10QSB 1 cpi_10qsb-93001.txt 10QSB FOR 9-30-01 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 September 30, 2001 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 2,657,046 as of September 30, 2001. CPI AEROSTRUCTURES, INC. INDEX ------------------------------------------------------------------------------- Part I Financial Information: Item 1 - Consolidated Financial Statements: Independent Accountant's Review Report 3 Balance Sheets as of September 30, 2001 (Unaudited) and 4 December 31, 2000 (Audited) Statements of Operations for the Three Months and Nine Months 5 ended September 30, 2001 (Unaudited) and 2000 (Unaudited) Statements of Cash Flows for the Nine Months ended 6 September 30, 2001 (Unaudited) and 2000 (Unaudited) Notes to Financial Statements (Unaudited) 7 Item 2 - Management's Discussion and Analysis of Financial Condition 10 and Results of Operations Part II. Other Information Item 2 - Changes in Securities and Use of Proceeds 11 Item 4 - Submission of Matters to a Vote of Security Holders 11 Item 6 - Exhibits and Reports on Form 8-K 12 Signatures 13 2 PART I Financial Information ITEM 1. Consolidated Financial Statements ACCOUNTANT'S 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, 2001 and the related condensed consolidated statements of operations for the nine and three month periods ended September 30, 2001 and 2000 and the consolidated statements of cash flows for the nine month periods ended September 30, 2001 and 2000. These financial statements are responsibility of the company's management. We conducted our reviews 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 auditing standards generally accepted in the United States of America, 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 reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. /s/ Goldstein Golub Kessler LLP GOLDSTEIN GOLUB KESSLER LLP New York, New York November 2, 2001 3
CPI AEROSTRUCTURES, INC. CONSOLIDATED BALANCE SHEETS ------------------------------------------------------------------------------------------------------------- September 30, December 31, 2001 2000 (Unaudited) (Audited) ------------------------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash and cash equivalents $ 275,352 $ 172,184 Accounts receivable 1,624,498 2,107,555 Costs and estimated earnings in excess of billings on uncompleted contracts 6,664,340 4,403,779 Inventory 2,945,122 4,984,682 Deferred income taxes net of valuation allowance of $1,146,000 1,214,000 1,214,000 Prepaid expenses and other current assets 164,182 114,333 ------------------------------------------------------------------------------------------------------------- Total current assets 12,887,494 12,996,533 Property, Plant and Equipment, net 5,483,004 6,142,330 Goodwill 5,679,011 6,066,258 Other Assets 212,564 308,579 ------------------------------------------------------------------------------------------------------------- Total Assets $24,262,073 $25,513,700 ============================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 2,792,282 $ 2,663,300 Accrued expenses 400,662 560,444 Line of credit 1,700,000 1,700,000 Current portion of long term debt 3,145,118 6,043,239 Income taxes payable --- 34,000 Interest payable 596,010 10,720 ------------------------------------------------------------------------------------------------------------- Total current liabilities 8,634,072 11,011,703 Long term debt 6,084,106 4,460,003 Deferred income taxes 431,000 431,000 Interest payable --- 374,400 ------------------------------------------------------------------------------------------------------------- Total liabilities 15,149,178 16,277,106 ------------------------------------------------------------------------------------------------------------- Commitments Shareholders' Equity: Common stock - $.001 par value; authorized 50,000,000 shares, 2,657,046 and 2,648,509, respectively, issued and outstanding 2,657 2,649 Additional paid - in capital 12,367,020 12,319,674 Accumulated deficit (3,256,782) (3,085,729) ------------------------------------------------------------------------------------------------------------- Shareholders' equity 9,112,895 9,236,594 ------------------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $24,262,073 $25,513,700 ============================================================================================================= See Notes to Consolidated Financial Statements 4
