CVD EQUIPMENT CORP (Form: 10-Q, Received: 08/13/2019 16:02:25)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2019

☐	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

(Name of Registrant in Its Charter)

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

355 South Technology Drive Central Islip, New York 11722 (Address of principal executive offices)

(631) 981-7081
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	CVV	NASDAQ Capital Market

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 ☑ No☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☑ No☐

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☑	Smaller reporting company ☑	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 6,555,570 shares of Common Stock, $0.01 par value at August 5, 2019.

CVD EQUI PMENT CORPORATION AND SUBSIDIARIES

Index

Part I - Financial Information
Item 1 – Financial Statements (Unaudited)

Consolidated Balance Sheets at June 30, 2019 and December 31, 2018	3

Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018	4

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	5

Notes to Consolidated Financial Statements	6

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3 – Quantitative and Qualitative Disclosures About Market Risk	26
Item 4 – Controls and Procedures	26

Part II - Other Information	28

Item 1 – Legal Proceedings	28
Item 1A-Risk Factors	28
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	28
Item 3 – Defaults Upon Senior Securities	28
Item 4 – Mine Safety Disclosures	28
Item 5 – Other Information	28
Item 6 – Exhibits	28

Signatures	30

Exhibit Index	31

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

	(Unaudited)
	June 3 0 , 2019		December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	8,580,564	$	11,439,361
Accounts receivable, net		2,066,025		4,065,220
Contract assets		1,654,467		1,357,797
Inventories, net		1,882,666		1,861,873
Other current assets		509,806		723,204
Total Current Assets		14,693,528		19,447,455

Property, plant and equipment, net		31,317,156		30,402,558

Deferred income taxes		2,802,414		2,104,414
Other assets		41,748		64,583
Intangible assets, net		461,058		495,552
Total Assets	$	49,315,904	$	52,514,562


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	1,149,879	$	713,194
Accrued expenses		1,730,518		1,503,309
Current maturities of long-term debt		865,464		857,590
Contract Liabilities		170,975		536,524
Deferred revenue		482,677		459,899
Total Current Liabilities		4,399,513		4,070,516

Long-term debt, net of current portion		11,716,283		12,051,720
Total Long-Term Liabilities		11,716,283		12,051,720

Total Liabilities		16,115,796		16,122,236

Commitments and contingencies		-		-

Stockholders’ Equity:
Common stock - $0.01 par value – 20,000,000 shares authorized; issued and outstanding 6,555,150 at June 30, 2019 and 6,535,888 at December 31, 2018		65,551		65,358
Additional paid-in capital		26,525,521		26,148,256
Retained earnings		6,609,036		10,178,712
Total Stockholders’ Equity		33,200,108		36,392,326

Total Liabilities and Stockholders’ Equity	$	49,315,904	$	52,514,562

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

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018

Revenue	$	4,918,118		$	6,435,278		$	8,395,378		$	15,589,111

Cost of revenue		4,425,279			5,319,060			8,290,280			10,711,979

Gross profit		492,839			1,116,218			105,098			4,877,132

Operating expenses
Research and development		176,920			128,117			341,000			224,923
Selling and shipping		227,117			399,249			504,424			912,724
General and administrative		1,632,022			1,968,465			3,368,110			4,208,530

Total operating expenses		2,036,059			2,495,831			4,213,534			5,346,177

Operating loss		(1,543,220	)		(1,379,613	)		(4,108,436	)		(469,045	)

Other income (expense):
Interest income		42,063			29,314			88,869			46,274
Interest expense		(126,270	)		(119,279	)		(240,806	)		(240,633	)
Total other expense, net		(84,207	)		(89,965	)		(151,937	)		(194,359	)

Loss before income tax		(1,627,427	)		(1,469,578	)		(4,260,373	)		(663,404	)

Income tax (benefit) expense		(234,697	)		(139,052	)		(690,697	)		108,718

Net loss	$	(1,392,730	)	$	(1,330,526	)	$	(3,569,676	)	$	(772,122	)


Basic loss per common share	$	(0.21	)	$	(0.21	)	$	(0.55	)	$	(0.12	)
Diluted loss per common share	$	(0.21	)	$	(0.21	)	$	(0.55	)	$	(0.12	)

Weighted average common shares Outstanding-basic		6,555,150			6,486,067			6,547,035			6,476,712

Weighted average common shares Outstanding-diluted		6,555,150			6,486,067			6,547,035			6,476,712

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

CVD EQUIPMENT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June,
	2019			2018
Cash flows from operating activities:
Net loss	$	(3,569,676	)	$	(772,122	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities
Stock-based compensation		377,457			424,015
Depreciation and amortization		554,579			544,158
Deferred income tax (benefit)/expense		(698,000	)		56,888
Provision for inventory obsolescence		50,000			-
(Increase)/decrease in operating assets
Accounts receivable		1,999,195			(663,864	)
Contract assets		(296,670	)		3,082,808
Inventories		(70,793	)		317,604
Other current assets		213,399			(47,204	)
Increase/(decrease) in operating liabilities
Accounts payable		436,684			52,290
Accrued expenses		227,209			(663,436	)
Contract liabilities		(365,549	)		(187,051	)
Deferred revenue		22,778			815,639
Total adjustments		2,450,289			3,731,847
Net cash (used in) provided by operating activities		(1,119,387	)		2,959,725

