CVD EQUIPMENT CORPORATION (NASDAQ:CVV) Files An 8-K Financial Statements and ExhibitsItem 9.01 of Form 8-K. The pro forma financial information contained in Amendment No. 1 was derived from the Company’s Statements of Operations and Statements of Cash Flows, for the three and six months ended June 30, 2017 and those of Mesoscribe for the three and nine months ended June 30, 2017.
a.On May 20, 2014, the Company signed a lease for corporate office space from Mr. Wei-Chen Chang in the city of Huntington Beach located at 7441 Vincent Circle, CA. The lease commenced on June 1, 2014 and expires on May 31, 2019. Future minimum lease payments at September 30, 2016, are as follows:
| 2015-2016 | $172,415 |
| 2016-2017 | $177,597 |
| 2017-2018 | $182,911 |
| 2018-2019 | $188,411 |
b.On August 1, 2014, the Company signed a lease for corporate office space from Adriatic Holdings, L.L.C., in the city of Setauket located at 100 North Country Road, NY. The lease commenced on September 1, 2014 and expires on August 31, 2017 with an option to renew the lease for further 3 years. Future minimum lease payments at September 30, 2016, are as follows:
Rental expense totaled $176,461 for the year ended September 30, 2016 and is recorded in the following expense line item: rent expense.
6. Intangible Assets
a. Patents
The Company owns certain patents under agreements that are classified as assets. The cost of the patents is included in the balance sheet as fixed asset and was $102,067 at September 30, 2016. Accumulated amortization for patents is approximately $ 62,807 and amortization expense for the year is $ 6,801.
Mesoscribe Technologies, Inc.
Notes to Financial Statements
September 30, 2016
b. Goodwill
In May 2013, Mesoscribe Technologies, Inc. acquired assets from Robert Greenlaw through an asset purchase agreement. The cost of the investments was in excess of the underlying fair value of net assets acquired at the date of the purchase and accordingly such additional costs are recorded as goodwill. At September 30, 2016 goodwill was $100,000. Goodwill is assessed annually for impairment. If impaired, goodwill is written down to fair value and a corresponding impairment loss recognized.
During 2016, Mesoscribe Technologies Inc., determined, based on future expected cash flows, that the carrying amount of the goodwill associated with its acquisition of the assets did not exceed the current fair value. Therefore, an impairment loss of $0 was recognized during 2016.
7. Subsequent Events
The Company has evaluated events from September 30, 2016 through the date the financial statements were issued.
a. In 2017 Mesoscribe Technologies, Inc. was in discussions to sell the assets of the company.
b.Operating lease for corporate office space from Adriatic Holdings, LLC, in the city of Setauket located at 100 N. Country Rd., NY will expire on August 31, 2017 and was not renewed.
Mesoscribe Technologies, Inc.
Balance Sheet
As of June 30, 2017
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June 30 |
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ASSETS |
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Current Assets |
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Cash and cash equivalents |
$ | 303,684 |
|
Accounts receivable, net |
70,689 | |
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Inventory |
95,579 | |
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Accrued revenue |
94,000 | |
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Deferred tax asset |
231,660 | |
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Prepaid corporate taxes |
82,836 | |
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Prepaid expenses |
30,169 | |
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Total Current Assets |
908,617 | |
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Property and equipment, net |
92,367 | |
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Goodwill |
100,000 | |
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Patents, net |
28,117 | |
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Security deposit |
36,072 | |
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Total Assets |
$ | 1,165,173 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current Liabilities |
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Accounts payable |
$ | 3,010 |
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Accrued expenses |
109,438 | |
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Deferred income taxes |
4,126 | |
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Total Current Liabilities |
116,574 | |
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Shareholder loan |
20,743 | |
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Total Liabilities |
137,317 | |
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Stockholders’ Equity: |
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Common stock – $0.01 par value – 20,000,000 shares authorized at June 30, 2017 and September 30, 2016: issued and outstanding 10,500,000 at |
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June 30, 2017 and at September 30, 2016 |
10,500 | |
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Additional paid-in capital |
16,109 | |
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Retained earnings |
1,001,247 | |
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Total Stockholders’ Equity |
1,027,856 | |
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Total Liabilities and Stockholders’ Equity |
$ | 1,165,173 |
Mesoscribe Technologies, Inc.
