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As filed with the Securities and Exchange Commission on August 27, 1996
Registration No. 333-08391
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST EFFECTIVE AMENDMENT
NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
CPI AEROSTRUCTURES, INC.
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(Exact Name of Registrant as Specified in its Charter)
New York 11-2520310
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
200A Executive Drive
Edgewood, N.Y. 11717
(516) 586-5200
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(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
Arthur August
President
CPI Aerostructures, Inc.
200A Executive Drive
Edgewood, N.Y. 11717
(516) 586-5200
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(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
Copies to:
Elliot H. Lutzker, Esq.
Snow Becker Krauss P.C.
605 Third Avenue
New York, New York 10158
Tel: (212) 687-3860 Fax: (212) 949-7052
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /__/
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check this box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, Please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /__/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, Check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /__/
==============================================================================
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Explanatory Paragraph
This Post-Effective Amendment No. 2 is being filed to deregister an
aggregate of 466,038 Common Shares underlying Underwriter's Unit Warrant Shares,
issuable upon exercise of the Underwriter's Warrants issued in the Company's
September 1992 initial public offering. The original number of shares
registered was reduced as a result of a correction in the calculation of the
anti-dilution provisions of the Underwriter's Warrants.
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum
Class of Amount Offering Aggregate Amount of
Securities to to be Price Offering Registration
Be Registered Registered Per Share(1) Price (1) Fee
- ------------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C>
Common Shares, 2,050,000 shs.(2) $1.00(2) $2,050,000 $706.90
$.001 par value
Warrants 1,025,000 wts.(2) (3) (3) (3)
Common Shares, 1,025,000 shs.(4) $2.00 $2,050,000 $706.90
$.001 par value
Placement Agent's
Common Shares 205,000 shs.(5) $1.00 $205,000 $70.69
Placement Agent's 102,500 wts.(6) (7) (7) (7)
Warrants
Placement Agent's 102,500 shs.(6) $2.00 $205,000 $70.69
Warrant Shares
Consulting Agent's
Common Shares 300,000 shs.(8) $1.00 $300,000 $103.45
Underwriter's Warrants 566,038 wts.(9) $1.06 $600,000 $206.90
Underwriter's
Common Shares,
$.001 Par Value 566,038 shs.(10) (11) (11) (11)
Underwriter's Unit
Warrants 100,000 wts.(10) (11) (11) (11)
Underwriter's Unit
Warrant shares 100,000 shs.(12) $2.50 $250,000 $86.21
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Total Registration Fee ......................................................................... $1,951.74
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as
amended.
(2) These shares were sold in a private placement (the "Private Placement") by
the Company as part of 82 units ("Units"), each consisting of 25,000 Common
Shares and Redeemable Class B Common Share Purchase Warrants (the
"Warrants") to purchase 12,500 Common Shares, at $25,000 per Unit.
(3) Pursuant to Rule 457(g), no additional registration fee is required for
Warrants which were sold as part of the Units.
(4) Issuable upon exercise of the warrants issued in the Private Placement.
(5) These shares are issuable upon exercise of Placement Agent's Warrants to
purchase 8.2 Units issued by the Company in the Private Placement to Barber
& Bronson Incorporated.
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(6) Issuable upon exercise of the Placement Agent's Warrants.
(7) Pursuant to Rule 457(g) no additional registration fee is required for
Warrants issuable upon exercise of the Placement Agent's Warrants.
(8) Issuable upon exercise of the warrants issued to the Placement Agent in
April 1996 for consulting services.
(9) Issued to Whale Securities Co., L.P., the Underwriter of the Company's
September 1992 initial public offering, and its assignees (collectively,
the "Underwriter"). Each Undertwriter's Warrant is exercisable at $1.06
per Warrant, as adjusted, to purchase 5.66038 Common Shares and one Common
Share Purchase Warrant to purchase one Common Share, at $2.50 per share,
as adjusted.
(10) Issuable upon exercise of the Underwriter's Warrants.
(11) Pursuant to Rule 457(g), no additional registration fee is required for
securities issuable upon exercise of the Underwriter's Warrants.
(12) Issuable upon exercise of the Underwriter's Unit Warrants.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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SUBJECT TO COMPLETION DATED AUGUST 27, 1996
PROSPECTUS
CPI AEROSTRUCTURES, INC.
4,348,538 Common Shares
This Prospectus pertains to 4,348,538 Common Shares (the "Shares"),
$.001 par value per share of CPI Aerostructures, Inc., a New York corporation
("CPI Aerostructures" or the "Company"), that may be sold by the Selling
Shareholders named herein (the "Selling Shareholders").
The Shares offered hereby were issued by the Company to certain
investors in a private placement (the "Private Placement") of 82 Units (the
"Units"), each Unit consisting of 25,000 Common Shares and redeemable Class B
Common Share Purchase Warrants ("Warrants") to purchase 12,500 Common Shares, at
$25,000 per Unit; to Barber & Bronson Incorporated, the Company's placement
agent in the Private Placement (the "Placement Agent") , in the form of warrants
(the "Placement Agent's Warrants") to purchase 8.2 Units (the "Placement Agent's
Units"), each Placement Agent's Unit consisting of 25,000 Common Shares and
Warrants to purchase 12,500 Common Shares; to the Placement Agent in the form of
consultant's warrants issued in consideration for consulting services (the
"Consultant's Warrants"); to Whale Securities Co., L.P. and its assignees
(collectively, the "Underwriter"), the underwriter of the Company's initial
public offering ("IPO") in the form of underwriter's warrants (the "Whale
Warrants") to purchase an aggregate of 566,038 Common Shares, as adjusted, and
Warrants to purchase an additional 100,000 Common Shares, as adjusted. See
"Selling Shareholders." The Company will not directly receive any proceeds from
the sale of the Shares by the Selling Shareholders, but will receive the
exercise price of all Warrants exercised. See "Use of Proceeds." The
registration of the Shares offered hereby is being effected in connection with
registration rights granted by the Company pursuant to the terms of the Private
Placement, the Consultant's Warrants, the Placement Agent's Warrants and the
Underwriter's Units. In accordance with the terms of such rights, the Company
will bear the expenses of such registration, which are estimated, except that
the Selling Shareholders will bear the cost of all brokerage commissions and
discounts incurred in connection with the sale of their portion of the Shares
and their respective legal expenses.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Commencing on the effective date of this Prospectus, the Shares may be
sold, from time to time, by the Selling Shareholders directly to purchasers or,
alternatively, may be offered through agents, brokers, dealers or underwriters,
who may receive compensation in the form of commissions or discounts from the
Selling Shareholders or purchasers of the Shares. Sales of the Shares may be
made on the Nasdaq SmallCap Market ("Nasdaq"), in privately negotiated
transactions or otherwise, and such sales may be made at the market price
prevailing at the time of sale, a price related to such prevailing market price
or at a negotiated price.
The date of this Prospectus is August ____, 1996
<PAGE>
Any brokers, dealers or agents that participate in the distribution of
the Shares may be deemed to be underwriters under Section 2(11) of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
or discounts received by them on the resale of such Shares may be deemed to be
underwriting compensation under the Securities Act. The sale of the Shares by
the Selling Shareholders is subject to the prospectus delivery and other
requirements of the Securities Act. See "Plan of Distribution."
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 6.
----------------
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, such securities in any circumstances in which such offer or
solicitation is unlawful.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Commission's regional offices located at Seven World Trade
Center, New York, New York 10048, and at Northwestern Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material may be
obtained, at prescribed rates, by writing to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
The Company has filed with the Commission a Registration Statement on Form
S-3, as amended (the "Registration Statement"), under the Securities Act with
respect to the Common Shares offered hereby. This Prospectus does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Shares, reference
is hereby made to such Registration Statement and the exhibits thereto or
incorporated therein by reference. The Registration Statement, including such
exhibits, may be inspected without charge
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at the public reference facilities maintained by the Commission and at the
Commission's regional offices at the addresses stated above. Copies of these
documents may be obtained, at prescribed rates, by writing to the Commission's
Public Reference Section at its office set forth above.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated into
this Prospectus by reference:
(1) The Company's Annual Report on Form 10-KSB for the year
ended December 31, 1995 ("Form 10-KSB").
(2) The Company's Definitive Proxy Statement dated December 11, 1995.
(3) The Company's Quarterly Report on Form 10-QSB dated for the
quarter ended March 31, 1996 ("Form 10-QSB").
(4) The description of the Company's Common Shares contained in
the Company's registration statement on Form 8-A (File No.
1-11398), dated September 16, 1992, filed pursuant to
Section 12(g) of the Exchange Act.
(5) The Company's Current Report on Form 8-K dated June 19, 1996
("Form 8-K").
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering made hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company furnishes its shareholders with annual reports which contain
financial statements audited by its independent certified public accounts and
such other interim reports containing unaudited financial information as it
deems appropriate.
The Company will provide without charge to each person who receives this
Prospectus, upon written request, a copy of any information that is incorporated
by reference in the Prospectus (not including exhibits to the information that
is incorporated by reference unless the
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exhibits are themselves specifically incorporated by reference). Such requests
should be directed to the following address:
CPI AEROSTRUCTURES, INC.
200A Executive Drive
Edgewood, New York 11717
Attention: Corporate Secretary
THE COMPANY
CPI Aerostructures is engaged in contract production of structural
aircraft parts and sub-assemblies (a series of parts fitted together to form a
complex aerodynamic structure) for the commercial and military sectors of the
aircraft industry. The Company's operations consist primarily of incorporating
component aircraft parts supplied by third parties into complex sub-assemblies
to satisfy specific customer requirements and precision certification standards.
The sub-assemblies are incorporated into jet engine housings (nacelles) by the
Company's customers or aircraft manufacturers to form final aircraft assemblies.
In connection with its commercial assembly operations, the Company also provides
engineering, technical and program management services to its customers.
Current Developments
On September 19, 1995, the Company was awarded a contract by the United
States Air Force for the A-10 Aircraft program. The Company will produce leading
edge panels (the panel on the front edge of the wing) for such aircraft. The
total award amount is approximately $3,074,000, with deliveries expected to
commence in late 1996 and be completed during 1997.
On September 22, 1995, the Company was awarded a contract by the United
States Air Force for the C-5 Aircraft program. The Company is producing and has
commenced delivery of structural supports, plates and brackets, mount
assemblies, air deflectors, mounting blocks, hinge brackets, plate assemblies,
fairings, landing gear door assemblies and panel assemblies for such aircraft.
As of June 21, 1996, the total contract value was $1,741,400 with additional
orders anticipated, although no assurance can be given as to any such additional
orders.
On June 19, 1996, the Company completed the Private Placement under
Regulation D promulgated under the Securities Act of 82 Units, each Unit
consisting of 25,000 Common Shares and 5-year Common Share Purchase Warrants
(the "Warrants") to purchase 12,500 Common Shares, at $2.00 per share, for a
total purchase price of $2,050,000 ($25,000 per Unit), through Barber & Bronson
Incorporated, as Placement Agent. The net proceeds of the Private Placement,
along with working capital, were used to repay all of the Company's indebtedness
to Chrysler Capital Corporation ("Chrysler"). The purchasers were granted
certain
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demand and piggyback registration rights with respect to the shares included in
the Units and underlying the Warrants.
The Company paid the Placement Agent a selling commission of 10% of the
gross proceeds of the Private Placement and a non-accountable expense allowance
in an amount equal to 3% of the gross proceeds of the Private Placement. The
Company also sold to the Placement Agent, for nominal consideration, five-year
Placement Agent Warrants to purchase 8.2 additional Units at a purchase price of
$25,000 per Unit. The Company previously retained the Placement Agent, pursuant
to a financial consulting agreement (the "Consulting Agreement"), to provide
financial consulting services for a period of 24 months commencing on April 3,
1996, for an aggregate of $72,000 payable at the rate of $3,000 per month. The
Placement Agent received five-year Consultant's Warrants to purchase 300,000
Common Shares at an exercise price of $1.00 per share. The Placement Agent has
been granted certain demand and piggy-back registration rights with respect to
the Common Shares underlying the Placement Agent Warrants and the Consultant's
Warrants. Furthermore, the Consulting Agreement provides for finder's fee
arrangements and a three-year right of first refusal for the Placement Agent to
serve as the underwriter or placement agent for any future public or private
offering effected by the Company.
The Company was incorporated under the laws of the State of New York in
January 1980 under the name Composite Products International, Inc. The Company
change its name to Consortium of Precision Industries, Inc. in April 1989 and to
CPI Aerostructures, Inc. in July 1992. The Company's executive offices are
located at 200A Executive Drive, Edgewood New York 11717; Telephone Number:
(516) 586-5200.
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RISK FACTORS
The Shares offered hereby involve a high degree of risk and should be
purchased only by persons who can afford to risk the loss of their entire
investment. In addition to other information contained in this Prospectus,
prospective investors should carefully consider the following Risk Factors
before making a decision to invest in the Company.
