~~UNITED STATES SECURITIES AND EXCHANGE COMMISSION~~

~~Washington, D.C. 20549~~

~~______________________~~

~~Form 10-K~~

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Form 10-K
(Mark One)
x þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	Forthefiscal year ended December 31,~~2008~~ 2009
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
	For thetransitionperiod from ____ to ~~____~~ _____
Commission file number: 1-16525

~~CVD EQUIPMENT CORPORATION~~

~~(Exact name of registrant as specified in its Charter)~~

~~New York~~	~~11-2621692~~
CVD EQUIPMENT CORPORATION
(Name of Small Business Issuer in Its Charter)
New York		11-2621692
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
1860 Smithtown Avenue Ronkonkoma, New York 11779
(Address including zip code of registrant’s Principal Executive Offices)
(631) 981-7081 (Issuer’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act:

~~(631) 981-7081~~

~~(Issuer’s Telephone Number, Including Area Code)~~

~~Securities registered under Section 12(b) of the Act:~~

Title of each class	Name of each exchange on which registered

Common Stock, Par value $0.01	NASDAQ Capital ~~Markets~~	Market

~~Securities registered under Section 12(g) of the Act:~~ ~~None~~

~~Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.~~

Securities registered under Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.	Yes o	No xþ

~~Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.~~

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o

No xþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13or 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 xþ

No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes o

No xþ

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

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

Large accelerated filero

Accelerated filero

Non-accelerated filero

Smaller reporting companyx

~~Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 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 o

No xþ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (solely for the purposes of this calculation, the term "affiliate" refers to all directors and executive offices of the registrant and all stockholders beneficially owning more than 5% of the registrant's common stock): $8,274,369 at June 30, 2008

~~Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 4,749,500 shares of Common Stock, $0.01 par value at March 20, 2009.~~

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 4,765,950 shares of Common Stock, $0.01 par value at March 25, 2010.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data file required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months/or for such shorter period that the registrant was required to submit and post such files.

Yes o No o

DOCUMENTS INCORPORATED BY REFERENCE None.

PART I

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

Except for historical information contained herein, this Report on Form 10-K 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 and uncertainties that may cause our actual results or outcomes 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 our existing and potential future product lines of business; our ability to obtain financing on acceptable terms if and when needed; uncertainty as to our 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. We assume 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.

Item 1.Description of Business.

~~Description of Business.~~

The use of the words “we,” “us” or “our” refers to CVD Equipment Corporation, a New York corporation incorporated on October 13, 1982, and its subsidiary, except where the context otherwise requires.

We design, develop and manufacture customized state-of-the-art equipment and process solutions used to develop and manufacture solar, nano and advanced electronic components, materials and coatings for research and industrial applications, with the focus on enabling tomorrow’s technologies™.We offer a broad range of chemical vapor deposition, gas control and other equipment that is used by our customers to research, design and manufacture semiconductors, solar cells, smart glass, carbon nanotubes, nanowires, LEDs, MEMS and industrial coatings, as well as equipment for surface mounting of components onto printed circuit boards. Through our Application Laboratory, we provide process development support and process startup assistance. Our proprietary products are generally customized to meet the particular specifications of individual customers and to accelerate the commercialization of their proprietary intellectual property. We also offer a number of standardized products that are based on the expertise and know-how we have developed in designing and manufacturing our customized products.

Based on more than 2627 years of experience, we use our engineering, manufacturing and process development to transform our customers’ proprietary technology into leading-edge manufacturing solutions. This enables university, research and industrial scientists at the cutting edge of technology to develop next generation solar, nano, LEDs, semiconductors and other electronic components. We also develop and manufacture research and production equipment based on our proprietary designs. We have built a significant library of design expertise, know-how and innovative solutions to assist our customers in developing these intricate processes and to accelerate their commercialization. This library of solutions, along with our vertically integrated manufacturing facilities, allows us to provide superior design, process and manufacturing solutions to our customers on a cost effective basis.

In the fourth quarter of 2006, we began to implement a strategy to target opportunities in the research and development and production equipment market, with a focus on higher-growth applications such as solar and smart glass coatings, carbon nanotubes, nanowires, MEMS and LEDs. To expand our penetration into these growth markets, we started to introduce a line of proprietary standard products and systems. Historically, we manufactured products on a custom one-at-a-time basis to meet an individual customer’s specific research requirements. Our new proprietary systems leverage the technological expertise that we have developed through designing these custom systems onto a standardized basic core. This core is easily adapted through a broad array of available add-on options to meet the diverse product and budgetary requirements of the research community. By manufacturing the basic core of these systems in higher volumes, we are able to reduce both the cost and delivery time for our systems. These systems, which we market and sell under the “EasyTube” product line, are sold to researchers at universities, research laboratories, and startup companies in the United States and

throughout the world. In addition, we are focusing on developing and marketing proprietary solutions for high volume production equipment in the photovoltaic energy generation and passive energy saving (smart glass) markets.

~~We also grow the sales~~

Sales of our proprietary standard, custom systems and process solutions have been driven by building on the success of our installed customer base, which includes several Fortune 500 companies. Historically, revenues have grown primarily through sales to existing customers with additional capacity needs or new requirements, as well as to new customers. However, with the recent addition of proprietary solutions and our expanded focus on “accelerating the commercialization of tomorrow’s technologies” we are now also developing an additional customer base. We have generally gained new customers through word of mouth, the movement of personnel from one company to another, limited print advertising and trade show attendance. We are now also gaining new customers by awareness of our company in the marketplace with results from our Application Laboratory, partnerships with startup companies, increased participation in trade shows and expanded internet advertising.

The core competencies we have developed in equipment and software design, as well as in systems manufacturing and process solutions, are used to engineer our finished products and to accelerate the commercialization path of our customer base. Our proprietary Windows-based, real-time, software application allows for rapid configuration, and provides our customers with powerful tools to understand, optimize and repeatedly control their processes. Our vertically integrated structure allows us to control the manufacturing process, from bringing raw metal and components into our manufacturing facilities to shipping out finished products. These factors significantly reduce cost, improve quality and reduce the time it takes from customer order to shipment of our products. Our ~~recent~~recently expanded Application Laboratory allows selected customers to bring up their process tools in our Application Laboratory and to work together with our scientists and engineers to optimize process performance.

We conduct our operations through three divisions: (1) CVD, ~~including the~~which includes our First Nano product line (“CVD/First Nano”); (2) Stainless Design Concept (“SDC”); and (3) Conceptronic, including the Research International product line (“Conceptronic/Research”). Each division operates on a day-to-day basis with its own operating manager while product development, sales and administration are managed at the corporate level.

Operating Divisions

CVD/First Nanois a supplier of state-of-the-art chemical vapor deposition systems for use in the research, development and manufacturing of semiconductors, LEDs, carbon nanotubes, nanowires, solar cells and a number of industrial applications. We utilize our expertise in the design and manufacture of chemical vapor deposition systems to work with laboratory scientists to bring state-of-the-art processes from the research laboratory into production, as well as to provide production equipment and process solutions based on our designs. CVD/First Nano also operates anour Application Laboratory in a separate building where our personnel interact effectively with the scientists and engineers of our customer base.

SDCdesigns and manufactures ultra-high purity gas and chemical delivery control systems for state-of-the-art semiconductor fabrication processes, solar cells, LEDs, carbon nanotubes, nanowires, and a number of industrial applications. Our SDC products are sold on a stand-alone basis, as well as together with our CVD/First Nano systems. SDC operates out of a 22,000 square foot facility fitted with Class 10 and Class 100 clean room manufacturing space located in Saugerties, New York.

Conceptronic/Researchdesigns and manufactures reflow ovens and rework stations for the printed circuit board assembly and semi-conductor packaging industries. Our equipment is designed to melt solder in a controlled process to form superior connections between components. This, in turn, creates complete electronic circuits for computers and telecommunication systems, as well as for the automotive and defense industries. To address pricing pressure in what is now a mature industry for standardized reflow ovens and the current economic downturn, we have begun to offer customized products for complex heating and drying applications.

Principal Products

Chemical Vapor Deposition - A process which passes a gaseous compound over a target material surface that is heated to such a degree that the compound decomposes and deposits a desired layer onto substrate material. The process is accomplished by combining appropriate gases in a reaction chamber, of the kind produced by the Company, at elevated temperatures (typically 300-1,800 degrees Celsius). Our Chemical Vapor Deposition systems are complete and include all necessary instrumentation, subsystems and components and include state-of-the-art process control software. We provide both standard and specifically engineered products for particular customer applications. Some of the standard systems we offer are for Silicon, Silicon-Germanium, Silicon Dioxide, Silicon Nitride, Polysilicon, Liquid Phase Epitaxial, Metalorganic Chemical Vapor Deposition, Carbon Nanotubes and Nanowires, Solar Cell research and Solar material quality control.

Our Chemical Vapor Deposition systems are available in a variety of models that can be used in laboratory research and production. All models are offered with total system automation, a microprocessor control system by which the user can measure, predict and regulate gas flow, temperature, pressure and chemical reaction rates, thus controlling the process in order to enhance the quality of the materials produced. Our standard microprocessor control system is extremely versatile and capable of supporting the complete product line and most custom system requirements. These Chemical Vapor Deposition systems are typically priced between $80,000 and $1,000,000.

Atmospheric Pressure Chemical Vapor Deposition Systems (“APCVD”). We currently have two patents pending for a proprietary smart glass coating system family which are being marketed under the trademark “CVDgCoat™” and are being developed for On-Line use with a float glass system, and ~~for~~ Off-Line use to manufacture Low-E glass for energy efficient windows and transparent conductive oxide coatings (“TCO”) for solar cell manufacturing. System pricing including CVDgCoat™ technology can exceed $10,000,000.

Rapid Thermal Processing (“RTP”) - Used to heat semiconductor materials to elevated temperatures of 1,000 degrees Celsius at rapid rates of up to 200 degrees Celsius per second. Our RTP systems are offered for implant activation, oxidation, silicide formation and many other processes. We offer systems that can operate both at atmospheric or reduced pressures. Our RTP systems are priced up to $600,000.

Annealing and Diffusion Furnaces - Used for diffusion, oxidation, implant anneal, solder reflow, solar cell manufacturing and other processes. The systems are normally operated at atmospheric and/or reduced pressure with gaseous atmospheres related to the process. An optional feature of the system allows for the heating element to be moved away from the process chamber allowing the wafers to rapidly cool or be heated in a controlled environment. Our cascade temperature control system enables more precise control of the wafers. The systems are equipped with an automatic process controller, permitting automatic process sequencing and monitoring with safety alarm provisions. Our annealing and diffusion furnace systems are priced up to $900,000.

Ultra-high Purity Gas and Liquid Control Systems - Our standard and custom designed gas and liquid control systems, which encompass, gas cylinder storage cabinets, custom gas and chemical delivery systems, gas and liquid valve manifold boxes and gas isolation boxes, provide safe storage and handling of pressurized gases and chemicals. Our system design allows for automatic or manual control from both a local and remote location. A customer order often includes multiple systems and can total up to $1,000,000.

Quartz ware - We provide standard and custom fabricated quartz ware used in our equipment and other customer tools. We also provide repair and replacement of existing quartz ware.

Convection Furnaces – We provide proprietary reflow ovens used by the printed circuit board assembly and semiconductor packaging industries.

Reflow Furnaces and Rework Stations – We provide standard and custom systems for the printed circuit board and surface mount technology industries. Our equipment is designed to melt solder in a controlled process to form superior connections between components, creating complete electronic circuits for computers and telecommunication systems, as well as for the automotive and defense industries.

Markets and Marketing

Due to the highly technical nature of our products, we believe it is essential to contact customers directly through our sales personnel and through a network of domestic and international independent sale representatives and distributors specializing in the type of equipment we sell. Our primary marketing activities include direct sales contacts, participation in trade shows and our internet websites. We are focusing our efforts on being in the top listings on many search engines in order to increase the number of “hits” to our websites.

Customers

We are continuing to work on expanding our product offerings. Many of these products are used in research and in production applications. We sell our products primarily to semiconductor manufacturers, institutions involved in semiconductor and electronic component research (such as universities, government and industrial laboratories) and to electronic assembly manufacturers. We have both an international and domestic installed customer base of approximately 200 customers to whom we have sold systems within the last three years.

For the twelve months ended December 31, ~~2008~~2009 approximately ~~23%~~14% of our revenues were generated from foreign exports compared to ~~21%~~23% for the twelve months ended December 31, ~~2007.~~2008. Revenue to a single customer in any one year can exceed 10.0% of our total sales; however, we are not dependent on any single customer. In fiscal year 2009, one customer represented 9.2%, another customer represented 8.8% and each of two customers represented 5.3% and 5.2% of our annual revenues. In fiscal year 2008, one customer represented 7.3% and each of two customers represented 5.7% and 5.0% of our annual ~~revenues; in 2007, one customer represented 7.1% of our annual~~ revenues.

Warranties

We warrant our equipment for a period of twelve to twenty four months after shipment, depending on the product, and pass along any warranties from original manufacturers of components used in our products. We provide for our own equipment servicing with in-house field service personnel. Warranty costs, including those incurred in fiscal ~~year~~years 2009 and 2008, have been historically insignificant and expensed as incurred.

Competition

We are subject to intense competition. We are aware of other competitors that offer a substantial number of products and services comparable to ours. Many of our competitors (including customers who may elect to manufacture systems for internal use) have financial, marketing and other resources greater than ours. To date, we believe that each one of our three operating divisions has been able to compete in markets that include these competitors, primarily on the basis of technical performance, quality, delivery and price.

CVD/First Nanocompetes primarily with in-house design and engineering personnel at research and university laboratories with the capacity to design and build their own equipment internally. Due to budgetary and funding constraints, many of these customers are extremely price sensitive. CVD/First Nano also competes with companies that have substantially greater financial, marketing and other resources to develop new products and support customers worldwide, as well as smaller competitors. We believe that our systems are among the most advanced available for the targeted ~~market.~~market space.

SDCcompetes with companies that are larger than our company and have substantially greater financial, marketing and other resources than we do. We believe that SDC’s gas management and chemical delivery control systems are among the most advanced available. We further believe that SDC is differentiated from our competitors through our intimate understanding of how the systems in which our products are incorporated are actually used in field applications. We have gained this understanding as a result of having designed and built

complex process gas systems for CVD/First Nano as well as for a number of the world’s leading semiconductor and solar manufacturers, research laboratories and universities.

Conceptronic/Research’sproprietary reflow ovens and rework stations are used by the printed circuit board assembly and semiconductor packaging industries. Conceptronic/Research also offers customized products for complex applications within the printed circuit board and other industries that use conveyor-type ovens in heating and drying applications. Our in-house design and engineering personnel develop leading edge technology for sale at competitive prices. Conceptronic/Research competes with companies that are larger than our company and have substantially greater financial, marketing and other resources than we do. We believe that our reflow ovens and rework stations are among the most advanced available having leveraged our experience in designing and building customized products for our customers.

Sources of Supply

We do not manufacture many components used in producing our products. Most of these components are purchased from unrelated suppliers. We have some ~~Original Equipment Manufacturer ("OEM")~~OEM supply contracts covering a selection of these components, although we are not dependent on a principal or major supplier and alternate suppliers are available. Subject to lead times, the components and raw materials we use in manufacturing our products are readily obtainable.

We have a fully equipped machine shop that we use to fabricate in-house most of the metal components, including the most complex designed parts of our equipment. Our investment in (CNC) machines for our machine shop has increased our efficiencies while significantly reducing costs in production. Similarly, our quartz fabrication capability is sufficient to meet our quartz ware needs.

Materials procured from the outside and/or manufactured internally undergo a rigorous quality control process to ensure that the parts meet or exceed our requirements and those of our customers. Upon final assembly, all equipment undergoes a final series of complete testing to ensure maximum product performance.

Backlog

As of December 31, ~~2008~~2009 our order backlog was approximately ~~$15,271,000~~$2,549,000 compared to approximately ~~$5,087,000~~$15,271,000 at December 31, ~~2007, an increase~~2008, a decrease of ~~200.2%~~$12,722,000 or 83.3%. The ~~increase can~~decrease is primarily be attributed to the terminated contract with a customer which was included in our ~~CVD Division’s sales performance. This division, inclusive~~backlog at December 31, 2008. (See Item 7-Management’s Discussion and Analysis of ~~its expanded product line~~Financial Condition and Results of ~~First Nano equipment and the recent addition of high volume production system designs incorporating patent pending design solutions, continues to experience a strong demand for new equipment.~~Operations). The 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 our 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.

Intellectual Property

Our success is dependent in part on our technology and other proprietary rights. We have historically protected our proprietary information and intellectual property such as design specifications, blueprints, technical processes and employee know-how through the use of non-disclosure agreements. In addition, we began to file for patent protection and began to use trademarks for proprietary novel solutions that have the potential to become standard products and can be sold to multiple customers. We also maintain and/or assert rights in certain trademarks relating to certain of our products and product lines, and claim copyright protection for certain proprietary software and documentation.

While patent, copyright and trademark protection for our intellectual property are important to different degrees for our various products and solutions, we believe our future success in highly dynamic markets is most dependent upon the technical competence and creative skills of our personnel and our ability to accelerate the commercialization of next generation intellectual properties. We attempt to protect our trade secrets and other proprietary information through non-disclosure agreements with our customers, suppliers, employees and consultants through other security measures.

Research and Development

The university research community is at the forefront of nanotechnology research, and we are focused on providing state-of-the-art systems to this market that will help bridge the gap between pioneering research and marketable products. Our Application Laboratory, together with a number of leading universities and startup companies, with whom we partner from time to time, conducts cutting-edge research on the growth of carbon nanotubes and nanowires as well as on selected solar cell manufacturing processes and smart glass coating processes. The results of this research could have far reaching implications concerning the use and manufacture of carbon nanotubes and nanowires, solar cell and smart glass for many markets. Our intention is that together we will leverage our collective expertise in this field, which will allow us to capitalize on commercial opportunities in the future. This relationship has thus far produced leading edge results, including what we believe are the tallest carbon nanotube arrays yet developed.

We have also begun to address the markets for ~~solar~~Solar and ~~smart glass~~Smart Glass for Low-E and ~~photovoltaics~~Photovoltaics with the filing of patent applications and with the introduction of proprietary products so that we may meet the needs of these significant markets.

The amount spent on research and development was approximately $757,000 for the year ended December 31, 2009 (7.2% of revenue) and $700,000 for ~~each of~~ the ~~years ended~~year ending December 31, 2008 (3.9% of revenue) ~~and December 31, 2007 (5.3% of revenue)~~.

Government Regulation

We are subject to a variety of federal, state and local government regulations, such as environmental, labor and export control. We believe that we have obtained all necessary permits to operate our business and that we are in material compliance with all laws and regulations applicable to us.

We are not aware of any government regulations or requirements necessary for the sale of our products, other than certain approvals or permits which may be required for us to export certain of our products to certain foreign ~~countries.~~

countries

Insurance

Some of our products are used in connection with explosive, flammable, corrosive and toxic gases. There are potential exposures to personal injury as well as property damage, particularly if operated without regard to the design limits of the systems and components. We believe that our insurance coverage is adequate. We have the following types of insurance coverage:

~~Product liability~~

~~Property and contents~~

~~General liability~~

	·	Product liability
	·	Property and contents
	·	General liability
	·	Directors and officers
	·	Transportation
	·	Business auto
	·	General Umbrella
	·	Workers compensation
	·	Employee benefits liability

~~Directors and officers~~

~~Transportation~~

Employees

~~Business auto~~

~~General Umbrella~~

~~Workers compensation~~

~~Employee benefits liability~~

~~Employees~~

At December 31, ~~2008,~~2009 we had ~~151~~124 employees, ~~144~~122 of which were full time personnel and 72 were part time. We had 8759 people in manufacturing, 3437 in engineering (including research and development and efforts related to product improvement) 64 in field service, 96 in sales and marketing and 1518 in general management and administration.

