CPI AEROSTRUCTURES INC 10-K/A

Item 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2020. Based on this evaluation of our disclosure controls and procedures, management has concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below which resulted in reporting errors requiring the restatements of our financial statements described in this Comprehensive Form 10-K for the years ended December 31, 2020 and December 31, 2019 and for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020. Management’s Annual Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), is a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP and includes those policies and procedures that: ● pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; ● provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and ● provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of internal control over financial reporting based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective at the reasonable assurance level as of December 31, 2020 and December 31, 2019 because of the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. In connection with management’s evaluation of the Company’s internal control over financial reporting described above, management has identified the deficiencies described below that constitute a material weakness in our internal control over financial reporting as of December 31, 2020 and December 31, 2019. One of these deficiencies led to material errors in our previously issued consolidated financial statements, which in turn led to the restatement of those previously issued consolidated financial statements, as described in Part II, Item 8, Note 17 “Restatement of Previously Issued Consolidated Financial Statements” in the notes to the consolidated financial statements included in this Comprehensive Form 10-K/A. 49 Control Environment, Risk Assessment, Control Activities and Monitoring We did not maintain effective internal control over financial reporting related to control environment, risk assessment, control activities and monitoring: ● There were insufficiently documented Company accounting policies and insufficiently detailed Company procedures to put policies into effective action. ● The design and implementation of internal controls related to cut-off procedures were not sufficient to ensure proper accounting for in-transit items. ● The design and implementation of internal controls related to monitoring and review of inventory costing were not sufficient to ensure proper valuation of appropriately stated inventory costs. ● The design and implementation of internal controls related to the establishment, and monitoring and review, of loss contract and excess and obsolete reserves were not sufficient to ensure proper accounting for the associated reserves. ● The information technology general controls associated with proper change management were not sufficient to ensure the accuracy and adequacy of the resulting changes. ● The design and implementation of internal controls related to preparation and review of financial statements and the related disclosures were not sufficient to ensure the completeness and accuracy of those financial statements and required disclosures. Accounting for Inventory and related IT environment During the first quarter of 2021, we identified material weaknesses from the month end closing process and INFORXA module used by the Company to maintain the perpetual inventory reporting. The following issues were identified which led to the need to restate the financial results for the twelve months ended December 31, 2020 and December 31, 2019, and the financial results for the three months ended March 31, 2020, June 30, 2020 and September 30, 2020: ● Double Labor and Overhead: The Company’s perpetual inventory system did not work as intended to ensure the correct amount of labor incurred is accounted for in inventory, and it did not include any control or reporting to detect that a reversing transaction in the coding was not occurring, which resulted in duplicate labor applied to inventory. The Company did not have a control in place to adequately review and approve the reasonableness of the entries posted to the general ledger to record differences in cost of goods sold for the differences between general ledger inventory and the perpetual inventory system’s balances. ● Unit of measure: As part of the first quarter 2021 closing process, we identified that that the perpetual inventory included some unit of measure errors which were not detected and corrected within the 2020 general ledger. Units of Measure (“UM”) were not consistent between quantities ordered and quantities received for certain classes of purchased parts. This resulted in overstatements of inventory values due to UM’s not being consistent with unit prices on purchase orders to suppliers. Errors occurred when the need for corrections to unit costs went undetected until a subsequent quarter as a result of (a) only having a detective control in place to scan for apparent UM issues that stand out when our accounting department reviews the month-end perpetual inventory reports, and (b) not having a comprehensive enough list of the commodity codes in the UM conversion tables within the perpetual inventory system. ● Average Cost: The pre-implementation testing that was performed in the test environment on an INFORXA Software Patch that was written and went live into the system in July 2020 did not detect that the system as patched would erroneously omit the reset of one field used by the system in calculating the average cost per unit correctly, thus causing the live system as patched to perform incorrect average cost calculations on some parts. ● Inventory Accrual: The monthly journal entry log used to manage the month end close process did not contain the requirement to determine and post a month end QC01 (inventory received in-house awaiting quality inspection) inventory accrual. An automated accrual for goods received, not yet in inventory does not occur until after the parts have passed QC. Until the parts pass QC, they are in the warehouse location “QC01”. Therefore, the Company needs to record an accrual to increase its purchases of inventory for those goods in QC01 at each balance sheet date since there is no automated accrual performed by the perpetual inventory system. ● Deferral of Under-Absorbed Overhead in the Balance Sheet: The monthly journal entry log used to manage the month end close process did not contain the requirement to determine and post a full absorption adjustment (under/over absorbed overhead deferral into inventory). As such, the company did not have a process to record over or under absorbed overhead at the end of each quarter. ● Loss Contract Reserve for Contracts where Revenue and Costs are Recognized on a Point-in-Time Basis (“Non-POC Contracts”): There was no evaluation of Non-POC Contracts to determine if a loss reserve should be established and maintained for Non-POC Contracts which management has reason to believe may result in losses. ● Excess and Obsolete Inventory Reserve: There was no process for evaluating and recording reserves against inventory for excess and obsolete inventory. Remediation efforts underway for the 2020 and First Quarter 2021 Material Weaknesses During 2021, we have begun to implement new controls designed to remediate the 2020 material weaknesses described above under Control Environment, Risk Assessment, Control Activities and Monitoring and Accounting for Inventory & related IT environment , such as: ● The recruitment and hiring of a new Chief Financial Officer 50 ● The recruitment and hiring of a new Controller ● Newly designed month-end accruals for in-transit inventory ● Diagnosis, design, testing and implementation of software changes to our perpetual inventory system to correct the Inventory Costing Errors ● The implementation of new operating procedures related to inventory management and costing ● The implementation of new accounting procedures related to ensure sufficient reserves are established and maintained for:: o any anticipated contract losses o any reductions in the market values of inventory below cost o any excess or obsolete inventory Notwithstanding the conclusion by our management that our controls and procedures as of December 31, 2020 and December 31, 2019 were not effective, and notwithstanding the material weaknesses in our internal control over financial reporting described above, management believes that the consolidated financial statements and related financial information included in this Comprehensive Form 10-K/A fairly present in all material respects our financial position, results of operations and cash flows as of and for the dates presented, and for the periods ended on such dates, in conformity with U.S. GAAP. Remediation of Previously Reported 2019 Material Weakness In connection with management’s evaluation of the Company’s internal control over financial reporting described above, management has concluded that the material weaknesses reported in its Annual Report on Form 10-K for the period ended December 31, 2019 had been remediated and that internal controls put in place to prevent future occurrences of these material weaknesses were effective as of December 31, 2020. During the course of 2020, we have implemented measures to remediate the underlying causes that gave rise to the previously disclosed material weaknesses and material errors. These measures include the Welding Metallurgy operations as they were incorporated into CPI Aero’s operations as of December 31, 2019. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to further the overall objective to design and operate internal controls that mitigate identified risks and enable an effective system of internal control over external financial reporting. CPI Aero is a non-accelerated filer for 2020. As such, CPI Aero is not subject to the requirement to have an auditor attestation report on internal control over financial reporting in the Annual Report on Form 10-K and Comprehensive Form 10-K/A filed in 2021 for 2020. Accordingly, based upon its internal testing which is performed by a national public accounting and advisory firm, management believes that as of December 31, 2020, it has successfully remediated the internal control weaknesses which gave rise to the material errors in our prior financial statements. ● Revenue Recognition Accounting: During 2020, Management, with advice from a leading global accounting and advisory firm, reviewed and updated its revenue recognition policies to be compliant with ASC Topic 606. In addition, the Company has updated its procedures and implemented new controls to remediate the identified weakness and to prevent the material error which occurred in prior periods with regards to revenue recognition wherein revenue and associated estimated margins were not constrained to firm orders received. Current procedures and controls now reconcile EAC revenue with firm funded purchase orders received from customers, which constrains revenue to firm funded orders as required by ASC Topic 606. Standardized templates have been developed to assist the evaluation process, based upon the overall updated policies and procedures including daily decision guidelines. Testing has shown that the previously identified Revenue Recognition material weakness has been remediated. ● Accounting for Significant Non-Routine Complex Transactions: The Company has established a policy with regards to accounting for significant, non-routine, complex transactions which states that prior to any future requirement for accounting for significant, non-routine, complex transactions, the Company will engage experienced professionals and outline and execute a set of controls unique to each transaction to ensure that the non-routine complex transaction is recorded in a proper manner. In 2020 there were no non-routine complex transactions but the Company believes the controls and procedures implemented will allow for proper identification and accounting for those transaction. ● Information Technology General Controls (ITGC): For years subsequent to 2019, the Company has implemented an improved 404 compliant ITGC testing program. The Company has identified relevant ITGCs for key financial systems relating to Change Management, Logical Security, Physical Security, and Computer Operations. We have engaged a national public accounting and advisory firm to test the design, implementation and operating effectiveness of the controls. 51 Changes in Internal Control Over Financial Reporting Other than the remediation efforts underway as referred to above, and the First Quarter 2021 Material Weaknesses referred to above, There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting other than as described above. 52 Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth the name, age, and position of each of the Company’s named executive officers and members of the board of directors: Name Age Director Since Position & Board Committees Carey Bond 61 2016 Vice Chairman of the board of directors Compensation & Human Resources Committee (Chair), Nominating & Corporate Governance Committee, Strategic Planning Committee, Oversight Committee (Chair) Richard S. Caswell 63 2020 Director Audit & Finance Committee (Chair) Andrew L. Davis 54 — Chief Financial Officer and Secretary Michael Faber 62 2013 Director Audit & Finance Committee, Nominating & Corporate Governance Committee (Chair) Kenneth Hauser 59 — Senior Vice President of Operations Douglas McCrosson 59 2014 Chief Executive Officer, President, and Director Strategic Planning Committee Walter Paulick 75 1992 Director Audit & Finance Committee, Nominating & Corporate Governance Committee, Oversight Committee Thomas Powers 67 — Former Acting Chief Financial Officer and Secretary* Eric Rosenfeld 64 2003 Director Compensation & Human Resources Committee, Nominating & Corporate Governance Committee, Strategic Planning Committee (Chair) Terry Stinson 79 2014 Chairman of the board of directors Compensation & Human Resources Committee, Strategic Planning Committee * Mr. Powers served as our Acting Chief Financial Officer and Secretary from February 12, 2020 to October 22, 2021. Previously, Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019. Certain individual experiences, qualifications, and skills of our directors that contribute to the board of directors’ effectiveness as a whole are described in the biographies set forth below. Carey E. Bond is the Non-Executive Vice Chairman of the board of directors, a position which he has held since August 2020. Mr. Bond has been a director since December 2016, chair of our Compensation & Human Resources Committee since June 2019, and chair of the Oversight Committee since March 2020. Mr. Bond’s career as a corporate executive in the aviation industry has spanned over 30 years, where he has held successful leadership roles in several areas such as aircraft development and production, sales, service, and profit and loss ownership. Mr. Bond spent 10 years at Sikorsky Aircraft Corporation, a corporation specializing in designing, manufacturing and servicing helicopters, as Vice President, Corporate Strategy, Chief Marketing Officer, and President, Commercial Systems and Services. Mr. Bond currently serves on the board of directors of TECT Aerospace, NWI Aerostructures and NWI Precision, business units of TECT Corporation, a conglomerate of privately held aerospace companies. Mr. Bond has also served on the board of directors of domestic and international companies, namely Shanghai Sikorsky Aircraft Company Limited, New Eclipse Aerospace, and PZL Mielec Aircraft Company. Mr. Bond holds a Masters of Business Administration from Texas Christian University. Mr. Bond brings to our board of directors a seasoned expertise in the aerospace industry, an internationally-minded approach to business development, and general business acumen. 