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, 2003
CPI AEROSTRUCTURES, INC.
(Exact Name of Small Business Issuer as Specified in its Charter)
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
5,112,352 as of July 31, 2003.
CPI AEROSTRUCTURES, INC.
INDEX
________________________________________________________________________________
Part I: Financial Information:
Item 1 - Condensed Consolidated Financial Statements:
Independent Accountant's Report 3
Balance Sheets as of June 30, 2003 (Unaudited) and 4
December 31, 2002
Statements of Income for the Three Months and Six Months ended
June 30, 2003 (Unaudited) and 2002 (Unaudited) 5
Statements of Cash Flows for the Six Months ended June 30, 2003
(Unaudited) and 2002 (Unaudited) 6
Notes to Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 - Controls and Procedures 14
Part II. Other
Item 2 - Changes in Securities and Use of Proceeds 14
Item 4 - Submission of Matters to a vote of Security Holders 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures and Certifications 16
2
CPI AEROSTRUCTURES, INC.
________________________________________________________________________________
Part I: Financial Information:
Item 1 - Consolidated Financial Statements
INDEPENDENT ACCOUNTANTS' 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, 2003, and the related
condensed consolidated statements of income for the three-month and six-month
periods ended June 30, 2003 and 2002 and the condensed consolidated statements
of cash flows for the six-month periods ended June 30, 2003 and 2002. 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 and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the condensed consolidated 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 condensed consolidated financial statements referred to above in
order for them to be in conformity with accounting principles generally accepted
in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of CPI
Aerostructures, Inc. and Subsidiary as of December 31, 2002, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated February 4,
2003, except for the second paragraph of Note 15 and Note 16, as to which the
date is February 19, 2003, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 2002,
is fairly stated in all material respects, in relation to the consolidated
balance sheet from which it is derived.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
July 17, 2003
3
CPI AEROSTRUCTURES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
________________________________________________________________________________
June 30, December 31,
2003 2002
(Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $2,981,271 $ 91,537
Accounts receivable 2,393,412 2,331,775
Costs and estimated earnings in excess of billings on uncompleted
contracts 13,323,751 11,382,106
Deferred income taxes, net of valuation allowance of $231,000 and 651,000 651,000
$900,000, respectively
Prepaid expenses and other current assets 47,570 465,498
Assets held for sale - discontinued operations --- 280,676
------------------------------------------------------------------------------------------------------------------------------------
Total current assets 19,397,004 15,202,592
Property, plant and equipment, net 254,602 222,928
Deferred income taxes, net of valuation allowance of $1,268,000
and $2,910,000, respectively --- ---
Other assets 179,226 179,226
------------------------------------------------------------------------------------------------------------------------------------
Total assets $19,830,832 $15,604,746
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,123,314 $ 4,574,678
Accrued expenses 168,283 628,180
Current portion of long-term debt 50,172 8,024,160
------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,341,769 13,227,018
Long-term debt 35,050 40,192
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 4,376,819 13,267,210
------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Common stock - $.001 par value; authorized 50,000,000 shares,
5,110,852 and 2,785,668 issued and outstanding 5,111 2,786
Additional paid - in capital 20,468,453 12,613,974
Accumulated deficit (5,019,551) (10,279,224)
------------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 15,454,013 2,337,536
------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $19,830,832 $15,604,746
====================================================================================================================================
See Notes to Condensed Consolidated Financial Statements
4
CPI AEROSTRUCTURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
________________________________________________________________________________
For the Three Months Ended June 30, For the Six Months Ended June 30,
2003 2002 2003 2002
(Unaudited) (Unaudited)
------------------------------------------------------------------------------------------------------------------------
Revenue $6,894,217 $6,208,350 $12,901,664 $10,900,134
Cost of sales 4,878,787 4,381,557 8,720,333 7,670,960
------------------------------------------------------------------------------------------------------------------------
Gross profit 2,015,430 1,826,793 4,181,331 3,229,174
Selling, general and administrative expenses 916,401 604,903 1,639,320 1,024,774
------------------------------------------------------------------------------------------------------------------------