CPI AEROSTRUCTURES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------------------------------------------------------------------------------------- For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30, 2001 2000 2001 2000 (Unaudited) (Unaudited) ------------------------------------------------------------------------------------------------------------------- Revenue $ 7,149,818 $ 7,976,254 $ 17,447,446 $22,275,083 Cost of sales 5,417,850 5,891,425 14,045,381 16,630,570 ------------------------------------------------------------------------------------------------------------------- Gross profit 1,713,968 2,084,829 3,402,065 5,644,513 Selling, general and administrative expenses 889,842 1,120,468 2,762,352 3,066,691 ------------------------------------------------------------------------------------------------------------------ Income (loss) from operations 842,126 964,361 639,713 2,577,822 ------------------------------------------------------------------------------------------------------------------ Other (income) expense: Interest/other (income) expense 31,196 (39,849) 10,114 90,773 Interest expense 258,796 285,466 800,652 829,487 ------------------------------------------------------------------------------------------------------------------ Total other expenses, net 289,992 245,617 810,766 920,260 ------------------------------------------------------------------------------------------------------------------ Income (loss) before provision for income taxes 552,134 718,744 (171,053) 1,657,562 Provision for income taxes -0- 287,000 -0- 663,000 ------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 552,134 $ 431,744 $ (171,053) $ 994,562 ------------------------------------------------------------------------------------------------------------------ Earnings (loss) per common share - Basic $ .21 $ .16 $ (.06) $ .38 ------------------------------------------------------------------------------------------------------------------ Earnings (loss) per common share - Diluted $ .21 $ .16 $ (.06) $ .36 ------------------------------------------------------------------------------------------------------------------- Shares used in computing earnings per Common share: Basic 2,657,046 2,648,509 2,652,356 2,648,509 Diluted 2,690,380 2,765,223 2,738,467 2,753,467 =================================================================================================================== See Notes to Consolidated Financial Statements 5
CPI AEROSTRUCTURES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS ---------------------------------------------------------------------------------------------------------------------- For the Nine Months Ended September 30, 2001 2000 (Unaudited) ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income (loss) $ (171,053) $ 994,562 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 1,364,382 1,232,256 Loss (gain) on disposal of fixed assets 7,875 481 Changes in operating assets and liabilities: Decrease in accounts receivable 483,057 55,588 (Increase) decrease in prepaid expenses and other current assets (49,849) 102,923 Decrease in other assets (1,000) 79,741 Increase in costs and estimated earnings in excess of billings on uncompleted contracts (2,260,561) (734,182) (Increase) decrease in inventory 2,039,560 (1,202,862) (Decrease) increase in accounts payable 128,982 (24,297) (Decrease) increase in accrued expenses 51,108 (42,982) (Decrease) increase in income taxes payable (34,000) 657,100 ---------------------------------------------------------------------------------------------------------------------- Net cash provided by in operating activities 1,558,501 1,118,328 ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (40,957) (252,592) Proceeds from sale of fixed assets 3,550 9,098 ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (37,407) (243,494) ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Repayment of long-term debt (1,417,926) (2,082,675) Proceeds from line of credit ------ 1,325,000 ---------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (1,417,926) (757,675) ---------------------------------------------------------------------------------------------------------------------- Net increase in cash 103,168 117,159 Cash at beginning of period 172,184 295,698 ---------------------------------------------------------------------------------------------------------------------- Cash at end of period 275,352 $ 412,857 ====================================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest 589,762 $ 829,487 ====================================================================================================================== Income taxes $ 36,050 $ 12,645 ====================================================================================================================== Supplemental schedule of non-cash financing activity: Financing obligation incurred in connection with the acquisition of equipment $ 143,908 $ 530,938 ====================================================================================================================== See Notes to Consolidated Financial Statements 6
