller shall give and Purchaser shall accept:

(a) insurable title such as any title company licensed in New York State will be willing to approve and insure in accordance with their standard form of title policy, and without additional premium, subject only to the matters provided for in this Contract ; and

(b) Any transfer tax, franchise tax, license fee or other similar taxes, fees or liens on the Premises shall not be deemed an Objection to Title, provided that the Title Company will issue or bind itself to issue its policy insuring Purchaser without such exception or insuring against collection from Purchaser or the Premises.

14. CLOSING DEFINED AND FORM OF DEED . Closing means the settlement of the obligations of Seller and Purchaser to each other under this Contract, including the payment of the purchaser price to Seller, and the delivery to Purchaser of a Bargain & Sale deed w/ Covenants Against Grantor's Acts in proper statutory form for recording so as to transfer full ownership (fee simple title) to the premises, free of all encumbrances except a herein stated. The Deed will contain a covenant by Seller as required by Section 13 of the Lien Law.

Seller will also deliver at closing:

a. the returns required by statute, duly signed by the appropriate person or entity as grantor

b. A certification as to the Seller's non-foreign status pursuant to Section 1445 of the Internal Revenue Code of 1986;

c. Possession of the Premises vacant, free of all tenancies and occupancies, free of debris and in the condition required by this Contract, and the keys to the Premises;

d. Such affidavits as the Title Company shall reasonably require in order to omit from the title insurance policy all exceptions for judgments, bankruptcies or other returns against persons or entities whose names are the same as or similar to Seller's name;

e. A resolution of Seller’s board of directors authorizing the sale and delivery of the deed and a certificate executed by the secretary or assistance secretary of Seller certifying as to the adoption of such resolution and setting forth facts showing that the transfer complies with the requirements of such law and the deed referred to herein shall also contain a recital sufficient to establish compliance with such law;

f. A blanket assignment, without recourse or representation, of all Seller’s right, title and interest, if any, to all contractors’, suppliers’, materialmen’s and builders’ guarantees and warranties of workmanship and/or materials in force and effect with respect to the Premises on the Closing date and a true and complete copy of each thereof; and

g. Any other documents required by this contract to be delivered by Seller.

15. CLOSING DATE AND PLACE . Closing will take place at the offices of CVD Equipment Corporation, 355 S. Technology Drive, Central Islip, New York (or at such other place designated by the Seller), or at the location designated by Purchaser's mortgage lender within the County of Suffolk or Nassau, at two o'clock P.M., on or about July20, 2012. However, notwithstanding anything to the contrary contained in this Contract of Sale, Seller at Seller = s sole option shall be entitled to adjourn such closing date up to and including October15, 2012, provided that if the date designated by Seller is after September 10, 2012, and is for a date after Purchaser’s mortgage commitment is scheduled to expire it shall be subject to Purchaser’s ability to obtain an extension of the mortgage commitment through the designated date for Closing, and if the Purchaser despite its due diligence is unable to obtain such an extension, then unless the Seller agrees to Close prior to the expiration of the mortgage commitment Purchaser shall have the right to cancel this Contract and receive a refund of the Contract deposit.

Seller shall have the sole right to designate a A time of the essence @ closing date, provided it shall do soon not less than fourteen (14) calendar days notice, and further provided that such A time of the essence @ date shall be no earlier than August27, 2012.

Purchaser has been informed that the subject transaction is intended to be a part of a reverse 1031 exchange by the Seller, and therefore any breach of this Contract by Purchaser with regard to a closing date which Seller has designated as A time of the essence @ in the manner herein provided, shall be deemed to be a Material Breach of this Contract by the Purchaser, and shall result in the forfeiture of the entire Contract deposit by Seller to the Purchaser, as liquidated damages as provided for at paragraph 25 of this Contract.

16. WAIVER OF TITLE DEFECTS . In the event that the Seller is unable to convey and assign all or any part of the subject property in accordance with the terms hereof, then, notwithstanding the reasons therefor, the Purchaser shall have the right to purchase such right, title, and interest as the Seller can convey and assign without abatement of any part of the purchaser price.

