CPI AEROSTRUCTURES, INC. ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period Commission File Number 1-11398 ended September 30, 2005 CPI AEROSTRUCTURES, INC. (Exact name of registrant as specified in its charter) New York 11-2520310 (State or other jurisdiction (IRS Employer Identification Number) of incorporation or organization) 60 Heartland Blvd., Edgewood, NY 11717 (Address of principal executive offices) (zip code) (631) 586-5200 (Registrant'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 for such shorter 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 [_] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes [_] No [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [_] No [X] As of November 11, 2005, the number of shares of common stock, par value $.001 per share, outstanding was 5,425,400. CPI AEROSTRUCTURES, INC. INDEX ================================================================================ Part I: Financial Information: Item 1 - Condensed Financial Statements: Balance Sheets as of September 30, 2005 (Unaudited) and December 31, 2004 3 Statements of Income for the Three Months and Nine Months ended September 30, 2005 (Unaudited) and 2004 (Unaudited) 4 Statements of Cash Flows for the Nine Months ended September 30, 2005 (Unaudited) and 2004 (Unaudited) 5 Notes to Condensed Financial Statements (Unaudited) 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 15 Item 4 - Controls and Procedures 15 Part II. Other Information Item 2 - Unregistered Sales of Equity Securities 16 Item 5 - Other Information 16 Item 6 - Exhibits 16 Signatures and Certifications 17 2 CPI AEROSTRUCTURES, INC. PART I: FINANCIAL INFORMATION: ITEM 1 - FINANCIAL STATEMENTS: CONDENSED BALANCE SHEETS ================================================================================ SEPTEMBER 30, DECEMBER 31, 2005 2004 (UNAUDITED) - ----------------------------------------------------------------------------------------------- ASSETS Current Assets: Cash $ 773,280 $ 1,756,350 Accounts receivable 1,757,747 1,641,002 Costs and estimated earnings in excess of billings on uncompleted contracts 27,872,082 26,030,507 Prepaid expenses and other current assets 150,975 182,003 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 30,554,084 29,609,862 Plant and equipment, net 994,654 882,758 Other assets 249,048 266,504 - ----------------------------------------------------------------------------------------------- TOTAL ASSETS $31,797,786 $30,759,124 =============================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 3,692,966 $ 4,332,255 Accrued expenses 163,472 525,061 Current portion of long-term debt 94,526 83,144 Deferred income taxes 180,000 144,000 Income taxes payable 459,000 129,000 - ----------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 4,589,964 5,213,460 Long-term debt, net of current portion 66,324 129,276 Other liabilities 41,172 -- - ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES 4,697,460 5,342,736 - ----------------------------------------------------------------------------------------------- Commitments Shareholders' Equity: Common stock - $.001 par value; authorized 50,000,000 shares, issued 5,456,415 and 5,443,415 shares, respectively, and outstanding 5,425,400 and 5,412,400 shares, respectively 5,456 5,443 Additional paid-in capital 22,589,294 22,541,716 Retained earnings 4,826,432 3,190,085 Treasury stock (320,856) (320,856) - ----------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 27,100,326 25,416,388 - ----------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $31,797,786 $30,759,124 =============================================================================================== See Notes to Condensed Financial Statements 3 CPI AEROSTRUCTURES, INC. CONDENSED STATEMENTS OF INCOME ================================================================================ - ------------------------------------------------------------------------------------------------------------- FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2005 2004 2005 2004 (UNAUDITED) (UNAUDITED) - ------------------------------------------------------------------------------------------------------------- Revenue $6,452,246 $7,877,023 $19,010,780 $21,297,456 Cost of sales 4,769,256 5,183,011 13,763,040 14,290,873 - ------------------------------------------------------------------------------------------------------------- Gross profit 1,682,990 2,694,012 5,247,740 7,006,583 Selling, general and administrative expenses 803,143 728,613 2,563,470 2,405,263 - ------------------------------------------------------------------------------------------------------------- Income from operations 879,847 1,965,399 2,684,270 4,601,320 - ------------------------------------------------------------------------------------------------------------- Other income (expense): Interest/other income 1,156 1,549 3,816 5,353 Interest expense (1,505) (1,477) (10,739) (5,191) - ------------------------------------------------------------------------------------------------------------- Total other income (expense), net (349) 72 (6,923) 162 - ------------------------------------------------------------------------------------------------------------- Income before provision for income taxes 879,498 1,965,471 2,677,347 4,601,482 Provision for income taxes 331,000 640,000 1,041,000 1,661,000 - ------------------------------------------------------------------------------------------------------------- Net income $ 548,498 $1,325,471 $ 1,636,347 $ 2,940,482 Income per common share - basic $ 0.10 $ 0.25 $ 0.30 $ 0.55 Income per common share - diluted $ 0.09 $ 0.22 $ 0.27 $ 0.48 ============================================================================================================= Shares used in computing earnings per common share: Basic 5,412,650 5,405,184 5,419,411 5,358,025 Diluted 6,115,014 6,132,425 6,120,977 6,091,338 - ------------------------------------------------------------------------------------------------------------- See Notes to Condensed Financial Statements 4 CPI AEROSTRUCTURES, INC. CONDENSED STATEMENTS OF CASH FLOWS ================================================================================ FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 2004 (UNAUDITED) - ------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 1,636,347 $ 2,940,482 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 143,685 119,785 Deferred rent 41,172 -- Deferred portion of provision for income taxes 36,000 1,058,000 Tax benefit for stock options -- 421,000 Changes in operating assets and liabilities: Increase in accounts receivable (116,745) (935,798) Increase in costs and estimated earnings in excess of billings on uncompleted contracts (1,841,575) (4,561,244) Decrease in prepaid expenses and other assets 48,484 43,349 Decrease in accounts payable and accrued expenses (1,000,878) (233,916) Increase (decrease) in income taxes payable 330,000 (5,000) - ------------------------------------------------------------------------------------------------------ Net cash used in operating activities (723,510) (1,153,342) - ------------------------------------------------------------------------------------------------------ Cash used in investing activities - purchase of plant and equipment (255,581) (305,664) - ------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Net repayment of long-term debt (51,570) 157,292 Proceeds from exercise of stock options 47,591 50,600 - ------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (3,979) 207,892 - ------------------------------------------------------------------------------------------------------ Net decrease in cash (983,070) (1,251,114) Cash at beginning of period 1,756,350 2,794,310 - ------------------------------------------------------------------------------------------------------ Cash at end of period $ 773,280 $ 1,543,196 ====================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 10,739 $ 5,191 ====================================================================================================== Income taxes $ 675,000 $ 218,037 ====================================================================================================== See Notes to Condensed Financial Statements 5 CPI AEROSTRUCTURES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) ================================================================================ 1. INTERIM FINANCIAL The financial statements as of September 30, STATEMENTS: 2005 and for the three and nine months ended September 30, 2005 and 2004 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. The results of operations for such interim periods are not necessarily indicative of the results to be obtained for a full year. The balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004. The Company measures employee stock-based compensation cost using Accounting Principles Board Opinion ("APB") No. 25 as is permitted by Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123R (Revised 2004), "Share-Based Payment" ("SFAS 123R"), which requires that the compensation cost relating to share-based payment transactions be recognized in financial statements based on alternative fair value models. The share-based compensation cost will be measured based on the fair value of the equity instruments issued. The Company currently discloses pro forma compensation expense quarterly and annually by calculating the stock option grants' fair value using the Black-Scholes model and disclosing the impact on net income and net income per share in a note to the financial statements. Upon adoption, pro forma disclosure no longer will be an alternative. The table set forth below reflects the estimated impact that such a change in accounting treatment would have had on the Company's net income and net income per share if it had been in effect during the nine-months and three-months ended September 30, 2005 and 2004. SFAS No. 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as financing cash flow rather than as an operating cash flow as required under current literature. This requirement will reduce operating cash flows and increase net financing cash flows in periods after adoption. The Company will begin to apply SFAS 123R as of the interim reporting period ending March 31, 2006. 