Income from operations 1,099,029 1,221,890 2,542,011 2,204,400
------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest/other income 5,110 13,961 7,764 4,260
Interest expense (1,668) (91,592) (141,334) (132,968)
Gain on extinguishment of debt ----- ----- 2,431,233 -----
------------------------------------------------------------------------------------------------------------------------
Total other income (expenses), net 3,442 (77,631) 2,297,663 (128,708)
------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,102,471 1,144,259 4,839,674 2,075,692
Gain on sale of assets held for sale
- discontinued operations 166,667 ----- 419,999 -----
------------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 1,269,138 1,144,259 5,259,673 2,075,692
Provision for income taxes ----- (157,000) ----- (530,000)
-----------------------------------------------------------------------------------------------------------------------
Net income $1,269,138 $987,259 $5,259,673 $ 1,545,692
========================================================================================================================
Basic net income per common share:
Income from continuing operations $ 0.22 $ 0.36 $1.08 $ 0.58
Gain on sale of assets held for sale
- discontinued operations 0.03 ----- 0.09 -----
------------------------------------------------------------------------------------------------------------------------
Earnings per common share - basic $ 0.25 $ 0.36 $1.17 $ 0.58
========================================================================================================================
Diluted net income per common share:
Income from continuing operations $ 0.19 $ 0.31 $0.97 $ 0.51
Gain on sale of assets held for sale
- discontinued operations 0.03 ----- 0.08 -----
------------------------------------------------------------------------------------------------------------------------
Earnings per common share - diluted $ 0.22 $ 0.31 $1.05 $ 0.51
========================================================================================================================
Shares used in computing earnings per common share:
Basic 5,110,852 2,709,556 4,483,302 2,683,446
Diluted 5,763,975 3,214,339 5,029,016 3,004,859
------------------------------------------------------------------------------------------------------------------------
See Notes to Condensed Consolidated Financial Statements
5
CPI AEROSTRUCTURES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
________________________________________________________________________________
For the Six Months Ended June 30, 2003 2002
(Unaudited)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income from continuing operations $4,839,674 $1,545,692
Adjustments to reconcile net income from continuing operations to net
cash used in operating activities:
Depreciation and amortization 55,709 19,782
Warrants issued for consulting fees 15,663 3,638
Common stock issued for bank fees 84,473 13,109
Gain on extinguishment of debt (2,431,233) -----
Deferred portion of provision for income taxes --- 530,000
Changes in operating assets and liabilities:
(Increase) Decrease in accounts receivable (61,637) 519,912
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (1,941,645) (1,652,570)
Decrease in prepaid expenses and other current assets 417,928 31,053
Decrease in other assets ----- 1,000
Decrease in accounts payable and accrued expenses (911,261) (1,213,472)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 67,671 (201,856)
Cash used in investing activities - purchase of property, plant and equipment (87,383) (18,379)
------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net repayment of long-term debt (5,547,898) (2,641,081)
Proceeds from exercise of stock options ----- 84,102
Proceeds from public offering 7,756,668 ---
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,208,770 (2,556,979)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operations 2,189,058 (2,777,214)
Net cash from discontinued operations 700,676 2,904,965
------------------------------------------------------------------------------------------------------------------------
Net increase in cash 2,889,734 127,751
Cash at beginning of period 91,537 180,578
------------------------------------------------------------------------------------------------------------------------
Cash at end of period $2,981,271 $ 308,329
========================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $62,552 $ 79,635
========================================================================================================================
Income taxes $8,410 $ 13,355
========================================================================================================================
See Notes to Condensed Consolidated Financial Statements
6
CPI AEROSTRUCTURES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
________________________________________________________________________________
1. INTERIM FINANCIAL STATEMENTS:
The financial statements as of June 30, 2003 and for the six months
ended June 30, 2003 and 2002 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.
The Company has elected to apply Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its stock options issued to
employees (intrinsic value) and has adopted the disclosure-only
provisions of Statement of Financial Accounting Standards ("SFAS") No.
