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, 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 Number)
of Incorporation or Organization)
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 September 30, 2000.
<PAGE>
CPI AEROSTRUCTURES, INC.
INDEX
-------------------------------------------------------------------------------
Part I Financial Information:
Item 1 - Consolidated Financial Statements:
Independent Accountants' Review Report 3
Balance Sheets as of September 30, 2000 (Unaudited) and 4
December 31, 1999 (Audited)
Statements of Income for the Three Months and Nine Months 5
ended September 30, 2000 (Unaudited) and 1999 (Unaudited)
Statements of Cash Flows for the Nine Months ended 6
September 30, 2000 (Unaudited) and 1999 (Unaudited)
Notes to Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of 9
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 11
Signatures 12
2
<PAGE>
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
CPI Aerostructures, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of CPI
Aerostructures, Inc. and Subsidiary as of September 30, 2000, and the related
condensed consolidated statement of income for the nine and three month period,
then ended and the condensed consolidated statement of cash flows for the nine
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
October 26, 2000
3
<PAGE>
CPI AEROSTRUCTURES, INC.
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------
September 30, December 31,
2000 1999
(Unaudited) (Audited)
--------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 412,857 $ 295,698
Accounts receivable 2,289,902 2,345,490
Income tax receivable -- 29,597
Costs and estimated earnings in
excess of billings on
uncompleted contracts (Note 2) 4,672,711 3,938,529
Inventory 4,412,793 3,209,931
Deferred income taxes net of valuation
allowance of $2,152,000 759,000 759,000
Prepaid expenses and other current assets 47,858 121,184
------------ ------------
Total current assets 12,595,121 10,699,429
Property, Plant and Equipment, net 5,157,216 5,046,021
Goodwill 6,195,340 6,582,588
Other Assets 190,917 367,673
------------ ------------
Total Assets $ 24,138,594 $ 22,695,711
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,161,180 $ 2,185,477
Accrued expenses 600,086 669,735
Line of credit 1,700,000 375,000
Current portion of long term debt 3,672,031 2,537,177
Income taxes payable 682,660 25,560
------------ ------------
Total current liabilities 8,815,957 5,792,949
Long term debt 6,336,433 9,023,024
Deferred income taxes 366,000 366,000
Interest payable 346,667 320,000
------------ ------------
Total liabilities 15,865,057 15,501,973
------------ ------------
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 12,291,261 12,206,024
Accumulated deficit (4,020,373) (5,014,935)
------------ ------------
Shareholders' equity 8,273,537 7,193,738
------------ ------------
Total Liabilities and
Shareholders' Equity $ 24,138,594 $ 22,695,711
============ ============
See Notes to Consolidated Financial Statements
4
<PAGE>
CPI AEROSTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF INCOME
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
2000 1999 2000 1999
(Unaudited) (Unaudited)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 7,976,254 $ 5,691,421 $22,275,083 $15,134,603
Cost of sales 5,891,425 3,990,846 16,630,570 10,757,811
----------------------------------------------------------------------------------------------
Gross profit 2,084,829 1,700,575 5,644,513 4,376,792
Selling, general and administrative
expenses 1,120,468 1,019,868 3,066,691 3,044,144
----------------------------------------------------------------------------------------------
Income from operations 964,361 680,707 2,577,822 1,332,648
----------------------------------------------------------------------------------------------
Other (income) expense:
Interest/other income (39,849) (43,725) 90,773 (214,820)
Interest expense 285,466 282,306 829,487 839,507
-----------------------------------------------------------------------------------------------
Total other expenses, net 245,617 238,581 920,260 624,687
-----------------------------------------------------------------------------------------------
Income before provision for
income taxes 718,744 442,126 1,657,562 707,961
Provision for income taxes 287,000 178,000 663,000 284,000
-----------------------------------------------------------------------------------------------
Net income $ 431,744 $ 264,126 $ 994,562 $ 423,961
==============================================================================================
Earnings per common share - Basic $ .16 $ .10 $ .38 $ .16
----------------------------------------------------------------------------------------------
Earnings per common share - Diluted $ .16 $ .10 $ .36 $ .16
----------------------------------------------------------------------------------------------
Shares used in computing earnings per
Common share:
Basic 2,648,509 2,648,509 2,648,509 2,648,509
Diluted 2,765,223 2,648,509 2,753,467 2,648,509
==============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
CPI AEROSTRUCTURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2000 1999
(Unaudited)
-------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 994,562 $ 423,961
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 1,232,256 1,564,460
Loss on disposal of fixed assets 481 ---
Changes in operating assets and
liabilities:
Decrease (increase) in accounts receivable 55,588 (590,839)