53 Richard S. Caswell has been a director since November 2020. Mr. Caswell served as a senior advisor of Bombardier Inc. from 2015-2020. From 1993-2015, Mr. Caswell served in several senior finance roles at United Technologies Corporation (now Raytheon Technologies Corporation, NYSE: RTX), including as Chief Financial Officer and Vice President, Finance of the Power, Controls & Sensing Systems segment of United Technologies Aerospace Services, as Chief Financial Officer and Vice President, Finance of Sikorsky Aircraft, and as Chief Financial Officer of Pratt & Whitney Canada. Previously, from 1983-1993, Mr. Caswell worked at Price Waterhouse (now PricewaterhouseCoopers), where he was a certified public accountant and where he held positions of increasing responsibility from staff auditor to senior audit manager. Mr. Caswell received a B.A. in economics from Alfred University and an M.S. in accounting from Syracuse University. Mr. Caswell brings to our board of directors a substantial financial background and extensive experience in financial planning, mergers and acquisitions, U.S. government contracting, tax and accounting matters. Andrew L. Davis was appointed as our Chief Financial Officer and Secretary in October 2021. Mr. Davis has been employed by the Company since May 2021. From 2017 to 2020, Mr. Davis served as chief financial officer of Altice Technical Services, a division of Altice USA, Inc. (NYSE:ATUS), one of the largest broadband communications and video services providers in the United States. From 2007 to 2017, Mr. Davis worked at Emerson Radio Corporation, an NYSE-listed distributor of consumer electronics, first as vice president of finance and corporate controller and then as executive vice president and chief financial officer, a position he held for more than six years. Mr. Davis holds a Master of Business Administration degree from University of Connecticut in finance and a Bachelor of Business Administration degree in accounting from Iowa State University. Michael Faber has been a director since August 2013 and chair of our Nominating & Corporate Governance Committee since June 2014. Since 1996, Mr. Faber has served as Chief Executive Officer of NextPoint Management Company, Inc., an investment and strategic advisory firm, advising family offices on a variety of issues, including asset manager selection and oversight, direct investing, and trust and estates. Additionally, Mr. Faber currently serves as a lead director of Invesque, Inc., a director of Capitalworks Emerging Markets Acquisition Corp., as a senior advisor to a family office with more than $2 billion in assets and as a director or senior advisor to a number of private companies and asset management firms. From 1990 to 2008, Mr. Faber was a General Partner of the NextPoint and Walnut family of investment funds, focusing on private equity, venture capital, and structured investments. Previously, Mr. Faber was a senior advisor to the law firm of Akerman, of counsel to the law firm of Mintz Levin, an attorney with the law firm of Arnold & Porter, and a senior consultant to The Research Council of Washington, the predecessor to The Corporate Executive Board Company. Mr. Faber has served on audit and compensation committees for a number of companies. Mr. Faber is an honors graduate and John M. Olin Fellow of the University of Chicago Law School and attended the Johns Hopkins University School of International Studies and the State University of New York. Mr. Faber brings to our board of directors his legal and financial expertise as well as his years of investment and general business experience. Kenneth Hauser has been our Senior Vice President of Operations since 2020. Prior to that he was Vice President of Global Supply Chain Management since 2013. Prior to that, he held the position of Director, Global Supply Chain Management for which he was hired in 2011. Prior to joining CPI Aero, Mr. Hauser had a 30-year career at Northrop Grumman where he held various management positions for Manufacturing/Operations and Global Supply Chain. Mr. Hauser’s last position with Northrop Grumman was as the E-2D Global Supply Chain Program Manager, where he had responsibility for cost, quality and schedule performance of all procured parts and major aircraft structures. Mr. Hauser holds a Bachelor of Technology in Management of Technology from State University of New York at Farmingdale and a Master of Science in Management of Technology from Polytechnic University. Douglas McCrosson has been our Chief Executive Officer, President and a director since March 2014. Mr. McCrosson joined the Company in 2003 as Director of Business Development. During his tenure, he has held positions of increasing responsibility, including Vice President of Business Development and Senior Vice President of Operations, where he headed CPI’s business development, engineering, procurement and manufacturing operations. Subsequently, he was promoted to the position of Chief Operating Officer in January 2010 before becoming President and Chief Executive Officer. He has 35 years of aerospace experience, having started his career as a mechanical engineer at Grumman Corporation, now Northrop Grumman. Mr. McCrosson holds a Bachelor of Science degree in mechanical engineering from the State University of New York at Buffalo and a Master of Science degree in Management from the New York University Polytechnic School of Engineering. He has served as a member of the Board of Governors of the Aerospace Industries Association, a trade association representing major aerospace and defense manufacturers and suppliers in the United States. He is a member of the board of directors of the Long Island Association, the leading business association in the Long Island region and he serves the local community as a Director of United Way of Long Island. Mr. McCrosson provides our board of directors with unique knowledge of the Company’s business, operations and management and his other extensive experience in the Company’s industry. 54 Walter Paulick has been a director since April 1992. He served as the chair of our Nominating & Corporate Governance Committee from March 2004 until June 2015 and as chair of our Audit Committee from June 2006 until April 2007. Mr. Paulick is a self-employed real estate development consultant. From 1982 to November 1992, Mr. Paulick was a vice president of Parr Development Company, Inc., a real estate development company. From 1974 to 1982, Mr. Paulick was a vice president of National Westminster U.S.A. Mr. Paulick holds an Associate degree in Applied Science from Suffolk Community College and a Bachelor of Business Administration from Dowling College. Mr. Paulick’s background in banking and real estate development, and his general business knowledge provides our board of directors with a diverse perspective on the Company’s industry and business in our region. Thomas Powers served as our Acting Chief Financial Officer and Secretary from February 2020 to October 2021. Mr. Powers has been employed by the Company since January 2019, serving as Director of Financial Planning and Analysis until February 2020. Prior to joining the Company, Mr. Powers worked for Triumph Group, a multi-billion dollar publicly owned aerospace manufacturer, where he last served as Vice President of Financial Planning and Analysis. At Triumph, he previously held positions of Group Controller, Division Controller and served as Interim Chief Financial Officer. Eric S. Rosenfeld is the Chairman Emeritus of our board of directors. Mr. Rosenfeld served as the non-executive chairman of our board of directors from January 2005 until November 2018. He has also served as chair of our Strategic Planning Committee since April 2003. Mr. Rosenfeld has been the President and Chief Executive Officer of Crescendo Partners, L.P., a New York based investment firm, since its formation in November 1998. Prior to forming Crescendo Partners, he held the position of Managing Director at CIBC Oppenheimer and its predecessor company, Oppenheimer & Co., Inc., for 14 years. Mr. Rosenfeld is the Chief SPAC Officer of Legato Merger Corp., a special purpose acquisition company formed in June 2020. Mr. Rosenfeld currently serves as a director for several companies, including Primo Water Corporation (formerly Cott) (NYSE: PRMW), a leading water service company, Pangea Logistics Solutions Ltd. (Nasdaq: PANL) (and Quartet Merger Corp. prior to its merger with Pangea Logistics Solutions Ltd., for which he also served as Chief Executive Officer), a maritime logistics and shipping company, and Aecon Group, Inc. (TSE: ARE), a construction company, and Algoma Steel, Inc., a fully integrated producer of hot and cold rolled steel products. Mr. Rosenfeld previously served on the board of directors of several companies, including Canaccord Genuity (TSE: CF), a financial services company, Absolute Software Corporation (TSE: ABT), a provider of security and management for computers and ultra-portable devices, NextDecade LLC (Nasdaq: NEXT) (and Harmony Merger Corp. prior to its merger with NextDecade LLC, for which he also served as Chief Executive Officer), a natural gas company, SAExploration Holdings Inc. (Nasdaq: SAEX) (and Trio Merger Corp. prior to its merger with SAEX, for which he also served as Chief Executive Officer), a geophysical services company, Primoris Services Corporation (Nasdaq: PRIM) (and Rhapsody Acquisition Corporation prior to its merger with PRIM, for which he also served as Chief Executive Officer), a holding company for specialty contractor and infrastructure businesses, DALSA Corp., a digital imaging and semiconductor manufacturer, and Hill International Inc. (NYSE: HIL) (and Arpeggio Acquisition Corp. prior to its merger with HIL, for which he also served as Chief Executive Officer), a construction project management firm. Mr. Rosenfeld has also served as the Chief SPAC Officer of Legato Merger Corp, a blank check corporation that later merged with Algoma Steel, Inc. He was also the Chief Executive Officer of Allegro Merger Corp., a blank check company previously listed on Nasdaq. Mr. Rosenfeld is a regular guest lecturer at Columbia Business School and has served on numerous panels at Queen’s University Business Law School Symposia, McGill Law School, the World Presidents’ Organization and the Value Investing Congress. He is a senior faculty member at the Director’s College. He has also been a guest host on CNBC. Mr. Rosenfeld received an A.B. in economics from Brown University and an M.B.A. from the Harvard Business School. Mr. Rosenfeld provides our board of directors with expertise in finance and financial markets and with experience derived from his service on the boards of other public and private companies. Terry Stinson is the Non-Executive Chairman of the Board, a position which he has held since November 2018. Mr. Stinson was the chair of the compensation committee of the board from June 2014 until June 2018 and has been a director since June 2014. Mr. Stinson is Chief Executive Officer of his own consulting practice, Stinson Consulting, LLC, a position he has held since 2001. Stinson Consulting is engaged in strategic alliances and marketing for the aerospace industry. From January 2013 until May 31, 2014, he served as Executive Vice President of AAR CORP., an international, publicly traded aerospace manufacturing and services company. Mr. Stinson currently serves as an independent consultant to AAR CORP. From August 2007 until January 2013, Mr. Stinson served as Group Vice President of AAR CORP. From 2002 to 2005, Mr. Stinson served as Chief Executive Officer of Xelus, Inc., a collaborative enterprise service management solution company. From 1998 to 2001, Mr. Stinson was Chairman and Chief Executive Officer of Bell Helicopter Textron Inc., the world’s leading manufacturer of vertical lift aircraft, and served as President from 1996 to 1998. From 1991 to 1996, Mr. Stinson served as Group Vice President and Segment President of Textron Aerospace Systems and Components for Textron Inc. From 1986 to 1996, he was President of the Hamilton Standard division of United Technologies Corporation, a defense supply company. Mr. Stinson previously served as a director of Lennox International Inc., a company engaged in the design and manufacture of heating, ventilation, air conditioning, and refrigeration products, serving on such company’s Board Governance, Compensation, and Human Resources Committees. Mr. Stinson previously served as a director of Triumph Group, Inc., a company engaged in the manufacturing and repair of aircraft components, subassemblies, and systems, from September 2003 to March 2008. As a former senior executive of two Fortune 500 companies, Mr. Stinson contributes to our board of directors his extensive management and marketing experience in the aerospace industry, as well as his general business acumen and experience developed by serving on other public company boards. 55 Family Relationships There are no family relationships among any of the Company’s directors or Named Executive Officers. Independence of Directors/Audit Committee Financial Expert Our common stock is listed on the NYSE American LLC exchange (“NYSE American”), a stock exchange affiliated with the New York Stock Exchange. As a result, we follow the rules of the NYSE American exchange in determining whether a director is independent. The NYSE American exchange listing standards define an “independent director” generally as a person, other than an officer or employee of the Company, who does not have a relationship with the Company that would interfere with the director’s exercise of independent judgment. Our board of directors consults with our legal counsel to ensure that our board of directors’ determinations are consistent with NYSE American exchange rules and all relevant securities and other laws and regulations regarding the independence of directors. Consistent with these considerations, the Nominating & Corporate Governance Committee determined on April 26, 2021 that Carey Bond, Richard Caswell, Michael Faber, Walter Paulick, Eric Rosenfeld, and Terry Stinson will be independent directors of the Company for the ensuing year. The remaining director, Douglas McCrosson, is not independent because he is currently employed by us. All members of our Audit & Finance, Compensation & Human Resources, and Nominating & Corporate Governance Committees are independent. Our board of directors has determined that each of Messrs. Caswell and Faber, members of our Audit & Finance Committee, meet the criteria of an “Audit Committee Financial Expert” under applicable SEC rules. Code of Ethics Our board of directors has adopted a written code of ethics which applies to our directors, officers, and employees, and which is designed to deter wrongdoing and to promote ethical conduct, full, fair, accurate, timely, and understandable disclosure in reports that we file or submit to the SEC and others, compliance with applicable government laws, rules, and regulations, prompt internal reporting of violations of the code, and accountability for adherence to the code. A copy of the code of ethics may be found on our website at www.cpiaero.com/board.html . Leadership Structure Our board of directors has determined to keep separate the positions of board chairman and principal executive officer at this time. This permits our principal executive officer to concentrate his efforts primarily on managing the Company’s business operations and development. This also allows us to maintain an independent chairman of the board who oversees, among other things, communications and relations between our board of directors and senior management, consideration by our board of directors of the Company’s strategies and policies, and the evaluation of our principal executive officers by our board of directors. Changes to Shareholder Director Nomination Procedures There have been no material changes to the procedures by which shareholders may recommend director nominees to our Board. Item 11. EXECUTIVE COMPENSATION Compensation Objectives Our executive compensation program is designed to attract, retain, and motivate highly qualified executive officers in the competitive aerospace and defense industry. Additionally, a substantial portion of total compensation of our Named Executive Officers is variable and delivers rewards based on Company and individual performance. Company performance is measured against metrics established by the Compensation & Human Resources Committee each year. Such metrics typically focus on the achievement of financial targets such as revenue and free cash flow, to align our executives’ pay with the Company’s financial results and the creation of shareholder value. Individual performance is measured against each individual’s contributions to the Company’s overall success. As in prior years, the Compensation & Human Resources Committee continued to engage the services of Talent & Rewards LLC, an independent compensation consulting firm in 2020 to provide advice and guidance in evaluating and adjusting the compensation of our Named Executive Officers. 56 There are three major components to our compensation program for our Named Executive Officers: ● Base Salary - fixed compensation, designed to recognize responsibilities, experience, and performance. ● Short-Term Cash Incentives - annual cash incentive, as a percentage of base salary, paid upon the achievement of Company performance goals set by the Compensation & Human Resources Committee during the first fiscal quarter. This variable at-risk compensation motivates and rewards executives with respect to short-term performance ● Long-Term Equity Incentives - annual grants of restricted stock, 50% of which is subject to time-based vesting, and 50% of which vests upon the achievement of Company financial performative-metric thresholds set by our Compensation & Human Resources Committee. This variable at-risk compensation aligns executive interests with long-term shareholder value creation. Summary Compensation Table The following table sets forth the compensation paid to or earned by each of our Named Executive Officers for each of the fiscal years ended December 31, 2020 and 2019. Year Salary ($) (1) Stock Awards ($) (2) Non-Equity Incentive Compensation ($) (3) All Other ($) Total ($) Douglas McCrosson – Chief Executive Officer 2020 365,768 138,630 (4) —  (6) 24,780 (7) 529,178 2019 365,761 274,319 (5) —  (6) 28,836 (8) 668,916 Thomas Powers* – Former Acting Chief Financial Officer 2020 224,994 59,400 (9) 45,000 4,384 (10) 333,778 Vincent Palazzolo* – Former Chief Financial Officer 2020 — — — — — 2019 272,195 (11) 108,019 (12) — 339,614 (13) 719,828 Dan Azmon* – Former Chief Financial Officer 2020 42,981 (14) — — 860 (18) 43,841 2019 34,615 (15) 73,700 (16) 30,000 (17) 577 (19) 138,892 Kenneth Hauser – Sr. Vice President of Operations 2020 230,006 28,007 (20) 68,425 9,916 (22) 336,354 2019 228,021 55,420 (21) 48,171 2,801 (23) 334,413 * Thomas Powers served as our Acting Chief Financial Officer from February 12, 2020 to October 22, 2021. Previously, Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020, and Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019. (1) Reflects actual base salary amounts paid to for each of the years indicated. (2) Reflects grant date fair market value of restricted stock grants awarded to our Named Executive Officers as part of their performance-based annual bonus. (3) Represents amounts awarded in cash to our Named Executive Officers as part of their performance-based annual bonus. Awards were earned in the year provided, but were not made until the following fiscal year. (4) Reflects the grant date fair value of 42,009 shares of restricted stock granted to Mr. McCrosson on August 26, 2020, which shares are subject to time-based and performance-based vesting over four years. Does not reflect the forfeiture of 5,251 shares by Mr. McCrosson on April 21, 2021, in accordance with the terms of his restricted stock award agreement with the Company. (5) Reflects the grant date fair value of 42,009 shares of restricted stock granted to Mr. McCrosson on April 2, 2019, which shares are subject to time-based and performance-based vesting over four years. Does not reflect the forfeiture of 5,251 shares by Mr. McCrosson on August 26, 2020 and 5,251 shares on April 21, 2021, in accordance with the terms of his restricted stock award agreement with the Company. 