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 123R, the Company's net income and income per common share would have been as follows: 6 CPI AEROSTRUCTURES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) ================================================================================ THREE MONTHS ENDED SEPTEMBER 30, 2005 2004 ----------------------------------------------------------------- Net income - as reported $548,498 $1,325,471 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 76,287 123,597 ----------------------------------------------------------------- Net income - pro forma $472,211 $1,201,874 ================================================================= Basic income per share - as reported $ 0.10 $ 0.25 ================================================================= BASIC INCOME PER SHARE - PRO FORMA $ 0.09 $ 0.22 ================================================================= Diluted income per share - as reported $ 0.09 $ 0.22 ================================================================= DILUTED INCOME PER SHARE - PRO FORMA $ 0.08 $ 0.20 ================================================================= NINE MONTHS ENDED SEPTEMBER 30, 2005 2004 ------------------------------------------------------------------- Net income - as reported $1,636,347 $2,940,482 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 406,918 353,268 ------------------------------------------------------------------- Net income - pro forma $1,229,429 $2,587,214 =================================================================== Basic income per share - as reported $ 0.30 $ 0.55 =================================================================== BASIC INCOME PER SHARE - PRO FORMA $ 0.23 $ 0.48 =================================================================== Diluted income per share - as reported $ 0.27 $ 0.48 =================================================================== DILUTED INCOME PER SHARE - PRO FORMA $ 0.20 $ 0.42 =================================================================== In June 2005 the FASB issued Statement of Financial Accounting Standard No. 154 "Accounting Changes and Error Corrections" ("SFAS No. 154"). This statement applies to all voluntary changes in accounting principle and changes the requirements for accounting for and reporting of a change in accounting principle. It replaces APB No. 20 "Accounting Changes." Management does not believe that the adoption of SFAS No. 154 will have a material effect on the accompanying financial statements. 7 CPI AEROSTRUCTURES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) ================================================================================ 2. COSTS AND ESTIMATED Costs and estimated earnings in excess of EARNINGS IN EXCESS OF billings on uncompleted contracts consist of: BILLINGS ON UNCOMPLETED CONTRACTS: September 30, 2005 ----------------------------------------------------------------------- U.S. Government Commercial Total ----------------------------------------------------------------------- Costs incurred on uncompleted contracts $39,089,391 $13,373,694 $52,463,085 Estimated earnings 24,464,120 6,672,592 31,136,712 ----------------------------------------------------------------------- 63,553,511 20,046,286 83,599,797 Less billings to date 37,114,467 18,613,248 55,727,715 ----------------------------------------------------------------------- COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS $26,439,044 $ 1,433,038 $27,872,082 ======================================================================= December 31, 2004 ----------------------------------------------------------------------- U.S. Government Commercial Total ----------------------------------------------------------------------- Costs incurred on uncompleted contracts $32,764,584 $13,373,694 $46,138,278 Estimated earnings 20,351,259 6,187,927 26,539,186 ----------------------------------------------------------------------- 53,115,843 19,561,621 72,677,464 Less billings to date 28,746,944 17,900,013 46,646,957 ----------------------------------------------------------------------- COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS $24,368,899 $ 1,661,608 $26,030,507 ======================================================================= 8 CPI AEROSTRUCTURES, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) ================================================================================ 3. INCOME PER Basic income per common share is computed using the COMMON SHARE: weighted average number of shares outstanding. Diluted income 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 693,364 and 701,566 were used in the calculation of diluted income per common share in the three month and nine-month periods ended September 30, 2005, respectively. Incremental shares of 210,000 and 100,000 were not included in the diluted earnings per share calculations at September 30, 2005 as their exercise price was in excess of the Company's stock price at the end of each respective period and, accordingly, these shares are not assumed to be exercised for the diluted earnings per share calculation, as they would be anti-dilutive. Incremental shares of 75,000 and 25,000, respectively, were not included in the diluted earnings per share calculations at September 30, 2004 because the effect would be anti-dilutive. 