<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File Number 1-11398
ended June 30, 1997
CPI AEROSTRUCTURES, INC.
Incorporated under the laws 11-2520310
of the State of New York (I.R.S. Employer Identification Number)
200 A EXECUTIVE DRIVE, EDGEWOOD, NY 11717
Telephone number (516) 586-5200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
------ -------
The number of shares of common stock, par value $.001 per share, outstanding was
5,931,995 as of June 30, 1997.
================================================================================
<PAGE>
CPI AEROSTRUCTURES, INC.
INDEX
================================================================================
Part I. Financial Information:
Item 1 - Financial Statements:
Balance Sheets as of June 30, 1997 (Unaudited) and 3
December 31, 1996
Statements of Income for the Three and Six Months ended 4
June 30, 1997 (Unaudited) and 1996 (Unaudited)
Statements of Cash Flows for the Six Months ended 5
June 30, 1997 (Unaudited) and 1996 (Unaudited)
Notes to Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
Part II. Other 10-11
Item 1 - Legal Proceedings
Item 4 - Submission of Matters to a Vote of Security Holders
Item 6 - Exhibits and Reports on Form 8-K
Signatures 12
2
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
BALANCE SHEETS
======================================================================================================================
June 30, December 31,
1997 1996
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 525,648 $ 899,798
Accounts receivable 662,343 248,838
Costs and estimated earnings in excess of billings on uncompleted 13,245,433 11,706,261
contracts (Note 2)
Other current assets 52,385 80,743
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 14,485,809 12,935,640
Property, Plant and Equipment, net 134,110 160,037
Other Assets 90,245 29,226
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $14,710,164 $13,124,903
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,029,336 $ 1,292,859
Accrued expenses 1,054 118,193
Income taxes payable 378,000 -
Deferred income taxes 741,000 741,000
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 3,149,390 2,152,052
Deferred income taxes 27,000 27,000
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 3,176,390 2,179,052
- ----------------------------------------------------------------------------------------------------------------------
Commitments
Shareholders' Equity
Common stock - $.001 par value; authorized 15,000,000 shares,
5,931,995 and 5,876,710 issued and outstanding, respectively 5,932 5,877
Additional paid-in capital 9,166,765 9,146,628
Retained earnings 2,361,077 1,793,346
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 11,533,774 10,945,851
======================================================================================================================
Total Liabilities and Shareholders' Equity $14,710,164 $13,124,903
======================================================================================================================
</TABLE>
See Notes to Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENTS OF INCOME
=================================================================================================================
For the Three Months ended June 30, For the Six months Ended June 30,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 2,959,969 $ 1,635,874 $ 5,130,685 $ 3,186,493
Cost of sales 1,961,365 1,049,033 3,457,765 2,022,182
- -----------------------------------------------------------------------------------------------------------------
Gross profit 998,604 586,841 1,672,920 1,164,311
Selling, general and administrative 372,497 333,121 708,628 667,496
expenses
- -----------------------------------------------------------------------------------------------------------------
Income from operations 626,107 253,720 964,292 496,815
- -----------------------------------------------------------------------------------------------------------------
Other (income) expense:
Interest income 25,943 (4,631) 17,366 (34,652)
Interest expense 523 51,872 1,195 109,451
- -----------------------------------------------------------------------------------------------------------------
Total other expenses, net 26,466 47,241 18,561 74,799
- -----------------------------------------------------------------------------------------------------------------
Income before provision for income taxes
and extraordinary item 599,641 206,479 945,731 422,016
Provision for income taxes 236,000 72,000 378,000 147,000
- -----------------------------------------------------------------------------------------------------------------
Income before extraordinary item $ 363,641 $ 134,479 $ 567,731 $ 275,016
Extraordinary Item - gain on early
Extinguishment of debt, net of provision
for income taxes of $28,000 -- 50,947 -- 50,947
- -----------------------------------------------------------------------------------------------------------------
Net Income $ 363,641 $ 185,426 $ 567,731 $ 325,963
=================================================================================================================
Earnings per shared (Note 3):
Income before extra ordinary item $ .05 .03 $ .08 $ .07
Extraordinary item $ -- $ .01 $ -- $ .01
- -----------------------------------------------------------------------------------------------------------------
Net earnings $ .05 $ .04 $ .08 $ .08
=================================================================================================================
Weighted average shares and common
share equivalents outstanding 7,319,416 4,396,323 7,317,007 4,262,336
=================================================================================================================
</TABLE>
See Notes to Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
======================================================================================================================
<S> <C> <C>
