-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Iv9j7ZRgUvujvkyiDlQYE6KJLG5DqlzZMskMvD0qnhYVg/TldKBZyeGMXF/oeQAl 67sT6lOd9GrRB31aaFUsmA== 0000938492-98-000404.txt : 19981118 0000938492-98-000404.hdr.sgml : 19981118 ACCESSION NUMBER: 0000938492-98-000404 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CPI AEROSTRUCTURES INC CENTRAL INDEX KEY: 0000889348 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 112520310 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-20524 FILM NUMBER: 98751491 BUSINESS ADDRESS: STREET 1: 200A EXECUTIVE DR CITY: EDGEWOOD STATE: NY ZIP: 11717 BUSINESS PHONE: 5165865200 10QSB 1 FORM 10-QSB 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, 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 September 30, 1998. INDEX - ----------------------------------------------------------------------------- Part I. Financial Information: Item 1 - Consolidated Financial Statements: Balance Sheets as of September 30, 1998 (Unaudited) and 3 December 31, 1997 3 Statements of Income for the Three and Nine Months ended September 30, 1998 (Unaudited) and 1997 (Unaudited) 4 Statements of Cash Flows for the Nine Months ended September 30, 1998 (Unaudited) and 1997 (Unaudited) 5 Notes to Financial Statements (Unaudited) 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Item 6 - Exhibits and Reports on Form 8-K 11 Signatures 12 2 CPI AEROSTRUCTURES, INC. - ------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS
September 30, December 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 436,393 $ 2,032,183 Accounts receivable 1,070,755 1,820,278 Costs and estimated earnings in excess contracts (Note 2) 15,568,180 12,923,769 Inventory 2,694,315 2,317,131 Prepaid expenses and other current assets 113,470 123,411 - ---------------------------------------------------------------------------------------------------------------------- Total current assets 19,883,113 19,216,772 Property, Plant and Equipment, net 5,242,849 5,734,572 Goodwill 7,228,000 7,615,863 Other Assets 622,028 546,638 - ---------------------------------------------------------------------------------------------------------------------- Total Assets $32,975,990 $33,113,845 ====================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,226,725 $ 2,435,361 Accrued expenses 96,449 387,654 Line of credit 375,000 --- Current portion of long term debt 2,385,075 2,385,075 Income taxes payable 802,650 543,000 Deferred income taxes 775,000 775,000 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 6,660,899 6,526,090 Long term debt 10,191,281 11,979,814 Deferred income taxes 12,000 12,000 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 16,864,180 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 3,978,905 2,742,073 - ---------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 16,111,810 14,595,941 - ---------------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $32,975,990 $33,113,845 ======================================================================================================================
See Notes to Consolidated Financial Statements 3 CPI AEROSTRUCTURES, INC. - ------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME
For the Three Months ended For the Nine months Ended September 30, September 30, 1998 1997 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- (Unaudited) (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- Revenue $5,084,594 $2,215,387 $15,539,656 $7,346,072 Cost of sales 2,944,781 1,383,632 9,474,600 4,841,397 - ---------------------------------------------------------------------------------------------------------------------- Gross profit 2,139,813 831,755 6,065,056 2,504,675 Selling, general and administrative 1,073,738 351,766 3,143,244 1,060,394 expenses - ---------------------------------------------------------------------------------------------------------------------- Income from operations 1,066,075 479,989 2,921,812 1,444,281 - ---------------------------------------------------------------------------------------------------------------------- Other (income) expense: Interest/other income (34,850) 517 (112,016) 17,883 Interest expense 311,877 169 971,996 1,364 - ---------------------------------------------------------------------------------------------------------------------- Total other expenses, net 277,027 686 859,980 19,247 - ---------------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 789,048 479,303 2,061,832 1,425,034 Provision for income taxes 316,000 192,000 825,000 570,000 - ---------------------------------------------------------------------------------------------------------------------- Net income $ 473,048 $287,303 $1,236,832 $ 855,034 ====================================================================================================================== Earnings per common share - Basic $ .06 $ .04 $ .16 $ .13 - ---------------------------------------------------------------------------------------------------------------------- Earnings per common share - Diluted $ .06 $ .04 $ .15 $ .12 - ---------------------------------------------------------------------------------------------------------------------- Shares used in computing earnings per Common share: Basic 7,945,342 7,119,200 7,940,570 6,717,063 Diluted 8,097,940 7,647,193 8,333,926 7,144,857 ======================================================================================================================
See Notes to Consolidated Financial Statements 4 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- (Unaudited) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 1,236,832 $ 855,034 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,279,812 52,576 Loss on sale/disposal of fixed assets --- 25,883 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable 749,523 (260,496) Decrease in prepaid expenses and other current assets 9,941 44,947 Increase in costs and estimated earnings in excess of billings on uncompleted contracts (2,644,411) (1,810,393) Increase in inventory (377,184) --- Increase in other assets (172,405) (296,571) (Decrease) increase in accounts payable (208,636) 647,590 Decrease in accrued expenses (291,205) (107,624) Increase in income taxes payable 259,650 570,000 - ---------------------------------------------------------------------------------------------------------------------- Net cash used in operating activities (158,083) (279,054) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Proceeds from sale of fixed assets --- 6,295 Purchase of property and equipment (69,411) (53,863) - ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (69,411) (47,568) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from revolving line of credit 375,000 --- Repayment of long-term debt (1,788,533) (6,547) Proceeds from exercise of stock options/warrants 45,237 2,467,926 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (1,368,296) 2,461,379 - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash (1,595,790) 2,134,757 Cash at beginning of period 2,032,183 899,798 - ---------------------------------------------------------------------------------------------------------------------- Cash at end of period $ 436,393 $3,034,555 ====================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 971,966 $ 1,364 ====================================================================================================================== Income taxes $ 560,819 $ 29,481 ======================================================================================================================