123, Accounting for Stock-Based Compensation. Had the Company elected
to recognize compensation cost based on the fair value of the options
granted at the grant date as prescribed by SFAS No. 123, the Company's
net income and income per common share would have been adjusted as
follows:
Three months ended June 30, 2003 2002
----------------------------------------------------------------------
Net income - as reported $1,269,138 $ 987,259
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 165,515 1,233,910
----------------------------------------------------------------------
Net income (loss) - pro forma $1,103,623 $(246,651)
======================================================================
Basic income per share - as reported .25 $ 0.36
Basic income (loss) per share - pro forma $ 0.22 $ (0.09)
Diluted income per share - as reported $ 0.22 $ 0.31
Diluted income (loss) per share - pro forma $ 0.19 $ (0.09)
======================================================================
Six months ended June 30, 2003 2002
----------------------------------------------------------------------
Net income - as reported $5,259,673 $1,545,692
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 240,334 1,695,092
----------------------------------------------------------------------
Net income (loss) - pro forma $5,019,339 $(149,400)
======================================================================
Basic income per share - as reported $ 1.17 $ 0.58
Basic income (loss) per share - pro forma $ 1.12 $ (0.06)
Diluted income per share - as reported $ 1.05 $ 0.51
Diluted income (loss) per share - pro forma $ 1.00 $ (0.06)
======================================================================
7
CPI AEROSTRUCTURES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
________________________________________________________________________________
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:
June 30, 2003
---------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
Costs incurred on uncompleted
contracts $19,547,992 $13,154,080 $32,702,072
Estimated earnings 9,635,613 6,004,765 15,640,378
-----------------------------------------------------------------------------------------
29,183,605 19,158,845 48,342,450
Less billings to date 17,889,440 17,129,259 35,018,699
-----------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $11,294,165 $2,029,586 $13,323,751
=========================================================================================
December 31, 2002
----------------------------------------------------------------------------------------
U.S.
Government Commercial Total
----------------------------------------------------------------------------------------
Costs incurred on uncompleted
contracts $13,272,589 $13,068,603 $26,341,192
Estimated earnings 6,508,822 5,969,156 12,477,978
-----------------------------------------------------------------------------------------
19,781,411 19,037,759 38,819,170
Less billings to date 10,429,184 17,007,880 27,437,064
-----------------------------------------------------------------------------------------
Costs and estimated earnings
in excess of billings on
uncompleted contracts $9,352,227 $ 2,029,879 $11,382,106
=========================================================================================
8
CPI AEROSTRUCTURES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
________________________________________________________________________________
3. EARNINGS PER COMMON SHARE:
Basic earnings per common share are computed using the weighted average
number of shares outstanding. Diluted earnings per common share is computed
using the weighted-average number of shares outstanding adjusted for the
incremental shares attributed to outstanding options and warrants to
purchase common stock. Incremental shares of 653,123 and 545,714 were used
in the calculation of diluted earnings per common share in the three-month
and six-month periods, ended June 30, 2003, respectively.
4. DEBT and EQUITY:
Debt consists of the following:
June 30, 2003 December 31, 2002
----------------------------------------------------------------------------
Notes payable - banks ----- $3,017,572
Note payable - seller ----- 4,898,034
Capitalized lease
obligations payable $ 85,222 148,746
----------------------------------------------------------------------------
85,222 8,064,352
Less current portion 50,172 8,024,160
----------------------------------------------------------------------------
Long-term debt $ 35,050 $ 40,192
============================================================================
The Company leases equipment under capital leases, which expire at various
dates through December 2007. The leases require monthly aggregate payments
of $11,064, including interest at 9.35%. Proceeds of approximately $674,000
were received during 2002 upon the sale of certain leased equipment, which
amount was remitted to the owners of the equipment.
At December 31, 2002, the Company had in place three notes payable to banks
and a note payable - seller, related to its discontinued Kolar, Inc.
operation. The notes payable - banks were each collateralized and called
for monthly installments, each under independent terms and conditions. The
note payable -- seller totaled approximately $4,898,000.
In February 2003, the Company consummated the public offering of 2,300,000
shares of common stock, which provided the Company with net proceeds of
$7,662,000.
Each of the notes payable to banks and the note payable - seller were
extinguished in conjunction with the February 2003 public offering of the
Company's common stock. In conjunction with the repayment of the note
payable -- seller, the Company recognized a gain of $2,431,233.
5. INCOME TAXES:
There was no provision for income taxes for the quarter ended June 30, 2003
due to the utilization of federal and state net operating loss
carryforwards.
6. CONTINGENCIES:
In connection with the publication of a newspaper article about the Company
prior to the public offering of 2,300,000 common shares on February 19,
2003, the Company may, upon the occurrence of certain future events through
February 19, 2004, be required to return to certain investors all or part
of their purchase price. The net proceeds to the Company from the offering
therefore could be reduced.
9
CPI AEROSTRUCTURES, INC.
Item2- Management's Discussion and Analysis of Financial Condition and
Results of Operations
________________________________________________________________________________
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and footnotes thereto contained in this
report.
