--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
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, 2002
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 common shares, par value $.001 per share, outstanding was
2,785,668 as of December 13, 2002.
CPI AEROSTRUCUTRES, INC.
AND SUBSIDIARY
INDEX
--------------------------------------------------------------------------------
PART I - Financial Information
ITEM 1. Consolidated Financial Statements
Independent Accountant's Review Report 3
Balance Sheets as of September 30, 2002 (Unaudited) and 4
December 31, 2001 (Audited)
Statements of Operations for the Three Months and Nine Months 5
ended September 30, 2002 (Unaudited) and 2001 (Unaudited)
Statements of Cash Flows for the Nine Months ended
September 30, 2002 (Unaudited) and 2001 (Unaudited) 6
(Unaudited) and 2001 (Unaudited)
Notes to Financial Statements (Unaudited) 7
ITEM 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
ITEM 3. Controls and Procedures 13
PART II - Other Information
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
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
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 consolidated balance sheet of CPI
Aerostructures, Inc. and Subsidiary as of September 30, 2002, and the related
consolidated statements of operations for the nine-month and three-month periods
ended September 30, 2002 and 2001 and the statement of cash flows for the
nine-month periods ended September 30, 2002 and 2001. 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 in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the 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 accompanying consolidated financial statements in order for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
December 31, 2001, and the related consolidated statements of operations,
shareholders' deficiency, and cash flows for the year then ended (not presented
herein); and in our report dated March 29, 2002, except for the last paragraph
of Note 5, as to which the date is April 12, 2002, 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, 2001, is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ Goldstein Golub Kessler LLP
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 24, 2002, except for Note 5,
provision (d), as to which the date is
December 13, 2002
3
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
September 30, December 31,
2002 2001
(Unaudited) (Audited)
------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash $ 121,002 $ 180,578
Accounts receivable 2,852,597 2,168,369
Costs and estimated earnings in excess of billings on uncompleted
contracts 10,214,846 6,967,385
Deferred Income Taxes, net of valuation allowance 253,000 758,000
Prepaid expenses and other current assets 23,745 84,895
Assets held for sale - discontinued operations 280,676 3,217,984
------------------------------------------------------------------------------------------------------------------------
Total current assets 13,745,866 13,377,211
Property, Plant and Equipment, net 110,340 101,260
Deferred Income Taxes, net of valuation allowance ----- 172,000
Other Assets 179,226 180,226
------------------------------------------------------------------------------------------------------------------------
Total Assets $ 14,035,432 $ 13,830,697
========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable $ 4,985,799 $ 4,195,530
Accrued expenses 152,692 535,054
Line of credit ----- 1,700,000
Debt 8,341,071 9,607,284
Deferred income taxes ----- 147,000
------------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,479,562 16,184,868
------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' Equity (Deficiency):
Common shares- $.001 par value; authorized 50,000,000 shares, issued and
outstanding 2,735,670 and 2,657,046; preferred shares, authorized 5,000,000
shares, none
issued and outstanding 2,736 2,657
Additional paid - in capital 12,483,092 12,367,020
Accumulated deficit (11,929,958) (14,723,848)
------------------------------------------------------------------------------------------------------------------------
Shareholders' equity (deficiency): 555,870 (2,354,171)
------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity (Deficiency) $ 14,035,432 $ 13,830,697
========================================================================================================================
See Notes to Consolidated Financial Statements
4
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
For the Three Months Ended Sept. 30, For the Nine Months Ended Sept. 30,
2002 2001 2002 2001
(Unaudited) (Unaudited)
------------------------------------------------------------------------------------------------------------------------
Revenue $7,088,614 $4,549,873 $17,988,748 $10,631,958
Cost of sales 4,878,932 2,865,814 12,549,892 7,015,993
------------------------------------------------------------------------------------------------------------------------
Gross profit 2,209,682 1,684,059 5,438,856 3,615,965
Selling, general and administrative expenses 775,867 307,360 1,800,641 1,145,607
------------------------------------------------------------------------------------------------------------------------
Income from operations 1,433,815 1,376,699 3,638,215 2,470,358
------------------------------------------------------------------------------------------------------------------------
Other (income) expense:
Interest/other (income) expense 618 (821) (3,642) 9,223
Interest expense 185,997 45,389 318,965 126,707