Item 2. Description of Property.

~~Item 2.~~

~~Description of Property.~~

The Application Laboratory operates out of a 13,300 square foot facility located at 979 Marconi Avenue, Ronkonkoma, NY 11779 ~~through the Town of Islip Industrial Development Agency. The Property~~that was purchased from HPG Realty Co., LLC. The total purchase price for the ~~Property~~property was $2,015,000. We financed approximately $1,500,000 of the purchase price. The financing consists of two loans secured by mortgages, both of which are held by Capital One, N.A. Payments upon each of the mortgages are based upon a 20-year amortization schedule, with a 10-year balloon. Interest on the $1 million mortgage is fixed at a rate of 5.67% for 10 years. Interest on the $500,000 mortgage is fixed at a rate of 3.67% for the first four years and will be adjusted for the 6 year period beginning March 1, 2012 to 200 basis points above the weekly average yield on U.S. Treasury Securities adjusted to a constant maturity of 6 years, until maturity on March 1, 2018. ~~The facility is being used for the expansion of the Company’s Application Laboratory.~~

In June 2008, we commenced an action against a third party in the ~~Company~~Supreme Court of the State of New York, Suffolk County. By that action, we sought to recover $154,161 for manufacturing engineering services and system fabrication; spare parts; and reimbursable expenses. Subsequently, the defendant removed the action to the United States District Court for the Eastern District of New York. Once in Federal Court, the customer asserted various counterclaims. A settlement of the actions was agreed to in late 2009 and executed in February 2010.

On January 26, 2010 we commenced an action against Taiwan Glass Industrial Corp. and Mizuho Corporate Bank in the United States District Court for the Southern District of New York. By that action, we seek monetary damages ($5,816,000) for breach of contract against Taiwan Glass Industrial Corp. and against Mizuho Corporate Bank for failing to pay the second installment on a letter of credit issued by Mizuho Corporate Bank on behalf of TG calling for payment of drafts presented upon shipment of the equipment. The contract was breached by the customer’s failure to accept and pay for the specially manufactured equipment shipped on November 27, 2009. Under the terms of the contract, we believe the customer improperly rejected the equipment. Mizuho Corporate Bank has ~~received $408,300.~~

~~From time~~denied the allegations and Taiwan Glass Industrial Corp. has not yet responded to ~~time, we may become a party to litigation or other legal proceedings~~our complaint, but it has claimed that we ~~consider to be a part~~must pay them $3,564,000 for alleged breach of ~~the ordinary course of our business.~~contract. We are ~~not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on~~vigorously pursuing our ~~business, prospects, financial condition or results of operations. We may become involved in material legal proceedings in the future.~~

claims.

~~Item 4.~~

~~Submission of Matters to a Vote of Security Holders~~.

~~At our annual meeting of stockholders, which was held on November 19, 2008, our stockholders:~~

~~(1)~~

~~Elected five nominees for directors to serve for a term ending in 2009;~~

~~(2)~~

Approved the selection of MSPC, Certified Public Accountants and Advisers, A Professional Corporation as the Company’s independent registered public accounting firm for the year ending December 31, 2008.

~~The following tables show the common stock votes cast with respect to the proposals identified above:~~

Election of Directors:

Withheld

For
Authority
Leonard A. Rosenbaum
4,341,313
14,430
Martin J. Teitelbaum
4,216,313
139,430
Alan H. Temple Jr.
4,340,593
15,150
Conrad J. Gunther
4,341,313
14,430
Bruce T. Swan
4,340,593
15,150

Item 4. (Removed and Reserved)

Ratification of MSPC, Certified Public Accountants and Advisers, A Professional Corporation:

For
Against
Abstentions

4,353,344
2,000
399

PART II

~~Item 5.~~

Item 5. Market ~~for Registrant’s Common Equity and Related Stockholder Matters.~~

The following table sets forth, for the periods indicated, the high and low closing prices of our common stock on ~~the American Stock Exchange and~~ The NASDAQ Capital Market.

High
Low
Year Ended December 31, 2007:

1^st Quarter...........................
$6.21
$4.90
2^nd Quarter...........................
8.95
5.28
3^rd Quarter...........................
6.20
4.55
4^th Quarter...........................
4.91
3.65

	High	Low
Year Ended December 31, 2009:
1st Quarter………………………	$3.49	$2.35
2nd Quarter………………………	4.42	2.66
3rd Quarter………………………	4.34	3.15
4th Quarter………………………	4.95	3.32

	High	Low
Year Ended December 31, 2008:
1st Quarter………………………	$3.96	$3.08
2nd Quarter………………………	3.89	2.80
3rd Quarter………………………	4.75	3.15
4th Quarter………………………	3.65	2.19

As of March ~~20, 2009,~~24, 2010, there were approximately 76 holders of record and approximately ~~780~~757 beneficial owners of our common stock, and the closing sales price of our common stock as reported on the NASDAQ Capital Market was ~~$2.98.~~

$3.35.

We have never paid dividends on our common stock and we do not anticipate paying dividends on common stock at the present time. We currently intend to retain earnings, if any, for use in our business. There can be no assurance that we will ever pay dividends on our common stock. Our dividend policy with respect to our common stock is within the discretion of the Board of Directors and its policy with respect to dividends in the future will depend on numerous factors, including earnings, financial requirements and general business conditions.

Under applicable New York law, we would not be permitted to declare and pay dividends if we were insolvent, or would become insolvent by payment of dividends, or if our net assets remaining after payment of dividends would be less than our stated capital.

Equity Compensation Plan Information

The following table provides information about shares of our common stock that may be issued upon the exercise of options under all of our existing compensation plans as of December 31, ~~2008.~~

2009.

	Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)	Weighted-average exercise price of outstanding options, warrants and rights(2)	Number of securities remaining available for future issuance
Plan Category
Equity compensation plans approved by security holders	416,000	$ 3.50	836,925
Total	416,000	$3.50	836,925

_________________________

(1) Reflects aggregate options and restricted stock awards outstanding under our 1989 Key ~~Employee Stock~~employee stock Option Plan, 2001 Stock Option Plan and 2007 Share Incentive Plan.

(2) Calculation is exclusive of the value of any unvested restricted stock awards.

Recent Sales Of Unregistered Securities

Issuer Purchases Of Equity Securities

Item 6. Selected Financial Data.

Item 7.

Management’s Discussion and Analysis ~~or Plan~~ of ~~Operation.~~

Financial Condition and Results of Operations

~~Except for historical information~~You should read the following discussion and analysis in conjunction with our financial statements and related notes contained ~~herein,~~elsewhere in this ~~“Management’s Discussion~~report. This discussion contains forward-looking statements that involve risks, uncertainties and ~~Analysis or Plan of Operation” contains forward–~~assumptions. Our actual results may differ materially from those anticipated in these forward looking statements ~~within~~as a result of a variety of factors discussed in this report and those discussed in other documents we file with the ~~meaning~~SEC. In light of ~~the U.S. Private Securities Litigation Reform Act of 1995, as amended. These statements involve known~~these risks, uncertainties and ~~unknown risks and uncertainties that may cause our actual results or outcomes~~assumptions, readers are cautioned not to ~~be materially different from any future results, performance or achievements expressed or implied by~~place undue reliance on such forward-looking statements. These forward-looking statements

~~were based on various factors~~ represent beliefs and ~~were derived utilizing numerous important~~ assumptions ~~and other important factors that could cause actual results~~only as of the date of this report. While we may elect to ~~differ materially from those~~update forward-looking statements at some point 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 our existing and potential future, product lines of business; our ability to obtain financing on acceptable terms if and when needed; uncertainty as to our future profitability, uncertainty as to the future profitability of acquired businesses or product lines, uncertainty as towe specifically disclaim 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. We assume 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.~~do so, even if our estimates change.

We design, develop and manufacture customized state-of-the-art equipment and process solutions used to develop and manufacture solar, nano and advanced electronic components, materials and coatings for research and industrial applications with the focus on enabling tomorrow’s ~~technologies™.~~ technologies TM. We offer a broad range of chemical vapor deposition, gas control and other equipment that is used by our customers to research, design and manufacture ~~semiconductors,~~semi-conductors, solar cells, smart glass, carbon nanotubes, nanowires, LEDs and MEMS, and industrial coatings, as well as equipment for surface mounting of components onto printed circuit boards. Through our Application Laboratory, we provide process development support and process startup assistance. Our proprietary products are generally customized to meet the particular specifications of individual customers and to accelerate the commercialization of their proprietary intellectual property. We also offer a number of standardized products that are based on the expertise and know-how we have developed in designing and manufacturing our customized products.

Results of Operations

The accounting treatment we applied to this situation was to unwind the contract since, under generally accepted accounting principles in the United States of America we could not recognize the revenue from this contract. By unwinding the contract, we recorded the sum of the retained initial payment ($3,564,000) and the estimated lower of cost or market basis of the returned equipment ($1,150,000) as an ~~increase~~offset to the production costs of ~~33.7%. Annual~~the specially manufactured equipment ($4,027,000) accumulated through the date the contract was breached. The effect of unwinding the contract in the fourth quarter of 2009 was to reduce CVD division revenue by $3,564,000 and our cost of revenue by $4,714,000.

Total revenue generated from the CVD division ~~increased~~amounted to $7,516,000 for the year ended December 31, 2009 compared to $10,779,000 for the year ended December 31, 2008. The reduction in revenue of $3,263,000 was primarily attributed to the negative impact from the breached contract.

Total revenue from the SDC division decreased by approximately ~~$2,698,000~~$2,599,000 to ~~$10,779,000~~$2,166,000 which represents ~~59.4%~~20.5% of our

total revenue during the year ended December 31, ~~2008,~~2009, compared to ~~$8,081,000,~~$4,765,000, or ~~59.5%~~26.3% of our total revenue for the prior fiscal year. The ~~increase in demand for our custom Chemical Vapor Deposition equipment and First Nano, EasyTube product line has fueled this increase. Annual~~decrease is primarily attributed to unfavorable economic conditions.

Total revenue from the ~~SDC~~Conceptronic division ~~increased~~decreased by approximately ~~$2,176,000~~$1,710,000 to ~~$4,765,000~~$893,000 which represents ~~26.3%~~8.4% of our total revenue during the year ended December 31, ~~2008,~~2009, compared to ~~$2,589,000,~~$2,603,000 or 19.1% of our total revenue for the prior fiscal year. SDC’s increase can be attributed to the development of a relationship with a national distributor for industrial and commercial gases as well as a large sale to one customer. Annual revenue from the Conceptronic division decreased by approximately $305,000 to $2,603,000 which represents 14.3% ~~of our total revenue during the year ended December 31, 2008, compared to $2,908,000 or 21.4%~~ of our total revenue for the prior fiscal year. The decrease in revenue in the Conceptronic division ~~continues~~is also attributed to ~~make improvements~~unfavorable economic conditions.

Overall gross profit amounted to approximately $4,820,000 with a gross profit margin of 45.6% for the year ended December 31, 2009. The termination of the TG contract had a positive impact on our overall gross profit margin of approximately19.7% in 2009. Had the TG contract not been breached in December 2009 the overall gross profit would have amounted to $3,669,000 with a gross profit margin of 25.9% compared to a gross profit for the year ending December 31, 2008 of $5,373,000 and a gross profit margin of 29.6%. We began to reduce ~~costs~~engineering and production personnel during the latter half of 2009 in ~~its product offering at the same time it is focusing efforts towards a more solutions oriented approach and customized products.~~

~~Gross Profit~~

order to better maintain higher gross margin levels. As a result of the increased revenues and sales volumes for the current year, cost of revenues increased to approximately $12,773,000 from approximately $8,907,000 for the last fiscal year, an increase of approximately $3,866,000. The gross profit for the current fiscal year increased to approximately $5,373,000 from last year’s $4,671,000, an increase of approximately $702,000 with a decrease in gross profit margin to 29.6% from the 34.4% experienced during the prior year. This overall decrease is primarily attributable to an increase in engineering and production personnel necessary to support increased orders, the expansion of our Application Laboratory and new product development costsbreach in the ~~Nanomaterials, Smart Glass, Solar and Semiconductor fields. The~~TG contract, the gross profit margin of the CVD division ~~decreased~~increased to 53.8% for the year ended December 31, 2009. Had that contract not been breached, the gross profit margin for the CVD division would have been 26.2% compared to 31.8% for the year ended December 31, ~~2008 compared to 43.5% for the year ended December 31, 2007 after the inclusion of approximately $700,000 of research and development costs in both the current and the prior years. All~~2008. Substantially all of the aforementioned ~~increased costs~~reductions in engineering and production personnel were ~~attributed to~~made in the CVD division. The SDC division’s gross profit margin ~~increased~~decreased to 21.8% for the year ended December 31, 2009 from 33.8% for the year ended December 31, ~~2008 from 18.8% for~~2008. The decrease is primarily the ~~year ended December 31, 2007. The increase is a result~~effect of ~~SDC’s ability to maintain its~~ fixed costs ~~with increased revenue.~~having a greater impact on reduced revenues. The Conceptronic division’s gross profit margin decreased to 10.6% for the year ended December 31, 2009 from 12.4% for the year ended December 31, 2008 ~~from 19.8% for the year ended December 31, 2007~~ as result of that division’s fixed costs having a greater impact on the reduced revenues.

Revenue Cost of Sales Gross Profit Gross Profit %

As reported-contract terminated $10,575,000 $5,756,000 $4,820,000 45.6

Add: Revenue recognition-TG contract 3,564,000 3,564,000

Add:Net realizable value of returned equipment
1,150,000

Pro forma $14,139,000 $10,470,000 $3,669,000 25.9

	Revenue	Cost of Sales	Gross Profit	Gross Profit %

As reported-contract terminated	$ 7,530,000	$3,477,000	$4,053,000	53.8

Add: Revenue recognition-TG contract	3,564,000	3,564,000

Add:Net realizable value of returned equipment		1,150,000

Pro forma	$11,094,000	$8,191,000	$2,903,000	26.2

Selling, General and Administrative Expenses

Selling and shipping expenses were approximately ~~$767,000 in~~$699,000 for the year ended December 31, ~~2008~~2009 compared to ~~$755,000 in~~$767,000 for the year ended December 31, ~~2007.~~

2008.

General and administrative expenses were approximately $3,817,000 during the year ended December 31, 2009. This was a decrease of approximately $329,000 or 7.9% compared to approximately $4,146,000 during the year ended December 31, 2008. This ~~was an increase of approximately $720,000 or 21.0% compared to approximately $3,426,000 during the year ended December 31, 2007. This increase~~decrease can be attributed to a combination of ~~increased~~decreased payroll and benefit costs, workers compensation insurance costs, legal, accounting and ~~other professional fees.~~

14employee search costs.

Operating Income

As a result of the foregoing factors, operating income for the year ended December 31, ~~2008~~2009 was approximately ~~$461,000~~$304,000 compared to approximately ~~$489,000~~$461,000 for the year ended December 31, ~~2007.~~

2008.

Interest Expense. Net

~~In October 2007, we concluded~~

Interest income for the ~~sale of 1,380,000 shares of common stock under a registration statement filed with~~year ended December 31, 2009 was approximately $33,000 compared to approximately $107,000 for the ~~Securities and Exchange Commission. As~~year ended December 31, 2008. This decrease is a result ~~we earned interest~~ of ~~approximately $107,000~~the continued use of cash and ~~$51,000 from~~cash equivalents to fund the ~~temporary investment~~working capital needs of ~~certain net capital raising proceeds (approximately 5.0 million) for~~ the ~~years ending December 31, 2008 and 2007 respectively.~~

Company in 2009.

We incurred approximately ~~$229,000~~$249,000 of interest expense in the year ended December 31, ~~2008,~~2009, which was approximately ~~$12,000~~$20,000 or ~~5.5%~~8.7% greater than the ~~$217,000~~$229,000 incurred in the year ended December 31, ~~2007.~~2008. The only interest expense we incur is mortgage interest on the three buildings we own and interest on certain outstanding equipment loans. The increase in 2009 is primarily due to the full year of interest expense, ~~which is primarily mortgage interest, is a result of~~on the acquisition of the facility at 979 Marconi Avenue, Ronkonkoma, New York in ~~February~~ 2008. We incurred $206,000 of mortgage interest expense in the current year and approximately $170,000 in the year ended December 31, 2007. This increase was partially offset by a decrease in the interest expense incurred from our line of credit in the year ended December 31, 2008.

Loss on Impairment

In 2006, ~~the Company~~we sold equipment at the selling price of $251,130 to a ~~Customer~~customer for a purchase price of ~~one hundred four thousand, four hundred eighty two (104,482)~~104,482 shares of a non-public company’s common stock, par value $.001 per share. ~~Between July 19, 2007 and July 31, 2007, the Company~~We had the option to demand that the ~~Customer~~customer make a cash payment i.e.: ~~two hundred fifty-one thousand, one hundred thirty 00/100 U.S. dollars ($251,130)~~$251,130 for the equipment, the amount that would have been required had the ~~Customer~~customer made cash payment for the equipment on July 19, 2006 in exchange for the return of said stock. The Customer’s obligation to make such payment pursuant to the terms of the option is secured by a perfected lien upon the subject equipment and the Company’s right to execute upon the aforementioned common stock. In the event the Customer does not make full payment, the Company has also reserved the right to maintain plenary proceedings against the Customer for the purpose of recovering such sums as may be due as well as the right to obtain a deficiency judgment in the event that the collateral in the equipment and stock is insufficient to discharge said obligation.

The Company agreed to extend the option to demand cash payment to the period between December 1, 2007 and March 12, 2008 in exchange for fifty thousand (50,000) shares of the customer’s common stock.

On February 19, 2008, ~~the Company~~we exercised ~~its~~our cash payment option demanding the cash payment of $251,130. The ~~Customer~~customer did not make payment and ~~the Company retook~~we took possession of said equipment.

~~The Company has written off~~

As of December 31, 2008, we deemed this investment as ~~“Other Than – Temporary~~other-than temporarily impaired which resulted in a charge to the statement of operations totaling its full value of $251,130 and is reflected as a loss on impairment ofin the ~~equity investment.”~~

other income (expense) caption.

Other Income

Other income for the current year decreased to approximately ~~$189,000,~~$43,000, a decrease of ~~$374,000~~$146,000 or ~~66.4%~~77.2% compared to ~~$563,000~~$189,000 of other income generated during the year end December 31, 2007. During the year ended December 31, 2007, there was a settlement of litigation between us and PrecisionFlow Technologies, Inc. Under the terms of the settlement, we are to receive payments totaling $541,600 over a specific timetable. We have received $408,300 through December 31, 2008.

~~Income Tax Provision~~

~~For the twelve months ended December 31,~~ In 2008, we ~~recorded an~~received refunds for prior year’s overpayment of income tax benefit of approximately $355,000 which was primarily the result of research and development tax credits that the Company has availed itself of less various federal, state and local taxes as compared to an income tax expense of $110,000 for the twelve months ended December 31, 2007, which related to various federal, state and local taxes. In 2006, we had a change in the tax accounting method of recognizing contract revenue from the completed contract method to the percentage of completion method. Contracts in progress as of December 31, 2006 are being recognized ratably over a four year period, thus increasing the current income tax provision and conversely decreasing the deferred tax provision as we recognize 25% of the tax provision annually.

Net Income

As a result of the foregoing factors, for the year ended December 31, ~~2008,~~2009, our ~~pre-tax~~net income amounted to approximately ~~$276,000,~~$179,000, as compared to ~~$887,000~~$632,000 for the same period in 2007. Net income for the year ended December 31, 2008 was approximately $632,000 or $0.13 per basic and diluted share as compared to $777,000 or $0.21 per basic and $0.20 per diluted share for the year ended December 31, 2007.

2008.

Liquidity and Capital Resources

In October 2007, we completed the sale of 1,380,000 shares of common stock in a public offering at $4.75 per share. The net proceeds of the sale after offering expenses and underwriting fees was approximately $5.7 million. We intend to use the net proceeds from the offering for working capital and other general corporate purposes, including possible product or business acquisitions in connection with the planned expansion of our business.

