UNITED
      STATES SECURITIES AND EXCHANGE COMMISSIONWashington,
      D.C. 20549________________Form
      10-K(Mark
      One)þ
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.For
      the fiscal year ended December 31, 2009o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934.For
      the transition period from ____ to _____Commission
      file number:  1-16525CVD
      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:





Title
      of each class
            Name
      of each exchange on which registeredCommon
      Stock, Par value $0.01
            NASDAQ
      Capital Market





Securities
      registered under Section 12(g) of the Act:NoneIndicate
      by check mark if the registrant is a well-known seasoned issuer, as
      defined in Rule 405 of the Securities Act.
            Yes
      o    No
      þIndicate
      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
      þIndicate
      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  þ    No
      oIndicate
      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
      þ




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 filer
            o
            Accelerated
      filer
            o
            Non-accelerated
      filer
            o
            Smaller
      reporting company
            þ





Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act).
            Yes
      o No þ




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: $9,248,873 at June 30, 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 oNo 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.





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
technologiesTM.  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 27 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.


1




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 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, 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
Nano is 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 our Application Laboratory in a
separate building where our personnel interact effectively with the scientists
and engineers of our customer base.


2


SDC
designs 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/Research
designs 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 “CVDgCoatTM” and are being
developed for On-Line use with a float glass system, and 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 CVDgCoatTM technology can
exceed $10,000,000.


3


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.





4


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, 2009 approximately 14% of our revenues were
generated from foreign exports compared to 23% for the twelve months ended
December 31, 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.





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 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
Nano competes 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 space.





SDC
competes 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.


5





Conceptronic/Research’s
proprietary 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
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, 2009 our order backlog was approximately $2,549,000 compared to
approximately $15,271,000 at December 31, 2008, a decrease of $12,722,000 or
83.3%. The decrease is primarily attributed to the terminated contract with a
customer which was included in our backlog at December 31, 2008. (See Item
7-Management’s Discussion and Analysis of Financial Condition and Results of
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.
 6


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 and Smart Glass for Low-E and
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 the year ending
December 31, 2008 (3.9% 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.


7







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





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





Employees





At
December 31, 2009 we had 124 employees, 122 of which were full time personnel
and 2 were part time.  We had 59 people in manufacturing, 37 in
engineering (including research and development and efforts related to product
improvement) 4 in field service, 6 in sales and marketing and 18 in general
management and administration.





Item
2.                                Description of
Property.





We
maintain our headquarters at 1860 Smithtown Avenue, Ronkonkoma, New York, where
we own a 50,000 square foot manufacturing facility which we purchased in March,
2002.  The purchase price for the property was $2,161,875. In addition
we incurred $1,283,077 of renovations.  We financed $2,700,000 of the
total purchase price and the costs associated with the
renovation.  The financing consisted of a loan secured by a mortgage
held by GE Capital Public Finance Inc. subject to an installment sale agreement
with the Town of Islip Industrial Development Agency.  Payments are
based upon a 15 year amortization schedule.  Interest is fixed at
a rate of 5.67%.  Our CVD/First Nano and Conceptronic/Research
divisions operate out of this facility.


8





Our SDC
division operates out of a 22,000 square foot manufacturing facility situated on
five acres of land which we purchased in December 1998 and is located at 1117
Kings Highway, Saugerties, New York.  The property was purchased from
Kidco Realty Corp.  The purchase price for the property was
$1,400,000.  We financed $900,000 of the purchase price.  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 into a
single note in the principal sum of $805,000 of which approximately $17,000
represented additional borrowings incurred by the Company.  Principal
and interest payments are made in 119 equal consecutive monthly installments of
$5,903.27, 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 6.2%.1





The
Application Laboratory operates out of a 13,300 square foot facility located at
979 Marconi Avenue, Ronkonkoma, NY 11779 that was purchased from HPG Realty Co.,
LLC.  The total purchase price for the 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.





Item
3.                                Legal
Proceedings.





On
September 18, 2007 a settlement was reached between us and 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 we will receive payments
totaling $541,600 to be paid over a specific timetable as defined.As of December 31,
2009, we have received $458,300.





In June
2008, we commenced an action against a third party in the 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 denied the allegations and Taiwan Glass Industrial Corp. has
not yet responded to our complaint, but it has claimed that we must pay them
$3,564,000 for alleged breach of contract. We are vigorously pursuing our
claims.





9


Item
4.                      (Removed and Reserved)





10


PART
II





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 NASDAQ Capital Market.





High
            LowYear Ended December 31, 2009:1st Quarter...........................
            $3.49
            $2.352nd Quarter...........................
            4.42
            2.663rd Quarter...........................
            4.34
            3.154th Quarter...........................
            4.95
            3.32





High
            LowYear Ended December 31, 2008:1st Quarter...........................
            $3.96
            $3.082nd Quarter...........................
            3.89
            2.803rd Quarter...........................
            4.75
            3.154th Quarter...........................
            3.65
            2.19










Dividend
Policy





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.


11


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, 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 issuancePlan
      CategoryEquity
      compensation plans approved by security holders
            
            416,000
            
            $
      3.50
            
            836,925Total
            
            416,000
            
            $3.50
            
            836,925


_________________________





(1)       Reflects
aggregate options and restricted stock awards outstanding under our 1989 Key
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





During
the year ended December 31, 2009, we granted to our five independent directors
an aggregate 12,325 shares of restricted common stock pursuant to the 2007 Share
Incentive Plan with an aggregated value of $42,521.





Issuer
Purchases Of Equity Securities





None.





Item  6.                      Selected
Financial Data.