See Notes to Consolidated Financial Statements 5 CPI AEROSTRUCTURES, INC. - ------------------------------------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - ------------------------------------------------------------------------------- 1. INTERIM FINANCIAL STATEMENTS The financial statements as of September 30, 1998 and for the nine and three months ended September 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: September 30, 1998 -------------------------------------------------------------------------- U.S. Government Commercial Total --------------------------------------------------------------------------- Costs incurred on uncompleted contracts $6,246,231 $21,678,496 $27,924,727 Estimated earnings 2,342,375 16,009,839 18,352,214 --------------------------------------------------------------------------- 8,588,606 37,688,335 46,276,941 Less billings to date 6,541,780 24,166,981 30,708,761 --------------------------------------------------------------------------- Costs and estimated earnings in excess of billings on uncompleted contracts $2,046,826 $13,521,354 $15,568,180 =========================================================================== 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 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 nine months ended September 30, 1998, approximately 19% of the Company's revenue was derived from this program. As of September 30, 1998, an aggregate of $12,008,538 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 adverse effect on the Company's financial position. 7 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. Results of Operations The Company's revenue for the three months ended September 30, 1998 was $5,084,594 compared to $2,215,387 for the same period last year, representing an increase of $2,869,207, or 130%. Revenue for the nine month period ended September 30, 1998 was $15,539,656 compared to $7,346,072 for the same period last year, representing an increase of $8,193,584 or 112%. Of the total revenue, $8,399,288 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"). This revenue figure is slightly lower than anticipated due to a slowdown caused by the Asian economic situation. 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 25% of total revenue for the nine months ended September 30, 1998 compared to 43% 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 $1,308,058, or 157%, from the three months ended September 30, 1997 compared to the three months ended September 30, 1998. Gross profit for the nine month period ended September 30, 1998 was $6,065,056 compared to $2,504,675 for the same period last year, representing an increase of $3,560,381 or 142%. Kolar, Inc. contributed $3,054,365 or 86 % of this increase. Gross profit as a percentage of revenue for the nine months ended September 30, 1998 was 39% compared to 34% 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 $721,972 or 205%, from the three months ended September 30, 1997 compared to the three months ended September 30, 1998. Selling, general and administrative expenses for the nine months ended September 30, 1998 were $3,143,244 compared to $1,060,394 for the same period last year, representing an increase of $2,082,850 or 196%. 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 $311,708 for the three months ended September 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 September 30, 1998, was $473,048 compared to $287,303 for the same period last year. Net income for the nine months ended September 30, 1998 was $1,236,832 compared to $855,034 for the same period last year, representing an increase of $381,798 or 45%. Basic earnings per share was $0.16 on 7,940,570 average shares outstanding, compared to $0.13 per share (re-stated from prior year's amount) on 6,717,063 average shares outstanding for the same period last year. Diluted earnings per share was $0.15 per share compared to $0.12 per share in 1997 on 8,333,926 and 7,144,857 weighted average shares outstanding, respectively. 8 CPI AEROSTRUCTURES, INC. - ------------------------------------------------------------------------------- Management's Discussion and Analysis of Financial Condition and Results of Operations - ------------------------------------------------------------------------------- Liquidity and Capital Resources At September 30, 1998 and December 31, 1997, the Company had working capital of $13,222,214 and $12,690,682, respectively, an increase of $531,532. This increase is primarily attributable to an increase in costs and estimated earnings in excess of billings of $2,644,411, an increase in inventory of $377,184, a decrease in accounts payable of $208,636, and a decrease in accrued expenses of $291,205 offset by a decrease in accounts receivable of $749,523, and a decrease in cash resulting from the Company making its principal payments on its term loan for the Kolar Acquisition. 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 nine months ended September 30, 1998 was $158,083. This decrease in cash was primarily the result of an increase in costs and estimated earnings in excess of billing of $2,644,411, an increase in inventory of $377,184, an increase in other assets of $172,405, a decrease in accounts payable of $208,636, and a decrease in accrued expenses of $291,205, offset by net income of $1,236,832, depreciation and amortization of $1,279,812, a decrease in accounts receivable of $749,523 and an increase in income taxes payable of $259,650. Other Information 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 nine months ended September 30, 1998, approximately 19% of the Company's revenue was derived from this program. As of September 30, 1998, an aggregate of $12,008,538 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 adverse effect on the Company's financial position. 9 Year 2000 Compliance 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 does not become Y2K compliant, the financial condition and operations 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. 10 CPI AEROSTRUCTURES, 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 three months ended September 30, 1998. 11 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 13, 1998 By: /S/ Arthur August ----------------------- Arthur August President (Principal Executive Officer) Dated: November 13, 1998 By: /S/ Edward J. Fred ------------------------ Edward J. Fred Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 436,393 0 1,070,755 0 18,262,495 19,883,113 6,299,286 1,056,436 32,975,990 6,660,899 0 7,945 0 0 16,103,865 32,975,990 15,539,656 15,539,656 9,474,600 9,474,600 3,143,244 0 971,996 2,061,832 825,000 1,236,832 0 0 0 1,236,832 .16 .15
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