For the Six Months Ended June 30, 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
Unaudited
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 567,731 $ 325,963
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 37,328 39,867
Loss on sale/disposal of fixed assets 29,633 -
Extraordinary item - (50,947)
Changes in operating assets and liabilities:
Increase in accounts receivable (413,505) (190,359)
Increase in prepaid expenses and other current assets (28,358) (2,246)
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (1,539,172) (563,800)
(Increase) decrease in other assets (61,019) 25,239
Increase in accounts payable 789,442 337,025
Increase (decrease) in accrued expenses (110,591) 3,039
Increase in income taxes payable 378,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (350,511) (76,219)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of fixed assets 6,295 -
Purchase of property and equipment (43,579) (39,638)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (37,284) (39,638)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term debt and officer note payments (6,547) (2,244,619)
Proceeds from exercise of stock options/warrants/private placement 20,192 1,689,662
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 13,645 (554,957)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (374,150) (670,814)
Cash at beginning of period 899,798 998,517
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 525,648 $ 327,703
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,195 $ 131,937
======================================================================================================================
Income taxes $ 14,481 $ 10,300
======================================================================================================================
</TABLE>
See Notes to Financial Statements
5
<PAGE>
================================================================================
================================================================================
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. INTERIM The financial statements as of June 30, 1997
FINANCIAL and for the six and three months ended
June 30, 1997 and 1996 are unaudited. 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.
<TABLE>
<CAPTION>
2. COSTS AND ESTIMATED Costs and estimated earnings in excess of billings on uncompleted contracts consist of:
EARNINGS IN EXCESS OF
BILLINGS ON June 30, 1997
UNCOMPLETED CONTRACTS: ----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Costs incurred on uncompleted
contracts $3,079,099 $24,194,345 $27,273,444
Estimated earnings 1,290,187 13,731,511 15,021,698
- ----------------------------------------------------------------------------------------------------------------------
4,369,286 37,925,856 42,295,142
Less billings to date 2,715,372 26,334,337 29,049,709
- ----------------------------------------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,653,914 $11,591,519 $13,245,433
======================================================================================================================
December 31, 1996
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
Costs incurred on uncompleted
contracts $1,084,838 $22,784,815 $23,869,653
Estimated earnings 461,236 12,891,832 13,353,068
- ----------------------------------------------------------------------------------------------------------------------
1,546,074 35,676,647 37,222,721
Less billings to date 836,512 24,679,948 25,516,460
- ----------------------------------------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $709,562 $10,996,699 $11,706,261
======================================================================================================================
</TABLE>
6
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
3. EARNINGS PER COMMON The earnings per share calculations are computed
SHARE: by dividing 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.
7
<PAGE>
CPI AEROSTRUCTURES, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
================================================================================
Material Changes in Results of Operations
The Company's revenues for the three months ended June 30, 1997 were $2,959,969
compared to $1,635,874 for the same period last year, representing an increase
of $1,324,095, or 81%. Revenues for the six month period ended June 30, 1997
were $5,130,685 compared to $3,186,493 for the same period last year,
representing an increase of $1,944,192 or 61%. This increase is due in part to
an accelerated delivery schedule of apron assemblies which the Company builds
for Rohr Industries, for use on the MD-90 aircraft. Additionally, revenue from
the Company's military contracts, which were originally awarded in late 1995 and
increased throughout 1996, has increased as the Company continued deliveries of
spare parts for the C-5 aircraft and delivered parts for the A-10 aircraft
during the six months ended June 30, 1997. It is anticipated that because of
these new contracts, and specifically the increased magnitude of the C-5
contract, the Company's revenues should remain at a higher level than 1996.
Commercial aircraft programs represented 44% of total revenues for the six
months ended June 30, 1997 compared to 76% for the same period in 1996.
The above statements discussed in this Report include forward looking statements
that involve risks and uncertainties, including the timely delivery and
acceptance of the Company's products and the other risks detailed from time to
time in the Company's SEC reports.
Gross profit increased by $411,763, or 70%, from the three months ended June 30,
1996 to the three months ended June 30, 1997. Gross profit for the six month
period ended June 30, 1997 was $1,672,920 compared to $1,164,311 for the same
period last year, representing an increase of $508,609 or 44%. Gross profit as a
percentage of revenues for the six months ended June 30, 1997 was 33% compared
to 37% for the same period last year.