17. WARRANTIES AND REPRESENTATIONS .

It is understood and agreed that other than the representations contained in this Contract, neither the Seller nor any agent of the Seller has made any representations, warranties, or promises with respect either to the premises or as to its use, zoning, or any other thing regarding the same, or as to any other matter relating thereto except as specifically stated herein. The Purchaser represents that he has inspected the premises, is familiar with the physical condition and state of repair thereof, and subject to the provisions of this Agreement, and agrees to take title to the same "AS IS" and in their present condition, subject to reasonable use, wear, tear and natural deterioration between now and the Closing, without reduction in the Purchaser Price.

Except as expressly set forth in this Contract to the contrary, Seller hereby disclaims all warranties of any kind or nature whatsoever (including, without limitation, warranties of habitability and fitness for particular purposes), whether expressed, or implied. Except as is expressly set forth in this Contract to the contrary, Purchaser acknowledges that it is not relying upon any representation of any kind or nature made by Seller, or Broker, or any of their respective direct or indirect members, partners, shareholders, officers, directors, employees or agents (collectively, the A Seller Related Parties @ ) with respect to the Premises, and that, in fact, except as expressly set forth in this Contract to the contrary, no such representations were made. To the extent required to be operative, the disclaimers and warranties contained herein are A conspicuous @ disclaimers for the purpose of any applicable law, rule, regulation or order.

Except as expressly set forth in this Contract to the contrary, Seller hereby disclaims all warranties of any kind or nature whatsoever (including, without limitation, warranties of habitability and fitness for particular purposes), whether expressed or implied including, without limitation warranties with respect to the Premises. Except as is expressly set forth in this Contract to the contrary, Purchaser acknowledges that it is not relying upon any representation of any kind or nature made by Seller, or Broker, or any of their respective direct or indirect members, partners, shareholders, officers, directors, employees or agents (collectively, the A Seller Related Parties @ ) with respect to the Premises, and that, in fact, except as expressly set forth in this Contract to the contrary, no such representations were made. To the extent required to be operative, the disclaimers and warranties contained herein are A conspicuous @ disclaimers for purposes of any applicable law, rule, regulation or order.

Seller makes no warranty with respect to the presence of Hazardous Substances on, above or beneath the Land (or any parcel in proximity thereto) or in any water on or under the Premises. Except with regards to joinder made within two (2) years from the date of Closing, the Closing hereunder shall be deemed to constitute an express waiver of Purchaser = s right to cause Seller to be joined in any action brought under any federal, state and local laws, statutes, ordinances and regulations, now or hereafter in effect, in each case as amended or supplemented from time to time, including, without limitation, all applicable judicial or administrative orders, applicable consent decrees and binding judgments relating to the regulation and protection of human health, safety, the environment and natural resources (including, without limitation, ambient air, surface, water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation), including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. ' ' 9601 et seq.), the Hazardous Material Transportation Act, as amended (49 U.S.C. ' ' 1801 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. ' ' 136 et seq.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. ' ' 6901 et seq.), the Toxic Substances Control Act, as amended (15 U.S.C. ' ' 2601 et seq.), the Clean Air Act, as amended (42 U.S.C. ' ' 7401 et seq.), the Federal Water Pollution Control Act, as amended (33 U.S.C. ' ' 1251 et seq.), the Occupational Safety and Health Act, as amended (29 U.S.C. ' ' 651 et seq.), the Safe Drinking Water Act, as amended (42 U.S.C. ' ' 300f et seq.), any state or local counterpart or equivalent of any of the foregoing, and any federal, state or local transfer of ownership notification or approval statutes.