Cash flows from investing activities:
Capital expenditures		(1,434,682	)		(1,273,857	)
Other assets		22,835			(177,789	)
Net cash used in investing activities		(1,411,847	)		(1,451,646	)

Cash flows from financing activities
Payments of long-term debt		(327,563	)		(322,499	)
Net cash used in financing activities		(327,563	)		(322,499	)

Net (decrease) increase in cash and cash equivalents		(2,858,797	)		1,185,580

Cash and cash equivalents at beginning of period		11,439,361			14,210,909

Cash and cash equivalents at end of period	$	8,580,564		$	15,396,489

Supplemental disclosure of cash flow information:
Income taxes paid	$	-		$	395,000
Interest paid	$	240,806		$	242,324
Capitalization of right to use Asset	$	128,947		$	-

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

NOTE 1:

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements for CVD Equipment Corporation and Subsidiaries (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, 2019 are not necessarily indicative of the results that can be expected for the year ending December 31, 2019.

The consolidated balance sheet as of December 31, 2018 has been derived from the audited consolidated financial statements at such date, but does not contain 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’ Annual Report on Form 10-K for the year ended December 31, 2018, 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 consolidated financial statements to conform to the current year presentation.

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

On January 1, 2018, we adopted accounting standard ASC 606, Revenue from Contracts with Customers and all the related amendments using the modified retrospective method for all customer contracts not yet completed as of the adoption date. Results for reporting periods beginning January 1, 2018 are presented under ASC 606, while prior period amounts were not adjusted.

The adoption of ASC 606 did not have a significant impact on our Consolidated Financial Statements as of and for the three and six month periods ended June 30, 2018 and, as a result, comparisons of revenues and operating profits performance between periods are not affected by the adoption of this ASU.

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

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

The Company designs, manufactures and sells custom chemical vapor deposition equipment through contractual agreements. These system sales require the Company to deliver functioning equipment that is generally completed within three to eighteen months from commencement of order acceptance. The Company recognizes revenue over time by using an input method based on costs incurred as it depicts the Company’s progress toward satisfaction of the performance obligation. Under this method, revenue arising from fixed price contracts is recognized as work is performed based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

Incurred costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, tools, repairs and depreciation costs. Contract material costs are included in incurred costs when the project materials have been purchased or moved to work in process as required by the project’s engineering design. Cost based input methods of revenue recognition require the Company to make estimates of costs to complete the projects. In making such estimates, significant judgment is required to evaluate assumptions related to the costs to complete the projects, including materials, labor and other system costs. If the estimated total costs on any contract are greater than the net contract revenues, the Company recognizes the entire estimated loss in the period the loss becomes known and can be reasonably estimated.

“Contract assets,” include unbilled amounts typically resulting from sales under contracts when revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer. The amount may not exceed their estimated net realizable value. Contract assets are classified as current based on our contract operating cycle.

“Contract liabilities,” include advance payments and billings in excess of revenue recognized. Contract liabilities are classified as current based on our contract operating cycle and reported on a contract-by-contract basis, net of revenue recognized, at the end of each reporting period.

For outright sales of products, revenue is recognized when control of the promised products or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those products or services (the transaction price). A performance obligation is a promise in a contract to transfer a distinct product or service to a customer and is the unit of account under ASC 606.

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

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Research and Development

Research and development costs are expensed as incurred. Due to the highly technical nature of our projects, we use our technical staff in a dual role, and based on their contribution to the customer or research and development projects, their costs are charged accordingly to either cost of goods sold or research and development.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, F inancial Instruments – Credit Losses (Topic 326) , which require that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The amendments in this update are effective for fiscal years beginning after December 15, 2019 and interim periods within those annual periods. Early adoption for fiscal years beginning after December 15, 2018 is permitted. We are currently evaluating the effect of this update on our consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016 the FASB issued ASU No. 2016-02, "Leases (Topic 842)" (ASU 2016-02). The primary difference between previous GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The guidance requires a lessee to recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. Lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply.

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

NOTE 2:

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

An entity that elects to apply the practical expedients will, in effect, continue to account for leases that commence before the effective date in accordance with previous GAAP unless the lease is modified, except that lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimum rental payments that were tracked and disclosed under previous GAAP. In addition, FASB has amended Topic 842 prior to it becoming effective. The effective date and transition requirements for these amendments to Topic 842 are the same as ASU 2016-02. The Company has one lease at its Denmark facility which currently expires at December 31, 2020 and has recognized a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term in the amount of $129,000.

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

Cash and cash equivalents

The Company had cash and cash equivalents of $8.6 million and $11.4 million at June 30, 2019 and December 31, 2018, respectively. The Company invests excess cash in U.S. treasury bills, certificates of deposit or money market accounts, all with maturities of less than three months. Cash equivalents were $7.5 million and $8.9 million at June 30, 2019 and December 31, 2018, respectively.

The Company places most of its temporary cash investments with financial institutions, which from time to time may exceed the Federal Deposit Insurance Corporation limit. The amount at risk at June 30, 2019 and December 31, 2018 was $6,824,000 and $6,920,000, respectively.

Sales concentration

Revenue from a single customer in any one period can exceed 10% of our total revenues. During the three and six months ended June 30, 2019, one customer represented 13% and 10% of revenues. For the three and six months ended June 30, 2018, a different customer represented approximately 37% and 43% of our revenues.

