10QSB 1 0001.txt FORM 10-QSB 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 June 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 June 30, 2000. CPI AEROSTRUCTURES, INC. INDEX ------------------------------------------------------------------------------- Part I Financial Information: Item 1 - Consolidated Financial Statements: Independent Accountants' Review Report 3 Balance Sheets as of June 30, 2000 (Unaudited) and 4 December 31, 1999 (Audited) Statements of Income for the Three Months and Six 5 Months ended June 30, 2000 (Unaudited) and 1999 (Unaudited) Statements of Cash Flows for the Six Months ended 6 June 30, 2000 (Unaudited) and 1999 (Unaudited) Notes to Financial Statements (Unaudited) 7 Item 2 - Management's Discussion and Analysis 9 of Financial Condition and Results of Operations Part II. Other Item 2. Changes In Securities And Use Of Proceeds 11 Item 6 - Exhibits and Reports on Form 8-K 11 Signatures 12 2 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 June 30, 2000, and the related condensed consolidated statement of income for the six and three month period, then ended and the condensed consolidated statement of cash flows for the six 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 July 28, 2000 3 CPI AEROSTRUCTURES, INC. CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- June 30, December 31, 2000 1999 (Unaudited) (Audited) -------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 326,731 $ 295,698 Accounts receivable 2,707,780 2,345,490 Income tax receivable --- 29,597 Costs and estimated earnings in excess of billings on uncompleted contracts (Note 2) 4,151,696 3,938,529 Inventory 3,649,999 3,209,931 Deferred income taxes net of valuation allowance of $2,152,000 759,000 759,000 Prepaid expenses and other current assets 92,933 121,184 -------------------------------------------------------------------------------- Total current assets 11,688,139 10,699,429 Property, Plant and Equipment, net 5,275,942 5,046,021 Goodwill 6,324,423 6,582,588 Other Assets 223,255 367,673 -------------------------------------------------------------------------------- Total Assets $23,511,759 $22,695,711 ================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,025,330 $ 2,185,477 Accrued expenses 745,538 669,735 Line of credit 1,200,000 375,000 Current portion of long term debt 3,345,884 2,537,177 Income taxes payable 397,560 25,560 -------------------------------------------------------------------------------- Total current liabilities 7,714,312 5,792,949 Long term debt 7,271,399 9,023,024 Deferred income taxes 366,000 366,000 Interest payable 346,667 320,000 -------------------------------------------------------------------------------- Total liabilities 15,698,378 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 12,262,849 12,206,024 Accumulated deficit (4,452,117) (5,014,935) -------------------------------------------------------------------------------- Shareholders' equity 7,813,381 7,193,738 -------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $23,511,759 $22,695,711 ================================================================================ See Notes to Consolidated Financial Statements 4 CPI AEROSTRUCTURES, INC. CONSOLIDATED STATEMENTS OF INCOME --------------------------------------------------------------------------------
For the Three Months Ended June 30, For the Six Months Ended June 30, 2000 1999 2000 1999 (Unaudited) (Unaudited) ------------------------------------------------------------------------------------------------------------------------ Revenue $ 7,351,536 $ 5,218,441 $ 14,298,829 $ 9,443,182 Cost of sales 5,705,358 3,686,861 10,739,145 6,766,965 ------------------------------------------------------------------------------------------------------------------------ Gross profit 1,646,178 1,531,580 3,559,684 2,676,217 Selling, general and administrative expenses 896,136 1,210,906 1,946,223 2,024,276 ------------------------------------------------------------------------------------------------------------------------ Income from operations 750,042 320,674 1,613,461 651,941 ------------------------------------------------------------------------------------------------------------------------ Other (income) expense: Interest/other income (30,559) (133,895) 130,622 (171,095) Interest expense 270,906 275,718 544,021 557,201 ------------------------------------------------------------------------------------------------------------------------ Total other expenses, net 240,347 141,823 674,643 386,106 ------------------------------------------------------------------------------------------------------------------------ Income before provision for income taxes 509,695 178,851 938,818 265,835 Provision for income taxes 204,000 71,000 376,000 106,000 ------------------------------------------------------------------------------------------------------------------------ Net income $ 305,695 $ 107,851 $ 562,818 $ 159,835 ======================================================================================================================== Earnings per common share - Basic $ .12 $ .04 $ .21 $ .06 ------------------------------------------------------------------------------------------------------------------------ Earnings per common share - Diluted $ .11 $ .04 $ .20 $ .06 ------------------------------------------------------------------------------------------------------------------------ Shares used in computing earnings per Common share: Basic 2,648,509 2,648,509 2,648,509 2,648,509 Diluted 2,692,187 2,648,509 2,747,638 2,648,509 ========================================================================================================================