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.
Critical Accounting Policies
Revenue Recognition
Revenue is recognized from contracts over the life of the contract utilizing the
percentage-of-completion (POC) method of accounting. Under the POC method of
accounting, revenue and gross profit are recognized as work is performed, based
on the relationship between actual costs incurred and total estimated costs at
the completion of the contract. Recognized revenue that will not be billed under
the terms of the contract until a later date are recorded as an asset captioned
"Costs and estimated earnings in excess of billings on uncompleted contracts."
Changes to the original estimates may be required during the life of the
contract. Estimates are reviewed monthly and the effect of any change in the
estimated gross margin percentage for a contract is reflected in cost of sales
in the period the change becomes known. The use of the POC method of accounting
involves considerable use of estimates in determining revenue, costs and profits
and in assigning the amounts to accounting periods. We continually evaluate all
of the issues related to the assumptions, risks and uncertainties inherent with
the application of the POC method of accounting.
Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. We record a valuation allowance that represents federal
and state operating loss carryforwards for which utilization is uncertain.
Management judgment is required in determining our provision for income taxes,
deferred tax assets and liabilities and the valuation allowance recorded against
our net deferred tax assets. The valuation allowance would need to be adjusted
in the event future taxable income is materially different than amounts
estimated. Valuation allowances of $1,499,000 and $3,810,000 have been recorded
against our deferred tax assets at June 30, 2003 and December 31, 2002,
respectively.
Material Changes in Results of Operations
The Company's revenue, for the three months ended June 30, 2003 was $6,894,217,
compared with $6,208,350 for the three months ended June 30, 2002, an increase
of $685,867, or 11%. For the six months ended June 30, 2003, revenue increased
$2,001,530, or 18% to $12,901,664, compared to $10,900,134 for the same period
last year.
The increases in both the three-month and six-month periods are primarily due to
the increase in the value of government contracts awarded to the Company. During
the second quarter of this year, new contract awards were $7.5 million, compared
with $5.7 million in the same quarter last year. For the six months ended June
30, 2003, new contract awards totaled $19.4 million, an increase of $6.1 million
or 46%, compared with last year's new contract awards of $13.3 million.
10
CPI AEROSTRUCTURES, INC.
Item2- Management's Discussion and Analysis of Financial Condition and
Results of Operations
________________________________________________________________________________
Gross profit for the three months ended June 30, 2003 was $2,015,430, or 29% of
revenue, compared with $1,826,793, or 29% of revenue for the quarter ended June
30, 2002. For the six months ended June 30, 2003 gross profit was $4,181,331, or
32% of revenue, compared with $3,229,174, or 30% of revenue for the first six
months of last year. The improvement in gross profit margin as a percentage of
sales is due primarily to a more favorable product mix.
Selling, general, and administrative expenses for the three months ended June
30, 2003 were $916,401, or 13% of revenue, compared with $604,903, or 10% of
revenues for the same period last year. For the six-month period ended June 30,
2003, selling, general and administrative expenses were $1,639,320, or 13% of
revenue, compared with $1,024,774, or 11% of revenues for the same period last
year.
During the quarter ended June 30, 2003, selling, general and administrative
expenses increased reflecting our higher level of business activity with
increased costs in salaries, bonuses, travel and entertainment and public
relations costs. For the six months ended June 30, 2003, selling, general and
administrative expenses increased reflecting higher banking, legal and
accounting fees associated with the early extinguishment of the debt, as well as
the increased costs associated with the higher level of business activity
mentioned above.
The resulting income from operations, for the three months ended June 30, 2003
was $1,099,029, or 16% of revenue, compared with $1,221,890, or 20% of revenue
for the same period last year. For the six months ended June 30, 2003, income
from operations was $2,542,011, or 20% of revenue, compared with $2,204,400, or
20% of revenue for the same period last year.
Interest expense for the three months ended June 30, 2003 was $1,668, compared
with $91,592 for the same period last year. Interest expense for the six months
ended June 30, 2003 was $141,334, compared with $132,968 for the same period
last year. In February of 2003, the Company's early extinguishment of
approximately $2,433,000 of bank debt resulted in larger interest charges in the
first quarter of fiscal 2003, however, the second quarter of fiscal 2003
benefited from the significant reduction in interest bearing debt. Included in
other income for the six months ended June 30, 2003, is a gain of $2,431,233
from the early extinguishment of a note payable-seller.