57 (6) Mr. McCrosson and the Compensation & Human Resources Committee agreed that Mr. McCrosson would forego $97,783 and $224,457 of short-term incentive cash bonus that Mr. McCrosson earned for 2019 and 2020, respectively, in consideration of the recent decline in the Company’s stock price and the challenges the Company is facing due to, among other things, economic conditions and uncertainties resulting from the COVID-19 pandemic. (7) Represents (a) $12,393 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $6,968 of disability insurance premiums; and (c) $5,418 of 401(k) contributions. (8) Represents (a) $17,156 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $6,222 of disability insurance premiums; and (c) $5,459 of 401(k) contributions. (9) Reflects the grant date fair value of (i) 9,346 shares of restricted stock granted to Mr. Powers on August 26, 2020, which shares are subject to time-based vesting over one year and (ii) 8,654 shares of restricted stock granted to Mr. Powers on August 26, 2020, which shares are subject to time-based and performance-based vesting over four years. Does not reflect the forfeiture of 1,082 shares by Mr. Powers on April 21, 2021, in accordance with the terms of his restricted stock agreement with the Company. (10) Represents $4,384 of 401(k) contributions. (11) Represents a pro-rated amount of Mr. Palazzolo’s annual base salary of $286,048 through his termination by the Company without cause in November 2019. (12) Reflects the grant date fair value of 16,542 shares of restricted stock granted to Mr. Palazzolo on April 2, 2019, which shares are subject to time-based and performance-based vesting over four years. Does not reflect the aggregate of 38,906 shares which Mr. Palazzolo forfeited upon his termination by the Company without cause in November 2019 in accordance with the terms of his restricted stock award agreements with the Company. (13) Includes an aggregate severance payment of $339,614 and the following perquisites paid in 2019: (a) $16,476 of an automobile lease, insurance, and maintenance attributable to personal use; (b) $5,082 of disability insurance premiums; and (c) $4,950 of 401(k) contributions. (14) Represents five and a half weeks’ pro-rated salary at an annual rate of $300,000. (15) Represents six weeks’ pro-rated salary at an annual rate of $300,000. (16) Represents the equity portion of a signing bonus. Such amount was subsequently forfeited when Mr. Azmon resigned. (17) Represents the non-equity portion of a signing bonus. Such amount was subsequently forfeited when Mr. Azmon resigned. (18) Represents $860 of 401(k) contributions. (19) Represents (a) $505 of an automobile lease, insurance and maintenance attributable to personal use and (b) $72 of disability insurance premiums. (20) Reflects the grant date fair value of 8,487 shares of restricted stock granted to Mr. Hauser on August 26, 2020, which shares are subject to time-based and performance-based vesting over four years. Does not reflect the forfeiture of 1,061 shares by Mr. Hauser on April 21, 2021, in accordance with the terms of his restricted stock award agreement with the Company. (21) Reflects the grant date fair value of 8,487 shares of restricted stock granted to Mr. Hauser on April 2, 2019, which shares are subject to time-based and performance-based vesting over four years. Does not reflect the forfeiture of 1,061 shares by Mr. Hauser on August 26, 2020 and 1,061 shares on April 21, 2021, in accordance with the terms of his restricted stock award agreement with the Company. (22) Represents (a) $4,440 of an automobile lease, insurance and maintenance attributable to personal use, (b) $881 of disability insurance premiums, and (c) $4,595 of 401(k) contributions. (23) Represents (a) $1,920 of an automobile lease, insurance and maintenance attributable to personal use and (b) $881 of disability insurance premiums. 58 Compensation Arrangements for Named Executive Officers Douglas McCrosson In 2016, Mr. McCrosson entered into a Severance and Change in Control Agreement with us (the “Severance and Change in Control Agreement”), the details of which are outlined below under the heading “Payments upon Termination or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr. McCrosson is prohibited from disclosing confidential information and he has agreed not to compete with us without our consent during the term of employment and for 18 months thereafter, so long as we make severance payments to Mr. McCrosson pursuant to the agreement. During 2019, Mr. McCrosson’s base salary was $365,761. He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary upon the attainment of Company growth targets measured by pre-tax income, cash flow from operations, revenue, and book to bill ratio, plus an additional non-discretionary performance based cash bonus equal to 3% of his base salary upon the attainment of each of four performance objectives, for an aggregate of 12%. Mr. McCrosson and the Compensation & Human Resources Committee agreed that Mr. McCrosson would forego $97,783 of short-term incentive cash bonus that Mr. McCrosson earned for 2019 in consideration of the recent decline in the Company’s stock price and the challenges the Company is facing due to, among other things, economic conditions and uncertainties resulting from the COVID-19 pandemic. In addition, during 2019, Mr. McCrosson was awarded an aggregate of 42,009 shares of restricted stock (with a fair market value on the date of grant of $274,319) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2019 metrics were growth targets measured by revenue, pre-tax income, and cash flow from operations. The 2019 performance-based vesting metrics were not all met and, therefore, Mr. McCrosson forfeited 18,930 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016. During 2020, Mr. McCrosson’s base salary was $365,761. He was entitled to receive a non-discretionary performance based cash bonus equal to 60% of his base salary upon the attainment of Company growth targets measured by the Company’s ending cash balance at December 31, 2020, amount of accounts payable delinquency at December 31, 2020, book to bill ratio, and full-year earnings per share. Mr. McCrosson and the Compensation & Human Resources Committee agreed that Mr. McCrosson would forego $224,457 of short-term incentive cash bonus that Mr. McCrosson earned for 2020 in consideration of the recent decline in the Company’s stock price and the challenges the Company is facing due to, among other things, economic conditions and uncertainties resulting from the COVID-19 pandemic. In addition, during 2020, Mr. McCrosson was awarded an aggregate of 42,009 shares of restricted stock (with a fair market value on the date of grant of $138,630) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2020 metrics were growth targets measured by accounts payable delinquency, the ratio of bank debt to cash, and 2020 net profit. The 2020 performance-based vesting metrics were not all met and, therefore, Mr. McCrosson forfeited 18,982 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2020, 2019, 2018, and 2017. Thomas Powers In 2019, Mr. Powers entered into a Severance and Change in Control Agreement with us, the details of which are outlined below under the heading “Payments upon Termination or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr. Powers is prohibited from disclosing confidential information and he has agreed not to compete with us without our consent during the term of employment and for 12 months thereafter, so long as we make severance payments to Mr. Powers pursuant to the agreement. Thomas Powers served as our Acting Chief Financial Officer from February 12, 2020 to October 22, 2021. During 2020, Mr. Powers’ base salary was $223,560, representing a ten and a half month pro-rated amount of his annual base salary of $225,000 as Acting Chief Financial Officer and one and a half months as our Director of Financial Planning and Analysis. He was entitled to receive a non-discretionary performance based cash bonus equal to 25% of his base salary upon the attainment of Company growth targets measured by the Company’s ending cash balance at December 31, 2020, amount of accounts payable delinquency at December 31, 2020, full-year earnings per share, reduction of the Company’s bank debt, and management of expenses. On August 26, 2020, Mr. Powers received a one-time equity award of 9,346 shares of restricted stock (with a fair market value on the date of grant of $30,842) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock will vest one year from the date of grant, subject to Mr. Powers’ continuing employment with us. In addition, during 2020, Mr. Powers was awarded an aggregate of 8,654 shares of restricted stock (with a fair market value on the date of grant of $28,558) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2020 metrics were growth targets measured by accounts payable delinquency, the ratio of bank debt to cash, and 2020 net profit. The 2020 performance-based vesting metrics were not all met and, therefore, Mr. Powers forfeited 1,082 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2020. 59 Vincent Palazzolo Vincent Palazzolo served as our Chief Financial Officer from 2004 until November 2019. During 2019, Mr. Palazzolo’s base salary was $272,195, representing an eleven-month pro-rated amount of his annual base salary of $286,048 through his termination in November 2019. Upon his termination, Mr. Palazzolo was entitled to severance payments in an amount of $339,614 and forfeited an aggregate of 38,906 shares of restricted stock. Dan Azmon Mr. Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020. During 2019, Mr. Azmon received a base salary of $34,615, representing a two-month pro-rated amount of his annual base salary of $300,000. Mr. Azmon also received a cash signing bonus in the amount of $30,000 and an equity grant of 10,000 shares of restricted common stock, which shares were subject to cliff vesting on November 18, 2022 subject to Mr. Azmon’s continuing employment with the Company. Upon Mr. Azmon’s resignation on February 10, 2020, he repaid the cash signing bonus and forfeited the equity portion of his signing bonus. Kenneth Hauser In 2016, Mr. Hauser entered into a Severance and Change in Control Agreement with us, the details of which are outlined below under the heading “Payments upon Termination or Change in Control.” Pursuant to the Severance and Change in Control Agreement, Mr. Hauser is prohibited from disclosing confidential information and he has agreed not to compete with us without our consent during the term of employment and for 12 months thereafter, so long as we make severance payments to Mr. Hauser pursuant to the agreement. During 2019, Mr. Hauser’s base salary was $221,677. He was entitled to receive a non-discretionary performance based cash bonus targeted at 25% of his base salary upon the attainment of Company targets measured by revenue, inventory levels, and product deliveries, among other measures. For the year ended December 31, 2019, Mr. Hauser received $48,171 in performance-based cash compensation, which was paid in 2020. In addition, during 2019, Mr. Hauser was awarded an aggregate of 8,487 shares of restricted stock (with a fair market value on the date of grant of $55,419) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2019 metrics were growth targets measured by revenue, pre-tax income, and cash flow from operations. The 2019 performance-based vesting metrics were not all met and, therefore, Mr. Hauser forfeited 3,904 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2019, 2018, 2017, and 2016. During 2020, Mr. Hauser’s base salary was $230,000. He was entitled to receive a non-discretionary performance based cash bonus equal to 35% of his base salary upon the attainment of Company growth targets determined by the Company’s Chief Executive Officer. In addition, during 2020, Mr. Hauser was awarded an aggregate of 8,487 shares of restricted stock (with a fair market value on the date of grant of $28,007) pursuant to the Company’s 2016 long-term incentive plan. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the applicable fiscal year. The fiscal 2020 metrics were growth targets measured by accounts payable delinquency, the ratio of bank debt to cash, and 2020 net profit. The 2020 performance-based vesting metrics were not all met and, therefore, Mr. Hauser forfeited 3,805 shares of restricted stock, representing the performance-based portion of the restricted stock granted in 2020, 2019, 2018, and 2017. 60 Outstanding Equity Awards at Fiscal Year-End The following tables summarize the outstanding stock awards as of December 31, 2020 for each Named Executive Officer. Stock Awards Grant Date Number of Shares of Stock Unvested (#) (1) Equity Incentive Plan Awards: Number of Unearned Shares (#) (2) Market Value of Shares Unvested ($) (3) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares ($) (3) Douglas McCrosson – Chief Executive Officer 8/2/2016 — 20,795 — 79,645 3/1/2017 6,927 14,692 26,529 56,271 3/20/2018 13,474 11,465 51,604 43,910 4/2/2019 26,979 9,779 103,329 37,454 8/27/2020 35,743 6,266 136,896 23,999 Thomas Powers – Former Acting Chief Financial Officer 8/26/2020 9,346 (4) — 35,795 — 8/26/2020 8,654 — 33,145 — Dan Azmon – Former Chief Financial Officer* 11/18/2019 — 10,000 (5) — 38,300 Kenneth Hauser – Sr. Vice President of Operations 8/2/2016 — 4,637 — 17,758 3/1/2017 1,265 3,037 4,844 11,632 3/20/2018 2,509 2,431 9,609 9,309 4/2/2019 5,248 2,178 20,101 8,341 8/27/2020 6,953 1,534 26,630 5,875 * Dan Azmon served as our Chief Financial Officer from November 2019 until his resignation on February 10, 2020. (1) Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which have yet to vest. The shares of restricted stock vest on a four year schedule, as follows: 50% of the shares are subject to time-based vesting, and vest in four equal annual installments on the day after the filing of the Company’s Annual Report on Form 10-K each year; the remaining 50% of the shares are subject to performance-based vesting, and vest upon the achievement of all Company financial performative-metric thresholds for each fiscal year as identified by our Compensation & Human Resources Committee no later than 90 days following January 1 of the following fiscal year. The fiscal 2016 metrics were growth targets measured by EBITDA and revenue, the fiscal 2017 metrics were growth targets measured by revenue and year-end inventory, the fiscal 2018 metrics were growth targets measured by backlog, revenue, and year-end inventory, the fiscal 2019 metrics were growth targets measured by measured by revenue, pre-tax income, and cash flow from operations, and the fiscal 2020 metrics were growth targets measured by accounts payable delinquency, the ratio of bank debt to cash, and 2020 net profit. (2) Reflects shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which were forfeited in 2017, 2018, 2019, and 2020, and shares of restricted stock withheld to satisfy tax obligations. Does not include shares of restricted stock granted pursuant to the Company’s 2016 long-term incentive plan which were forfeited in 2021 (as such shares had not been forfeited as of December 31, 2020). (3) Calculated using the closing price per share of the Company’s common stock on the last date of fiscal year 2020. (4) Represents a one-time equity award of restricted stock which was made to Mr. Powers on the filing date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Such shares will vest one year from the grant date, subject to Mr. Powers’ continuing employment with the Company. (5) Represents a one-time equity award of restricted stock which was made to Mr. Azmon on November 18, 2019. Such shares were subject to cliff vesting on November 18, 2022 and were forfeited upon Mr. Azmon’s resignation from the Company on February 10, 2020. 