Decrease in prepaid expenses and other
current assets 102,923 534,945
(Increase) decrease in other assets 79,741 (300,000)
Increase in costs and estimated earnings
in excess of billings on uncompleted
contracts (734,182) (623,898)
Increase in inventory (1,202,862) (392,201)
Decrease in accounts payable (24,297) (428,559)
(Decrease) increase in accrued expenses (42,982) 441,450
Increase in income taxes payable 657,100 275,503
-------------------------------------------------------------------------------
Net cash provided by operating activities 1,118,328 904,822
-------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (252,592) (248,040)
Proceeds from sale of fixed assets 9,098 11,183
-------------------------------------------------------------------------------
Net cash used in investing activities (243,494) (236,857)
-------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term debt (2,082,675) (1,056,364)
Repayment of officer's notes ------ (130,000)
Repayment from line of credit ------ (200,000)
Proceeds from officer's notes ------ 130,000
Proceeds from line of credit 1,325,000 200,000
-------------------------------------------------------------------------------
Net cash used in financing activities (757,675) (1,056,364)
-------------------------------------------------------------------------------
Net (decrease) increase in cash 117,159 (388,399)
Cash at beginning of period 295,698 584,296
-------------------------------------------------------------------------------
Cash at end of period 412,857 $ 195,897
===============================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 829,487 $ 598,140
===============================================================================
Income taxes $ 12,645 $ 8,497
===============================================================================
Supplemental schedule of non-cash financing activity:
Financing obligation incurred in connection with
the acquisition of equipment $ 530,938 $ 471,581
================================================================================
See Notes to Consolidated Financial Statements
6
<PAGE>
CPI AEROSTRUCTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
1. INTERIM The financial statements as of September 30, 2000 and
FINANCIAL for the nine months ended September 30, 2000 and 1999 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 and are not necessarily indicative of
the results to be obtained for a full year.
<TABLE>
<CAPTION>
2. COSTS AND Costs and estimated earnings in excess of billings on
EXTIMATED uncompleted contracts consist of:
EARNINGS IN
EXCESS OF
BILLINGS ON September 30, 2000
UNCOMPLETED ----------------------------------------------------------------------------------------
CONTRACTS: U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Costs incurred on uncompleted
contracts $3,941,679 $11,436,748 $15,378,427
Estimated earnings 1,304,338 5,914,280 7,218,618
----------------------------------------------------------------------------------------
5,246,017 17,351,028 22,597,045
Less billings to date 2,951,942 14,972,392 17,924,334
----------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $2,294,075 $2,378,636 $4,672,711
========================================================================================
December 31, 1999
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
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 AEROSTRUCTURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
-------------------------------------------------------------------------------
3. EARNINGS PER Basic earnings per share is computed by dividing
COMMON SHARE: net income, by the weighted average Number of
common shares outstanding.
Diluted earnings per share is 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 $ 1,638,521
Work-in-Progress 858,800
Finished Goods 1,915,472
--------------------------------------------------------
$ 4,412,793
========================================================
5. SEGMENT The Company's operations are classified into two
INFORMATION: 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:
For the nine months ended
September 30, 2000 1999
--------------------------------------------------------
Net sales:
Aerospace $ 5,705,100 $ 4,273,838
Machining 16,569,983 10,860,765
--------------------------------------------------------
$ 22,275,083 $15,134,603
========================================================
Operating income:
Aerospace $ 530,185 $ 223,144
Machining 2,047,637 1,109,504
--------------------------------------------------------
$ 2,577,822 $ 1,332,648
========================================================
Total assets:
Aerospace $ 6,402,782 $ 5,643,838
Machining 17,735,812 16,665,709
--------------------------------------------------------
$ 24,138,594 $ 22,309,547
========================================================
8
<PAGE>
CPI AEROSTRUCTURE, 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, 2000 was
$22,275,083 compared to $15,134,603 for the same period last year, representing
an increase of $7,140,480 or 47%. 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 $1,267,721 or 29%, from the nine months ended
September 30, 1999 to the nine months ended September 30, 2000. Gross profit as
a percentage of revenue for the nine months ended September 30, 2000 was 25%
compared to 29% for the same period last year. The reduction in gross profit
percentage is due primarily to a less profitable sales mix.