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

NOTE 3:

CONCENTRATION OF CREDIT RISK (continued)

Accounts receivable

The Company sells products and services to various companies across several industries in the ordinary course of business. The Company performs ongoing credit evaluations to assess the probability of accounts receivable collection based on a number of factors, including past transaction experience, evaluation of their credit history and review of the invoicing terms of the contract to determine the financial strength of its customers. The Company also maintains allowances for anticipated losses. At June 30, 2019 two customers each exceeded 10% of the accounts receivable balance, representing 24% in total, and at December 31, 2018 two customers represented approximately 42% of the accounts receivable balance.

NOTE 4:

REVENUE FROM CONTRACTS WITH CUSTOMERS

The following table represents a disaggregation of revenue from contracts with customers for the three and six months ended June 30, 2019 and 2018:

(in Thousands)

	Three Months Ended				Six Months Ended
Category	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018

Aerospace	$	1,003	$	2,205	$	1,216	$	6,079
Industrial		1,810		1,962		3,387		5,208
Research		1,102		1,014		1,954		1,875
Point in time		1,003		1,254		1,838		2,427
Net Revenue	$	4,918	$	6,435	$	8,395	$	15,589

Judgment is required to evaluate assumptions including the amount of net contract revenues and the total estimated costs to determine our progress towards contract completion and to calculate the corresponding amount of revenue to recognize.

Changes in estimates for sales of systems occur for a variety of reasons, including but not limited to (i) build accelerations or delays, (ii) product cost forecast changes, (iii) cost related change orders or add-ons, or (iv) changes in other information used to estimate costs. Changes in estimates may have a material effect on the Company’s consolidated statements of operations. The table below outlines the impact on revenue of net changes in estimated transaction prices and input costs for systems related sales contracts (both increases and decreases) for the three and six months ended June 30, 2019 and 2018, as well as the number of projects that comprise such changes. Also included in the table is the net change in estimate as a percentage of the aggregate revenue for such projects.

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

NOTE 4:

REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)

	Three Months Ended			Three Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	0		$	34
(Decrease) increase in revenue from net changes in input cost estimates	$	(61	)	$	(479	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(61	)	$	(445	)

Number of projects		26			15

Net change in estimate as a percentage of aggregate revenue for associated projects		(.9	%)		(9.2	%)

	Six Months Ended			Six Months Ended
(In thousands)	June 30, 2019			June 30, 2018
Increase in revenue from net changes in transaction prices	$	9		$	75
(Decrease) increase in revenue from net changes in input cost estimates	$	(240	)	$	(570	)
Net (decrease) increase in revenue from net
Changes in estimates	$	(231	)	$	(495	)

Number of projects		26			10

Net change in estimate as a percentage of aggregate revenue for associated projects		(.5	%)		(8.8	%)

For the three and six months ended June 30, 2019 and 2018, revenue (decreased) increased by ($61,000) and ($231,000) in 2019, respectively, and ($445,000) and ($495,000) in 2018, respectively, from net changes in transaction prices, input cost estimates, product cost overruns and product cost forecast changes related to redesign of certain systems.

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

NOTE 4:

REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)

Contract Assets and Liabilities

Contract assets consist of (i) retainage which represent the earned, but unbilled, portion for which payment is deferred by the customer until certain contractual milestones are met; and (ii) unbilled receivables which represent revenue that has been recognized in advance of billing the customer, which is common for long-term contracts. Contract liabilities consist of customer advances and billings in excess of revenue recognized.

During the six months ended June 30, 2019 and 2018, the increase (decrease) in contract assets of approximately $.3 million and ($3.1 million), respectively, was primarily caused by additional billed receivables during the 2018 period, for those projects that certain milestones had been reached.

NOTE 5:

INVENTORIES, NET

Inventories consist of:

	June 30, 2019			December 31, 2018

Raw materials	$	1,701,667		$	2,016,488
Work-in-process		590,999			205,385
Finished goods		-			-
Gross inventories		2,292,666			2,221,873
Less reserve for obsolescence		(410,000	)		(360,000	)
Inventories, net	$	1,882,666		$	1,861,873

NOTE 6:

ACCOUNTS RECEIVABLE, NET

Accounts receivable are presented net of an allowance for doubtful accounts of approximately $24,000 as of June 30, 2019 and December 31, 2018. 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.

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

NOTE 7:

LONG-TERM DEBT

The Company had a revolving credit facility with HSBC Bank, USA, N.A. (“HSBC”) providing up to $7 million, although the Company had never utilized this facility. This credit facility expired on September 1, 2018.

The Company has a loan agreement with HSBC which is secured by a mortgage on our Central Islip, NY headquarters. The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022. The balances as of June 30, 2019 and December 31, 2018 were approximately $2.5 million and $2.7 million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5%.

On November 30, 2017, the Company purchased the premises located at 555 North Research Place, Central Islip, NY. The purchase price of the building was $13,850,000 exclusive of closing costs. The Company’s newly formed wholly-owned subsidiary, 555 N Research Corporation (the “Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of $10,387,500, which was used to finance a portion of the purchase price to acquire the premises located at 555 North Research Place, Central Islip, New York. The Loan was evidenced by the certain Note, dated November 30, 2017 (the “Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement (the “Mortgage”), dated November 30, 2017, as well as a collateral Assignment of Leases and Rents.