Statement of Operations and Retained Earnings
For the Three and Six Months Ended June 30, 2017
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Three months |
Six months |
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Ended June 30 |
Ended June 30 |
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Revenue |
$ | 181,061 | $ | 388,236 | ||
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Cost of revenue |
73,324 | 210,440 | ||||
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Gross profit |
107,737 | 177,796 | ||||
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General and Administrative expenses |
213,184 | 422,148 | ||||
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Total General and Administrative Expenses |
213,184 | 422,148 | ||||
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Operating (loss) |
(105,447 | ) | (244,352 | ) | ||
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Other income (expense): |
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Interest income |
||||||
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Deferred tax income |
42,015 | 95,795 | ||||
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Penalties |
(70 | ) | (147 | ) | ||
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Total other (expense)/income net |
41,989 | 97,742 | ||||
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(Loss) before income tax expense |
(63,459 | ) | (146,610 | ) | ||
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Income tax expense |
— | 1,100 | ||||
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Net (loss) |
$ | (63,459 | ) | $ | (147,710 | ) |
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Retained Earnings, Beginning of period |
1,064,706 | 1,148,957 | ||||
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Retained Earnings, End of period |
1,001,247 | 1,001,247 |
Mesoscribe Technologies, Inc.
Statements of Cash Flows
For the Three and Six Months ended June 30, 2017
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Three Months |
Six Months |
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Ended June 30, |
Ended June 30, |
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Cash flows from operating activities: |
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Net (loss) |
$ | (63,459 | ) | $ | (147,710 | ) |
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Adjustments to reconcile net (loss) to net cash used in operating activities |
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Depreciation and amortization |
7,784 | 15,569 | ||||
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Deferred income tax benefit |
(39,437 | ) | (92,649 | ) | ||
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Increase/(decrease) in operating assets |
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Accounts receivable |
37,984 | 165,847 | ||||
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Inventory, net |
(512 | ) | 1,252 | |||
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Accrued revenue |
(94,000 | ) | (94,000 | ) | ||
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Other current assets |
(10,367 | ) | (24,881 | ) | ||
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Increase/(decrease) in operating liabilities |
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Accounts payable |
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Accrued expenses |
5,050 | 3,512 | ||||
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Deferred revenue |
— | (96,759 | ) | |||
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Total adjustments |
(93,426 | ) | (121,782 | ) | ||
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Net cash used in operating activities |
(156,885 | ) | (269,492 | ) | ||
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Cash flows from investing activities: |
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Net cash provided by/(used in) investing activities |
— | —- | ||||
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Cash flows from financing activities |
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Net cash provided by/(used in) financing activities |
— | — | ||||
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Net (decrease) in cash and cash equivalents |
(156,885 | ) | (269,492 | ) | ||
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Cash and cash equivalents – Beginning of year |
460,570 | 573,176 | ||||
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Cash and cash equivalents – End of year |
$ | 303,684 | $ | 303,684 | ||
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Supplemental disclosure of cash flow information |
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Interest expenses |
— | — | ||||
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Income taxes |
— | 1,100 |
CVD EQUIPMENT CORPORATION
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are provided for informational purposes only and do not purport to represent what the actual combined results of operations or the combined financial position of the combined company would be had the Acquisition (as previously defined) occurred on the dates assumed, nor are they necessarily indicative of future combined results of operations or combined financial position. The unaudited combined financial statements do not reflect any cost savings or synergies which may be realized following the Acquisition.