Selling, general, and administrative expenses increased by $39,376 or 12%, from
the three months ended June 30, 1996 to the three months ended June 30, 1997.
Selling, general and administrative expenses for the six months ended June 30,
1997 were $708,628 compared to $667,496 for the comparable period last year,
representing an increase of $41,132 or 6%. Interest expense decreased by
$108,256 for the six months ended June 30, 1997 compared to the same period last
year, primarily because of the extinguishment of the Company's debt to Chrysler
Capital Corporation in June, 1996.
The resulting net income for the three months ended June 30, 1997, was $363,641
versus $185,426 for the same period last year. Net income for the six months
ended June 30, 1997 was $567,731 compared to $325,963 for the same period last
year, representing an increase of $241,768 or 74%. Earnings per share were $.08
for the six months ended June 30, 1997, based upon the weighted average common
shares outstanding of 7,317,007 as compared to earnings per share of $.08 for
the six months ended June 30, 1996 based upon the weighted average common shares
outstanding of 4,262,336.
Material Changes in Financial Condition
At June 30, 1997 and December 31, 1996, the Company had working capital of
$11,336,419 and $10,783,588, respectively, an increase of $552,831. This
increase is primarily attributable to an increase in accounts receivable of
$413,505 due to extensive progress payment billings on government contracts and
increased net income.
8
<PAGE>
CPI AEROSTRUCTURES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
================================================================================
The Company has financed its working capital requirements during the past two
years through the Company's 1995 warrant exercise, the Company's 1996 private
placement, and operating cash flow. Historically, a large portion of the
Company's cash has been used for costs and estimated earnings in excess of
billings. Costs and estimated earnings in excess of billings includes the
aggregate of costs and related profit which has been incurred and earned in
performance of work for which the Company has firm contracts, but has not yet
been billed to the customer. Costs and estimated earnings are recoverable upon
shipment of products, presentation of billings in accordance with contract terms
or completion of a contract.
Net cash used in operating activities for the six months ended June 30, 1996 was
$350,511. This decrease in cash was primarily the result of an increase in
accounts receivable of $413,505, an increase in costs and estimated earnings in
excess of billing of $1,539,172, and a decrease in accrued expenses of $110,591,
offset by net income of $567,731, an increase in accounts payable of $789,442,
and an increase in income taxes payable of $378,000. The Company's continued
requirement to incur significant costs in connection with commercial contracts
in advance of receipt of associated cash has caused the increase in costs and
estimated earnings in excess of billings on uncompleted contracts.
Other
On June 3, 1997 the Company announced that it had signed a letter of intent to
acquire a privately owned precision machining and assembly manufacturer,
servicing the electronics industry, including computer and microwave device
manufacturers, as well as the materials handling, aerospace and banking
industries. For the fiscal year ended December 31, 1996, the private company had
unaudited revenues of approximately $13.7 million. CPI anticipates closing this
transaction during the third quarter of 1997, subject to the audit of the
financial statements, due-diligence, financing, and other customary conditions.
On June 27, 1997 the Company announced it had increased the number of shares
issuable upon exercise of the Company's Class B Common Share Purchase Warrants
issued in the Company's private placement dated May 10, 1996 from one to 1.33336
common shares effective as of June 27, 1997 for the period ending August 4,
1997. The Company expects most of the warrantholders to exercise their warrants,
and a majority of the proceeds from these warrant exercises will be used by the
Company to help facilitate the acquisition mentioned above. However, there can
be no assurance that such acquisition will be completed and the Company is not
required to use the proceeds for such acquisition.
9
<PAGE>
CPI AEROSTRUCTURES,INC.
================================================================================
PART II
ITEM 1. Legal Proceedings
As described in the Company's Form 10-KSB for the fiscal year
ended December 31, 1996, the Company commenced an action on
December 26, 1995 in the Supreme Court of the State of New York,
County of New York, against Valentec International Corporation
("Valentec") and Price Waterhouse L.L.P. ("PW") alleging breach of
contract and unjust enrichment against both, and a
separate fraud claim against Valentec. The case is captioned CPI
Aerostructures, Inc. v. Valentec International Corporation and
Price Waterhouse L.L.P., Index No. 95/600908. Valentec
counterclaimed for alleged legal fees.
On or about July 25, 1997, the Company agreed to settle any or all
claims against Valentec and PW, and Valentec and PW agreed to
settle any and all claims and counterclaims against the Company.