The Loan is payable in 60 consecutive equal monthly installments of $62,481 including interest and final balloon payment upon maturity in December 2022. The balance outstanding as of June 30, 2019 and December 31, 2018 were approximately $9.9 million and $10.0 million respectively. The Loan bears interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%. The maturity date for the Note is December 1, 2022. As a condition of the Bank making the Loan, the Company was required to guaranty Assignee’s obligations under the Loan pursuant that certain Unlimited Guaranty, dated November 30, 2017 (the “Guaranty”). On May 31, 2019, the Company entered into two sublease agreements for a portion of the CVD Materials facility. During the quarter ended June 30, 2019, the Company recognized $36,000 of rental income which commenced June 1, 2019. Commencing July 2019, the monthly rental income will increase to approximately $67,000 per month or approximately $800,000 per annum.

At December 31, 2018, the Company was not in compliance with the one financial covenant (fixed charge coverage ratio) contained in the Mortgage. On March 26, 2019 the Company received a waiver from HSBC until April 1, 2020. On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets covenant. The Company is in compliance with its obligations under the mortgage at June 30, 2019.

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

NOTE 8:

STOCK-BASED COMPENSATION EXPENSE

The Company recorded as part of selling and general administrative expense $179,000 and $378,000 during the three and six months ended June 30, 2019, respectively, and during the three and six months ended June 30, 2018, $201,000 and $424,000, 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.

NOTE 9:

INCOME TAXES

On December 22, 2017, the Tax Cuts and Jobs Act was enacted in the U.S. Tax Reform significantly lowering the amount of current and future income tax expense primarily due to the reduction in the U.S. statutory tax rate from 35.0% to 21.0%. This provision went into effect on January 1, 2018 and resulted in the loss of our ability to take the domestic production activities deduction which has been repealed and requires us to remeasure our deferred tax assets and liabilities.

The provision for income taxes includes the following:

	Six Months Ended June 30,
	2019			2018
Current:
Federal	$	---		$	48,330
State		7,303			3,500
Total current provision		7,303			51,830
Deferred:
Federal	$	(698,000	)	$	56,888
State		------			----
Total deferred (benefit) provision		(698,000	)		56,888
Income tax expense (benefit) provision	$	(690,697	)	$	108,718

Tax Rate Reconciliation

The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory rate is as follows:

	Six Months Ended
	June 30,
	2019			2018
Income tax provision at federal statutory rate (21%)	$	(895,428	)	$	(139,314	)
Foreign tax loss		28,175			82,715
State taxes		3,000			3,500
Difference between tax and book depreciation		48,144			39,827
Stock compensation		62,505			140,052
Other Permanent differences		62,907			(18,062	)
Income tax (benefit) expense	$	(690,697	)	$	108,718

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

NOTE 9:

INCOME TAXES (continued)

The Company’s foreign subsidiary, CVD Tantaline ApS incurred a loss of approximately $134,000 for the six months ended June 30, 2019 which would provide a $28,000 deferred tax asset, based on the standard corporate tax rate of 22% in Denmark. For the six months ended June 31, 2018 the Company had a loss of $394,000 with a deferred tax asset of $83,000. However, sufficient uncertainty exists as to the realizability of these assets such that a full valuation allowance has been necessary.

We continue to evaluate for potential utilization of the Company’s deferred tax asset on a quarterly basis, reviewing our economic models, including projections and timing of orders, the commencement of operations of the new CVD Materials segment and cost containment measures.

NOTE 10:

EARNINGS PER SHARE

Basic earnings per share is 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 467,930 shares of common stock were outstanding and 227,930 were exercisable during the three and six months ended June 30, 2019. Stock options to purchase 387,930 shares were outstanding and 227,930 were exercisable during the three and six months ended June 30, 2018. For the three and six months ended June 31, 2019 and 2018, no shares were included in the diluted earnings per share calculation as their effect would have been anti-dilutive.

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.

NOTE 11:

SEGMENT REPORTING

The Company operates through three (3) segments: CVD Equipment Corporation (“CVD”), Stainless Design Concepts (“SDC”) and CVD Materials Corporation (“Materials”). The CVD segment is utilized for chemical vapor deposition equipment manufacturing. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York for gas control systems. Materials is our new segment based on recent acquisitions, for providing quartzware and material coatings for aerospace, medical, electronic and other applications. The Company evaluates performance based on several factors, of which the primary financial measure is income or (loss) before taxes.

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

NOTE 11:

SEGMENT REPORTING (continued)

The Company’s corporate administration activities are reported in the Eliminations and Unallocated column. These activities primarily include intercompany profit, expenses related to certain corporate officers and support staff, expenses related to the Company’s Board of Directors, stock option expense for shares granted to corporate administration employees, certain consulting expenses, investor and shareholder relations activities, and all of the Company’s legal, auditing and professional fees, and interest expense.