------------------------------------------------------------------------------------------------------------------------
Total other expenses, net 186,615 44,568 315,323 135,930
------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
provision for income taxes 1,247,200 1,332,131 3,322,892 2,334,428
Provision for income taxes 1,000 (534,000) (529,000) (934,000)
------------------------------------------------------------------------------------------------------------------------
Income before operations of discontinued segment 1,248,200 798,131 2,793,892 1,400,428
Loss from operations of discontinued segment ----- (245,997) ----- (1,571,481)
------------------------------------------------------------------------------------------------------------------------
Net income (loss) $1,248,200 $ 552,134 $2,793,892 $(171,053)
========================================================================================================================
Basic net income (loss) per common share:
Income before operations of discontinued
segment $ .46 $ .30 $ 1.03 $ .53
Loss from operations of discontinued segment ----- (.09) ----- (.59)
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share - basic $ .46 $ .21 $ 1.03 $ (.06)
========================================================================================================================
Diluted net income per common share:
Income before operations of discontinued
segment $ .38 $ .30 $ .89 $ -----
Loss from operations of discontinued segment ----- (.09) ----- -----
------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per common share - diluted $ .38 $ .21 $ .89 $ -----
========================================================================================================================
Shares used in computing earnings per common share:
Basic 2,734,898 2,657,046 2,700,785 2,652,355
Diluted 3,299,098 2,690,380 3,136,626 2,652,355
------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements
5
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
ONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
For the Nine Months Ended September 30, 2002 2001
(Unaudited)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income before operations of discontinued segment $2,793,892 $1,400,428
Adjustments to reconcile net income before operations of discontinued segment
to net cash used in operating activities:
Depreciation and amortization 30,931 26,362
Warrants issued for consulting fees 5,782 47,346
Stock issued for bank fees 26,267 -----
Loss on disposal of fixed assets ----- 6,158
Deferred portion of provision for income taxes 530,000 -----
Changes in operating assets and liabilities:
Increase in accounts receivable (684,228) (326,206)
Decrease in income tax refund receivable ----- -----
Increase in costs and estimated earnings in excess of billings on
uncompleted contracts (3,247,461) (2,260,561)
Decrease in prepaid expenses and other current assets 61,150 9,968
Decrease (increase) in other assets 1,000 (1,000)
Increase in accounts payable and accrued expenses 407,905 180,090
Decrease in income taxes payable ----- (34,000)
-------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (74,762) (951,414)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment (40,011) (14,507)
Proceeds from sale of fixed assets ----- 1,800
-------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (40,011) (12,707)
-------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment from line of credit ----- -----
Repayment of long-term debt (2,966,213) (1,274,018)
Proceeds from exercise of stock options 84,102 -----
-------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (2,882,111) (1,274,018)
-------------------------------------------------------------------------------------------------------------------------
Net cash used in continuing operations (2,996,884) (2,238,139)
Net cash provided by discontinued operations 2,937,308 2,386,569
-------------------------------------------------------------------------------------------------------------------------
Net increase in (decrease) cash (59,576) 148,430
Cash at beginning of period 180,578 62,979
-------------------------------------------------------------------------------------------------------------------------
Cash at end of period $ 121,002 $ 211,409
=========================================================================================================================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 167,015 $ 589,762
=========================================================================================================================
Income taxes $ 13,355 $ 36,050
=========================================================================================================================
Supplemental schedule of non-cash financing activity:
Financing obligation incurred in connection with the acquisition of equipment $ ----- $ 143,908
=========================================================================================================================
See Notes to Consolidated Financial Statements
6
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. INTERIM The financial statements as of September 30, 2002 and for
FINANCIAL the nine months ended September 30, 2002 and 2001 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 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
ESTIMATED uncompleted contracts consist of:
EARNINGS IN
EXCESS OF
BILLINGS ON
UNCOMPLETED
CONTRACTS:
September 30, 2002
------------------------------------------------------------
U.S.