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially. Factors that could cause or contribute
to such difference include, but are not limited to, those discussed below, as
well as those discussed elsewhere in this Prospectus.
Substantial Reductions in Revenues
The Company's revenues decreased by $357,000, or approximately 7%, from
$5,041,000 for the year ended December 31, 1994, to $4,684,000 for the year
ended December 31, 1995. This followed a 17% decrease in revenues from
$6,091,000 for the year ended December 31, 1993 to $5,041,000 for the year ended
December 31, 1994. These decreases followed increasing levels of revenues for
the three-year period ended December 31, 1992. For the year ended December 31,
1995, the Company had a net loss of $1,080,000 as compared to net income of
$233,000 in the same period the prior year. This decrease followed a 38%
decrease in net income from 1993 to 1994 and a 52% decrease in net income from
1992 to 1993. The reductions in sales and earnings resulted primarily from
"stretch outs" (an extension of a program period of performance resulting in
extensions of delivery dates) of certain commercial contracts, the completion of
the McDonnell Douglas MD-90 start-up phase, and non-cash write-offs due to the
loss of the pylon portion of the Company's Hawker 1000 contract and the sale of
the Company's facilities. The commercial sector of the aircraft industry
experienced one of the most severe downturns in its history from 1993 to 1995
characterized by bankruptcies and consolidations among the major airlines.
Permanent reductions in capital spending for the military and current decreased
demand for commercial aircraft, resulting in contract cancellations or stretch
outs, materially adversely affected the Company's operating results in 1994 and
1995. Management does not believe that these adverse conditions are expected to
extend into 1996, as there is an up-swing in the aircraft industry. Although the
Company was recently awarded two major military contracts, there can be no
assurance the Company will return to profitability.
Lack of Profitability
Given the Company's limited financial resources, its anticipated expenses
and the highly competitive environment in which the Company operates, there can
be no assurance that the Company's future operations will become profitable. If
the Company is without sufficient funds to satisfy its cash flow requirements it
would be forced to curtail its operations and could ultimately cause the Company
to have to sell some or all of its assets. See "Item 6.
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Management's Discussion and Analysis" and "Item 7. Financial Statements" in
the Company's Form 10-KSB.
Significant Capital Requirements; Possible Need for Additional Financing
The Company's capital requirements have been and will continue to be
significant. The Company's cash requirements have exceeded its resources during
the last few years primarily because of reduced revenues. In addition, the
Company's costs and estimated earnings in excess of billings, representing the
aggregate of costs and related profit which has been incurred and earned in
performance of work for which the Company has firm commitments but has not yet
been billed to customers (billing is upon delivery of products), decreased by
$820,000 during the year ended December 31, 1995. Costs and estimated earnings
are recoverable, generally upon shipment of products or completion of a
contract. The Company's continued requirement to incur significant costs
relating to commercial contracts in advance of receipt of cash adversely
affected the Company's working capital for 1995.
Because of Chrysler's announced curtailment of its loan operations, the
Company was unable to obtain any new advances from Chrysler and reduced its
aggregate indebtedness to Chrysler from approximately $4,300,000 in 1990 to zero
in June 1996. The Company financed its working capital through its September
1992 initial public offering, January 1995 warrant redemption, June 1996 Private
Placement and operating cash flow.
The Company intends to seek to grow its business by seeking additional
equity and/or debt financing. No assurance can be given that the Company will be
able to obtain additional financing at all, or on terms reasonably acceptable to
the Company. The Company's inability to obtain additional financing may have a
material adverse effect on the Company's ability to grow its business and may
possibly require the Company to curtail its operations if the Company does not
operate profitably. See "Item 6. Management's Discussion and Analysis" in the
Form 10-KSB.
Dependence on Rohr
All but a small portion of 1995's revenues attributable to the commercial
sector of the aircraft industry were derived under three programs which
originated with Rohr, Inc. ("Rohr"). For the years ended December 31, 1994 and
1995, sales of the Company's products to Rohr and The Nordam Corporation
("Nordam") accounted for approximately 81% and 89%, respectively, of the
Company's revenues. Rohr curtailed its operations during the last several years
as a result of a general downturn in the commercial aircraft industry and the
loss of military business. The Company's contract with Rohr concerning the
Raytheon 1000 Executive Jet was sold to Nordam, which terminated the pylon
portion of the contract in September 1995. There can be no assurance that Rohr,
for financial or other reasons, will not seek to further reduce its level of
operations in the future or that a further decline in the economic prospects of
Rohr, which
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could result in reduction or deferral of capital expenditures, and either of
which could adversely affect the Company.
The Company's agreements with Rohr are subject to termination at will by
Rohr and require the Company to, among other things, deliver certain minimum
quantities of products pursuant to specific schedules. Termination of any of the
Company's contracts with Rohr or the inability of the Company to maintain or
enter into new contracts would have a material adverse effect on the Company
unless it is able to diversify its operations. For the year ended December 31,
1995, the Company's three agreements with Rohr and Nordam for the production of
sub-assemblies for the McDonnell Douglas MD-90, the Boeing 757 and the Raytheon
1000 accounted for approximately 57%, 18% and 14%, respectively, of the
Company's revenues. The Boeing 757 is currently in production and the Company
anticipates that current orders from Rohr under the Company's contract are
expected to be completed in 1996, with additional orders possibly in late 1997
when Rohr is expected to deplete its inventory. The McDonnell Douglas MD-90
program is currently in production and the Company anticipates orders for this
program will continue into the year ending December 31, 2009. Production of
engine mounts for Nordam under the Raytheon 1000 program continue, but
production of pylons under such program was terminated in September 1995. There
can be no assurance that Rohr and Nordam will purchase additional products under
such agreements or that the Company will obtain additional contracts for
programs similar in scope to those previously obtained. In addition to its
dependence on Rohr, the Company is dependent on sales of the particular aircraft
(e.g., by Boeing), over which the Company has no control. See "Item 1. Business
- - Customers and Contracts" in the Form 10-KSB.
Rescheduling and Early Termination; Fixed-Price Contracts; Cost Overruns
The Company's contracts with Rohr and Nordam are subject to premature
termination and rescheduling. Rohr may, in its sole discretion, elect to
postpone or reschedule product delivery at any time. Delays, suspension and
termination of performance by Rohr under these agreements since the beginning of
1993, have materially adversely affected the Company's operating results. The
Company had expended significant funds for non-recurring costs associated with
design, tooling and prototype development, as well as the purchase of component
parts used in its operations, which have been recovered.
Prices under the Company's contracts with Rohr are fixed during the term
of such contracts, subject to price escalation in accordance with published
indices which account principally for materials and labor costs. Accordingly,
the Company is subject to increased risk of loss in the event production costs
are greater than anticipated. Unforeseen events, including unanticipated
production cost overruns and technical and operating difficulties, could have a
material adverse effect on the Company. In the past, the Company has incurred
cost overruns which could not be recovered, resulting in reduced profitability.
Although the Company maintains procedures to continuously review costs under
contracts and takes such steps as it deems necessary to reduce the Company's
exposure to cost overruns, there can be no assurance
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that any measures taken will assure completion of a program or that a completed
program will not involve substantially higher than anticipated costs to the
Company, which may reduce its ability to realize profits from such program. See
"Item 1. Business - Customers and Contracts" in the Form 10-KSB.
Dependence on Government Contracts
For the years ended December 31, 1994 and 1995, 10.3% and 6.7%,
respectively, of the Company's revenues were derived from United States
Government military contracts. Government reductions in capital expenditures for
the military have significantly decreased production of new aircraft during the
last several years. The Company believes, however, that reductions in military
budgets for new aircraft have not affected demand for replacement parts and
servicing of aging military aircraft. Recently announced awards for the A-10 and
C-5 military contracts are expected to increase the Company's future annual
revenues derived from military contracts to between 30% and 40%. There can be no
assurance that future reductions in military spending will not adversely affect
the Company's future operating results. Termination of the Company's contracts
with the United States Government or the inability to obtain or maintain new
contracts could have a material adverse effect on the Company. Moreover, the
Company's operations in the military sector are subject to risks, including
delay; termination for convenience; reduction or modification of contracts in
the event of changes in the government's policies or as a result of budgetary
constraints; and increased or unexpected costs resulting in losses, any or all
of which could have a material adverse effect on the Company. See "Item 1.
Business - Customers and Contracts" in the Form 10-KSB.
Competitive Bidding
The Company obtains military contracts through the process of competitive
bidding. Contracts from which the Company has derived and expects to derive a
significant portion of its revenues were obtained through competitive bidding.
There can be no assurance that the Company will continue to be successful in
having its bids accepted or, if accepted, that awarded contracts will generate
sufficient revenues to result in profitability for the Company. Additionally,
inherent in the competitive bidding process is the risk that if a bid is
submitted and a contract is subsequently awarded, actual performance costs may
exceed the projected costs upon which the submitted bid or contract price was
based. To the extent that actual costs exceed the projected costs on which bids
or contract prices were based, the Company's profitability could be materially
adversely affected. See "Item 1. Business - Customers and Contracts; and
Marketing" in the Form 10-KSB.
Possible Fluctuations in Operating Results
The Company's sales cycle, which generally commences at a time a
prospective customer issues a request for a proposal and ends with the award of
a contract with that customer, typically ranges from six months to one year. The
period from the time of execution of the
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contract until completion of one or more pre-production phases of such contract
(i.e., design, tooling and prototype development), during which time the Company
recognizes revenue, typically ranges from two to three years. The Company's
production cycle, which generally commences at the time the Company orders
component parts and ends upon shipment of the final assembly, generally ranges
from six to eighteen months. The principal factors affecting production
scheduling are the length of time required to procure component parts and the
customer's desire to accelerate or stagger delivery schedules. Pursuant to the
Company's contracts with Rohr, the Company is not entitled to receive cash
payments until products are shipped. The Company recognizes revenue as costs are
incurred under such contracts based upon the percentage of completion method of
accounting, which is measured by the percentage of actual costs incurred to date
against estimated total costs. Accordingly, revenues may be recognized by the
Company even though associated cash payments have not been received. To the
extent that estimated costs of completion increase or progress under a contract
is otherwise impeded, revenue recognition may be adversely affected.
Furthermore, since provision for estimated losses on uncompleted contracts is
made in the period in which such losses are determined, the Company's recorded
revenues may be written-off in later periods in the event the Company's cost
estimates prove to be inaccurate or a contract is terminated. There can be no
assurance that such factors will not cause significant fluctuations in operating
results.
In fact, upon the termination of the pylon portion of the Hawker 1000
contract in September 1995, the Company incurred a charge against cost of goods
sold of $1,473,000. This charge was based, on its impact on past revenues using
the percentage of completion method of accounting. In the event that such
recovery is for a lesser amount than to what the Company believes it is
contractually entitled to, the Company would incur an additional charge. See
"Item 6. Management's Discussion and Analysis" and "Item 7. Note 1 of Notes to
Financial Statements" in the Form 10-KSB.
Dependence on Third Party Suppliers and Manufacturers
The Company purchases substantially all of its supply of raw materials,
principally metals and special parts, and component parts incorporated into its
products, from third-party suppliers and manufacturers. The Company believes
that there are numerous available sources of supply for the Company's raw
materials. While the Company attempts to maintain alternative sources for the
Company's raw materials, the Company's business is subject to the risk of price
fluctuations and periodic delays in delivery of raw materials. Failure by
certain suppliers to continue to supply the Company with raw materials on
commercially reasonable terms, or at all, would have a material adverse effect
on the Company. The Company has subcontracted production of substantially all
component parts incorporated into its products to third party manufacturers.
Accordingly, the Company is substantially dependent on the ability of such
manufacturers, among other things, to meet stringent performance and quality
specifications and to conform to delivery schedules. Failure by the Company's
manufacturers to comply with these and other requirements would have a material
adverse effect on the Company. Furthermore, there can be no assurance that such
manufacturers will dedicate sufficient production capacity
10
<PAGE>
to satisfy the Company's requirements for component parts within scheduled
delivery times. The Company from time to time is required to purchase special
parts from sole suppliers and manufacturers. The Company generally does not
maintain supply agreements with its suppliers or manufacturers and purchases raw
materials and component parts pursuant to purchase orders in the ordinary course
of business. Failure or delay by suppliers and manufacturers in supplying
necessary raw materials and components to the Company would adversely affect the
Company's profit margin and the Company's ability to obtain and deliver products
on a timely and competitive basis. See "Item 1. Business - Raw Materials,
Suppliers and Manufacturers" in the Form 10-KSB.
Competition; Technological Changes
The markets for the Company's products are highly competitive. The Company
competes with numerous well-established foreign and domestic subcontractors
engaged in the supply of aircraft parts and assemblies to the commercial and
military sectors of the aircraft industry, most of which possess substantially
greater financial, marketing, personnel and other resources than the Company and
have established reputations for success in the development, manufacture, sale
and service of products. The Company also faces competition from foreign and
domestic prime contractors, including Rohr, all of whom possess greater
resources than the Company, thereby permitting such companies to implement
extensive production programs in response to orders from aircraft manufacturers.