As of December 31, ~~2008,~~2009, we had aggregate working capital of approximately ~~$9,849,000~~$10,563,000 compared to aggregate working capital of ~~$10,314,000~~$9,849,000 at December 31, ~~2007~~2008 and had available cash and cash equivalents of approximately ~~$5,721,000~~$3,120,000 compared to approximately ~~$5,110,000~~$5,721,000 in cash and cash equivalents at December 31,

~~2007.~~ 2008. The ~~decrease~~increase in working capital was primarily attributable to ~~the increase~~a decrease in customer deposits ($3,564,000), the funds received under the breached contract with TG, offset by the decrease in cash ($2,602,000), which ~~were utilized~~was used to fund ~~an increase in accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts.~~

operations.

Accounts receivable, net of allowance for doubtful accounts ~~increased~~decreased by approximately ~~$874,000~~$512,000 or ~~49.4%~~19.4% at December 31, ~~2008~~2009 to ~~$2,643,000~~$2,130,000 compared to ~~$1,769,000~~$2,643,000 at December 31, ~~2007.~~2008. This ~~increase~~decrease is principally due to the timing of shipments and customer payments.

Inventory as of December 31, ~~2008~~2009 was approximately ~~$3,292,000~~$4,418,000 representing an increase of approximately ~~$276,000~~$1,126,000 or ~~9.2%~~34.2% over the inventory balance of ~~$3,016,000~~$3,292,000 as of December 31, ~~2007. The~~2008. This increase in inventory was comprised of an increase in raw materials of approximately $319,000, offset by a decrease in work in process of approximately $20,000 and a decrease in finished goods of approximately $23,000. The build-up in raw material inventory is ~~primarily~~principally due to an increase in orders that we are experiencing in customized CVD products and our First Nano, EasyTube standardized product line. Accounts payable and accrued expenses on December 31, 2008 were approximately $2,072,000 which were approximately $192,000 greater than at December 31, 2007.

~~As a result~~the reacquisition of certain inventories derived from the unwinding of the ~~receipt~~TG contract during the fourth quarter of a deposit from a customer for approximately $3,559,000, we issued an irrevocable standby letter of credit for the benefit of that customer for that same amount which expires on January 21, 2010. We have secured that letter of credit with that same amount from our Revolving Credit Agreement.

2009.

As of December 31, ~~2008,~~2009, our backlog was approximately ~~$15,271,000, an increase~~$2,549,000, a decrease of ~~$10,184,000~~$12,722,000 or ~~200.2%~~83.3% compared to ~~$5,087,000~~$15,271,000 at December 31, ~~2007.~~2008. The ~~increase can~~decrease is primarily be attributed to ~~increased order volume for~~the removal from our ~~CVD Division. This division, inclusive~~backlog of ~~its expanded product line~~the anticipated value of ~~First Nano equipment, continues to experience a strong demand for new equipment.~~the contract with TG which was included in our backlog at December 31, 2008. The 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 our percentage-of-completion. Order backlog is usually a reasonable management tool to indicate expected revenues and projected profits, however it does ~~notprovide~~not provide an assurance of future achievement or profits as order cancellations or delays are possible.

On April 22, 2008, we entered into a three year Modified and Restated Revolving Credit Agreement with Capital One, N.A. (the “Bank”) as successor to North Fork Bank, pursuant to which the Bank has agreed to make revolving loans to us of up to $5 million until May 1, 2011, at which time it will be subject to renewal. The loan agreement amends and supersedes our previous $2 million revolving credit facility with the Bank. Interest on the unpaid principal balance on this facility accrues at either (i) the LIBOR rate plus 2.00% or (ii) the Bank’s prime rate minus ~~.25%~~..25%. This agreement contains certain financial and other covenants. Borrowings are collateralized by our assets.

The amount available under this agreement was approximately $4,646,000 and $941,000 as of December 31, 2009 and December 31, 2008 ~~as we have~~respectively.We initially utilized $500,000 of this facility in the form of equipment term loans, ~~and an additional $3,559,000 is~~of which $354,000 remain as of December 31, 2009. As of December 31, 2008 $3,564,000 was being

held as collateral for an irrevocable stand-by letter of credit that was issued to a customer that placed a cash deposit with us for that same amount. As of December 31, ~~2008,~~2009, we are in compliance with the terms of the Revolving Credit Agreement.

In March, 2002, we received from General Electric Capital Corporation a $2,700,000 mortgage loan, secured by the real property and building and improvements to finance and improve our facility in Ronkonkoma, New York. The mortgage loan, which has an outstanding balance as of December 31, ~~2008~~2009 of ~~$1,758,786,~~$1,586,666, is payable in equal monthly installments of $22,285 including interest at 5.67% per annum; pursuant to an industrial development bond purchase agreement with the town of Islip Industrial Development Agency. The final payment is due March 2017.

On June 30, 2008, we entered into a Consolidation, Extension and Modification Agreement and Consolidated and Restated Mortgage note each with Capital One, N.A. The agreement consolidated various notes and mortgages relating to the property and building in Saugerties, New York into a single note in the principal sum of $805,000 of which approximately $17,000 represented additional borrowings we incurred. Principal and interest payments are to be made in equal consecutive monthly installments of $5,903.27 commencing on August 1, 2008 and continuing for 119 months, with a final balloon payment being due on July 1, 2018 equal to the remaining unpaid principal on the maturity date. The principal sum bears interest at a fixed annual rate of 6.20%. The Note is secured by a first priority mortgage lien on the property in Saugerties, New York, all of the Company’s monies, deposits or other sums held by the Bank on deposit, an assignment of the leases and rents from the premises, a lien on our personal property, and $500,000 of the proceeds of a life insurance policy which is owned by us and issued on the life of our Chief ~~ExecutiveOfficer,~~Executive Officer, Leonard A. Rosenbaum.

In ~~2008 the~~2009 order levels for ~~the CVD/FN and SDC~~all divisions ~~increased by 146% and 58% respectively, while the Conceptronic division~~ decreased ~~slightly by 3% compared~~due to ~~2007 order levels. The CVD/First Nano and SDC divisions benefited from the increased business interest in energy generation and energy savings fields (smart glass).~~unfavorable economic conditions. We do not anticipate this trend ~~to continue. The Conceptronic division was impacted by the downturn in the electronics industry over the last two quarters. We expect this trend to~~will continue ~~at least through 2009.~~

into 2010.

The large demand for energy savings, energy generation materials and products needed to address rising energy costs creates a growing demand for manufacturing solutions using thin filmcoatings on glass, wafers and other substrates. Using our Application Laboratory, we will perfect and expand the multiple areas where low cost thin film manufacturing solutions can be applied and further optimize our proprietary and patent pending technologies for cost and performance. The solar, energy and power semiconductor markets we are addressing with multiple products have significantgrowth opportunities for technologies that deliver favorable cost benefits. These fields should benefit further from a renewed drive for energy savings and generation driven by President Obama’s administration.

In the fourth quarter of 2006, ~~an internal decision was made~~we decided to significantly broaden the First Nano product line and pursue a significantly larger share of the R & D market with additional equipment platforms under the First Nano brand name. In 2007, we began marketing, manufacturing and selling these products. In 2008, we expanded our marketplace to include the quality control and research market of the photovoltaic solar cell

manufacturing industry. We feel comfortable we will continue to be successful with these multiple new products as well as additional new products to be offered as their design is based on building blocks we have used in previous systems over the years.

To support the increase in our existing product sales and the development and sales of the new First Nano and patent pending proprietary products, we ~~have begun to increase our manufacturing capacity, hired additional personnel and expanded our advertising, trade shows and marketing capabilities. Additionally,~~purchased on February 8, 2008, ~~we purchased~~ a 13,300 square foot stand-alone building to house our Application Laboratory.

We believe that our cash and cash equivalent positions, cash flow from operations and ~~ability to expand~~ our credit facilities ~~as of December 31, 2008 and for the year then ended~~ will be sufficient to meet our working capital and capital expenditure requirements for the next twelve months.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are used when accounting for certain items such as revenues on long-term contracts recognized on the percentage-of-completion method, allowances for doubtful accounts, depreciation and amortization, income tax provisions and product warranties.

Revenue Recognition

We continue to recognize revenues and income using the percentage-of-completion method for custom production-type contracts while revenues from other products are recorded when such products are accepted and shipped. Profits on custom production-type contracts are recorded on the basis of our total estimated costs over the percentage of total costs incurred on individual contracts, commencing, when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Under this method, revenues are recognized based on costs incurred to date compared with total estimated costs.

Stock-Based Compensation

~~On January 1, 2006, the~~

The Company ~~adopted~~records stock-based compensation in accordance with the provisions ~~of SFAS No. 123-R “Share-Based Payment”~~set forth in ASC 718, "Stock Compensation" using the modified prospective method. ~~SFAS No. 123-R~~ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of ~~those~~these awards. Under the modified prospective method of adopting SFAS No. 123-R, the Company recognized compensation cost for all share-based payments granted after January 1, 2006, plus any awards granted to

~~employees prior to January 1, 2006 that remain unvested at that time. Under this method of adoption, no restatement of prior periods is made.~~

Long-Lived Assets

Long-lived assets consist primarily of property, plant and equipment. Long-lived assets are reviewed for impairment whenever events or circumstances indicate their carrying value may not be recoverable. When such events or circumstances arise, an estimate of the future undiscounted cash flows produced by the asset, or the appropriate grouping of assets, is compared to the asset’s carrying value to determine if impairment exists pursuant to the requirements of ~~Statement of Financial Accounting Standards ("SFAS”) No. 144, “Accounting for the Impairment of~~ASC 360-10-35 "Impairment or Disposal of Long-Lived Assets.”" If the asset is determined to be impaired, the impairment loss is measured on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. The Company had no recorded ~~Long-lived~~long-lived asset impairment charges in the statement of operations during each of the years ended December 31, ~~2008~~2009 and ~~2007.~~

2008.

Off-Balance Sheet Arrangements

None

Item 8. Financial Statements

~~None~~

~~Item 8.~~

~~Financial Statements~~.

The consolidated financial statements and supplementary data required by this item are included in this annual report beginning on page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

Item 9A(T). Controls and Procedures.

~~Item 9.~~

~~Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.~~

~~None~~

~~Item 9A(T).~~

~~Controls and Procedures.~~

Disclosure Controls and Procedures. 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 our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, ~~2008.~~2009. Based on that review and evaluation, the Chief Executive Officer and Chief Financial Officer, along with the management of the Company, have determined that as of December 31, ~~2008,~~2009, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were effective to provide reasonable assurance that such information is accumulated and

communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

Management’s Annual Report on Internal Control Over Financial ~~Reporting~~.Reporting. Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a – 15(f) of the Exchange Act). There are inherent limitations to the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time. We have assessed the effectiveness of our internal controls over financial reporting (as defined in Rule 13a -15(f) of the Exchange Act) as of December 31, ~~2008.~~2009. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework. Management concluded that, as of December 31, ~~2008,~~2009, our internal control over financial reporting was effective based on the criteria established by the COSO Internal Control Framework.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

Changes in Internal Control Over Financial Reporting.There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during our last fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.Other Information.

~~Other Information.~~

PART III

Item 10.

Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act.

BACKGROUND AND EXPERIENCE OF DIRECTORS

When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, the Nominating, Governance and Compliance Committee focused primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth immediately above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business. As more specifically described in such person’s individual biographies set forth above, our directors possess relevant and industry-specific experience and knowledge in the engineering financial and business fields, as the case may be, which we believe enhances the Board’s ability to oversee, evaluate and direct our overall corporate strategy. The Nominating, Governance and Compliance Committee annually reviews and makes recommendations to the Board regarding the composition and size of the Board so that the Board consists of members with the proper expertise, skills, attributes, and personal and professional backgrounds needed by the Board, consistent with applicable regulatory requirements.

The Nominating, Governance and Compliance Committee believes that all directors, including nominees, should possess the highest personal and professional ethics, integrity, and values, and be committed to representing the long-term interests of our shareholders. The Nominating, Governance and Compliance Committee will consider criteria including the nominee’s current or recent experience as a senior executive officer, whether the nominee is independent, as that term is defined in existing independence requirements of the NYSE Amex Market, NASDAQ Stock Market and the Securities and Exchange Commission, the business, scientific or engineering experience currently desired on the Board, geography, the nominee’s industry experience, and the nominee’s general ability to enhance the overall composition of the Board.

The Nominating, Governance and Compliance Committee does not have a formal policy on diversity; however, in recommending directors, the Board and the Committee consider the specific background and experience of the Board members and other personal attributes in an effort to provide a diverse mix of capabilities, contributions and viewpoints which the Board believes enables it to function effectively as the Board of Directors of a company with our size and nature of business.

DIRECTOR SERVICE ON OTHER BOARDS

Conrad J. Gunther served on the Board of Directors of Halo Companies, Inc., a public traded company, formerly known as GVC Venture Corp until September, 2009.

LEGAL PROCEEDINGS INVOLVING DIRECTORS

BOARD LEADERSHIP

The Board has no formal policy with respect to separation of the positions of Chairman and CEO or with respect to whether the Chairman should be a member of management or an independent director, and believes that these are matters that should be discussed and determined by the Board from time to time. Currently, Leonard A. Rosenbaum serves as our Chairman, President and CEO. Given the fact that Mr. Rosenbaum, in his capacity as our President and CEO is tasked with the responsibility of implementing our corporate strategy, we believe he is best suited for leading discussions, at the Board level, regarding performance relative to our corporate strategy, and this discussion accounts for a significant portion of the time devoted at our Board meetings.

Board of Directors and Executive Officers

Our Certificate of Incorporation and Bylaws provide for our Company to be managed by or under the direction of the Board of Directors. Under our Certificate of Incorporation and Bylaws, the number of directors is fixed from time to time by the Board of Directors. The Board of Directors currently consists of ~~five~~six members. Directors are elected for a period of one year and thereafter serve, subject to the Bylaws, until the next annual meeting at which their successors are duly elected by the stockholders.

The following table sets for the names, ages and positions with the Company of each of our directors and executive officers.

Name	Age	Position(s) with the Company
Leonard A. Rosenbaum	63 64	~~Director,~~Chairman of the Board of Directors, Chief Executive Officer, President
Alan H. Temple Jr.	75 76	Director, Chairman-Compensation Committee
Martin J. Teitelbaum	58 59	Director, Assistant Secretary
Conrad J. Gunther	62 63	Director, Chairman-Audit Committee
Bruce T. Swan	76 77	Director, Chairman-Nominating, Governance and Compliance Committee
Kelly S. Walters	38	Director
Glen R. Charles	55 56	Chief Financial Officer, Secretary
Karlheinz Strobl	50	Vice President of Business Development

Leonard A. Rosenbaum

Leonard A. Rosenbaum founded the Company in 1982 and has been our President, Chief Executive Officer and has served as Chairman of the Board of Directors since that time. From 1971 until 1982, Mr. Rosenbaum was president, director and a principal stockholder of Nav-Tec Industries, a manufacturer of semiconductor processing equipment similar to the type of some of the equipment we currently manufacture. From 1966 to 1971, Mr. Rosenbaum was employed by a division of General Instrument, a manufacturer of semiconductor materials and equipment.

Alan H. Temple Jr. has served as a member of our Board of Directors since 1987. Mr. Temple earned an MBA at Harvard University and has been President of Harrison Homes Inc., a building and consulting firm located in Pittsford, New York since 1977.

Mr. Temple has been an independent director on our board for several years; he has accumulated many years of successful business and financial experience that qualifies him to serve as an independent director on the board.

Martin J. Teitelbaum

Martin J. Teitelbaum has served as a member of our Board of Directors since 1985. Mr. Teitelbaum is an attorney, who since 1988, has conducted his own private practice. From 1977 to 1987, Mr. Teitelbaum was a partner in the

law firm of Guberman and Teitelbaum. Mr. Teitelbaum currently acts as our Assistant Secretary. Mr. Teitelbaum earned a B.A. in Political Science from the State University of New York at Buffalo and a Juris Doctor from Brooklyn Law School.

Mr. Teitelbaum has been the Company's general counsel for many years and his legal expertise makes him an asset to the Company's board of directors.

Conrad J.Gunther has served as a member of our Board of Directors since 2000. Mr. Gunther has extensive experience in mergers and acquisitions and in raising capital through both public and private means. He also has extensive experience in executive management in the banking industry. He serves on the board of GVC Venture Corp. Since January 2008, Mr. Gunther has served as a Senior Vice President and Senior Loan Officer for Community National Bank, a Long Island, New York based commercial bank, where he is responsible for all commercial lending. For the past five years, Mr. Gunther has been the President of E-Billsolutions, a company that provides credit card processing to Internet, mail order and telephone order merchants.

Mr. Gunther qualifies to serve on our board of directors as a result of his experience and expertise in the financial community.

Bruce T. Swan has served as a member of our Board of Directors since September 2003. Mr. Swan has extensive banking, export and international credit experience and has been retired for more than five years. He previously has held the positions of Deputy Manager at Brown Brothers Harriman and Co., Assistant Treasurer at Standard Brands Incorporated, Assistant Treasurer at Monsanto Corporation, Vice President and Treasurer at AM International Inc. and President and Founder of Export Acceptance Company. Mr. Swan, earned his MBA from Harvard University and is a former adjunct faculty member of New York University’s Stern School of Business Administration.

Mr. Swan is qualified to serve as an independent member of the board of directors because of his vast expertise and experience in the financial services industry.

Glen R. Charles has been the Chief Financial Officer and Secretary of the Company since January, 2004. From 2002 until he joined the Company, he was the Director of Financial Reporting for Jennifer Convertibles, Inc., the owner and licensor of the largest group of sofabed specialty retail stores in the United States. From 1994 to 2002, he was the Chief Financial Officer of Trans Global Services, Inc., a provider of temporary technical services to the aerospace, aircraft, electronics and telecommunications markets. Mr. Charles has also had his own business in the private practice of accounting. Mr. Charles earned his B.S. in Accounting from the State University of New York at Buffalo.

Karlheinz Strobl

Dr. Karlheinz Strobl has been the Vice President of Business Development since October 2007. From 1997 to 2007, until he joined the Company, he was the founder and President of eele Laboratories, LLC, a technology and manufacturing solutions development company for a novel Light Engine for the video and data projection display market. Dr. Strobl holds over 14 patents and earned an MBA from Boston University, a PH.D from the University of Innsbruck and an MS. from both the University of Innsbruck and the University of Padova. He has also worked at the Max Plank Institute and at Los Alamos National Laboratory.

Our Board of Directors has an Audit Committee that consists of Conrad Gunther, Alan H. Temple Jr. and Bruce T. Swan. During the fiscal year ended December 31, ~~2008,~~2009, the Audit Committee held five meetings. Pursuant to the Audit Committee Charter, the Audit Committee is directly responsible for the appointment, compensation, retention and oversight of the work of any independent registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for us, and each such independent auditor shall report directly to the Committee. The Audit Committee also reviews with management and the independent auditors, our annual audited financial statements, the scope and results of annual audits and the audit and non-audit fees of the independent registered public accounting firm. Furthermore, the Audit Committee reviews the adequacy of our internal control procedures, the structure of our financial organization and the implementation of our financial and accounting policies. Messrs. Gunther, Temple and Swan ~~are “independent”~~meet the independence requirements for audit committee membership under the requirements of the NASDAQ Stock Market.

The Board of Directors has determined that Conrad Gunther is an “audit committee financial expert” as that term is defined in the rules and regulations of the Securities and Exchange Commission.

Section 16(a) Beneficial Ownership Reporting Compliance

The rules of the Securities and Exchange Commission require us to disclose late filings of reports of stock ownership and changes in stock ownership by our directors, officers and ten percent stockholders. To our knowledge, based solely on our review of (a) the copies of such reports and amendments thereto furnished to us and (b) written representations that no other reports were required, during our fiscal year ended December 31, ~~2007,~~2009, all of the filings for our officers, directors and ten percent stockholders were made on a timely basis.

