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 September 30, 1999
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
2,648,509 as of September 30, 1999.
<PAGE>
CPI AEROSTRUCTURES, INC.
INDEX
- -------------------------------------------------------------------------------
Part I. Financial Information:
Item 1 - Consolidated Financial Statements:
Balance Sheets as of September 30, 1999 (Unaudited) and 3
December 31, 1998
Statements of Income for the Three and Nine Months ended 4
September 30, 1999 (Unaudited) and 1998 (Unaudited)
Statements of Cash Flows for the Nine Months ended 5
September 30, 1999 (Unaudited) and 1998 (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 6 - Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 195,897 $ 584,296
Accounts receivable 2,280,046 1,689,207
Income tax receivable 29,597 516,000
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 2) 3,729,822 3,105,924
Inventory 2,830,616 2,438,415
Deferred income taxes net of valuation allowance of $2,304,000 919,000 919,000
Prepaid expenses and other current assets 53,459 102,001
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 10,038,437 9,354,843
Property, Plant and Equipment, net 5,210,189 5,064,840
Goodwill 6,711,670 7,098,917
Other Assets 349,251 417,286
- -----------------------------------------------------------------------------------------------------------------------
Total Assets $22,309,547 $21,935,886
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,843,590 $ 2,272,149
Deferred income taxes 260,000 260,000
Accrued expenses 792,554 351,104
Line of credit 375,000 375,000
Current portion of long term debt 2,317,619 1,475,075
Income taxes payable 275,503 ---
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 5,864,266 4,733,328
Long term debt 9,664,912 11,092,239
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 15,529,178 15,825,567
- -----------------------------------------------------------------------------------------------------------------------
Commitments
Shareholders' Equity:
Common stock - $.001 par value; authorized 50,000,000 shares,
2,648,509 issued and outstanding 2,649 2,649
Additional paid - in capital 12,177,611 11,931,522
Accumulated deficit (5,399,891) (5,823,852)
- -----------------------------------------------------------------------------------------------------------------------
Shareholders' equity 6,780,369 6,110,319
- -----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $22,309,547 $21,935,886
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended September 30, For the Nine Months Ended September 30,
1999 1998 1999 1998
(Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 5,691,421 $ 5,084,594 $15,134,603 $15,539,656
Cost of sales 3,990,846 3,161,649 10,757,811 10,023,104
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 1,700,575 1,922,945 4,376,792 5,516,552
Selling, general and administrative expenses 1,019,868 856,870 3,044,144 2,594,740
- -----------------------------------------------------------------------------------------------------------------------
Income from operations 680,707 1,066,075 1,332,648 2,921,812
- ----------------------------------------------------------------------------------------------------------------------
Other (income) expense:
Interest/other income (43,725) (34,850) (214,820) (112,016)
Interest expense 282,306 311,877 839,507 971,996
- ----------------------------------------------------------------------------------------------------------------------
Total other expenses, net 238,581 277,027 624,687 859,980
- ----------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 442,126 789,048 707,961 2,061,832
Provision for income taxes 178,000 316,000 284,000 825,000
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 264,126 $ 473,048 $ 423,961 $ 1,236,832
======================================================================================================================
Earnings per common share - Basic $ .10 $ .18 $ .16 $ .47
- ----------------------------------------------------------------------------------------------------------------------
Earnings per common share - Diluted $ .10 $ .18 $ .16 $ .45
- ----------------------------------------------------------------------------------------------------------------------
Shares used in computing earnings per
Common share:
Basic 2,648,509 2,648,509 2,648,509 2,646,857
Diluted 2,648,509 2,699,313 2,648,509 2,777,975
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended September 30, 1999 1998
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 423,961 $ 1,236,832
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 1,564,460 1,279,812
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (590,839) 749,523
Decrease in prepaid expenses and other current assets 534,945 9,941
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (623,898) (2,644,411)
Increase in inventory (392,201) (377,184)
Increase in other assets (300,000) (172,405)
Decrease in accounts payable (428,559) (208,636)
(Decrease) increase in accrued expenses 441,450 (291,205)
Increase in income taxes payable 275,503 259,650
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided (used) in operating activities 904,822 (158,083)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (248,040) (69,411)
Proceeds from sale of fixed assets 11,183 ---
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (236,857) (69,411)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (1,056,364) (1,788,533)
Repayment of officers notes (130,000) ---
Repayment of line of credit (200,000) ---
Proceeds from officers notes 130,000 ---
Proceeds from line of credit 200,000 375,000
Proceeds from exercise of stock options/warrants --- 45,237
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,056,364) (1,368,296)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash (388,399) (1,595,790)
Cash at beginning of period 584,296 2,032,183
- ----------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 195,897 $ 436,393
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 598,140 $ 971,966
======================================================================================================================
Income taxes $ 8,497 $ 560,819
======================================================================================================================
Financing obligation incurred in connection with the
acquisition of equipment $ 471,581 $ ---
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. INTERIM The financial statements as of September 30, 1999 and for
FINANCIAL the nine months ended September 30, 1999 and 1998 are
STATEMENTS 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.