See Notes to Consolidated Financial Statements 5 CPI AEROSTRUCTURES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------------------------------------------------- For the Six Months Ended June 30, 2000 1999 (Unaudited) -------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 562,818 $ 159,835 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 819,210 713,764 Gain on disposal of fixed assets (1,107) --- Changes in operating assets and liabilities: Increase in accounts receivable (362,290) (593,918) Decrease in prepaid expenses and other current assets 57,848 24,331 Decrease in other assets 79,742 --- Increase in costs and estimated earnings in excess of billings on uncompleted contracts (213,167) (430,694) (Increase) decrease in inventory (440,068) 111,717 Decrease in accounts payable (160,147) (238,914) Increase in accrued expenses 75,803 201,287 Increase in accrued interest 26,667 Increase in income taxes payable 372,000 104,703 -------------------------------------------------------------------------------- Net cash provided by in operating activities 817,309 52,111 -------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (252,592) (106,158) Proceeds from sale of fixed assets 8,500 11,183 -------------------------------------------------------------------------------- Net cash used in investing activities (244,092) (94,975) -------------------------------------------------------------------------------- Cash flows from financing activities: Repayment of long-term debt (1,367,184) (679,939) Proceeds from line of credit 825,000 200,000 Proceeds from officer's notes ------ 130,000 -------------------------------------------------------------------------------- Net cash used in financing activities (542,184) (349,939) -------------------------------------------------------------------------------- Net (decrease) increase in cash 31,033 (392,803) Cash at beginning of period 295,698 584,296 -------------------------------------------------------------------------------- Cash at end of period 326,731 $ 191,493 ================================================================================ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest 544,021 $ 368,530 ================================================================================ Income taxes $ 4,000 $ 5,797 ================================================================================ Supplemental schedule of non-cash financing activity: Financing obligation incurred in connection with the acquisition of equipment $ 424,266 --- ================================================================================ See Notes to Consolidated Financial Statements 6 CPI AEROSTRUCTURES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- 1. INTERIM The financial statements as of June 30, 2000 and for the FINANCIAL six months ended June 30, 2000 and 1999 are unaudited, STATEMENTS 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.
2. COSTS AND Costs and estimated earnings in excess of billings on uncompleted contracts consist of: ESTIMATED EARNINGS IN June 30, 2000 EXCESS OF ---------------------------------------------------------------------------------------- BILLINGS ON UNCOMPLETED U.S. CONTRACTS: Government Commercial Total ---------------------------------------------------------------------------------------- Costs incurred on uncompleted contracts $4,470,985 $11,229,938 $15,700,923 Estimated earnings 1,345,469 5,654,859 7,000,328 ----------------------------------------------------------------------------------------- 5,816,454 16,884,797 22,701,251 Less billings to date 3,896,870 14,652,685 18,549,555 ----------------------------------------------------------------------------------------- Costs and estimated earnings in excess of billings on uncompleted contracts $1,919,584 $2,232,112 $4,151,696 ========================================================================================= 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 =========================================================================================