Summary Compensation Table

The following table sets forth the compensation of our chief executive officer and chief financial officer, our “named executive officers,” for the years ended December 31, ~~2008~~2009 and ~~2007.~~2008. The Company has no executive officers other than the “named executive officers.”

Name and principal position	Year	Salary ($)	Bonus ($)	Option Awards ($) (1)	All Other Compensation (4)	Total ($)

Leonard A. Rosenbaum President and Chief Executive Officer	2009 2008	202,742 169,001	- 25,000	14,655(2) 41,332(2)	- 77,000	217,397 312,333
Glen R. Charles Secretary and Chief Financial Officer	2009 2008	135,000 147,644	- -	2,531(3) 5,063(3)	- -	137,531 152,707
Karlheinz Strobl	2009	156,000	-	30,500	-	186,500
Vice President of Business Development	2008	162,000	-	30,500	-	192,500

(1)

Amounts shown do not reflect compensation actually received by the named executive officer. Instead, the amounts shown are the compensation costs recognized by CVD in fiscal ~~2008~~2009 and ~~2007~~2008 for option awards as determined pursuant to ~~FAS 123-R.~~ASC 718. These compensation costs reflect option

awards granted prior to fiscal 2009 and 2008. The assumptions used to calculate the value of option awards are set forth under Note 13 of the Notes to Consolidated Financial Statements. This column represents the grant date fair value of the awards as calculated in accordance with FASB ASC 718 (Stock Compensation). Pursuant to SEC rule changes effective February 28, 2010, we are required to reflect the total grant date fair values of the option grants in the year of grant, rather than the portion of this amount that was recognized for financial statement reporting purposes in a given fiscal year which was required under the prior SEC rules, resulting in a change to the amounts reported in prior Annual Reports.

(2)

A portion of the amount shown is attributable to non-qualified stock options to purchase 24,000 shares of the Company’s common stock granted to Mr. Rosenbaum on December 12, ~~2007.~~2007 that became exercisable, as to 100% of the underlying shares, on October 12, 2009. These options were issued at a grant price equal to the then current market price of $3.65. These options became exercisable as to 33.3% of the underlying shares, on December 12, 2007. An additional 33.3% were exercisable as of December 31, 2008. With respect to the remaining 8,000 underlying shares, the options become exercisable on a quarterly basis, with options to purchase 2,000 shares exercisable every three months beginning January 12, 2009. These options expire on December 12, 2017. The remaining portion is attributable to non-qualified stock options to purchase 21,000 shares of the Company’s common stock granted to Mr. Rosenbaum on September 13, 2005 that became exercisable, as to 100% of the underlying shares, on October 13, 2008. These options were issued at a grant price equal to the then current market price of $4.10. These options expire on September 13, 2012.

(3)

The amount shown is attributable to non-qualified stock options to purchase 15,000 shares of the Company’s common stock granted to Mr. Charles on June 17, 2005 that became exercisable, as to ~~75%~~100% of the underlying shares, on June 17, ~~2008.~~2009. These options were issued at a grant price equal to the then current market price of $2.26. these options expire on June 16, 2012.

(4)

The amount shown is attributable as to $27,000 as a result of the exercise by Mr. Rosenbaum of 15,000 shares of the Company’s common stock in 2008. The balance is attributable to accrued vacation time paid in 2008.

Outstanding Equity Awards at December 31, ~~2008~~

2009

The following table sets forth the outstanding equity awards held by our executive officers as of December 31, ~~2008~~

OPTION AWARDS
Name
Number of Securities Underlying Unexercised Options Exercisable (#)
Number of Securities Underlying Unexercised Options Unexercisable (#)
Option Exercise Price ($)
Option
Expiration
Date

Leonard A.
21,000
-
4.10
9/13/2012
Rosenbaum
16,000
8,000
3.65
12/12/2017

Glen R. Charles
11,250
3,750
2.26
6/16/2012

252009

~~2008~~

OPTION AWARDS

Name
Number of Securities Underlying Unexercised Options Exercisable (#)
Number of Securities Underlying Unexercised Options Unexercisable (#)

Option Exercise Price ($)

Option Expiration Date

Leonard A. 21,000 - 4.10 9/13/2012
Rosenbaum 24,000 - 3.65 12/12/2017

Glen R. Charles 15,000 - 2.26
6/16/2012

Karlheinz Strobl 25,000 75,000(1) 4.62
10/10/2017

(1) Options vested as to 12,500 on October 12 each year consecutively through 2015.

2009 Director Compensation

The following table sets forth a summary of the compensation we paid to our non-employee directors in ~~2008.~~

Name
Option Awards (1)
Total
Alan H. Temple Jr.
$41,332
   $41,332
Martin J. Teitelbaum
41,332
    41,332
Conrad J. Gunther
41,332
    41,332
Bruce T. Swan
41,332
    41,332
2009.

Name	Fees Earned or Paid in Cash	Option Awards (1)	Total
Alan H. Temple Jr.	$14,000	$14,665	$38,660
Martin J. Teitelbaum	14,000	14,665	38,660
Conrad J. Gunther	17,000	14,665	41,670
Bruce T. Swan	14,000	14,665	38,660
Kelly S. Walters	3,500	-	5,943

(1) Amounts shown do not reflect compensation actually received by the named director. Instead, the amounts shown are the compensation costs recognized by CVD in fiscal ~~2008~~2009 for option awards as determined pursuant to ~~FAS 123R.~~ASC 718. These compensation costs reflect option awards granted prior to fiscal ~~2008.~~2009. The assumptions used to calculate the value of option awards are set forth under Note 13 of the Notes to Consolidated Financial Statements.

At a meeting of the Stock Option and Compensation Committee on November 19, 2008, a director compensation plan was adopted applicable to all nonemployee directors, providing for annual compensation in the sum of approximately forty thousand dollars ($40,000) to be payable to each director in a combination of cash, restricted stock grant and stock options.

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related ~~Stock Holder~~Stockholder Matters.

The following table sets forth, as of March ~~10, 2009,~~20, 2010, information regarding the beneficial ownership of our common stock by (a) each person who is known to us to be the owner of more than five percent of our common stock, (b) each of our directors, (c) each of the named executive officers, and (d) all directors and executive officers and executive employees as a group. For purposes of the table, a person or group of persons is deemed to have beneficial ownership of any shares that such person has the right to acquire within 60 days of March ~~10, 2009.~~

Name and Address of Beneficial Owner(1)
Amounts and Nature of Beneficial Ownership (2)
Percent of Class (%)
Leonard A. Rosenbaum
1,382,850 (3)
29.1
Alan H. Temple Jr.
208,900 (4)
4.4
Martin J. Teitelbaum
92,000 (5)
1.9
Conrad Gunther
66,000 (6)
1.4
Bruce T. Swan
55,000 (7)
1.2
Glen R. Charles
11,250 (8)
*

All directors and executive officers and executive employees as a group (six (6) persons)
1,816,000
38.2

2620, 2010.

Name and Address of Beneficial Owner(1)	Amounts and Nature of Beneficial Ownership (2)	Percent of Class (%)	Amounts and Nature of Beneficial Ownership (2)	Percent of Class (%)
Robert E. Kern Jr.	250,000 (9)	5.3
David G. Kern	250,000 (9)	5.3

Leonard A. Rosenbaum			1,386,850 (3)	28.9
Alan H. Temple Jr.			215,205 (4)	4.5
Martin J. Teitelbaum			100,305 (5)	2.1
Conrad J. Gunther			74,305 (6)	1.5
Bruce T. Swan			63,305 (7)	1.3
Kelly S. Walters			5,030 (8)	*
Glen R. Charles			15,000 (9)	*
Karlheinz Strobl			30,021 (10)	*

All directors and executive officers and executive employees as a group (eight (8) persons)			1,890,021	39.3

Name and Address of Beneficial Owner(1)			Amounts and Nature of Beneficial Ownership (2)	Percent of Class (%)

Gagnon Securities, LLC			250,000	5.3

Five (5) percent owners as a group	1,632,850	34.4	1,636,850	34.4

*Less than 1% of the outstanding common stock or less than 1% of the voting power

(1)

The address of Messrs. Rosenbaum, Temple, Teitelbaum, Gunther, Swan, Walters, Charles and ~~Charles~~Strobl is c/o CVD Equipment Corporation, 1860 Smithtown Avenue, Ronkonkoma, New York, 11779. The address of ~~Messrs. Kern Jr. and Kern~~Gagnon Securities, LLC is ~~114 West 47~~^th ~~Street,~~1370 Avenue of the Americas, Suite 2400, New York, NY ~~10036~~

10019.

(2)

All of such shares are owned directly with sole voting and investment power, unless otherwise noted below.

(3)

Includes options to purchase ~~41,000~~45,000 shares of our common stock.

(4)

Includes options to purchase 51,155 shares of our common stock. Does not include options to purchase ~~4,000 shares of common stock~~

~~(4)~~

~~Includes options to purchase 44,500~~2,655 shares of our common stock. Does not include ~~options to purchase 4,000~~1,650 shares of unvested restricted common stock.

(5)

Includes 2,000 shares held by Mr. Teitelbaum’s wife as to which beneficial ownership thereof is disclaimed by Mr. Teitelbaum and options to purchase ~~56,000~~62,655 shares of our common stock. Does not include options to purchase ~~4,000~~2,655 shares of our common stock.

Does not include 1,650 shares of unvested restricted common stock.

(6)

Includes options to purchase ~~56,000~~62,655 shares of our common stock. Does not include options to purchase ~~4,000~~2,655 shares of our common stock.

Does not include 1,650 shares of unvested restricted common stock.

(7)

Includes options to purchase ~~41,000~~47,655 shares of our common stock. Does not include options to purchase ~~4,000~~2,655 shares of our common stock.

Does not include 1,650 shares of unvested restricted common stock.

(8)

Includes options to purchase ~~11,250~~2,655 shares of our common stock. Does not include options to purchase ~~3,750~~2,655 shares of our common stock.

Does not include 1,650 shares of unvested restricted common stock.

(9)

~~R. Kern and D. Kern as controlling members~~Includes options to purchase 15,000 shares of Kern Capital Management (“KCM”) may be deemed the beneficial owners of the securities of the company owned by KCM in that they might be deemed to share the power to direct the voting or disposition of the securities. R. Kern and D. Kern are the Managing Members of Innovation, which serves as the General Partner of Redpoint, and may be deemed the beneficial owner of securities of the company owned by Redpoint.

our common stock.

(10)

Includes options to purchase 25,000 shares of our common stock. Does not include options to purchase 75,000 shares of our common stock.

See Item 5, Market for Registrant’s Common Equity and Related Stockholder Matters, under the heading “Equity Compensation Plan Information” for information regarding our securities authorized for issuance under equity compensation plans.

Item 13.Certain Relationships and Related Transactions, and Director Independence.

~~Certain Relationships and Related Transactions, and Director Independence.~~

Related Person Transactions

Martin J. Teitelbaum serves as a director and our outside general counsel. The Company incurred legal fees for Mr. Teitelbaum’s professional services of approximately $65,000, $90,000 ~~$133,000~~ and ~~$34,000~~$133,000 for the three years ended December 31, 2009, 2008, ~~2007,~~ and ~~2006~~2007 respectively. As of December 31, 2009, 2008 ~~2007~~ and ~~2006,~~2007, unpaid legal fees of approximately $65,000, $90,000 ~~$116,000~~ and ~~$43,000~~$116,000 respectively were due Mr. Teitelbaum for services rendered.

Charles Temple, son of Alan H. Temple Jr., our director, is a non-officer employee of the Company. The Company paid Charles Temple approximately ~~$111,034~~$102,200 and ~~$94,359~~$111,034 in salary during the fiscal years ending December 31, ~~2008~~2009 and ~~2007~~2008 respectively. In addition, Charles Temple received a benefit of approximately $6,400 relating to a grant of restricted stock during the year ended December 31, ~~2008 and $47,320 relating to stock options exercised during the fiscal year ended December 31, 2007.~~

2008.

The ~~company~~Company maintains bank accounts and deposits cash in a CDARS investment vehicle through Community National Bank. Conrad Gunther, a director of the Company, is a Senior Vice ~~president~~President and Senior Loan Officer at Community National Bank. Through the CDARS investment vehicle, the Company can place funds in excess of $250,000 with Community National Bank. Community National Bank then places these funds into CDs issued by other banks in the same CDARS network in increments of less than $250,000 so all of the funds are eligible for FDIC protection. The Company does not pay any fees to Mr. Gunther or Community National Bank in connection with this investment vehicle. Community National Bank does collect a portion of the interest paid by the other participating banks in connection with the CDs issued.

Director Independence

The current members of our Board of Directors are Leonard A. Rosenbaum, Alan H. Temple Jr., Martin J. Teitelbaum, Conrad J. Gunther, ~~and~~ Bruce T. ~~Swan.~~Swan and Kelly S. Walters. Messrs. Gunther, Temple, Swan and ~~Swan~~Walters have been determined to be “independent” as defined under Rule 4200 of the Nasdaq Stock Market.

The following presents fees for professional audit services rendered by MSPC, Certified Public Accountants and Advisors, A Professional Corporation ~~("MSPC"~~(“MSPC”), (formerly known as Moore Stephens, P.C.) for the audit of our financial statements for the years ended December 31, ~~2008~~2009 and December 31, ~~2007.~~

2008.

Audit- Related Fees

We did not incur any audit-related fees in ~~2008~~2009 or ~~2007.~~

2008.

Tax fees in 2009 consisted of the tax preparation of the 2008 tax return by MSPC. Tax fees in 2008 consisted of the tax preparation of the 2007 annual tax return by MSPC as well as a Research and Development tax credit study and Extraterritorial Income Exclusion tax study for the tax years 2004 -2007 prepared by alliantgroup, LP. ~~Tax fees in 2007 consisted of the tax preparation of the 2006 annual tax return by MSPC.~~ The aggregate fees billed by MSPC for such services were $11,400 in 2009 and $9,480 in ~~2008 and $8,575 in 2007.~~2008. The fees billed by alliantgroup, LP were $133,163.

Other fees consisted of advisory services provided by MSPC relating to the Company’s Share Incentive Plan and Sarbanes Oxley requirements. The aggregate fees billed by MSPC for such services were $1,000 in 2009 and $0 in ~~2008 and $3,835 in 2007.~~

2008.

Audit Committee Approval

The engagement of the Company’s independent registered public accounting firm is pre-approved by the Company’s Audit Committee. The Audit Committee pre-approves all fees billed and all services rendered by the Company’s independent registered public accounting firm.

Item 15. Exhibits.

3.1	Certificate of Incorporation dated October 12, 1982 of Certificate of Corporation incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.

3.2	Certificate of Amendment dated April 25, 1985 of Certificate of Corporation incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.

3.3	Certificate of Amendment dated August 12, 1985 of Certificate of Corporation incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.

3.4	Bylaws of CVD Equipment Corporation, incorporated herein by reference to Exhibit 3.2 to our Form S-1 filed on July 3, 2007.

10.1	Form of Non-Qualified Stock Option Agreement with certain directors, officers and employees of CVD Equipment Corporation incorporated herein by reference to our Registration Statement on Form S-8 No. 33-30501, filed August 15, 1989.*

10.2	Purchase a 22,000 square foot facility from Kidco Realty incorporated herein by reference to our Form 8-K filed on December 31, 1998.

10.3	CVD Equipment Corporation 2001 Stock Option Plan incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.*

10.4	Form of Non-Qualified Stock Option Agreement incorporated herein by reference to Exhibit 3.1 to our Form 10-KSB filed on March 26, 2007.*

10.5	1989 Key Employee Stock Option Plan incorporated herein by reference to Amendment No. 1 to our Form S-1 filed on August 7, 2007.

10.6	CVD Equipment Corporation 2007 Share Incentive Plan incorporated herein by reference to our Schedule 14A filed November 5, 2007.

10.7	Contract of sale between CVD Equipment Corporation and HPG Realty Co., LLC for the purchase of a 13,300 square foot facility located at 979 Marconi Avenue, Ronkonkoma, NY 11779.

10.8	Assignment, Assumption and Amendment Agreement by and among Town of Islip Industrial Development Agency, North Fork Bank, HPG Realty Co., LLC, Tri-Start Electronics, Inc., and CVD Equipment Corporation dated February 8, 2008.

10.9	Lease Agreement between Town of Islip Industrial Development Agency and HPG Realty Co., LLC dated February 1, 2004.

10.10 Payment-In-Lieu-Of-Tax Agreement dated February 1, 2004 between Town of Islip Industrial Development Agency, HPG Realty Co., LLC,

and Tri-Start Electronics, Inc.

~~10.10~~

10.11

~~Payment-In-Lieu-Of-Tax Agreement dated February 1, 2004 between Town of Islip Industrial Development Agency, HPG Realty Co., LLC, and Tri-Start Electronics, Inc.~~

10.12

Mortgage Note between North Fork Bank dated February 8, 2008 in the principal amount of $500,000.

10.13

Modified and Restated Revolving Credit Agreement between CVD Equipment Corporation and Capital One N.A. (“Capital One”) incorporated herein by reference to our Current Report on Form 8-K filed on April 28, 2008.

10.14

Consolidated and Restated Revolving Line of Credit Note between CVD Equipment Corporation and Capital One incorporated herein by reference to our Current Report on Form 8-K filed on April 28, 2008.

10.15

Consolidation, Extension and Modification ~~Agreement~~agreement between the Registrant and Capital One, N.A. incorporated herein by reference to our Current Report on Form 8-K filed on ~~July 7,~~April 28, 2008.

10.16

Consolidated and Restated Mortgage Note relating to ~~Registrant's~~Registrant’s property known as 1117 Old Kings Highway, Saugerties, New York incorporated by reference to our Current Report on Form 8-K filed on July 7, 2008.

21.1 List of Subsidiaries.

~~21.1~~

23.1

~~List of Subsidiaries.~~

23.2	Consent of MSPC, Certified Public Accountants and Advisors, A Professional Corporation (S-8)

~~31.1~~

23.3

Consent of MSPC, Certified Public Accountants and Advisors, A Professional Corporation (S-8)

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.

31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.

32.1	Section 1350 Certification of Principal Executive Officer.

32.2	Section 1350 Certification of Principal Financial Officer.

* Management contract or compensatory plan or arrangement required

In accordance with Section 13 or 15(d) 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.

CVDCVD EQUIPMENT CORPORATION

~~By:~~ By: /s/ Leonard A. Rosenbaum
Name: Leonard A. Rosenbaum
Title: President and Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated below.

NAME

~~NAME~~

POSITION

DATE

Martin J. Teitelbaum

~~EXHIBIT INDEX~~

~~3.1~~

~~Certificate of Incorporation dated October 12, 1982 of Certificate of Corporation incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.~~

~~3.2~~

~~Certificate of Amendment dated April 25, 1985 of Certificate of Corporation incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.~~

~~3.3~~

~~Certificate of Amendment dated August 12, 1985 of Certificate of Corporation incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.~~

~~3.4~~

~~Bylaws of CVD Equipment Corporation, incorporated herein by reference to our Exhibit 3.2 to our form S-1 filed on July 3, 2007.~~

~~10.1~~

Form of Non-Qualified Stock Option Agreement with certain directors, officers and employees of CVD Equipment Corporation incorporated herein by reference to our Registration Statement on Form S-8 No. 33-30501, filed August 15, 1989.*

~~10.2~~

~~Purchase a 22,000 square foot facility from Kidco Realty incorporated herein by reference to our Form 8-K filed on December 31, 1998.~~

~~10.3~~

CVD Equipment Corporation 2001 Stock Option Plan.incorporated herein by reference to Exhibit 3.1 to our Form S-1 filed on July 3, 2007.*

~~10.4~~

Form of Non-Qualified Stock Option Agreement incorporated herein by reference to Exhibit 3.1 to our Form 10-KSB filed on March 26, 2007.*

~~10.5~~

~~1989 Key employee Stock Option Plan incorporated by reference to amendment No. 1 to our Form S-1 filed on August 7, 2007.~~

~~10.6~~

~~CVD Equipment Corporation 2007 Share Incentive Plan incorporated herein by reference to our Schedule 14A filed November 5, 2007.~~

~~10.7~~

~~Contract of sale between CVD Equipment Corporation and HPG Realty Co., LLC for the purchase of a 13,300 square foot facility located at 979 Marconi Avenue, Ronkonkoma, NY 11779.~~

~~10.8~~

Assignment, Assumption and Amendment Agreement by and among Town of Islip Industrial Development Agency, North Fork Bank, HPG Realty Co., LLC, Tri-Start Electronics, Inc. and CVD Equipment Corporation dated February 8, 2008.