Note
applicable


12







Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations





You
should read the following discussion and analysis in conjunction with our
financial statements and related notes contained elsewhere in this report. This
discussion contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward looking
statements as a result of a variety of factors discussed in this report and
those discussed in other documents we file with the SEC. In light of these
risks, uncertainties and assumptions, readers are cautioned not to place undue
reliance on such forward-looking statements. These forward-looking statements
represent beliefs and assumptions only as of the date of this report. While we may elect to update
forward-looking statements at some point in the future, we specifically disclaim
any obligation to 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 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 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.





Based on
more than 27 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.





Results
of Operations





Revenue




Revenue
for the year ended December 31, 2009 was approximately $10,575,000 compared to
approximately $18,147,000 for the year ended December 31, 2008, representing a
decrease of 41.7%.  The decline in revenue of $7,572,000 was
principally due to (i) delays or reductions in capital expenditures by potential
customers due to unfavorable economic conditions and (ii) a significant contract
from a CVD division customer being breached during the fourth quarter of 2009
that was previously accounted for under the percentage of completion contract
method of revenue recognition. We claim the customer breached the contract due
to 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 we are entitled to retain the initial 30% payment of $3,564,000 received
and that the customer had no legal basis to unilaterally refuse delivery of the
equipment. As such we filed a complaint in the United States District Court for
the Southern District of New York on January 26, 2010 seeking monetary damages
($5,816,000) for breach of contract against the customer,
Taiwan Glass Industrial Corp. (“TG”), and Mizuho Corporate Bank for failing to
pay the second installment on a letter of credit issued by Mizuho Corporate Bank
on behalf of TG. As of the date of this Report on Form 10-K, TG has not
responded to our complaint; however it has claimed that we must pay them
$3,564,000 for alleged breach of contract.


13


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 offset to the production costs of 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 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 $2,599,000 to
$2,166,000 which represents 20.5% of our total revenue during the year ended
December 31, 2009, compared to $4,765,000, or 26.3% of our total revenue for the
prior fiscal year. The decrease is primarily attributed to unfavorable economic
conditions.





Total
revenue from the Conceptronic division decreased by approximately $1,710,000 to
$893,000 which represents 8.4% of our total revenue during the year ended
December 31, 2009, compared to $2,603,000 or 14.3% of our total revenue for the
prior fiscal year.  The decrease in revenue in the Conceptronic
division is also attributed to unfavorable economic conditions.





Gross
Profit





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 engineering
and production personnel during the latter half of 2009 in order to better
maintain higher gross margin levels. As a result of the breach in the TG
contract, the gross profit margin of the CVD division 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.  Substantially all of the
aforementioned reductions in engineering and production personnel were made in
the CVD division.  The SDC division’s gross profit margin decreased to
21.8% for the year ended December 31, 2009 from 33.8% for the year ended
December 31, 2008.  The decrease is primarily the effect of fixed
costs 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 as result of that division’s fixed costs having a
greater impact on the reduced revenues.





Presented
below is a table which reconciles revenue, cost of sales, gross profit and gross
profit percent for the Company and the CVD Division on a pro forma basis if we
were permitted to recognize the revenue under the TG contract in the fourth
quarter of 2009:




CVD
Equipment Corporation:
 Year
Ended December 31, 2009
 
 Revenue
              
              Cost of Sales
              
              Gross Profit
              
              Gross Profit %As
      reported-contract terminated
              $10,575,000
              
              $5,756,000
              
              $4,820,000
              
              45.6Add:
      Revenue recognition-TG contract
              3,564,000
              
              3,564,000Add:Net
      realizable value of returned equipment
              
              
              1,150,000Pro
      forma
              $14,139,000
              
              $10,470,000
              
              $3,669,000
              
              25.9


14


CVD
Division:


Year
Ended December 31, 2009





Revenue
            
            Cost of Sales
            
            Gross Profit
            
            Gross Profit %As
      reported-contract terminated
            $
      7,530,000
            
            $3,477,000
            
            $4,053,000
            
            53.8Add:
      Revenue recognition-TG contract
            3,564,000
            
            3,564,000Add:Net
      realizable value of returned equipment
            
            
            1,150,000Pro
      forma
            $11,094,000
            
            $8,191,000
            
            $2,903,000
            
            26.2


Selling, General and
Administrative Expenses





Selling
and shipping expenses were approximately $699,000 for the year ended
December 31, 2009 compared to $767,000 for the year ended December 31,
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 decrease can be attributed to a combination of
decreased payroll and benefit costs, workers compensation insurance costs,
legal, accounting and employee search costs.





Operating
Income





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





Interest Expense.
Net





Interest
income for the year ended December 31, 2009 was approximately $33,000 compared
to approximately $107,000 for the year ended December 31, 2008. This decrease is
a result of the continued use of cash and cash equivalents to fund the working
capital needs of the Company in 2009.





We
incurred approximately $249,000 of interest expense in the year ended December
31, 2009, which was approximately $20,000 or 8.7% greater than the $229,000
incurred in the year ended December 31, 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, on the acquisition of the
facility at 979 Marconi Avenue, Ronkonkoma, New York in 2008.





Loss on
Impairment




In 2006,
we sold equipment at the selling price of $251,130 to a customer for a purchase
price of 104,482 shares of a non-public company’s common stock, par value $.001
per share. We had the option to demand that the customer make a cash payment
i.e.: $251,130 for the equipment, the amount that would have been required had
the customer made cash payment for the equipment on July 19, 2006 in exchange
for the return of said stock.
  On
February 19, 2008, we exercised our cash payment option demanding the cash
payment of $251,130. The customer did not make payment and we took possession of
said equipment.


15


Other
Income





Other
income for the current year decreased to approximately $43,000, a decrease of
$146,000 or 77.2% compared to $189,000 of other income generated during the year
end December 31, 2008. In 2008, we received refunds for prior year’s overpayment
of income taxes.