Three Months Ended June 3 0 ,

( In thousands )

										Eliminations* and
2019	CVD			SDC			Materials			Unallocated			Consolidated
Assets	$	37,016		$	5,581		$	6,728		$	(9	)	$	49,316

Revenue		3,194			1,591			542			(409	)		4,918
Operating income/(loss)		(1,021	)		508			(130	)		(900	)		(1,543	)
Pretax income/(loss)		(1,013	)		515			(229	)		(900	)		(1,627	)

201 8
Assets	$	37,403		$	3,481		$	17,481		$	(9	)	$	58,356

Revenue		5,635			844			358			(402	)		6,435
Operating income/(loss)		145			(243	)		(627	)		(655	)		(1,380	)
Pretax income/(loss)		145			(243	)		(627	)		(745	)		(1,470	)

Six Months Ended June 30,

(In thousands)

									Eliminations* and
2019	CVD			SDC		Materials			Unallocated			Consolidated

Revenue	$	5,213		$	2,678	$	970		$	(466	)	$	8,395
Operating income/(loss)		(2,558	)		682		(328	)		(1,904	)		(4,108	)
Pretax income/(loss)		(2,522	)		691		(525	)		(1,904	)		(4,260	)

2018

Revenue	$	12,341		$	3,104	$	730		$	(586	)	$	15,589
Operating income/(loss)		1,482			488		(1,140	)		(1,299	)		(469	)
Pretax income/(loss)		1,482			488		(1,140	)		(1,493	)		(663	)

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

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

NOTE 12:

SUBSEQUENT EVENT

On August 5, 2019, the Company entered into a Mortgage Modification Agreement, a Reaffirmation of Unlimited Continuing Guaranty, and a Note Modification Agreement with HSBC Bank USA.The Mortgage Modification Agreement amended the original Mortgage by removing the fixed charge coverage financial ratio financial covenant and replacing it with a minimum liquid Assets covenant as follows:

CVD Equipment Corporation and its consolidated subsidiaries shall own and maintain minimum Liquid Assets of (i) at least $3,000,000 at all times for the balance of the calendar year ending December 31, 2019 (ii) $3,250,000 as of March 31, 2020, (iii) $3,500,000 as of September 30, 2020, (iv) $3,750,000 as of March 31, 2021, (v) $4,000,000 as of September 30, 2021, and (vi) $4,000,000 as of each quarter end thereafter as determined by the Mortgagee. As used herein, the term "Liquid Assets" shall be deemed to mean assets of the following types and nature so long as such are not pledged, encumbered, hypothecated, subject to rights of offset or otherwise restricted:

In addition, the agreements provide for a cross default between the Company’s two existing HSBC Notes.

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

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 o f Financial Condition and Results of Opera tion s ” 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. Past results are no guaranty of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the dates they are made. When used in this Report, the words “believes,” “anticipates,” “expects,” “estimates,” “plans,” “intends,” “will” and similar expressions are intended to identify forward-looking statements.

Results of Operations

Three and Six Months Ended June 3 0 , 2019 vs. June 3 0 , 2018

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018

Revenue	$	4,918,118		$	6,435,278		$	8,395,378		$	15,589,111

Cost of revenue		4,425,279			5,319,060			8,290,280			10,711,979

Gross profit		492,839			1,116,218			105,098			4,877,132

Operating expenses
Research and development		176,920			128,117			341,000			224,923
Selling and shipping		227,117			399,249			504,424			912,724
General and administrative		1,632,022			1,968,465			3,368,110			4,208,530

Total operating expenses		2,036,059			2,495,831			4,213,534			5,346,177

Operating loss		(1,543,220	)		(1,379,613	)		(4,108,436	)		(469,045	)

Other income (expense):
Interest income		42,063			29,314			88,869			46,274
Interest expense		(126,270	)		(119,279	)		(240,806	)		(240,633	)
Total other expense, net		(84,207	)		(89,965	)		(151,937	)		(194,359	)

Loss before income tax		(1,627,427	)		(1,469,578	)		(4,260,373	)		(663,404	)

Income tax (benefit) expense		(234,697	)		(139,052	)		(690,697	)		108,718

Net loss	$	(1,392,730	)	$	(1,330,526	)	$	(3,569,676	)	$	(772,122	)

Three Months Ended June 30, 2019 vs. June 30, 2018

Revenue

Our revenue for the three months ended June 30, 2019 was $4.9 million compared to $6.4 million for the three months ended June 30, 2018, resulting in a decrease of 23.6% which was primarily attributable to the completion of orders received from our then largest customer. This customer, in the aerospace industry from which we have previously secured multiple orders, represented $.7 million or approximately 13.8% of our revenue for the three months ended June 30, 2019 as compared to $2.7 million or approximately 42.2% of our revenue for the three months ended June 30, 2018.

The revenue contributed for the three months ended June 30, 2019, by the CVD Equipment segment, of $3.2 million, which totaled 64.9% of our overall revenue, was 43.3% or $2.4 million less than the segment’s $5.6 million contribution made in the prior year, which totaled 87.6% of our overall revenue.

Revenue for our SDC segment increased to $1.3 million in three months ended June 30, 2019 as compared to $.4 million in three months ended June 30, 2018, an increase of $.9 million. The increase is primarily attributable to a higher sales activity level in 2019 as compared to the timing of orders within the first two quarters of 2018. In the first half of 2019, sales were $2.3 million as compared to $2.5 million in the first of 2018. The SDC segment represented 26.0% and 6.9% of our total revenue during the three months ended June 30, 2019 and 2018, respectively.