~~10.9~~

~~Lease Agreement between Town of Islip Industrial Development Agency and HPG Realty Co., LLC dated February 1, 2004.~~

~~10.10~~

~~Payment-In-Lieu-Of-Tax Agreement dated February 1, 2004 between Town of Islip Industrial Development Agency, HPG Realty Co., LLC, and Tri-Start Electronics, Inc.~~

~~10.11~~

~~Mortgage Note between North Fork Bank dated February 8, 2008 in the principal amount of $1,000,000.~~

~~10.12~~

~~Mortgage Note between North Fork Bank dated February 8, 2008 in the principal amount of $500,000.~~

~~10.13~~

~~10.14~~

~~Consolidated and Restated Revolving Line of Credit Note between CVD Equipment Corporation and Capital One incorporated herein by reference to our Current Report on Form 8-K filed on April 28, 2008.~~

~~10.15~~

~~Consolidation, Extension and Modification Agreement between the Registrant and Capital One, N.A. incorporated herein by reference to our Current Report on Form 8-K filed on July 7, 2008.~~

~~10.16~~

Consolidated and Restated Mortgage Note relating to Registrant's property known as 1117 Old Kings Highway, Saugerties, New York incorporated by reference to our Current Report on Form 8-K filed on July 7, 2008.

~~21.1~~

~~Subsidiaries.~~

~~23.1~~

~~Consent of MSPC, Certified Public Accountants and Advisors, A Professional Corporation (S-1)~~

~~23.2~~

~~Consent of MSPC, Certified Public Accountants and Advisors, A Professional Corporation (S-8)~~

~~31.3~~

~~Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.~~

~~31.4~~

~~Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.~~

~~32.1~~

~~Section 1350 Certification of Principal Executive Officer.~~

~~32.2~~

~~Section 1350 Certification of Principal Financial Officer.~~

~~___________________~~

* Management contract or compensatory plan or arrangement required.

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page No.

Report of Independent Registered Public Accounting Firm	F1

Financial Statements:

Consolidated Balance Sheets as of December 31, ~~2008~~2009 and ~~2007~~ 2008	F2

Consolidated Statements of Operations for the years ended December 31, ~~2008~~2009 and ~~2007~~ 2008	F3

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, ~~2008~~2009 and ~~2007~~ 2008	F4

Consolidated Statements of Cash Flows for the years ended December 31, ~~2008~~2009 and ~~2007~~ 2008	F5

Notes to Consolidated Financial Statements	F6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

~~CVD Equipment Corporation and Subsidiary~~

~~Ronkonkoma, New York~~

CVD Equipment Corporation and Subsidiary

Ronkonkoma, New York

We have audited the accompanying consolidated balance sheets of CVD Equipment Corporation and Subsidiary as of December 31, ~~2008~~2009 and ~~2007,~~2008, and the related consolidated statements of operations, changes in ~~stockholders’~~stockholders' equity, and cash flows for each of the two years in the period ended December 31, ~~2008.~~2009. These consolidated financial statements are the responsibility of the ~~Company’s~~Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of CVD Equipment Corporation and Subsidiary as of December 31, ~~2008~~2009 and ~~2007,~~2008, and the results of their consolidated operations and their consolidated cash flows for each of the two years in the period ended December 31, ~~2008,~~2009, in conformity with U.S. generally accepted accounting principles.

We were not engaged to examine ~~management’s~~management's assessment of the effectiveness of CVD Equipment Corporation and ~~Subsidiary’s~~Subsidiary's internal control over financial reporting as of December 31, ~~2008,~~2009, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reportingand, accordingly, we do not express an opinion thereon.

~~MSPC~~

	/s/ MSPC
	Certified Public Accountants and Advisors,
	A Professional Corporation

~~A Professional Corporation~~

Cranford, New Jersey

March ~~24, 2009~~

31, 2010

F-1

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Balance Sheets

As of December 31,

2008

2007
ASSETS

Current Assets

Cash and cash equivalents
$
5,721,369

$
5,110,447
Accounts receivable, net

2,642,670

1,769,265
Investments

-

251,130
Cost and estimated earnings in excess

of billings on uncompleted contracts

3,972,533

1,847,288
Inventories

3,292,316

3,015,635
Deferred income taxes – current

54,049

90,774
Other current assets

174,782

379,360
Total Current Assets

15,857,719

12,463,898
Property, plant and equipment, net

8,028,889

5,055,727
Deferred income taxes – non-current

772,516

266,077
Other assets

541,404

1,114,637
Intangible assets, net

89,822

106,566
Total Assets
$
25,290,350

$
19,006,906

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Current maturities of long-term debt
$
348,521

$
222,193
Customer deposits

3,559,410

-
Accounts payable

1,340,830

517,934
Accrued expenses

641,606

1,245,819
Accrued professional fees – related party

90,053

116,165
Deferred revenue

28,745

47,444
Total Current Liabilities

6,009,165

2,149,555
Long-term debt, net of current portion

4,135,632

2,678,421
Total Liabilities

10,144,797

4,827,976

Commitments and Contingencies

-

-

Stockholders’ Equity:

Common stock - $0.01 par value – 10,000,000 shares authorized: issued & outstanding, 4,749,500 shares at

December 31, 2008 and 4,718,500 shares at December
31, 2007

47,495

47,185
Additional paid-in capital

9,927,260

9,592,728
Retained earnings

5,170,798

4,539,017
Total Stockholders’ Equity

15,145,553

14,148,930

Total Liabilities and Stockholders’ Equity
$
25,290,350

$
19,006,906

	2009		2008
ASSETS
Current Assets
Cash and cash equivalents	$	3,119,731	$	5,721,369
Accounts receivable, net		2,130,196		2,642,670
Cost and estimated earnings in excess
of billings on uncompleted contracts		2,708,084		3,972,533
Inventories		4,418,138		3,292,316
Deferred income taxes – current		378,412		54,049
Other current assets		213,593		174,782

Total Current Assets		12,968,154		15,857,719

Property, plant and equipment, net		7,591,363		8,028,889

Deferred income taxes – non-current		711,293		772,516

Other assets		327,968		541,404

Intangible assets, net		66,213		89,822
Total Assets	$	21,664,991	$	25,290,350


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	368,041	$	348,521
Customer deposits		-		3,559,410
Accounts payable		873,626		1,340,830
Accrued expenses		947,264		641,606
Accrued professional fees – related party		64,521		90,053
Deferred revenue		151,514		28,745

Total Current Liabilities		2,404,966		6,009,165
Long-term debt, net of current portion		3,768,824		4,135,632
Total Liabilities		6,173,790		10,144,797

Commitments and Contingencies (Note 18)		-		-

Stockholders’ Equity:
Common stock - $0.01 par value – 10,000,000 shares authorized:
issued & outstanding, 4,761,825 shares at December 31, 2009
and 4,749,500 shares at December 31, 2008		47,618		47,495
Additional paid-in capital		10,093,761		9,927,260
Retained earnings		5,349,822		5,170,798
Total Stockholders’ Equity		15,491,201		15,145,553

Total Liabilities and Stockholders’ Equity	$	21,664,991	$	25,290,350

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

F-2

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Operations

Years ended December 31,

2008

2007

Revenue
$
18,146,741

$
13,577,772

Cost of revenue

12,773,343

8,906,785

Gross profit

5,373,398

4,670,987

Operating expenses

Selling and shipping

766,755

755,324
General and administrative

4,055,877

3,370,914
Related party – professional fees

90,053

55,489
Total operating expenses

4,912,685

4,181,727

Operating income

460,713

489,260

Other income (expense):

Interest income

107,198

51,166
Interest expense

(229,000)

(216,655)
Loss on impairment

(251,130)

-
Other income

188,563

562,974
Total other (expense) income, net

(184,369)

397,485

Income before income tax

276,344

886,745
Income tax benefit (expense)

355,437

(109,659)

Net income
$
631,781

$
777,086

Basic earnings per common share
$
0.13

$
0.21
Diluted earnings per common share
$
0.13

$
0.20

Weighted average common shares

outstanding basic

4,737,459

3,667,833

Weighted average common shares

outstanding diluted

4,769,769

3,825,271

	2009			2008

Revenue	$	10,575,019		$	18,146,741

Cost of revenue		5,755,501			12,773,343

Gross profit		4,819,518			5,373,398

Operating expenses
Selling and shipping		698,820			766,755
General and administrative		3,752,673			4,055,877
Related party – professional fees		64,521			90,053

Total operating expenses		4,516,014			4,912,685

Operating income		303,504			460,713

Other income (expense):
Interest income		33,464			107,198
Interest expense		(248,715	)		(229,000	)
Loss on investment impairment		-			(251,130	)
Other income		43,135			188,563
Total other (expense), net		(172,116	)		(184,369	)

Income before income tax benefit		131,388			276,344
Income tax benefit		47,636			355,437

Net income	$	179,024		$	631,781


Basic earnings per common share	$	0.04		$	0.13
Diluted earnings per common share	$	0.04		$	0.13

Weighted average common shares
outstanding basic		4,760,749			4,737,459

Weighted average common shares
outstanding diluted		4,807,907			4,769,769

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

F-3

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Changes in Stockholders’ Equity

Years ended December 31, ~~2008~~2009 and ~~2007~~

2008

Additional

Total

Common Stock

Paid-In
Retained

Stockholders’

Shares
Amount

Capital
Earnings

Equity

Balance – January 1, 2007
3,250,500
$ 32,505

$ 3,405,474
$ 3,761,931

$ 7,199,910

Exercise of stock options
88,000
880

163,595

164,475

Stock based compensation

254,157

254,157

Issuance of common stock under

public offering
1,380,000
13,800

5,769,502

5,783,302

Net Income
_________
________

___________
777,086

777,086

Balance – December 31, 2007
4,718,500
$ 47,185

$ 9,592,728
$ 4,539,017

$14,178,930

Exercise of stock options
15,000
150

20,850

21,000

Stock based compensation
16,000
160

313,682

313,842

Net Income

631,781

631,781

Balance – December 31, 2008
4,749,500
$ 47,495

$ 9,927,260
$ 5,170,798

$15,145,553

			Additional		Total
	Common Stock		Paid-In	Retained	Stockholders’
	Shares	Amount	Capital	Earnings	Equity


Balance – January 1, 2008	4,718,500	$ 47,185	$ 9,592,728	$ 4,539,017	$14,178,930

Exercise of stock options	15,000	150	20,850		21,000

Stock-based compensation	16,000	160	313,682		313,842

Net Income				631,781	631,781

Balance – December 31, 2008	4,749,500	$ 47,495	$ 9,927,260	$ 5,170,798	$15,145,553

Stock-based compensation	12,325	123	166,501		166,624

Net income				179,024	179,024

Balance – December 31, 2009	4,761,825	$47,618	$10,093,761	$5,349,822	$15,491,201

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

F-4

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

Consolidated Statements of Cash Flows

Years ended December 31,

2008

2007
Cash flows from operating activities:

Net income

$
631,781
$
777,086
Adjustments to reconcile net income to
net cash

provided from operating activities

Depreciation and amortization

522,925

436,171
Stock-based compensation

313,842

254,157
Loss on impairment

251,130

-
Deferred tax benefit

(506,439)

(296,517)
Bad debt provision

73,662

5,371
Changes in operating assets and
liabilities

Accounts receivable

(947,067)

602,433
Cost in excess of billings on
uncompleted contracts

(2,125,245)

(1,130,625)
Inventories

(276,681)

(311,129)
Other current assets

241,299

(351,834)
Other assets

50,000

(133,300)
Customer deposits

3,559,410

-
Accounts payable

822,896

(122,837)
Accrued expenses

(630,326)

640,213
Deferred revenue

(18,699)

(164,806)
Net cash provided by operating activities

1,962,488

204,383

Cash flows from investing activities:

Capital expenditures

(3,381,417)

(575,558)
Deposits

425,312

(411,546)
Net cash used in investing activities

(2,956,105)

(987,104)

Cash flows from financing activities

Repayments on bank line of credit – net

-

(210,000)
Proceeds from long-term debt

2,645,000

139,510
Payments of long-term debt

(1,061,461)

(241,460)
Net proceeds from issuance of common
stock

-

5,783,302
Net proceeds from stock options
exercised

21,000

164,475
Net cash provided by financing activities

1,604,539

5,635,827

Net increase in cash and cash equivalents

610,922

4,853,106

Cash and cash equivalents at beginning of year

5,110,447

257,341

Cash and cash equivalents at end of year

$
5,721,369
$
5,110,447

	2009			2008
Cash flows from operating activities:
Net income	$	179,024		$	631,781
Adjustments to reconcile net income to net cash
(used in) provided by operating activities
Depreciation and amortization		580,238			522,925
Stock-based compensation		166,624			313,842
Loss on impairment		-			251,130
Deferred tax benefit		(263,140	)		(137,652	)
Bad debt provision		(29,134	)		73,662
(Increase)/decrease in operating assets
Accounts receivable		541,609			(947,067	)
Cost in excess of billings on uncompleted contracts		1,264,449			(2,125,245	)
Inventories		(883,563	)		(276,681	)
Other current assets		(38,810	)		(127,488	)
Other assets		83,300			50,000
Increase/(decrease) in operating liabilities
Customer deposits		(3,559,410	)		3,559,410
Accounts payable		(467,205	)		822,896
Accrued expenses		280,131			(630,326	)
Deferred revenue		122,769			(18,699	)
Total adjustments		(2,202,142	)		1,330,707
Net cash (used in) provided by operating activities		(2,023,118	)		1,962,488

Cash flows from investing activities:
Capital expenditures		(232,083	)		(3,381,417	)
Deposits		850			425,312
Net cash (used in) investing activities		(231,233	)		(2,956,105	)

Cash flows from financing activities
Proceeds from long-term debt		-			2,645,000
Payments of long-term debt		(347,287	)		(1,061,461	)
Net proceeds from stock options exercised		-			21,000
Net cash (used in) provided by financing activities		(347,287	)		1,604,539

Net (decrease) increase in cash and cash equivalents		(2,601,638	)		610,922

Cash and cash equivalents at beginning of year		5,721,369			5,110,447

Cash and cash equivalents at end of year	$	3,119,731		$	5,721,369


Supplemental disclosure of cash flow information:
Income taxes paid	$	95,425		$	514,220
Interest paid		248,715			229,000
Transfer of equipment to cost on uncompleted contract		242,260

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

F-5

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

2008

Note 1 – Business Description

CVD Equipment Corporation and Subsidiary (the “Company”), a New York corporation, was organized and commenced operations in October 1982. Its principal business activities include the manufacturing of chemical vapor deposition equipment, customized gas control systems, the manufacturing of process equipment suitable for the synthesis of a variety of one-dimensional nanostructures and nanomaterials and a line of furnaces, all of which are used primarily to produce semiconductors and other electronic components. The Company engages in business throughout the United States and internationally.

Note 2 - Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of CVD Equipment Corporation and its wholly owned subsidiary. In December 1998, a subsidiary, Stainless Design Concepts, Ltd., was formed as a New York Corporation. In April 1999, this subsidiary was merged into CVD Equipment Corporation. The Company has one inactive subsidiary, CVD Materials Corporation, as of December 31, ~~2008~~2009 and ~~2007.~~2008. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

Estimates are used when the accounting for certain items such as revenues on long-term contracts recognized on the percentage-of-completion method, allowances for doubtful accounts, depreciation and amortization, valuation allowances for deferred ~~income taxes provisions,~~tax assets, impairment ~~test~~considerations of long-lived assets, stock-based compensation and product warranties.

Revenue and Income Recognition

The Company recognizes revenues ~~and income~~ using the percentage-of-completion method for custom production-type contracts, while revenues from other products are recorded when such products are accepted and shipped. Profits on custom production-type contracts are recorded on the basis of the Company’s estimates of the percentage-of-completion of individual contracts, commencing when progress reaches a point where

~~F-6~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

experience is sufficient to estimate final results with reasonable accuracy. Under this method, revenues are recognized based on costs incurred to date compared with total estimated costs.

F-6

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

The asset, “Costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed.

~~The liability, “Billings in excess of costs on uncompleted contracts,” represents amounts billed in excess of revenues earned.~~

~~Investments~~

~~Investments in unconsolidated companies in which the Company owns less than a 20% interest or otherwise does not exercise a significant influence are carried at cost.~~

Inventories

Inventories are valued at the lower of cost (determined on the first-in, first-out method) or market.

Income Taxes

Deferred tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statements and tax bases of assets and liabilities, as measured by the future enacted tax rates. Deferred tax expense (benefit) is the result of changes in the deferred tax assets and liabilities. AThe Company records a valuation allowance ~~is not considered necessary by management since~~against deferred tax assets when it is more likely than not that future tax benefits will not be utilized based on a lack of sufficient positive evidence.

Investment tax credits are accounted for by the flow-through method reducing income taxes currently payable and the provision for income taxes in the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax ~~asset~~assets, subject to considerations about the need for a valuation allowance, are recognized for the carryforward amount.

On January 1, 2007, the Company adopted the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Company may recognize the tax benefit from an uncertain tax position only if it is more-likely-than-not that the tax position will be ~~realized. An allowance may be necessary~~sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the ~~future~~financial statements from such a position are measured based on ~~changes~~the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The guidance on accounting for uncertainty in ~~economic conditions.~~

income taxes also addresses derecognition, classification, interest and penalties on income taxes, and accounting in interim periods. The Company does not believe it has any uncertain tax positions through the year ending December 31, 2009.

The Company and its subsidiary file combined income tax returns in the U.S. federal and New York State jurisdiction. In addition, the parent company files standalone tax returns in California,

F-7

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

Michigan, Minnesota, New Hampshire and Wisconsin. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax authorities for tax periods before 2006.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits, if any, in its income tax provision. The Company had no interest and penalties accrued at December 31, 2009 and 2008.

Long-Lived Assets

~~F-7~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

loss is measured on the excess of its carrying value over its fair value. Assets to be disposed of are reported at the lower of their carrying value or net realizable value. The Company had no recorded impairment charges in the statement of operations during each of the years ended December 31, ~~2008~~2009 and ~~2007~~2008 based on impairment tests under ~~SFAS No.144.~~

ASC 360-10-35.

Computer Software

The Company follows ~~Statement of Position 98-1, Accounting for Costs of Computer Software Developed or Obtained for Internal Use.~~ASC 350-40, “Internal Use Software.” This standard requires certain direct development costs associated with internal-use software to be capitalized including external direct costs of material and services and payroll costs for employees devoting time to the software projects. These costs totaled ~~$45,708~~$3,393 and ~~$123,115~~$45,708 for the years ended December 31, ~~2008~~2009 and ~~2007~~2008 respectively and are included in Other Assets. All computer software is amortized using the straight-line method over its useful life of three years. Amortization expense related to computer software totaled ~~$140,288~~$135,005 and ~~$148,049~~$140,288 for the years ended December 31, 2009 and 2008, ~~and 2007,~~ respectively.