Net
Income




As a
result of the foregoing factors, for the year ended December 31, 2009, our net
income amounted to approximately $179,000, as compared to $632,000 for the same
period in 2008.


Liquidity and Capital
Resources





As of
December 31, 2009, we had aggregate working capital of approximately $10,563,000
compared to aggregate working capital of $9,849,000 at December 31, 2008 and had
available cash and cash equivalents of approximately $3,120,000 compared to
approximately $5,721,000 in cash and cash equivalents at December 31,
2008.  The increase in working capital was primarily attributable to 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
was used to fund operations.





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





Inventory
as of December 31, 2009 was approximately $4,418,000 representing an increase of
approximately $1,126,000 or 34.2% over the inventory balance of $3,292,000 as of
December 31, 2008.  This increase is principally due to the
reacquisition of certain inventories derived from the unwinding of the TG
contract during the fourth quarter of 2009.





As of
December 31, 2009, our backlog was approximately $2,549,000, a decrease of
$12,722,000 or 83.3% compared to $15,271,000 at December 31,
2008.  The decrease is primarily attributed to the removal from our
backlog of the anticipated value of 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
an assurance of future achievement or profits as order cancellations or delays
are possible.


16


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%.  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 respectively.We initially utilized
$500,000 of this facility in the form of equipment term loans, 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, 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, 2009 of
$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,
Leonard A. Rosenbaum.




In 2009
order levels for all divisions decreased due to unfavorable economic conditions.
We do not anticipate this trend will continue 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 film
coatings 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 significant
growth 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, 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 purchased
on February 8, 2008, a 13,300 square foot stand-alone building to house our
Application Laboratory.


17





We
believe that our cash and cash equivalent positions, cash flow from operations
and our credit facilities 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





The
Company records stock-based compensation in accordance with the provisions set
forth in ASC 718, "Stock Compensation" using the modified prospective method.
 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 these awards.





18


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
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 asset impairment
charges in the statement of operations during each of the years ended December
31, 2009 and 2008.





Off-Balance
Sheet Arrangements





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.





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, 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, 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.


19


Management’s Annual Report
on Internal Control Over Financial 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,
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, 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.





None





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.


20


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
 
 None
 
 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 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
  CompanyLeonard
      A. Rosenbaum
            64
            Chairman
      of the Board of Directors, Chief Executive Officer,
    PresidentAlan
      H. Temple Jr.
            76
            Director,
      Chairman-Compensation CommitteeMartin
      J. Teitelbaum
            59
            Director,
      Assistant SecretaryConrad
      J. Gunther
            63
            Director,
      Chairman-Audit CommitteeBruce
      T. Swan
            77
            Director,
      Chairman-Nominating, Governance and Compliance
CommitteeKelly
      S. Walters
            38
            DirectorGlen
      R. Charles
            56
            Chief
      Financial Officer, SecretaryKarlheinz
      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.





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.


21








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





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





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.





Kelly S.
Walters





Kelly S.
Walters was appointed a member of the Board of Directors in September, 2009. Mr.
Walters is the founder and presently serves as the managing member of Walters
Advisory LLC, a management consulting firm. He has over 14 years of broad
corporate finance and M&A experience having represented alternative energy,
clean technology, climate policy, advanced materials, chemicals and
nanotechnology clients. From 2007 until 2009, Mr. Walters was a principal at
ThinkEquity partners and a principal in the firm’s Greentech and Enabling
Technologies investment banking team. From 2003 until 2007, he was an investment
banker with Morgan, Joseph & Co. He began his investment banking career with
Lehman Brothers in 2000 in the firm’s Global Chemicals and Industrials Group.
Mr. Walters earned an MA at The Patterson School of Diplomacy and International
Commerce at the University of Kentucky. Mr. Walters
also earned an MBA in Finance and a BA in Economics at the University of
Kentucky. He is a Chartered Financial Analyst (CFA) charterholder, a Certified
Management Accountant (CMA) and a Certified Financial Manager (CFM). Mr. Walters
is qualified to serve as a independent member of our board because his
experience in the alternative energy and nanotechnology
fields.


22





Glen R.
Charles





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.





Code
Of Ethics





The
Company adopted a Corporate Code of Conduct and Ethics that applies to its
employees, senior management and Board of Directors, including the Chief
Executive Officer and Chief Financial Officer.  The Corporate Code of
Conduct and Ethics is available on our web site, http://www.cvdequipment.com,
by clicking on “About Us” and then clicking on “Corporate
Overview.”





Audit
Committee





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, 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 meet the independence requirements for audit committee
membership under the requirements of the NASDAQ Stock Market.


23




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, 2009, all of the filings for our
officers, directors and ten percent stockholders were made on a timely
basis.





Item
11.                      Executive
Compensation.





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, 2009 and 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
              312,333Glen
      R. Charles
              Secretary
      and Chief Financial Officer
            2009
              2008
            135,000
              147,644
            -
              -
            2,531(3)
              5,063(3)
            -
              -
            137,531
              152,707Karlheinz
      Strobl
            2009
            156,000
            -
            30,500
            -
            186,500Vice
      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 2009 and 2008 for option awards as determined
      pursuant to 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 (StockCompensation).  Pursuant
      to SEC rule changes effective February 28, 2010, we
      arerequired
      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
      statementreporting
      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 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
      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 100% of the underlying shares, on
      June 17, 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.


24




Outstanding
Equity Awards at December 31, 2009





The
following table sets forth the outstanding equity awards held by our executive
officers as of December 31, 2009





OPTION
      AWARDSName
            Number
      of Securities Underlying Unexercised Options Exercisable (#)
            Number
      of Securities Underlying Unexercised Options Unexercisable (#)
            Option
      Exercise Price ($)
            Option
      Expiration DateLeonard
      A.
            21,000
            -
            4.10
            9/13/2012Rosenbaum
            24,000
            -
            3.65
            12/12/2017Glen
      R. Charles
            15,000
            -
            2.26
            6/16/2012Karlheinz
      Strobl
            25,000
            75,000(1)
            4.62
            10/10/2017







2009  Director
Compensation





The
following table sets forth a summary of the compensation we paid to our
non-employee directors in 2009.