61 Pension Benefits Other than our 401(k) plan, we do not maintain any other plan that provides for payments or other benefits at, following, or in connection with retirement. Payments upon Termination or Change in Control The Severance and Change in Control agreements with our Named Executive Officers provide for varying types and amounts of payments and additional benefits upon termination of employment, depending on the circumstances of the termination. ● Termination without cause . If employment is terminated by the Company other than for cause, as defined in the agreements, then (i) with respect to Mr. McCrosson, he is entitled to (x) continued salary for 18 months, (y) any earned cash bonus not yet paid for the fiscal year most recently ended prior to the date of termination, and (z) a prorated cash bonus calculated using the cash bonus amount earned for the year most recently ended prior to the date of termination, and (ii) with respect to Mr. Powers or Mr. Hauser, he is entitled to (x) continued salary for 12 months, (y) any earned cash bonus not yet paid for the fiscal year most recently ended prior to the date of termination, and (z) a prorated cash bonus calculated using the cash bonus amount earned for the year most recently ended prior to the date of termination. A non-competition provision will apply for as long as severance payments are being paid. Any unvested restricted stock will be forfeited and any unexercised options will expire. ● Termination for cause, or if the executive quits . If one of our Named Executive Officers voluntarily terminates his employment, or if the Company terminates his employment for cause, he is not entitled to any severance payments and is not bound by a non-compete clause, however he is still bound by any confidentially and non-disparagement duties. Any unvested restricted stock will be forfeited and any unexercised options will expire. ● Termination for disability . If one of our Named Executive Officers is terminated because of a disability, as defined in the Severance and Change in Control agreements, then he will receive severance as if he had been terminated without cause. ● Termination following a change in control . If the employment of one of our Named Executive Officers is terminated within 18 months following a change in control by the Company other than for cause or disability or by him for good reason (all such terms as defined in the Severance and Change in Control Agreements), he is entitled to (i) his base salary earned through the date of termination, (ii) any earned cash bonus not yet paid for the fiscal year most recently ended prior to the date of termination, and (iii) a prorated portion of the his annual cash bonus for the portion of the year he worked, assuming all applicable targets had been met. In addition, he will be entitled to a change in control payment: (x) for Mr. McCrosson, in an amount equal to two times total compensation (base salary plus cash bonus) for either the fiscal year most recently ended prior to the date of termination or the preceding fiscal year, whichever is the highest total compensation; (y) for Mr. Powers or Mr. Hauser, in an amount equal to one and one-half times his base salary for the fiscal year most recently ended prior to the date of termination. Upon any change in control, all outstanding stock options and restricted stock will vest immediately for such Named Executive Officer. Health insurance and other fringe benefits will continue for the Named Executive Officer for a period of six months after termination. The following table summarizes the amounts payable upon termination of employment for our Named Executive Officers, assuming termination occurred on December 31, 2020 under the current Severance and Change in Control Agreements with each such Named Executive Officer. For purposes of presenting amounts payable over a period of time (e.g., salary continuation), the amounts are shown as a single total but not as a present value (the single sum does not reflect any discount). To the extent the termination accelerates vesting of equity awards, the value presented below is based upon the Company’s stock price as of December 31, 2020, and assumes the achievement of all applicable performance benefits. Potential Termination Payments Name Disability By Company for Cause By Company without Cause Change in Control Cash ($) Equity Cash ($) Equity Cash ($) Equity Cash ($) Equity Douglas McCrosson 646,435 — — — 646,435 — 1,265,300 318,361 Thomas Powers 237,001 — — — 237,001 — 393,750 68,940 Kenneth Hauser 278,177 — — — 278,177 — 425,500 61,184 62 Compensation of Directors Directors who are employees of the Company do not receive separate compensation for their service as a director. Our non-executive directors receive a mix of cash compensation and stock compensation for their service to our Company. Each year, our Compensation & Human Resources Committee determines the total amount of non-executive director compensation, as well as the allocation among cash and stock compensation, and takes into consideration, among other things, the Company’s performance relative to its guidance, the extent to which director compensation aligns the interests of our directors with the interests of our shareholders, compensation awarded to directors of similarly sized companies in our industry, and past practices. Our Compensation & Human Resources Committee is also tasked with reviewing the compensation paid to non-executive directors and making recommendations to our board of directors for any adjustments deemed necessary as a result of their review. In December 2018, our board of directors determined that the following structure would properly incentivize non-executive directors and adequately recognize the additional work performed by board committee chairs: Chairman of the Board, $200,000; Chair of each of the Audit & Finance Committee and Strategic Planning Committee, $140,000 each; Chair of the Compensation & Human Resources Committee, $125,000; Chair of the Nominating & Corporate Governance Committee, $120,000; and all other non-executive directors, $100,000 each. In August 2020, our board of directors created a new position of Non-Executive Vice Chairperson of the Board and set the compensation for such role at $165,000. Mr. Bond was appointed to serve as Non-Executive Vice Chairperson of the Board in August 2020. The following table summarizes the compensation of our non-executive directors for the year ended December 31, 2020. Name Fees Earned or Paid in Cash ($) Stock Awards ($) (1) Total ($) Carey Bond (2) 151,745 98,998 250,743 Janet Cooper (3) 37,823 56,733 94,556 Richard Caswell (4) 22,167 13,301 35,468 Michael Faber 48,000 71,998 119,998 Walter Paulick 40,000 59,998 99,998 Eric Rosenfeld 56,000 83,997 139,997 Terry Stinson 80,000 120,003 200,003 (1) Represents stock awarded to directors during 2020 in the form of RSUs, all of which had vested by December 31, 2019. The Company accounts for compensation expense associated with RSUs based on the fair value of the units on the date of grant. (2) Mr. Bond became Chairman of the Oversight Committee in March 2020 and Non-Executive Vice Chairman of the Board in August 2020. Includes the pro-rated portion of his additional compensation. (3) Ms. Cooper was chair of our Audit & Finance Committee until October 2020. (4) Mr. Caswell joined our board of directors and became chair of the Audit & Finance Committee in November 2020. Represents the pro-rated portion of compensation. Non-Employee Director Stock Ownership Policy In July 2019, upon the recommendation of the Compensation & Human Resources Committee, our board of directors revised its stock ownership policy for non-employee directors. Under the prior policy, non-employee directors were required to own stock of the Company valued at least four times his or her annual cash compensation before and following any stock sales. In order to better align the long-term interests of non-employee directors with our shareholders, our board revised the policy as follows: non-employee directors are now expected to own shares of stock equal to five times the then cash portion of the annual non-employee director’s compensation within five years of joining the board. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The table and accompanying footnotes below set forth certain information as of November 17, 2021, with respect to the ownership of our common stock by: ● each person or group who beneficially owns more than 5% of our common stock; ● each of our directors and our director nominees; ● each of our Named Executive Officers; and ● all of our directors and executive officers as a group. 63 A person is deemed to be the beneficial owner of securities that can be acquired by the person within 60 days from the record date. Accordingly, common stock issuable upon exercise of options that are currently exercisable, or exercisable within 60 days of November 17, 2021, have been included in the table with respect to the beneficial ownership of the person owning the options. Name and Address of Beneficial Owner (1) Shares Beneficially Owned (2) Percent of Class (3) Directors and Named Executive Officers: Douglas McCrosson 184,449 (4) 1.5 % Thomas Powers 36,579 (5) * Kenneth Hauser 49,416 (6) * Carey Bond 62,422 * Richard Caswell 27,691 * Michael Faber 61,933 * Walter Paulick 74,990 * Eric Rosenfeld 782,348 (7) 6.4 % Terry Stinson 112,080 * All current directors and named executive officers as a group (nine persons) 1,391,908 11.4 % Five Percent Holders: Royce & Associates, LLC 778,953 (8) 6.4 % * Less than 1% (1) Unless otherwise noted, the business address of each of the following persons is c/o CPI Aerostructures, Inc., 91 Heartland Blvd., Edgewood, New York 11717. (2) Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all common stock beneficially owned by them, subject to community property laws, where applicable. With respect to our executive officers, this includes both time-based and performance-based restricted stock awards that are forfeitable until the vesting date or performance certification date, as applicable. It does not include portions of restricted stock awards which have been forfeited. With respect to our non-executive directors, this includes time-based restricted stock units (“RSUs”). RSUs are granted on the first day of the year and vest quarterly upon completion of service as a director. Such shares of restricted stock and such RSUs are included herein because they confer voting rights and therefore may be deemed to be beneficially owned under Rule 13d-3(a)(1) promulgated under the Exchange Act. (3) As of November 17, 2021, there were 12,312,347 shares of our common stock issued and outstanding. Each person beneficially owns a percentage of our outstanding common stock equal to a fraction, the numerator of which is the number shares of our common stock held by such person plus the number of shares of our common stock that such person can acquire within 60 days the record date upon the exercise of options, if applicable, and the denominator of which is 12,312,347 (the number of shares of our common stock outstanding) plus the number of shares of our common stock such person can so acquire during such 60-day period. (4) Includes an aggregate of 125,522 shares subject to time-based or performance-based vesting. (5) Includes an aggregate of 26,391 shares subject to time-based or performance-based vesting. (6) Includes an aggregate of 31,241 shares subject to time-based or performance-based vesting. (7) Represents 272,078 shares of common stock owned individually and 510,270 shares of common stock held by Crescendo Partners II, L.P. Series L (“Crescendo Partners II”). Mr. Rosenfeld is the senior managing member of the sole general partner of Crescendo Partners II. Mr. Rosenfeld disclaims beneficial ownership of the shares held by Crescendo Partners II, except to the extent of his pecuniary interest therein. (8) The information with respect to Royce & Associates, LLC is derived from an Amendment to Schedule 13G/A filed with the SEC on January 21, 2021. The business address of Royce & Associates, LLC is 745 Fifth Avenue, New York, NY 10151. 64 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Related-Party Policy . Our Code of Ethics requires us to avoid, wherever possible, all related-party transactions that could result in actual or potential conflicts of interest, except under guidelines approved by our board of directors (or our Audit & Finance Committee). SEC rules generally define related-party transactions as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our common stock, or (c) immediate family member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position. Our Audit & Finance Committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. Our Audit & Finance Committee considers all relevant factors when determining whether to approve a related-party transaction, including whether the related-party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related-party’s interest in the transaction. No director may participate in the approval of any transaction in which he or she is a related-party, but that director is required to provide our Audit & Finance Committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete a directors’ and officers’ questionnaire annually that elicits information about related-party transactions. These procedures are intended to determine whether any such related-party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee, or officer. Related-Party Transactions . There were no related-party transactions during the year ended December 31, 2020. Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES CohnReznick LLP (“CohnReznick”) has served as our independent registered public accounting firm since 2004. The following fees were invoiced by CohnReznick to the Company for services which CohnReznick rendered related to the following 2020 and 2019 activities : Year Ended December 31, 2020 2019 Audit Fees (1) $ 452,000 $ 331,500 Audit-Related Fees (2) 677,900 — Tax Fees — — All Other Fees — — Total Fees $ 1,129,900 $ 331,500 (1) Audit fees consist of fees billed for professional services by CohnReznick for audit and quarterly review of the Company’s consolidated financial statements during the years ended December 31, 2020 and 2019, and related services normally provided in connection with statutory and regulatory filings or engagements. (2) Audit-related fees represent the aggregate fees billed for assurance and related professional services rendered by CohnReznick that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.” For the year ended December 31, 2020, audit-related fees included fees incurred in connection with the audit of the Company’s restatement of its financial statements and advice regarding the application of generally accepted accounting principles for the Company’s completed acquisition of Welding Metallurgy, Inc. 65 Pre-Approval Policies and Procedures . In accordance with Section 10A(i) of the Exchange Act, before we engage our independent registered public accounting firm to render audit or non-audit services, the engagement is approved by our Audit & Finance Committee. Our Audit & Finance Committee approved all of the fees referred to in the rows titled “Audit Fees” and “Audit-Related Fees” in the table above. 66 PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report: (1) Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 (As Restated) and 2019 (As Restated) Consolidated Statements of Operations for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated) Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated) Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated) Notes to Financial Statements (2) Financial Statement Schedules: None. (3) The following Exhibits are filed as part of this report: Exhibit No. Description 3.1 Certificate of Incorporation of the Company, as amended, (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020). 3.1.1 Certificate of Amendment of the Certificate of Incorporation of Composite of Precision Industries, Inc., dated May 9, 1989 (incorporated by reference to Exhibit 3.1.1 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020). 3.1.2 Certificate of Amendment of the Certificate of Incorporation of Consortium Products International, Inc., dated June 30, 1992 (incorporated by reference to Exhibit 3.1.2 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020). 3.1.3 Certificate of Amendment of the Certificate of Incorporation of CPI Aerostrucutres, Inc., dated August 7, 1992 (incorporated by reference to Exhibit 3.1.3 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020). 3.1.4 Certificate of Amendment of the Certificate of Incorporation of CPI Aerostrucutres, Inc., dated June 3, 1997 (incorporated by reference to Exhibit 3.1.4 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020). 3.1.5 Certificate of Amendment of the Certificate of Incorporation of CPI Aerostrucutres, Inc., dated June 16, 1998 (incorporated by reference to Exhibit 3.1.5 to the Company’s Annual Report on Form 10-K, filed on August 25, 2020). **3.2 Amended and Restated By-laws of the Company. **4.1 Securities of the Registrant. 10.1 Performance Equity Plan 2009 (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on April 30, 2009). 10.2 2016 Long-Term Incentive Plan, as amended (incorporated by reference from Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on April 15, 2021). 10.3.1 Agreement of Lease, dated June 30, 2011, between Heartland Boys II L.P. and CPI Aerostructures, Inc. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 10-Q for the quarter ended June 30, 2011). **10.3.2 Lease Amendment, dated November 11, 2020 between Heartland Boys II L.P. and CPI Aerostructures, Inc. 10.3.3 Second Lease Amendment, dated November 10, 2021, between Heartland Boys II L.P. and CPI Aerostructures, Inc.(incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 12, 2021). 