4. CREDIT FACILITY: In September 2003, the Company entered into a three year, $5.0 million revolving credit facility with JP Morgan Chase Bank, secured by the assets of the Company. The facility specifies interest rates that range between the Prime Rate and 225 basis points over LIBOR, depending on certain terms and conditions. The facility requires the Company to maintain specified levels of working capital and other financial ratios, as defined. At September 30, 2005, the Company was in compliance with all the covenants related to this facility. As of September 30, 2005, the Company had not borrowed any funds pursuant to this facility. 9 CPI AEROSTRUCTURES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ The following discussion should be read in conjunction with the Company's Condensed 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. BUSINESS OPERATIONS Our operations consist of the design and production of structural aircraft parts principally for the United States Air Force and other branches of the U.S. armed forces. We also provide aircraft parts to the commercial sector of the aircraft industry, but we are not currently pursuing new business in this sector. We compete with other prime contractors to win contracts through a process of competitive bidding. Additionally, we bid on subcontract work to leading aerospace prime contractors. This is a field of opportunity that has opened up to us over the past 21 months. After winning a contract, the length of the contract varies but is typically between one and two years for U. S. Government contracts (although recent large government contracts have been for periods of up to 10 years, as is the case with the T-38 Propulsion Modification Program) and up to 10 years for commercial contracts. Except in cases where contract terms permit us to bill on a progress basis, we must incur upfront costs in producing assemblies and bill our customers upon delivery. Because of the upfront costs incurred, the timing of our billings and the nature of the percentage-of-completion method of accounting described below, there can be a significant disparity between the period in which (a) costs are expended, (b) revenue and earnings are recorded and (c) cash is received. We have received new contract awards of $6,323,942 as of September 30, 2005. Included in this amount is approximately $157,000 related to a subcontract with Vought Aircraft Industries, Inc. ("Vought") to supply up to 17 parts for the C-5 Galaxy aircraft. Vought has an Indefinite Delivery/Indefinite Quantity (ID/IQ) contract with U.S. Air Force Warner Robins Air Logistics Center (WR-ALC) for its C-5 work. The potential value of CPI's subcontract with Vought could be in excess of $12 million. 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. As a result, there can be a significant disparity between earnings (both for accounting and taxes) as reported and actual cash received by us during any reporting period. 10 CPI AEROSTRUCTURES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ We continually evaluate all of the issues related to the assumptions, risks and uncertainties inherent with the application of the POC method of accounting; however, we cannot assure you that our estimates will be accurate. If our estimates are not accurate or a contract is terminated, we will be forced to adjust revenue in later periods. Furthermore, even if our estimates are accurate, we may have a shortfall in our cash flow and we may need to borrow money to pay taxes until the reported earnings materialize to actual cash receipts. RESULTS OF OPERATIONS REVENUE Revenue for the three months ended September 30, 2005 was $6,452,246 compared to $7,877,023 for the same period last year, representing a decrease of $1,424,777 or 18%. For the nine months ended September 30, 2005, revenue decreased $2,286,676, or 11%, to $19,010,780, compared to $21,297,456 for the same period last year, due primarily to fewer contract awards in the current period. We generate revenue primarily from government contracts and to a lesser extent from one commercial contract. For the three months ended September 30, 2005, all of our revenue was from government contracts. Revenue from government contracts for the nine months ended September 30, 2005 was $18,526,114 compared to $21,180,710 for the same period last year, a decrease of $2,654,596 or 13%. This decrease was due to the significant slowdown in government procurement in our market. Although we are not actively pursuing commercial contract work, during late 2004 and early 2005, we received a release on our one remaining commercial contract, which accounted for revenue of $484,666 for the nine months ended September 30, 2005 compared to $116,746 for the nine months ended September 30, 2004. We project that revenue for the fourth quarter of 2005 will be in the range of $6-$7 million. GROSS PROFIT Gross profit for