The market for commercial aircraft is dominated by The Boeing Company, McDonnell
Douglas Corporation and Airbus Industries, a government supported European
aircraft consortium, which typically contract production of assemblies to a
limited number of large commercial contractors. Consequently, the Company's
ability to increase market penetration in the commercial sector may be limited
by the relatively small number of prime contractors in this market.
In addition, the markets for the Company's services and products are
characterized by technological changes. The Company's ability to compete
successfully depends, in large part, on the Company having a technically
competent staff and quality control procedures and on the Company's ability to
adapt to technological changes and advances in the aircraft industry, including
ensuring continuing compatibility with evolving requirements of its customers
and aircraft manufacturers. There can be no assurance that the Company will be
able to continue to keep pace with the technological demands of the marketplace
or successfully enhance its services and products to be compatible with products
of specific aircraft manufacturers. See "Item 1. Business - Competition" in the
Form 10-KSB.
Adverse Effects of Expansion
Internal expansion of the Company's operations is dependent on, among
other things, its ability to obtain new contracts. The Company's prior lack of
new business had caused the Company to consider diversification of its
operations outside of the aerospace industry. Although the Company will continue
to seek acquisitions outside of the aerospace industry, there
11
<PAGE>
can be no assurance the Company will effect any such acquisition, or that if the
Company is able to effect any acquisition it will be able to manage a business
outside of the aerospace industry and otherwise integrate the operation of any
acquired business into the Company's operations.
Even if the Company was awarded a new commercial contract, it may be
required to finance all of its non-recurring costs, which will be amortized over
the term of any such contract. Such costs, as well as any costs associated with
the Company's expansion of its operations and/or facilities, could be
substantial and would subject the Company to substantial risks of loss if a
particular program is terminated subsequent to significant investments by the
Company. There can be no assurance any new aircraft for which the Company may
obtain a contract will receive certification from the Federal Aviation
Administration or that any such aircraft will be successfully commercialized.
See "Item 1. Business" in the Form 10-KSB.
Potential Products Liability and Warranty Expense
The Company may be exposed to potential significant products liability
claims although it has not been sued to date. The Company maintains a $2 million
general liability insurance policy, a $10 million products liability insurance
policy, and a $5 million umbrella liability insurance policy, which it believes
is adequate coverage for the types of products presently marketed. There can be
no assurance, however, that such insurance will be sufficient to cover potential
claims or that the present level of coverage will be available in the future at
reasonable cost. A partially insured or a completely uninsured successful claim
against the Company could have a material adverse effect on the Company. The
Company generally warrants its products to be free from defects in materials,
workmanship and manufacturing processes for a specified period, generally
limited to three years from the date of shipment. There can be no assurance that
future warranty expenses will not have a material adverse effect on the Company.
Under the Company's agreements with Rohr, the Company has agreed to
indemnify Rohr for any costs, damages, expenses or other loss or liability
incurred or paid (including reasonable attorneys' fees) arising out of any
asserted claims made against Rohr, for parts supplied by the Company, provided
that such claims do not arise out of the sole fault of Rohr. There can be no
assurance that the Company will not be required to indemnify Rohr in the event
of an adverse claim made against Rohr or that it will have the financial or
other resources to do so. Moreover, to the extent the Company assumes design
responsibility for products in the future, the Company could be required to
obtain a higher level of insurance in order to cover possible design defects.
There can be no assurance that the Company will be able to obtain a
significantly increased level of coverage on commercially reasonable terms,
which could limit the Company's ability to expand its operations. See "Item 1.
Business - Insurance" in the Form 10-KSB.
12
<PAGE>
Potential Liability; Government Regulation
The Company's operations require the use of a limited amount of chemicals
and other materials for painting and cleaning, including solvents and thinners,
that are classified under applicable laws as hazardous chemicals and substances.
The Company does not maintain environmental impairment insurance. There can be
no assurance that the Company will not incur environmental liability arising out
of the use of hazardous substances. To date, the Company has not incurred any
such liability. The use of hazardous substances is subject to extensive and
frequently changing federal, state and local laws and substantial regulation
under these laws by governmental agencies, including the United States
Environmental Protection Agency, the Occupational Safety and Health
Administration, various state agencies and county and local authorities acting
in conjunction with federal and state authorities. Among other things, these
regulatory bodies impose requirements to control air, soil, and water pollution,
to protect against occupational exposure to such chemicals, including health and
safety risks, and to require notification or reporting of the storage, use and
release of certain hazardous chemicals and substances. The Company believes that
it is in substantial compliance with all material federal, state and local laws
and regulations governing its operations and has obtained all licenses and
permits required for the operation of its business.
Amendments to statutes and regulations and/or the Company's operations in
the future could require the Company to continually modify or alter methods of
operations at costs which could be substantial and could subject the Company to
increased regulation. There can be no assurance that the Company will be able,
for financial or other reasons, to comply with applicable laws and regulations.
Failure by the Company to comply with applicable laws and regulations could
subject the Company to civil remedies, including fines and injunctions as well
as potential criminal sanctions, which could have a material adverse effect on
the Company. See "Item 1. Business - Government Regulation" in the Form 10-KSB.
Federal Aviation Administration Regulation and Quality Control Standards
The manufacture of commercial aircraft is subject to extensive regulation
by the Federal Aviation Administration ("FAA") and foreign regulatory
authorities. Under the FAA requirements, each aircraft is required to undergo a
stringent certification process pursuant to which it is inspected for conformity
with specifications and manufacturing processes and tested for safety,
airworthiness and design characteristics. Upon receipt by an aircraft
manufacturer of a production certificate issued by the FAA for a new aircraft,
such manufacturer is required to assure that its suppliers comply with all
applicable laws and regulations. Under FAA implementation of such regulations,
each supplier, including the Company, is subject to periodic FAA surveillance
and investigation. As a result, each manufacturer places contractual obligations
upon each of its suppliers requiring such suppliers to comply with the FAA
regulations. In order to assure compliance with FAA regulations, the Company's
customers impose quality control standards upon the Company which incorporate
the FAA requirements. These requirements are also incorporated into the
inspection criteria and data to be supplied to
13
<PAGE>
the Company's customers pursuant to the Company's contracts. Among other things,
the Company is required to inspect parts, maintain back-up documents from its
suppliers relating to materials and processes and prepare documentation in order
to substantiate all of the foregoing. In addition, the Company's customers
require the Company to qualify as an approved supplier. In order to so qualify,
the Company is required to satisfy stringent quality control standards and
undergo extensive in-plant inspections of the Company's personnel, production
processes, equipment and quality control systems. Although the Company's efforts
are devoted to ensure that its capabilities and quality control standards meet
its customers' requirements, there can be no assurance that the Company will be
able to comply with quality control standards, that the Company's customers will
comply with the FAA's or aircraft manufacturers' requirements, or that the
Company will be able, for financial or other reasons, to qualify as an approved
supplier for its existing and prospective customers. See "Item 1.
Business - Operations" in the Form 10-KSB.
Limited Marketing Capability
The Company has limited marketing capabilities and resources. To date,
substantially all of the Company's commercial marketing activities have been
conducted by members of Management. Such activities have consisted primarily of
personal contact with potential customers. Because of the nature of the
Company's business, Management will continue to devote a substantial amount of
time developing and maintaining continuing personal relationships with the
Company's customers. The Company's growth prospects will be largely dependent
upon the Company's ability to achieve greater penetration of the commercial
aircraft market and an up-swing in military procurement, in addition to any
diversification efforts. Achieving market penetration will require significant
efforts by the Company to create awareness of and demand for the Company's
services. Accordingly, the Company's ability to build its client base will be
limited by the number of marketing personnel and will be dependent on the
efforts of such individuals. See "Item 1. Business - Marketing" in the Form
10-KSB.
Lack of Patents; Trademarks and Proprietary Protection
None of the Company's current assembly processes or products are protected
by patents. The Company relies on proprietary know-how and confidential
information and employs various methods to protect the processes, concepts,
ideas and documentation associated with its products. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such processes, concepts, ideas and documentation.
There can be no assurance that the Company will be able to adequately protect
its trade secrets or that other companies will not acquire information which the
Company considers to be proprietary.
In March 1994, the Company determined that it would be prudent to protect
its reputation in the aircraft structural products market. It applied for, and
received, trademark protection from the United States Patent and Trademark
Office as to the use of its name and logo. See "Item 1. Business - Proprietary
Information" in the Form 10-KSB.
14
<PAGE>
Control by Current Shareholders
Arthur August and Theodore J. Martines, President and Executive Vice
President, respectively, of the Company, and their affiliates, beneficially own
approximately 22% of the Company's outstanding Common Shares, prior to the
exercise of the Warrants. Accordingly, as the two largest shareholders in the
Company, Messrs. August and Martines and their affiliates may be able to elect
all of the Company's directors; increase the authorized capital; dissolve,
merge, or sell the assets of the Company; and generally direct the affairs of
the Company. See "Shares Eligible for Future Sale" below; and "Item 9.
Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act," "Item 11. Security Ownership of Certain
Beneficial Owners and Management" and "Item 12. Certain Relationships and
Related Transactions" in the Form 10-KSB.
Dependence on Key Personnel
The success of the Company is largely dependent on the personal efforts of
Arthur August and Theodore J. Martines and other key employees. Although Messrs.
August and Martines are both employed under three-year employment agreements
ending in September 1998, the loss of the services of such individuals would
have a material adverse effect on the Company's business and prospects. The
Company currently maintains "key man" life insurance on the lives of Messrs.
August and Martines in the amount of $1,200,000 and $300,000, respectively.
No Dividends
To date, the Company has not paid any cash dividends on its Common Shares
and does not expect to declare or pay any cash or other dividends in the
foreseeable future. See "Item 5. Market for Common Equity and Related
Shareholder Matters - Dividend Policy" in the Form 10-KSB.
Shares Eligible for Future Sale
The Company has 5,778,304 Common Shares outstanding as of the date of this
Prospectus, of which 3,350,000 shares are deemed to be "restricted securities,"
as that term is defined under Rule 144 promulgated under the Securities Act, in
that such shares were issued and sold by the Company in private transactions not
involving a public offering. Of such shares, 1,300,000 are held by Messrs.
August and Martines and members of their families, and are eligible for sale
under Rule 144. The remaining 2,050,000 Shares were sold in the June 1996
Private Placement and are being registered as part of this Registration
Statement.
Messrs. August and Martines agreed with the Company's former investment
banking consultant (which agreement is in dispute and has been terminated by the
Company), not to sell or otherwise dispose of their shares prior to January 26,
1998, unless the Company (i) is able to complete an underwritten secondary
public offering, or (ii) obtains $11,000,000 of gross
15
<PAGE>
revenue as shown on its audited financial statements or as shown on a pro forma
basis with any acquired company, for the then current fiscal year, at which time
the lock-up would be terminated. The foregoing lock-up, however, is exclusive of
Rule 144 sales through the Company's former investment banking consultant, in
the amount of $250,000 per annum for Arthur August and $62,500 for Theodore
Martines (which increases to $250,000 per annum should Mr. Martines retire).
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or person whose shares are aggregated), who has owned restricted
Common Shares beneficially for at least two years is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the total number of outstanding shares of the same class or, if the Common
Shares are quoted on the Nasdaq system, the average weekly trading volume during
the four calendar weeks preceding the sale. A person who has not been an
affiliate of the Company for at least the three months immediately preceding the
sale and who has beneficially owned Common Shares for at least three years is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
In addition, the Company agreed to file by September 5, 1996, this
registration statement with the Commission for the purpose of registering the
Common Shares included in the Units (the "Unit Shares") offered in the Private
Placement. The Company will use its best efforts to ensure the Registration
Statement is declared effective by the Commission and remains effective until
the Unit Shares are sold. At any time (subject to certain limitations) after
such registration statement is deemed stale and no longer effective, or if a
Registration Statement has not been filed by September 5, 1996, the holders of
at least 50% of the Unit Shares have two "demand" registration rights for a
period of five years after the closing of the Private Placement. The holders
also have unlimited piggy-back registration rights (subject to certain
limitations) for a period of five years after the closing of the Private
Placement. The Placement Agent has similar registration rights with respect to
the shares underlying the Placement Agent's Warrants and the Consultant's
Warrants.
The underwriter for the Company's IPO has two demand registration
statements to register an aggregate of 666,038 shares underlying Underwriters'
Warrants until September 24, 1997 and unlimited piggyback registration rights
until September 24, 1999. These shares are a part of this Registration Statement
and are offered for sale hereby. The Company's former investment banking
consultant has one demand registration statement to register an aggregate of
120,000 Common Shares (subject to adjustment) underlying the former consultant's
options (which agreement is in dispute and has been terminated by the Company)
until January 31, 2000 and unlimited piggyback registration rights until
January 31, 2000.
The Company could register the Common Shares issuable upon exercise of
outstanding stock options at any time in which event such shares would be
immediately eligible for sale.