Purchaser shall rely solely upon Purchaser = s own knowledge of the Premises based on its investigation of the Premises and its own inspection of the Premises in determining the physical condition of the Premises. Except as expressly set forth in this Contract to the contrary, Purchaser releases Seller, the Seller Related Parties and their respective successors and assigns from and against any and all claims which Purchaser or any party related to or affiliated with Purchaser (each, a A Purchaser Related Party @ ) has or may have arising from or related to any matter or thing related to or in connection with the Premises except as expressly set forth in this Contract to the contrary, including the documents and information referred to herein, any construction defects, errors or omissions in the design or construction and any environmental conditions and, except as expressly set forth in this Contract to the contrary, neither Purchaser nor any Purchaser Related Party shall look to Seller, the Seller Related Parties or their respective successors and assigns in connection with the foregoing for any redress or relief. This release shall be given full force and effect according to each of its express terms and provisions, including those relating to unknown and unsuspected claims, damages and causes of action. To the extent required to be operative, the disclaimers and warranties contained herein are A conspicuous @ disclaimers for purposes of any applicable law, rule, regulation or order.

Purchaser agrees and acknowledges that, except as specifically set forth in this Contract, neither Seller nor any of the Seller Related Parties nor Broker nor any agent nor any representative nor any purported agent or representative of Seller or any of the Seller Related Parties or Broker have made, and neither Seller nor any of the Seller Related Parties nor Broker are liable for or bound in any manner by, any express or implied warranties, guaranties, promises, statements, inducements, representations or information pertaining to the Premises or any part thereof. Without limiting the generality of the foregoing, Purchaser has not relied on any representations or warranties, and Seller, the Seller Related Parties and Broker have not made any representations or warranties other than as expressly set forth herein, in either case express or implied, as to (a) the current or future real estate tax liabilities, assessments or valuations of the Premises, (b) the potential qualification of the Premises for any and all benefits conferred by Federal, state or municipal laws, whether for subsidies, special real estate tax treatment, insurance, mortgages, or any other benefits, whether similar or dissimilar to those enumerated, (c) the compliance of the Premises, in its current or any future state, with applicable zoning ordinances and the ability to obtain a change in the zoning or a variance with respect to any non-compliance with said zoning ordinances, (d) the availability of any financing for the alteration, rehabilitation or operation of the Premises from any source, including, but not limited to, any state, city or Federal government or any institutional lender, (e) the current or future use of the Premises for any particular purposes, (f) the present and future condition and operating state of any and all machinery or equipment on the Premises and the present or future structural and physical condition of any building or its suitability for rehabilitation or renovation, (g) the ownership or state of title of any personal property on the Premises, (h) the presence or absence of any laws and regulations or any Violations, (i) the compliance of the Premises with any rent control or similar law or regulation, (j) the rents, income, expenses, operation, agreements, licenses, easements, instruments, documents in any way affecting the Premises. Further, Purchaser acknowledges and agrees that neither Seller nor any of the Seller Related Parties nor Broker are liable for or bound by (and Purchaser has not relied upon) any verbal or written statements, representations or any other information respecting the Premises furnished by Seller, any of the Seller Related Parties or Broker or any broker, employee, agent, consultant or other person representing or purportedly representing Seller, any of the Seller Related Parties or Broker.

Purchaser represents and warrants to Seller that:

(1)

The funds comprising the Purchaser price to be delivered to Seller in accordance with this contract are not derived from any illegal activity.

(2)

Purchaser has taken all necessary action to authorize the execution, delivery and performance of this contract and has the power and authority to execute, deliver and perform this contract and the transaction contemplated hereby. The person signing this contract on behalf of Purchaser is authorized to do so. Assuming this contract has been duly authorized, executed and delivered by each of the other party(ies) to this contract, this contract and all obligations of Purchaser hereunder are legal, valid and binding obligations of Purchaser, enforceable in accordance with the terms of this contract, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law).

(3)

To Purchaser’s knowledge, there is no action, suit, arbitration, unsatisfied order or judgment, government investigation or proceeding pending against Purchaser which, if adversely determined, could individually or in the aggregate materially interfere with the consummation of the transaction contemplated by this contract.

