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, 2000
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
of Incorporation or Organization) Number)
200A EXECUTIVE DRIVE, EDGEWOOD, NY 11717
(Address of Principal Executive Offices)
Telephone number (631) 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 March 31, 2000.
<PAGE>
CPI AERPSTRUCTURES, INC.
INDEX
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Part I Financial Information:
Item 1 - Consolidated Financial Statements:
Independent Accountants' Review Report 3
Balance Sheets as of March 31, 2000 (Unaudited) and 4
December 31, 1999
Statements of Income for the Three Months ended March 31, 2000 5
(Unaudited) and 1999 (Unaudited)
Statements of Cash Flows for the Three Months ended March 31, 6
2000 (Unaudited) and 1999 (Unaudited)
Notes to Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Part II. Other
Item 6 - Exhibits and Reports on Form 8-K 11
Signatures 12
2
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
CPI Aerostructures, Inc. and Subsidiary
We have reviewed the accompanying condensed consolidated balance sheet of CPI
Aerostructures, Inc. and Subsidiary as of March 31, 2000, and the related
condensed statements of income and cash flows for the three month period then
ended. These financial statements are responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the condensed financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 27, 2000
3
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CPI AEROSTRUCTURES, INC.
CONSOLIDATED BALANCE SHEETS
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March 31, December 31,
2000 1999
(Unaudited)
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ASSETS
Current Assets:
Cash and cash equivalents $ 406,955 $ 295,698
Accounts receivable 2,208,658 2,345,490
Income tax receivable --- 29,597
Costs and estimated earnings in excess of billings
on uncompleted contracts (Note 2) 3,923,359 3,938,529
Inventory 3,526,618 3,209,931
Deferred income taxes net of valuation allowance of
$2,152,000 759,000 759,000
Prepaid expenses and other current assets 118,262 121,184
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Total current assets 10,942,852 10,699,429
Property, Plant and Equipment, net 5,315,074 5,046,021
Goodwill 6,453,505 6,582,588
Other Assets 255,595 367,673
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Total Assets $22,967,026 $22,695,711
================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,471,620 $ 2,185,477
Accrued expenses 474,361 669,735
Line of credit 375,000 375,000
Current portion of long term debt 2,912,480 2,537,177
Income taxes payable 193,558 25,560
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Total current liabilities 6,427,019 5,792,949
Long term debt 8,348,067 9,023,024
Deferred income taxes 366,000 366,000
Interest payable 346,667 320,000
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Total liabilities 15,487,753 15,501,973
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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 12,234,436 12,206,024
Accumulated deficit (4,757,812) (5,014,935)
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Shareholders' equity 7,479,273 7,193,738
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Total Liabilities and Shareholders' Equity $22,967,026 $22,695,711
================================================================================
See Notes to Consolidated Financial Statements
4
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CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF INCOME
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For the Three Months Ended March 31, 2000 1999
(Unaudited)
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Revenue $ 6,947,293 $ 4,224,741
Cost of sales 5,033,787 2,737,695
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Gross profit 1,913,506 1,487,046
Selling, general and administrative expenses 1,050,087 1,155,779
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Income from operations 863,419 331,267
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Other (income) expense:
Interest/other (income) expense 161,181 (37,200)
Interest expense 273,115 281,483
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Total other expenses, net 434,296 244,283
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Income before provision for income taxes 429,123 86,984
Provision for income taxes 172,000 35,000
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Net income $ 257,123 $ 51,984
================================================================================
Earnings per common share - Basic $ .10 $ .02
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Earnings per common share - Diluted $ .09 $ .02
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Shares used in computing earnings per
Common share:
Basic 2,648,509 2,648,509
Diluted 2,741,624 2,648,509
================================================================================
See Notes to Consolidated Financial Statements
5
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
