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, 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
7,945,342 as of March 31, 1999.
INDEX
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Part I. Financial Information:
Item 1 - Consolidated Financial Statements:
Balance Sheets as of March 31, 1999(Unaudited) and 3
December 31, 1998
Statements of Income for the Three Months ended March 31, 1999 4
(Unaudited) and 1998 (Unaudited)
Statements of Cash Flows for the Three Months ended March 31, 1999 5
(Unaudited) and 1998 (Unaudited)
Notes to Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial 8
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,
1999 1998
(Unaudited)
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<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 104,377 $ 584,296
Accounts receivable 1,784,130 1,689,207
Income tax receivable 516,000 516,000
Costs and estimated earnings in excess of billings on uncompleted
contracts (Note 2) 3,205,914 3,105,924
Inventory 2,839,809 2,438,415
Deferred income taxes net of valuation allowance of $2,304,000 919,000 919,000
Prepaid expenses and other current assets 103,928 102,001
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Total current assets 9,473,158 9,354,843
Property, Plant and Equipment, net 4,957,485 5,064,840
Goodwill 6,969,835 7,098,917
Other Assets 384,948 417,286
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Total Assets $21,785,426 $21,935,886
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,495,953 $ 2,272,149
Deferred income taxes 260,000 260,000
Accrued expenses 193,741 351,104
Line of credit 375,000 375,000
Current portion of long term debt 1,742,318 1,475,075
Income taxes payable 35,000 ---
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Total current liabilities 5,102,012 4,733,328
Long term debt 10,521,111 11,092,239
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Total liabilities 15,623,123 15,825,567
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Commitments
Shareholders' Equity:
Common stock - $.001 par value; authorized 50,000,000 shares,
7,945,342 issued and outstanding 7,945 7,945
Additional paid-in capital 11,926,226 11,926,226
Accumulated deficit (5,771,868) (5,823,852)
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Shareholders' equity 6,162,303 6,110,319
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Total Liabilities and Shareholders' Equity $21,785,426 $21,935,886
======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF INCOME
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For the Three Months Ended March 31, 1999 1998
(Unaudited)
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Revenue $4,224,741 $5,115,975
Cost of sales 2,737,695 3,154,040
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Gross profit 1,487,046 1,961,935
Selling, general and administrative expenses 1,155,779 1,052,329
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Income from operations 331,267 909,606
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Other (income) expense:
Interest/other income (37,200) (40,480)
Interest expense 281,483 340,185
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Total other expenses, net 244,283 299,705
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Income before provision for income taxes 86,984 609,901
Provision for income taxes 35,000 244,000
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Net income $ 51,984 $ 365,901
==============================================================================
Earnings per common share - Basic $ .01 $ .05
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Earnings per common share - Diluted $ .01 $ .04
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Shares used in computing earnings per Common share:
Basic 7,945,342 7,930,865
Diluted 7,945,342 8,426,890
==============================================================================
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, 1999 1998
(Unaudited)
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 51,984 $ 365,901
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 345,095 347,709
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (94,923) 127,473
Increase in prepaid expenses and other current assets (1,927) (3,675)
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (99,990) (322,025)
Increase in inventory (401,394) (459,261)
(Decrease) increase in accounts payable 223,804 (315,158)
Decrease in accrued expenses (157,363) (183,575)
(Decrease) increase in income taxes payable 35,000 (321,350)
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Net cash used in operating activities (99,714) (763,961)
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Cash flows from investing activities:
Purchase of property and equipment (77,753) (27,549)
Proceeds from sale of fixed assets 1,433 ---
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Net cash used in investing activities (76,320) (27,549)
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Cash flows from financing activities:
Repayment of long-term debt (303,885) (595,999)
Proceeds from exercise of stock options/warrants --- 45,237
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Net cash used in financing activities (303,885) (550,762)
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Net decrease in cash (479,919) (1,342,272)
Cash at beginning of period 584,296 2,032,183
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Cash at end of period $ 104,377 $ 689,911
=======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 201,483 $ 340,185
=======================================================================================================================
Income taxes $ 4,500 $ 560,350
=======================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
CPI AEROSTRUCTRES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. Interim The financial statements as of March 31, 1999 and for the three
Financial months ended March 31, 1999 and 1998 are unaudited, however, in
Statements 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 Costs and estimated earnings in excess of billings on uncompleted
Estimated contracts:
Earnings In
Excess of
Billings on
Uncompleted
Contracts
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
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<S> <C> <C> <C> <C>
Costs incurred on uncompleted
contracts $7,598,658 $10,257,256 $17,855,914
Estimated earnings 1,640,935 4,586,357 6,224,292
----------------------------------------------------------------------------------------
9,239,593 14,840,613 24,080,206
Less billings to date 7,405,703 13,468,589 20,874,292
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Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,833,890 $1,372,024 $3,205,914
========================================================================================
December 31, 1998
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U.S.