Name
            Fees
      Earned orPaid in Cash
            Option
      Awards(1)
            TotalAlan
      H. Temple Jr.
            $14,000
            $14,665
            $38,660Martin
      J. Teitelbaum
            14,000
            14,665
            38,660Conrad
      J. Gunther
            17,000
            14,665
            41,670Bruce
      T. Swan
            14,000
            14,665
            38,660Kelly
      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 2009 for option awards as determined pursuant to ASC 718. These
compensation costs reflect option awards granted prior to fiscal
2009.  The assumptions used to calculate the value of option awards
are set forth under Note 13 of the Notes to Consolidated Financial
Statements.
 25


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 Stockholder
      Matters.





The
following table sets forth, as of March 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 20, 2010.





Name and Address of Beneficial
      Owner(1)
            Amounts
      and Nature of
              Beneficial Ownership (2)
            Percent
      of Class (%)Leonard
      A. Rosenbaum
            1,386,850
      (3)
            28.9Alan
      H. Temple Jr.
            215,205 (4)
            4.5Martin
      J. Teitelbaum
            100,305 (5)
            2.1Conrad
      J. Gunther
            74,305
      (6)
            1.5Bruce
      T. Swan
            63,305
      (7)
            1.3Kelly
      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
            39.3Name and Address of Beneficial
      Owner(1)
            Amounts
      and Nature of
              Beneficial Ownership
      (2)
            Percent
      of Class (%)Gagnon
      Securities, LLC
            250,000
            5.3Five
      (5) percent owners as a group
            1,636,850
            34.4








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


26





(1)
            The
      address of Messrs. Rosenbaum, Temple, Teitelbaum, Gunther, Swan,
      Walters,  Charles and Strobl is c/o CVD Equipment Corporation,
      1860 Smithtown Avenue, Ronkonkoma, New York, 11779. The address of Gagnon
      Securities, LLC is 1370 Avenue of the Americas, Suite 2400, New York, NY
      10019.





(2)
            All
      of such shares are owned directly with sole voting and investment power,
      unless otherwise noted below.





(3)
            Includes
      options to purchase 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 2,655 shares of our common stock.  Does
      not include 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
      62,655 shares of our common stock.  Does not include options to
      purchase 2,655 shares of our common stock.  Does not include 1,650
      shares of unvested restricted common
stock.





(6)
            Includes
      options to purchase 62,655 shares of our common stock.  Does not
      include options to purchase 2,655 shares of our common stock.  Does
      not include 1,650 shares of unvested restricted common
    stock.





(7)
            Includes
      options to purchase 47,655 shares of our common stock.  Does not
      include options to purchase 2,655 shares of our common stock.  Does
      not include 1,650 shares of unvested restricted common
    stock.




(8)
              Includes
      options to purchase 2,655 shares of our common stock.  Does not
      include options to purchase 2,655 shares of our common stock.  Does
      not include 1,650 shares of unvested restricted common
    stock.




(9)
            Includes
      options to purchase 15,000 shares of 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.





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 and $133,000 for the three years ended December
31, 2009, 2008, and 2007 respectively. As of December 31, 2009, 2008 and 2007,
unpaid legal fees of approximately $65,000, $90,000 and $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 $102,200 and $111,034
in salary during the fiscal years ending December 31, 2009 and 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.


The
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 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, Bruce T. Swan and Kelly S.
Walters. Messrs. Gunther, Temple, Swan and Walters have been determined to be
“independent” as defined under Rule 4200 of the Nasdaq Stock
Market.





27


Item
14.                      Principal Accountant Fees
and Services.





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





Audit
Fees





The aggregate fees billed
by MSPC for the annual audit of the Company, quarterly interim reviews of
financial statements including the Company’s reports on Form 10-Q and services
normally provided by them in connection with statutory and regulatory filings,
for fiscal years
2009 and 2008, were $94,000 and $92,500, respectively.





Audit-
Related Fees





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





Tax
Fees





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.  The aggregate fees billed by MSPC for such services
were $11,400 in 2009 and $9,480 in 2008. The fees billed by alliantgroup, LP
were $133,163.





All
Other Fees





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.





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.


28





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 ourForm 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 ourForm 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.


29


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
            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 between the Registrant and Capital
      One, N.A. incorporated herein by reference to our Current Report on Form
      8-K filed on April 28, 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          List
of 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)




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


30





SIGNATURES





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.





CVD
      EQUIPMENT CORPORATIONBy:  /s/ Leonard A.
      RosenbaumName:  Leonard
      A. RosenbaumTitle:    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.





POSITION                                                      DATE





NAME
            
            POSITION
            
            DATE/s/  Leonard A
      Rosenbaum
            
            President,
      Chief Executive Officer and Director (Principal Executive
      Officer)
            
            March
      31, 2010Leonard A. Rosenbaum/s/  Alan H. Temple
      Jr.
            