On October 31, 2017 (the “Closing Date”), CVD Mesoscribe Technologies Corporation, a New York corporation (“Buyer”) and newly formed and wholly-owned indirect subsidiary of the Company and Mesoscribe entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”). to the Asset Purchase Agreement, among other things, the Company acquired (the “Acquisition”) substantially all of the operating assets and business of Mesoscribe (excluding cash, accounts receivable and other specified excluded assets), as more particularly described in the Asset Purchase Agreement.
to the Asset Purchase Agreement, the purchase price for the assets acquired in the Acquisition was $800,000, of which $500,000 was paid on the Closing Date and $300,000 may be paid to Mesoscribe as additional contingent consideration based upon the achievement of certain revenue thresholds and other criteria set forth in the Asset Purchase Agreement with respect to each of the two (2) consecutive twelve (12) month measurement periods following the Closing Date.
The Asset Purchase Agreement contains usual and customary representations, warranties and covenants of the parties, as well as indemnification provisions.
For the year ended December 31, 2016, the unaudited pro forma combined statement of income gives effect to the twelve months ended December 31, 2016 for CVD Equipment Corporation with the twelve months ended September 30, 2016 for Mesoscribe Technologies, Inc.
For the year ended December 31, 2016, the unaudited pro forma combined statement of income gives effect to the Acquisition as if it had been consummated at the start of the December 31, 2016 year end.
For the period ended June 30, 2017, the unaudited pro forma combined statement of income gives effect to the six month period ended June 30, 2017 for CVD Equipment Corporation and the six month period ended June 30, 2017 for Mesoscribe Technologies, Inc. and gives effect to the Acquisition as if it had been consummated at the start of the period ended June 30, 2017.
The unaudited pro forma balance sheet as of June 30, 2017 gives effect to the Acquisition as if it had been consummated on that date.
CVD EQUIPMENT CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 2017
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CVD |
Mesoscribe |
Pro Forma |
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Historical |
Historical |
Adjustments |
Notes |
Pro Forma |
||||||
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(Unaudited) |
(Unaudited) |
(Unaudited) |
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ASSETS |
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Current Assets: |
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Cash and cash equivalents |
$ | 21,477,068 | $ | 303,684 | $ | (803,684 | ) |
(a) |
$ | 20,977,068 |
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Accounts receivable, net |
1,852,047 | 70,689 | (70,689 | ) |
(a) |
1,852,047 | ||||
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Costs and estimated earnings in excess of billings on contracts in progress |
3,027,086 | 3,027,086 | ||||||||
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Inventories, net |
3,101,557 | 95,579 | (70,579 | ) |
(d) |
3,126,557 | ||||
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Other current assets |
344,025 | 207,005 | (207,005 | ) |
(a) |
344,025 | ||||
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Total Current Assets |
29,801,783 | 676,957 | (1,151,957 | ) | 29,326,783 | |||||
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Property, plant and equipment |
14,122,984 | 92,367 | 257,633 |
(b) |
14,472,984 | |||||
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Construction in progress |
156,518 | 156,518 | ||||||||
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Deferred income taxes |
1,952,296 | 231,660 | (231,660 | ) |
(a) |
1,952,296 | ||||
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Other assets |
271,665 | 36,072 | (36,072 | ) |
(a) |
271,665 | ||||
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Intangible assets, net |
240,304 | 128,117 | 296,883 |
(c) |
665,304 | |||||
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Total Assets |
$ | 46,545,550 | $ | 1,165,173 | $ | (865,173 | ) | $ | 46,845,550 | |
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LIABILITIES AND |
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STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
$ | 1,173,384 | $ | 3,010 | $ | (3,010 | ) |
(a) |
$ | 1,173,384 |
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Accrued expenses |
2,121,702 | 113,564 | (113,564 | ) |
(a) |
2,121,702 | ||||
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Current maturities of long-term debt |
300,000 | — | 300,000 | |||||||
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Billings in excess of costs and |
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Estimated earnings on contracts |