Government Commercial Total
------------------------------------------------------------
Costs incurred on
uncompleted
contracts $18,413,197 $13,017,710 $31,430,907
Estimated earnings 7,810,645 5,947,898 13,758,543
------------------------------------------------------------
26,223,842 18,965,608 45,189,450
Less billings to
date 18,063,324 16,911,280 34,974,604
------------------------------------------------------------
Costs and
estimated earnings
in excess of
billings on
uncompleted
contracts $ 8,160,518 $ 2,054,328 $10,214,846
============================================================
December 31, 2001
------------------------------------------------------------
U.S.
Government Commercial Total
------------------------------------------------------------
Costs incurred on
uncompleted
contracts $7,359,234 $12,485,185 $19,844,419
Estimated earnings 2,040,413 6,728,158 8,768,571
------------------------------------------------------------
9,399,647 19,213,343 28,612,990
Less billings to
date 5,425,681 16,219,924 21,645,605
------------------------------------------------------------
Costs and
estimated earnings
in excess of
billings on
uncompleted
contracts $3,973,966 $ 2,993,419 $ 6,967,385
============================================================
7
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
3. EARNINGS PER Basic earnings per common share is computed using the
COMMON SHARE: 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
564,200 and 435,841 were used in the calculation of diluted
earnings per common share in the nine-month and three-month
periods, respectively, ended September 30, 2002.
The convertible securities attributable to a note payable
have been excluded from the fully diluted computation as
their effect would be antidilutive.
4. DISCONTINUED On January 22, 2002, the Company announced a decision made
OPERATIONS: by the Board of Directors as of December 31, 2001 to close
the Kolar facilities located in Ithaca, New York, and
liquidate its assets through a public auction of its
machinery and equipment and the private sale of its real
estate. On February 21, 2002, Kolar sold a substantial
portion of its machinery and equipment at an auction
conducted by Daley-Hodkin Corporation at Kolar's main
facility in Ithaca, New York. Proceeds from actual sales of
machinery, equipment and real property approximated
$2,905,000 as of September 30, 2002. The disposition of
Kolar's operations represents a disposal of a business
segment under Accounting Principles Board ("APB") Opinion
No. 30. Accordingly, results of the operation have been
classified as discontinued, and prior periods have been
restated. For business segment reporting purposes, Kolar's
business results were previously classified as the
"Machining" segment.
Net sales and income (loss) from the discontinued operations
are as follows:
For the nine months ended September 30, 2002 2001
------------------------------------------------------------
Net sales $ --- $6,840,056
============================================================
Pretax loss from discontinued
operations $ --- $2,505,481
Income tax benefit --- 934,000
------------------------------------------------------------
Net loss from discontinued operations $ --- $1,571,481
============================================================
For the three months ended September 30, 2002 2001
------------------------------------------------------------
Net sales $ --- $2,624,512
============================================================
Pretax loss from discontinued
operations $ --- $ 779,997
Income tax benefit --- 534,000
------------------------------------------------------------
Net loss from discontinued operations $ --- $ 245,997
============================================================
Assets of the discontinued operations are as follows:
September 30, 2002
------------------------------------------------------------
Property, plant and equipment, net $ 280,676
============================================================
8
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
5. DEBT: Debt consists of the following:
Note payable - bank (a) $2,431,571
Note payable - bank (b) 259,077
Note payable - bank (c) 624,484
Note payable - Seller (d) 4,898,035
Capitalized lease obligations payable (e) 127,904
------------------------------------------------------------
$ 8,341,071
============================================================
(a) The note, as amended in June 2002, is payable to a
commercial bank in monthly installments from $50,000 to
$100,000 through May 30, 2003, and the remaining unpaid
balance at June 30, 2003, plus monthly interest at the
bank's published prime rate (4.75% at September 30,
2002) plus 3.5%. This note is collateralized by
substantially all of the assets of the Company.
Approximately $1,249,000 of this loan was repaid upon
the sale of certain assets at auction. The note
requires the Company to maintain specified levels of
working capital and other financial ratios, as defined.
The line of credit of $1,700,000 previously listed
separately on the balance sheet is now incorporated
into this note.
(b) The note is payable to a commercial bank in monthly
installments of $9,847, including interest at 8.3%.