16
<PAGE>
No prediction can be made as to the effect, if any, that market sales of
Common Shares or the availability of such shares for sale will have on the
market prices prevailing from time to time. Nevertheless, the possibility that
substantial amounts of Common Shares may be sold in the public market may
adversely affect prevailing market prices for the Common Shares and could impair
the Company's ability to raise capital through the sale of its equity
securities.
Effect of Outstanding Exercisable Securities and Registration Rights
The Company had outstanding as of the date of this Prospectus, options and
warrants to purchase Common Shares currently exercisable at various prices from
$1.00 to $3.00 pursuant to which an aggregate of approximately 2,831,000 Common
Shares may be issued. This includes warrants to the Company's former
underwriter, former investment banking consultant and the Placement Agent to
purchase up to an aggregate of approximately 1,394,000 Common Shares (subject to
adjustment) (the "Underwriters' Warrants"); Warrants issued in the Private
Placement to purchase 1,025,000 Common Shares and 412,335 employee and
consultant stock options granted as of June 24, 1996.
During the respective terms of the Company's outstanding derivative
securities, the holders thereof may be able to purchase Common Shares at prices
substantially below the then current market price of the Company's Common Shares
with a resultant dilution in the interests of the existing shareholders. The
holders of the Company's derivative securities may be expected to exercise their
rights to acquire Common Shares at times when the Company would, in all
likelihood, be able to obtain needed capital through a new offering of
securities on terms more favorable than those provided by these outstanding
securities. Thus, the terms upon which the Company may obtain additional
financing during the next several years may be adversely affected. In addition,
the exercise of outstanding derivative securities and the subsequent public
sales of Common Shares by holders of such securities pursuant to a registration
statement, including the one for the Shares offered hereby, effected at their
demand, under Rule 144 or otherwise, could have an adverse effect upon the
market for and price of the Company's securities. See "Description of
Securities," "The Offering and Sale of Units," "Shares Eligible for Future Sale"
and "Item 10. Executive Compensation - Stock Options" in the Form 10-KSB."
Securities Market Factors
In recent years, the securities markets have experienced a high level of
volume volatility and market prices for many companies, particularly small and
emerging growth companies, have been subject to wide fluctuations in response to
quarterly variations in operating results. The securities of many of these
companies which trade in the over-the-counter market, have experienced wide
price fluctuations, which in many cases were unrelated to the operating
performance of, or announcements concerning, the issuers of the affected stock.
Factors such as announcements by the Company or its competitors concerning
technological innovations, new products or procedures, government regulations
and developments or disputes relating to proprietary rights and factors
affecting the aerospace industry generally may have a significant
17
<PAGE>
impact on the market for the Company's securities. General market price declines
or market volatility in the future could adversely affect the future price of
the Company's securities. See "Item 5. Market for Common Equity and Related
Shareholder Matters" in the Form 10-KSB.
Inability to Exercise Warrants
The Company intends to qualify the sale of the Shares and Warrants in a
limited number of states. Although certain exemptions in the securities ("blue
sky") laws of certain states might permit Warrants to be transferred to
purchasers in states other than in which the Securities were initially
qualified, the Company will be prevented from issuing Common Shares in such
states upon the exercise of the Warrants unless an exemption (e.g., private
placement) from qualification is available or unless the issuance of Common
Shares upon exercise of the Warrants is qualified. The Company may decide not to
seek or may not be able to obtain qualifications of the issuance of such Common
Shares in all of the states in which the ultimate purchasers of the Warrants
reside. In such a case, the Warrants held by purchasers will expire and have no
value if such Warrants cannot be sold. Accordingly, the market for the Warrants
may be limited because of these restrictions. Further, a current prospectus
covering the Common Shares issuable upon exercise of the Warrants must be in
effect before the Company may accept Warrant exercises. There can be no
assurance the Company will be able to have a prospectus in effect when the
holders of the Warrants desire to exercise them, notwithstanding the Company's
commitment to use its best efforts to do so. See "Description of Securities --
Warrants."
Potential Adverse Effect of Redemption of Warrants
The Warrants may be redeemed by the Company at any time upon prior written
notice of not less than 30 days, at a price of $.05 per Warrant, provided the
closing bid price of the Common Shares as quoted on the Nasdaq SmallCap Market,
equals or exceeds $3.00 per share for a period of twenty (20) consecutive
trading days ending within 15 calendar days of the date on which notice of
conversion is given. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do, to sell the Warrants at the then current
market price when they might otherwise wish to hold the Warrants, or to accept
the redemption price, which is substantially less than the market value of the
Warrants at the time of redemption. See "Description of Securities -- Warrants."
USE OF PROCEEDS
The Shares offered hereby were issued by the Company to certain investors
in the Private Placement consisting of 82 Units, each Unit consisting of 25,000
Common Shares and redeemable Warrants to purchase 12,500 Common Shares, at
$25,000 per Unit; to the Placement Agent of the Private Placement in the form of
Placement Agent's Warrants to purchase 8.2 Units consisting of 205,000 Common
Shares and Warrants to purchase 102,500 Common Shares; to the Placement Agent in
April 1996 as Consultant's Warrants to purchase 300,000 Common Shares issued in
consideration for consulting services; and Underwriter's Warrants to Whale
Securities Co., L.P. and its assignees (collectively, the "Underwriter"), the
underwriter of the Company's IPO to purchase an aggregate of 566,038 Common
Shares, as adjusted, and warrants to purchase an additional 100,000 Common
Shares.
The Company will not receive the proceeds of sales of the Shares by the
Selling Shareholders. However, upon the full exercise of the Warrants, the
Placement Agent's Units, the Placement Agent's Warrants, the Consultant's
Warrants, the Underwriter's Warrants and the Underwriter's Unit Warrants, the
Company will receive aggregate cash of $2,050,000, $205,000, $205,000, $300,000,
$600,000 and $250,000, respectively. The Company will use the proceeds from the
payment of the respective exercise prices for working capital and general
corporate purposes.
The Company may also use a portion of the exercise price of the warrants
allocated to working capital to expand its operations by acquiring companies or
parts of companies which the Company believes are compatible with its business.
The Company has no plans, agreements, understandings or arrangements with
respect to any such acquisition. There can be no assurance that the Company will
be able to make any such acquisition.
18
<PAGE>
SELLING SHAREHOLDERS
The table below sets forth, with respect to each Selling Shareholder,
based upon information available to the Company as of the date hereof, the
number of Common Shares beneficially owned, the number of Shares to be sold, and
the number and percentage of outstanding Common Shares beneficially owned before
and after the sale of the Shares offered hereby. None of the Selling
Shareholders has been an affiliate of the Company during the preceding three
years, except as noted. Although there can be no assurance that the Selling
Shareholders will sell any or all of the Shares, the following table assumes
that each of the Selling Shareholders will sell all Shares offered by this
Prospectus.
<TABLE>
<CAPTION>
=========================================================================================================================
Shares
Amount and Beneficially Percent of
Nature Owned Class (2)
Beneficial Shares to After After
Name Ownership(1) Be Sold Offering Offering
=========================================================================================================================
<S> <C> <C> <C> <C>
Leonard Adler & Eileen Adler 37,500(3) 37,500 -0- -0-
TEN BY ENT
Mark Allbaugh & Florence 37,500(3) 37,500 -0- -0-
Allbaugh JTWROS
Barry Barak & Helen Barak 37,500(3) 37,500 -0- -0-
JTWROS
Bruce C. Barber & Karen Eva 138,426(5) 138,426 -0- -0-
Barber JTWROS(4)
George C. Barber & Shirley 37,500(3) 37,500 -0- -0-
Barber JTWROS
Sonya Ben-Shmuel 37,500(3) 37,500 -0- -0-
Herman Bhojwani 37,500(3) 37,500 -0- -0-
Billy H. Branch & Tom 18,750(6) 18,750 -0- -0-
Branch JTWROS
Paul M. Bronson & Laura 37,500(3) 37,500 -0- -0-
Mae Bronson JTWROS
Peter David Bronson & 37,500(3) 37,500 -0- -0-
Maguy F. Bronson JTWROS
Steven N. Bronson(4) 311,140(7) 311,140 -0- -0-
James S. Cassel (4) 156,000(8) 156,000 -0- -0-
James S. Cassel & Mindy E. 18,750(6) 18,750 -0- -0-
Cassel TEN BY ENT(4)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
Shares
Amount and Beneficially Percent of
Nature Owned Class (2)
Beneficial Shares to After After
Name Ownership(1) Be Sold Offering Offering
=========================================================================================================================
<S> <C> <C> <C> <C>
Marwin S. Cassel & Leslie 18,750(6) 18,750 -0- -0-
Cassel JTWROS
EVEREN Clearing Corp Cust 18,750(6) 18,750 -0- -0-
FBO Mindy E. Cassel IRA
C G Chase Construction Co. 37,500(3) 37,500 -0- -0-
EVEREN Clearing Corp. Cust 18,750(6) 18,750 -0- -0-
FBO Gary Wayne Cole
SEPIRA
Anthony Conza 37,500(3) 37,500 -0- -0-
James A.W. Cook 37,500(3) 37,500 -0- -0-
Vincent Coppola Jr., MD & 37,500(3) 37,500 -0- -0-
Lillian Coppola JTWROS
Susan Crampton & Stuart 37,500(3) 37,500 -0- -0-
Crampton JTWROS
Prema Das 37,500(3) 37,500 -0- -0-
EVEREN Clearing Corp 37,500(3) 37,500 -0- -0-
CUST FBO Ronald A. David
IRA
Thomas L. Delaney 37,500(3) 37,500 -0- -0-
Roy A. Dempsey 56,250(10) 56,250 -0- -0-
EVEREN Clearing Corp Cust 37,500(3) 37,500 -0- -0-
FBO Gordon J. Dow SEP
IRA
Martin Elkin & Dolores Elkin 18,750(6) 18,750 -0- -0-
TEN ENT
Eric R. Elliott 67,184(11) 67,184 -0- -0-
Leanore R. Elliot 37,500(3) 37,500 -0- -0-
Feller Development Corp 37,500(3) 37,500 -0- *
Fred Fialkow 56,250(6) 56,250 -0- -0-
Ronald R. Fieldstone & Linda 37,500(3) 37,500 -0- -0-
Fieldstone TEN BY ENT
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
Shares
Amount and Beneficially Percent of
Nature Owned Class (2)
Beneficial Shares to After After
Name Ownership(1) Be Sold Offering Offering
=========================================================================================================================
<S> <C> <C> <C> <C>
William T. Foran Tr 37,500(3) 37,500 -0- -0-
William T. Foran Trust
U/A Dtd 5-29-92
Everen Clearing Corp Cust 37,500(3) 37,500 -0- -0-
FBO David E. French IRA
Rollover
Francisco Garcia 37,500(3) 37,500 -0- -0-
Emanuel Goldstein & Rosa 18,750(6) 18,750 -0- -0-
Goldstein JTWROS
Robert D. Goldstein 37,500(3) 37,500 -0- -0-
Herman Goodman & Rose 37,500(3) 37,500 -0- -0-
Marie Goodman JTWROS
EVEREN Clearing Corp Cust 18,750(6) 18,750 -0- -0-
FBO Raymond H. Grabasch
IRA
Thomas J. Hanford 37,500(6) 37,500 -0- -0-
Mark Hart 37,500(3) 37,500 -0- -0-
Daniel F. Herz 18,750(6) 18,750 -0- -0-
First Union National Bank 37,500(3) 37,500 -0- -0-
FBO Joel D. Kamphuis
Stanley B. Kane TR 37,500(3) 37,500 -0- -0-
Stanley B. Kane REV TRUST
U/A Dtd 3/14/89
Frank Lagalia & Lydia 37,500(3) 37,500 -0- -0-
Lagalia, JT TEN
Steven Levin 18,750(6) 18,750 -0- -0-
Sylvia Levine 18,750(6) 18,750 -0- -0-
Mark Allen Llano & Suzanne 37,500(3) 37,500 -0- -0-
Llano JTWROS
John O'Gorman 18,750(6) 18,750 -0- -0-