Intangible Assets

The cost of intangible assets is being amortized on a straight-line basis over their useful lives ranging from 5 to 20 years. Amortization expense recorded by the Company in 2009 and 2008 totaled $23,162 and ~~2007 totaled~~ $28,692 ~~and $27,322~~ respectively.

Research & Development

Research and development costs are expensed as incurred. We incurred approximately $757,000 and $700,000 of research and development expenses in ~~both~~2009 and 2008, respectively. These costs are included as part of cost of revenue in the consolidated statement of operations.

F-8

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and ~~2007.~~

2008

Bad Debts

Accounts ~~receivables are~~receivable is presented net of an allowance for doubtful accounts of ~~$86,250~~$57,116 and ~~$12,588~~$86,250 as of December 31, ~~2008~~2009 and ~~2007,~~2008, respectively. The allowance is based on historical 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 economic and customer conditions.

The Company doesn’t require collateral from its customers.

Product Warranty

The Company records warranty costs as incurred and does not provide for possible future costs. Management estimates such costs are immaterial based on historical experience. However, it is reasonably possible that this estimate may change in ~~the future.~~

~~F-8~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

~~Advertising Costs~~

~~The Company expenses advertising and trade show costs which are not expected to benefit~~ future periods. ~~These expenses which are included in selling and shipping expenses were $56,696 and $144,059 in 2008 and 2007, respectively.~~

Earnings Per Share

Basic net earnings per common share is computed by dividing the net income by the weighted average number of shares of common stock outstanding during each period. When applicable, diluted earnings per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be adjusted upon exercise of common stock options and warrants.

Potential common shares issued are calculated using the treasury stock method, which recognizes the use of proceeds that could be obtained upon the exercise of options and warrants in computing diluted earnings per share. It assumes that any proceeds would be used to purchase common stock at the average market price of the common stock during the period.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less at the date of purchase to be cash equivalents.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable. The Company places its cash equivalents with high credit-quality financial institutions and invests its excess cash primarily in money market instruments. The Company has established guidelines relative to credit ratings and maturities that seek to maintain stability and liquidity. The Company sells products and services to various companies across several industries in the ordinary course of business. The Company routinely assesses the financial strength of its customers and maintains allowances for anticipated losses. ~~Generally, the Company does not require collateral or other security to support trade receivables.~~

F-9

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

Fair value of Financial Instruments

The carrying amounts of financial instruments including cash and cash equivalents, accounts receivable, accounts payable and ~~a ccrued~~accrued expenses, and customer deposits approximate fair value due to

~~F-9~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

the relatively short term maturity of these instruments. The carrying value of long-term debt approximates fair value based on prevailing borrowing rates currently available for loans with similar terms and maturities.

Stock-Based Compensation

~~On January 1, 2006, the~~

The Company ~~adopted~~records stock-based compensation in accordance with the provisions ~~of SFAS No. 123-R “Share-Based Payment”~~set forth in ASC 718, “Stock Compensation” using the modified prospective method. ~~SFAS No. 123-R~~ASC 718 requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. Under the modified prospective method of adopting SFAS No. 123-R, the Company recognized compensation cost for all share-based payments granted after January 1, 2006, plus any awards granted to employees prior to January 1, 2006 that remain unvested at that time. Under this method of adoption, no restatement of prior periods is made.

Prior to January 1, 2006 the Company recognized the cost of employee services received in exchange for equity instruments in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued Employees” (APB 25). APB 25 required the use of the intrinsic value method, which measures compensation cost as the excess, if any, of the quoted market price of the stock over the amount the employee must pay for the stock. Compensation expense was measured under APB 25 on the date the shares were granted. Under APB 25, no compensation expense was recognized for stock options.

Shipping and Handling

It is the Company’s policy to include freight in total sales. The amount ~~included in~~netted against sales was ~~$55,146~~$25,149 and ~~$31,162~~$55,146 for the years ended December 31, ~~2008~~2009 and ~~2007,~~2008, respectively. Included in selling and shipping expense is ~~$112,011~~$94,555 and ~~$116,062~~$112,011 for shipping and handling costs for each of the years ended 2009 and 2008, ~~and 2007,~~ respectively.

~~Recently Issued~~

Subsequent Events

The company evaluated subsequent events through the filing date of this Form 10-K in accordance with the Subsequent Events topic of the FASB Accounting Standards Codification ASC topic 855.

RecentlyAdopted Accounting Pronouncements

Life of Intangible Assets

~~In February 2007,~~

During the first quarter of 2009, we adopted new accounting guidance issued by the FASB ~~issued SFAS No. 159, “The~~ for the determination of the useful life of intangible assets. The new guidance amends the factors that should be considered in developing the renewal or extension assumptions used to determine the useful life of a recognized intangible asset. The new guidance also requires expanded disclosure regarding the determination of intangible asset useful lives. The adoption of this accounting guidance did not have a material impact on our consolidated financial position, results of operations or financial condition.

F-10

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

Fair Value ~~Option~~of Financial Instruments and Other-Than-Temporary Impairment

During the second quarter of 2009, we adopted three related sets of accounting guidance issued by the FASB. The accounting guidance sets forth rules related to determining the fair value of financial assets and financial liabilities when the activity levels have significantly decreased in relation to the normal market, guidance related to the determination of other-than-temporary impairments to include the intent and ability of the holder as an indicator in the determination of whether an other-than-temporary impairment exists and interim disclosure requirements for ~~Financial Assets~~the fair value of financial instruments. The adoption of these three sets of accounting guidance did not have a material impact on our consolidated balance sheet, results of operations or financial condition.

Subsequent Events

During the second quarter of 2009, we adopted new accounting guidance issued by the FASB related to subsequent events. The new requirement establishes the accounting for and ~~Financial Liabilities – Including an amendment~~disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of this accounting guidance did not have a material impact on our consolidated balance sheet position, results of operations or financial condition.

Accounting Standards Codification

In June 2009, Accounting Standards Update (“ASU”) No. 2009-01 amended the FASB Accounting Standards Codification for the issuance of FASB Statement No. ~~115,~~168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles was issued as authoritative guidance which replaced the previous hierarchy of GAAP and establishes the FASB Codification as the single source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. This standard establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and non-authoritative. The FASB Accounting Standards Codification (the “ASC”) will become the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the SEC, which are sources of authoritative GAAP for SEC registrants. All other nongrandfathered, non-SEC accounting literature not included in the ASC will become non-authoritative. This standard was effective for financial statements for interim or annual reporting periods ending after September 15, 2009. The Company adopted the new guidelines and numbering system prescribed by the ASC for the period ended September 30, 2009, as required, and adoption did not have a material impact on the Company’s consolidated financial statements since the FASB Codification is not intended to change or alter existing GAAP.

F-11

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

Recently Issued Accounting Standards

Variable Interest Entities

In June 2009, the FASB issued new accounting guidance which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity, or VIE, and requires ongoing reassessment of whether an enterprise is the primary beneficiary of the VIE. The new guidance significantly changes the consolidation rules for VIEs including the consolidation of common structures such as joint ventures, equity method investments and collaboration arrangements. The guidance is applicable to all new and existing VIEs. The provisions of this new accounting guidance are effective for interim and annual reporting periods beginning after November 15, 2009. We do not believe the adoption of this new accounting guidance will have a material impact on our consolidated balance sheet, results of operations or financial condition.

Revenue Recognition

In September 2009, the FASB issued new accounting guidance related to the revenue recognition of multiple element arrangements. The new guidance states that if vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, companies will be required to develop a best estimate of the selling price to separate deliverables and allocate arrangement consideration using the relative selling price method. In addition, the FASB also issued new accounting guidance related to certain revenue arrangements that include software elements. Previously, companies that sold tangible products with “more than incidental” software were required to apply software revenue recognition guidance. This guidance often delayed revenue recognition for the delivery of the tangible product. Under the new guidance, tangible products that have software components that are “essential to the functionality” of the tangible product will be excluded from the software revenue recognition guidance. The new guidance will include factors to help companies determine what is “essential to the functionality.” Software-enabled products will now be subject to other revenue guidance and will likely follow the guidance for multiple deliverable arrangements issued by the FASB in September 2009.

These two new guidance are to be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with earlier application permitted. If a company elects earlier application and the first reporting period of adoption is not the first reporting period in the company’s fiscal year, the guidance must be applied through retrospective application from the beginning of the company’s fiscal year and the company must disclose the effect of the change to those previously reported periods. We do not believe that adoption of this accounting guidance will have a material impact on our consolidated balance sheet, results of operations or financial condition.

F-12

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

Improving Disclosures About Fair Value Measurements

In January 2010, the FASB issued an amendment to the existing disclosure requirements by adding required disclosures about items transferring into and out of levels 1 and 2 in the fair value hierarchy; adding separate disclosures about purchase, sales, issuances, and settlements relative to level 3 measurements; and clarifying, among other things, the existing fair value disclosures about the level of disaggregation. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to provide level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which is effective for fiscal years beginning after ~~November~~December 15, ~~2007. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. This statement also establishes presentation and~~2010. Since this standard impacts disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. Unrealized gains and losses on items for which the fair value option is elected would be reported in earnings. We have evaluated the new statement and have determined that itonly, its adoption will not have a ~~significant~~material impact on ~~the determination~~our consolidated balance sheet, results of operations or ~~reporting of our~~ financial ~~results.~~

~~F-10~~condition.

Note 3 – Fair Value Measurements

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008~~

On January 1, 2009, we implemented new accounting guidance, ASC 820, Fair Value Measurements and ~~2007~~

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business Combinations.” SFAS 141(R) retains the underlying concepts of SFAS 141 in that all business combinations are still required to be accounted for at fair value under the acquisition method of accounting but SFAS 141(R) changed the method of applying the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; in-process research and development will be recorded at fair value as an indefinite-lived intangible asset at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. SFAS 141(R) is effectiveDisclosures, on a prospective basis for ~~all business combinations~~our non-financial assets and liabilities that are not recognized or disclosed at fair value on a recurring basis. The new guidance requires that we determine the fair value of financial and non-financial assets and liabilities using the fair value hierarchy and describes three levels of inputs that may be used to measure fair value as follows:

Level 1 inputs which include quoted prices in active markets for identical assets or liabilities.

Level 2 inputs which include observable inputs other than Level 1 inputs, such as quoted prices for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the ~~acquisition date is on or after the beginning~~full term of the ~~first annual period subsequent~~asset or liability, and Level 3 inputs which include unobservable inputs that are supported by little or no market activity and that are significant to ~~December 15, 2008, with~~ the ~~exception~~fair value of the underlying asset or liability. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow methodologies or similar valuation techniques, as well as significant management judgment or estimation.

This accounting guidance for ~~valuation allowances~~our non-financial assets and liabilities that are not recognized or disclosed at fair value on deferred taxes and acquired tax contingencies. SFAS 141(R) amends SFAS 109 such that adjustments made to valuation allowances on deferred taxes and acquired tax contingencies associated with acquisitions that closed prior to the effective date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early adoption is not permitted. We are currently evaluating the effects, if any, that SFAS 141(R) may havea recurring basis had no effect on our ~~financial statements and believe it could have a significant impact if business combinations are consummated. However, the effect of which is indeterminable as of December 31, 2008.~~

In December 2007, the FASB issued Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, with earlier adoption prohibited. This statement requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income onfor the ~~face~~year ended December 31, 2009.

The following table summarizes, for each major category of assets and liabilities, the ~~income statement. It also amends certain~~respective fair value and the classification by level of ~~ARB No. 51’s consolidation procedures for consistency with~~input within the requirements of SFAS 141(R). This statement also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We are currently evaluating this new statement and anticipate that the statement will not have a significant impact on the reporting of our results of operations.

In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The company is currently evaluating the impact of adopting SFAS. No. 161 on its financial statements.

fair value hierarchy.

~~F-11~~

	December 31, 2009								December 31, 2008
			(Unaudited)
Description	Level (1)		Level (2)		Level (3)		Total		Level (1)		Level (2)		Level (3)		Total
Assets:
Cash equivalents	$	1,795,622	$	---		---	$	1,795,622	$	5,321,190	$	---		---	$	5,321,190

Total Liabilities	$	---	$	---	$	---	$	---	$	---	$	---	$	---	$	---

F-13

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

~~Note 3 – Supplemental Cash Flow Information~~

~~During~~ 2008 ~~certain employees were granted and issued a total of 16,000 shares of the Company’s common stock under the 2007 Share Incentive Plan with an estimated fair value of $51,200.~~

During 2007, options to purchase 206,000 common shares were issued to certain employees and members of the board of directors. The exercise price for all options granted in 2007 was equal to or greater than the fair market value per share on the date the option was granted and no compensation cost was recognized. New equipment costing $180,196 was purchased during the year for $156,481 in cash and traded in equipment with a carrying value of $23,715.

2008
2007
Cash paid during the year for:

Income taxes, net of refunds
$ 514,220
$ 39,446
Interest
229,000
217,570

Note 4 - Investments

In 2006, the Company sold equipment at the selling price of $251,130 to a ~~Customer~~customer for a purchase price of ~~one hundred four thousand, four hundred eighty two (104,482)~~104,482 shares of a non-public company’s common stock, par value $.001 per share. ~~Between July 19, 2007 and July 31, 2007, the~~The Company ~~has~~had the option to demand that the ~~Customer~~customer make cash payment i.e.: ~~two hundred fifty-one thousand, one hundred thirty 00/100 U.S. dollars ($251,130)~~$251,130 for the equipment, the amount that would have been required had the ~~Customer~~customer made cash payment for the equipment on July 19, 2006 in exchange for the return of said stock. The Customer’s obligation to make such payment pursuant to the terms of the option is secured by a perfected lien upon the subject equipment and the Company’s right to execute upon the aforementioned common stock. In the event the Customer does not make full payment, the Company has also reserved the right to maintain plenary proceedings against the Customer for the purpose of recovering such sums as may be due as well as the right to obtain a deficiency judgment in the event that the collateral in the equipment and stock is insufficient to discharge said obligation.

On February 19, 2008, the Company exercised its cash payment option demanding the cash payment of $251,130. The Customer did not make payment and the Company ~~retook~~took possession of said equipment.

As of December 31, 2008, the Company has deemed this investment as an other-than temporary impairment which has resulted in a charge to the statement of operations totaling its full value of $251,130 and is reflected as a loss on impairment in the Other income (expense) caption.

~~F-12~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

Note 5 – Uncompleted Contracts

Costs, estimated earnings, and billings on uncompleted contracts are summarized as follows:

2008

2007

Costs incurred on uncompleted contracts
$
4,956,874
$
1,887,022
Estimated earnings

4,068,641

2,158,386

9,025,515

4,045,408
Billings to date

(5,052,982)

(2,198,120)

$
3,972,533
$
1,847,288

2008

2007
Included in accompanying balance sheets

Under the following caption:

Costs and estimated earnings in excess

of billings on uncompleted contracts
$
3,972,533
$
1,847,288

~~Note 6 - Inventories~~

	2009			2008

Costs incurred on uncompleted contracts	$	1,504,137		$	4,956,874
Estimated earnings		2,429,770			4,068,641
		3,933,907			9,025,515
Billings to date		(1,225,823	)		(5,052,982	)
	$	2,708,084		$	3,972,533

		2009			2008
Included in accompanying balance sheets
Under the following caption:
Costs and estimated earnings in excess
of billings on uncompleted contracts	$	2,708,084		$	3,972,533

~~Inventories consist of:~~

2008
2007
Raw Materials
$
1,396,960
$
1,077,756
Work-in-process
1,713,953
1,733,738
Finished goods
181,403
204,141
$
3,292,316
$
3,015,635

~~F-13~~

F-14

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

2008

Note 6 - Inventories

Inventories consist of:

	2009			2008

Raw materials	$	1,848,620		$	1,396,960
Work-in-process		2,388,115	*		1,713,953
Finished goods		181,403			181,403

	$	4,418,138		$	3,292,316

The Company has no inventory reserves in 2009 or 2008.

*Includes $1,150,000 of equipment returned from terminated contract which was valued at the lower of cost or market. (See Note 18)

Note 7 – Property, Plant and Equipment

Major classes of property, plant and equipment consist of the following:

2008

2007
Land
$
1,135,000
$
760,000
Buildings

4,507,366

2,815,839
Building improvements

1,856,618

1,407,308
Machinery and equipment

1,786,117

1,765,606
Capitalized labor and overhead

216,602

216,602
Furniture and fixtures

337,605

289,741
Computer equipment

327,566

267,765
Transportation equipment

109,969

74,709
Lab equipment

686,937

42,445
Totals at cost

10,963,780

7,640,015
Less: Accumulated depreciation and amortization

(2,934,891)

(2,584,288)

$
8,028,889
$
5,055,727

Depreciation and amortization expense (1)
$
522,925
$
436,171

~~(1)~~

~~Includes amortization expense of $172,322 and $179,714 for the years ending December 31, 2008 and 2007 respectively. Such amortization expense relates to other capitalized and intangible assets~~


	2009			2008
Land	$	1,135,000		$	1,135,000
Buildings		4,507,366			4,507,366
Building improvements		2,105,781			2,073,220
Machinery and equipment		1,886,564			1,786,117
Furniture and fixtures		341,245			337,605
Computer equipment		414,420			327,566
Transportation equipment		109,969			109,969
Lab equipment		444,637			686,937
Totals at cost		10,944,982			10,963,780
Less:Accumulated depreciation and amortization		(3,353,619	)		(2,934,891	)
	$	7,591,363		$	8,028,889

Depreciation and amortization expense (1)	$	580,238		$	522,925

(1) Includes amortization expense of $161,510 and $172,322 for the years ending December 31, 2009 and 2008, respectively. Such amortization expense relates to other capitalized and intangible assets

During ~~2007,~~the year ended December 31, 2009, certain Lab Equipment that was built in the year ended December 31, 2008 was transferred out of fixed assets ~~in property, plant~~ and ~~equipment were traded in exchange for new assets with no resulting gain or loss.~~

sold to a customer.

~~F-14~~

F-15

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

2008

Note 8 – Intangible Assets

Intangible assets as of December 31, are summarized as follows:

~~2008~~

Weighted Average

Accumulated
Net of Accumulated
Intangible Assets

Amortization Period
Cost
Amortization
Amortization

Licensing Agreement

5
$10,000
$10,000
$0
Patents & Copyrights

14
41,021
21,827
19,194
Intellectual Property

15
100,000
50,003
49,997
Certifications

3
58,722
38,090
20,632
Other

5
21,492
21,492
0

Totals

$231,235
$141,412
$89,823

~~2007~~

Weighted Average

Accumulated
Net of Accumulated
Intangible Assets

Amortization Period
Cost
Amortization
Amortization

Licensing Agreement

5
$10,000
$10,000
$0
Patents & Copyrights

14
32,019
19,376
12,643
Intellectual Property

15
100,000
43,336
56,661
Certifications

3
55,775
18,516
37,259
Other

5
21,492
21,492
0

Totals

$219,286
$112,720
$106,566

~~F-15~~

2009

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31,~~

Intangible Assets	Weighted Average Amortization Period		Cost		Accumulated Amortization		Net of Accumulated Amortization

Licensing Agreement		5	$	10,000	$	10,000	$	0
Patents & Copyrights		14		46,243		23,359		22,884
Intellectual Property		15		100,000		56,670		43,330
Certifications		3		58,722		53,053		5,669
Other		5		21,492		21,492		0

Totals			$	236,457	$	164,574	$	71,883

2008 ~~and 2007~~


Intangible Assets	Weighted Average Amortization Period		Cost		Accumulated Amortization		Net of Accumulated Amortization

Licensing Agreement		5	$	10,000	$	10,000	$	0
Patents & Copyrights		14		41,021		21,827		19,194
Intellectual Property		15		100,000		50,003		49,997
Certifications		3		58,722		38,090		20,632
Other		5		21,492		21,492		0

Totals			$	231,235	$	141,412	$	89,823

The estimated amortization expense related to intangible assets for each of the five succeeding fiscal years and thereafter as of December 31 is as follows:

Year Ended

2009
$ 23,032
2010
13,738
2011
8,069
2012
8,069
2013
8,064
Thereafter
28,851

Total
$ 89,823

2010	$ 13,999
2011	8,330
2012	8,330
2013	8,325
2014	6,663
Thereafter	26,236

Total	$ 71,883

~~Note 9 – Customer Deposits~~

A customer has placed a deposit on an order with the Company for $3,559,410. The Company has issued an Irrevocable Standby Letter of Credit with this customer as named beneficiary for that same amount. The Company is utilizing that same amount from its available line of credit with its bank to collateralize this letter of credit. The Company has not yet recognized any revenue on this order.

