CVD Equipment Corp. designs develops manufactures markets installs and services equipment primarily for the semiconductor industry. The company's products include both batch and single substrate systems used for depositing rapid thermal processing annealing diffusion and etching of semiconductor films gas and liquid flow control systems and ultra high purity gas and chemical piping delivery systems. The company also fabricates standard and custom quartzware and offers equipment consulting and refurbishing of semiconductor processing equipment. CVD Equipment Corp has a market cap of $19.6 million; its shares were traded at around $4.11 with a P/E ratio of 31.6 and P/S ratio of 1.1.
Highlight of Business Operations:The Company incurred approximately $970,000 of general and administrative expenses during the three months ended March 31, 2009, compared to approximately $1,032,000 incurred during the three months ended March 31, 2008 representing a decrease of 6.0%. During the three months ended March 31, 2008, the Company incurred additional workers’ compensation costs of approximately $168,000 as a result of a shortfall in a self-insured workers’ compensation trust fund, that the Company was a member from January 2000 through March 2006. The Company, as all members are, is jointly and severally liable for the expenses and obligations of the Fund. Although the Company has not been notified that any additional funds are required, it continues to reserve additional amounts on a quarterly basis. This decrease as well as a decrease in stock-based compensation costs was partially offset by an increase in payroll and benefit costs and an increase in research and development expenses as a result of the expansion of our Application Laboratory which allows selected customers to bring up their process tools in our Application Laboratory and work together with our scientists and engineers to optimize process performance.
Interest income for the three months ended March 31, 2009 was approximately $12,000 compared to approximately $38,000 for the three months ended March 31, 2008. This decrease is a result of the Company investing its cash in more conservative investments such as short-term Treasury Bonds and Certificates of Deposit, with lower returns than it previously received on Money Market Funds. Interest expense for the three months ended March 31, 2009 was $65,000 compared to approximately $41,000 for the three months ended March 31, 2008. The primary sources of this interest expense are for the mortgages on the three buildings that we own. The Company has also made some equipment purchases, utilizing $500,000 of its Revolving Credit Facility and converting such amounts into term loans as an additional source of interest expense.
For the three months ended March 31, 2009, the Company recorded no current income tax expense and realized deferred tax benefits of approximately $78,000. For the three months ended March 31, 2008 the Company recorded a current income tax expense of approximately $47,000 that was reduced by a deferred tax benefit of $58,000.
As of March 31, 2009, the Company had aggregate working capital of approximately $9,677,000 and cash and cash equivalents of $5,561,000 compared to $9,849,000 and $5,721,000 at December 31, 2008, a decrease of $172,000 and $160,000, respectively. The decrease in cash and cash equivalents was primarily the result of the purchase of capital equipment ($110,000) and reduction of long-term debt ($85,000).
As of March 31, 2009 the Company’s backlog was approximately $13,872,000, a decrease of $1,399,000 or 9.2% compared to $15,271,000 at December 31, 2008. 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 or profits as order cancellations or delays are possible.
In June 2008 the Company commenced an action against Akzo Nobel Polymer Chemicals LLC in the Supreme Court of the State of New York, Suffolk County. By that action, the Company sought to recover $154,161.38 for breach of contract, work labor and services rendered and goods sold and delivered. Subsequently, the defendant removed the action to the United States District Court for the Eastern District of new York (Dock No. CV-09-1066). The company has moved in the Federal Court to remand the matter to State Court. That motion is sub judice. Meanwhile, the defendant has answered and asserted counterclaims against the Company for breach of contract, breach of express warranty, breach of implied warranty and fraudulent misrepresentation. The defendant claims to have over paid the Company $145,164.56 and seeks additional damages of not less than $300,000 with respect to each of its counterclaims. The Company intends to vigorously pursue its claim and vigorously defend the counterclaims asserted.
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