Doug Olson 37,500(3) 37,500 -0- -0-
Nancy A. Pantori & Michael 37,500(3) 37,500 -0- -0-
Pantori JTWROS
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
Shares
Amount and Beneficially Percent of
Nature Owned Class (2)
Beneficial Shares to After After
Name Ownership(1) Be Sold Offering Offering
=========================================================================================================================
<S> <C> <C> <C> <C>
Robert S. Pearlman & Rita J. 37,500(3) 37,500 -0- -0-
Pearlman JTWROS
EVERN Clearing Corp Cust 37,500(3) 37,500 -0- -0-
FBO Dr. Paul Pesce IRA
EVERN Clearing Corp. Cust 18,750(6) 18,750 -0- -0-
FBO S. Daniel Ponce IRA
Leonard A. Poulin 18,750(6) 18,750 -0- -0-
Independent Trust Corporation 37,500(3) 37,500 -0- -0-
F/B/O Prime Discount
Securities
Private Opportunity Partners 375,000(7) 375,000 -0- -0-
Limited
Attn: Steven N. Bronson(4)
R.J. Srein Corp. 37,500(3) 37,500 -0- -0-
Profit Sharing Plan
U/A/D 10/31/83
Laura G. Roberts 37,500(3) 37,500 -0- -0-
Mildred Rostolder 18,750(6) 18,750 -0- -0-
Deanna R. Salpeter 18,750(6) 18,750 -0- -0-
Richard Serbin & Kathie 18,750(6) 18,750 -0- -0-
Serbin JTWROS
James Allan Settlage & Carol 37,500(3) 37,500 -0- -0-
Lynn Settlage JTWROS
David Shear & Hannah Shear 18,750(3) 18,750 -0- -0-
TEN ENT
Haguy Schechter 37,500(3) 37,500 -0- -0-
EVEREN Clearing Corp Cust 37,500(3) 37,500 -0- -0-
FBO Yehuda Schechter IRA
Rollover
Zvika Schechter 18,750(5) 18,750 -0- -0-
Nancy B. Sherertz 37,500(3) 37,500 -0- -0-
Craig L. Silverman 37,500(3) 37,500 -0- -0-
David Singerman 37,500(3) 37,500 -0- -0-
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
Shares
Amount and Beneficially Percent of
Nature Owned Class (2)
Beneficial Shares to After After
Name Ownership(1) Be Sold Offering Offering
=========================================================================================================================
<S> <C> <C> <C> <C>
Richard Sinise 75,000(12) 75,000 -0- -0-
Mark A. Skoda 37,500(3) 37,500 -0- -0-
Joseph A. Spinella 37,500(3) 37,500 -0- -0-
Delaware Charter Guarantee 37,500(3) 37,500 -0- -0-
& Trust Co. Custodian FBO
Law Office of Bruce R. Thaw
KEOUGH Plan
Allan Thaw 37,500(3) 37,500 -0- -0-
Tropical Time 37,500(3) 37,500 -0- -0-
Robert Van Lier 18,750(6) 18,750 -0- -0-
Frank Vicino, Jr. 37,500(6) 37,500 -0- -0-
Stephen Yetzer & Karen 37,500(3) 37,500 -0- -0-
Yetzer TR The Yetzer Family
Trust U/A dtd 3-12-93
Stephen W. Zack 18,750(6) 18,750 -0- -0-
Boris Zalkind 37,500(3) 37,500 -0- -0-
Robert B. Zann TR 37,500(3) 37,500 -0- -0-
Robert B. Zann REV TRUST
U/A dtd 2/22/94
Charles Watkins 30,000(13) 30,000 -0- -0-
Barry J. Booth 6,000(14) 6,000 -0- -0-
Alvin Katz 30,000(13) 30,000 -0- -0-
Whale Securities Co., L.P. 351,162(15) 351,162 -0- -0-
William G. Walters 70,906(15) 70,906 -0- -0-
Elliot J. Smith 70,900(15) 70,900 -0- -0-
Estate of Howard D. Harlow 54,795(15) 54,795 -0- -0-
Nicholas Anari 11,196(15) 11,196 -0- -0-
James D. Whitten 5,541(15) 5,541 -0- -0-
Cynthia Buckwalter 1,632(15) 1,632 -0- -0-
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================================
Shares
Amount and Beneficially Percent of
Nature Owned Class (2)
Beneficial Shares to After After
Name Ownership(1) Be Sold Offering Offering
=========================================================================================================================
<S> <C> <C> <C> <C>
Mark Silverman 99,906(15) 99,906 -0- -0-
========== ==========
4,348,538 4,348,538
</TABLE>
- --------
(1) Under Securities and Exchange Commission rules, beneficial ownership
includes any shares as to which an individual has sole or shared voting
power or investment power. Unless otherwise indicated, the Company
believes that all persons named in the table have sole voting and
investment power with respect to all Common Shares beneficially owned by
them. A person is also deemed to be the beneficial owner of securities
that can be acquired by such person within 60 days from the date hereof
upon the exercise of warrants or options. Each beneficial owner's
percentage ownership is determined by assuming that options or warrants
that are held by such person (but not those held by any other person) and
are exercisable within 60 days from the date hereof have been exercised.
(2) Based on a total of 5,778,304 Common Shares issued and outstanding as of
June 18, 1996.
(3) Includes 12,500 Common Shares issuable upon exercise of currently
exercisable Warrants.
(4) Bruce Barber, Steven N. Bronson and James S. Cassel are each officers and
directors of Barber & Bronson Incorporated ("BBI"), the Placement Agent.
BBI is a consultant of the Company pursuant to a consulting agreement
dated April 3, 1996, which expires on April 2, 1998, and pursuant to which
the Placement Agent and its assigns received Consultant's Warrants to
purchase 300,000 Common Shares in April 1996. BBI also acted as Placement
Agent of the Private Placement pursuant to which it received Placement
Agent's Warrants to purchase 8.2 Units, each Unit consisting of 25,000
Common Shares and warrants to purchase 12,500 Common Shares at a price of
$25,000 per Unit.
(5) Includes 12,500 Common Shares issuable upon exercise of currently
exercisable warrants, 49,926 Common Shares issuable upon exercise of
Consultant's Warrants and 51,000 shares issuable upon exercise of the
Placement Agent's Units and Placement Agent's Warrants included herein.
(6) Includes 6,250 Common Shares issuable upon exercise of currently
exercisable Warrants.
(7) Includes 12,500 Common Shares issuable upon exercise of currently
exercisable warrants, 119,890 shares issuable upon exercise of
Consultant's Warrants issued on April 3, 1996 to the Placement Agent under
the Company's consulting agreement with the Placement Agent, and 153,750
shares issuable upon exercise of the Placement Agent's Units and Placement
Warrants included herein. Does not include an additional 375,000 Common
Shares beneficially owned by Private Opportunity Partners, Ltd., of which
Mr. Bronson is President of the partnership's sole general partner. Mr.
Bronson disclaims beneficial ownership of the securities owned by Private
Opportunity Partners, Ltd.
24
<PAGE>
(8) Includes 6,250 Common Shares issuable upon exercise of currently
exercisable warrants issued to Everen Clearing Corp. Cust. FBO James S.
Cassel IRA, 52,500 shares issuable upon exercise of Consultant's Warrants
and 84,750 shares issuable upon exercise of Placement Agent's Units and
Placement Agent's Warrants included herein.
(9) For purposes of this calculation, the number of shares beneficially owned
has been increased to include 12,500 Common Shares and 6,250 Common Shares
issuable upon exercise of currently exercisable warrants issued to EVEREN
Clearing Corp. Cust FBO Mindy E. Cassel IRA and James S. Cassel & Mindy E.
Cassel TEN BY ENT. Does not include 12,500 Common Shares and 6,250 Common
Shares issuable upon exercise of currently exercisable warrants issued to
Mr. Cassel's wife's IRA. Mr. Cassel disclaims beneficial ownership of such
securities.
(10) Includes 18,750 Common Shares issuable upon exercise of currently
exercisable warrants.
(11) Includes 12,500 Common Shares issuable upon exercise of currently
exercisable warrants issued to Everen Clearing Corp. Cust. FBO Eric E.
Elliot IRA, 14,684 shares issuable upon exercise of Consultant's Warrants
and 15,000 shares issuable upon exercise of Placement Agent's Units and
Placement Agent's Warrants included therein.
(12) Includes 25,000 Common Shares issuable upon exercise of currently
exercisable Warrants.
(13) Consists of shares issuable upon exercise of Consultant's Warrants.
(14) Consists of 3,000 Common Shares issuable upon exercise of Consultant's
Warrants and 3,000 Common Shares issuable upon exercise of Placement
Agent's Units and Placement Agent's Warrants included therein.
(15) Issuable upon full exercise of Underwriter's Warrants issued to Whale
Securities Co., L.P. and its assignees in the Company's initial public
offering, each warrant exercisable at $1.06, as adjusted, to purchase
5.66038 Common Shares and one Common Share Purchase Warrant to purchase
one Common Share at $2.50 per Common Share. Does not include any Common
Shares that may be held by Whale Securities Co., L.P., a registered
NASD member firm in its firm trading account.
25
<PAGE>
PLAN OF DISTRIBUTION
The Selling Shareholders are offering the Shares for their own account and
not for the account of the Company. The Selling Shareholders may continue to
sell the Shares directly to purchasers or, alternatively, may offer the Shares
from time to time through other agents, brokers, dealers or underwriters, who
may receive compensation in the form of concessions or commissions from the
Selling Shareholders. Sales of the Shares may be made in one or more
transactions on Nasdaq, in privately negotiated transactions or otherwise, and
such sales may be made at the market price prevailing at the time of sale, a
price related to such prevailing market price or a negotiated price. The sale of
the Shares is subject to the Prospectus delivery and other requirements of the
Act.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the Common Shares of the Company offered by this Prospectus
may not simultaneously engage in market making activities with respect to the
Common Shares of the Company during the applicable "cooling off" periods prior
to the commencement of such distribution. In addition, and without limiting the
foregoing, the Selling Shareholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder including, without
limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of
purchases and sales of Common Shares by the Selling Shareholders.
To the extent required, the Company will use its best efforts to file,
during any period in which offers or sales are being made, one or more
amendments or supplements to this Prospectus or a new registration statement
with respect to the Shares to describe any material information with respect to
the plan of distribution not previously disclosed in this Prospectus, including
the name or names of any additional underwriters, dealers or agents, if any, the
purchase price paid by the underwriter for Shares purchased from a Selling
Shareholder, and any discounts, commissions or concessions allowed or reallowed
or paid to dealers.
COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to the foregoing provisions or otherwise, the small business
issuer has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
26
<PAGE>
LEGAL MATTERS
Snow Becker Krauss P.C., 605 Third Avenue, New York, New York 10158 is
acting as counsel to the Company and will pass upon the legality of the Common
Shares offered hereby. SBK Investment Partners, a partnership consisting of
certain members of Snow Becker Krauss P.C., holds options to purchase 20,000
shares of the Company's Common Shares.
EXPERTS
The financial statements of CPI Aerostructures, Inc. at December 31, 1995
and for each of the two years in the period ended December 31, 1995 included in
this registration statement have been included in reliance upon the report of
Goldstein Golub Kessler & Company, P.C., independent certified public
accountants, given upon the authority of said firm as experts in accounting and
auditing.
27
<PAGE>
CPI AEROSTRUCTURES, INC.
INDEX TO FINANCIAL STATEMENTS
==============================================================================
Independent Auditor's Report F-1
Audited Financial Statements:
Balance Sheet as of December 31, 1995 F-2
Statement of Operations for the Years
Ended December 31, 1995 and 1994 F-3
Statement of Shareholders' Equity for the
Years Ended December 31, 1995 and 1994 F-4
Statement of Cash Flows for the Years Ended
December 31, 1995 and 1994 F-5
Notes to Financial Statements F-6 - F-14
Unaudited Financial Statements
Balance Sheets as of June 30, 1996
and December 31, 1995 (audited) F-15
Statements of Income for the three
months and six months ended June 30, 1996 F-16
Statements of Cash Flows for the six months
ended June 30, 1995 and 1996 F-17
Notes to Financial Statements as
of June 30, 1996 F-18 - F-19
<PAGE>
[LOGO]
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
Certified Public Accountants and Consultants
--------------------------------------------
[LOGO]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
CPI Aerostructures, Inc.
