<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 September 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 7,674,653 as of September 30, 1997.
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<CAPTION>
CPI AEROSTRUCTURES, INC.
INDEX
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Part I. Financial Information:
<S> <C>
Item 1 - Financial Statements:
Balance Sheets as of September 30, 1997 (Unaudited) and 3
December 31, 1996
Statements of Income for the Three and Nine Months ended September 30, 1997 (Unaudited) 4
and 1996 (Unaudited)
Statements of Cash Flows for the Nine Months ended September 30, 1997 (Unaudited) 5
and 1996 (Unaudited)
Notes to Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of Financial Condition 8-9
and Results of Operations
Part II. Other
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
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2
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<TABLE>
<CAPTION>
CPI AEROSTRUCTURES, INC.
BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 3,034,555 $ 899,798
Accounts receivable 509,334 248,838
Costs and estimated earnings in excess of billings on uncompleted 13,516,654 11,706,261
contracts (Note 2)
Other current assets 35,796 80,743
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 17,096,339 12,935,640
Property, Plant and Equipment, net 129,146 160,037
Other Assets 325,797 29,226
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Total Assets $17,551,282 $13,124,903
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,940,449 $ 1,292,859
Accrued expenses 4,022 118,193
Income taxes payable 570,000 -
Deferred income taxes 741,000 741,000
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Total current liabilities 3,255,471 2,152,052
Deferred income taxes 27,000 27,000
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Total liabilities 3,282,471 2,179,052
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Commitments
Shareholders' Equity
Common stock - $.001 par value; authorized 15,000,000 shares,
7,674,653 and 5,876,710 issued and outstanding, respectively 7,675 5,877
Additional paid-in capital 11,612,756 9,146,628
Retained earnings 2,648,380 1,793,346
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Total shareholders' equity 14,268,811 10,945,851
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Total Liabilities and Shareholders' Equity $17,551,282 $13,124,903
======================================================================================================================
</TABLE>
See Notes to Financial Statements
3
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<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENTS OF INCOME
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For the Three Months Ended For the Nine Months Ended
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September 30, September 30,
1997 1996 1997 1996
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<S> <S> <S> <C> <C>
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
Revenue $2,215,387 $1,645,955 $7,346,072 $4,832,448
Cost of sales 1,383,632 989,090 4,841,397 3,011,272
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Gross profit 831,755 656,865 2,504,675 1,821,176
Selling, general and administrative 351,766 416,695 1,060,394 1,084,191
expenses
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Income from operations 479,989 240,170 1,444,281 736,985
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Other (income) expense:
Interest income/Other expense 517 (4,604) 17,883 (39,256)
Interest expense 169 573 1,364 110,024
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Total other (income) expenses, net 686 (4,031) 19,247 70,768
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Income before provision for income taxes
and extraordinary item 479,303 244,201 1,425,034 666,217
Provision for income taxes 192,000 86,000 570,000 233,000
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Income before extraordinary item $ 287,303 $158,201 $ 855,034 $ 433,217
Extraordinary Item - gain on early
Extinguishment of debt, net of provision
for income taxes of $28,000 - - - 50,947
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Net Income $ 287,303 $158,201 $ 855,034 $ 484,164
======================================================================================================================
Earnings per share (Note 3):
Income before extraordinary item $ .04 $ .02 $ .12 $ .09
Extraordinary item $ $ - $ - $ .01
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Net earnings ............... $ .04 $ .02 $ .12 $ .10
======================================================================================================================
Weighted average shares and common
share equivalents outstanding 7,647,193 6,800,444 7,144,857 4,779,027
======================================================================================================================
</TABLE>
See Notes to Financial Statements
4
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<CAPTION>
CPI AEROSTRUCTURES, INC.