7 CPI AEROSTRUCTURES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- 3. EARNINGS PER Basic earnings per share is computed by dividing net COMMON SHARE: 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 $ 1,061,688 Work-in-Progress 860,719 Finished Goods 1,727,592 ------------------------------------------------- $ 3,649,999 ================================================= 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 six months ended June 30, 2000 1999 -------------------------------------------------------- Net sales: Aerospace $ 3,828,113 $2,937,570 Machining 10,470,716 6,505,612 ----------------------------------------------------- $ 14,298,829 $9,443,182 ================================================================================ Operating income: Aerospace $ 311,035 $ 320,539 Machining 1,302,426 331,402 ----------------------------------------------------- $ 1,613,461 $ 651,941 ================================================================================ June 30, 2000 Dec. 31, 1999 ------------- ------------- Total assets: Aerospace $ 5,998,666 $ 5,814,906 Machining 17,513,093 16,880,805 ----------------------------------------------------- $23,511,759 $ 22,695,711 ================================================================================ 8 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. Material Changes in Results of Operations The Company's revenue for the six months ended June 30, 2000 was $14,298,829 compared to $9,443,182 for the same period last year, representing an increase of $4,855,647 or 51%. 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 $883,467 or 33%, from the six months ended June 30, 1999 to the six months ended June 30, 2000. Gross profit as a percentage of revenue for the six months ended June 30, 2000 was 25% compared to 28% 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 decreased by $78,053, or 4%, from the six months ended June 30, 1999 to the six months ended June 30, 2000. Interest expense decreased by $13,180 for the six months ended June 30, 2000, compared to the same period last year. Other expense increased by $301,71 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 six months ended June 30, 2000, was $562,818 compared to $159,835 for the same period last year. Basic earnings per share was $.21 on 2,648,509 average shares outstanding, compared to $.06 per share on 2,648,509 average shares outstanding for fiscal 1999. Diluted earnings per share increased to $.20 per share compared to $.06 per share in 1999 on 2,747,638 and 2,648,509 weighted average shares outstanding, respectively. Material Changes in Financial Condition At June 30, 2000 and December 31, 1999, the Company had working capital of $3,973,827 and $4,906,480 respectively, a decrease of $932,653. This decrease is primarily attributable to an increase in the line of credit of $825,000, an increase in accrued expenses of $75,803, an increase in current portion of long-term debt of $808,707, and an increase in income taxes payable of $372,000, offset by a decrease in accounts payable of $160,147, an increase in accounts receivable of $362,290, an increase in cost and estimated earnings of $213,167 and an increase in inventory of $440,068. 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 CPI AEROSTRUCTURES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------------------------------------- Net cash provided by operating activities for the six months ended June 30, 2000 was $817,309. This increase in cash was primarily the result of net income of $562,818, depreciation and amortization of $819,210, a decrease in pre-paid expenses and other current assets of $57,848, a decrease in other assets of $79,742, an increase in accrued expenses of $75,803 and an increase in income taxes payable of $372,000, offset by an increase in accounts receivable of $362,290, an increase in cost and estimated earnings of $213,167, an increase in inventory of $440,068 and a decrease in accounts payable of $160,147. 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 CPI AEROSTRUCTURES, INC. ------------------------------------------------------------------------------- ITEM 2. Changes In Securities And Use Of Proceeds (c) Recent Sales of Unregistered Securities During the three months ended June 30, 2000, the Company made the following sales of unregistered securities:
Consideration Received and Description of If Option, Underwriting or Warrant or Other Discounts to Convertible Market Price Exemption from Security, Terms Afforded to Registration of Exercise or Date of Sale Title of Security Number Sold Purchasers Claimed Conversion ------------------ --------------------- --------------- --------------------- ------------------ ------------------ 5/18/00 Options to purchase 115,000 Options granted - 4(2) Immediately common stock no other exercisable consideration until 12/31/04 received by Company at an exercise until exercise price of $2.79 per share ------------------ --------------------- --------------- --------------------- ------------------ ------------------ 5/31/00 Options to purchase 350,000 Options granted - 4(2) Immediately common stock no other exercisable consideration until 5/31/10 at received by Company an until exercise exercise price of $2.59 per share ------------------ --------------------- --------------- --------------------- ------------------ ------------------
ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits Financial Data Schedule (6/30/00) b) Reports on Form 8-K No reports on Form 8-K were filed with the Securities and Exchange Commission during the six months ended June 30, 2000. 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: August 11, 2000 By: /S/ Arthur August ------------------ Arthur August President (Principal Executive Officer) Dated: August 11, 2000 By: /S/ Edward J. Fred ------------------ Edward J. Fred Chief Financial Officer 12