            Director
            
            March
      31, 2010Alan
      H. Temple Jr./s/  Martin J.
      Teitelbaum
            
            Director
      and Assistant Secretary
            
            March
      31, 2010Martin
      J. Teitelbaum/s/  Conrad J.
      Gunther
            
            Director
            
            March
      31, 2010Conrad
      J. Gunther/s/  Bruce T.
Swan
            
            Director
            
            March
      31, 2010Bruce
      T. Swan/s/Kelly
      S. Walters
            
            Director
            
            March
      31, 2010Kelly
      S. Walters/s/  Glen R.
    Charles
            
            Chief
      Financial Officer and Secretary
            
            March
      31, 2010Glen
      R. Charles
            
            (Principal
      Financial and Accounting Officer)





31











CVD
EQUIPMENT CORPORATION AND SUBSIDIARY




INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS














Page No.Report
      of Independent Registered Public Accounting Firm
            F1Financial
      Statements:Consolidated
      Balance Sheets as of December 31, 2009 and 2008
            F2Consolidated
      Statements of Operations for the years ended December 31, 2009 and
      2008
            F3Consolidated
      Statements of Changes in Stockholders’ Equity for the years ended December
      31, 2009 and 2008
            F4Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
            F5Notes
      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





We have
audited the accompanying consolidated balance sheets of CVD Equipment
Corporation and Subsidiary as of December 31, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders' equity, and cash
flows for each of the two years in the period ended December 31,
2009.  These consolidated financial statements are the responsibility
of the 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, 2009 and 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, 2009, in conformity with U.S.
generally accepted accounting principles.





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














/s/
      MSPCCertified
      Public Accountants and Advisors,A
      Professional Corporation








Cranford,
New Jersey


March 31,
2010








F-1





CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


Consolidated
Balance Sheets


As
of December 31,








2009
            
            
            2008ASSETSCurrent
      AssetsCash
      and cash equivalents
            
            $
            3,119,731
            
            
            $
            5,721,369Accounts
      receivable, net
            
            
            2,130,196
            
            
            
            2,642,670Cost
      and estimated earnings in excessof
      billings on uncompleted contracts
            
            
            2,708,084
            
            
            
            3,972,533Inventories
            
            
            4,418,138
            
            
            
            3,292,316Deferred
      income taxes – current
            
            
            378,412
            
            
            
            54,049Other
      current assets
            
            
            213,593
            
            
            
            174,782Total
      Current Assets
            
            
            12,968,154
            
            
            
            15,857,719Property,
      plant and equipment, net
            
            
            7,591,363
            
            
            
            8,028,889Deferred
      income taxes – non-current
            
            
            711,293
            
            
            
            772,516Other
      assets
            
            
            327,968
            
            
            
            541,404Intangible
      assets, net
            
            
            66,213
            
            
            
            89,822Total
      Assets
            
            $
            21,664,991
            
            
            $
            25,290,350LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      LiabilitiesCurrent
      maturities of long-term debt
            
            $
            368,041
            
            
            $
            348,521Customer
      deposits
            
            
            -
            
            
            
            3,559,410Accounts
      payable
            
            
            873,626
            
            
            
            1,340,830Accrued
      expenses
            
            
            947,264
            
            
            
            641,606Accrued
      professional fees – related party
            
            
            64,521
            
            
            
            90,053Deferred
      revenue
            
            
            151,514
            
            
            
            28,745Total
      Current Liabilities
            
            
            2,404,966
            
            
            
            6,009,165Long-term
      debt, net of current portion
            
            
            3,768,824
            
            
            
            4,135,632Total
      Liabilities
            
            
            6,173,790
            
            
            
            10,144,797Commitments
      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, 2009and
      4,749,500 shares at December 31, 2008
            
            
            47,618
            
            
            
            47,495Additional
      paid-in capital
            
            
            10,093,761
            
            
            
            9,927,260Retained
      earnings
            
            
            5,349,822
            
            
            
            5,170,798Total
      Stockholders’ Equity
            
            
            15,491,201
            
            
            
            15,145,553Total
      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,








2009
            
            
            2008Revenue
            
            $
            10,575,019
            
            
            $
            18,146,741Cost
      of revenue
            
            
            5,755,501
            
            
            
            12,773,343Gross
      profit
            
            
            4,819,518
            
            
            
            5,373,398Operating
      expensesSelling
      and shipping
            
            
            698,820
            
            
            
            766,755General
      and administrative
            
            
            3,752,673
            
            
            
            4,055,877Related
      party – professional fees
            
            
            64,521
            
            
            
            90,053Total
      operating expenses
            
            
            4,516,014
            
            
            
            4,912,685Operating
      income
            
            
            303,504
            
            
            
            460,713Other
      income (expense):Interest
      income
            
            
            33,464
            
            
            
            107,198Interest
      expense
            
            
            (248,715
            )
            
            
            (229,000
            )Loss
      on investment impairment
            
            
            -
            
            
            
            (251,130
            )Other
      income
            
            
            43,135
            
            
            
            188,563Total
      other (expense), net
            
            
            (172,116
            )
            
            
            (184,369
            )Income
      before income tax benefit
            
            
            131,388
            
            
            
            276,344Income
      tax benefit
            
            
            47,636
            
            
            
            355,437Net
      income
            
            $
            179,024
            
            
            $
            631,781Basic
      earnings per common share
            
            $
            0.04
            
            
            $
            0.13Diluted
      earnings per common share
            
            $
            0.04
            
            
            $
            0.13Weighted
      average common sharesoutstanding
      basic
            
            
            4,760,749
            
            
            
            4,737,459Weighted
      average common sharesoutstanding
      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, 2009 and 2008














Additional
            
            
            
            TotalCommon
      Stock
            
            Paid-In
            
            Retained
            
            Stockholders’Shares
            Amount
            
            Capital
            
            Earnings
            
            EquityBalance
      – January 1, 2008
            4,718,500
            $  47,185
            
            $
      9,592,728
            
            $
      4,539,017
            
            $14,178,930Exercise
      of stock options
            15,000
            150
            
            20,850
            
            
            
            21,000Stock-based
      compensation
            16,000
            160
            
            313,682
            
            
            
            313,842Net
      Income
            
            
            
            
            
            631,781
            
            631,781Balance
      – December 31, 2008
            4,749,500
            $  47,495
            