Certain 1998 amounts have been reclassified to conform to
the 1999 presentation.
2. COSTS AND Costs and estimated earnings in excess of billings on
ESTIMATED uncompleted contracts consist of:
EARNINGS IN
EXCESS OF
BILLINGS ON
UNCOMPLETED
COSTS:
<TABLE>
<CAPTION>
September 30, 1999
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Costs incurred on uncompleted
contracts $8,317,749 $10,408,798 $18,726,547
Estimated earnings 1,910,348 4,937,310 6,847,658
----------------------------------------------------------------------------------------
10,228,097 15,346,108 25,574,205
Less billings to date 7,933,259 13,911,124 21,844,383
========================================================================================
Costs and estimated earnings
in excess of billings on
uncompleted contracts $2,294,838 $1,434,984 $3,729,822
========================================================================================
December 31, 1998
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
Costs incurred on uncompleted
contracts $6,887,016 $20,566,914 $27,453,930
Estimated earnings 1,578,270 4,954,810 6,533,080
-----------------------------------------------------------------------------------------
8,465,286 25,521,724 33,987,010
Less billings to date 6,703,398 24,177,688 30,881,086
----------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,761,888 $ 1,344,036 $ 3,105,924
========================================================================================
</TABLE>
6
<PAGE>
CPI AEROSTRUCTURES, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
3. EARNINGS PER Basic earnings per share calculations are computed by
COMMON SHARE 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.
On June 24, 1999, the Company enacted a one for three
reverse stock split. All earnings per share calculations and
equity accounts have been restated as if the reverse split
occurred on January 1, 1998.
7
<PAGE>
CPI EAROSTRUCTURES, 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 nine months ended September 30, 1999 was
$15,134,603 compared to $15,539,656 for the same period last year, representing
a decrease of $405,053 or 3%. This decrease is due largely to the termination of
the MD-90 contract. For the year ended December 31, 1998, revenue related to
that contract accounted for 23% of the Company's total.
Gross profit decreased by $1,139,760 or 21%, from the nine months ended
September 30, 1998 to the nine months ended September 30, 1999. Gross profit as
a percentage of revenue for the nine months ended September 30, 1999 was 29%
compared to 35% for the same period last year. These decreases are primarily
attributable to the termination of the MD-90 contract. For the year ended
December 31, 1998, gross profit related to that contract accounted for 44% of
the Company's total.
Selling, general, and administrative expenses increased by $449,404, or 17%,
from the nine months ended September 30, 1998 to the nine months ended September
30, 1999, due to the accrual of bank fees charged this year as per the Chase
loan agreement and a non-cash charge for the early termination of a consulting
agreement. Interest expense decreased by $132,489 for the nine months ended
September 30, 1999, which is attributable to principal payments on the term loan
during 1998 and 1999.
The resulting net income for the nine months ended September 30, 1999, was
$423,961 compared to $1,236,832 for the same period last year. This decrease is
attributable to the termination of the profitable MD-90 contract, as well as the
accrual of bank fees charged this year as per the Chase loan agreement and a
non-cash charge for the early termination of a consulting agreement. Basic
earnings per share was $.16 on 2,648,509 average shares outstanding, compared to
$.47 per share on 2,646,857 average shares outstanding for fiscal 1998. Diluted
earnings per share decreased to $.16 per share compared to $.45 per share in
1998 on 2,648,509 and 2,777,975 weighted average shares outstanding,
respectively.