(4)

Purchaser is not acting directly or indirectly for or on behalf of any person, group, entity or nation named by Executive Order of the United States Treasury Department as a terrorist, “Specifically Designated National and Blocked Person” or other banned or blocked person, entity, nation or transaction pursuant to any law, order, rule or regulation that is enforced or administered by the Office of Foreign Assets Control and Purchaser is not engaged in this transaction, directly or indirectly, on behalf of, or facilitating this transaction, directly or indirectly, on behalf of any such person, entity or nation.

(5)

The representations and warranties of the Purchaser set forth in this section are made as of the date of this contract and are restated as of Closing.

(h)

The provisions of this Paragraph shall survive the Closing or the earlier termination of this Contract and shall not be deemed to have merged into any of the documents executed or delivered at the Closing. For the purposes of this paragraph, the phrase “to Purchaser’s knowledge” shall mean the actual knowledge of any officer, director or principal shareholder of Purchaser and/or Mercer Tool Corp. without any special investigation.

18. APPORTIONMENT . The following are to be apportioned as of midnight of the day before closing:

a. Taxes and PILOT, on the basis of the lien period for which assessed, and

b. Fuel

If closing shall occur before a new tax rate is fixed, the apportionment of taxes or PILOT shall be upon the basis of the old tax rate for the proceeding period applied to the latest assessed valuation.

Any errors or omissions in computing apportionments at closing shall be corrected. This provision shall survive closing for a period of thirty (30) days.

19. REAL ESTATE TAX/PILOT REDUCTION : Seller may settle or otherwise compromise any protest or reduction proceeding affecting real estate taxes or PILOT assessed against the Premises for any fiscal period in which the Closing is to occur or any subsequent fiscal period without the prior written consent of Purchaser. PILOT and Real Estate Tax refunds and credits received after the Closing Date which are attributable to prior years shall be paid to Seller (and if credited to Purchaser, shall be promptly remitted by Purchaser to Seller) and PILOT and real estate tax refunds and credits received after closing and which are attributable to the fiscal tax year during which the Closing Date occurs shall be apportioned between Seller and Purchaser, after deducting the expenses of collection thereof, (and if credited to Purchaser, shall be promptly remitted by Purchaser to Seller), which obligation shall survive the Closing. Nothing contained herein shall be deemed to require Purchaser to utilize the mechanism of the Town of Islip Industrial Development Authority (“IDA) in connection with the purchase of the subject premises or to penalize the Purchaser for electing not to do so, notwithstanding that Seller might lose PILOT credits or refundsas a result of Purchaser not utilizing the IDA program.

20. WATER METER READINGS . If there is a water meter, maintained in the name of Seller, on the premises, Seller shall furnish a reading to a date not more than thirty (30) days before the closing date.

21. ALLOWANCE FOR UNPAID TAXES, ETC. Seller has the option to credit Purchaser as an adjustment of the purchase price with the amount of any unpaid taxes, PILOT, and assessments, together with any interest and penalties thereon to a date not less than two (2) business days after closing, provided that official bills therefor computed to said date are produced at closing, or as reasonably determined by Purchaser’s title company.

22. USE OF PURCHASE PRICE TO PAY ENCUMBRANCES . If there is anything else affecting the sale which Seller is obligated to pay and discharge at closing, Seller may use any portion of the balance of the purchase price to discharge it. As an alternative, Seller may deposit money with the title insurance company employed by Purchaser and required by it to assure its discharge; but only if the title company will insure Purchaser's title clear of the matter or insure against its enforcement out of the premises without additional expense to Purchaser. Upon request, made within a reasonable time before closing, the Purchaser agrees to provide, at Closing, separate certified or official bank cashier’s checks as requested to assist in clearing up these matters.

23. AFFIDAVIT AS TO JUDGMENTS, BANKRUPTCIES, ETC. If a title examination discloses judgments, bankruptcies, or other returns against persons having names the same as or similar to that of Seller, Seller shall deliver a satisfactory detailed affidavit at closing showing that they are not against Seller.

24. DEED TRANSFER AND RECORDING TAXES . At closing, Seller shall deliver a check payable to the order of the appropriate State, City or County officer (or at Seller’s option, payable to the title company) in the amount of any applicable transfer tax payable by reason of the delivery of the Deed. Purchaser shall be responsible for any mortgage tax and recording fees which may be required to be paid as a result of this transaction.