            $
      9,927,260
            
            $
      5,170,798
            
            $15,145,553Stock-based
      compensation
            12,325
            123
            
            166,501
            
            
            
            166,624Net
      income
            
            
            
            
            
            179,024
            
            179,024Balance
      – 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,








2009
            
            
            2008Cash
      flows from operating activities:Net
      income
            
            $
            179,024
            
            
            $
            631,781Adjustments
      to reconcile net income to net cash(used
      in) provided by operating activitiesDepreciation
      and amortization
            
            
            580,238
            
            
            
            522,925Stock-based
      compensation
            
            
            166,624
            
            
            
            313,842Loss
      on impairment
            
            
            -
            
            
            
            251,130Deferred
      tax benefit
            
            
            (263,140
            )
            
            
            (137,652
            )Bad
      debt provision
            
            
            (29,134
            )
            
            
            73,662(Increase)/decrease
      in operating assetsAccounts
      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
            
            
            
            50,000Increase/(decrease)
      in operating liabilitiesCustomer
      deposits
            
            
            (3,559,410
            )
            
            
            3,559,410Accounts
      payable
            
            
            (467,205
            )
            
            
            822,896Accrued
      expenses
            
            
            280,131
            
            
            
            (630,326
            )Deferred
      revenue
            
            
            122,769
            
            
            
            (18,699
            )Total
      adjustments
            
            
            (2,202,142
            )
            
            
            1,330,707Net
      cash (used in) provided by operating activities
            
            
            (2,023,118
            )
            
            
            1,962,488Cash
      flows from investing activities:Capital
      expenditures
            
            
            (232,083
            )
            
            
            (3,381,417
            )Deposits
            
            
            850
            
            
            
            425,312Net
      cash (used in) investing activities
            
            
            (231,233
            )
            
            
            (2,956,105
            )Cash
      flows from financing activitiesProceeds
      from long-term debt
            
            
            -
            
            
            
            2,645,000Payments
      of long-term debt
            
            
            (347,287
            )
            
            
            (1,061,461
            )Net
      proceeds from stock options exercised
            
            
            -
            
            
            
            21,000Net
      cash (used in) provided by financing activities
            
            
            (347,287
            )
            
            
            1,604,539Net
      (decrease) increase in cash and cash equivalents
            
            
            (2,601,638
            )
            
            
            610,922Cash
      and cash equivalents at beginning of year
            
            
            5,721,369
            
            
            
            5,110,447Cash
      and cash equivalents at end of year
            
            $
            3,119,731
            
            
            $
            5,721,369Supplemental
      disclosure of cash flow information:Income
      taxes paid
            
            $
            95,425
            
            
            $
            514,220Interest
      paid
            
            
            248,715
            
            
            
            229,000Transfer
      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, 2009 and 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, 2009 and 2008.  All
significant intercompany accounts and transactions have been eliminated in
consolidation.





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 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 tax assets, impairment considerations of long-lived assets, stock-based
compensation and product warranties.




Revenue and Income
Recognition





The
Company recognizes revenues 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 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.





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. The Company records a valuation allowance 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
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 sustained on examination by taxing authorities, based
on the technical merits of the position. The tax benefits recognized in the
financial statements from such a position are measured based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate
settlement. The guidance on accounting for uncertainty in 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





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 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 impairment
charges in the statement of operations during each of the years ended December
31, 2009 and 2008 based on impairment tests under ASC 360-10-35.





Computer
Software





The
Company follows 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
$3,393 and $45,708 for the years ended December 31, 2009 and 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 $135,005 and $140,288 for the years ended
December 31, 2009 and 2008, 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 $28,692 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 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 2008





Bad
Debts





Accounts
receivable is presented net of an allowance for doubtful accounts of $57,116 and
$86,250 as of December 31, 2009 and 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
future periods.





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.


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 accrued expenses, and customer
deposits approximate fair value due to 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





The
Company records stock-based compensation in accordance with the provisions set
forth in ASC 718, “Stock Compensation” using the modified prospective method.
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.





Shipping and
Handling





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





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





During
the first quarter of 2009, we adopted new accounting guidance issued by the FASB
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 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 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 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. 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 December 15, 2010. Since this standard impacts disclosure
requirements only, its adoption will not have a material impact on our
consolidated balance sheet, results of operations or financial
condition.





Note
3 – Fair Value Measurements





On
January 1, 2009, we implemented new accounting guidance, ASC 820, Fair Value
Measurements and Disclosures, on a prospective basis for 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 full term of the 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 the 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 our non-financial assets and liabilities that are not
recognized or disclosed at fair value on a recurring basis had no effect on our
consolidated net income for the year ended December 31, 2009.





The
following table summarizes, for each major category of assets and liabilities,
the respective fair value and the classification by level of input within the
fair value hierarchy.


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


F-13


CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008




Note
4 - Investments





In 2006,
the Company sold equipment at the selling price of $251,130 to a customer for a
purchase price of 104,482 shares of a non-public company’s common stock, par
value $.001 per share. The Company had the option to demand that the customer
make cash payment i.e.: $251,130 for the equipment, the amount that would
have been required had the customer made cash payment for the equipment on July
19, 2006 in exchange for the return of said stock.





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 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.





Note
5 – Uncompleted Contracts





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





2009
            
            
            2008Costs
      incurred on uncompleted contracts
            
            $
            1,504,137
            
            
            $
            4,956,874Estimated
      earnings
            
            
            2,429,770
            
            
            
            4,068,6413,933,907
            
            
            
            9,025,515Billings
      to date
            
            
            (1,225,823
            )
            
            
            (5,052,982
            )$
            2,708,084
            
            
            $
            3,972,5332009
            
            
            
            2008Included
      in accompanying balance sheetsUnder
      the following caption:Costs
      and estimated earnings in excessof
      billings on uncompleted contracts
            
            $
            2,708,084
            
            
            $
            3,972,533








F-14


CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





Note
6 - Inventories





Inventories
consist of:





2009
            
            
            2008Raw
      materials
            
            $
            1,848,620
            
            
            $
            1,396,960Work-in-process
            
            
            2,388,115
            *
            
            
            1,713,953Finished
      goods
            
            
            181,403
            
            
            
            181,403$
            4,418,138
            
            
            $
            3,292,316


The
Company has no inventory reserves in 2009 or 2008.