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For the Three Months Ended March 31, 2000 1999
(Unaudited)
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Cash flows from operating activities:
Net income $ 257,123 $ 51,984
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 379,363 345,095
Non-cash consulting fees 28,413 ---
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 136,832 (94,923)
(Increase) decrease in prepaid expenses and
other current assets 32,519 (1,927)
Decrease in other assets 79,740 ---
(Increase) decrease in costs and estimated
earnings in excess of billings on
uncompleted contracts 15,170 (99,990)
Increase in inventory (316,687) (401,394)
Increase in accounts payable 286,143 223,804
Decrease in accrued expenses (168,707) (157,363)
Increase in income taxes payable 167,998 35,000
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Net cash provided (used) in operating
activities 897,907 (99,714)
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Cash flows from investing activities:
Purchase of property and equipment (116,425) (77,753)
Proceeds from sale of fixed assets --- 1,433
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Net cash used in investing activities (116,425) (76,320)
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Cash flows from financing activities:
Repayment of long-term debt (670,225) (303,885)
Proceeds from exercise of stock options/warrants --- ---
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Net cash used in financing activities (670,225) (303,885)
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Net (Decrease) increase in cash 111,257 (479,919)
Cash at beginning of period 295,698 584,296
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Cash at end of period 406,955 $ 104,377
================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 273,115 $ 201,483
================================================================================
Income taxes $ 4,000 $ 4,500
================================================================================
Supplemental schedule of non-cash financing activity:
Financing obligation incurred in connection with
the acquisition of equipment $ 370,571 ---
================================================================================
See Notes to Consolidated Financial Statements
6
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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<TABLE>
<S> <C> <C>
1. INTERIM The financial statements as of March 31, 2000 and for the three months ended March 31,
FINANCIAL 2000 and 1999 are unaudited, however, in the opinion of the management of the Company,
STATEMENTS 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 contracts consist of:
ESTIMATED
EARNINGS IN
EXCESS OF March 31, 2000
BILLINGS ON --------------------------------------------------------------------------------------------
UNCOMPLETED
CONTRACTS: U.S.
Government Commercial Total
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Costs incurred on uncompleted
contracts $3,233,934 $10,843,798 $14,077,732
Estimated earnings 1,061,983 5,479,338 6,541,321
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4,295,917 16,323,136 20,619,053
Less billings to date 2,370,506 14,325,188 16,695,694
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Costs and estimated earnings
in excess of billings on
uncompleted contracts $1,925,411 $1,997,948 $3,923,359
=============================================================================================
December 31, 1999
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U.S.
Government Commercial Total
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Costs incurred on uncompleted
contracts $3,438,306 $10,581,169 $14,019,475
Estimated earnings 1,147,122 5,358,173 6,505,295
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4,585,428 15,939,342 20,524,770
Less billings to date 2,566,070 14,020,171 16,586,241
--------------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $2,019,358 $ 1,919,171 $ 3,938,529
=============================================================================================
</TABLE>
7
<PAGE>
CPI AEROSTRUCTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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<TABLE>
<S> <C> <C>
3. EARNINGS PER COMMON Basic earnings per share calculations are computed by dividing net income, by the
SHARE: 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.
The convertible securities attributable to a note payable have been excluded from the
fully diluted computation as their effect would be antidilutive.
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, 1999.
4. INVENTORY: Inventory consists of the following:
Raw Materials $ 1,168,056
Work-in-Progress 719,332
Finished Goods 1,639,230
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$ 3,526,618
=========================================================================================
5. SEGMENT INFORMATION: The Company's operations are classified into two business segments: Production of
complex aerospace structural sub-assembles ("Aerospace") and computer numerical control
machining of metal products ("Machining").
