CPI AEROSTRUCTURES, INC.
- -------------------------------------------------------------------------------
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 June 30, 1998
CPI AEROSTRUCTURES, INC.
(Exact Name of Small Business Issuer as Specified in its Character)
New York 11-2520310
- ----------------------------------- ------------------------------------
(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
7,945,342 as of June 30, 1998.
<PAGE>
CPI AEROSTRUCTURES, INC.
INDEX
- -------------------------------------------------------------------------------
Part I. Financial Information:
Item 1 - Consolidated Financial Statements:
Balance Sheets as of June 30, 1998 (Unaudited) and 3
December 31, 1997
Statements of Income for the Three and Six Months
ended June 30, 1998 (Unaudited) and 1997 (Unaudited) 4
Statements of Cash Flows for the Six Months ended June 30, 1998 5
(Unaudited) and 1997 (Unaudited)
Notes to Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
Part II. Other
Item 4 - Submission of Matters to a Vote of Security Holders 10
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 427,321 $ 2,032,183
Accounts receivable 1,391,300 1,820,278
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 2) 14,123,072 12,923,769
Inventory 2,792,369 2,317,131
Prepaid expenses and other current assets 134,017 123,411
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 18,868,079 19,216,772
Property, Plant and Equipment, net 5,406,673 5,734,572
Goodwill 7,357,082 7,615,863
Other Assets 657,312 546,638
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $32,289,146 $33,113,845
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,147,168 $ 2,435,361
Accrued expenses 56,852 387,654
Current portion of long term debt 2,385,075 2,385,075
Income taxes payable 486,650 543,000
Deferred income taxes 775,000 775,000
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,850,745 6,526,090
Long term debt 10,787,639 11,979,814
Deferred income taxes 12,000 12,000
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 16,650,384 18,517,904
- ----------------------------------------------------------------------------------------------------------------------
Commitments
Shareholders' Equity
Common stock - $.001 par value; authorized 50,000,000 shares,
7,945,342 issued and outstanding 7,945 7,903
Additional paid-in capital 12,124,960 11,845,965
Retained earnings 3,505,857 2,742,073
- ----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 15,638,762 14,595,941
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $32,289,146 $33,113,845
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months ended June 30, For the Six months Ended June 30,
1998 1997 1998 1997
(Unaudited) (Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $5,339,087 $2,959,969 $10,455,062 $5,130,685
Cost of sales 3,375,779 1,961,365 6,529,819 3,457,765
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 1,963,308 998,604 3,925,243 1,672,920
Selling, general and administrative 1,017,177 372,497 2,069,506 708,628
expenses
- ----------------------------------------------------------------------------------------------------------------------
Income from operations 946,131 626,107 1,855,737 964,292
- ----------------------------------------------------------------------------------------------------------------------
Other (income) expense:
Interest/other income (36,686) 25,943 (77,166) 17,366
Interest expense 319,934 523 660,119 1,195
- ----------------------------------------------------------------------------------------------------------------------
Total other expenses, net 283,248 26,466 582,953 18,561
- ----------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 662,883 599,641 1,272,784 945,731
Provision for income taxes 265,000 236,000 509,000 378,000
- ----------------------------------------------------------------------------------------------------------------------
Net Income $ 397,883 $363,641 $ 763,784 $ 567,731
======================================================================================================================
Earnings per common share - Basic $ .05 $ .07 $ .10 $ .10
- ----------------------------------------------------------------------------------------------------------------------
Earnings per common share - Diluted $ .05 $ .05 $ .09 $ .08
- ----------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per Common share:
Basic 7,945,342 5,904,626 7,938,145 5,901,615
Diluted 8,452,751 7,319,416 8,473,850 7,317,007
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998 1997
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 763,784 $ 567,731
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 927,987 37,328
Loss on sale/disposal of fixed assets --- 29,633
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 428,978 (413,505)
Decrease in prepaid expenses and other current assets (10,606) (28,358)
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (1,199,303) (1,539,172)
Increase in inventory (475,238) ---
Increase in other assets (174,735) (61,019)
(Decrease) increase in accounts payable (288,193) 789,442
Decrease in accrued expenses (330,802) (110,591)
(Decrease) increase in income taxes payable (56,350) 378,000
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (414,478) (350,511)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of fixed assets --- 6,295
Purchase of property and equipment (43,446) (43,579)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (43,446) (37,284)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (1,192,175) (6,547)
Proceeds from exercise of stock options/warrants 45,237 20,192
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,146,938) 13,645
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash (1,604,862) (374,150)
Cash at beginning of period 2,032,183 899,798
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 427,321 $ 525,648
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 660,119 $ 1,195
======================================================================================================================
Income taxes $ --- $ 14,481
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The financial statements as of June 30, 1998 and for the six and three
months ended June 30, 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 CONTRACTS:
Costs and estimated earnings in excess of billings on uncompleted contracts
consist of:
June 30, 1998
- -------------------------------------------------------------------------------
U.S.