Note
7 – Property, Plant and Equipment





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





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


F-15





CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





Note
8 – Intangible Assets





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





2009


Intangible
      Assets
            
            Weighted
      AverageAmortization Period
            
            
            Cost
            
            
            Accumulated
                Amortization
            
            
            Net
      of AccumulatedAmortizationLicensing
      Agreement
            
            
            5
            
            
            $
            10,000
            
            
            $
            10,000
            
            
            $
            0Patents
      & Copyrights
            
            
            14
            
            
            
            46,243
            
            
            
            23,359
            
            
            
            22,884Intellectual
      Property
            
            
            15
            
            
            
            100,000
            
            
            
            56,670
            
            
            
            43,330Certifications
            
            
            3
            
            
            
            58,722
            
            
            
            53,053
            
            
            
            5,669Other
            
            
            5
            
            
            
            21,492
            
            
            
            21,492
            
            
            
            0Totals
            
            
            
            
            
            $
            236,457
            
            
            $
            164,574
            
            
            $
            71,883








2008


Intangible
      Assets
            
            Weighted
      Average
              Amortization
      Period
            
            
            Cost
            
            
            AccumulatedAmortization
            
            
            Net
      of AccumulatedAmortizationLicensing
      Agreement
            
            
            5
            
            
            $
            10,000
            
            
            $
            10,000
            
            
            $
            0Patents
      & Copyrights
            
            
            14
            
            
            
            41,021
            
            
            
            21,827
            
            
            
            19,194Intellectual
      Property
            
            
            15
            
            
            
            100,000
            
            
            
            50,003
            
            
            
            49,997Certifications
            
            
            3
            
            
            
            58,722
            
            
            
            38,090
            
            
            
            20,632Other
            
            
            5
            
            
            
            21,492
            
            
            
            21,492
            
            
            
            0Totals
            
            
            
            
            
            $
            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


2010
            $  13,9992011
            8,3302012
            8,3302013
            8,3252014
            6,663Thereafter
            26,236Total
            $  71,883


F-16


CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





Note
9 – 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, 2009 and 2008, the
Company had utilized $354,000 and $500,000 of the credit facility at December
31, 2009 and December 31, 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% at December 31, 2009
and 2008. In 2008, the Company borrowed $340,000 to purchase equipment, which
was converted into a 5 year term loan at 5.68%.





Note
10 – Long-term Debt





Long-term
debt consists of the following:





2009
            
            2008CAPITAL
      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
            
            $796,610GENERAL
      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
            
            1,758,786CAPITAL
      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, 2009 and 2008





2009
            
            2008CAPITAL
      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
            
            $487,425CAPITAL
      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
            
            42,787CAPITAL
      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
            
            98,561CAPITAL
      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
            
            320,263Totals
            
            4,136,865
            
            4,484,153Less:
      Current maturities
            
            368,041
            
            348,521Long-term
      debt
            
            $3,768,824
            
            $4,135,632








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


2010
            $368,0412011
            372,3942012
            780,3502013
            330,5632014
            295,847Thereafter
            1,989,670$  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, 2009 and 2008





Note
11 – Earnings per Share





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





2009
            
            2008Weighted
      average common shares outstandingbasic
      earnings per share
            4,760,749
            
            4,737,459Effect
      of potential common share issuance:Stock
      options
            47,158
            
            32,310Weighted
      average common shares outstandingDiluted
      earnings per share
            4,807,907
            
            4,769,769





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





Note
12 – Income Taxes





For the
year ended December 31, 2009, the Company has reduced its benefit for income
taxes recorded due to the uncertainty of full utilization of certain deferred
tax assets related to capital loss carryforwards and New York State investment
tax credits. At December 31, 2009, the Company had approximately $251,000 of
capital loss carryforwards, $806,000 of New York State investment tax
credit carryforwards and $596,000 of federal research and development tax
credits.





If not
utilized, the capital loss carryover will expire in 2014, the investment tax
credits expire from 2010 through 2025 and the 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 includes the following:
 
 2009
              
              
              2008Current:Federal
              
              $
              197,079
              
              
              $
              96,730State
              
              
              18,425
              
              
              
              17,547Total Current Tax Provision Deferred:
              
              
              215,504
              
              
              
              114,277Federal
              
              
              (279,203
              )
              
              
              (812,152
              )State
              
              
              16,063
              
              
              
              342,438Total 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:
 
 2009
              
              
              2008Allowance
      for doubtful accounts
              
              $
              23,988
              
              
              $
              36,225Inventory
      capitalization
              
              
              190,250
              
              
              
              105,857Deferred
      revenue
              
              
              -
              
              
              
              (211,663
              )Net
      operating loss carryforwards
              
              
              -
              
              
              
              131Depreciation
      and amortization
              
              
              (370,063
              )
              
              
              (201,172
              )Investment
      tax credits
              
              
              806,495
              
              
              
              806,495Research
      & development tax credits
              
              
              595,634
              
              
              
              521,415Compensation
      costs
              
              
              340,269
              
              
              
              288,146Vacation
      accrual
              
              
              184,627
              
              
              
              148,558Capital
      loss carryforward
              
              
              105,474
              
              
              
              4,490Gross
      deferred tax asset
              
              
              1,876,674
              
              
              
              1,498,482Less
      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, 2009 and 2008 due to the following:
 
 2009
              
              
              2008Tax
      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, 2009 and 2008





NOTE
13 – 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 2009, the Company
did not grant any options under this Plan. This 1989 Non-Qualified Stock Option
Plan expired in June 2009.