This note is collateralized by Kolar's land and
buildings. The Company sold certain of the underlying
land and buildings during 2002 at an aggregate selling
price of approximately $555,000. The Company estimates
that the sale of the remaining land and buildings will
yield proceeds sufficient to repay the note in full.
(c) The note is payable to a commercial bank in monthly
installments of $20,000 through May 30, 2003, and the
remaining unpaid balance at June 30, 2003, plus monthly
interest at the bank's published prime rate (4.75% at
September 30, 2002) plus 3.5%. This note is
collateralized by substantially all of the assets of
the Company and was previously included in the
capitalized lease obligations payable of the Company.
(d) In 1997, the Company acquired substantially all of the
assets of Kolar Machine Inc. The acquisition was
partially financed through a $4,000,000 note payable to
the seller ("Seller") of Kolar Machine Inc. As amended,
the note payable to Seller will mature on September 30,
2003, unless the maturity date of the bank loans is
extended, in which case the note will mature 90 days
after the extended maturity date of the bank loans,
but not later than September 30, 2007. The note payable
to the Seller bears interest at 8% per annum. The note
matures on September 30, 2003. Until then, it will
continue to accrue interest, which will be paid at
maturity together with the principal amount, pursuant
to the terms of the subordination agreement between the
bank lenders and Seller. Seller is presently prohibited
from receiving current payments of interest on its
note. The note payable - Seller is convertible into
333,334 shares of the Company's common stock at any
time prior to the maturity of the note. The note is
subordinated to the notes payable - bank.
(e) The Company leases equipment under a capital lease
which expires October 24, 2003. The leases require a
monthly payment of $10,227.02, including interest at
9.35%. As of September 30, 2002, proceeds of
approximately $674,000 were received upon the sale of
certain leased equipment, which amount was remitted to
the owners of the equipment.
9
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
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.
As a result of the Company's decision to close its Kolar, Inc. facilities and
liquidate Kolar's assets, Kolar's operations have been classified as
discontinued, and the following discussion does not take Kolar into effect
unless otherwise stated.
Critical Accounting Policies
Revenue Recognition
We recognize revenue from our contracts over the contractual period under the
percentage-of-completion (POC) method of accounting. Under the POC method of
accounting, sales 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 revenues 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."
Contracts where billings to date have exceeded recognized revenues are recorded
as a liability captioned "Billings in excess of costs and estimated earnings 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 revenues,
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
We account for income taxes 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. We have recorded valuation allowances of $4,487,000 and $2,074,000
against our deferred tax assets at September 30, 2002 and December 31, 2001,
respectively.
Results of Operations
Revenue. Our revenue for the nine months ended September 30, 2002 was
$17,988,748 compared to $10,631,958 for the same period last year, representing
an increase of $7,356,790 or 69%.
Gross profit. Gross profit for the nine months ended September 30, 2002 was
$5,438,856, compared to $3,615,965 for the same period last year, an increase of
$1,822,891 or 50%. Gross profit as a percentage of revenue for the nine months
ended September 30, 2002 was 30% compared to 34% for the same period last year
due primarily to a less profitable sales mix.
10
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
Selling, general and administrative expenses. Selling, general, and
administrative expenses for the nine months ended September 30, 2002 were
$1,800,641, compared to $1,145,607 for the same period last year, an increase of
$655,034, or 57%. This increase is largely due to legal fees associated with the
discontinuance of Kolar's operations and restructuring our existing debt.
Interest expense for the nine months ended September 30, 2002 was $318,965,
compared to $126,707 for the same period last year, an increase of $192,258, or
151%. The increase in interest expense results from the fact that interest for
the previous year was included in Kolar's income (loss) from operations prior to
discontinuance of Kolar's operations.
Income from continuing operations. Income from continuing operations for the
nine months ended September 30, 2002 was $3,638,215 compared to $2,470,358 from
continuing operations for the same period last year, an increase of $1,167,857,
or 47%. The 2002 results include income taxes computed at an effective tax rate
of 15.9% because we estimate that we will utilize $800,000 of our net operating
loss carry-forward. Basic income per share was $1.03 on an average of 2,700,785
shares outstanding, compared to $.53 per share from continuing operations on an
average of 2,652,355 shares outstanding for the nine months ended September 30,
2001.