Summarized financial information by business segment for 2000 and 1999 are as follows:
March 31, 2000 1999
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Net sales:
Aerospace $1,750,065 $1,232,521
Machining 5,197,228 2,992,220
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$6,947,293 $4,224,741
========================================================================================
Operating income:
Aerospace $ 236,601 $ 42,501
Machining 626,818 288,766
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$ 863,419 $ 331,267
========================================================================================
Total assets:
Aerospace $ 5,748,552 $ 5,767,261
Machining 17,218,474 16,018,165
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$22,967,026 $21,785,426
========================================================================================
</TABLE>
8
<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 31,2000 was $6,947,293
compared to $4,224,741 for the same period last year, representing an increase
of $2,722,552 or 64%. This increase is largely attributable to the increase in
the demand for board handlers produced by Kolar and the number of contracts
awarded to CPI.
Gross profit increased by $426,460 or 29%, from the three months ended March 31,
1999 to the three months ended March 31, 2000. Gross profit as a percentage of
revenue for the three months ended March 31, 2000 was 28% compared to 35% for
the same period last year.
Selling, general, and administrative expenses decreased by $105,692, or 9%, from
the three months ended March 31, 1999 to the three months ended March 31, 2000.
Interest expense decreased by $8,368 for the three months ended March 31, 2000,
compared to the same period last year.
Other expense increased by $198,381 over last year's other income. This increase
is related to the write-off of acquisition charges for unconsummated
transactions.
The resulting net income for the three months ended March 31, 2000, was $257,123
compared to $51,984 for the same period last year. Basic earnings per share was
$.10 on 2,648,509 average shares outstanding, compared to $.02 per share on
2,648,509 average shares outstanding for fiscal 1999. Diluted earnings per share
increased to $.09 per share compared to $.02 per share in 1999 on 2,741,624 and
2,648,509 weighted average shares outstanding, respectively.
Material Changes in Financial Condition
At March 31, 2000 and December 31, 1999, the Company had working capital of
$4,515,833 and $4,906,480 respectively, a decrease of $390,647. This decrease is
primarily attributable to a decrease in accounts receivable of $136,832, an
increase in current portion of long-term debt of $375,303, and an increase in
accounts payable of $286,143, offset by a decrease in accrued expenses of
$195,374, and an increase in inventory of $316,687. 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.
9
<PAGE>
CPI AEROSTRUCTURES, INC.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
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Net cash provided by operating activities for the three months ended March 31,
2000 was $897,907. This increase in cash was primarily the result of net income
of $257,123, depreciation and amortization of $407,775, a decrease in accounts
receivable of $136,832, a decrease in prepaid expenses and other current assets
of $32,519, a decrease in other assets $79,740, a decrease in costs and
estimated earnings in excess of billings on uncompleted contracts of $15,170, an
increase in accounts payable of $286,143, and an increase in income taxes
payable of $167,998 offset by an increase in inventory of $316,687 and a
decrease in accrued expenses of $168,707.
Year 2000 Problem
The Company has evaluated 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., "99"for "1999"). The Company has had no
impacts of Y2K non-compliance from suppliers and customers.
10
<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, 2000.
11
<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, 2000 By: /S/ Arthur August
-----------------
Arthur August
President
(Principal Executive Officer)
Dated: May 12, 2000 By: /S/ Edward J. Fred
------------------
Edward J. Fred
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 406,955
<SECURITIES> 0
<RECEIVABLES> 2,208,658
<ALLOWANCES> 0
<INVENTORY> 7,549,977
<CURRENT-ASSETS> 877,262
<PP&E> 7,516,459
<DEPRECIATION> 2,201,385
<TOTAL-ASSETS> 23,067,026
<CURRENT-LIABILITIES> 6,527,019
<BONDS> 0
<COMMON> 2,649
0
0
<OTHER-SE> 7,476,624
<TOTAL-LIABILITY-AND-EQUITY> 23,067,026
<SALES> 6,947,293
<TOTAL-REVENUES> 6,947,293
<CGS> 5,033,787
<TOTAL-COSTS> 5,033,787
<OTHER-EXPENSES> 1,050,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 273,115
<INCOME-PRETAX> 429,123
<INCOME-TAX> 172,000
<INCOME-CONTINUING> 257,123
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 257,123
<EPS-BASIC> .10
<EPS-DILUTED> .09
</TABLE>