CPI AEROSTRUCTURES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 1. INTERIM The financial statements as of September 30, 2001 and FINANCIAL for the nine months ended September 30, 2001 and 2000 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. In July 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS No. 141) and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No. 142). SFAS No. 141 addresses financial accounting and reporting for business combinations. This statement requires the purchase method of accounting to be used for all business combinations, and prohibits the pooling-of-interests method of accounting. This statement is effective for all business combinations initiated after June 30, 2001 and supercedes APB Opinion No. 16, "Business Combinations" as well as FASB Statement of Financial Accounting Standards No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises". SFAS No. 142 addresses how intangible assets that are acquired individually or with a group of other assets should be accounted for in financial statements upon their acquisition. This statement requires goodwill to be periodically reviewed for impairment rather than amortized, beginning on January 1, 2002. SFAS No. 142 supercedes APB Opinion No. 17, "Intangible Assets". The Company is assessing the impact of adopting these standards on the consolidated financial statements. 7
CPI AEROSTRUCTURES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ----------------------------------------------------------------------------------------------------------------------- 2. COSTS AND Costs and estimated earnings in excess of billings on uncompleted contracts consist of: ESTIMATED EARNINGS IN September 30, 2001 EXCESS OF ----------------------------------------------------------------------------------------- BILLINGS ON UNCOMPLETED U.S. CONTRACTS: Government Commercial Total ----------------------------------------------------------------------------------------- Costs incurred on uncompleted contracts $5,076,743 $12,346,327 $17,423,070 Estimated earnings 1,871,938 7,227,530 9,099,468 ----------------------------------------------------------------------------------------- 6,948,681 19,573,857 26,522,538 Less billings to date 3,698,907 16,159,291 19,858,198 ---------------------------------------------------------------------------------------- Costs and estimated earnings in excess of billings on uncompleted contracts $3,249,774 $3,414,566 $6,664,340 ======================================================================================== December 31, 2000 ---------------------------------------------------------------------------------------- U.S. Government Commercial Total ---------------------------------------------------------------------------------------- Costs incurred on uncompleted contracts $2,920,896 $11,718,432 $14,639,328 Estimated earnings 909,009 6,227,850 7,136,859 ---------------------------------------------------------------------------------------- 3,829,905 17,946,282 21,776,187 Less billings to date 2,156,866 15,215,542 17,372,408 ---------------------------------------------------------------------------------------- Costs and estimated earnings in excess of billings on uncompleted contracts $1,673,039 $ 2,730,740 $ 4,403,779 ======================================================================================== 8
CPI AEROSTRUCTURES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) --------------------------------------------------------------------------------------------------------------------- 3. EARNINGS PER COMMON Basic earnings per share is computed by dividing net income, by the weighted average SHARE: 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. 4. INVENTORY: Inventory consists of the following: Sept. 30, 2001 Dec. 31, 2000 -------------- ------------- Raw Materials $ 787,301 $ 1,665,275 Work-in-Progress 1,386,890 672,979 Finished Goods 770,931 2,646,428 ---------------------------------------------------------------------------------------- $ 2,945,122 $ 4,984,682 ======================================================================================== 5. SEGMENT The Company's operations are classified into two business segments: Production of INFORMATION: complex aerospace structural sub-assemblies ("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, 2001 2000 ---------------------------------------------------------------------------------------- Net sales: Aerospace $ 10,631,958 $ 5,705,100 Machining 6,815,488 16,569,983 ---------------------------------------------------------------------------------------- $17,447,446 $22,275,083 ======================================================================================== Operating income (loss): Aerospace $ 2,470,358 $ 530,185 Machining (1,830,645) 2,047,637 ---------------------------------------------------------------------------------------- $ 639,713 $ 2,577,822 ======================================================================================== Total assets: Aerospace $ 9,508,376 $ 6,402,782 Machining 14,753,697 17,735,812 ---------------------------------------------------------------------------------------- $ 24,262,073 $ 24,138,594 ======================================================================================== 9