STATEMENTS OF CASH FLOWS
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For the Nine Months Ended September 30, 1997 1996
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(Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 855,034 $ 484,164
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 52,576 60,279
Loss on sale/disposal of fixed assets 25,883 -
Extraordinary item - (50,947)
Changes in operating assets and liabilities:
Increase in accounts receivable (260,496) (64,912)
Decrease in prepaid expenses and other current assets 44,947 266,712
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (1,810,393) (974,041)
(Increase) decrease in other assets (296,571) 46,293
Increase in accounts payable 647,590 271,397
Increase (decrease) in accrued expenses (107,624) 70,113
Increase in income taxes payable 570,000 -
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (279,054) 109,058
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Cash flows from investing activities:
Proceeds from sale of fixed assets 6,295 -
Purchase of property and equipment (53,863) (40,138)
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Net cash used in investing activities (47,568) (40,138)
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Cash flows from financing activities:
Long-term debt and officer note payments (6,547) (2,249,356)
Proceeds from exercise of stock options/warrants/private placement 2,467,926 1,667,531
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Net cash provided by (used in) financing activities 2,461,379 (581,825)
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Net increase (decrease) in cash 2,134,757 (512,905)
Cash at beginning of period 899,798 998,517
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Cash at end of period $ 3,034,555 $ 485,612
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,364 $ 132,509
======================================================================================================================
Income taxes $ 29,481 $ 12,597
======================================================================================================================
</TABLE>
See Notes to Financial Statements
5
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CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. INTERIM The Financial Statements as of September 30, 1997 and for
FINANCIAL the nine and three months ended September 30, 1997 and
STATEMENTS 1996 are unaudited. In the opinion of the management of
the Company, these financial statements reflect all
adjustments (consisting solely normal recurring
adjustments) necessary to present fairly the financial
position of the Company, Company and the results of
operations for such interim periods are not necessarily
indicative of the results for a full year.
2. COSTS AND
ESTIMATED Costs and estimated earnings in excess of billings
EARNINGS IN on uncompleted contracts consist of:
EXCESS OF
BILLINGS ON
UNCOMPLETED
CONTRACTS:
<TABLE>
<CAPTION>
September 30, 1997
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U.S.
Government Commercial Total
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<S> <C> <C> <C>
Costs incurred on uncompleted
contracts $3,838,296 $24,643,799 $28,482,095
Estimated earnings 1,580,534 14,211,544 15,792,078
----------------------------------------------------------------------------------------
5,418,830 38,855,343 44,274,173
Less billings to date 3,717,389 27,040,130 30,757,519
----------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,701,441 $11,815,213 $13,516,654
========================================================================================
December 31, 1996
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
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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 709.562 10,996,688 11,706,261
========================================================================================
6
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CPI AEROSTRUCTURES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
3. EARNINGS PER The earnings per share calculations are computed
COMMON 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
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CPI AEROSTRUCTURES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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Material Changes in Results of Operations
The Company's revenues for the three months ended September 30, 1997 were
$2,215,387 compared to $1,645,955 for the same period last year, representing an
increase of $569,432, or 35%. Revenues for the nine month period ended September
30, 1997 were $7,346,072 compared to $4,832,448 for the same period last year,
representing an increase of $2,513,624 or 52%. 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 two principal 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 nine months ended September 30, 1997. Commercial aircraft
programs represented 43% of total revenues for the nine months ended September
30, 1997 compared to 78% for the same period in 1996.
Gross profit increased by $174,890, or 27%, from the three months ended
September 30, 1996 to the three months ended September 30, 1997. Gross profit
for the nine month period ended September 30, 1997 was $2,504,675 compared to
$1,821,176 for the same period last year, representing an increase of $683,499
or 38%. Gross profit as a percentage of revenues for the nine months ended
September 30, 1997 was 34% compared to 38% for the same period last year. Gross
profit as a percentage of revenues for the three months ended September 30, 1997
was 38% compared to 40% for the same period last year. The decrease in margins
this year are attributable to a change in product mix.
Selling, general, and administrative expenses decreased by $64,929 or 16%, from
the three months ended September 30, 1996 to the three months ended September
30, 1997. Selling, general and administrative expenses for the nine months ended
September 30, 1997 were $1,060,394 compared to $1,084,191 for the comparable
period last year, representing a decrease of $23,797. Interest expense decreased
by $108,660 for the nine months ended September 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 September 30, 1997, was
$287,303 versus $158,201 for the same period last year, representing an increase
of $129,102, or 82%. Net income for the nine months ended September 30, 1997 was
$855,034 compared to $484,164 for the same period last year, representing an
increase of $370,870, or 77%. Earnings per share were $.12 for the nine months
ended September 30, 1997, based upon the weighted average common shares
outstanding of 7,144,857 as compared to earnings per share of $.10 for the nine
months ended September 30, 1996 based upon the weighted average common shares
outstanding of 4,779,027.