Material Changes in Financial Condition
At September 30, 1999 and December 31, 1998, the Company had working capital of
$4,174,171 and $4,621,515, respectively, a decrease of $447,344. This decrease
is primarily attributable to an increase in accounts receivable of $590,839, an
increase in current portion of long-term debt of $842,544, an increase in
accrued expenses of $441,450 and a decrease in cash resulting from the Company
making its principal payments on its term loan for the Kolar acquisition offset
by an increase in costs and estimated earnings in excess of billings on
uncompleted contracts of $623,898, an increase in inventory of $392,201 and a
decrease in accounts payable of $428,559. A large portion of the Company's cash
has been used for costs incurred on commercial and the numerous government
contracts which do not allow progress payments 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 and government aircraft contracts, has caused an increase in the gap
between aggregate costs and earnings and the related billings to date.
8
<PAGE>
CPI EAROSTRUCTURES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
- -------------------------------------------------------------------------------
Net cash provided by operating activities for the nine months ended September
30, 1999 was $904,822. This increase in cash was primarily the result of net
income of $423,961, depreciation and amortization of $1,564,460, an increase in
income taxes payable of $275,503, a decrease in prepaid and other current assets
of $534,945 and an increase in accrued expenses of $441,450 offset by an
increase in accounts receivable of $590,839, an increase in costs and estimated
earnings in excess of billing of $623,898, an increase in inventory of $392,201,
and a decrease in accounts payable of $428,559.
Year 2000 Problem
The Company has been evaluating the potential impact of the situation commonly
referred to as the "Year 2000" ("Y2K") issue. The Y2K issue results from the
problem with older computer software programs that only recognize the last two
digits of the year in any date (e.g., "98"for "1998"). These programs were
designed and developed without considering the impact of the upcoming change in
the century. If the software is not reprogrammed or replaced, many computer
applications could fail or create erroneous results at the Year 2000. Since much
of the Company's internal information technology has been fairly recently
developed, the Company does not anticipate it will face significant issues of
non-compliance.
Potential impacts of Y2K non-compliance to the Company may arise from software,
computer hardware, and other equipment outside the Company's ownership yet with
which the Company interfaces either electronically or operationally. The Company
has contacted its major suppliers and customers to determine the state of their
assessment and remediation of any Y2K issues they face. The Company has been
advised by substantially all of such third parties that they believe they are
Y2K compliant. Notwithstanding the foregoing, approximately 50% of the Company's
revenues are derived from contracts with agencies or instrumentalities of the
United States government ("Government Agencies"). The Company has not been able
to determine whether these Government Agencies are Y2K compliant. If these
Government Agencies do not become Y2K compliant, the financial condition and
operation of the Company would be materially and adversely impacted. At this
time the Company does not believe it needs to develop a contigency plan in the
event of such non-compliance.
9
<PAGE>
CPI EAROSTRUCTURES, INC.
- -------------------------------------------------------------------------------
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 nine months ended September 30,
1999.
10
<PAGE>
CPI EAROSTRUCTURES, 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: November 12, 1999 By: /S/ Arthur August
------------------
Arthur August
President
(Principal Executive Officer)
Dated: November 12, 1999 By: /S/ Edward J. Fred
------------------
Edward J. Fred
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 195,897
<SECURITIES> 0
<RECEIVABLES> 2,309,643
<ALLOWANCES> 0
<INVENTORY> 6,560,438
<CURRENT-ASSETS> 972,359
<PP&E> 6,998,373
<DEPRECIATION> 1,788,184
<TOTAL-ASSETS> 22,309,547
<CURRENT-LIABILITIES> 5,864,266
<BONDS> 0
<COMMON> 2,649
0
0
<OTHER-SE> 6,777,720
<TOTAL-LIABILITY-AND-EQUITY> 22,309,547
<SALES> 15,134,603
<TOTAL-REVENUES> 15,134,603
<CGS> 10,757,811
<TOTAL-COSTS> 10,757,811
<OTHER-EXPENSES> 3,044,144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 839,507
<INCOME-PRETAX> 707,961
<INCOME-TAX> 284,000
<INCOME-CONTINUING> 423,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 423,961
<EPS-BASIC> .16
<EPS-DILUTED> .16
</TABLE>