CPI AEROSTRUCTURES, INC. ITEM 2. 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, 2001 was $17,447,446 compared to $22,275,083 for the same period last year, representing a decrease of $4,827,637 or 22%. This decrease is largely attributable to the decrease in the demand for board handlers produced by Kolar. Gross profit decreased by $2,242,448 or 40%, from the nine months ended September 30, 2000 compared to the nine months ended September 30, 2001. Gross profit as a percentage of revenue for the nine months ended September 30, 2001 was 20% compared to 25% 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 $304,339, or 10%, from the nine months ended September 30, 2000 compared to the nine months ended September 30, 2001. Interest expense decreased by $28,835 for the nine months ended September 30, 2001, compared to the same period last year. Other expense decreased by $80,659 over last year's other expense. The resulting net loss for the nine months ended September 30, 2001 was $171,053 compared to net income of $994,562 for the same period last year. Basic loss per share was $.06 on 2,652,356 average shares outstanding, compared to $.38 earnings per share on 2,648,509 average shares outstanding for fiscal 2000. Diluted loss per share was to $.06 per share compared to earnings of $.36 per share in 2000 on 2,738,467 and 2,753,467 weighted average shares outstanding, respectively. Material Changes in Financial Condition At September 30, 2001 and December 31, 2000, the Company had working capital of $4,253,422 and $1,948,830 respectively, an increase of $2,268,592. This increase is primarily attributable to the classification of approximately $1,819,000 of long-term debt as current as of December 31, 2000. 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. 10 CPI AEROSTRUCTURES, 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, 2001 was $1,558,501 as compared to $1,118,328 for the nine months ended September 30, 2000. This increase in cash was primarily the result of depreciation and amortization of $1,364,382, a decrease in accounts receivable of $483,057, an increase in accounts payable of $128,982, an increase in accrued expenses of $51,108, and a decrease in inventory of $2,039,560, offset by an increase in costs and estimated earnings in excess of billings on uncompleted contracts of $2,260,561, an increase in prepaid expenses and other current assets of $49,849, and a decrease in income taxes payable of $34,000. PART II. Other Information. ITEM 2. Changes In Securities and Use of Proceeds (c) Recent Sales of Unregistered Securities During the three months ended September 30, 2001, 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 Number Sold Afforded to Registration of Exercise or Date of Sale Title of Security Or Forfeited Purchasers Claimed Conversions ------------------ --------------------- --------------- --------------------- ------------------ ------------------ 08/14/01 Common Stock 200,000 Option to purchase 4(2) Fully exercisable common stock issued upon the date of pursuant to the grant Performance Equity Plan 2000; no cash consideration received by the Company ------------------ --------------------- --------------- --------------------- ------------------ ------------------
ITEM 4. Submission of Matters to a Vote of Security Holders a) An Annual Meeting of Shareholders was held on September 18, 2001 ("Annual Meeting") b) Two matters were voted upon at the Annual Meeting, as follows: 1) Arthur August and Edward J. Fred were re-elected to serve as directors for the ensuing three years and until their successors are elected and qualified with 2,122,148 votes cast for each and 225,192 votes withholding authority for their re-election. 2) The shareholders' voted for an increase in the number of shares available for issuance under the Performance Equity Plan 2000 from 700,000 to 830,000. The votes were 2,011,766 shares voted "For" the increase, 326,978 shares voted "Against" the increase and 8,596 shares "Abstained" from the vote. 11 CPI AEROSTRUCTURES, INC. -------------------------------------------------------------------------------- ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits 10.35 Stock Option Agreement, between the Company and Edward J. Fred, dated August 14, 2001 (1). 10.36 Stock Option Agreement, between the Company and Arthur August, dated August 14, 2001 (2). 10.37 Employment Agreement, between the Company and Edward J. Fred, dated August 14, 2001 (Filed Herewith). 10.38 Employment Agreement, between the Company and Arthur August, dated August 14, 2001 (Filed Herewith). (1) Filed as an exhibit to the Schedule 13D of Edward J. Fred, filed with the Commission on October 19, 2001. (2) Filed as an exhibit to the Schedule 13D of Arthur August, filed with the Commission on October 19, 2001. b) No reports on Form 8-K were filed with the Securities and Exchange Commission during the nine months ended September 30, 2001. 12 ------------------------------------------------------------------------------- SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CPI AEROSTRUCTURES, INC. Dated: November 14, 2001 By: /S/ Arthur August ----------------- Arthur August President (Principal Executive Officer) Dated: November 14, 2001 By: /S/ Edward J. Fred ------------------ Edward J. Fred Chief Financial Officer 13