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| CVV > SEC Filings for CVV > Form 10-Q on 13-Nov-2008 | All Recent SEC Filings |
13-Nov-2008
Quarterly Report
Except for historical information contained herein, this "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous important assumptions and other important factors that could cause actual results to differ materially from those in the forward-looking statements. Important assumptions and other factors that could cause actual results to differ materially from those in the forward-looking statements, include but are not limited to: competition in the Company's existing and potential future product lines of business; the Company's ability to obtain financing on acceptable terms if and when needed; uncertainty as to the Company's future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as to any future expansion of the Company. Other factors and assumptions not identified above were also involved in the derivation of these forward-looking statements and the failure of such assumptions to be realized as well as other factors may also cause actual results to differ materially from those projected. The Company assumes no obligation to update these forward looking statements to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.
Results of Operations
Three and Nine Months Ended September 30, 2008 vs. Three and Nine Months Ended September 30, 2007
Revenue
Revenue for the three and nine month periods ended September 30, 2008 was approximately $4,884,000 and $13,196,000, respectively as compared to $3,303,000 and $10,185,000, respectively for the three and nine month periods ended September 30, 2007, an increase of 47.9% and 29.6% respectively. We attribute the increase to intensified selling efforts for all of our products. The proceeds we received during the latter half of 2007, as a result of the sale of our common stock, has allowed us to hire additional personnel, and enabled our key personnel to focus their efforts on selling into our targeted market segments.
Gross Profit
The Company generated gross profits of approximately $1,297,000 and $3,666,000, respectively resulting in gross profit margins of 26.6% and 27.8%, respectively, for the three and nine months ended September 30, 2008 as compared to gross profits of approximately $1,065,000 and $3,492,000, respectively, resulting in gross profit margins of 32.2% and 34.3%, respectively, for the three and nine months ended September 30, 2007. The decrease in gross profit is primarily attributable to an increase in our engineering and production personnel necessary to support our increased orders, the expansion of our First Nano laboratory and new product development costs in the Nanomaterials, Energy, Solar and Semiconductor fields.
Selling and shipping expenses for the three months ended September 30, 2008 and 2007 were approximately $157,000 and $137,000, respectively, representing a 14.2% increase versus the prior period. This increase is primarily attributable to an increase in sales commissions earned during the current period for sales that were concluded through the efforts of our outside sales representatives as well as an increase in sales related travel expenses.
Selling and shipping expenses for the nine months ended September 30, 2008 were approximately $542,000 compared to $564,000 for the nine months ended September 30, 2007. This decrease of 3.9% is primarily attributable to a reduction in shipping expenses as well as an overall reduction in sales commission expense during the nine month period.
The Company incurred approximately $1,072,000 and $2,987,000 of general and administrative expenses during the three and nine months ended September 30, 2008, respectively, compared to approximately $755,000 and $2,333,000 incurred during the three and nine months ended September 30, 2007, respectively. This represents an increase of 42.0% and 28%, respectively, which is primarily attributable to the costs needed to support our continued sales growth including the hiring of additional personnel, increased payroll and benefit costs, employee recruitment efforts, general insurance, workers' compensation insurance, stock-based compensation, accounting, legal and investor relations costs as well as costs associated with the new laboratory facility purchased earlier this year.
Operating Income
As a result of the foregoing factors, operating income was approximately $69,000 and $137,000 for the three and nine months ended September 30, 2008, respectively. This represents a decrease of 60.0% and 77.0% compared to operating income of $173,000 and $595,000, respectively, for the three and nine month periods ended September 30, 2007.
Interest Expense, Net
Interest income for the three and nine months ended September 30, 2008 was approximately $21,000 and $80,000, respectively, compared to approximately $3,000 for both the three and nine months ended September 30, 2007, respectively. This is a result of additional interest income derived from the temporary investment of certain net capital proceeds from the sale of the Company's common stock in September, 2007. Interest expense for the three and nine months ended September 30, 2008 was $58,000 and $163,000, respectively, compared to approximately $65,000 and $170,000, respectively, for the three and nine months ended September 30, 2007. The primary sources of this interest expense are for the mortgages on the three buildings that we own. In addition, as a result of equipment purchases, the Company has utilized $500,000 of its Revolving Credit Facility and converted such amounts into term loans which is an additional source of interest expense.
Other income during the three months ended September 30, 2008 was approximately $157,000 compared to approximately $518,000 for the three months ended September 30, 2007. In September, 2007, under the terms of a settlement agreement resolving litigation, the Company agreed to accept payment of $541,600 to be paid over a specific timetable in connection with the settlement. The Company has received $408,600 as of September 30, 2008.
Other income during the nine months ended September 30, 2008 was approximately $170,000 compared to approximately $557,000 for the corresponding period one year ago due to the settlement of the litigation mentioned above.
Income Taxes
For the three months ended September 30, 2008, the Company recorded a current income tax benefit of approximately $69,000 that was decreased by the realization of the deferred tax benefits of approximately $10,000. For the nine months ended September 30, 2008, the Company recorded a current income tax expense of approximately $207,000 that was reduced by the realization of deferred tax benefits of approximately $138,000.
Net Income
The Company reported net income of approximately $129,000 and $155,000, respectively, for the three and nine month periods ended September 30, 2008, respectively, compared to net income of $276,000 and $537,000, respectively, for the same periods in 2007.This decrease was primarily attributable to the settlement of litigation in 2007, when the Company received payment in connection with the settlement as well as the additional expenses incurred in 2008, as a result of an increase in the number of engineering and production personnel employed by the Company in response to both the increased orders received for the Company's products and the costs associated with the Company's expansion and new product development in the Nanomaterials, Energy, Solar and Semiconductor fields.
Liquidity and Capital Resources
As of September 30, 2008, the Company had aggregate working capital of approximately $10,070,000 and cash and cash equivalents of $2,218,000 compared to $10,314,000 and $5,110,000 at December 31, 2007, a decreaseof $244,000 and $2,892,000, respectively. The decrease in cash and cash equivalents was primarily the result of funding uncompleted contracts, which increased by approximately $1,757,000, and an increase in accounts receivable of approximately $2,011,000 which was partially offset by an increase in accounts payable of approximately $1,016,000.
Accounts receivable, net as of September 30, 2008 was $3,780,000 compared to $1,769,000 as of December 31, 2007. This increase is attributable to the timing of shipments and customer payments.
The Company believes that based on its historical growth rate, its cash and cash equivalents position at September 30, 2008 and available credit facilities, the Company's funds at September 30, 2008 will be sufficient to meet its working capital and investment requirements for the next twelve months.
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