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In progress |
2,984,621 | — | 2,984,621 | |||||||
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Deferred revenue |
98,509 | — | 98,509 | |||||||
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Total Current Liabilities |
6,678,216 | 116,574 | (116,574 | ) | 6,678,216 | |||||
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Long-term debt, net of current portion |
2,815,508 | — | 2,815,508 | |||||||
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Acquisition related contingent payments |
300,000 |
(a) |
300,000 | |||||||
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Loans from shareholders |
— | 20,743 | (20,743 | ) |
(a) |
— | ||||
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Total Liabilities |
9,493,724 | 137,317 | 162,683 | 9,793,724 | ||||||
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Commitments and contingencies |
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Stockholders’ Equity |
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Common stock |
63,812 | 10,500 | (10,500 | ) |
(a) |
63,812 | ||||
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Additional paid-in capital |
24,588,783 | 16,109 | (16,109 | ) |
(a) |
24,588,783 | ||||
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Retained earnings |
12,399,231 | 1,001,247 | (1,001,247 | ) |
(a) |
12,399,231 | ||||
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Total stockholders’ equity |
37,051,826 | 1,027,173 | (1,027,856 | ) | 37,051,826 | |||||
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Total Liabilities and Stockholders’ |
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Equity |
$ | 46,545,550 | $ | 1,165,173 | $ | (865,173 | ) | $ | 46,845,550 |
CVD EQUIPMENT CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2017
|
CVD |
Mesoscribe |
Pro forma |
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Historical |
Historical |
Adjustments |
Notes |
Pro Forma |
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(Unaudited) |
(Unaudited) |
(Unaudited) |
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Revenue |
$ | 20,480,326 | $ | 388,236 | $ | 20,868,562 | ||||
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Cost of revenue |
11,898,737 | 210,440 | 14,583 |
(e) |
12,123,760 | |||||
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Gross profit |
8,581,589 | 177,796 | (14,583 | ) | 8,744,802 | |||||
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Operating expenses: |
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Research and development |
181,300 | 181,300 | ||||||||
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Selling and shipping |
638,325 | 638,325 | ||||||||
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General and administrative |
4,214,388 | 422,148 | 7,083 |
(f) |
4,643,619 | |||||
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Total operating expenses |
5,034,013 | 422,148 | 7,083 | 5,463,244 | ||||||
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Operating income.(loss) |
3,547,576 | (244,352 | ) | (21,666 | ) | 3,281,558 | ||||
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Other income/(expense): |
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Interest income |
26,053 | 26,148 | ||||||||
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Interest expense |
(35,244 | ) | (35,244 | ) | ||||||
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Other income/(expense) |
97,647 | (97,647 | ) |
(g) |
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Total other (expense) |
(8,752 | ) | 97,742 | (97,647 | ) | (8,657 | ) | |||
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Income/(loss) before income taxes |
3,538,824 | (146,610 | ) | (119,313 | ) | 3,272,901 | ||||
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Income tax |
1,257,915 | (1,100 | ) | 1,100 |
(g) |
1,257,915 | ||||
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Net income/(loss) |
$ | 2,280,909 | $ | (147,710 | ) | $ | (118,213 | ) | $ | 2,014,986 |
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Weighted average common shares |
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Outstanding |
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Basic |
6,370,244 | 6,370,244 | ||||||||
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Diluted |
6,404,761 | 6,404,761 | ||||||||
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Net income per common share |
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Basic |
0.36 | 0.32 | ||||||||
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Diluted |
0.36 | 0.31 |
CVD EQUIPMENT CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2016 AND THE STATEMENT OF
INCOME FOR MESOSCRIBE TECHNOLOGIES, INC. FOR THE TWELVE MONTHS
ENDED SEPTEMBER 30, 2016
|
CVD |
Mesoscribe |
Pro Forma |
Pro |
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|