Liquidity and Capital Resources
General
At September 30, 2002 we had working capital of $266,304 compared to a
deficiency of $2,807,657 at December 31, 2001, an increase of $3,073,961. This
increase is primarily attributable to an increase in costs and estimated
earnings in excess of billings on uncompleted contracts of approximately
$3,250,000.
Net cash used in operating activities for the nine months ended September 30,
2002 was $74,762. This decrease in cash was primarily the result of cash being
used for new contracts of $3,247,461.
Financing Arrangements
At December 31, 2001, Kolar was in default under its debt facilities with
JPMorgan Chase Bank (formerly known as Chase Manhattan Bank) and GE Capital CFE,
Inc. (as assignee of Mellon Bank, N.A.) and its convertible note with Ralok,
Inc. The debt was guaranteed by CPI and secured by all of CPI and Kolar's
assets. In December 2001, we discontinued Kolar's operations and began the
process of liquidating its assets. The proceeds from the auction of Kolar's
machinery and equipment and the sale of its real estate are being used to pay a
portion of the debt owed to the bank lenders. The proceeds of the sales,
however, are not sufficient to provide for payment in full of all of Kolar's
bank debt. In 2002, we issued an aggregate of 70,000 of our common shares to
Chemical Investments, Inc. (as designee of JPMorgan Chase) and 20,000 common
shares to GE Capital CFE, Inc. (as designee of Mellon Bank, N.A.) as
consideration for their agreement to extend the due date of the loan and for
their services in connection with amending the loan documents.
In June 2002, CPI restructured the debt with the banks and Ralok. As
restructured, we currently owe the banks approximately $2,866,055 in principal
amount bearing interest at the prime rate plus 3.5% per annum, with a final
payment due on June 30, 2003, and $250,473 in principal amount bearing interest
at the rate of 8.3% per annum, with a final payment due on September 30, 2007.
Additionally, we agreed that if any portion of the loans currently held by
GECapital CFE, Inc. in the principal amount of approximately $1,012,926 are not
repaid or refinanced in their entirety by the dates set forth below, we would
pay loan fees in the following amounts:
o On or before September 30, 2002, a fee of $25,000;
o on or before December 31, 2002, a fee of $50,000;
o on or before March 31, 2003, a fee of $100,000; and
o on or before June 30, 2003, a fee of $150,000.
We paid the $25,000 fee on September 30, 2002.
We also amended the $4,000,000 principal amount convertible promissory note held
by Ralok, which bears interest at a rate of 8% per annum and which was
originally due on June 30, 2002. As amended, the note will mature on September
30, 2003, unless the maturity date of the bank loans is extended, in which case
11
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
the Ralok note will mature 90 days after the extended maturity date of the bank
loans, but not later than September 30, 2007. The Ralok note is secured by a
security interest in all of our assets and that is subordinate to the security
interest of the bank lenders. The principal amount of the note is currently
convertible, at Ralok's option, into 333,334 of our common shares. Pursuant to
the terms of the subordination agreement between the bank lenders and Ralok,
Ralok is prohibited from receiving current payments of interest on its note.
Until repaid, it will continue to accrue interest, which will be compounded
monthly and paid at maturity together with the principal amount. As of November
30, 2002, there was $1,063,494 of accrued interest on the note. In November
2002, we entered into an agreement with Ralok which grants us the right to
purchase the Ralok note, including all principal and accrued interest, at any
time until April 30, 2003, for an aggregate purchase price of $2.7 million.
We filed a registration statement today with the Securities and Exchange
Commission in connection with a proposed public offering of 1,600,000 common
shares. The offering will be managed by EarlyBirdCapital, Inc. There are no
selling shareholders included in this registration. We intend to use the net
proceeds of the offering to repay the bank loans and purchase the Ralok note.
There can be no assurance that we will raise enough proceeds in this offering to
repay our debt, and if we do not, we may not be able to make additional
arrangements to restructure the terms of the debt or to find replacement
capital.