The parties have executed and intend to file a Stipulation of
Dismissal with Prejudice in the matter.
ITEM 4. Submission of Matter to a Vote of Security Holders.
(a) The Registrant held an annual meeting of its shareholder on
May 20, 1997 (the "Annual Meeting.")
(b) The Annual Meeting involved the election of directors. The
directors elected at the meeting included Mr. Arthur August,
Mr. Theodore J. Martines, Mr. Stanley Wunderlich and Mr.
Walter Paulick. There are no other directors of the
Registrant.
(c) Five matters were voted on at the Annual Meeting, as follows:
(i) The election of nominees Mr. Arthur August, Mr.
Theodore J. Martines, Mr. Stanley Wunderlich and Mr.
Walter Paulick as Directors of the Registrant for a
one-year term. The tabulation of votes with respect to
each nominee is as follows:
<TABLE>
<CAPTION>
BROKER
FOR AGAINST WITHHELD ABSTAIN NON-VOTES
--- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Mr. Arthur August 4,965,244 N/A 78,845 N/A 0
Mr. Theodore J. Martines 4,967,104 N/A 76,985 N/A 0
Mr. Stanley Wunderlich 4,966,104 N/A 77,985 N/A 0
Mr. Walter Paulick 4,965,704 N/A 78,385 N/A 0
</TABLE>
Each nominee was elected a Director of the Registrant.
(ii) To approve an amendment to the Certificate of
Incorporation of the Registrant to authorize 2,000,000
shares of "blank check" preferred stock, par value
$.001 per share.
The votes were cast for this mater as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
--- ------- ------- -------- ---------
2,321,640 349,268 50,340 N/A 2,322,841
</TABLE>
10
<PAGE>
CPI AEROSTRUCTURES, INC.
================================================================================
This matter was not passed by the required majority of
shares outstanding because of the number of broker
non-votes.
(iii) To approve an amendment to the Certificate of
Incorporation of the Registrant increasing the number
of authorized Common Shares of the Registrant from
10,000,000 to 15,000,000. The votes were cast for this
matter as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
--- ------- ------- -------- ---------
4,730,074 267,540 46,475 N/A 0
</TABLE>
This matter was passed.
(iv) To approve an amendment of the Company's 1995 Stock
Option Plan to increase the number of shares included
therein by 300,000 Common Shares. The votes were cast
for this matter as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
--- ------- ------- -------- ---------
2,377,093 350,440 48,615 N/A 2,267,941
</TABLE>
This matter was passed by the required majority of
votes cast.
(v) The ratification of the appointment of Goldstein Golub
Kessler & Company, P.C. as the Registrant's auditors
for the fiscal year ending December 31, 1997. The
votes were cast for this matter as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
--- ------- ------- -------- ---------
4,980,674 24,250 39,165 N/A 0
</TABLE>
This matter was passed.
ITEM 6. Exhibits and Reports on Form 8-K
a) No Exhibits
b) No reports on Form 8-K were filed with the Securities and
Exchange Commission during the three months ended June 30,
1997.
11
<PAGE>
CPI AEROSTRUCTURES, INC.
================================================================================
SIGNATURE
---------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
CPI AEROSTRUCTURES, INC.
Dated: August 11, 1997
By: /S/ Arthur August
------------------------
Arthur August
President
(Principal Executive Officer)
Dated: August 11, 1997 By: /S/ Theodore J. Martines
------------------------
Theodore J. Martines
Executive Vice President
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000889348
<NAME> CPI AEROSTRUCTURES, INC.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 525,648
<SECURITIES> 0
<RECEIVABLES> 662,343
<ALLOWANCES> 0
<INVENTORY> 13,245,433
<CURRENT-ASSETS> 52,385
<PP&E> 427,558
<DEPRECIATION> 293,448
<TOTAL-ASSETS> 14,710,164
<CURRENT-LIABILITIES> 3,149,390
<BONDS> 0
0
0
<COMMON> 5,932
<OTHER-SE> 11,547,842
<TOTAL-LIABILITY-AND-EQUITY> 14,710,164
<SALES> 5,130,685
<TOTAL-REVENUES> 5,130,685
<CGS> 3,457,765
<TOTAL-COSTS> 3,457,765
<OTHER-EXPENSES> 708,628
<LOSS-PROVISION> 00
<INTEREST-EXPENSE> 1,195
<INCOME-PRETAX> 945,731
<INCOME-TAX> 378,000
<INCOME-CONTINUING> 567,731
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 567,731
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