25. ENTIRE AGREEMENT . All prior understandings and agreements between Seller and Purchaser are merged in this Contract which expresses their full agreement. It has been entered in to after full investigation, neither party relying upon any statements made by anyone else that is not set forth in this Contract. This Contract may not be modified except by an instrument in writing signed by all parties hereto.

26. LIQUIDATED DAMAGES. Purchaser understands that in the event of his material default under the terms of this Contract, the contract deposit ($193,750.00) paid hereunder shall become the sole property of the Seller as liquidated damages.

27. DISHONOR. In the event that the check delivered as downpayment upon the signing of this Contract is dishonored for any reason by the bank upon which it is drawn, the Seller may at his option declare Seller's obligations under the Contract null and void and Seller shall be relieved of all obligations thereunder.

28. ASSIGNMENT BY PURCHASER . This Contract shall not be assigned without the prior written consent of the Seller. Any transfer or purported transfer whatsoever of all or part of Purchaser = s interest in this Contract and any assignment in violation of this Paragraph shall be void and of no force or effect except that same shall constitute a material breach of this Contract.

29. DISCHARGE. The acceptance of a Deed by the Purchaser shall be deemed to be full performance and discharge of every agreement and obligation on the Seller's part to be performed pursuant to the provisions of this Contract, except those (if any) which are herein specifically stated to survive the delivery of the Deed.

30. NOTICES . Any notice required to be given to the Seller under the terms of this Contract shall be given to it by certified mail or by recognized overnight courier, addressed:

Martin J. Teitelbaum, Esq.

CVD Equipment Corporation

1860 Smithtown Avenue

Ronkonkoma, NY 11779

with a copy to:

Martin J. Teitelbaum, Esq.

CVD Equipment Corporation

355 S. Technology Drive

Central Islip, NY 11722

and with an additional copy sent to Martin J. Teitelbaum, Esq., by either facsimile or email:

Fax no: 631-739-0470

Email: mjteitelbaum@cvdequipment.com

Any notice required to be given to the Purchaser under the terms of this Contract shall be given by certified mail or by recognized overnight courier addressed:

Marc Isaacs, Esq.

Isaacs and Associates, PLLC

260 Madison Avenue

New York, NY 10016

with a copy by facsimile or email to Marc Isaacs, Esq.

Fax: (212) 532-6400

Email: Misaacs@isaacsassociates.com

31. BROKER. Purchaser represents and warrants to Seller that Purchaser has not hired, retained or dealt with any real estate broker, firm or salesman in connection with the transaction contemplated by this Contract, other than Colliers International LI Inc., 1981 Marcus Avenue, Lake success, New York 11042. Seller shall pay the brokerage fees pursuant to separate agreement. Purchaser will indemnify and hold Seller harmless from any and all claims for brokerage fees or other commissions which may at any time be asserted against Seller founded upon a claim that the aforesaid representation and warranty of Purchaser is untrue, together with any and all losses, damages, costs, and expenses (including reasonable attorneys' fees and disbursements) relating to such claims or arising therefrom or incurred by Seller in connection with the enforcement of this indemnification provision unless same was caused by Seller’s wrongful action by either omission or commission.

32. CERTIFICATE OF OCCUPANCY: Seller has delivered to the Purchaser, the Certificate of Occupancy for the premises dated November 17, 2011. In no event shall Seller be required to make any modifications or alterations whatsoever to or to remove any structure from the premises or to bring variance or change of zone proceedings, or to take any action to obtain any further Certificate with respect to the subject premises.

33. PARAGRAPH HEADINGS. The paragraph headings used herein are for reference and convenience only.

34. CONSTRUCTION . This Contract shall be construed in accordance with the laws of the State of New York. This Contract was drafted by the Seller as a matter of convenience only and shall not be construed for or against either party on that account.