the three months ended September 30, 2005 decreased by $1,011,022 or 38%, compared with the same period last year. As a percentage of revenue, gross profit for the three months ended September 30, 2005 was 26% compared to 34% for the same period last year. For the nine months ended September 30, 2005, gross profit was $5,247,740, or 28% of revenue, compared with $7,006,583, or 33% of revenue for the first nine months of last year. The decrease in gross profit percentage was due primarily to a less favorable product mix as compared to last year and an increase in factory overhead related to rent, utilities, maintenance, and indirect labor, of approximately $300,000 as a result of our move to new facilities. Lastly, we incurred approximately $112,000 of extra costs to rework a first article that was rejected by the government. This rejection was the result of non-conforming component parts purchased from a vendor. We no longer do business with this vendor and, therefore, we do not anticipate that this situation will recur in future periods. We project that the gross profit percentage for the fourth quarter of 2005 will be consistent with that experienced over the prior two quarters ended June 30, 2005 and September 30, 2005, within the range of 26%-28%. 11 CPI AEROSTRUCTURES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the three months ended September 30, 2005 were $803,143 compared to $728,613 for the three months ended September 30, 2004, an increase of $74,530, or 10%. For the nine months ended September 30, 2005, selling, general, and administrative expenses were $2,563,470 compared to $2,405,263 for the same period last year, an increase of $158,207, or 6.6%. These increases were due to increased costs of rent, utilities, maintenance and equipment related to our new, larger office facility. INCOME FROM OPERATIONS Income from operations for the three months ended September 30, 2005 was $879,847, a decrease of $1,085,552, or 55%, from $1,965,399 reported in the same period last year. For the nine months ended September 30, 2005, income from operations was $2,684,270 compared with $4,601,320 for the same period last year, a decrease of $1,917,050, or 42%. The decrease was primarily due to the decrease in gross profit described above. PROVISION FOR INCOME TAXES We recorded a provision for income taxes of $331,000 for the three months ended September 30, 2005 as compared to $640,000 recorded in the same period last year. For the nine months ended September 30, 2005, we recorded a provision for income taxes of $1,041,000, compared to $1,661,000 recorded in the same period last year. NET INCOME As a result, basic net income for the three months ended September 30, 2005 was $548,498, or $0.10 per share, compared to $1,325,471, or $0.25 per share, for the same period last year. For the nine months ended September 30, 2005, basic net income was $1,636,347, or $0.30 per share, compared with $2,940,482, or $0.55 per share for the same period last year. Diluted income per share for the three months ended September 30, 2005 was $0.09, calculated utilizing 6,115,014 diluted average shares outstanding for the period, compared to diluted income per share of $0.22, calculated utilizing 6,132,425 diluted average shares outstanding for the same period last year. Diluted income per share for the nine months ended September 30, 2005 was $0.27, calculated utilizing 6,120,977 diluted average shares outstanding for the period, compared to diluted income per share of $0.48, calculated utilizing 6,091,338 diluted average shares outstanding for the same period last year. LIQUIDITY AND CAPITAL RESOURCES General At September 30, 2005, we had working capital of $25,964,120 compared to $24,396,402 at December 31, 2004, an increase of $1,567,718. This increase is primarily attributable to decreases in accounts payable and accrued expenses of $1,000,878, which resulted from the Company using current cash from net income to pay down liabilities and an increase in costs and estimated earnings in excess of billings on uncompleted contracts. These decreases were offset by an increase in income taxes payable. 12 CPI AEROSTRUCTURES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ This increase resulted from utilizing our remaining net operating loss carryforward for federal income tax purposes during 2004. Therefore, during 2005, we are required to make quarterly estimated federal income tax payments. Net cash used in operating activities for the nine months ended September 30, 2005 was $723,510 compared to net cash used in operating activities of $1,153,342 for the same period last year. The decrease in cash was the result of a build-up in accounts receivable and a pay down of accounts payable and an increase in costs and estimated earnings in excess of billings on uncompleted contracts. Net cash used in investing activities for the nine months ended September 30, 2005 was $255,581 compared to $305,664 for the same period last year. All cash used in investing activities relates to purchases of plant and equipment. Cash Flow A large portion of our 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 