The registration statement filed with the Securities and Exchange Commission has
not yet become effective. The securities covered by the registration statement
may not be sold, nor may offers to buy such securities be accepted prior to the
time the registration statement becomes effective. This Form 10-QSB/A does not
constitute an offer to sell or the solicitation of an offer to buy nor shall
there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification
under the securities law of any such state.
12
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
The table below summarizes information about our contractual obligations as of
September 30, 2002 and the effects these obligations are expected to have on our
liquidity and cash flow in the future years.
--------------------------------------------- --------------------------------------------------------------------------------------
Contractual Obligations Payments Due By Period ($)
--------------------------------------------- ----------------- --------------------- ----------------- -------------- -------------
Total Less than 1 year 1-3 years 4-5 years After 5 years
--------------------------------------------- ----------------- --------------------- ----------------- -------------- -------------
Short-Term Debt 8,213,167 8,006,046 117,739 89,382 0
--------------------------------------------- ----------------- --------------------- ----------------- -------------- -------------
Capital Lease Obligations 127,904 127,904 0 0 0
--------------------------------------------- ----------------- --------------------- ----------------- -------------- -------------
Operating Leases 0 0 0 0 0
--------------------------------------------- ----------------- --------------------- ----------------- -------------- -------------
Total Contractual Cash Obligations 8,341,071 8,133,950 117,739 89,382 0
--------------------------------------------- ----------------- --------------------- ----------------- -------------- -------------
Inflation
Inflation has historically not had a material effect on our operations.
ITEM 3. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation of
the effectiveness of the Company's disclosure controls and procedures was made
under the supervision and with the participation of the Company's management,
including the chief executive officer and the chief financial officer. Based on
that evaluation, the CEO and CFO 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. Subsequent to the date of their evaluation, there were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls, including any corrective actions with
regard to significant deficiencies and material weaknesses.
13
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
--------------------------------------------------------------------------------
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, 2002, 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
------------------ --------------------- --------------- --------------------- ------------------ -------------------
09/09/02 Common Shares 1,000 Common Shares issued 4(2) N/A
to employees upon the
exercise of options;
$2,870 cash
consideration received
by the Company
------------------ --------------------- --------------- ------------------------- ---------------- -----------------------
14
CPI AEROSTRUCTURES, INC.
AND SUBSIDIARY
--------------------------------------------------------------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders
a) An Annual Meeting of Shareholders was held on September 18, 2002
("Annual Meeting")
b) One matter was voted upon at the Annual Meeting, as follows:
1) Kenneth McSweeney was re-elected to serve as director for
the ensuing three years and until his successor is elected
and qualified with 2,250,490 votes cast and 31,831 votes
withholding authority for his re-election. Arthur August,
Edward J. Fred and Walter Paulick's term of offices as
directors continued after the meeting.
ITEM 6. Exhibits and Reports on Form 8-K
a) No Exhibits
b) During the three months ended September 30, 2002, no Current
Reports on Form 8-K were filed by the Company.
15
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: December 13, 2002 By: /s/ Arthur August
------------------
Arthur August
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: December 13, 2002 By: /s/ Edward J. Fred
-------------------
Edward J. Fred
President, Chief Financial Officer and
Secretary (Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of CPI Aerostructures, Inc. (the
"Company") on Form 10-QSB/A for the period ended September 30, 2002 as filed
with the Securities and Exchange Commission (the "Report"), each of the
undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
1. the Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
Dated: December 13, 2002 /s/ Arthur August
-----------------
Arthur August
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: December 13, 2002 /s/ Edward J. Fred
------------------
Edward J. Fred
President, Chief Financial Officer and
Secretary (Principal Financial Officer)
16
CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Arthur August, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of CPI
Aerostructures, Inc.;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 13, 2002 /s/ Arthur August
-----------------
Arthur August
Chairman and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION
PURSUANT TO RULE 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
I, Edward J. Fred, certify that:
1. I have reviewed this quarterly report on Form 10-QSB/A of CPI
Aerostructures, Inc.;
2. based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. the registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing date of this
quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. the registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 13, 2002 /s/ Edward J. Fred
------------------
Edward J. Fred
President, Chief Financial Officer and
Secretary (Principal Financial Officer)