35. ENVIRONMENTAL MATTERS.

A. Seller has not made and does not make any representation or warranty regarding the presence or absence of any Hazardous Materials on, under or about Premises or any adjacent real property or the compliance or non-compliance of the Premises with any Federal, state or local statute, law, ordinance, code, rule or regulation relating to or imposing obligations, liability or standards of conduct concerning any Hazardous Materials including, without limitation, the presence, use, transportation, storage, disposal, treatment or remediation thereof.

B. Definitions. As used herein, the following terms shall have the meanings set forth below:

(a) A Applicable Laws @ means (1) the Comprehensive Environmental Response, Compensation and Liability Act ( A CERCLA @ ), (2) the Resource Conservation and Recovery Act, (3) the Federal Water Pollution Control Act, (4) the Clean Air Act, (5) the Toxic Substances Control Act, (6) the Safe Drinking Water Act, (7) the Occupational Safety and Health Act of 1970, (8) the Hazardous Material Transportation Act, (9) the New York State Environmental Conservation Law, (10) the Suffolk County Sanitary Code, and (11) any and all other federal, state or local laws, rules, regulations and common law doctrines relating to or imposing requirements or liability in connection with human health and safety or Environmental Conditions including, but not limited to, the presence, generation, handling, storage, treatment, disposal or release of Hazardous Substances.

(b) A Environmental Conditions @ means conditions which (1) constitute a violation of Applicable Laws, (2) require management, reporting, investigation and/or remediation activities due to the presence of Hazardous Substances, (3) subject Purchaser or Seller to liability under Applicable Laws, or (4) do or may threaten, limit, interfere with or prevent Purchaser = s contemplated use of the Premises.

(c) A Hazardous Substances @ means any substance, waste or material regulated under Applicable Laws, and any substance that poses a threat to human health or the environment. As used herein, the term Hazardous Substances specifically includes but is not limited to petroleum in any form.

(d) A Release @ means any interior or exterior spill, leak, discharge or emission of a Hazardous Substance, and includes releases as that term is defined under CERCLA.

(e) A Threatened Release @ shall have the meaning given that term under CERCLA.

C. Purchaser = s Environmental Due Diligence.

(a) Purchaser, at its option and sole expense, shall have forty-five (45) days from the full execution of this Contract (the “Environmental Due Diligence Cutoff Date”) to perform Phase I and Phase II environmental assessments of the Premises (collectively, the Environmental Audit). Seller and Purchaser recognize that, depending on the results of Purchaser’s Environmental Audit, additional inspection, testing or sampling may be required to quantify or adequately assess Environmental Conditions at the Premises. Seller agrees to provide Purchaser with an additional 20-day period to conduct any such additional inspection, testing or sampling and to receive any outstanding FOIA and FOIL information (the “Extended Environmental Due Diligence Cutoff Date”), provided Purchaser notifies Seller in writing of the need for the additional twenty (20) day period within five (5) days of the Environmental Due Diligence Cutoff Date. Purchaser shall have the right, in its reasonable discretion, to determine whether such additional inspection, testing and/or sampling is necessary or FOIA or FOIL information is still outstanding (provided that such FOIA and FOIL requests were time filed). The inspection and report (the “Environmental Report”) from a licensed environmental inspection laboratory or a licensed engineer (the “Inspection Company”) may test for, among other things, the presence or absence of hazardous or toxic substances or condition of the premises including, without limitation, asbestos, mold, polychlorinated biphenyls, petroleum products and those hazardous substances defined in the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq. and all amendments thereto, the superfund Amendments and Reauthorization Act, 42U.S.C. § 9601 et seq. , and the rules and regulations promulgated hereunder, New York State Environmental Liability Review Act, New York Environmental Conservation Law (ECL) §§8-101 et seq. , and the New York state Water Pollution Control Act, ECL §§ 17-101 et seq. (collectively “Hazardous Substances”).

