CPI AEROSTRUCTURES, INC.
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period Commission File Number 1-11398
ended March 31, 1998
CPI AEROSTRUCTURES, INC.
(Exact Name of Small Business Issuer as Specified in its Character)
New York 11-2520310
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(State or Other Jurisdiction (IRS Employer Identification Number)
of Incorporation or Organization)
200A EXECUTIVE DRIVE, EDGEWOOD, NY 11717
(Address of Principal Executive Offices)
Telephone number (516) 586-5200
(Issuer's Telephone Number Including Area Code)
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
7,945,332 as of March 31, 1998.
<PAGE>
CPI AEROSTRUCTURES, INC.
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Index
---------
Part I. Financial Information:
Item 1 - Consolidated Financial Statements:
Balance Sheets as of March 31, 1998 (Unaudited) and 3
December 31, 1997
Statements of Income for the Three Months ended 4
March 31, 1998 (Unaudited) and 1997 (Unaudited)
Statements of Cash Flows for the Three Months ended 5
March 31, 1998 (Unaudited) and 1997 (Unaudited)
Notes to Financial Statements (Unaudited) 6-7
Item 2 - Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
Part II. Other
Item 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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(Unaudited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 689,911 $ 2,032,183
Accounts receivable 1,692,805 1,820,278
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 2) 13,245,794 12,923,769
Inventory 2,776,392 2,317,131
Prepaid expenses and other current assets 127,086 123,411
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Total current assets 18,531,988 19,216,772
Property, Plant and Equipment, net 5,576,449 5,734,572
Goodwill 7,486,164 7,615,863
Other Assets 514,300 546,638
======================================================================================================================
Total Assets $32,108,901 $33,113,845
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,120,203 $ 2,435,361
Accrued expenses 204,079 387,654
Current portion of long term debt 2,385,075 2,385,075
Income taxes payable 221,650 543,000
Deferred income taxes 775,000 775,000
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Total current liabilities 5,706,007 6,526,090
Long term debt 11,383,815 11,979,814
Deferred income taxes 12,000 12,000
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Total liabilities 17,101,822 18,517,904
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Commitments
Shareholders' Equity
Common stock - $.001 par value; authorized 15,000,000 shares,
7,945,332 issued and outstanding 7,945 7,903
Additional paid-in capital 11,891,160 11,845,965
Retained earnings 3,107,974 2,742,073
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Total shareholders' equity 15,007,079 14,595,941
======================================================================================================================
Total Liabilities and Shareholders' Equity $32,108,901 $33,113,845
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF INCOME
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<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1998 1997
(Unaudited)
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<S> <C> <C>
Revenues $ 5,115,975 $ 2,170,716
Cost of sales 3,154,040 1,496,400
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Gross profit 1,961,935 674,316
Selling, general and administrative expenses 1,052,329 336,130
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Income from operations 909,606 338,186
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Other (income) expense:
Interest/other income (40,480) (8,577)
Interest expense 340,185 672
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Total other (income) expenses, net 299,705 (7,905)
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Income before provision for income taxes 609,901 346,091
Provision for income taxes 244,000 142,000
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Net income $ 365,901 $ 204,091
======================================================================================================================
Earnings per common share - Basic $ .05 $ .03
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Earnings per common share - Diluted $ .04 $ .03
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Shares used in computing earnings per common share:
Basic 7,930,865 5,876,710
Diluted 8,426,890 7,032,500
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<TABLE>
<CAPTION>
For the Three Months Ended March 31, 1998 1997
(Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 365,901 $ 204,091
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 347,709 20,371
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 127,473 (1,089,174)
(Increase) decrease in prepaid expenses and other current assets (3,675) 23,085
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (322,025) (46,880)
Increase in inventory (459,261) ---
(Decrease) increase in accounts payable (315,158) 550,300
Decrease in accrued expenses (183,575) (104,271)
(Decrease) increase in income taxes payable (321,350) 142,000
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Net cash used in operating activities (763,961) (300,478)
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Cash flows from investing activities:
Purchase of property and equipment (27,549) (9,461)
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Net cash used in investing activities (27,549) (9,461)
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Cash flows from financing activities:
Repayment of long-term debt (595,999) ---
Proceeds from exercise of stock warrants 45,237 ---
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Net cash used in financing activities (550,762) ---
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Net decrease in cash (1,342,272) (309,939)
Cash at beginning of period 2,032,183 899,798
======================================================================================================================
Cash at end of period $ 689,911 $ 589,859
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 340,185 $ 672
======================================================================================================================
Income taxes $ 560,350 $ 14,481
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. INTERIM FINANCIAL STATEMENTS:
The financial statements as of March 31, 1998 and for the three months
ended March 31, 1998 and 1997 are unaudited, however, 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 ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONRACTS:
Costs and estimated earnings in excess of billings on uncompleted contracts
consist of:
<TABLE>
<CAPTION>
March 31, 1998
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U.S.