Revenues for our CVD Materials segment were $.4 million in the three months ended June 30, 2019 as compared to $.4 million for the three months ended June 30, 2018.

Gross Profit

Gross profit for the three months ended June 30, 2019 amounted to $.5 million, with a gross profit margin of 10.0%, compared to a gross profit of $1.1 million and a gross profit margin of 17.3% for the three months ended June 30, 2018. The decreased gross profit and gross profit margin were the result of the reduction in sales from our former largest customer, while costs, principally payroll, which decreased, remained at higher levels to support our anticipated expansion of the CVD Materials segment and future growth.

Research and D evelopment, S elling and G eneral and A dministrative E xpenses

Research and Development

Due to the technical development required on our custom orders, our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project. When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development. For the three months ended June 30, 2019, our research and development expenses totaled $177,000 compared to $128,000 for the three months ended June 30, 2018.

Selling

Selling expenses were $.2 million or 4.6 % of the revenue for the three months ended June 30, 2019 as compared to $.4 million or 6.2% for the three months ended June 30, 2018. The decrease was a result of reduced employee related costs as a result of the reduction in overall sales.

General and Administrative

General and administrative expenses for the three months ended June 30, 2019 were $1.6 million or 33.2% of revenue compared to $2.0 million or 30.6% for the three months ended June 30, 2018, a decrease of $.4 million. The decrease in these expenses is primarily the result of reductions in employees and the related payroll and benefit costs, as well as decreased outside systems and finance consulting costs.

Operating Loss

As a result of the decreased revenues and gross margins, we recorded an operating loss of ($1.5 million) for the three months ended June 30, 2019 as compared to an operating loss of ($1.4 million) for the three months ended June 30, 2018, which was driven primarily by the reduced revenue from our former largest customer, offset in part by actions taken to reduce operating and manufacturing costs.

Other (expenses)/Income

Other expenses were $84,000 and $90,000 for the three months ended June 30, 2019 and 2018, respectively. This reduction is the result of actions taken to invest significantly more of the Company’s cash into short-term treasury bills and certificates of deposits and thereby generating increased interest income of $13,000, while higher interest rates resulted in increased interest expense of $7,000.

Income Taxes

For the three months ended June 30, 2019, we recorded an income tax benefit of $235,000 as compared to an income tax benefit of $139,000 for the three months ended June 30, 2018. Commencing in 2018, our corporate tax rate was reduced to 21% as a result of The Tax Cuts and Jobs Act (“TCJA”) enacted December 22, 2017. For the three months ended June 30, 2019 and 2018, this rate was affected by permanent differences related to fixed and intangible assets, stock-based compensation and other items resulting in an effective tax rate of 14.4% and 9.5%, respectively.

Net loss

As a result of the foregoing factors, we reported a net loss of ($1.4 million), or ($0.21) per basic and diluted share, for the three months ended June 30, 2019, as compared to net loss of ($1.3 million), or ($0.21) per basic and diluted share for the three months ended June 30, 2018.

Six Months Ended June 30, 2019 vs. June 30, 2018

Revenue

Our revenue for the six months ended June 30, 2019 was $8.4 million compared to $15.6 million for the six months ended June 30, 2018, resulting in a decrease of 46.1% which was primarily attributable to the completion of orders received from our former largest customer. This customer, in the aerospace industry from which we had previously secured multiple orders, represented $1.4 million or approximately 16.2% of our revenue for the six months ended June 30, 2019 as compared to $7.1 million or approximately 45.4% of our revenue for the six months ended June 30, 2018.

The revenue contributed for the six months ended June 30, 2019, by the CVD Equipment segment, of $5.2 million, which totaled 62.1% of our overall revenue, was 57.8% or $7.1 million less than the segment’s $12.3 million contribution made in the prior year, which totaled 79.2% of our overall revenue.

Revenue for our SDC segment decreased to $2.3 million for the six months ended June 30, 2019 as compared to $2.5 million for the six months ended June 30, 2018, a decrease of 7.8%. The SDC segment represented 27.7% and 16.5% of our total revenue during the six months ended June 30, 2019 and 2018, respectively.

Revenues for our CVD Materials segment were $.9 million in the six months ended June 30, 2019 as compared to $.7 million for 2018.

Gross Profit

Gross profit for the six months ended June 30, 2019 amounted to $.1 million, with a gross profit margin of 1.3%, compared to a gross profit of $4.9 million and a gross profit margin of 31.3% for the six months ended June 30, 2018. The decreased gross profit and gross profit margin were the result of the reduction in sales from our former largest customer, while costs, principally payroll, which decreased, remained at higher levels to support our anticipated expansion of the CVD Materials segment and future growth.

Research and Development, Selling and General and Administrative Expenses

Research and Development

Due to the technical development required on our custom orders, our research and development team and their expenses are charged to costs of goods sold when they are working directly on a customer project. When they are not working on a customer project, they work in our Application Laboratory and their costs are charged to research and development. For the six months ended June 30, 2019, our research and development expenses totaled $341,000 compared to $225,000 for the six months ended June 30, 2018.

Selling

Selling expenses were $.5 million or 6.0% of the revenue for the six months ended June 30, 2019 as compared to $.9 million or 5.8% for the six months ended June 30, 2018. The decrease was a result of lower employee related costs and commissions as a result of the reduction in overall sales.