Government Commercial Total
- -------------------------------------------------------------------------------
Costs incurred on uncompleted
contracts $5,418,337 $21,179,434 $26,597,77
Estimated earnings 2,072,104 15,148,587 17,220,691
- -------------------------------------------------------------------------------
7,490,441 36,328,021 43,818,462
Less billings to date 6,080,685 23,614,705 29,695,390
- ------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,409,756 $12,713,316 $14,123,072
===============================================================================
December 31, 1997
- -------------------------------------------------------------------------------
U.S.
Government Commercial Total
- -------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
6,664,016 33,825,794 40,489,810
Less billings to date 5,670,477 21,895,564 27,566,041
- ------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $993,539 $11,930,230 $12,923,769
==============================================================================
6
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
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 six months ended June 30, 1998,
approximately 18% of the Company's revenue was derived from this program.
As of June 30, 1998, an aggregate of $11,184,979 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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- -------------------------------------------------------------------------------
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 revenue for the three months ended June 30, 1998 were $5,339,087
compared to $2,959,969 for the same period last year, representing an increase
of $2,379,118, or 80%. Revenue for the six month period ended June 30, 1998 was
$10,455,062 compared to $5,130,685 for the same period last year, representing
an increase of $5,324,377 or 104%. Of the total revenue, $5,806,179 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"). The
decrease in sales for the aircraft segment in this period as compared to same
period last year reflects a combination of (i) the fact that last year's period
sales were the largest in the Company's history, and (ii) this year's period
sales were impacted by a slight decrease in military sales. Commercial aircraft
programs represented 24% of total revenue for the six months ended June 30, 1998
compared to 44% for the same period in 1997. Approximately 70% of such change in
percentage is due to the inclusion of the revenue of Kolar from such period.
Gross profit increased by $964,704, or 97%, from the three months ended June 30,
1997 compared to the three months ended June 30, 1998. Gross profit for the six
month period ended June 30, 1998 was $3,925,243 compared to $1,672,920 for the
same period last year, representing an increase of $2,252,323 or 135%. Kolar,
Inc. contributed $2,044,929 or 91 % of this increase. Gross profit as a
percentage of revenue for the six months ended June 30, 1998 was 38% compared to
33% 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 $644,680 or 173%,
from the three months ended June 30, 1997 compared to the three months ended
June 30, 1998. Selling, general and administrative expenses for the six months
ended June 30, 1998 were $2,069,506 compared to $708,628 for the same period
last year, representing an increase of $1,360,878 or 192%. 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 $319,411 for the three
months ended June 30, 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 June 30, 1998, was $397,883
compared to $363,641 for the same period last year. Net income for the six
months ended June 30, 1998 was $763,784 compared to $567,731 for the same period
last year, representing an increase of $196,053 or 35%. Basic earnings per share
was $0.10 on 7,938,145 average shares outstanding, compared to $0.10 per share
(re-stated from prior year's amount) on 5,901,615 average shares outstanding for
the same period last year. Diluted earnings per share was $0.09 per share
compared to $0.08 per share in 1997 on 8,473,850 and 7,317,007 weighted average
shares outstanding, respectively.
8
<PAGE>
CPI AEROSTRUCTURES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- ------------------------------------------------------------------------------
Material Changes in Financial Condition
At June 30, 1998 and December 31, 1997, the Company had working capital of
$13,017,334 and $12,690,682, respectively, an increase of $326,652. This
increase is primarily attributable to an increase in costs and estimated
earnings in excess of billings of $1,199,303, an increase in inventory of
$475,238, and a decrease in accounts payable of $288,192, offset by a decrease
in cash resulting from the Company making its first two principal payments 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.
Net cash used in operating activities for the six months ended June 30, 1998 was
$414,478. This decrease in cash was primarily the result of an increase in costs
and estimated earnings in excess of billing of $1,199,303, an increase in
inventory of $475,238, an increase in other assets of $174,735, a decrease in
accounts payable of $288,193, a decrease in accrued expenses of $330,802, and a
decrease in income taxes payable of $56,350, offset by net income of $763,784,
depreciation and amortization of $927,987, and a decrease in accounts receivable
of $428,978.