Government Commercial Total
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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)
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3. Earnings Basic earnings per share calculations are computed by dividing
Per Common net income, by the SHARE: weighted average number of common
Share: 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.
7
<PAGE>
CPI AEROSTRUCTURES, INC.
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 revenue for the three months ended March 31, 1999 was $4,224,741
compared to $5,115,975 for the same period last year, representing a decrease of
$891,234, or 17%. 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 $474,889, or 24%, from the three months ended March
31, 1998 to the three months ended March 31, 1999. Gross profit as a percentage
of revenue for the three months ended March 31, 1999 was 35% compared to 38% 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 $103,450 or 9%, from
the three months ended March 31, 1998 to the three months ended March 31, 1999.
This increase is primarily attributable to a reclassification of expenses from
cost of sales to operating expenses. Interest expense decreased by $58,702 for
the three months ended March 31, 1999, which is attributable to principal
payments on the term loan during 1998.
The resulting net income for the three months ended March 31, 1999, was $51,984
compared to $365,901 for the same period last year. Basic earnings per share was
$.01 on 7,945,342 average shares outstanding, compared to $.05 per share on
7,930,865 average shares outstanding for fiscal 1998. Diluted earnings per share
decreased to $.01 per share compared to $0.04 per share in 1998 on 7,945,342 and
8,426,890 weighted average shares outstanding, respectively.
Material Changes in Financial Condition
At March 31, 1999 and December 31, 1998, the Company had working capital of
$4,371,146 and $4,621,515, respectively, a decrease of $250,369. This decrease
is primarily attributable to an increase in accounts payable of $223,804, an
increase in accounts receivable of $94,923, an increase in current portion of
long-term debt of $267,243 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 $99,990, an increase in inventory of $401,394 and a
decrease in accrued expenses of $157,363. 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 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
CPI AEROSTRUCTURES, INC.
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, 1999
was $99,714. This decrease in cash was primarily the result of an increase in
costs and estimated earnings in excess of billing of $99,990, an increase in
inventory of $401,394, an increase in accounts receivable of $99,423 and a
decrease in accrued expenses of $157,363, offset by net income of $51,984,
depreciation and amortization of $345,095, an increase in accounts payable of
$223,804 and an increase in income taxes payable of $35,000.
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. The Company has not yet developed a contingency plan in the
event of such non-compliance.
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,
1999.
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 14, 1999
By: /S/ Arthur August
------------------
Arthur August
President
(Principal Executive Officer)
Dated: May 14, 1999 By: /S/ Edward J. Fred
------------------
Edward J. Fred
Chief Financial Officer
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 104,377
<SECURITIES> 0
<RECEIVABLES> 2,300,130
<ALLOWANCES> 0
<INVENTORY> 6,045,723
<CURRENT-ASSETS> 1,022,928
<PP&E> 6,386,520
<DEPRECIATION> 1,429,035
<TOTAL-ASSETS> 21,785,426
<CURRENT-LIABILITIES> 5,102,012
<BONDS> 0
<COMMON> 7,945
0
0
<OTHER-SE> 6,154,358
<TOTAL-LIABILITY-AND-EQUITY> 21,785,426
<SALES> 4,224,741
<TOTAL-REVENUES> 4,224,741
<CGS> 2,737,695
<TOTAL-COSTS> 2,737,695
<OTHER-EXPENSES> 1,155,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 281,483
<INCOME-PRETAX> 86,984
<INCOME-TAX> 35,000
<INCOME-CONTINUING> 51,984
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,984
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