(b) As part of its Environmental Audit, Purchaser shall have the right to inspect all areas of the Premises and conduct any and all sampling activities, including testing, that Purchaser and Purchaser’s representatives deem necessary. In no event shall such activities interfere with the operation of Seller’s business in the Premises. Seller agrees to reasonably cooperate with Purchaser in connection with the Purchaser’s environmental due diligence of the Premises, including providing access to all areas of the Premises that Purchaser determines warrant inspection having the appropriate Seller’s employee(s) meet with Purchaser’s environmental consultants, and completing informational questionnaires from Purchaser’s environmental consultant. Purchaser shall have the right to enter the Premises at reasonable times and from time to time during business hours for purposes of conducting its Environmental Audit, provided that, prior to entry, Purchaser has provided reasonable prior notice to Seller of its intent to enter, and further, provided, that Purchaser has provided to Seller a certificate of insurance from each and every person and entity engaged by Purchaser, directly or indirectly, each such certificate to name Seller as additional insured, and to provide coverage in a minimum amount of Five Million ($5,000,000.00) Dollars for personal injury and Five Million ($5,000,000.00) Dollars property damage. Purchaser agrees to promptly restore the Premises to their original condition and repair any damage that may result from sampling activities.

(c) Indemnity. Purchaser shall defend, indemnify and hold Seller harmless from and against any and all claims, suits, actions, proceedings, obligations, liabilities, damages, losses, fines, penalties, costs and expenses, including reasonable attorneys = fees, for or relating to (1) compensation for services rendered or to be rendered or materials supplied or to be supplied in connection with the Due Diligence, including any liens created thereby, (2) loss or damage to property or injury to or death of any and all persons that may be occasioned by, directly or indirectly, any cause whatsoever arising out of or relating to Due Diligence or (3) Purchaser’s obligations under subparagraph (b) above.

(d) Purchaser shall use the information obtained as part of its environmental Due Diligence (Confidential Information) solely for the purpose of Purchaser’s evaluation of the environmental conditions at or affecting the Premises. Except as may be required by law or pursuant to an order of a court or governmental authority having jurisdiction (and only after Purchaser has given reasonable prior written notice thereof to Seller), Purchaser shall not disclose any Confidential Information to any third party, other than to personnel authorized by Seller or to Purchaser’s attorneys, consultants, accountants, advisors, prospective lenders, and prospective insurers as may be required in connection with the transaction contemplated hereby, provided same shall be bound by the provisions hereof, and shall impose by similar document the same responsibilities and duties of confidentiality as set out in this Contract, on all its agents, employees, and representatives (including its engineers) to whom Purchaser furnishes, discloses or permits access to any such Confidential Information.

(e) In the event the Environmental Audit discloses the existence of an Environmental Condition(s) and the cost to remediate, cure or abate said Environmental Condition(s) does not exceed Fifty Thousand Dollars ($50,000.00) in total, then Seller shall promptly remediate the Environmental Condition(s), at its own cost and expense, in a manner reasonably acceptable to Purchaser and Seller shall supply all required approvals and certificates from all applicable governmental agencies or give the Purchaser a credit toward the purchase price.

The amount of any such credit shall be as reasonably determined by Purchaser’s environmental consultant.

(f) In the event the Environmental Audit discloses the existence of an Environmental Condition(s) and the cost to remediate, cure or abate said Environmental Condition(s) exceeds,in total, Fifty Thousand($50,000.00)Dollars as reasonably determined by Purchaser’s environmental Inspection Company, thenPurchaser shall have the right to either: (i)terminate this Contract and receive a refund of the Downpayment and interest, if any, earned thereon; or (ii) take title to the Premises subject to a $50,000 credit in the purchase price.

Purchaser may terminate this Contract pursuant to SectionC. (f) (i) above only by written notice to Seller of its election terminating this Contract. Purchaser’ s notice terminating this Contract must be received by Seller not later than 5:00 p.m. on the Environmental Due Diligence Cutoff Date or the Extended Environmental Due Diligence Cutoff Date, if the Environmental Due Diligence Cutoff Date is extended pursuant to the terms of this Contract (and if such date is not a business day, then the deadline for Seller’s receipt of Purchaser’s notice terminating this Contract shall be extended to 5:00 p.m. on the next business day) (the “Election Notice”). In the event Purchaser delivers the Election Notice, then any down payment or other portion of the Purchase Price previously delivered by Purchaser to Seller, shall be promptly returned to Purchaser, and this Contract shall be terminated and cancelled in all respects, and neither Purchaser nor Seller will have any further rights, obligations or liabilities hereunder, except for those rights, which expressly survive the termination of this Contract.