Income from continuing operations for the three months ended June 30, 2003 was
$1,102,471, or 16% of revenue, as compared with $1,144,259, or 18% of revenue
for the same period last year. For the six months ended June 30, 2003, income
from continuing operations was $4,839,674, or 38% of revenue, compared with
$2,075,692, or 19% of revenue for the same period last year. The increase in
income from continuing operations for the six-month period reflects a gain on
the early extinguishment of debt of $2,431,233 which was realized in conjunction
with the public offering of 2,300,000 shares of the Company's common stock in
February 2003 as well as the variations discussed above.
During the first and second quarters of fiscal 2003, the Company realized one
time gains on the disposal of assets held for sale - discontinued operations of
$253,332 and $166,667, respectively compared to no such amounts in the prior
year periods.
As a result, income before provision for income taxes for the three months ended
June 30, 2003 was $1,269,138, or 18% of revenue, compared with $1,144,259, or
18% of revenue for the same period last year. For the six months ended June 30,
2003, income before provision for income taxes was $5,259,673, or 41% of
revenue, compared with $2,075,692, or 19% of revenue for the same period last
year. Due to losses incurred in prior years, the Company was able to partially
realize the benefit of its net operating loss carryforward during the quarter
and six month periods, resulting in a reversal of a previously established
valuation allowance and no provision for taxes for the three-month and six-month
periods ended June 30, 2003.
11
CPI AEROSTRUCTURES, INC.
Item2- Management's Discussion and Analysis of Financial Condition and
Results of Operations
________________________________________________________________________________
Net income for the quarter was $1,269,138, or $0.25 per share, compared with
$987,259, or $0.36 per share for the same period last year. For the six months
ended June 30, 2003, net income was $5,259,673, or $1.17 per share, compared
with $1,545,692, or $0.58 per share for the same period last year.
Diluted earnings per share, for the three months ended June 30, 2003, were
$0.22, calculated utilizing 5,763,975 diluted average shares outstanding for the
period, compared with diluted net income per share of $0.31, calculated
utilizing 3,214,339 diluted average shares outstanding for the same period last
year.
Diluted earnings per share, for the six months ended June 30, 2003, were $1.05,
calculated utilizing 5,029,016 diluted average shares outstanding for the
period, compared with diluted net income per share of $0.51, calculated
utilizing 3,004,859 diluted average shares outstanding for the same period last
year.
Material Changes in Financial Condition
At June 30, 2003, the Company had working capital of $15,055,235, compared with
$1,975,574, at December 31, 2002, an increase of $13,079,661. This increase is
primarily attributable to the public offering of 2,300,000 shares of common
stock consummated in February 2003, which provided the Company with net proceeds
of $7,662,000 and year to date net income of $5,259,673. The net proceeds of the
offering were used to repay approximately $2,433,000 of the Company's bank debt,
and approximately $4,898,000 of note payable - seller, at a discount of
$2,431,000, plus accrued interest of approximately $233,000. The discount was
recorded as a gain on the early extinguishment of the note payable-seller. The
remaining net proceeds of the public offering of $2,529,000 were available to
fund continuing operations.
A large portion of the Company's cash is used in paying for materials and
processing costs associated with contracts that are in process and which do not
provide for progress payments. These costs are components of "Costs and
estimated earnings in excess of billings on uncompleted contracts" on the
Company's balance sheet 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.
Net cash provided by operating activities for the six-month period ended June
30, 2003 was $67,671, compared with net cash used in operating activities of
$201,856 for the same period last year.
Liquidity and Capital Resources
The Company currently finances its operations through a combination of existing
resources and cash provided by operations. Liquidity and capital resources were
significantly improved as a result of the consummation of the public offering in
February 2003.
The Company is presently negotiating with certain bank lenders to establish a
new revolving credit facility that will give the Company greater flexibility.
The Company believes that the cash flow generated by operating activities and
the availability of the additional facility will provide sufficient resources to
meet the growing needs of the Company for the foreseeable future.
12
CPI AEROSTRUCTURES, INC.
Item2- Management's Discussion and Analysis of Financial Condition and
Results of Operations
________________________________________________________________________________
Contractual Obligations
The table below summarizes contractual obligations as of June 30, 2003 and the
effects these obligations are expected to have on liquidity and cash flow in the
future years.