We have audited the accompanying balance sheet of CPI Aerostructures, Inc. as of
December 31, 1995 and the related statements of operations, shareholders'
equity, and cash flows for each of the two years in the period ended December
31, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of CPI Aerostructures, Inc. as of
December 31, 1995, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
- --------------------------------------------
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
February 14, 1996
1185 Avenue of the Americas New York, NY 10036-2602
TEL 212 372 100 * FAX 212 372 1001 * INTERNET [email protected]
NEXIA INTERNATIONAL IS A WORLDWIDE NETWORK OF INDEPENDENT ACCOUNTING AND
CONSULTING FIRMS
LONG ISLAND OFFICE 333 EARLE OVINGTON BLVD. UNIONDALE, NY 19553-3656 *
TEL 516 222 9494 * FAX 516 222 8037
F-1
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
BALANCE SHEET
======================================================================================================================
December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS (Note 6)
Current Assets:
Cash and cash equivalents (Note 1) $ 998,517
Accounts receivable (Note 1) 1,565,048
Costs and estimated earnings in excess of billings on uncompleted contracts (Notes 1 and 4) 9,677,390
Prepaid expenses and other current assets 329,199
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 12,570,154
Property and Equipment, net (Note 5) 196,384
Deferred Income Taxes (Note 8) 113,000
Other Assets 75,519
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 12,955,057
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,160,285
Accrued expenses 260,288
Current portion of long-term debt (Notes 6 and 7) 630,525
Deferred income taxes (Note 8) 445,000
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,496,098
Long-term Debt (Notes 6 and 7) 1,730,229
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 4,226,327
- ----------------------------------------------------------------------------------------------------------------------
Commitments (Note 7)
Shareholders' Equity (Notes 2 and 10):
Common stock - $.001 par value; authorized 10,000,000 shares,
issued and outstanding 3,728,304 shares 3,728
Additional paid-in capital 7,436,079
Retained earnings 1,288,923
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 8,728,730
======================================================================================================================
Total Liabilities and Shareholders' Equity $ 12,955,057
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-2
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENT OF OPERATIONS
======================================================================================================================
Year ended December 31, 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenue (Note 1) $ 4,684,378 $5,041,073
Cost of sales (Note 1) 4,264,071 2,928,644
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 420,307 2,112,429
Selling, general and administrative expenses 1,168,134 1,052,366
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) from operations (747,827) 1,060,063
- ----------------------------------------------------------------------------------------------------------------------
Other (income) expenses:
Interest income (77,858) (25,815)
Interest expense 391,377 511,036
Loss on sale of building 496,071 -
Costs of terminated acquisitions (Note 3) 223,671 241,565
Other income (42,243) (52,210)
- ----------------------------------------------------------------------------------------------------------------------
Total other expenses, net 991,018 674,576
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for income taxes and
extraordinary item (1,738,845) 385,487
Provision (benefit) for income taxes (577,000) 152,000
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (1,161,845) 233,487
Extraordinary item - gain on early extinguishment of debt (Note 6) 81,475 -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $(1,080,370) $ 233,487
======================================================================================================================
Earnings (loss) per share (Note 1):
Income (loss) before extraordinary item $ (.31) $ .06
Extraordinary item .02 -
======================================================================================================================
Net earnings (loss) $ (.29) $ .06
======================================================================================================================
Weighted average shares and common share equivalents outstanding (Note 1) 3,724,373 3,800,612
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
======================================================================================================================
Years ended December 31, 1994 and 1995
- ----------------------------------------------------------------------------------------------------------------------
Total
Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1994 2,512,401 $2,512 $4,474,264 $ 2,135,806 $ 6,612,582
Net income - - - 233,487 233,487
Shares issued upon exercise
of stock options 32,833 33 101,631 - 101,664
Shares issued upon exercise
of stock warrants 1,125,000 1,125 2,715,065 - 2,716,190
- ----------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 3,670,234 3,670 7,290,960 2,369,293 9,663,923
Shares issued upon exercise
of stock warrants 58,070 58 145,119 - 145,177
Net loss - - - (1,080,370) (1,080,370)
======================================================================================================================
Balance at December 31, 1995 3,728,304 $3,728 $7,436,079 $ 1,288,923 $ 8,728,730
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENT OF CASH FLOWS
======================================================================================================================
Year ended December 31, 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,080,370) $ 233,487
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 124,339 177,228
Deferred taxes (336,000) 192,000
Loss on sale of land and building 496,071 -
Extraordinary item (81,475) -
Changes in operating assets and liabilities:
Increase in accounts receivable (104,288) (899,755)
Increase in prepaid expenses and other current assets (154,107) (21,327)
Decrease in costs and estimated earnings in excess of billings on
uncompleted contracts 820,022 652,724
Decrease (increase) in other assets 23,217 (48,523)
Increase (decrease) in accounts payable 12,748 (86,996)
Increase (decrease) in accrued expenses 8,352 (61,360)
Decrease in income taxes payable - (30,998)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (271,491) 106,480
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (36,292) (2,043)
Proceeds from sale of land and building 1,248,581 -
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,212,289 (2,043)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (1,841,128) (1,478,028)
Principal payments under capital lease obligations (42,425) (36,896)
Proceeds from exercise of stock warrants 145,177 2,716,190
Proceeds from exercise of stock options - 101,664
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (1,738,376) 1,302,930
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (797,578) 1,407,367
Cash at beginning of year 1,796,095 388,728
======================================================================================================================
Cash at end of year $ 998,517 $ 1,796,095
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 432,000 $ 530,000
======================================================================================================================
Income taxes $ 34,000 $ 21,000
======================================================================================================================
Supplemental schedule of noncash financing activity:
The Company recorded a liability of $100,000 and $50,000 in 1995 and 1994,
respectively, for finance restructuring charges payable in 1997.
======================================================================================================================
</TABLE>
See Notes to Financial Statements
F-5
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
1. PRINCIPAL BUSINESS The Company's operations consist of the design and
ACTIVITY AND SUMMARY production of complex aerospace structural
OF SIGNIFICANT subassemblies under government and commercial
ACCOUNTING POLICIES: contracts. The length of the Company's contracts
varies but is typically between 1 and 2 years for
U.S. government contracts and up to 10 years for
commercial contracts.
Revenue recognition is based on the percentage of
completion method of accounting for long-term
contracts, measured by the percentage of total
costs incurred to date to estimated total costs
for each contract. Contract costs include all
direct material, labor costs, tooling and those
indirect costs related to contract performance,
such as indirect labor, supplies, tools, repairs
and depreciation costs. Selling, general and
administrative costs are charged to expense as
incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in
which such losses are determined. Changes in job
performance may result in revisions to costs and
income and are recognized in the period in which
revisions are determined to be required. In
accordance with industry practice, costs and
estimated earnings in excess of billings on
uncompleted contracts, included in the
accompanying balance sheet, contain amounts
relating to contracts and programs with long
production cycles, a portion of which will not be
realized within one year. The Company's recorded
revenue may be written off in later periods in the
event that Company's cost estimates prove to be
inaccurate or a contract is terminated.
During 1995, the Company received formal
notification from Nordam Corporation that it was
terminating the pylon portion of its contract with
the Company. This partial termination resulted in
the Company writing off approximately $1,473,000
of previously recorded revenue. The effect of this
write-off is included in cost of sales in 1995.
The Company considers all highly liquid debt
instruments with original maturities not exceeding
three months to be cash equivalents. Cash
equivalents consist primarily of repurchase
agreements at December 31, 1995, which were
subsequent to year-end, rolled over into U.S.
Treasury Bills and commercial paper. The Company's
cash balances, at times, exceed federally insured
limits.
Property and equipment is stated at cost.
Depreciation and amortization is provided for
using the straight-line method over the estimated
useful lives of the related assets.
Substantially all of the Company's accounts
receivable are with two customers.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires the use of estimate by
management. Actual results could differ from these
estimates.
Earnings (loss) per share are computed by dividing
net income (loss) by the weighted average common
and common equivalent shares outstanding.
F-6
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
Effective December 31, 1995, the Company adopted
Statement of Financial Accounting Standards No.
121 ("SFAS No. 121"), "Accounting for Impairment
of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed
for impairment whenever events or changes in
circumstances indicate that the carrying value of
an asset may not be recoverable. Adoption of SFAS
No. 121 had no effect on the accompanying
financial statements in 1995 because the same
method was used in the past to measure and review
asset impairments.
In 1996 the Company will adopt SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS
No. 123 establishes the fair value method for
accounting for stock-based compensation plans
either through recognition or disclosure. The
Company has not determined whether it will
recognize or only disclose such information on
adopting, but it believes adoption of SFAS No. 123
will not impact the result of its operations.
2. EXERCISE OF
COMMON STOCK
PURCHASE WARRANTS: On September 12, 1994, the Company announced that
it was calling its outstanding common stock
purchase warrants for redemption and
simultaneously changed the terms of exercise of
the warrants from two warrants plus $5.00 for one
share of common stock to two warrants plus $5.00
for two shares of common stock. These warrants
were originally issued in connection with the
Company's initial public offering in September
1992. The Company's registration statement for the
registration of the warrants and the shares of
common stock underlying the warrants was declared
effective October 7, 1994. The exercise period
expired on January 25, 1995 with all remaining
warrants redeemed at $.10. During 1994, the
Company received $2,716,190 after costs of the
registration of $96,310 on the exercise of
1,125,000 warrants. In total, the Company received
$2,861,365 on the exercise of 1,183,070 warrants
through January 25, 1995. Proceeds from the
exercise of warrants were used to fund working
capital requirements and preliminary acquisition
costs (see Note 3) and to pay down approximately
$915,000 of indebtedness to Chrysler Capital
Corporation ("Chrysler"), required under the
Company's loan agreement, as amended.
3. PROPOSED
ACQUISITIONS: On July 18, 1994, the Company announced that it
had signed a letter of intent to acquire certain
operating divisions of Valentec International
Corporation ("Valentec") of Costa Mesa,
California. On January 9, 1995, the Company
announced that its letter of intent with Valentec
had terminated, by its terms, through the parties'
failure to execute a definitive merger agreement
by December 20, 1994 and because of various
material issues that remained unresolved. During
1994, the Company incurred approximately $242,000
in costs associated with the proposed acquisition.
On August 24, 1995, the Company announced that it
had signed a letter of intent to merge with VTX
Electronics Corporation ("VTX") of Farmingdale,
New York. On October 27, 1995, the Company
announced that it had terminated merger
discussions with VTX pursuant to the terms of the
letter of intent. During 1995, the Company
incurred approximately $224,000 in costs
associated with the proposed acquisition.
F-7
<PAGE>
4. COSTS AND At December 31, 1995, costs and estimated earnings
ESTIMATED in excess of billings on uncompleted contracts
EARNINGS IN consist of:
EXCESS OF
BILLINGS ON
UNCOMPLETED
CONTRACTS:
<TABLE>
<CAPTION>
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts $631,426 $19,738,969 $20,370,395
Estimated earnings 201,250 10,777,343 10,978,593
----------------------------------------------------------------------------------------
832,676 30,516,312 31,348,988
Less billings to date 716,030 20,955,568 21,671,598
========================================================================================
Costs and estimated earnings
in excess of billings on
uncompleted contracts $116,646 $ 9,560,744 $ 9,677,390
========================================================================================
</TABLE>
Unbilled costs and estimated earnings are billed
in accordance with applicable contract terms. As
of December 31, 1995, approximately $4,136,000 of
the balances above are not expected to be
collected within one year. Approximately 75% and
72% of the Company's sales in 1995 and 1994,
respectively, are to Rohr Industries, Inc.
("Rohr") and approximately 14% and 9% of the
Company's sales in 1995 and 1994, respectively are
to Nordam Corporation.
5. PROPERTY AND
EQUIPMENT: Property and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, 1995 Useful Life
----------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures $146,611 7 years
Machinery and equipment 279,353 5 to 10 years
Automobiles 13,015 5 years
Leasehold improvements 36,292 3 years
----------------------------------------------------------------------------------------
475,271
Less accumulated depreciation and
amortization 278,887
----------------------------------------------------------------------------------------
$196,384
========================================================================================
</TABLE>
The Company has certain machinery and equipment
under a capital lease. The cost of such equipment
is approximately $137,000 and its accumulated
depreciation is approximately $68,000.
F-8
<PAGE>
6. LONG-TERM Long-term debt is comprised of:
DEBT:
<TABLE>
<CAPTION>
<S> <C>
Borrowing under loan agreement with Chrysler $2,324,184
Capital lease obligation (Note 7) 36,570
----------------------------------------------------------------------------------------
2,360,754
Less current portion 630,525
========================================================================================
$1,730,229
========================================================================================
</TABLE>
In October 1993, the Company refinanced its loan
with Chrysler, which consolidated all outstanding
indebtedness to Chrysler and extended the maturity
date to July 1, 1995. Under the terms of this
agreement, the Company is required to make
principal payments of $50,000 and interest
payments, at prime plus 2%, each month. In
addition, the Company accrued a $50,000 fee for
not paying the loan in full by July 1, 1994,
another $50,000 for not paying the loan in full by
January 1, 1995 and $100,000 for not paying the
loan in full by July 1, 1995. These amounts are
payable at the time the loan is satisfied in full.
Substantially all of the Company's receivables,
costs and estimated earnings in excess of billings
on uncompleted contracts, and property and
equipment are pledged under this agreement. Two of
the Company's officers have also pledged their
outstanding shares of the Company's common stock
as collateral.
The loan agreement requires the Company to
maintain certain financial ratios regarding, among
other things, net worth and working capital, and
restricts the payment of dividends. In February
1994, the Company received a deferral of mandatory
monthly debt payments due in January, February and
March 1994 and a waiver of default arising from
the nonpayment during such period. In June 1994,
the Company received a deferral of mandatory
monthly debt payments due and a waiver of default
arising from the nonpayment during such period.