F-16

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

Note 109 – Financing Arrangements

The Company has a $5 million three-year revolving credit facility with a bank permitting it to borrow on a revolving basis until May 1, 2011. Interest on the unpaid principal balance on this facility accrues at either (i) the LIBOR rate plus 2.00% or (ii) the bank’s Prime Rate minus .25%. Although, there were no amounts outstanding on the facility as of December 31, ~~2008~~2009 and ~~2007~~2008, the Company had utilized ~~$500,000~~$354,000 and ~~$160,000~~$500,000 of the credit facility at December 31, ~~2008~~2009 and December 31, ~~2007~~2008, respectively, to purchase equipment which was converted into term loans and reduced the funds available from the credit facility by those same amounts. The prime rate was 3.25% ~~and 7.25%~~ at December 31, 2009 and 2008. In 2008, ~~and 2007 respectively. The weighted average interest rate on~~ the ~~Company’s short-term borrowings for 2007~~Company borrowed $340,000 to purchase equipment, which was ~~8.77%~~converted into a 5 year term loan at 5.68%.

~~F-16~~

Note 10 – Long-term Debt

Long-term debt consists of the following:

	2009	2008
CAPITAL ONE BANK $805,000 mortgage payable secured by real property, building and improvements in Saugerties, New York; payable in equal monthly installments of $5,903 including interest at 6.2% per annum; entire principal comes due in July 2018.	$775,235	$796,610

GENERAL ELECTRIC CAPITAL CORPORATION $2,700,000 mortgage payable secured by real property, building and improvements at 1860 Smithtown Avenue, Ronkonkoma, NY; payable in monthly installments of $22,285 including interest at 5.67% per annum; pursuant to an installment sale agreement with the Town of Islip Industrial Development Agency; final payment due March 2017	1,586,666	1,758,786

CAPITAL ONE BANK $1,000,000 mortgage payable secured by real property and building at 979 Marconi Avenue, Ronkonkoma, NY, payable in monthly installments of $7,023 including interest at 5.67% per annum, pursuant to an installment sale agreement with the Town of Islip Industrial Development Agency; entire principal comes due in March 2018.	951,019	979,722

F-17

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

~~Note 11 – Long-term Debt~~

2008

Long-term debt consists of the following:

2008
2007
KIDCO REALTY CORP.

$900,000 purchase money mortgage secured by

real property, building and improvements in

Saugerties, New York; payable in equal monthly

installments of $5,988 including interest at 7%

per annum; entire principal comes due in

May 2009
$ 0
$ 794,897

CAPITAL ONE BANK

$805,000 mortgage payable secured by

real property, building and improvements in

Saugerties, New York; payable in equal monthly

installments of $5,903 including interest at 6.2%

per annum; entire principal comes due in

July 2018
796,610
0

GENERAL ELECTRIC CAPITAL CORPORATION

$2,700,000 mortgage payable secured by real

property, building and improvements at 1860

Smithtown Avenue, Ronkonkoma, NY; payable in

monthly installments of $22,285 including interest

at 5.67% per annum; pursuant to an installment

sale agreement with the Town of Islip Industrial

Development Agency; final payment due March

2017
1,758,786
1,921,439

CAPITAL ONE BANK

$1,000,000 mortgage payable secured by real

property and building at 979 Marconi Avenue,

Ronkonkoma, NY, payable in monthly installments

of $7,022.99 including interest at 5.67% per

annum, pursuant to an installment sale agreement

with the Town of Islip Industrial Development

Agency; entire principal comes due in March 2018
979,722
0

~~F-17~~

	2009	2008
CAPITAL ONE BANK $500,000 mortgage payable secured by real property and building at 979 Marconi Avenue, Ronkonkoma, NY, payable in monthly installments of $2,992 including interest at 3.67% for the first four years and will be adjusted beginning March 1, 2012; pursuant to an installment Sale agreement with the Town of Islip Industrial Development Agency. The entire principal comes due in March 2018.	$469,993	$487,425

CAPITAL ONE BANK Sixty month installment note, payable in monthly installments of $1,776, including interest at 6.75% per annum; final payment due January 2011, collateralized by certain equipment.	23,826	42,787

CAPITAL ONE BANK Sixty month installment note, payable in monthly installments of $2,770, including interest at 7.01 per annum; final payment due April 2012, collateralized by certain equipment.	71,452	98,561

CAPITAL ONE BANK Sixty month installment note payable in monthly installments of $6,536 including interest at 5.68% per annum; final payment due August 2013, collateralized by certain equipment.	258,674	320,263
Totals	4,136,865	4,484,153
Less: Current maturities	368,041	348,521
Long-term debt	$3,768,824	$4,135,632

Future maturities of long-term debt as of December 31, 2009 are as follows:

	2010	$368,041
	2011	372,394
	2012	780,350
	2013	330,563
	2014	295,847
	Thereafter	1,989,670
		$ 4,136,865

As of December 31, 2009, we are in compliance with the terms of the covenants in both of the Capital One Bank and General Electric Capital Corporation loan agreements.

F-18

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

2008
2007
CAPITAL ONE BANK
$500,000 mortgage payable secured by real

property and building at 979 Marconi Avenue,

Ronkonkoma, NY, payable in monthly installments

of $2,992.12 including interest at 3.67% for the

first four years and will be adjusted beginning

March 1, 2012; pursuant to an installment

Sale agreement with the Town of Islip

Industrial Development Agency. The entire

principal comes due in March 2018.
487,425
0

CAPITAL ONE BANK

Sixty month installment note; payable in

monthly installments of $4,922, including

interest at 7.74% per annum; final payment

due August 2007; collateralized by certain

equipment
0
37,768

CAPITAL ONE BANK

Sixty month installment note, payable

in monthly installments of $1,776, including

interest at 6.75% per annum; final payment due

January 2011, collateralized by certain

equipment
42,787
60,487

CAPITAL ONE BANK

Sixty month installment note, payable

in monthly installments of $2,770, including

interest at 7.01 per annum; final payment due

April 2012, collateralized by certain

equipment.
98,561
123,791

CAPITAL ONE BANK

Sixty month installment note payable

in monthly installments of $6,536 including

interest at 5.68% per annum; final payment due

August 2013, collateralized by certain

equipment.
320,263
0
Totals
4,484,153
2,900,614
Less: Current maturities
348,521
222,193
Long-term debt
$ 4,135,632
$2,678,421

~~F-18~~2008

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

Future maturities of long-term debt as of December 31, are as follows:

2009
$ 348,521

2010
373,853

2011
378,578

2012
786,490

2013
338,105

Thereafter
2,258,606

$ 4,484,153

Note 1211 – Earnings per Share

The calculation of basic and diluted weighted average common shares outstanding is as follows:

2008
2007
Weighted average common shares outstanding

basic earnings per share
4,737,459
3,667,833

Effect of potential common share issuance:

Stock options
32,310
157,438

Weighted average common shares outstanding

Diluted earnings per share
4,769,769
3,825,271

	2009	2008
Weighted average common shares outstanding
basic earnings per share	4,760,749	4,737,459

Effect of potential common share issuance:
Stock options	47,158	32,310

Weighted average common shares outstanding
Diluted earnings per share	4,807,907	4,769,769

Outstanding options to purchase ~~335,000~~313,000 and ~~10,000~~335,000 shares at December 31, ~~2008~~2009 and December 31, ~~2007,~~2008, respectively, were not included in the diluted earnings per share calculation, because the exercise price was higher than the average market ~~price. These~~price however, these options may dilute the earnings per share calculation in ~~the~~ future periods.

Note 1312 – Income Taxes

~~The (benefit) provision~~

For the year ended December 31, 2009, the Company has reduced its benefit for income taxes ~~includes~~recorded due to the ~~following:~~

2008
2007

Current:

Federal
$ 96,730
$ 402,888

State
17,547
94,029

Total Current Tax Provision
114,277
496,917

Deferred:

Federal
(812,152)
(326,125)

State
342,438
(61,133)

Total Deferred Provision
(469,714)
(387,258)

Income Tax (benefit) expense
$ (355,437)
$ 109,659

~~F-19~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008~~uncertainty of full utilization of certain deferred tax assets related to capital loss carryforwards and ~~2007~~

~~In 2006, the Company was required to change its accounting method for~~New York State investment tax purposes from the completed contract to percentage of completion. Under the provisions of the tax law, the Company elected to report the additional deferred revenue, for tax reporting purposes, of approximately $2,000,000 or approximately $500,000 per year, ratably over the four year period ended December 31, 2009.

credits. At December 31, ~~2008,~~2009, the Company had ~~federal research and development tax credit~~approximately $251,000 of capital loss carryforwards, $806,000 of ~~approximately $521,000 and~~ New York State investment tax credit carryforwards and $596,000 of ~~approximately $135,000 that may be offset against future taxable income through~~federal research and development tax credits.

If not utilized, the ~~year 2028. The Company accounts for~~capital loss carryover will expire in 2014, the investment tax credits ~~primarily by the flow-through method whereby it reduces income taxes currently payable~~expire from 2010 through 2025 and the ~~provision~~research and development tax credits expire from 2026-2029. Based on the available objective evidence, including the Company’s history of taxable income and the character of that income, management believes it is more likely than not that these components of the Company’s deferred tax assets will not be fully utilized. Accordingly, the Company provided for a partial valuation allowance against its total net deferred tax assets at December 31, 2009 and 2008 of approximately $787,000 and $672,000 attributable to these components.

F-19

The (benefit) for income taxes inincludes the period the assets giving rise to such credits are placed in service. To the extent such credits are not currently utilized on the Company’s tax return, deferred tax assets, subject to considerations of a valuation allowance, are recognized for the carryforward amount.

following:

	2009			2008
Current:
Federal	$	197,079		$	96,730
State		18,425			17,547
Total Current Tax Provision Deferred:		215,504			114,277
Federal		(279,203	)		(812,152	)
State		16,063			342,438
Total Deferred Tax Provision		(263,140	)		(469,714	)
Income tax (benefit) expense	$	(47,636	)	$	(355,437	)

The tax effects of temporary differences giving rise to significant portions of deferred taxes are as follows:

2008
2007

Allowance for doubtful accounts
$ 36,225
$ 4,945

Inventory capitalization
105,857
115,321

Deferred revenue
(211,663)
(593,865)

Net operating loss carryforwards
131
131

Depreciation and amortization
(201,172)
(64,140)

Investment and other tax credits
655,993
586,302

Compensation costs
288,146
166,320

Vacation accrual
148,558
141,837

Capital loss carryforward
4,490
-

Net deferred tax asset
$ 826,565
$ 356,851

	2009			2008

Allowance for doubtful accounts	$	23,988		$	36,225
Inventory capitalization		190,250			105,857
Deferred revenue		-			(211,663	)
Net operating loss carryforwards		-			131
Depreciation and amortization		(370,063	)		(201,172	)
Investment tax credits		806,495			806,495
Research & development tax credits		595,634			521,415
Compensation costs		340,269			288,146
Vacation accrual		184,627			148,558
Capital loss carryforward		105,474			4,490
Gross deferred tax asset		1,876,674			1,498,482
Less valuation allowance		(786,969	)		(671,917	)
Net deferred tax asset	$	1,089,705		$	826,565

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31, ~~2008~~2009 and ~~2007~~2008 due to the following:

2008

2007

Tax expense computed at federal statutory rate
(20%)

(34%)
State taxes, net of federal tax effect
(130%)

(4%)
Federal current and deferred tax rate differential
(16%)

(2%)
Research, development and investment tax credits
189%

4%
Statutory change in tax accounting method
109%
22%
Other
(4%)

2%
Effective benefit (expense) rate
128%

(12%)

	2009		2008

Tax expense computed at federal statutory rate		(34%)		(34%)
State taxes, net of federal tax effect		(8%)		(8%)
Tax credits utilized in current year		105%		25%
Federal current and deferred tax rate differential		(124%)		(7%)
Research, development and investment tax credits earned		135%		393%
Permanent differences		16%		2%
Capital loss carryforwards		38%		0%
Other		(4%)		(4%)
Valuation allowance		(88%)		(243%)
Effective benefit (expense) rate		36%		128%

F-20

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets, if any will not be realized. Through December 31, 2008 the Company has not established a valuation allowance for its deferred tax assets, as sufficient positive evidence is available based on recent income tax positions coupled with projection of future taxable income. Further, the most significant of the Company’s deferred tax assets are credits with carryover into future years and as of December 31, 2008 there are numerous years remaining to utilize these credits. However, it is at least reasonably possible that management’s estimate of future realization could change in future periods.

Effective January 1, 2007, the Company adopted Financial Accounting Standards Board (“FASB”) Interpretation Number 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109,” (“FIN” No. 48), which prescribes a single, comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on its tax returns. There was no affect on the financial position of the Company upon the adoption of FIN No. 48. The Company files income tax returns in the United States (federal) and in various state jurisdictions.

NOTE 1413 – Stock Option Plans

1989 Non-Qualified Stock Option Plan

On June 15, 1989, the Company instituted a non-qualified stock option plan (the “Plan”). In connection therewith, 700,000 shares of the Company’s common stock were reserved for issuance pursuant to options that may be granted under the Plan through June 30, 2009. All options granted vest over a four-year period and expire between five to seven years after the date of grant. In ~~2008,~~2009, the ~~company~~Company did not grant any options under this Plan.

~~On February 22, 2007 10,000~~ This 1989 Non-Qualified Stock Option Plan expired in June 2009.

In 2008, the Company did not grant any options ~~which vest equally over a four-year period were granted to an employee~~ under ~~the plan which expire on February 21, 2014. On October 10, 2007, 35,250 options which vest as to 12,500 options each of October 10, 2008 and 2009 and 10,250 options~~

~~which vest on October 10, 2010 were granted to an employee under the plan which expire on October 10, 2022.~~

this Plan.

2001 Non-Qualified Stock Option Plan

In November 2006, the Company registered a non-qualified stock option plan that the shareholders had approved in July 2001, covering key employees, officers, directors and other persons that may be considered as service providers to the Company. Options will be awarded by the Board of Directors or by a committee appointed by the ~~board.~~Board. Under the plan, an aggregate of 300,000 shares of Company common stock, $.01 par value, are reserved for issuance or transfer upon the exercise of options which are granted. Unless otherwise provided in the option agreement, options granted under the plan shall vest over a four year period commencing

~~F-21~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

one year from the anniversary date of the grant. On October 10, 2007, 64,750 options were granted to an employee which vest as to 2,250 options on October 10, 2010 and as to 12,500 options on each October 10, 2012 through 2016. On December 12, 2007 120,000 options were granted to directors. These options vest as to 40,000 immediately and as to 80,000 options which vest equally over two years and expire on December 12, 2017. The stock option plan shall terminate on July 22, 2011. ~~In 2008, the~~The Company did not grant any options under this ~~Plan.~~

Plan in 2009 or 2008.

2007 Share Incentive Plan

On December 12, 2007, shareholders approved the Company’s 2007 Share Incentive Plan (“Incentive Plan”), in connection therewith, 750,000 shares of the Company’s common stock are reserved for issuance pursuant to options or restricted stock that may be granted under the Incentive Plan through December 12, 2017. On September 24, 2008 16,000 shares of the Company’s common stock were granted and issued to six employees.

In 2009 12,325 shares of the Company’s common stock were granted and issued to the Company’s five outside directors.

The purchase price of the common stock under each option plan shall be determined by the Committee, provided, however, that such purchase price shall not be less than the Fair Market Value of the Shares on the date such option is granted. The stock options generally expire seven to ten years after the date of grant.

A summary of the stock option activity related to the 1989 and 2001 Stock Option Plans for the period from January 1, ~~2007~~2008 through December 31, ~~2008~~2009 is as follows.

F-21

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and 2008

1989 Non-Qualified Stock Option Plan

Beginning
Granted
Exercised
Canceled
Ending

Balance
During
During
During
Balance

Outstanding
Period
Period
Period
Outstanding
Exercisable

Year ended December 31, 2007

Number of shares
323,000
45,250
88,000
-0-
280,250
161,750
Weighted average exercise price per share
$ 273
$ 4.90
$ 1.87
$ -0-
$ 3.36
$ 2.95
Year ended December 31, 2008

Number of shares
280,250
-0-
15,000
34,000
231,250
186,625
Weighted average exercise price per share
$ 3.36
$ -0-
$ 1.40
$ 3.10
$ 3.52
$ 3.37

~~F-22~~

	Beginning Balance Outstanding	Granted During Period	Exercised During Period	Canceled During Period	Ending Balance Outstanding	Exercisable
Exercisable

Year ended December 31, 2008
Number of shares	280,250	-0-	15,000	34,000	231,250	186,625
Weighted average exercise price per share	$3.36	$ -0-	$1.40	$3.10	$3.52	$3.37
Year ended December 31, 2009
Number of shares	231,250	-0-	-0-	-0-	231,250	213,500
Weighted average exercise price per share	$ 3.52	-0-	-0-	-0-	$3.52	$3.42

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

2001 Non-Qualified Stock Option Plan

Beginning
Granted
Exercised
Canceled
Ending

Balance
During
During
During
Balance

Outstanding
Period
Period
Period
Outstanding
Exercisable

Year ended December 31, 2007

Number of shares
-0-
184,750
-0-
-0-
184,750
40,000
Weighted average exercise price per share
$ -0-
$ 3.99
$ -0-
$ -0-
$ 3.99
$ 3.65
Year ended December 31, 2008

Number of shares
184,750
-0-
-0-
-0-
184,750
80,000
Weighted average exercise price per share
$ 3.99
$ -0-
$ -0-
$ -0-
$ 3.99
$ 3.65

	Beginning Balance Outstanding	Granted During Period	Exercised During Period	Canceled During Period	Ending Balance Outstanding	Exercisable
Exercisable

Year ended December 31, 2008
Number of shares	184,750	-0-	-0-	-0-	184,750	80,000
Weighted average exercise price per share	$ 3.99	$ -0-	$ -0-	$ -0-	$ 3.99	$ 3.65
Year ended December 31, 2009
Number of shares	184,750	-0-	-0-	-0-	184,750	120,000
Weighted average exercise price per share	$3.99	-0-	-0-	-0-	$3.99	$ 3.65

The number of stock options that were in excess of the market value at December 31, ~~2008~~2009 was ~~335,000.~~110,000. The number of stock options that were below the market value at December 31, ~~2008~~2009 was ~~81,000.~~

306,000.

The following table summarizes information about the outstanding and exercisable options at December 31, ~~2008.~~

Options Outstanding
Options Exercisable

Weighted

Average
Weighted

Weighted

Remaining
Average

Average

Exercise
Number
Contractual
Exercise
Intrinsic
Number
Exercise
Intrinsic
Price Range
Outstanding
Life
Price
Value
Exercisable
Price
Value

$1.25-$1.99
33,500
1.73 years
$1.40
$56,950
33,500
$1.40
$56,950
$2.00-$2.99
37,500
3.46 years
$2.26
$31,500
28,125
$2.26
$23,625
$3.00-$3.50
10,000
4.47 years
$3.00
$1,000
5,000
$3.00
$500
$3.51-$4.00
120,000
8.95 years
$3.65
$0
80,000
$3.65
$0
$4.01-$4.50
105,000
3.70 years
$4.10
$0
105,000
$4.10
$0
$4.51-$5.00
100,000
8.78 years
$4.62
$0
12,500
$4.62
$0
$5.01-$6.00
10,000
5.08 years
$5.90
$0
2,500
$5.90
$0

On January 1, 2006, the Company adopted the provisions of SFAS No. 123-R “Share-Based Payment” using the modified prospective method. SFAS No. 123-R requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based upon the grant date fair value of those awards. Under the modified prospective method of adopting SFAS No. 123-R, the Company recognized compensation cost for all share-based payments granted after January 1, 2006, plus any awards granted to employees prior to January 1, 2006 that remain unvested at that time. Under this method of adoption, no restatement of prior periods is made.