In 2008,
the Company did not grant any options under 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. 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 one year from the anniversary date of the grant. The stock
option plan shall terminate on July 22, 2011. The Company did not grant any
options under this 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, 2008 through December 31, 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
              Balance
              Outstanding
            
            Granted
      During Period
            
            Exercised
      During Period
            
            Canceled
      During Period
            
            Ending
      Balance Outstanding
            
            ExercisableExercisableYear
      ended December 31, 2008Number
      of shares
            280,250
            
            -0-
            
            15,000
            
            34,000
            
            231,250
            
            186,625Weighted
      average exercise price per share
            $3.36
            
            $
      -0-
            
            $1.40
            
            $3.10
            
            $3.52
            
            $3.37Year
      ended December 31, 2009Number
      of shares
            231,250
            
            -0-
            
            -0-
            
            -0-
            
            231,250
            
            213,500Weighted
      average exercise price per share
            $
      3.52
            
            -0-
            
            -0-
            
            -0-
            
            $3.52
            
            $3.42





2001 Non-Qualified Stock
Option Plan





Beginning
              Balance
              Outstanding
            
            Granted
      During Period
            
            Exercised
      During Period
            
            Canceled
      During Period
            
            Ending
      Balance Outstanding
            
            ExercisableExercisableYear
      ended December 31, 2008Number
      of shares
            184,750
            
            -0-
            
            -0-
            
            -0-
            
            184,750
            
            80,000Weighted
      average exercise price per share
            $   3.99
            
            $
      -0-
            
            $
      -0-
            
            $
      -0-
            
            $  3.99
            
            $  3.65Year
      ended December 31, 2009Number
      of shares
            184,750
            
            -0-
            
            -0-
            
            -0-
            
            184,750
            
            120,000Weighted
      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,
2009 was 110,000. The number of stock options that were below the market value
at December 31, 2009 was 306,000.





The
following table summarizes information about the outstanding and exercisable
options at December 31, 2009.





Options
      Outstanding
            Options ExercisableWeightedAverage
            Weighted
            
            
            WeightedRemaining
            Average
            
            
            AverageExercise
            Number
            Contractual
            Exercise
            Intrinsic
            Number
            Exercise
            IntrinsicPrice 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





The
intrinsic value of the 15,000 options exercised during the 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 2008





During
the years ended December 31, 2009 and 2008, the Company recorded into selling
and general administrative expense approximately $167,000 and $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 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 or
2009.





Note
14 – 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, 2009 and 2008 the Company incurred
administrative costs totaling $3,783 and $2,038 respectively. No employer
contribution has been made for 2009 and 2008.





Note
15 – 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, 2009 and at December 31, 2008 was approximately $377,000 and
$3,805,000, respectively.





Export
Sales





Export
sales to unaffiliated customers represented approximately 14% and 23% of sales
for the years ended December 31, 2009 and 2008, respectively. Export sales in
both 2009 and 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-23


CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





Note
16 – Related Party Transactions





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





Note
17 – Segment Reporting





The
Company adopted 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.





The
following table presents certain information regarding the Company’s segments as
of December 31, 2009 and for the year then ended:





CVD
            
            
            SDC
            
            
            Conceptronic
            
            
            Eliminations
            
            
            ConsolidatedAssets
            
            $
            22,503,703
            
            
            $
            2,742,836
            
            
            $
            1,129,404
            
            
            $
            (4,710,952
            )
            
            $
            21,664,991Revenue
            
            $
            7,530,259
            
            
            $
            3,065,804
            
            
            $
            923,577
            
            
            $
            (944,621
            )
            
            $
            10,575,019Interest
      Expense
            
            
            175,029
            
            
            
            50,790
            
            
            
            22,897
            
            
            
            
            
            
            
            248,716Depreciation
      and  amortization
            
            
            492,384
            
            
            
            74,796
            
            
            
            13,058
            
            
            
            
            
            
            
            580,238Capital
              Expenditures
            
            
            162,037
            
            
            
            70,046
            
            
            
            -
            
            
            
            
            
            
            
            232,083Pretax
      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
            
            
            ConsolidatedAssets
            
            $
            24,976,459
            
            
            $
            3,747,201
            
            
            $
            1,574,016
            
            
            $
            (5,007,326
            )
            
            $
            25,290,350Revenue
            
            $
            10,831,186
            
            
            $
            5,423,661
            
            
            $
            2,603,127
            
            
            $
            (711,233
            )
            
            $
            18,146,741Interest
      Expense
            
            
            124,635
            
            
            
            50,314
            
            
            
            54,051
            
            
            
            -
            
            
            
            229,000Depreciation
      and amortization
            
            
            437,278
            
            
            
            69,962
            
            
            
            15,685
            
            
            
            -
            
            
            
            522,925Capital
              Expenditures
            
            
            3,272,212
            
            
            
            106,954
            
            
            
            2,251
            
            
            
            -
            
            
            
            3,381,417Pretax
      earnings (loss)
            
            
            6,875
            
            
            
            621,589
            
            
            
            (582,120
            )
            
            
            -
            
            
            
            276,344


F-24


CVD
EQUIPMENT CORPORATION AND SUBSIDIARY


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


December
31, 2009 and 2008





Note
18 - Commitments and Contingencies





Legal
Proceedings





On
September 18, 2007 a settlement was reached between the Company and
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 the
Company will receive payments totaling $541,600 to be paid over a specific
timetable as defined.As of December 31,
2009, we have received $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.
 
 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