Selling, general, and administrative expenses increased by $22,547, or 1%, from
the nine months ended September 30, 1999 to the nine months ended September 30,
2000. Interest expense decreased by $10,020 for the nine months ended September
30, 2000, compared to the same period last year.
Other expense increased by $295,573 over last year's other expense. This
increase is related to the write-off of acquisition charges for unconsummated
transactions.
The resulting net income for the nine months ended September 30, 2000, was
$994,562 compared to $423,961 for the same period last year. Basic earnings per
share was $.38 on 2,648,509 average shares outstanding, compared to $.16 per
share on 2,648,509 average shares outstanding for fiscal 1999. Diluted earnings
per share increased to $.36 per share compared to $.16 per share in 1999 on
2,753,467 and 2,648,509 weighted average shares outstanding, respectively.
Material Changes in Financial Condition
At September 30, 2000 and December 31, 1999, the Company had working capital of
$3,779,164 and $4,906,480 respectively, a decrease of $1,127,316. This decrease
is primarily attributable to an increase in the line of credit of $1,325,000, an
increase in current portion of long-term debt of $1,134,854, an increase in
income taxes payable of $657,100, a decrease in accounts receivable of $55,588,
offset by an increase in cost and estimated earnings of $734,182, a decrease in
accounts payable of $24,297, an increase in inventory of $1,202,862, and a
decrease in accrued expenses of $42,982. 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 for 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 and government aircraft contracts, has caused an
increase in the gap between aggregate costs and earnings and the related
billings to date. Cash has also been used to purchase additional inventory at
Kolar because of numerous jobs due for delivery within the next few months.
9
<PAGE>
CPI AEROSTRUCTURE, 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, 2000 was $1,118,328 as compared to $904,822 for the nine months ended
September 30, 1999. This increase in cash was primarily the result of net income
of $994,562, depreciation and amortization of $1,232,256, a decrease in pre-paid
expenses and other current assets of $102,923, a decrease in other assets of
$79,741, an increase in income taxes payable of $657,100 and a decrease in
accounts receivable of $55,588, offset by, an increase in cost and estimated
earnings in excess of billings on uncompleted contracts of $734,182, an increase
in inventory of $1,202,862, a decrease in accounts payable of $24,297 and a
decrease in accrued expenses of $42,982.
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.
ITEM 4. Submission of Matters to a vote of Security Holders
a) An Annual Meeting of Shareholders was held on August 8, 2000 ("Annual
Meeting")
b) Two matters were voted upon at the Annual Meeting, as follows:
1) Mr. Walter Paulick was re-elected as a Director with 2,317,955 votes
cast for Mr. Paulick's re-election and 85,249 votes withholding
authority for his re-election.
2) The shareholders' voted to approve the Company's Performance Equity
Plan 2000, 1,130,625 shares were voted "For" approval of the plan,
213,358 shares voted "Against" approval of the plan and 18,846 shares
"Abstained" from the vote.
10
<PAGE>
CPI AEROSTRUCTURE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
-------------------------------------------------------------------------------
ITEM 5. Other Information
Pursuant to the Company's By-Laws, shareholders are advised that
in order for a shareholder to present any proposal at the
Company's annual meeting of shareholders to be held in 2001, such
proposal must be submitted in writing to the Company at its
principal office in Edgewood, New York no later than March 5, 2001
(120 days in advance of the date the Company's proxy statement was
mailed to the shareholders in 2000).
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits
b) Financial Data Schedule (9/30/00)
c) No reports on Form 8-K were filed with the Securities and
Exchange Commission during the nine months ended September 30,
2000
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: November 14, 2000 By: /S/ Arthur August
-----------------
Arthur August
President
(Principal Executive Officer)
Dated: November 14, 2000 By: /S/ Edward J. Fred
------------------
Edward J. Fred
Chief Financial Officer
12