Contractual Obligations Payments Due By Period ($)
------------------------------------- --------------------------------------------------------------------------------------
Total Less than 1-3 years 4-5 years After 5 years
1 year
------------------------------------- ----------------- ---------------- ----------------- --------------- -----------------
Short-Term Debt -0- -0- -0- -0- -0-
------------------------------------- ----------------- ---------------- ----------------- --------------- -----------------
Capital Lease Obligations 85,222 50,172 19,977 15,073 -0-
------------------------------------- ----------------- ---------------- ----------------- --------------- -----------------
Operating Leases -0- -0- -0- -0- -0-
------------------------------------- ----------------- ---------------- ----------------- --------------- -----------------
Employment Agreement Compensation * 1,370,780 624,640 746,140 -0- -0-
------------------------------------- ----------------- ---------------- ----------------- --------------- -----------------
Total Contractual Cash Obligations 1,456,002 674,812 766,117 15,073 -0-
------------------------------------- ----------------- ---------------- ----------------- --------------- -----------------
* The employment agreements provide for bonus payments that are excluded from
these amounts.
13
CPI AEROSTRUCTURES, INC.
________________________________________________________________________________
Item 3. - Controls and Procedures
An evaluation of the effectiveness of the Company's disclosure controls and
procedures as of June 30, 2003 was made under the supervision and with the
participation of the Company's management, including the chief executive
officer and chief financial officer. Based on that evaluation, they
concluded that the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.
During the most recently completed fiscal quarter, there has been no
significant change in the Company's internal control over financial
reporting that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
Part II: Other
Item 2. - Change in Securities and Use of Proceeds
c) Recent sale of Unregistered Securities
During the three months ended June 30, 2003, the Company made the following
sales of unregistered securities:
Consideration Received
and Description of
Underwriting or Other Exemption
Discounts to Market from
Date of Title of Number Sold Price Afforded to Registration If Option, Warrant or Convertible
Sale Security or Forfeited Purchaser Claimed Security, Terms of Exercise or Conversions
----------- ----------- ------------- ------------------------- --------------- -------------------------------------------
4/4/03 Common 5,184 Common Shares issued to 4(2) N/A
Shares former investment
banker upon exercise of
warrants; no cash
consideration received
by the company.
----------- ----------- ------------- ------------------------- --------------- -------------------------------------------
4/1/03 to Common 100,000 Options to purchase 4(2) 35,000 exercisable on the date of grant;
6/12/03 Stock common stock issued 15,000 exercisable on the one year
pursuant to the 1995 anniversary of grant. In both cases
Stock Option Plan and options have a five-year term. 50,000
the Performance Equity exercisable one-half on the first
Plan 2000; no cash anniversary of the date of grant and
consideration received one-half on the second anniversary of the
by the Company date of grant, with a ten-year term.
Option prices range from $6.45 to $7.19
per share.
----------- ----------- ------------- ------------------------- --------------- -------------------------------------------
14
CPI AEROSTRUCTURES, INC.
________________________________________________________________________________
Item 4. - Submission of Matters to a vote of Security Holders
a) An Annual Meeting of Shareholders was held on June 12, 2003 ("Annual
Meeting")
b) The election of directors was the only matter voted upon at the Annual
Meeting as follows:
A.C.Providenti was re-elected to serve as a director until the Company's
annual meeting in 2005 and until his successor is elected and qualified.
Eric Rosenfeld and Walter Paulick were re-elected to serve as directors
until the Company's annual meeting in 2006 and until his successor is
elected and qualified. For all three directors, 4,603,135 votes were cast
in favor of the re-election and 11,388 votes withheld authority. Arthur
August, Edward J. Fred and Kenneth McSweeney's term of offices as directors
continued after the meeting.
Item 6 - Exhibits and Reports on Form 8 - K
a) Exhibit 31--Rule 13a-14 (a) and 15d-14 (a) Certifications Exhibit
32--Section 1350 Certifications
b) During the three months ended June 30, 2003, no Current Reports on Form
8-K, were filed by the Company.
15
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
CPI AEROSTRUCTURES, INC.
Dated: August 7, 2003 By: /S/ Edward J. Fred
-----------------------------
Edward J. Fred
Chief Executive Officer, President,
(Principal Executive Officer),
Secretary and Director
Dated: August 7, 2003 By: /S/ Anthony M. D'Agostino
-----------------------------
Anthony M. D'Agostino
Chief Financial Officer,
(Principal Accounting and Financial Officer)