General and Administrative

General and administrative expenses for the six months ended June 30, 2019 were $3.4 million or 40.1% of revenue compared to $4.2 million or 27.0% for the six months ended June 30, 2018, a decrease of $.8 million. The decrease in these expenses is primarily the result of reductions in employees and the related payroll and benefit costs, as well as decreased outside systems and finance consulting costs.

Operating Loss

As a result of the decreased revenues and gross margins, we recorded an operating loss of ($4.1 million) for the six months ended June 30, 2019 as compared to an operating loss of ($.5 million) for the six months ended June 30, 2018, which was driven primarily by the reduced revenue from our former largest customer.

Other (expenses)/Income

Other expenses were $152,000 and $194,000 for the six months ended June 30, 2019 and 2018, respectively. This reduction is the result of actions taken to invest significantly more of the Company’s cash into short-term treasury bills and certificates of deposits and thereby generating increased interest income of $42,000.

Income Taxes

For the six months ended June 30, 2019, we recorded an income tax benefit of $691,000 as compared to an income tax expense of $109,000 for the six months ended June 30, 2018. Commencing in 2018, our corporate tax rate was reduced to 21% as a result of The Tax Cuts and Jobs Act (“TCJA”) enacted December 22, 2017. For the six months ended June 30, 2019 and 2018, this rate was affected by permanent differences related to fixed and intangible assets, stock-based compensation and other items resulting in an effective tax rate of 16.2% and 16.4%, respectively.

Net loss

As a result of the foregoing factors, we reported net loss of ($3.6 million), or ($0.55) per basic and diluted share, for the six months ended June 30, 2019, as compared to net loss of ($.8 million), or ($0.12) per basic and diluted share for the six months ended June 30, 2018.

Liquidity and Capital Resources

As of June 30, 2019, we had aggregate working capital of $10.3 million compared to aggregate working capital of $15.4 million at December 31, 2018. Our cash and cash equivalents of at June 30, 2019 and December 31, 2018 were $8.6 million and $11.4 million, respectively. The decrease in working capital of $5.1 million is primarily attributable to the overall reduction in sales and resulting operating loss for the period and debt service payments of approximately $.6 million related to our investment in the CVD Materials building purchased on November 30, 2017. We have continued to invest in activities primarily related to preparing CVD Materials at the new location which we anticipate to be operational during the third quarter of 2019. Our total capital invested in the six months ended June 30, 2019 was $1.4 million, primarily related to building improvements and machinery for the CVD Materials operations and we also incurred operating costs of approximately $124,000, exclusive of interest expense, and net of $36,000 rental income which commenced June 2019. Commencing July 2019, the monthly rental income will increase to approximately $67,000 per month or approximately $800,000 per annum.

Accounts receivable, net of allowance for doubtful accounts, decreased by $2.0 million or 49.2% at June 30, 2019, to $2.1 million compared to $4.1 million at December 31, 2018. This decrease is principally due to the timing of shipments and customer payments.

Inventories as of June 30, 2019 and 2018 were essentially unchanged at approximately $1.9 million.

As previously reported, our Revolving Line of Credit expired on September 1, 2018. We have elected not to renew our credit line at this time because (a) renewal terms were not acceptable to us, (b) we have not borrowed on our line of credit in the past 10 years, and (c) we believed we had sufficient cash and cash equivalents to meet our working capital and capital expenditure requirements over the next twelve months.

We have a loan agreement with HSBC USA, N.A. (the “HSBC”) which is secured by a mortgage on our Central Islip headquarters at 355 South Technology Drive. The loan is payable in 120 consecutive equal monthly installments of $25,000 in principal plus interest and a final balloon payment upon maturity in March 2022. The balances as of June 30, 2019 and December 31, 2018 were approximately $2.5 million and $2.7 million respectively. Interest accrues on the Loan, at our option, at the variable rate of LIBOR plus 1.75% or Prime less 0.5%.

On November 30, 2017, we purchased the premises located at 555 North Research Place, Central Islip, NY which is intended to house the CVD Materials segment. The purchase price of the land and the building was $13,850,000 exclusive of closing costs.

As part of the acquisition, our newly formed wholly-owned subsidiary, 555 N Research Corporation (the” Assignee”) and the Islip IDA, entered into a Fee and Leasehold Mortgage and Security Agreement (the ”Loan”) with HSBC in the amount of $10,387,500, which was used to finance a portion of the purchase price to acquire the premises located at 555 North Research Place, Central Islip, New York (the ”Premises”). The Loan was evidenced by the certain Note, dated November 30, 2017 (the ”Note”), by and between Assignee and the Bank, and secured by a certain Fee and Leasehold Mortgage and Security Agreement, dated November 30, 2017 (the “Mortgage”), as well as a collateral Assignment of Leases and Rents (“Assignment of Leases”).

The Loan is payable in 60 consecutive equal monthly installments of $62,481, including interest. The balances as of June 30, 2019 and December 31, 2018 were approximately $9.9 million and $10.0 million respectively. The Loan bears interest for each Interest Period (as defined in the Note), at the fixed rate of 3.9148%. The maturity date for the Note is December 1, 2022. As a condition of the Bank making the Loan, we were required to guaranty Assignee’s obligations under the Loan.