The June deferral and waiver were subject to
various conditions as specified in a letter
agreement between the Company and Chrysler. Such
conditions included, among others, completing the
induced exercise of outstanding warrants and
remitting one-third of the net proceeds to
Chrysler, as well as the Company's completing an
offering of its common stock. Such conditions were
required to be satisfied in accordance with a
timetable provided in the deferral and waiver
agreement, over the period June 17, 1994 to
January 15, 1995. On December 31, 1994, the
Company and Chrysler agreed to amend the October
1993 agreement and rescind the conditions set
forth in the June 1994 letter agreement and
extended the maturity date of the loan to October
1, 1996. In addition, the December 1994 agreement
provided a waiver of a default of a loan covenant
as specified in the original loan agreement, as
amended by the October 1993 agreement. On October
18, 1995, the Company and Chrysler agreed to amend
the agreement and extend the maturity date of the
loan to January 31, 1997. During 1994, the Company
received approximately $2,700,000 in proceeds from
the exercise of 1,125,000 stock purchase warrants
and remitted approximately one-third ($915,833) to
Chrysler to reduce its outstanding indebtedness,
as required under its loan agreement with
Chrysler.
F-9
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
In December 1995, the Company sold its land and
building for approximately $1,240,000 and retired
its industrial development revenue bonds. This
resulted in an extraordinary gain of $81,475 from
the early extinguishment of this obligation. The
Company recorded a loss on the disposal of the
land and building due to the net carrying value
exceeding the sales proceeds by approximately
$496,000. Additionally, the Company remitted
$400,000 of the sale proceeds to Chrysler to
reduce its outstanding indebtedness.
The aggregate maturities of long-term debt,
including capital lease obligations, at December
31, 1995 are as follows:
Year ending December 31,
<TABLE>
<CAPTION>
<S> <C>
1996 $ 630,525
1997 1,730,229
----------------------------------------------------------------------------------------
$2,360,754
========================================================================================
</TABLE>
7. COMMITMENTS: Future minimum lease payments under capital leases
at December 31, 1995 are as follows:
Year ending December 31,
<TABLE>
<CAPTION>
<S> <C>
1996 $32,197
1997 6,690
----------------------------------------------------------------------------------------
Total minimum lease payments 38,887
Less interest included in payments 2,317
----------------------------------------------------------------------------------------
Present value of minimum lease payments $36,570
========================================================================================
</TABLE>
The Company leases office and warehouse facilities
under a noncancelable operating lease expiring in
March 1999.
The aggregate future minimum rental commitments
under this lease at December 31, 1995 are payable
as follows:
Year ending December 31,
<TABLE>
<CAPTION>
<S> <C>
1996 $145,547
1997 156,367
1998 161,211
1999 40,353
----------------------------------------------------------------------------------------
$503,478
========================================================================================
</TABLE>
The Company is required to pay additional
expenses, as defined.
The Company has entered into employment agreements
with two officers which expire in 1997.
F-10
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
8. INCOME TAXES: The provision (benefit) for income taxes consists
of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
----------------------------------------------------------------------------------------
Current:
<S> <C> <C>
Federal $(241,000) $(34,000)
State and local - (6,000)
----------------------------------------------------------------------------------------
(241,000) (40,000)
----------------------------------------------------------------------------------------
Deferred:
Federal (302,000) 173,000
State and local (34,000) 19,000
----------------------------------------------------------------------------------------
(336,000) 192,000
----------------------------------------------------------------------------------------
$(577,000) $152,000
========================================================================================
</TABLE>
The deferred income taxes provision (benefit),
resulting from the differences in the recording of
revenue and expense for federal income tax and
financial reporting purposes, consists of the
following:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Long-term contracts $ 183,000 $195,000
Other, including depreciation (3,000) (3,000)
Net operating loss carryforward (516,000) -
----------------------------------------------------------------------------------------
$(336,000) $192,000
========================================================================================
</TABLE>
F-11
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
The difference between the income tax provision
computed at the federal statutory rate and the
actual tax provision (benefit) is accounted for as
follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------------------------------------------------
<S> <C> <C>
Taxes computed at the federal statutory rate $(591,000) $131,000
State income taxes, including deferred, net of
federal benefit - 15,000
Other, net including permanent differences 14,000 6,000
----------------------------------------------------------------------------------------
$(577,000) $152,000
=========================================================================================
</TABLE>
The components of deferred income tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
Current Noncurrent
----------------------------------------------------------------------------------------
<S> <C> <C>
Revenue recognition $(892,000) -
Fixed assets and capital leases - $ 13,000
Net operating loss carryforward 447,000 100,000
----------------------------------------------------------------------------------------
$(445,000) $113,000
=========================================================================================
</TABLE>
The Company has net operating loss carryforwards
of approximately $1,132,000 available to reduce
future federal and state taxable income, which
will expire in 2010.
9. RELATED PARTY In 1992, the Company borrowed $216,370 from two
TRANSACTIONS: officers pursuant to a working capital
requirement provision contained in its agreement
with Chrysler. In December 1994, the Company
repaid the principal balance of $216,370 and in
January 1995 paid approximately $43,000 in
accrued interest relating to this indebtedness.
10. EMPLOYEE STOCK In April 1992, the Company adopted the 1992
OPTION PLANS: Stock Option Plan (the "1992 Plan"). The 1992
Plan, for which 250,000 common shares are reserved
for issuance, provides for the issuance of either
incentive stock options or nonqualified stock
options to employees or consultants or others who
provide services for the Company. In 1992, the
Company also granted options to purchase 25,000
shares to its counsel outside the Plan. These
options were exercised in 1994. Options granted to
employees and directors with three or more years
of service became exercisable as to one-third of
the shares each year beginning on September 16,
1992. Options granted to those with less than
three years of service become exercisable as to
one-third of the shares each year beginning on
September 16, 1993. The options may not be
exercised more than five years from the date of
issuance. In 1995, the option price for all
outstanding employees' and directors' stock
options was lowered to $3.00.
F-12
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
Number of
Shares Option Price
Under Option Per Share
----------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1993 185,336 -
Options granted (originally issued at an option
price of between $6.00 - $7.00) 11,500 $3.00
Options exercised (7,833) *
Options expired or forfeited (9,334) *
----------------------------------------------------------------------------------------
Outstanding at December 31, 1994 179,669 -
Options granted 110,000 $1.00 - $1.31
Options expired or forfeited (13,334) *
----------------------------------------------------------------------------------------
Outstanding at December 31, 1995 276,335 $1.00 - $3.00
========================================================================================
</TABLE>
* All options exercised or forfeited or that
expired were at an exercise price of $5.00.
In 1995, the Company adopted the 1995 Stock Option
Plan (the "1995 Plan"). The 1995 Plan, for which
300,000 common shares are reserved for issuance,
provides for the issuance of either incentive
stock options or nonqualified stock options to
employees or consultants or others who provide
services for the Company. The options' exercise
price is equal to the closing price of the
Company's shares on the day of issuance, except
for shares issued to the Company's president which
are exercisable at 110% of the closing price of
the Company's shares on the date of issuance. The
Company has 1,501 options available for future
grant under the 1992 Plan and 240,000 options
available for grant under the 1995 Plan.
At December 31, 1995, 271,335 options were
exercisable. The balance will become exercisable
in September 1996.
11. WARRANTS The Company sold 100,000 warrants to the
AND OPTIONS: Company's Underwriter ("Underwriter's Warrants")
in September 1992 for an aggregate of $100. The
Underwriter's Warrants entitle the Underwriter to
purchase up to 100,000 units, each unit consisting
of one share of common stock and one warrant, at
an exercise price of $6.00 during the period
ending September 24, 1998.
The Underwriter has agreed not to sell or
otherwise dispose of Underwriter's Warrants prior
to September 24, 1997, unless the Company (i) is
able to complete an underwritten secondary public
offering, or (ii) obtains $11,000,000 of gross
revenue as shown on its audited financial
statements or as shown on a pro forma basis with
any acquired company, for the then current fiscal
year, at which time the lock-up would be
terminated.
In October 1994, the Company issued stock options
to purchase 10,000 shares at $3.00 per share to a
consultant.
F-13
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS
===============================================================================
In February 1995, the Company issued stock options
to purchase 30,000 and 120,000 common shares at
$3.00 per share to two consultants, one of whom is
currently a director. In April 1995, the Company
also granted options to purchase 20,000 shares at
$2.00 per share to its counsel. All of these
options are outside the Plan. In January 1996, the
Company issued stock options to purchase 30,000
shares at $1.06 per share to the consultant
director mentioned above.
12. MD-90
CONTRACT: In March 1991, the Company entered into an
agreement with Rohr, pursuant to which the Company
agreed to provide Rohr with apron assemblies and
related components in connection with production
of the proposed McDonnell Douglas MD-90 jet
aircraft. During the year ended December 31, 1995,
approximately 57% of the Company's revenue was
derived from this program, as compared with 63% in
1994. As of December 31, 1995, an aggregate of
$7,193,862 was included in cost and estimated
earnings. McDonnell Douglas received FAA
certification for the MD-90 in November 1994.
F-14
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
BALANCE SHEETS
======================================================================================================================
June 30, December 31,
1996 1995
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 327,703 $ 998,517
Accounts receivable 1,755,407 1,565,048
Costs and estimated earnings in excess of billings on uncompleted 10,241,190 9,677,390
contracts (Note 2)
Other current assets 331,445 329,199
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 12,655,745 12,570,154
Property, Plant and Equipment, net 196,155 196,384
Deferred Income Taxes 113,000 113,000
Other Assets 29,226 75,519
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $12,994,126 $12,955,057
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,497,310 $ 1,160,285
Accrued expenses 291,327 260,288
Current portion of long-term debt 16,135 630,525
Deferred income taxes 445,000 445,000
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 2,249,772 2,496,098
Long-term Debt - 1,730,229
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 2,249,772 4,226,327
- ----------------------------------------------------------------------------------------------------------------------
Commitments
Shareholders' Equity
Common stock - $.001 par value; authorized 10,000,000 shares,
5,778,304 and 3,728,304 issued and outstanding, respectively 5,778 3,728
Additional paid-in capital 9,123,691 7,436,079
Retained earnings 1,614,885 1,288,923
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 10,744,354 8,728,730
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $12,994,126 $12,955,057
======================================================================================================================
See Notes to Financial Statements
F-15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENTS OF INCOME
======================================================================================================================
For the Three Months ended June 30, For the Six Months Ended June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $1,635,874 $1,078,994 $3,186,493 $2,362,031
Cost of sales 1,049,033 584,211 2,022,182 1,303,988
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 586,841 494,783 1,164,311 1,058,043
Selling, general and administrative 333,121 281,134 667,496 609,605
expenses
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 253,720 213,649 496,815 448,438
- ----------------------------------------------------------------------------------------------------------------------
Other (income) expense:
Interest income (4,631) 14,628 (34,652) (12,645)
Interest expense 51,872 106,070 109,451 214,997
- ----------------------------------------------------------------------------------------------------------------------
Total other expenses, net 47,241 120,698 74,799 202,352
- ----------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and extraordinary item 206,479 92,951 422,016 246,086
Provision for income taxes 72,000 40,000 147,000 105,000
Income before extraordinary item $ 134,479 $ 52,951 $ 275,016 $ 141,086
Extraordinary item - gain on early
extinguishment of debt, net of provision - -
for income taxes of $28,000 50,947 50,947
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 185,426 $ 52,951 $ 325,963 $ 141,086
======================================================================================================================
Earnings per shares (Note 3):
Income before extra ordinary item $ .03 $ .02 $ .07 $ .04
Extraordinary item $ .01 $ - $ .01 $ -
- ----------------------------------------------------------------------------------------------------------------------
Net earnings $ .04 $ .02 $ .08 $ .04
======================================================================================================================
Weighted average shares and common
share equivalents outstanding 4,396,323 3,728,304 4,262,336 3,720,377
======================================================================================================================
See Notes to Financial Statements
F-16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENTS OF CASH FLOWS
======================================================================================================================
For the Six Months Ended June 30, 1996 1995
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 325,963 $ 141,086
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 39,867 62,168
Extraordinary item (50,947)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (190,359) 954,541
(Increase) decrease in prepaid expenses and other current assets (2,246) 51,904
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (563,800) (1,031,482)
(Increase) decrease in other assets 25,239 (37,330)
Increase in accounts payable 337,025 17,426
Increase (decrease) in accrued expenses 3,039 (148,001)
Increase in income taxes payable - 105,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (76,219) 115,312
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (39,638) -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (39,638) -
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt and officer note payments (2,244,619) (397,459)
Proceeds from exercise of stock options/warrants/private placement 1,689,662 145,174
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (554,957) (252,285)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (670,814) 136,973
Cash at beginning of year 998,517 1,796,095
======================================================================================================================
Cash at end of period $ 327,703 $ 1,659,112
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 131,937 $ 259,321
======================================================================================================================
Income taxes $ 10,300 $ 32,926
======================================================================================================================
See Notes to Financial Statements
F-17
</TABLE>
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. INTERIM The financial statements as of June 30, 1996 and for the six
FINANCIAL and three months ended June 30, 1996 and 1995 are unaudited.
STATEMENTS In the opinion of the management of the Company, these
financial statements reflect all adjustments (consisting
solely of normal recurring adjustments) necessary to present
fairly the financial position of the Company and the results
of operations for such interim periods are not necessarily
indicative of the results to be obtained for a full year.