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 six months ended June 30, 1998, approximately 18% of the
Company's revenue was derived from this program. As of June 30, 1998, an
aggregate of $11,184,979 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.
- -------------------------------------------------------------------------------
ITEM 4. Submission of Matter to a Vote of Security Holders.
(a) An annual meeting of shareholders was held on June 16, 1998
("Annual Meeting").
(b) The directors elected at the meeting were Mr. Arthur August,
Mr. Theodore J. Martines, Mr. Kenneth McSweeney and Mr. Walter
Paulick. There are no other directors.
(c) Six matters were voted upon at the Annual Meeting, as follows:
(i) An amendment to the Certificate of Incorporation
creating a staggered Board of Directors was passed. The
votes were cast for this matter as follows:
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
--------------------------------------------------------------------
4,659,961 589,285 49,417 N/A 2,643,679
(ii) Mr. Arthur August, Mr. Theodore J. Martines, Mr.
Kenneth McSweeney and Mr. Walter Paulick were elected
as Directors. The tabulation of votes with respect to
each nominee is as follows:
BROKER
FOR AGAINST WITHHELD ABSTAIN NON-VOTES
--------------------------------------------------------------------
Mr. Arthur August 6,952,968 N/A 136,367 N/A 856,007
Mr. Theodore J. Martines 6,952,968 N/A 136,367 N/A 856,007
Mr. Kenneth McSweeney 6,950,968 N/A 136,367 N/A 856,007
Mr. Walter Paulick 6,950,968 N/A 136,367 N/A 856,007
(iii) An amendment to the Certificate of Incorporation
increasing the number of authorized Common Shares to
50,000,000 was approved. The votes were cast for this
matter as follows:
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
----------------------------------------------------------------------
6,534,959 445,909 104,467 N/A 860,007
10
<PAGE>
CPI AEROSTRUCTURES, INC.
- -------------------------------------------------------------------------------
(iv) An amendment to the Certificate of Incorporation
authorizing 5,000,000 shares of preferred stock was
approved. The votes were cast for this matter as
follows:
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
---------------------------------------------------------------------
4,672,352 494,657 75,875 N/A 2,702,458
(v) An amendment to the Certificate of Incorporation to
prohibit the taking of action by shareholders by
written consent of less than all of the holders was
approved. The votes were cast for this matter as
follows:
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
---------------------------------------------------------------------
4,033,423 1,079,036 130,425 N/A 2,702,458
(vi) The Company's 1998 Performance Equity Plan was approved.
The votes were cast for this matter as follows:
BROKER
FOR AGAINST ABSTAIN WITHHELD NON-VOTES
---------------------------------------------------------------------
4,650,265 547,668 130,730 N/A 2,643,679
ITEM 5. Other Information.
Pursuant to the Company's By-laws, stockholders are advised that
in order for a stockholder to present any proposal at the
Company's Annual Meeting of Stockholders to be held in 1999, such
proposal must be submitted in writing to the Company at its
principal office in Edgewood, New York no later than January 12,
1999 (120 days in advance of the date Company's proxy statement
was released to stockholders in 1998).
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,
1998.
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 13, 1998
By: /S/ Arthur August
---------------------------
Arthur August
President
(Principal Executive Officer)
Dated: August 13, 1998 By: /S/ Edward J. Fred
------------------
Edward J. Fred
Chief Financial Officer
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 427,321
<SECURITIES> 0
<RECEIVABLES> 1,391,300
<ALLOWANCES> 0
<INVENTORY> 16,915,441
<CURRENT-ASSETS> 18,868,079
<PP&E> 6,273,322
<DEPRECIATION> 866,649
<TOTAL-ASSETS> 32,289,146
<CURRENT-LIABILITIES> 5,850,745
<BONDS> 0
<COMMON> 7,945
0
0
<OTHER-SE> 15,630,817
<TOTAL-LIABILITY-AND-EQUITY> 32,289,146
<SALES> 10,455,062
<TOTAL-REVENUES> 10,455,062
<CGS> 6,529,819
<TOTAL-COSTS> 6,529,819
<OTHER-EXPENSES> 2,069,506
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 660,119
<INCOME-PRETAX> 1,272,784
<INCOME-TAX> 509,000
<INCOME-CONTINUING> 763,784
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763,784
<EPS-PRIMARY> .10
<EPS-DILUTED> .09
</TABLE>