Historical |
Historical |
Adjustments |
Notes |
Forma |
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(Unaudited) |
(Unaudited) |
(Unaudited) |
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|
Revenue |
$ | 20,955,347 | $ | 856,922 | $ | 21,812,269 | ||||||
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Cost of revenue |
13,850,824 | 212,991 | 43,750 |
(e) |
14,107,565 | |||||||
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Gross profit |
7,104,523 | 643,931 | (43,750 | ) | 7,704,704 | |||||||
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Operating expenses: |
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Research and development |
433,844 | 433,844 | ||||||||||
|
Selling and shipping |
1,097,661 | 1,097,661 | ||||||||||
|
General and administrative |
6,926,487 | 1,002,036 | 21,250 |
(f) |
7,949,773 | |||||||
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Litigation settlement |
(628,905 | ) | (628,905 | ) | ||||||||
|
Total operating expenses |
7,829,087 | 1,002,036 | 21,250 | 8,852,373 | ||||||||
|
Operating (loss) |
(724,564 | ) | (358,105 | ) | (65,000 | ) | (1,147,669 | ) | ||||
|
Other income/(expense): |
||||||||||||
|
Interest income |
28,233 | 28,435 | ||||||||||
|
Interest expense |
(79,861 | ) | (79,861 | ) | ||||||||
|
Other income/(expense) |
123,006 | 123,006 | ||||||||||
|
Total other (expense) |
71,378 | 71,580 | ||||||||||
|
Income/(loss) before income taxes |
(653,186 | ) | (357,903 | ) | (65,000 | ) | (1,076,089 | ) | ||||
|
Income tax (benefit) |
(504,061 | ) | (142,073 | ) | (646,134 | ) | ||||||
|
Net (loss) |
$ | (149,124 | ) | $ | (215,830 | ) | $ | (65,000 | ) | $ | (429,955 | ) |
|
Weighted average common shares |
||||||||||||
|
Outstanding |
||||||||||||
|
Basic |
6,285,815 | 6,285,815 | ||||||||||
|
Diluted |
6,281,815 | 6,285,815 | ||||||||||
|
Net income per common share |
||||||||||||
|
Basic |
(0.02 | ) | (0.07 | ) | ||||||||
|
Diluted |
(0.02 | ) | (0.07 | ) |
Notes to Unaudited Pro forma Combined Financial Statements
1.Purchase Price
The unaudited pro forma combined financial statements reflect the acquisition of certain assets by the Company effective October 31, 2017.
| Cash paid at closing | $428,713 |
| Net asset adjustment | 71,287 |
| Contingent consideration | 300,000 |
| Total purchase price | $800,000 |
The Company agreed to make additional payments (“Contingent Consideration”) to Mesoscribe as additional contingent consideration based upon the achievement of certain revenue thresholds and other criteria set forth in the Asset Purchase Agreement with respect to each of the two (2) consecutive twelve (12) month measurement periods following the Closing Date.
The Company allocated the purchase price to the acquired assets based on their estimated fair values at the acquisition date as summarized in the following table.
| Inventory | $ | 25,000 |
| Machinery and equipment | 350,000 | |
| Intellectual property | 425,000 | |
| Net assets acquired | $ | 800,000 |
2.The following pro forma adjustments are based upon management’s preliminary estimates. These are subject to finalization.
(a)To eliminate historical Mesoscribe amounts not acquired or assumed.
(b)To record the preliminary estimate of the increase to property and equipment acquired to estimated fair value.
(c)The fair values of the identifiable intangible assets are based on current information and are subject to change.
(d)To adjust inventory to its estimated fair value.
(e)To reflect additional depreciation resulting from the increase in the fair value of the fixed assets at the date of acquisition over the historical value. Fixed assets are depreciated over periods ranging from 5 to 39.5 years.
(f)To reflect amortization of estimated identifiable intangible assets, arising from the acquisition.
(g)To adjust the provision for income taxes to reflect the estimate provision for taxes on a pro forma combined basis.
About CVD EQUIPMENT CORPORATION (NASDAQ:CVV)
CVD Equipment Corporation designs and manufactures equipment and process solutions used to develop and manufacture materials and coatings for research and industrial applications. The Company operates through two divisions: CVD/First Nano and Stainless Design Concepts (SDC). The Company’s CVD/First Nano division supplies chemical vapor deposition systems for use in the research, development and manufacturing of aerospace and medical components, semiconductors, light emitting diodes (LEDs), carbon nanotubes, nanowires, solar cells and a number of other industrial applications. The Company’s SDC division designs and manufactures purity gas and chemical delivery control systems for semiconductor fabrication processes, solar cells, LEDs, carbon nanotubes, nanowires, and other industrial applications. Its products include chemical vapor deposition, rapid thermal processing (RTP), annealing and diffusion furnaces, purity gas and liquid control systems, and quartz-ware.