our 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. Because the POC method of accounting requires us to use estimates in determining revenues, costs and profits and in assigning the amounts to accounting periods, there can be a significant disparity between earnings (both for accounting and taxes) as reported and actual cash received by us during any reporting period. Accordingly, it is possible that we may have a shortfall in our cash flow and may need to borrow money until the reported earnings materialize to actual cash receipts. JP Morgan Chase Credit Facility In September 2003, we entered into a three year, $5.0 million revolving credit facility with JPMorgan Chase Bank, secured by our assets. The facility specifies interest rates that range between the Prime Rate and 225 basis points over LIBOR, depending on certain terms and conditions. As of September 30, 2005, we had not borrowed any funds pursuant to this facility. The facility requires us to maintain specified levels of working capital and other financial ratios, as defined. At September 30, 2005, we were in compliance with all the covenants related to this facility. We believe that our existing resources, together with the availability under our credit facility, will be sufficient to meet our working capital needs for at least the next 12 months. 13 CPI AEROSTRUCTURES, INC. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ================================================================================ CONTRACTUAL OBLIGATIONS The table below summarizes information about our contractual obligations as of September 30, 2005 and the effects these obligations are expected to have on our liquidity and cash flow in the future years. - --------------------------------------------------------------------------------------------------- PAYMENTS DUE BY PERIOD ($) ------------------------------------------------------------- LESS THAN CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS - --------------------------------------------------------------------------------------------------- Short-Term Debt -0- -0- -0- -0- -0- - --------------------------------------------------------------------------------------------------- Long-Term Obligations 160,850 94,526 66,324 -0- -0- - --------------------------------------------------------------------------------------------------- Operating Leases 4,017,706 383,438 801,730 850,555 1,981,983 - --------------------------------------------------------------------------------------------------- Employment Agreement Compensation * 1,469,182 625,597 843,585 -0- -0- - --------------------------------------------------------------------------------------------------- Total Contractual Cash Obligations 5,647,738 1,103,561 1,711,639 850,555 1,981,983 - --------------------------------------------------------------------------------------------------- * The employment agreements provide for bonus payments that are excluded from these amounts. 14 CPI AEROSTRUCTURES, INC. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK None ITEM 4 - CONTROLS AND PROCEDURES An evaluation of the effectiveness of our disclosure controls and procedures was made as of September 30, 2005 under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on that evaluation, they concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit 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 change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 15 CPI AEROSTRUCTURES, INC. PART II: OTHER INFORMATION ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES - --------------------------------------------------------------------------------------------------------------- Consideration Received and Description of If Option, Warrant Underwriting or Exemption or Convertible Other Discounts to from Security, Terms of Market Price Afforded Registration Exercise or Date of Sale Title of Security Number Sold To Purchasers Claimed Conversion - --------------------------------------------------------------------------------------------------------------- 9/7/05 Common Stock 5,000 Common stock issued upon 4(2) N/A exercise of options; $8,250 cash consideration received by the Company - --------------------------------------------------------------------------------------------------------------- ITEM 5 - OTHER INFORMATION None ITEM 6 - EXHIBITS Exhibit 31.1 Section 302 Certification by Chief Executive Officer Exhibit 31.2 Section 302 Certification by Chief Financial Officer Exhibit 32 Section 906 Certification by Chief Executive Officer and Chief Financial Officer 16 CPI AEROSTRUCTURES, INC. SIGNATURES 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: November 14, 2005 By /S/ Edward J. Fred ------------------------------------- Edward J. Fred Chief Executive Officer, President, and Secretary Dated: November 14, 2005 By: /S/ Vincent Palazzolo ------------------------------------ Vincent Palazzolo Chief Financial Officer 17
- CVU Dashboard
- Financials
- Filings
- Transcripts
- ETFs
- Insider
- Institutional
- Shorts
- News
-
10-Q Filing
CPI Aerostructures (CVU) 10-Q2005 Q3 Quarterly report
Filed: 14 Nov 05, 12:00am