CVD Equipment Corporation — FY2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013; comparative period is FY2012. The filing was signed March 31, 2014. CVD designs and manufactures specialized equipment and process solutions used in semiconductor, solar, nanomaterial, electronics, and industrial applications.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $17.884 million | $22.158 million |
| Gross profit / margin | $6.710 million / 37.5% | $7.989 million / 36.1% |
| Operating income (loss) | ($1.806 million) | $0.545 million |
| Pre-tax income (loss) | ($1.957 million) | $0.400 million |
| Income tax benefit | $1.396 million | $0.035 million |
| Net income (loss) | ($0.560 million) | $0.436 million |
| Basic and diluted EPS | ($0.09) | $0.07 |
| Cash flow from operations | ($1.067 million) | ($0.182 million) |
| Cash and cash equivalents at year-end | $11.248 million | $13.721 million |
| Working capital | $18.444 million | $20.100 million |
| Total debt | $5.286 million | $8.323 million |
- Revenue fell 19.3%. CVD/First Nano revenue declined 31.3% to $13.014 million, while SDC revenue increased 54.0% to $4.870 million.
- Fourth-quarter revenue was $4.880 million, up 51.9% from $3.213 million in Q4 2012.
- Gross margin improved 1.4 percentage points despite lower sales. General and administrative expense rose 18.7% to $6.082 million; separately reported R&D expense rose to $1.013 million from $0.389 million, and bad-debt expense was $1.281 million.
- Operating cash use and the reduction in cash reflected working-capital movements and the continuing facility transition. FY2013 investing cash flow was positive $1.555 million, including $3.620 million of building-sale proceeds; financing cash use was $2.962 million.
- Current assets were $21.896 million and current liabilities $3.452 million. Restricted cash of $0.800 million was not available as ordinary cash.
Changes, outlook, and material matters
- Management attributed the annual sales decline and operating disruption to fewer orders accepted during the move to the new Central Islip facility and production inefficiencies during the transition. The move was completed in March 2013; management said full sales efforts had resumed.
- Year-end backlog was approximately $3.917 million, down 53.0% from $8.342 million. The company reported approximately $16.312 million of new orders received since January 1, 2014. Backlog may be delayed or canceled and is not assurance of future revenue or profit.
- Management stated that cash, operating cash flow, and credit facilities should be sufficient for working capital and capital spending for the next twelve months. No quantified earnings or revenue guidance was provided. Management cited potential growth markets including solar, energy, electronics, aerospace, medical, LEDs, graphene, nanowires, and nanotubes.
- Debt included a $7 million revolving facility, unused at year-end and scheduled to mature August 5, 2014, and mortgage/term debt. The company was not in compliance with covenants under both HSBC loan agreements at December 31, 2013 and obtained waivers. The $7 million facility’s stated availability and maturity make the waiver and renewal terms important to assess.
- A major solar-industry customer made a General Assignment for the Benefit of Creditors. CVD wrote off receivables and some previously recognized contract revenue; undelivered equipment and materials were returned to inventory. Inventory increased 63.9% to $4.497 million. Separately, one customer represented 23.7% of FY2013 revenue.
- CVD is pursuing a breach-of-contract claim against Taiwan Glass seeking $5.816 million. Taiwan Glass denies the allegations and seeks unspecified damages; its motion for partial summary judgment seeking repayment of $3.564 million was denied in 2012. The case remained unresolved in the filing.
- FY2013 included an $0.887 million gain on sale of the former headquarters. The $1.396 million income tax benefit materially reduced the reported net loss; management reported deferred tax assets and no valuation allowance against the total net deferred tax assets at year-end.
- The company filed provisional patents for CVD Graphene on January 9, 2014. Management reported independent R&D spending of $1.013 million in 2013; total R&D, including customer-order work, was approximately $1.837 million.
- The independent auditor gave an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness.
Key facts for investors to verify
- Whether the post-year-end $16.312 million of orders converted to shipped revenue, and the amount and timing of current backlog.
- The identity, financial condition, and ongoing revenue exposure associated with the customer representing 23.7% of FY2013 sales; recovery prospects for receivables and the value and saleability of returned inventory.
- The status and terms of the HSBC covenant waivers, revolving-credit renewal or replacement, restricted cash, and future debt maturities.
- The status, potential costs, and possible outcomes of the Taiwan Glass litigation and counterclaims.
- The sustainability of improved gross margin and SDC growth amid lower total revenue, higher operating expenses, and continued investment in R&D.
- The assumptions supporting realization of deferred tax assets and the impact of the tax benefit on comparability of reported net results.