Government Commercial Total
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<S> <C> <C> <C>
Costs incurred on uncompleted
contracts $5,438,141 $20,478,930 $25,917,071
Estimated earnings 2,473,658 14,341,308 16,814,966
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7,911,799 34,820,238 42,732,037
Less billings to date 6,613,194 22,873,048 29,486,242
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Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,298,605 $11,947,190 $13,245,795
=========================================================================================
December 31, 1997
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U.S.
Government Commercial Total
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Costs incurred on uncompleted
contracts $4,608,726 $19,944,845 $24,553,571
Estimated earnings 2,055,290 13,880,949 15,936,239
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6,664,016 33,825,794 40,489,810
Less billings to date 5,670,477 21,895,564 27,566,041
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Costs and estimated earnings
in excess of billings on
uncompleted contracts $993,539 $11,930,230 $12,923,769
========================================================================================
</TABLE>
6
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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3. EARNINGS PER COMMON SHARE:
Basic earnings per share calculations are computed by dividing net income,
by the weighted average number of common shares outstanding.
Diluted earnings per share calculations are computed 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.
4. MD-90 CONTRACT:
In March 1991, CPI 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 then proposed McDonnell
Douglas MD-90 jet aircraft. During the three months ended March 31, 1998,
approximately 15% of the Company's revenue was derived from this program.
As of March 31, 1998, an aggregate of $10,566,439 was included in costs and
estimated earnings in excess of billings on uncompleted contracts.
In 1997, the Boeing Company acquired the McDonnell Douglas Corporation.
Boeing has announced that it plans to terminate the MD-90 program in 1999
unless it receives sufficient additional orders for such aircraft. To date,
the Company has received no notice of termination. Such termination and the
termination of the Rohr agreement would have a material effect on the
Company's financial position.
7
<PAGE>
CPI AEROSTRUCTURES, INC.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
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Forward Looking Statements
The 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 reports filed with the Securities and Exchange Commission.
Material Changes in Results of Operations
The Company's revenues for the three months ended March 31, 1998 were $5,115,975
compared to $2,170,716 for the same period last year, representing an increase
of $2,945,259, or 136%. Of this increase, $2,882,858 relates to sales by Kolar,
Inc. ("Kolar") a wholly owned subsidiary of the Company, the assets of which
were acquired in October 1997 ("Kolar Acquisition"), and the balance relates to
revenues recorded from the aircraft segment's new military contracts, which have
increased since late 1995. Commercial aircraft programs represented 19% of total
revenues for the three months ended March 31, 1998 compared to 54% for the same
period in 1997. Approximately 80% of such change in percentage is due to the
inclusion of the revenues of Kolar from such period.
Gross profit increased by $1,287,619, or 191%, from the three months ended March
31, 1997 to the three months ended March 31, 1998. Kolar, Inc. contributed
$1,092,318 or 85 % of this increase. Gross profit as a percentage of revenues
for the three months ended March 31, 1998 was 38% compared to 31% for the same
period last year. This increase is primarily attributable to a more profitable
sales mix in the aircraft segment of the Company.
Selling, general, and administrative expenses increased by $716,199 or 213%,
from the three months ended March 31, 1997 to the three months ended March 31,
1998. This increase relates primarily to the inclusion of the expenses of Kolar
and the associated depreciation of assets and amortization of intangibles that
normally occurs after an acquisition. Interest expense increased by $339,513 for
the three months ended March 31, 1998, which is attributable to a substantial
increase of debt during 1997, primarily due to the Kolar Acquisition.