2. COSTS AND Costs and estimated earnings in excess of billings on
ESTIMATED uncompleted contracts consist of:
EARNINGS IN
EXCESS OF
BILLINGS ON
UNCOMPLETED
CONTRACTS:
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts $667,157 $21,194,299 $21,861,456
Estimated earnings 239,528 11,747,120 11,986,648
----------------------------------------------------------------------------------------
906,685 32,941,419 33,848,104
Less billings to date 552,273 23,054,641 23,606,914
========================================================================================
Costs and estimated earnings
in excess of billings on
uncompleted contracts $354,412 $9,886,778 $10,241,190
========================================================================================
December 31, 1995
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
Costs incurred on uncompleted
contracts $631,426 $19,738,969 $20,370,395
Estimated earnings 201,250 10,777,343 10,978,593
----------------------------------------------------------------------------------------
832,676 30,516,312 31,348,988
Less billings to date 716,030 20,955,568 21,671,598
========================================================================================
Costs and estimated earnings
in excess of billings on
uncompleted contracts $116,646 $9,560,744 $9,677,390
========================================================================================
F-18
</TABLE>
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
3. EARNINGS PER The earnings per share calculations are computed by dividing
COMMON SHARE: net income, increased by proforma reductions in interest
expense (net of tax) resulting from the assumed exercise of
stock options and warrants and the resulting assumed
reduction of outstanding indebtedness, by the weighted
average number of common and common equivalent shares
outstanding.
F-19
<PAGE>
==============================================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
or incorporated by reference into the Prospectus and, if given or made, such
other information and representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than the securities
to which it relates or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Subject to any duties and obligations under applicable securities laws
to update information contained or incorporated by reference herein, neither the
delivery of this Prospectus nor any sales made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to the date hereof.
TABLE OF CONTENTS
---------------
Page
----
Available Information............................................. 2
Information Incorporated by Reference............................. 3
The Company....................................................... 4
Risk Factors...................................................... 6
Use of Proceeds.................................................. 18
Selling Shareholders............................................. 19
Plan of Distribution............................................. 26
Commission Position on Indemnification
for Securities Act Liabilities ............................. 26
Legal Matters.................................................... 27
Experts.......................................................... 27
Financial Statements............................................. F-1
--------------
===========================================================================
<PAGE>
===========================================================================
4,348,538
Common Shares
CPI AEROSTRUCTURES,
INC.
Prospectus
August 27, 1996
============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
The expenses payable by the Company in connection with the issuance and
distribution of the securities being registered are estimated below:
SEC registration fee........................................ $ 1,951.74
Blue sky fees and expenses.................................. 2,500.00
Legal fees and expenses..................................... 13,000.00
Printing and engraving expenses............................. 1,000.00
Accounting fees............................................. 6,500.00
Miscellaneous............................................... 48.26
------------
Total................................................ $25,000.00
Item 15. Indemnification of Directors and Officers.
Except to the extent hereinafter set forth, there is no statute, charter
provision, By-law, contract or other arrangement under which any controlling
person, Director or officer of CPI Aerostructures, Inc., a New York corporation
(the "Company or the "Registrant"), is insured or indemnified in any manner
against liability which he may incur in his capacity as such.
Article 6 of the Company's Certificate of Incorporation provides for the
indemnification of officers and directors to the fullest extent allowed by the
New York Business Corporation Law ("BCL"). In addition, ARTICLE 6 of the By-laws
of the Company states:
"6.1 INDEMNIFICATION
"On the terms, to the extent, and subject to the conditions prescribed by
statute and by such rules and regulations, not inconsistent with statute, as the
Board of Directors may in it discretion impose in general or particular cases or
classes of cases, (a) the Corporation shall indemnify any person made, or
threatened to be made, a party to an action or proceeding, civil or criminal,
including an action by or in the right of any other corporation of any type or
kind, domestic or foreign, or any partnership, joint venture, trust, employee
benefit plan or other enterprise which any director or officer of the
Corporation served in any capacity at the request of the Corporation, by reason
of the fact that he, his testator or intestate, was a director or officer of the
Corporation, or served such other corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise in any capacity, against
judgments, fines, amounts paid in settlement and expenses, including attorney's
fees, actually and necessarily incurred as a result of such action or
proceeding, or any appeal therein, and (b) the Corporation may pay, in advance
of final disposition of any such action or proceeding, expenses incurred by such
person in defending such action or proceeding.
On the terms, to the extent, and subject to the conditions prescribed by
statute and by such rules and regulations, not inconsistent with statute, as the
Board of Directors may in its discretion impose in general or particular cases
or classes of cases, (a) the Corporation shall
II-1
<PAGE>
indemnify any person made a party to an action by or in the right of the
Corporation to procure a judgment in its favor, by reason of the fact that he,
his testator or intestate, is or was a director or officer of the Corporation,
against the reasonable expenses, including attorney's fees, actually and
necessarily incurred by him in connection with an appeal therein, and (b) the
Corporation may pay, in advance of final disposition of any such action or
proceeding, expenses incurred by such person in defending such action or
proceeding."
Under Section 402(b) of the New York Business Corporation Law ("BCL"),
directors and officers may be indemnified against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with
specified actions, suits or proceedings, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation--a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard of care is applicable in
the case of derivative actions, except that indemnification only extends to
expenses (including attorneys' fees) incurred in connection with the defense or
settlement of such an action. Moreover, the BCL requires court approval before
there can be any indemnification where the person seeking indemnification has
been found liable to the corporation. The statute provides that indemnification
pursuant to its provisions is not exclusive of other rights of indemnification
to which a person may be entitled under the Certificate of Incorporation of the
Company or any by-law, agreement, vote of Shareholders or disinterested
directors, or otherwise.
The BCL provides, in part, that no director shall be personally liable to a
corporation or its Shareholders for monetary damages for any breach of fiduciary
duty by such director as a director, except:
(i) for breach of the director's duty of loyalty to the corporation or
its Shareholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii) pursuant to Section 702 of the BCL; or
(iv) for any transaction from which the director derived an imprope
personal benefit.
II-2
<PAGE>
Item 16. Exhibits
Exhibit No. Description
- ------------ -----------
(a) Exhibits
3.1 Certificate of Incorporation of the Registrant, as amended.(1)
3.2 Amended and Restated By-Laws of the Registrant.(1)
4.1 Form of Underwriter's Warrants issued to the Underwriter.(1)
10.1 Employment Agreement between Registrant and Arthur August dated September
15, 1995. (8)
10.2 Employment Agreement between Registrant and Theodore J. Martines dated
September 15, 1995. (8)
10.3 1992 Stock Option Plan. (1)
10.4 1995 Employee Stock Option Plan. (8)
10.5 Registrant's Promissory Notes dated January 31, 1992 and March 6,
1992 to Arthur August with letter dated July 1, 1992.(1)
10.6 Registrant's Promissory Notes dated January 31 and March 6, 1992 to
Theodore J. Martines with letter dated July 1, 1992.(1)
10.7 Loan Agreement dated as of September 28, 1989, as amended, between the
Registrant and Chrysler Capital Corporation.(1)
10.8 Rohr Basic Purchase Agreement dated October 5, 1988 for PW300 Pylon
Assembly on BAC 125-100 Executive Jet.(1)
10.9 Rohr Basic Purchase Agreement dated March 12, 1991 for Apron Assembly on
McDonnell Douglas MD-90.(1)
10.10 Rohr Basic Purchase Agreement dated May 8, 1990 for Boeing 757 Lower Pan
Assembly.(1)
10.11 Form of military contract.(1)
10.12 Purchase Orders and Agreement with subcontractor, Wyman Gordon
Composites, for the McDonnell Douglas MD-90.(1)
II-3
<PAGE>
Exhibit No. Description
- ---------- ------------
10.13 Memorandum of Agreement Concerning Select Supplier Program dated January
30, 1990 by and between the Company and Rohr Industries, Inc.(1)
10.14 Registrant's Sick Pay Plan.(1)
10.15 Basic Agreement for Sub-Assembly dated December 10, 1992 by and between
the Registrant and Mitsui & Co. (U.S.A.), Inc.(2)
10.16 Consulting Agreement dated January 26, 1995 by and between the Company
and Rickel and Associates, Inc. (6)
10.17 Option dated January 26, 1995 from the Company to Rickel and Associates,
Inc. (6)
10.18 Lock-Up/Modification Agreement dated September 24, 1994 by and between
the Company and Whale Securities Co., L.P. (6)
10.19 First Amendment to BPA MD-90-AP-91-CPI by and between the Company and
Rohr, Inc. for MD90 V2500 Apron Assembly. (6)
10.20 Lease dated November 15, 1995 by and between the Company and Heartland
Rental Properties Partnership for the Company's facilities in Edgewood,
New York. (8)
10.21 Contract of Sale dated July 1995, between the Company and Triangle
Electronics Group, Inc. for sale of the Company's facilities in
Ronkonkoma, New York. (8)
10.22 Note Consolidation and Extension Agreement dated as of November 1, 1995.
(8)
10.23 Solicitation Contract dated September 19, 1995 from the Department of the
Air Force. (8)
10.24 Solicitation Contract dated September 22, 1995 from the Department of the
Air Force. (8)
10.25 Consulting Agreement between the Company and Stanley Wunderlich dated as
of January 1, 1996. (8)
10.26 Form of Registration Rights Agreement dated June 17, 1996. (9)
10.27 Form of Subscription Agreement. (9)
10.28 Form of Placement Agent Warrants dated June 17, 1996. (9)
10.29 Form of Consultant's Warrants dated April 3, 1996. (9)
II-4
<PAGE>
Exhibit No. Description
- ----------- ------------
10.30 Form of Redeemable Common Share Purchase Warrant dated June 19, 1996. (9)
10.31 Placement Agent Agreement dated May 10, 1996 between the Company and the
Placement Agent. (9)
10.32 Financial Consulting Agreement dated April 3, 1996 between the Company
and the Placement Agent. (9)
23.1 Consent of Snow Becker Krauss P.C. (contained in Exhibit 5.1).
23.2 Consent of Goldstein, Golub, Kessler & Company.
24.1 Power of Attorney (see Signature Page to this Registration Statement).
- ---------
(1) Filed as an exhibit to the Company's Registration Statement on Form S-1 (No.
33-49270) declared effective on September 16, 1992 and incorporated herein by
reference.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for December
31, 1992 and incorporated herein by reference.
(3) Filed as an exhibit to Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-1 (No. 33-49270) declared effective on October
26, 1993 and incorporated herein by reference.
(4) Filed as an exhibit to the Company's Annual Report on Form 10-K for December
31, 1993 and incorporated herein by reference.
(5) Filed as an exhibit to the Company's Registration Statement on Form SB-2
(No. 33-83150) declared effective October 7, 1994 and incorporated herein by
reference.
(6) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
December 31, 1994 and incorporated herein by reference.
(7) Filed as an exhibit to the Company's Current Report on Form 8-K for April
29, 1994, as amended, and incorporated herein by reference.
(8) Filed as an exhibit to the Company's Annual Report on Form 10-KSB for
December 31, 1995 and incorporated herein by reference.
II-5
<PAGE>
(9) Filed as an exhibit to the Company's Report on Form 8-K for June 19, 1996
and incorporated herein by reference.
Item 17. Undertakings.
The Company hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(iii) include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, to treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
(4) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of the
small business issuer in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the small business issuer will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-6
<PAGE>
(6) For determining any liability under the Act, to treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
small business issuer under Rule 424(b)(1), or (4) or 497(h) under the Act as
part of this registration statement as of the time the Commission declared it
effective.
(7) For determining any liability under the Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and authorized this registration
statement to be signed on its behalf by the undersigned, in Edgewood, New York,
on August 26, 1996.
CPI AEROSTRUCTURES, INC.
By:/s/ ARTHUR AUGUST
--------------------------
Arthur August, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following person in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ ARTHUR AUGUST
- ---------------------------- Chairman of the Board of Directors, President, August 26, 1996
Arthur August Chief Executive Officer (Principal Executive
Officer)
/s/ THEODORE J. MARTINES
- --------------------------- Vice President and Director (Principal August 26, 1996
Theodore J. Martines Accounting and Financial Officer)
*
- --------------------------- Director August 26, 1996
Stanley Wunderlich
*
- --------------------------- Director August 26, 1996
Walter Paulick
</TABLE>
*Arthur August, an attorney-in-fact
for each of the above-named
persons
II-8
<PAGE>
LOGO
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
Certified Public Accountants and Consultants
--------------------------------------------
LOGO
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors and Stockholders of
CPI Aerostructures Inc.
We hereby consent to the use in the Registration Statement on Form S-3 of our
report dated February 14, 1996 on the financial statements of CPI
Aerostructures Inc. as of December 31, 1995 and for each of the two years in
the period ended December 31, 1995. We also consent to the reference to our
firm under the caption "experts" in such Prospectus.
/s/ Goldstein Golub Kessler & Company, P.C.
- -------------------------------------------
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
August 26, 1996
II-9