At December 31, 2018, we were not in compliance with the single financial covenant (fixed charge coverage ratio) contained in the Mortgage. On March 26, 2019 the Company received a waiver from HSBC until April 1, 2020. On August 5, 2019, the Company entered into a Mortgage Modification Agreement which replaced the former covenant with a Minimum Liquid Assets covenant. The Company is in compliance with its obligations under the mortgage at June 30, 2019.

At December 31, 2018 we had reduced our employee headcount by 15% to 197 as compared to December 31, 2017. At June 30, 2019 we have further reduced our headcount by 8% to 181 employees and we are continuing to evaluate our staffing levels to support the new CVD Materials facility which we anticipate to be operational during the third quarter of 2019, and the level of current and expected orders. While we continue to monitor and take action to reduce our expenses, we believe that our cash and cash equivalent positions and cash flow from operations will be sufficient to meet our working capital and capital expenditure 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

Not applicable.

Item 4 .

Controls and Procedures .

Evaluation of Disclosure C ontrols and Procedure s

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, our Chief Executive Officer and Chief Financial Officer, along with others in our management, have determined that as of the end of the period covered by this Report on Form 10-Q, while improvements have been made since our December 31, 2018 year end, the disclosure controls and procedures were not effective to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosures. Specifically, at year end December 31, 2018, we had identified the following significant deficiencies in our disclosure controls: (1) we lack sufficient internal controls over monitoring the accounting activity and consolidation of our foreign subsidiary into our consolidated financial statements, (2) we have not fully integrated our new project accounting software into our general ledger accounting system and we continue to rely on manual reconciliations using electronic spreadsheets, and (3) we have a deficiency in internal controls regarding the estimation of costs on contracts in progress.

To remediate such deficiencies, we have implemented the following changes: (1) established stricter formal procedures with respect to how and when our management will communicate to the auditors and Audit Committee on a more timely basis, (2) is adopting sufficient written policies and procedures for accounting and financial reporting, (3) have appointed and /or designated additional qualified personnel to ensure timely filing of the reports that we file or submit under the Exchange Act, (4) added additional, multiple review levels, and (5) receive from the staff of the foreign subsidiary financial information on a weekly and monthly basis in order to monitor more closely. During the year ended December 31, 2018, we integrated three more entities into its accounting software and are planning the integration of the remaining two entities shortly. In addition, we have reevaluated our internal controls regarding the estimation of costs on contracts in progress and have implemented changes as needed. We continued to monitor and improve upon our operational and financial controls during the quarter ended June 30, 2019.

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

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings.

None.

Item 1 A .

Risk Factors .

Not applicable for Smaller Reporting Companies.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds .

None.

Item 3.

Defaults Upon Senior Securities .

None.

Item 4.

Mine Safety Disclosures .

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits

10.1*

West side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.2*

East side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.3	Mortgage Modification Agreement, dated August 5, 2019, by and between 555 N Research Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.4	Reaffirmation of Unlimited Continuing Guaranty, dated August 5, 2019 by and between CVD Equipment Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.5	Note Modification Agreement, dated August 5, 2019, by and between FAE Holdings 411519R and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

31.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019

31.2*

Certification of Thomas McNeill, Chief Financial Officer, dated August 13, 2019

32.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019, 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 Thomas McNeill, Chief Financial Officer, dated August 13, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1**

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.

________________

* Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not to be filed or part of a registration statement of 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 Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.

SIGNATURES

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 13 ^th day of August 2019.

	CVD EQUIPMENT CORPORATION

	By:	/s/ Leonard A. Rosenbaum
		Leonard A. Rosenbaum
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Thomas McNeill
		Thomas McNeill
		Chief Financial Officer
		(Principal Financial and
		Accounting Officer)

EXHIBIT INDEX

10.1*

West side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.2*

East side sublease, dated May 31, 2019, by and between the Company and ELM Freight Handlers Inc., filed herewith.

10.3	Mortgage Modification Agreement, dated August 5, 2019, by and between 555 N Research Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.4	Reaffirmation of Unlimited Continuing Guaranty, dated August 5, 2019 by and between CVD Equipment Corporation and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

10.5	Note Modification Agreement, dated August 5, 2019, by and between FAE Holdings 411519R and HSBC Bank USA, National Association, incorporated by reference to the Company’s Form 8-K filed with the Commission on August 5, 2019.

31.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019

31.2*

Certification of Thomas McNeill, Chief Financial Officer, dated August 13, 2019

32.1*

Certification of Leonard A. Rosenbaum, Chief Executive Officer, dated August 13, 2019, 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 Thomas McNeill, Chief Financial Officer, dated August 13, 2019, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.1**

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.

________________

* Filed herewith.

555 N RESEARCH CORPORATION		ELM FREIGHT HANDLERS INC., D/B/A ELM GLOBAL LOGISTICS
(Landlord)		(Tenant)


BY:	/S/ Leonard A. Rosenbaum	BY:	/S/ Joseph W. Conboy
	Leonard A. Rosenbaum, President		Joseph W. Conboy, President

555 N RESEARCH CORPORATION		ELM FREIGHT HANDLERS INC., D/B/A ELM GLOBAL LOGISTICS
(Landlord)		(Tenant)


BY:	/S/ Leonard A. Rosenbaum	BY:	/S/ Joseph W. Conboy
	Leonard A. Rosenbaum, President		Joseph W. Conboy, President