~~F-23~~2009.

Options Outstanding					Options Exercisable
		Weighted
		Average	Weighted			Weighted
		Remaining	Average			Average
Exercise	Number	Contractual	Exercise	Intrinsic	Number	Exercise	Intrinsic
Price Range	Outstanding	Life	Price	Value	Exercisable	Price	Value

$1.25-$1.99	33,500	.73 years	$1.40	$92,125	33,500	$1.40	$92,125
$2.00-$2.99	37,500	2.46 years	$2.26	$70,875	37,500	$2.26	$70,875
$3.00-$3.50	10,000	3.47 years	$3.00	$11,500	7,500	$3.00	$ 8,625
$3.51-$4.00	120,000	7.95 years	$3.65	$60,000	120,000	$3.65	$60,000
$4.01-$4.50	105,000	2.70 years	$4.10	$ 5,250	105,000	$4.10	$ 5,250
$4.51-$5.00	100,000	7.78 years	$4.62	$0	25,000	$4.62	$0
$5.01-$6.00	10,000	4.08 years	$5.90	$0	5,000	$5.90	$0

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~December 31, 2008 and 2007~~

The intrinsic value of the 15,000 ~~and 88,000~~ options exercised during the ~~years~~year ended December 31, 2008 was $27,000. No options were exercised in 2009.

F-22

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009 and ~~2007, was $27,000 and $304,240 respectively.~~

2008

During the years ended December 31, ~~2008~~2009 and ~~2007,~~2008, the Company recorded into selling and general administrative expense approximately ~~$263,000~~$167,000 and ~~$254,000,~~$263,000, for the cost of employee services received in exchange for equity instruments based on the grant-date fair value of those instruments in accordance with the provisions of ~~SFAS No. 123-R.~~

ASC 718.

The fair value was estimated by using the Black-Scholes option-pricing model which took into account as of the grant date, the exercise price and the expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option. The following is the average of the data used for the following items. There were no options granted in ~~2008.~~

2008 or 2009.

Risk-Free

Expected
Expected
Year Ended
Interest Rate
Expected Life
Volatility
Dividends

December 31, 2007
3.9%
4.9 Years
56.49%
None

Note 1514 – Defined Contribution Plan

On August 1, 1998, the Company adopted a 401(k) Plan for the benefit of all eligible employees. All employees as of the effective date of the 401(k) Plan became eligible. An employee who became employed after August 1, 1998, would become a participant after three months of continuous service.

Participants may elect to contribute from their compensation any amount up to the maximum deferral allowed by the Internal Revenue Code. Employer contributions are optional. During the years ended December 31, ~~2008~~2009 and ~~2007~~2008 the Company incurred administrative costs totaling ~~$2,038~~$3,783 and ~~$2,025~~$2,038 respectively. No employer contribution has been made for ~~2008~~2009 and ~~2007.~~

2008.

Note 1615 – ~~Concentration of Credit Risk~~

Significant Risks and Uncertainties

Cash and Cash Equivalents

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 December 31, ~~2008~~2009 and at December 31, ~~2007~~2008 was approximately $377,000 and $3,805,000, ~~and $4,613,000~~ respectively.

Export Sales

Export sales to unaffiliated customers represented approximately ~~23%~~14% and ~~21%~~23% of sales for the years ended December 31, 2009 and 2008, ~~and 2007, respectively,~~respectively. Export sales in both ~~2008~~2009 and ~~2007~~2008 were primarily to customers in Europe and Asia. All contracts are denominated in U.S. dollars. The Company does not enter into any foreign exchange contracts.

~~F-24~~

F-23

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2008~~2009 and ~~2007~~

2008

Note 1716 – Related Party Transactions

The general counsel for the Company is also a director. The Company incurred legal fees for his professional services of approximately ~~$90,000~~$65,000 and ~~$133,000~~$90,000 for the years ended December 31, ~~2008~~2009 and ~~2007,~~2008, respectively. As of December 31, ~~2008~~2009 and ~~2007,~~2008, the Company owed the general counsel approximately $65,000 and $90,000 ~~and $116,000~~ respectively.

~~Note 18 – Other Income~~

Other income for the current year decreased to approximately $189,000, a decrease of $374,000 or 66.4% compared to $563,000 of other income generated during the year end December 31, 2007. During the year ended December 31, 2007, there was a settlement of litigation between us and PrecisionFlow Technologies, Inc. Under the terms of the settlement, we are to receive payments totaling $541,600 over a specific timetable. We have received $408,300 through December 31, 2008. Other income for the year ended December 31, 2007 was approximately $562,000. As a result of a settlement of litigation between the Company and PrecisionFlow Technologies, Inc., the Company will receive payments totaling $541,600 to be paid over a specific timetable as defined under the settlement agreement. Other income in 2006 was approximately $116,000 primarily as a result of a distribution from a liquidating trust of a former customer of the Company that filed a voluntary petition for relief under Chapter 11 of Title 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware. The Company had previously written off this customer account balance. In 2006, the liquidating trust distributed $92,400 to the Company, which represented 33% of the claim.

Note 1917 – Segment Reporting

The Company adopted ~~SFAS 131, “Disclosures about Segments of an Enterprise and Related Information.~~ASC 280, “Segment Reporting.” The Company operates through (3) segments, CVD, SDC and Conceptronic. The CVD division is utilized for silicon, silicon germanium, silicon carbide and gallium arsenide processes. SDC is the Company’s ultra-high purity manufacturing division in Saugerties, New York. Conceptronic is a manufacturer of Surface Mount Technology equipment. The accounting policies of CVD, SDC and Conceptronic are the same as those described in the summary of significant accounting policies (see Note 2). The Company evaluates performance based on several factors, of which the primary financial measure is earnings before taxes.

~~F-25~~

~~CVD EQUIPMENT CORPORATION AND SUBSIDIARY~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

The following table presents certain information regarding the Company’s segments as of December 31, ~~2008~~2009 and ~~2007~~

for the year then ended:

	CVD		SDC			Conceptronic			Eliminations			Consolidated
Assets	$	22,503,703	$	2,742,836		$	1,129,404		$	(4,710,952	)	$	21,664,991

Revenue	$	7,530,259	$	3,065,804		$	923,577		$	(944,621	)	$	10,575,019
Interest Expense		175,029		50,790			22,897						248,716
Depreciation and amortization		492,384		74,796			13,058						580,238
Capital Expenditures		162,037		70,046			-						232,083
Pretax earnings (loss)		834,198		(302,396	)		(400,414	)					131,388

The following table presents certain information regarding the Company’s segments as of December 31, 2008 and for the year then ended:

CVD

SDC

Conceptronic

Eliminations
Consolidated
Assets

$   24,976,459

$   3,747,201

$   1,574,016

$   (5,007,326)
$   25,290,350

Revenue

$   10,831,186

$   5,423,661

$   2,603,127

$   (711,233)
$   18,146,741
Interest Income

107,064

134

-

-
107,198
Interest Expense

124,635

50,314

54,051

229,000
Depreciation and amortization

437,278

69,962

15,685

522,925
Capital
expenditures

3,272,212

106,954

2,251

3,381,417
Pretax (loss) earnings

236,875

621,589

(582,120)

276,344

~~The following table presents certain information regarding the Company’s segments as of~~

	CVD		SDC		Conceptronic			Eliminations			Consolidated
Assets	$	24,976,459	$	3,747,201	$	1,574,016		$	(5,007,326	)	$	25,290,350

Revenue	$	10,831,186	$	5,423,661	$	2,603,127		$	(711,233	)	$	18,146,741
Interest Expense		124,635		50,314		54,051			-			229,000
Depreciation and amortization		437,278		69,962		15,685			-			522,925
Capital Expenditures		3,272,212		106,954		2,251			-			3,381,417
Pretax earnings (loss)		6,875		621,589		(582,120	)		-			276,344

F-24

CVD EQUIPMENT CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, ~~2007~~2009 and ~~for the year then ended:~~

CVD

SDC

Conceptronic

Eliminations
Consolidated
Assets

$ 19,155,538

$ 2,238,349

$ 2,207,647
$ (4,594,628)
$ 19,006,906

Revenue

$ 8,114,700

$ 3,007,235

$ 2,907,747

$ (451,910)
$ 13,577,772
Interest Income

50,978

188

-0-

51,166
Interest Expense

69,433

67,536

79,686

216,655
Depreciation and amortization

354,342

59,797

22,032

436,171
Capital
expenditures

547,539

50,829

905

599,273
Pretax (loss) earnings

1,816,735

(422,825)

(507,165)

886,745
2008

Note 2018 - Commitments and Contingencies

Legal Proceedings

On September 18, 2007 a settlement was reached between the Company and ~~Precision Flow~~PrecisionFlow Technologies, Inc. of the pending litigation. Under the terms of the settlement, all claims and counterclaims asserted by the parties in previously filed lawsuits were discontinued in consideration of which wethe Company will receive payments totaling $541,600 to be paid over a specific timetable as defined. As of December 31, ~~2008~~2009, we have received ~~$408,300.~~

$458,300.

In June 2008, the Company commenced an action against a third party in the Supreme Court of the State of New York, Suffolk County. By that action, the Company sought to recover $154,161 for manufacturing engineering services and system fabrication; spare parts; and reimbursable expenses. Subsequently, the defendant removed the action to the United States District Court for the Eastern District of New York. Once in Federal Court, the customer asserted various counterclaims. A settlement of the actions was agreed to in late 2009 and executed in February 2010.

On January 26, 2010, the Company commenced an action against Taiwan Glass Industrial Corp. and Mizuho Corporate Bank in the United States District Court for the Southern District of New York. By that action, the Company seeks monetary damages ($5,816,000) for breach of contract against Taiwan Glass Industrial Corp., which the Company believes had no legal basis for unilaterally refusing to accept and pay for specially manufactured equipment shipped by the Company, and against Mizuho Corporate Bank for failing to pay the second installment on a letter of credit issued by Mizuho Corporate Bank on behalf of TG. Mizuho Corporate Bank has denied the allegations and Taiwan Glass Industrial Corp. has not yet responded to the Company's complaint. However, Taiwan Glass Industrial Corp. has claimed that the Company must pay them the sum of $3,564,000 for alleged breach of contract. The Company is vigorously pursuing its claim.

~~F-26~~As a result of the above-mentioned dispute with Taiwan Glass, the accounting treatment the Company applied was to unwind the contract since revenue recognition rules under generally accepted accounting principles in the United States of America were not met. With this accounting treatment we recorded the sum of the retained initial payment ($3,564,000) and the estimated lower of cost or market basis of the returned equipment ($1,150,000) as an offset to the production costs of the specially manufactured equipment ($4,027,000). The result of unwinding the Taiwan Glass contract in the fourth quarter of 2009 was to reduce the CVD division revenue by $3,564,000 and our cost of revenue by $4,714,000

F-25

	Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)	Weighted-average exercise price of outstanding options, warrants and rights(2)	Number of securities remaining available for future issuance
Plan Category
Equity compensation plans approved by security holders	421,000	$ 3.09	878,250

Total	421,000	$3.09	878,250


/s/ Leonard A Rosenbaum		President, Chief Executive Officer and Director (Principal Executive Officer)	March 31, ~~2009~~ 2010
Leonard A. Rosenbaum	~~(Principal Executive Officer)~~
/s/ Alan H. Temple Jr.	~~Director~~	Director	March 31, ~~2009~~ 2010
Alan H. Temple Jr.
/s/ Martin J. Teitelbaum		Director and Assistant Secretary	March 31, ~~2009~~ 2010
Martin J. Teitelbaum
/s/ Conrad J. Gunther	~~Director~~	Director	March 31, ~~2009~~ 2010
Conrad J. Gunther
/s/ Bruce T. Swan	~~Director~~	Director	March 31, ~~2009~~ 2010
Bruce T. Swan
/s/Kelly S. Walters		Director	March 31, 2010
Kelly S. Walters

/s/ Glen R. Charles		Chief Financial Officer and Secretary	March 31, ~~2009~~ 2010
Glen R. Charles		(Principal Financial and Accounting Officer)

Election of Directors:
		Withheld
	For	Authority
Leonard A. Rosenbaum	4,341,313	14,430
Martin J. Teitelbaum	4,216,313	139,430
Alan H. Temple Jr.	4,340,593	15,150
Conrad J. Gunther	4,341,313	14,430
Bruce T. Swan	4,340,593	15,150

Ratification of MSPC, Certified Public Accountants and Advisers, A Professional Corporation:
	For	Against	Abstentions
	4,353,344	2,000	399

	High	Low
Year Ended December 31, 2008:
1^st Quarter...........................	$3.96	$3.08
2^nd Quarter...........................	3.89	2.80
3^rd Quarter...........................	4.75	3.15
4^th Quarter...........................	3.65	2.19

	High	Low
Year Ended December 31, 2007:
1^st Quarter...........................	$6.21	$4.90
2^nd Quarter...........................	8.95	5.28
3^rd Quarter...........................	6.20	4.55
4^th Quarter...........................	4.91	3.65

	OPTION AWARDS
Name	Number of Securities Underlying Unexercised Options Exercisable (#)	Number of Securities Underlying Unexercised Options Unexercisable (#)	Option Exercise Price ($)	Option Expiration Date

Leonard A.	21,000	-	4.10	9/13/2012
Rosenbaum	16,000	8,000	3.65	12/12/2017

Glen R. Charles	11,250	3,750	2.26	6/16/2012

	OPTION AWARDS
Name	Number of Securities Underlying Unexercised Options Exercisable (#)	Number of Securities Underlying Unexercised Options Unexercisable (#)	Option Exercise Price ($)	Option Expiration Date

Leonard A.	21,000	-	4.10	9/13/2012
Rosenbaum	24,000	-	3.65	12/12/2017

Glen R. Charles	15,000	-	2.26	6/16/2012
Karlheinz Strobl	25,000	75,000(1)	4.62	10/10/2017

Name	Option Awards (1)	Total
Alan H. Temple Jr.	$41,332	$41,332
Martin J. Teitelbaum	41,332	41,332
Conrad J. Gunther	41,332	41,332
Bruce T. Swan	41,332	41,332

		2008		2007
ASSETS
Current Assets
Cash and cash equivalents	$	5,721,369	$	5,110,447
Accounts receivable, net		2,642,670		1,769,265
Investments		-		251,130
Cost and estimated earnings in excess
of billings on uncompleted contracts		3,972,533		1,847,288
Inventories		3,292,316		3,015,635
Deferred income taxes – current		54,049		90,774
Other current assets		174,782		379,360
Total Current Assets		15,857,719		12,463,898
Property, plant and equipment, net		8,028,889		5,055,727
Deferred income taxes – non-current		772,516		266,077
Other assets		541,404		1,114,637
Intangible assets, net		89,822		106,566
Total Assets	$	25,290,350	$	19,006,906

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current maturities of long-term debt	$	348,521	$	222,193
Customer deposits		3,559,410		-
Accounts payable		1,340,830		517,934
Accrued expenses		641,606		1,245,819
Accrued professional fees – related party		90,053		116,165
Deferred revenue		28,745		47,444
Total Current Liabilities		6,009,165		2,149,555
Long-term debt, net of current portion		4,135,632		2,678,421
Total Liabilities		10,144,797		4,827,976

Commitments and Contingencies		-		-

Stockholders’ Equity:
Common stock - $0.01 par value – 10,000,000 shares authorized: issued & outstanding, 4,749,500 shares at
December 31, 2008 and 4,718,500 shares at December 31, 2007		47,495		47,185
Additional paid-in capital		9,927,260		9,592,728
Retained earnings		5,170,798		4,539,017
Total Stockholders’ Equity		15,145,553		14,148,930

Total Liabilities and Stockholders’ Equity	$	25,290,350	$	19,006,906

	2008	2007
Cash paid during the year for:
Income taxes, net of refunds	$ 514,220	$ 39,446
Interest	229,000	217,570

	Weighted Average		Accumulated	Net of Accumulated
Intangible Assets	Amortization Period	Cost	Amortization	Amortization

Licensing Agreement	5	$10,000	$10,000	$0
Patents & Copyrights	14	41,021	21,827	19,194
Intellectual Property	15	100,000	50,003	49,997
Certifications	3	58,722	38,090	20,632
Other	5	21,492	21,492	0

Totals		$231,235	$141,412	$89,823

	2009	$ 23,032
	2010	13,738
	2011	8,069
	2012	8,069
	2013	8,064
	Thereafter	28,851

	Total	$ 89,823

	2008	2007
CAPITAL ONE BANK
$500,000 mortgage payable secured by real
property and building at 979 Marconi Avenue,
Ronkonkoma, NY, payable in monthly installments
of $2,992.12 including interest at 3.67% for the
first four years and will be adjusted beginning
March 1, 2012; pursuant to an installment
Sale agreement with the Town of Islip
Industrial Development Agency. The entire
principal comes due in March 2018.	487,425	0

CAPITAL ONE BANK
Sixty month installment note; payable in
monthly installments of $4,922, including
interest at 7.74% per annum; final payment
due August 2007; collateralized by certain
equipment	0	37,768

CAPITAL ONE BANK
Sixty month installment note, payable
in monthly installments of $1,776, including
interest at 6.75% per annum; final payment due
January 2011, collateralized by certain
equipment	42,787	60,487

CAPITAL ONE BANK
Sixty month installment note, payable
in monthly installments of $2,770, including
interest at 7.01 per annum; final payment due
April 2012, collateralized by certain
equipment.	98,561	123,791

CAPITAL ONE BANK
Sixty month installment note payable
in monthly installments of $6,536 including
interest at 5.68% per annum; final payment due
August 2013, collateralized by certain
equipment.	320,263	0
Totals	4,484,153	2,900,614
Less: Current maturities	348,521	222,193
Long-term debt	$ 4,135,632	$2,678,421

Future maturities of long-term debt as of December 31, are as follows:
	2009	$ 348,521
	2010	373,853
	2011	378,578
	2012	786,490
	2013	338,105
	Thereafter	2,258,606
		$ 4,484,153

	Beginning	Granted	Exercised	Canceled	Ending
	Balance	During	During	During	Balance
	Outstanding	Period	Period	Period	Outstanding	Exercisable

Year ended December 31, 2007
Number of shares	323,000	45,250	88,000	-0-	280,250	161,750
Weighted average exercise price per share	$ 273	$ 4.90	$ 1.87	$ -0-	$ 3.36	$ 2.95
Year ended December 31, 2008
Number of shares	280,250	-0-	15,000	34,000	231,250	186,625
Weighted average exercise price per share	$ 3.36	$ -0-	$ 1.40	$ 3.10	$ 3.52	$ 3.37

	Risk-Free		Expected	Expected
Year Ended	Interest Rate	Expected Life	Volatility	Dividends

December 31, 2007	3.9%	4.9 Years	56.49%	None

	CVD	SDC	Conceptronic	Eliminations	Consolidated
Assets	$ 24,976,459	$ 3,747,201	$ 1,574,016	$ (5,007,326)	$ 25,290,350

Revenue	$ 10,831,186	$ 5,423,661	$ 2,603,127	$ (711,233)	$ 18,146,741
Interest Income	107,064	134	-	-	107,198
Interest Expense	124,635	50,314	54,051		229,000
Depreciation and amortization	437,278	69,962	15,685		522,925
Capital expenditures	3,272,212	106,954	2,251		3,381,417
Pretax (loss) earnings	236,875	621,589	(582,120)		276,344