Material Changes in Financial Condition
At September 30, 1997 and December 31, 1996, the Company had working capital of
$13,840,868 and $10,783,588, respectively, an increase of $3,057,280. This
increase is primarily attributable to an increase in cash of $2,134,757 due to
the exercise of warrants, and an increase in costs and estimated earnings in
excess of billings on uncompleted contracts. See Note 2 of Notes to the
Financial Statements.
8
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CPI AEROSTRUCTURES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
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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, the Company's 1997 warrant exercise, 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 nine months ended September 30,
1997 was $279,054. This decrease in cash was primarily the result of an increase
in accounts receivable of $260,496, an increase in costs and estimated earnings
in excess of billing of $1,810,393, an increase in other assets of $296,571, and
a decrease in accrued expenses of $107,624, offset by net income of $855,034, an
increase in accounts payable of $647,589, and an increase in income taxes
payable of $570,000. 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 October 9, 1997 the Company announced that is had completed the acquisition
of Kolar Machine, Inc. ("Kolar"), a privately owned precision machine and
assembly manufacturer which services 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,
Kolar had revenues of approximately $13.7 million. The Company's results of
operations included in this Report, as well as all operations through October 8,
1997 do not include the results of Kolar.
On August 7, 1997 the Company terminated its previously announced offer to
increase the number of shares issuable upon exercise of the Company's Class B
Common Share Purchase Warrants from one to 1.33336 common shares. This exercise
resulted in the Company receiving proceeds of approximately $2.2 million, the
majority of which was used to help facilitate the acquisition mentioned above.
As a result of the foregoing, the Company's cash balance for the period ended
September 30, 1997 was approximately $3.0 million.
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, the Company's ability to manage its growth
and integrate the operations of Kolar, Inc. with its aerospace operations, and
the other risks detailed from time to time in the Company's SEC reports.
9
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CPI AEROSTRUCTURES, INC.
- -------------------------------------------------------------------------------
PART II
ITEM 1. Legal proceedings.
There have been no material developments in the Company's two
pending legal proceedings involving VTX Electronics Corp. and Rickel &
Associates, Inc. since the filing of the Company's Annual Report on Form
10-KSB for December 31, 1996.
ITEM 6. Exhibits and Reports on Form 8-K
a) No exhibits.
b) A Report on Form 8-K for September 9, 1997, was filed by
the Company reporting an Item 5 "Other Event", the
Company's execution of an Asset Purchase Agreement dated
September 9, 1997 for the acquisition of Kolar Machine,
Inc. which was completed in October 1997.
10
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CPI AEROSTRUCTURES, INC.
- --------------------------------------------------------------------------------
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CPI AEROSTRUCTURES, INC.
Dated: November 3, 1997
By: /s/ Arthur August
----------------------------
Arthur August
President
(Principal Executive Officer)
Dated: November 3, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,034,555
<SECURITIES> 0
<RECEIVABLES> 509,334
<ALLOWANCES> 0
<INVENTORY> 13,516,654
<CURRENT-ASSETS> 35,796
<PP&E> 437,842
<DEPRECIATION> 308,696
<TOTAL-ASSETS> 17,551,282
<CURRENT-LIABILITIES> 3,255,471
<BONDS> 0
0
0
<COMMON> 7,675
<OTHER-SE> 14,261,136
<TOTAL-LIABILITY-AND-EQUITY> 17,551,282
<SALES> 7,346,072
<TOTAL-REVENUES> 7,346,072
<CGS> 4,841,397
<TOTAL-COSTS> 4,841,397
<OTHER-EXPENSES> 1,060,394
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,364
<INCOME-PRETAX> 1,425,034
<INCOME-TAX> 570,000
<INCOME-CONTINUING> 855,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 855,034
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