D. If the Closing occurs, Purchaser hereby releases and discharges Seller and its, officers, directors, shareholders, agents, employees and any and all other persons and entities related to or affiliated with Seller from any and all claims, suits, actions or proceedings, obligations, damages, losses, liabilities, fines, penalties, costs or expenses (including, without limitation, attorneys' fees and expenses) resulting from, related or incidental to the conditions of, at, on, under or about the Premises arising from or in connection with any Hazardous Materials or Hazardous Conditions, whether or not known to Purchaser, its agents, employees, or other persons or entities related to or affiliated with Purchaser, or indicated by the Tests, or arising before or after Closing, anticipated or unanticipated, foreseen or unforeseen, or above ground or below ground, or arising under any Federal, state or local law, ordinance, rule, resolution or regulation adopted and publications promulgated pursuant thereto, excepting, however, such environmental claims, actions or proceedings as shall be asserted by unrelated third parties (i.e., parties which are unrelated and unaffiliated with Purchaser or its heirs, personal representatives, successors and assigns) against Sellerrelating to Hazardous Materials or Hazardous Conditions at, on or under the Premises or with regards to joinder by Purchaser against Seller made within two (2) years from the date of Closing.

E. Survival. The provisions of this Paragraph 34 shall survive the cancellation, termination and rescission of this Contract and the Closing.

36. MISCELLANEOUS PROVISIONS

(a) This contract embodies and constitutes the entire understanding between the parties with respect to the transaction contemplated herein, and all prior agreements, understandings, representations and statements, oral or written, are merged into this contract. Neither this contract nor any provision hereof may be waived, modified, amended, discharged or terminated except by an instrument signed by the party against whom the enforcement of such waiver, modification, amendment, discharge or termination is sought, and then only to the extent set forth in such instrument.

(b) This contract shall be governed by, and construed in accordance with the laws of the State of New York.

(c) The captions in this contract are inserted for convenience of reference only and in no way define, describe or limit the scope or intent of this contract or any of the provisions hereof.

(d) This contract shall be binding upon and shall insure to the benefit of the parties hereto and their respective successors and permitted assigns.

(e) This contract shall not be binding or effective until properly executed and delivered by Seller to Purchaser.

(f) As used in this contract, the masculine shall include the feminine and neuter, the singular shall include the plural and the plural shall include the singular, as the context may require.

IN WITNESS WHEREOF, the parties hereto have executed this Contract s of the date first above written.

CVD Equipment Corporation		GLOMEL LLC

BY: Leonard A. Rosenbaum		BY: Lawrence Wallick


Title: President		Title: Manager


FED. TAX ID # 11-2621692		FED. TAX ID # 13-3321850

Receipt by Escrowee:

The undersigned Escrowee hereby acknowledges receipt of One Hundred Ninety Three Seven Hundred Fifty and no/100 ($193,750.00) Dollars by check subject to collection, to be held in escrow pursuant to the terms of this contract.

			/s/ Martin J. Teitelbaum
			Martin J. Teitelbaum, Esq.

Certifications of Principal Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Leonard A. Rosenbaum, certify that:

I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation;

Based upon my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

Based upon my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal controls over financial reporting, or caused such internal controls over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 14, 2012

/s/ Leonard A. Rosenbaum

President, Chief Executive Officer and Chairman

Certifications of Principal Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Glen R. Charles, certify that:

I have reviewed this quarterly report on Form 10-Q of CVD Equipment Corporation;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Dated: August 14, 2012

Chief Financial Officer

Certification of Principal Executive Officer

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of2002