The resulting net income for the three months ended March 31, 1998, was $365,901
compared to $204,091 for the same period last year. Basic earnings per share was
$0.05 on 7,930,865 average shares outstanding, compared to $0.03 per share
(re-stated from prior year's amount) on 5,876,710 average shares outstanding for
fiscal 1997. Diluted earnings per share increased to $0.04 per share from $0.03
per share in 1997 on 8,426,890 and 7,032,500 weighted average shares
outstanding, respectively.
Material Changes in Financial Condition
At March 31, 1998 and December 31, 1997, the Company had working capital of
$12,825,981 and $12,690,682, respectively, an increase of $135,299. This
increase is primarily attributable to an increase in costs and estimated
earnings in excess of billings of $322,025 and an increase in inventory of
$459,261, offset by a decrease in cash resulting from the Company making its
first principal payment on its term loan for the Kolar Acquisition and the
Company's final 1997 estimated tax payment. The Company has financed its working
capital requirements during the past two years through proceeds received from
the exercise of warrants, a June 1996 Private Placement (the "1996 Placement")
and from operations. A large portion of the Company's cash has been used for
costs incurred on various commercial contracts that are in process. These costs
are components of "Costs and estimated earnings in excess of billings on
uncompleted contracts" and represent the aggregate costs and related earnings
for uncompleted contracts for which the customer has not yet been billed. These
costs and earnings are recovered upon shipment of products and presentation of
billings in accordance with contract terms. The Company's continued requirement
to incur significant costs, in advance of receipt of associated cash for
commercial aircraft contracts, has caused an increase in the gap between
aggregate costs and earnings and the related billings to date.
8
<PAGE>
CPI AEROSTRUCTURES, INC.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
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Net cash used in operating activities for the three months ended March 31, 1998
was $763,961. This decrease in cash was primarily the result of an increase in
costs and estimated earnings in excess of billing of $322,025, an increase in
inventory of $459,261, a decrease in accounts payable of $315,158, a decrease in
accrued expenses of $183,575, and a decrease in income taxes payable of
$321,350, offset by net income of $365,901, depreciation and amortization of
$347,709, and a decrease in accounts receivable of $127,473.
Other
In March 1991, CPI 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 then proposed McDonnell Douglas MD-90 jet
aircraft. During the three months ended March 31, 1998, approximately 15% of the
Company's revenue was derived from this program. As of March 31, 1998, an
aggregate of $10,566,439 was included in costs and estimated earnings in excess
of billings on uncompleted contracts.
In 1997, the Boeing Company acquired the McDonnell Douglas Corporation. Boeing
has announced that it plans to terminate the MD-90 program in 1999 unless it
receives sufficient additional orders for such aircraft. To date, the Company
has received no notice of termination. Such termination and the termination of
the Rohr agreement would have a material effect on the Company's financial
position.
9
<PAGE>
CPI AEROSTRUCTURES, INC.
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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 March 31,
1998.
10
<PAGE>
CPI AEROSTRUCTURES, INC.
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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: May 12, 1998
By: /S/ Arthur August
------------------------
Arthur August
President
(Principal Executive Officer)
Dated: May 12, 1998 By: /S/ Edward J. Fred
-------------------
Edward J. Fred
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 689,911
<SECURITIES> 0
<RECEIVABLES> 1,692,805
<ALLOWANCES> 0
<INVENTORY> 16,022,186
<CURRENT-ASSETS> 18,531,988
<PP&E> 6,257,425
<DEPRECIATION> 680,976
<TOTAL-ASSETS> 32,108,901
<CURRENT-LIABILITIES> 5,706,007
<BONDS> 0
<COMMON> 7,945
0
0
<OTHER-SE> 14,999,134
<TOTAL-LIABILITY-AND-EQUITY> 32,108,901
<SALES> 5,115,975
<TOTAL-REVENUES> 5,115,975
<CGS> 3,154,040
<TOTAL-COSTS> 3,154,040
<OTHER-EXPENSES> 1,052,329
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 340,185
<INCOME-PRETAX> 609,901
<INCOME-TAX> 244,000
<INCOME-CONTINUING> 365,901
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 365,901
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.04
</TABLE>