10.4.1 Amended and Restated Credit Agreement, dated as of March 24, 2016, among CPI Aerostructures, Inc., the several lenders from time to time party thereto, and BankUnited, N.A. (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 28, 2016). 10.4.2 First Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 10, 2016). 67 10.4.3 Second Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.4.3 to the Company’s Annual Report on Form 10-K filed on August 25, 2020). 10.4.4 Third Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 16, 2018). 10.4.5 Fourth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 27, 2018). 10.4.6 Fifth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 26, 2019). 10.4.7 Waiver and Sixth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 24, 2020). 10.4.8 Waiver and Seventh Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 17, 2021). 10.4.9 Waiver and Eighth Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Annual Report on Form 10-K filed on October 28, 2021). 10.5 Amended and Restated Continuing General Security Agreement among CPI Aerostructures, Inc. and BankUnited N.A. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 28, 2016). **21 Subsidiaries of the Registrant. **23.1 Consent of CohnReznick LLP. **31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **31.2 Certifcation of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. **32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 905 of the Sarbanes-Oxley Act of 2002. ***101.INS XBRL Instanse Document. ***101.SCH XBRL Taxonomy Extension Scheme Document. ***101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. ***101.DEF XBRL Taxonomy Extension Definition Linkbase Document. ***101.LAB XBRL Taxonomy Extension Label Linkbase Document. ***101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. * * Filed herewith. *** XBRL information is furnished and not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise as subject to liability under these sections. 68 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-1 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2020 (As Restated) and 2019 (As Restated) F-5 Consolidated Statements of Operations for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated) F-6 Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated) F-7 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 (As Restated) and 2019 (As Restated) F-8 Notes to Consolidated Financial Statements F-9 - F-48 69 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of CPI Aerostructures, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of CPI Aerostructures, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, shareholders’ deficit and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Restatement of Previously Issued Consolidated Financial Statements Subsequent to the issuance of the Company’s consolidated financial statements on April 15, 2021, management determined that these consolidated financial statements contained errors as discussed in Note 17 to the consolidated financial statements. The accompanying consolidated financial statements have been restated to correct these errors. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. F- 1 Revenue Recognition Critical Audit Matter Description The majority of the Company’s revenues for its contracts are recognized over-time as the Company (i) sells products with no alternative use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date. The Company uses the cost-to-cost input method to measure progress for its performance obligations because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. Under the over-time revenue recognition model, revenue and gross profit are recognized over the contract period as work is performed based on actual costs incurred, an estimate of costs to complete and resulting total estimated costs at completion. Given the complexity of the estimates regarding the revenue and costs associated with such contracts, auditing these estimates required extensive audit effort and a high degree of auditor judgement to devise, execute and evaluate the results of appropriate audit procedures. How the Critical Audit Matter was Addressed in the Audit Our principal audit procedures related to the Company’s revenue, costs and profit for these contracts included the following: · We obtained an understanding of and evaluated the design and implementation of the controls that address the risk of material misstatement of contract revenue including those associated with cost to complete estimates for long-term fixed price contracts. · We selected a sample of contracts with customers and performed the following: o Evaluated whether the recognition of revenue over time on such contracts was appropriate based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward fulfilling the performance obligation. o Compared the transaction price to the consideration to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers. o Tested the accuracy and completeness of the costs incurred to date for the performance obligation. o Evaluated the estimates of total cost and profit for the performance obligation by: § Comparing costs incurred to date to the costs management estimated to be incurred to date. § Comparing management’s estimates for selected contracts to cost and profit estimates for similar current and historic performance obligations. § Performing retrospective reviews of management’s judgments and estimates and comparing actual performance to estimated performance, when evaluating the thoroughness and precision of management’s estimation process. § We analytically evaluated selected quarter over quarter changes in contract profit estimates by obtaining explanations from the Company’s project managers regarding timing and amount of costs incurred and corroborating and assessing the reasonableness of these responses by obtaining documents such as signed purchase orders and contract change orders. o Tested the mathematical accuracy of management’s calculation of revenue recognized during the period for the performance obligations. F- 2 Liquidity Evaluation Critical Audit Matter Description Management has concluded that there were sufficient resources available to meet its obligations and fund operations for at least one year from the date the consolidated financial statements were available to be issued and expects to be in compliance with the required debt covenants established under its credit facility. The Company’s strategies include significant judgments and estimates involved in the execution of their business plans which include the ability to maintain and grow its funded backlog orders. We identified liquidity as a critical audit matter due to the significant management estimates supporting their conclusion that they will remain in compliance with the established debt covenant requirements and have sufficient liquidity to sustain normal operations for at least one year from the date the consolidated financial statements were available to be issued. This in turn led to a high degree of auditor subjective judgement to evaluate the evidence supporting the liquidity considerations and related conclusion. Management’s liquidity conclusion is relevant to the users of the consolidated financial statements and that also impacted our assessment of liquidity as a critical audit matter. How the Critical Audit Matter was Addressed in the Audit Our principal audit procedures related to the Company’s liquidity evaluation included the following: · Obtained an understanding of the Company’s process to estimate future cash flows, including methods, inputs and significant assumptions used in developing the liquidity assessment. · Evaluated the reasonableness of management’s income statement, balance sheet, and cash flow projections for at least one year from the date the consolidated financial statements were available to be issued by comparing the forecasted financial information to historical results, funded and unfunded backlog, newly obtained contracts as well as considered the Company’s ability to exit loss contracts and the overall change in business strategies to primarily focus on government versus commercial contracts. · Evaluated the adequacy of the Company’s disclosure of these circumstances in the consolidated financial statements. · Evaluated the impact of actual results incurred to date on the Company’s projections and covenant calculation through the date the consolidated financial statements were available to be issued. Inventory and Associated Reserves Critical Audit Matter Description As disclosed in the notes to the consolidated financial statements, inventories are stated at the lower of weighted average cost or net realizable value. As disclosed in the Note 17 to the consolidated financial statements, the Company identified inventory costing errors which, had they been appropriately accounted for, would have affected the Company’s previously reported inventory valuation. In connection with the identification of costing errors, the Company assessed the impact on estimated sales margins of their existing inventory, which resulted in the identification of future contractual losses. As a result, the Company recorded a contractual loss liability and a charge was recorded to cost of sales for estimated losses in instances where the estimated costs to satisfy the contractual performance obligations are in excess of the contract consideration. Also related thereto, the Company recorded a write-down for other reserves on inventories based on historical open backlogs and historical forecasts for future demand and market conditions. The complexity of the restated valuation of inventories as well as the evaluation of the established loss contracts and other related reserves required extensive audit effort and a high degree of auditor judgment. F- 3 How the Critical Audit Matter was Addressed in the Audit Our principal audit procedures related to the Company’s valuation of inventory and associated reserves as well as the financial reporting of such included the following: · We obtained an understanding of and evaluated the design and implementation of the controls that address the risk of material misstatement of the restatement adjustments . · For selected non-percentage of completion contracts with customers, we performed the following: o Compared the open quantities at each historical reporting period and respective transaction price to the consideration to be received based on current rights and obligations under the contracts and any modifications that were agreed upon with the customers. o We assessed the Company’s contract costs by comparing them to costed inventory and production estimates. · For selected inventory items, we performed the following: o We re-evaluated our previously performed procedures over the specific restated inventory costing adjustments and re-evaluated our conclusions. We also selected additional items to test, including as described below. o We tested the completeness and accuracy of the data associated with the inventory costing adjustments by tracing to the underlying invoice documentation, time cards and payroll support. o We tested that the Company appropriately accounted for overhead costs by obtaining supporting documentation for the actual costs incurred, comparing to amounts recorded and considered the propriety of the amounts capitalized. o We recalculated the required write-downs and losses and compared the results to the recorded amounts. · We evaluated the adequacy of the Company’s disclosure of these circumstances in the consolidated financial statements. /s/ CohnReznick LLP We have served as the Company’s auditors since 2004 New York, New York April 15, 2021, except for the effects on the consolidated financial statements and related footnotes of the restatement described in Notes 17 and 18, as to which the date is November 24, 2021. F- 4 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, December 31, 2020 (As Restated – see Note 17) 2019 (As Restated – see Note 17) ASSETS Current Assets: Cash $ 6,033,537 $ 4,052,109 Restricted cash — 1,380,684 Accounts receivable, net 4,962,906 7,029,602 Contract assets 19,729,638 15,280,807 Inventory 6,386,288 4,906,253 Refundable income taxes 40,000 474,904 Prepaid expenses and other current assets 534,857 721,964 Total Current Assets 37,687,226 33,846,323 Operating lease right-of-use assets 4,075,048 3,886,863 Property and equipment, net 2,521,742 3,282,939 Intangibles, net 250,000 375,000 Goodwill 1,784,254 1,784,254 Other assets 191,179 179,068 Total Assets $ 46,509,449 $ 43,354,447 LIABILITIES AND SHAREHOLDERS’ DEFICIT Current Liabilities: Accounts payable $ 12,092,684 $ 8,199,557 Accrued expenses 5,937,921 2,372,522 Contract liabilities 1,650,549 3,561,707 Loss reserve 2,009,247 3,965,913 Current portion of long-term debt 6,501,666 2,484,619 Operating lease liabilities 1,819,237 1,709,153 Income taxes payable 948 1,216 Total Current Liabilities 30,012,252 22,294,687 Line of credit 20,738,685 26,738,685 Long-term operating lease liabilities 2,537,149 2,596,784 Long-term debt, net of current portion 6,205,095 1,764,614 Total Liabilities 59,493,181 53,394,770 Shareholders’ Deficit : Common stock - $ .001 par value; authorized 50,000,000 shares, 11,951,271 and 11,818,830 shares, respectively, issued and outstanding 11,951 11,819 Additional paid-in capital 72,005,841 71,294,629 Accumulated deficit ( 85,001,524 ) ( 81,346,771 ) Total Shareholders’ Deficit ( 12,983,732 ) ( 10,040,323 ) Total Liabilities and Shareholders’ Deficit $ 46,509,449 $ 43,354,447 see notes to CONSOLIDATED financial statements F- 5 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Years ended December 31, 2020 (As Restated see Note 17) 2019 (As Restated see Note 17) Revenue $ 87,584,690 $ 87,518,688 Cost of sales 77,824,732 80,687,080 Gross profit 9,759,958 6,831,608 Selling, general and administrative expenses 12,046,170 11,562,781 Loss from operations ( 2,286,212 ) ( 4,731,173 ) Other expense: Other income — 89,666 Interest expense ( 1,421,955 ) ( 2,104,851 ) Total other expense, net ( 1,421,955 ) ( 2,015,185 ) Loss before provision for income taxes ( 3,708,167 ) ( 6,746,358 ) Provision for/ (benefit from) income taxes ( 53,414 ) 3,877 Net loss $ ( 3,654,753 ) $ ( 6,750,235 ) Loss per common share-basic $ ( 0.31 ) $ ( 0.57 ) Loss per common share-diluted $ ( 0.31 ) $ ( 0.57 ) Shares used in computing loss per common share: Basic 11,884,307 11,808,052 Diluted 11,884,307 11,808,052 see notes to CONSOLIDATED financial statements F- 6 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT Years ended December 31, 2020 (As Restated see Note 17) and 2019 (As Restated see Note 17) Common Stock Shares Common Stock Amount Additional Paid-in Capital Accumulated Deficit Total Shareholders’ (Deficit) Balance at January 1, 2019 11,718,246 $ 11,718 $ 70,651,413 $ ( 74,596,536 ) $ ( 3,933,405 ) Net loss (as restated) — — — ( 6,750,235 ) ( 6,750,235 ) Costs related to stock offering — — ( 119,571 ) — ( 119,571 ) Common stock issued as employee compensation 4,950 5 32,319 — 32,324 Stock-based compensation expense 95,634 96 730,468 — 730,564 Balance at December 31, 2019 11,818,830 11,819 71,294,629 ( 81,346,771 ) ( 10,040,323 ) Net loss (as restated) — — — ( 3,654,753 ) ( 3,654,753 ) Stock-based compensation expense 132,441 132 711,212 — 711,344 Balance at December 31, 2020 11,951,271 $ 11,951 $ 72,005,841 $ ( 85,001,524 ) $ ( 12,983,732 ) see notes to CONSOLIDATED financial statements F- 7 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 2020 (As Restated – see Note 17) 2019 (As Restated – see Note 17) Cash flows from operating activities: Net loss $ ( 3,654,753 ) $ ( 6,750,235 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,032,986 1,124,063 Amortization of debt issuance costs 95,429 95,507 Cash expended in excess of rent expense ( 137,737 ) ( 112,048 ) Stock-based compensation expense 711,344 730,564 Common stock issued as employee compensation — 32,324 Bad debt (recovery) expense ( 23,395 ) 34,098 Changes in operating assets and liabilities: Decrease in accounts receivable 2,090,091 1,807,802 (Increase) decrease in contract assets ( 4,448,831 ) 2,308,059 (Increase) decrease in inventory ( 1,480,035 ) 1,212,469 Decrease in prepaid expenses and other current assets 187,107 1,202,189 Decrease in refundable income taxes 434,904 394,902 Increase (decrease) in accounts payable and accrued expenses 7,458,527 ( 678,380 ) Decrease in contract liabilities ( 1,911,158 ) ( 1,968,872 ) (Decrease) increase in loss reserve ( 1,956,666 ) 302,353 Decrease in income taxes payable ( 268 ) ( 112,777 ) Net cash used in operating activities ( 1,602,455 ) ( 377,982 ) Cash flows from investing activities: Purchase of property and equipment ( 146,788 ) ( 436,010 ) Net cash used in investing activities ( 146,788 ) ( 436,010 ) Cash flows from financing activities: Payment of line of credit — ( 1,300,000 ) Proceeds from line of credit — 4,000,000 Proceeds from PPP loan 4,795,000 — Payment of long-term debt ( 2,337,473 ) ( 2,436,786 ) Stock offering costs paid — ( 119,571 ) Debt issuance costs ( 107,540 ) ( 25,000 ) Net cash provided by financing activities 2,349,987 118,643 Net increase (decrease) in cash and restricted cash 600,744 ( 695,349 ) Cash and restricted cash at beginning of year 5,432,793 6,128,142 Cash and restricted cash at end of year $ 6,033,537 $ 5,432,793 Supplemental schedule of noncash investing activities: Equipment acquired under capital lease $ 134,900 $ 399,800 Supplemental schedule of cash flow information: Cash paid during the year for interest $ 1,490,152 $ 2,066,174 Cash (received) from income taxes $ ( 488,052 ) $ ( 378,652 ) See notes to CONSOLIDATED financial statements F- 8 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company consists of CPI Aerostructures, Inc. (“CPI”) and Welding Metallurgy, Inc. (“WMI”), a wholly owned subsidiary acquired on December 20, 2018 and Compac Development Corporation (“Compac”), a wholly owned subsidiary of WMI, collectively the “Company.” CPI is a U.S. supplier of aircraft parts for fixed wing aircraft and helicopters in both the commercial and defense markets. We manufacture complex aerostructure assemblies, as well as aerosystems. Additionally, we supply parts for maintenance, repair and overhaul (“MRO”) and kitting contracts. An operating segment, in part, is a component of an enterprise whose operating results are regularly reviewed by the chief operating decision maker (the “CODM”) to make decisions about resources to be allocated to the segment and assess its performance. Operating segments may be aggregated only to a limited extent. The Company’s CODM, the Chief Executive Officer, reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenues for purposes of making operating decisions and assessing financial performance. The Company has determined that it has a single operating and reportable segment. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires the use of estimates by management. Actual results could differ from these estimates. Business Combinations The Company applied acquisition accounting for the WMI acquisition in accordance with Accounting Standards Codification 805, “Business Combinations” (“ASC 805”). Acquisition accounting requires that the assets acquired and liabilities assumed be recorded at their respective estimated fair values at the date of acquisition. The excess purchase price over fair value of the net assets acquired is recorded as goodwill. In determining estimated fair values, we are required to make estimates and assumptions that affect the recorded amounts including, but not limited to, expected future cash flows, discount rates, remaining useful lives of long-lived assets, useful lives of identified intangible assets, replacement or reproduction costs of property and equipment and the amounts to be recovered in future periods from acquired net operating losses and other deferred tax assets. Our estimates in this area impact, among other items, the amount of depreciation and amortization, impairment charges in certain instances if the asset becomes impaired, and income tax expense or benefit that we report. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain. Revenue Recognition Effective January 1, 2018, the Company adopted Accounting Standards Codification Topic 606, “Revenue from Contracts with Customers” (“ASC 606”), using the modified retrospective method. In accordance with ASC 606, the Company recognizes revenue when it transfers control of a promised good or service to a customer in an amount that reflects the consideration it expects to be entitled to in exchange for the good or service. The majority of the Company’s performance obligations are satisfied over-time as the Company (i) sells products with no alternative use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date. Under the over-time revenue recognition model, revenue and gross profit are recognized over the contract period as work is performed based on actual costs incurred and an estimate of costs to complete and resulting total estimated costs at completion. In 2020, the Company corrected its application of ASC 606, which resulted in a restatement of its previously issued consolidated financial statements for 2018 and the first three quarters of 2019. See Note 2, “Revenue Recognition”, for additional information regarding the Company’s revenue recognition policy. F- 9 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Government Contracts The Company’s government contracts are subject to the procurement rules and regulations of the U.S. government. Many of the contract terms are dictated by these rules and regulations. Specifically, cost-based pricing is determined under the Federal Acquisition Regulation (“FAR”), which provides guidance on the types of costs that are allowable in establishing prices for goods and services under U.S. government contracts. For example, costs such as those related to charitable contributions, advertising, interest expense, and public relations are unallowable, and therefore not recoverable through sales. During and after the fulfillment of a government contract, the Company may be audited in respect to the direct and allocated indirect costs attributable thereto. These audits may result in adjustments to the Company’s contract cost, and/or revenue. When contractual terms allow, the Company invoices its customers on a progress basis. Cash The Company maintains its cash in six financial institutions. The balances are insured by the Federal Deposit Insurance Corporation. From time to time, the Company’s balances may exceed these limits. As of December 31, 2020 and 2019, the Company had $ 6,024,418 and $ 4,020,203 , respectively, of uninsured balances. The Company limits its credit risk by selecting financial institutions considered to be highly credit worthy. Accounts Receivable Accounts receivable are reported at their outstanding unpaid principal balances. The Company writes off accounts when they are deemed to be uncollectible. Inventory Inventories are reported at lower of cost or net realizable value using weighted average actual cost. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization of property and equipment is provided by the straight-line method over the shorter of estimated useful lives of the respective assets or the life of the lease, for leasehold improvements. Leases The Company leases a building and equipment. Under ASC 842, at contract inception we determine whether the contract is or contains a lease and whether the lease should be classified as an operating or a finance lease. Operating leases are included in ROU assets and operating lease liabilities in our consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The determination of the length of lease terms is affected by options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The existence of significant economic incentive is the primary consideration when assessing whether the Company is reasonably certain of exercising an option in a lease. Both finance and operating lease ROU assets and liabilities are recognized at commencement date and measured as the present value of lease payments to be made over the lease term. As the interest rate implicit in the lease is not readily available for most of the Company’s leases, the Company uses its estimated incremental borrowing rate in determining the present value of lease payments. The estimated incremental borrowing rate is derived from information available at the lease commencement date. The lease ROU asset recognized at commencement is adjusted for any lease payments related to initial direct costs, prepayments, and lease incentives. For operating leases, lease expense is recognized on a straight-line basis over the lease term. For finance leases, lease expense comprises the amortization of the ROU assets recognized on a straight-line basis generally over the shorter of the lease term or the estimated useful life of the underlying asset and interest on the lease liability. Variable lease payments not dependent on a rate or index are recognized when the event, activity, or circumstance in the lease agreement upon which those payments are contingent is probable of occurring and are presented in the same line of the consolidated balance sheet as the rent expense arising from fixed payments. The Company has lease agreements with lease and non-lease components. Non-lease components are combined with the related lease components and accounted for as lease components for all classes of underlying assets. F- 10 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES On January 1, 2019, the Company recognized right of use assets and lease liabilities in the range of approximately $ 5.3 million to $ 5.9 million , respectively, on its consolidated balance sheet using an estimated incremental borrowing rate of 6 %. At December 31, 2020 the Company has right of use assets and lease liabilities of approximately $ 4.1 million and $ 4.4 million respectively. Long-Lived Assets The Company reviews its long-lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Company does not believe that any such change has occurred. If such changes in circumstance are present, a loss is recognized to the extent the carrying value of the asset is in excess of the fair value of cash flows expected to result from the use of the asset and amounts expected to be realized upon its eventual disposition. Short-Term Debt The fair value of the Company’s short-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Using this method, the fair value of the Company’s short-term debt was not significantly different than the stated value at December 31, 2020 and 2019. Fair Value At December 31, 2020 and 2019, the fair values of cash, accounts receivable and accounts payable approximated their carrying values because of the short-term nature of these instruments . 2020 2019 Carrying Amount Fair Value Carrying Amount Fair Value Debt Line of credit and long-term debt $ 33,445,446 $ 33,445,446 $ 30,987,918 $ 30,987,918 We estimated the fair value of debt using market quotes and calculations based on market rates. Loss Per Share Basic loss per common share is computed using the weighted-average number of shares outstanding. Diluted loss per common share is computed using the weighted-average number of shares outstanding adjusted for the incremental shares attributed to outstanding options to purchase common stock. There were no incremental shares that were used in the calculation of diluted loss per common share in 2020 and 2019. Since the Company is in a loss position no incremental shares were used in the calculation of diluted loss per share since these shares would be considered anti-dilutive. Income taxes Income taxes are accounted for under the asset and liability method whereby deferred tax assets and liabilities are recognized for future tax consequences attributable to the temporary differences between the consolidated financial statements carrying amounts of 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 in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company’s policy is to record estimated interest and penalties related to uncertain tax positions in income tax expense. F- 11 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Recently Adopted Accounting Pronouncements In January 2017, the FASB issued Accounting Standards Update No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU-2017-04”). ASU 2017-04 is intended to simplify how all entities assess goodwill for impairment. This is accomplished by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit’s “implied” goodwill. The goodwill impairment test consists of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity may still perform the optional qualitative assessment for a reporting unit to determine if it is more likely than not that goodwill is impaired. However, the ASU 2017-04 eliminates the requirement to perform a qualitative assessment for any reporting unit with zero or negative carrying amount. The Company adopted ASU-2017-4 for the year ended December 31, 2020. COVID-19 The outbreak of the COVID-19 coronavirus was declared a pandemic by the World Health Organization during our first quarter of 2020. During the latter part of our first quarter and subsequent to our quarter end, the COVID-19 pandemic grew, causing non-essential businesses to shut down and many people to observe the shelter-in-place directive from our state government. Our business and operations and the industries in which we operate have been impacted by public and private sector policies and initiatives in the U.S. to address the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote work. The COVID-19 pandemic has contributed to a general slowdown in the global economy, has adversely impacted the businesses of certain of our customers and suppliers, and, if it continues for an extended period of time, it could adversely impact our results of operations and financial condition. In response to the COVID-19 impact on our business, we have been and continue to actively mitigate costs. We have also been taking actions to preserve capital and protect the long-term needs of our businesses, including negotiating progress payments with our customers and reducing discretionary spending. Liquidity At December 31, 2020, our cash balance was $ 6,033,537 compared to $ 4,052,109 at December 31, 2019, an increase of $ 1,981,428 . Our accounts receivable balance at December 31, 2020 decreased to $ 4,962,906 from $ 7,029,602 at December 31, 2019. At December 31, 2020, we had working capital of $ 7,674,974 compared to working capital of $ 11,551,636 at December 31, 2019. On August 24, 2020, the Company entered into a Sixth Amendment and Waiver (the “Sixth Amendment”) its Amended and Restated Credit Agreement (as amended from time to time the “Credit Agreement”) with the Lenders named therein and BankUnited, N.A. (“BankUnited”) as Sole Arranger, Agent and Collateral Agent (the “BankUnited Facility”). Under the Sixth Amendment, the parties amended the Credit Agreement by extending the maturity date of the Revolving Loan and Term Loan to May 2, 2022 and making conforming changes to the repayment schedule of the Term Loan, by increasing the Term Loan $ 6 .0 million and reducing the Revolving Loan by $ 6 .0 million. The maturities of the Term Loan are included in the maturities of long-term debt. The BankUnited Facility, as amended by the Sixth Amendment, required us to maintain the following financial covenants: (a) maintain a debt service coverage ratio of no less than 1.5 to 1.0 at December 31, 2020 and no less than 1.25 to 1.0 for the trailing four quarter period at the end of each quarter thereafter; (b) maintain a minimum net income, after taxes, of no less than $ 1.00 ; (c) effective March 31, 2021, maintain a maximum leverage ratio at the end of each quarter for the trailing four quarter period of no more than 4.0 to 1.0; (d) maintain a minimum adjusted EBITDA at the end of each quarter of no less than $ 1 million ; and (e) maintain a minimum liquidity of $ 3 million at all times. As of December 31, 2020 and 2019, the Company had $ 20.7 million and $ 26.7 million respectively as outstanding under the BankUnited Facility. Our working capital requirements can vary significantly, depending in part on the timing of new program awards and the payment terms with our customers and suppliers. We continue to work to obtain better payment terms with our customers, including accelerated progress payment arrangements, as well as exploring alternative funding sources. The Company currently has a shareholders’ deficit and has experienced continuing losses from operations and negative cash flows from operations for the year ended December 31, 2020 which collectively represent significant risks to the Company to continue to operate as a going concern. To address these matters, the Company has (a) negotiated a revised credit facility with BankUnited effective October 28. 2021, (b) in the fourth quarter exited an unprofitable program to avoid continuing cash losses, (c) obtained and is seeking additional progress payment and advance payment customer contract funding provisions, (d) initiated new procedures to reduce investments in inventory and contract assets, (e) remained focused on its military segment which has proven to be less susceptible to COVID-19 related impacts and (f) maintained a strong (approximately $ 170 million) backlog of funded orders, 98 % of which are for military programs. Based upon management’s assessment of the identified significant risks and the execution of the plans described above, management believes that substantial risk does not exist as to whether the Company’s liquidity and debt resources will be sufficient to meet its obligations and covenant requirements as a going concern for at least one year from the date these financial statements were available to be issued. F- 12 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES On May 11, 2021, the Company entered into a Waiver and Seventh Amendment (“Seventh Amendment”) to the Credit Agreement. Under the Seventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to July 31, 2022 , and (b) amending the leverage ratio covenant for the fiscal quarters ending on and after March 31, 2021, to 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended). Additionally, under the Seventh Amendment, BankUnited waived late delivery of certain financial information. On October 28, 2021, the Company entered into a Waiver and Eighth Amendment (the “Eighth Amendment”). Under the Eighth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to December 31, 2022, (b) reducing the availability under the Revolving Loan from $ 24 million to $ 21 million while eliminating the requirement to maintain a minimum $ 3 .0 million in a combination of Revolving Loan availability and unrestricted cash, (c) providing for the repayment of an additional $ 750,000 of the principal balance of the Term Loan in three installments of $ 250,000 on November 30, 2021, December 31, 2021 and March 31, 2022 in addition to $ 200,000 regular monthly principal payments through maturity, (d) amending the minimum debt service coverage ratio covenant for the fiscal quarters ending on and after June 30, 2021 to provide for a ratio of 1.5 to 1.0, and (e) amending the maximum leverage ratio covenant as follows: for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0; for the fiscal quarter ending June 30, 2021 - 4.75 to 1.0; for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended). Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and waived temporarily, late delivery of certain financial information. BUSINESS COMBINATION In December 2018, the Company completed the acquisition of WMI from Air Industries for a purchase price of $ 7.9 million , subject to a potential post-closing working capital adjustment. Of the purchase price, $ 2 million was placed in escrow at closing and was to be released after the completion of the working capital adjustment and for indemnification contingencies. Air Industries objected to the Company’s calculation of the post-closing working capital adjustment and rejected the determination of BDO USA, LLP (“BDO”), the independent accountant appointed by the parties to resolve the dispute. On September 27, 2019, the Company filed a notice of motion in the Supreme Court of the State of New York, County of New York, against Air Industries seeking, among other things, a judgment against Air Industries in the amount of approximately $ 4.1 million. In October 2019, Air Industries and the Company jointly authorized the release to the Company of approximately $ 619,000 from escrow, which represented the value of certain undisputed items. The remaining escrowed amount of approximately $ 1,381,000 is shown as restricted cash on the consolidated balance sheet. The additional disputed amount of approximately $ 2.1 million is not on the Company’s consolidated balance sheet due to the uncertainty of collection. The Company and Air Industries entered into a settlement agreement (“Settlement Agreement”) dated as of December 23, 2020, to resolve the post-closing working capital adjustment dispute in exchange for the release to the Company of the $ 1,381,000 cash remaining in escrow. Such amount was released from escrow to the Company on December 28, 2020. As part of the settlement agreement the Company agreed to give up the right to pursue the additional disputed working capital amount of approximately $ 2.1 million. F- 13 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 2. REVENUE RECOGNITION Contracts with Customers and Performance Obligations The majority of the Company’s revenues are from long-term contracts with the U.S. government and commercial contractors. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For the Company, the contract under ASC 606 is typically established upon execution of a purchase order either in accordance with a long-term customer contract or on a standalone basis. To determine the proper revenue recognition for our contracts, we must evaluate whether two or more contracts should be combined and accounted for as a single contract, and whether the combined or single contract should be accounted for as one performance obligation or more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or to separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a period. A performance obligation is a promise within a contract to transfer a distinct good or service to the customer in exchange for payment and is the unit of account for recognizing revenue. The Company’s performance obligations in its contracts with customers are typically the sale of each individual product contemplated in the contract or a single performance obligation representing a series of products when the contract contains multiple products that are substantially the same. The Company has elected to account for shipping performed after control over a product has transferred to a customer as fulfillment activities. When revenue is recognized in advance of incurring shipping costs, the costs related to the shipping are accrued. Shipping costs are included in costs of sales. The Company provides warranties on many of its products; however, since customers cannot purchase such warranties separately and they do not provide services beyond standard assurances, warranties are not separate performance obligations. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. For contracts with more than one performance obligation, the Company allocates the transaction price to each performance obligation based on its estimated standalone selling price. When standalone selling prices are not available, the transaction price is allocated using an expected cost plus margin approach as pricing for such contracts is typically negotiated on the basis of cost. The contracts with the U.S. government typically are subject to the Federal Acquisition Regulation (FAR) which provides guidance on the types of costs that are allowable in establishing prices for goods and services provided under U.S. government contracts. The pricing for commercial contractors are based on the specific negotiations with each customer and any taxes imposed by governmental authorities are excluded from revenue. The transaction price is primarily comprised of fixed consideration as the customer typically pays a fixed fee for each product sold. The Company does not adjust the amount of revenue to be recognized under a customer contract for the effects of the time value of money when the timing difference between receipt of payment and transferring the good or service is less than one year. The majority of the Company’s performance obligations are satisfied over time as the Company (i) sells products with no alternative use to the Company and (ii) has an enforceable right to recover costs incurred plus a reasonable profit margin for work completed to date. The Company uses the cost-to-cost input method to measure progress for its performance obligations because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on its contracts. The Company generally utilizes the portfolio approach to estimate the amount of revenue to recognize for its contracts and groups contracts together that have similar characteristics. Contract gross profit margins are calculated using the estimated costs for either the individual contract or the portfolio as applicable. Significant judgment is used to determine which contracts are grouped together to form a portfolio. The portfolio approach is utilized only when the result of the accounting is not expected to be materially different than if applied to individual contracts. The Company’s contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. The effect of a contract modification on the transaction price, and the measure of progress for the performance obligation to which it relates, are recognized prospectively when the remaining goods or services are distinct and on a cumulative catch-up basis when the remaining goods or services are not distinct. The Company also has contracts that are considered point in time. Under the point in time revenue recognition model, revenue is recognized when control of the components has transferred to the customer, in most cases this will be based on shipping terms. F- 14 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Contract Estimates Certain contracts contain forms of variable consideration, such as price discounts and performance penalties. The Company generally estimates variable consideration using the most likely amount based on an assessment of all available information (i.e., historical experience, current and forecasted performance) and only to the extent it is probable that a significant reversal of revenue recognized will not occur when the uncertainty is resolved. In applying the cost-to-cost input method, the Company compares the actual costs incurred relative to the total estimated costs expected at completion to determine its progress towards satisfying its performance obligation and to calculate the corresponding amount of revenue to recognize. For any costs incurred that do not depict the Company’s performance in transferring control of goods or services to the customer, the Company excludes such costs from its input method measure of progress as the amounts are not reflected in the price of the contract. Costs that are inputs to the satisfaction of a performance obligation include labor, materials and subcontractors’ costs, other direct costs and an allocation of indirect costs. Changes to the original estimates may be required during the life of the contract. Estimates are reviewed quarterly and the effect of any change in the estimated gross margin percentage for a contract is reflected in revenue in the period the change becomes known. ASC 606 involves considerable use of estimates and judgment in determining revenues, costs and profits and in assigning the amounts to accounting periods. For instance, management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation, execution by our subcontractors, the availability and timing of funding from the customer, and overhead cost rates, among other variables. The Company continually evaluates all of the factors related to the assumptions, risks and uncertainties inherent with the application of the cost-to-cost input method; however, it cannot be assured that estimates will be accurate. If estimates are not accurate, or a contract is terminated which will affect estimates at completion, the Company is required to adjust revenue in the period the change is determined. When changes are required for the estimated total revenue on a contract, these changes are recognized on a cumulative catch-up basis in the current period. A significant change in one or more estimates could affect the profitability of one or more of our performance obligations. If estimates of total costs to be incurred exceed estimates of total consideration the Company expects to receive, a provision for the remaining loss on the contract is recorded in the period in which the loss becomes evident. Capitalized Contract Acquisition Costs and Fulfillment Costs Contract acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained. The Company does not typically incur contract acquisition costs or contract fulfillment costs that are subject to capitalization in accordance with the guidance in Accounting Standards Codification Subtopic 340-40, “Other Assets and Deferred Costs—Contracts with Customers.” Disaggregation of Revenue The following table presents the Company’s revenue disaggregated by contract type: Year Ended December 31, 2020 Year Ended December 31, 2019 Aerostructure $ 34,248,296 $ 41,921,232 Aerosystems 14,787,309 26,624,568 Kitting and Supply Chain Management 38,549,085 18,972,888 Total $ 87,584,690 $ 87,518,688 F- 15 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Transaction Price Allocated to Remaining Performance Obligations As of December 31, 2020, the aggregate amount of transaction price allocated to the remaining performance obligations was approximately $ 170 million. This represents the amount of revenue the Company expects to recognize in the future on contracts with unsatisfied or partially satisfied performance obligations as of December 31, 2020. The Company estimates that it will recognize approximately 54 % of this amount in fiscal year 2021, approximately 28 % in fiscal year 2022 and the remainder in fiscal year 2023. 3. CONTRACT ASSETS AND LIABILITIES Contract assets represent revenue recognized on contracts in excess of amounts invoiced to the customer and the Company’s right to consideration is conditional on something other than the passage of time. Amounts may not exceed their net realizable value. Under the typical payment terms of our government contracts, the customer retains a portion of the contract price until completion of the contract, as a measure of protection for the customer. Our government contracts therefore typically result in revenue recognized in excess of billings, which we present as contract assets. Contract assets are classified as current. The Company’s contract liabilities represent customer payments received or due from the customer in excess of revenue recognized. Contract liabilities are classified as current. Revenue recognized for the year ended December 31, 2020, that was included in the contract liabilities balance as of January 1, 2020 was $ 3.6 million and as of January 1, 2019 was $ 5.2 million . 4. RECONCILIATION OF CASH AND RESTRICTED CASH The following table provides a reconciliation of cash and restricted cash reported within the statement of cash flows that sum to the total of the same such amounts shown in the statement of cash flows : December 31, 2020 December 31, 2019 Cash $ 6,033,537 $ 4,052,109 Restricted cash — 1,380,684 Total cash and restricted cash shown in the statement of cash flow $ 6,033,537 $ 5,432,793 5. ACCOUNTS RECEIVABLE Accounts receivable consists of trade receivables as follows: December 31, 2020 2019 Billed receivables $ 5,226,468 $ 7,260,457 Less: allowance for doubtful accounts ( 263,562 ) ( 230,855 ) Total accounts receivable, net $ 4,962,906 $ 7,029,602 F- 16 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 6. INVENTORY The components of inventory consisted of the following: December 31, 2020 2019 Raw materials $ 2,218,981 $ 1,249,191 Work in progress 2,645,548 2,056,084 Finished goods (Includes completed components) 4,251,982 4,427,696 Gross inventory $ 9,116,511 $ 7,732,971 Inventory reserves ( 2,730,222 ) ( 2,826,718 ) Inventory, net $ 6,386,288 $ 4,906,253 7. PROPERTY AND EQUIPMENT Schedule of property plant and equipment December 31, Estimated 2020 2019 Useful Life (years) Machinery and equipment $ 3,964,491 $ 3,829,592 5 to 7 Computer equipment 4,179,087 4,179,087 5 Furniture and fixtures 709,350 709,350 7 Automobiles and trucks 13,162 13,162 5 Leasehold improvements 2,585,762 2,573,874 Lesser of lease term or 10 years Total gross property and equipment 11,451,852 11,305,065 Less accumulated depreciation and amortization ( 8,930,110 ) ( 8,022,126 ) Total property and equipment, net $ 2,521,742 $ 3,282,939 Depreciation and amortization expense for the years ended December 31, 2020 and 2019 was $ 907,984 and $ 999,063 , respectively. During the years ended December 31, 2020 and 2019, the Company acquired $ 134,900 and $ 399,800 , respectively, of property and equipment under capital leases. 8. INTANGIBLES AND GOODWILL Schedule of intangibles and goodwill December 31, 2020 2019 Intangibles $ 500,000 $ 500,000 Less: amortization of intangibles ( 250,000 ) ( 125,000 ) Total intangibles, net $ 250,000 $ 375,000 Goodwill $ 1,784,254 $ 1,784,254 F- 17 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES As discussed in Note 1, the Company completed the WMI Acquisition on December 20, 2018. The acquisition was accounted for as a business combination in accordance with ASC Topic 805. Accordingly, the Company recorded the fair value of the assets and liabilities assumed at the date of acquisition. As a result of the acquisition, the Company recorded Goodwill of $ 1,784,254 as a result of adjustments to the fair value of the acquired WMI inventory. The Company’s intangible asset is comprised of the value of the customer relationships acquired as part of the WMI Acquisition. The useful life is four years representing the remaining economic life. Amortization expense for the years ended December 31, 2020 and December 31, 2019 was $ 125,000 and $ 125,000 , respectively. 9. LINE OF CREDIT On March 24, 2016, the Company entered into the Credit Agreement. The BankUnited Facility provided for a revolving credit loan commitment of $ 30 million (the “Revolving Loan”) and a $ 10 million term loan (“Term Loan”). The Revolving Loan bears interest at a rate based upon a pricing grid, as defined in the Credit Agreement. On August 24, 2020, the Company entered into a Sixth Amendment and Waiver to the Credit Agreement (the “Sixth Amendment”). Under the Sixth Amendment, the parties amended the Credit Agreement by extending the maturity date of the Company’s Revolving Loan and Term Loan to May 2, 2022 and making conforming changes to the repayment schedule of the Term Loan. The availability under the Revolving Loan was reduced by $ 6 million , to $ 24 million , and the outstanding principal amount on the Term Note was increased to approximately $ 7,933,000 . On May 11, 2021, the Company entered into a Waiver and Seventh Amendment (“Seventh Amendment”) to the Credit Agreement. Under the Seventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to July 31, 2022 , and (b) amending the leverage ratio covenant for the fiscal quarters ending on and after March 31, 2021, to 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended). Additionally, under the Seventh Amendment, BankUnited waived late delivery of certain financial information. On October 28, 2021, the Company entered into a Waiver and Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement. Under the Eighth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to December 31, 2022 , (b) reducing the availability under the Revolving Loan from $ 24 million to $ 21 million while eliminating the requirement to maintain a minimum $ 3.0 million in a combination of Revolving Loan availability and unrestricted cash, (c) providing for the repayment of an additional $ 750,000 of the principal balance of the Term Loan in three installments of $ 250,000 on November 30, 2021, December 31, 2021 and March 31, 2022 in addition to $ 200,000 regular monthly principal payments through maturity, (d) amending the minimum debt service coverage ratio covenant for the fiscal quarters ending on and after June 30, 2021 to provide for a ratio of 1.5 to 1.0, and (e) amending the maximum leverage ratio covenant as follows: for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0; for the fiscal quarter ending June 30, 2021 - 4.75 to 1.0; for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended). Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and waived temporarily, late delivery of certain financial information. The BankUnited Facility, as amended, requires us to maintain the following financial covenants: (a) minimum debt service coverage ratio of no less than 1.5 to 1.0 at December 31, 2020 and for the trailing four quarter period at the end of each quarter after June 30, 2021; (b) a minimum net income, after taxes, of no less than $ 1.00 ; (c) a maximum leverage ratio as follows: for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0; for the fiscal quarter ending June 30, 2021 - 4.75 to 1.0; for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended); and (d) a minimum adjusted EBITDA at the end of each quarter of no less than $ 1 million . F- 18 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES As of December 31, 2020 and December 31, 2019, the Company had $ 20.7 million and $ 26.7 million , respectively, outstanding under the BankUnited Revolving Loan Facility. The BankUnited Facility is secured by all of the Company’s assets. 10. LONG-TERM DEBT As described above, in connection with the Eighth Amendment, the Company and BankUnited agreed to extend the maturity dates of the Revolving Loan and Term Loan to December 31, 2022 and provide for the repayment of an additional $ 750,000 of the principal balance of the term loan in three installments of $ 250,000 on November 30, 2021, December 31, 2021 and March 31, 2022 (i.e. in addition to the approximate $ 200,000 regular monthly principal payments paid monthly through maturity) The availability under the Revolving Loan was reduced from $ 24 million to $ 21 million while eliminating the requirement to maintain a minimum $ 3 .0 million in a combination Revolving Loan availability and unrestricted cash. The BankUnited Facility, as amended, requires us to maintain the financial covenants described in the preceding note. The Company paid to BankUnited, commitment and agent fees in the amount of $ 107,540 in 2020, together with out of pocket costs, expenses, and reasonable attorney’s fees incurred by BankUnited in connection with the Sixth Amendment. The Company paid to BankUnited, commitment and agent fees in the amount of $ 25,000 in 2019, together with out of pocket costs, expenses, and reasonable attorney’s fees incurred by BankUnited in connection with the Fifth Amendment. The Company has cumulatively paid approximately $ 596,000 of total debt issuance costs in connection with the BankUnited Facility of which approximately $ 84,000 is included in other assets at December 31, 2020. On April 10, 2020, we entered into the Paycheck Protection Program (PPP) Loan, with BNB Bank (now part of Dime Community Bank) as the Lender, in an aggregate principal amount of $ 4,795,000 , pursuant to the Paycheck Protection Program under the CARES Act. The PPP Loan is evidenced by the Note. Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent ( 1 %) per annum, with the first six months of interest deferred, has an initial term of two years , and is unsecured and guaranteed by the Small Business Administration (SBA). The Note provides for customary events of default including, among other things, cross-defaults on any other loan with the Lender. The PPP Loan may be accelerated upon the occurrence of an event of default. On November 2, 2020, the Company applied to the Lender for full forgiveness of the PPP Loan as calculated in accordance with the terms of the CARES Act, as modified by the Paycheck Protection Flexibility Act. We were notified by our lender that our application was accepted and forwarded to the SBA, from whom, we are currently awaiting a response. All amounts are classified as current or long term in accordance with the Note terms. On July 13, 2021, the Company received notification through Dime that the PPP Loan and accrued interest thereon have been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021. The forgiveness of the PPP Loan will be recognized during the Company’s third fiscal quarter ending September 30, 2021. See Note 18, “Subsequent Events”. The maturities of the long-term debt (excluding unamortized debt issuance costs) as of December 31, 2020, are as follows: Year ending December 31, 2021 $ 6,501,666 2022 5,997,681 2023 136,433 2024 44,498 2025 26,483 Total $ 12,706,761 Included in the long-term debt are financing leases and notes payable of $ 678,428 and $ 546,100 at December 31, 2020 and 2019, respectively, including a current portion of $ 255,833 and $ 384,619 , respectively. F- 19 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 11. LEASES The Company leases a building and equipment. Under ASC 842, at contract inception we determine whether the contract is or contains a lease and whether the lease should be classified as an operating or a financing lease. Operating leases are included in ROU assets and operating lease liabilities in our consolidated balance sheets. The Company leases manufacturing and office space under an agreement classified as an operating lease. The lease agreement expires on April 30, 2023 and does not include any renewal options. The agreement provides for an initial monthly base amount plus annual escalations through the term of the lease. In addition to the monthly base amounts in the lease agreement, the Company is required to pay real estate taxes and operating expenses during the lease terms. The Company also leases office equipment in agreements classified as operating leases. For the years ended December 31, 2020 and 2019, the Company’s operating lease expense was $ 1,625,539 and $ 1,761,374 , respectively. Future minimum lease payments under non-cancellable operating leases as of December 31, 2020 were as follows : Year ending December 31, 2021 $ 1,964,815 2022 1,946,746 2023 657,667 2024 8,349 Total undiscounted operating lease payments 4,577,577 Less imputed interest ( 221,191 ) Present value of operating lease payments $ 4,356,386 The following table sets forth the ROU assets and operating lease liabilities as of December 31, 2020 and 2019 : 2020 2019 Assets ROU Assets-Net $ 4,075,048 $ 3,886,863 Liabilities Current operating lease liabilities $ 1,819,237 $ 1,709,153 Long-term operating lease liabilities 2,537,149 2,596,784 Total ROU liabilities $ 4,356,386 $ 4,305,937 The right-of-use assets under operating leases was $ 4,075,048 and $ 3,886,863 at December 31, 2020 and 2019, respectively. The non-cash amortization expense of these assets under operating leases was $ 1,783,280 and $ 1,761,374 for the years ended December 31, 2020 and 2019, respectively. The Company’s weighted average remaining lease term for its operating leases is 2.3 years. On November 10, 2021, the Company executed the second amendment to the lease agreement for its manufacturing and office space, which extends the lease agreement’s expiration date to April 30, 2026. F- 20 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 12. INCOME TAXES We account for income taxes in accordance with ASC 740 Income Taxes. ASC 740 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected tax consequences or events that have been recognized in our consolidated financial statements or tax returns. ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the consolidated financial statements recognition and measurement of a tax position taken, or expected to be taken, in a tax return. The Company files income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. The 2014 tax return was under audit by the IRS and the Company has received notification that the returns will be accepted as filed. The Company generally is no longer subject to U.S. or state examinations by tax authorities for taxable years prior to 2017. However, net operating losses utilized from prior years in subsequent years’ tax returns are subject to examination until three years after the filing of subsequent years’ tax returns. The statute of limitations expiration in foreign jurisdictions for corporate tax returns generally ranges between two and five years depending on the jurisdiction. The provision (benefit) for income taxes consists of the following : Year ended December 31, 2020 2019 Current: Federal $ ( 57,788 ) $ — State 4,374 3,877 Deferred: Federal — — State — — Total $ ( 53,414 ) $ 3,877 The difference between the income tax provision computed at the federal statutory rate and the actual tax provision (benefit) is accounted for as follows : December 31, 2020 2019 Taxes computed at the federal statutory rate $ ( 778,715 ) $ ( 1,418,363 ) State income tax, net 3,454 3,890 Research and development tax credit ( 210,374 ) ( 180,813 ) Change in valuation allowance 943,047 1,533,479 Other — 10,870 Refund from IRS audit ( 57,787 ) — Permanent differences 46,961 54,814 Provision(benefit) for income taxes $ ( 53,414 ) $ 3,877 The components of deferred income tax assets and liabilities are as follows : Deferred Tax Assets: 2020 2019 Allowance for doubtful accounts $ 56,884 $ 50,100 Credit carryforwards 1,758,809 1,435,543 Inventory reserve 1,046,890 637,396 Loss contracts reserve 260,780 285,367 Restricted stock 189,072 87,976 Other 18,654 15,238 Acquisition costs 93,063 100,774 Lease liability 950,141 934,463 Disallowed interest expense 909,800 749,228 Net operating loss carryforward 20,953,330 21,016,334 Deferred tax assets 26,237,423 25,312,419 Valuation allowance ( 22,704,931 ) ( 21,632,564 ) Deferred Tax Liabilities: Prepaid expenses 115,437 114,738 Revenue recognition 2,086,045 2,133,348 Property and equipment 441,590 588,252 ROU asset 889,420 843,517 Deferred tax liabilities $ 3,532,492 $ 3,679,855 Net deferred tax assets (liabilities) $ — $ — F- 21 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES As of December 31, 2020, the Company had approximately $ 92.4 million of gross net operating loss carryforwards (“NOLs”) for federal tax purposes and approximately $ 38.4 million of post apportionment NOLs for state tax purposes. As a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, NOLs arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs totaled approximately $ 78.8 million ; these NOLs will expire in varying amounts from 2030 through 2039, if not utilized, and can offset 100 % of future taxable income for regular tax purposes. Our NOLs arising in 2018, 2019 and 2020 can generally be carried back five years, carried forward indefinitely and can offset 100 % of future taxable income for tax years before January 1, 2021 and up to 80 % of future taxable income for tax years after December 31, 2020. Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried forward indefinitely and can offset up to 80 % of future taxable income. The federal NOLs begin to expire in 2034; losses generated in 2018 and forward have an indefinite life . The state NOLs begin to expire in 2034 . Our ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their expiration. In addition, our NOL carryforwards may be limited if we experience an ownership change as defined by Section 382 of the Internal Revenue Code (“Section 382”). In general, an ownership change under Section 382 occurs if 5% shareholders increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a relevant lookback period. For the year ended December 31, 2020 we have determined that no ownership change occurred during the relevant lookback period that would limit our ability to use our NOLs, however the sale of additional equity securities in the future may trigger an ownership change under IRC Section 382 which could significantly limit our ability to utilize our tax benefits. The Company will recognize a tax benefit in the consolidated financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50%) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes. The provision for income tax benefit for the year ended December 31, 2020 was a benefit of $ 53,414 , an effective tax rate of 1.44 % . The tax benefit consists of a refund received from the 2014 NOL carryback claim and state minimum taxes. In February 2019, the Company received information that the net operating loss carryback that was utilized in 2014 was under examination and could possibly be partially disallowed by the Internal Revenue Service (“IRS”). This adjustment was an issue of timing of the loss and had no income tax provision effect. In June 2020, the Company received a letter from the IRS stating that the returns will be accepted as filed. In September 2020, the Company received additional refunds related to the tax years under examination. The examination is now closed and there is no uncertain tax position recorded for this item. F- 22 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted and signed into law, and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, among other things, includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act, including, permitting net operating losses, or NOLs, carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The CARES Act provides other reliefs and stimulus measures. We have evaluated the impact of the CARES Act, and do not expect that any provision of the CARES Act would result in a material cash benefit to us or have a material impact on our financial statements or internal controls over financial reporting. F- 23 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 13. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation based on the fair value of the stock or stock based instrument on the date of grant. The Company’s net loss for the years ended December 31, 2020 and 2019, includes approximately $ 711,000 and $ 763,000 of stock based compensation expense, respectively, for the grant of RSUs and shares. In January 2020, the Company granted 73,551 restricted stock units (“RSUs”) to its board of directors as partial compensation for the 2020 year. RSUs vest quarterly on a straight-line basis over a one-year period. In August 2020, the Company granted 2,617 RSUs to one of its board members as partial compensation for the 2020 year. In October 2020, the company granted 949 shares of common stock to one of its board members as partial compensation for the 2020 year. In November 2020, the Company granted 5,758 shares of common stock to one of its board members as partial compensation for the 2020 year. In January 2019, the Company granted 75,353 RSUs to its board of directors as partial compensation for the 2019 year. In April 2019, the Company granted 6,677 RSUs to one of its board members as partial compensation for the 2019 year. In June 2019, a board member retired and 6,596 of his unvested RSUs were forfeited. In June 2019, two board members were granted an additional 2,725 RSUs as partial compensation for the 2019 year. RSUs vest quarterly on a straight-line basis over a one-year period. The Company’s net loss for the years ended December 31, 2020 and 2019 includes approximately $ 532,000 and $ 498,000 , respectively, of non-cash compensation expense related to the RSU grants to the board of directors. This expense is recorded as a component of selling, general and administrative expenses. In February 2020, a former CFO forfeited 10,000 shares of common stock upon his resignation. In August 2020, the Company granted 84,383 shares of common stock to various officers and employees. In the event that any of these employees voluntarily terminates their employment prior to certain dates, portions of the shares may be forfeited. In addition, if certain Company performance criteria are not achieved, portions of these shares may be forfeited. These shares will be expensed during various periods through March 2024 based upon the service and performance thresholds. In August 2020, the Company granted 9,346 shares to an employee. The shares will be fully vested August 26, 2021. In August 2020, 66,242 of the shares granted in 2016, 2017, 2018 and 2019, respectively, were forfeited because the Company failed to achieve certain performance criteria for the year ended December 31, 2019. In April 2019, the Company granted 94,972 shares of common stock to various officers and employees. In the event that any of these employees voluntarily terminates their employment prior to certain dates, portions of the shares may be forfeited. In addition, if certain Company performance criteria are not achieved, portions of these shares may be forfeited. These shares will be expensed during various periods through March 2023 based upon the service and performance thresholds. Additionally 29,306 of the shares granted in 2016, 2017 and 2018, were forfeited because the Company failed to achieve certain performance criteria for the year ended December 31, 2018. Employees returned 9,806 common shares to pay withholding taxes. The Company granted 4,950 shares of common stock to various employees. In November 2019, 38,906 shares were forfeited as a result of the termination of employment of an officer. In December 2019, the Company granted 10,000 RSU’s to the new CFO. The Company’s net loss for the years ended December 31, 2020 and 2019 includes approximately $ 179,000 and $ 265,000 respectively, of non-cash compensation expense related to the RSU grants to the officers and employees. This expense is recorded as a component of cost of goods sold of approximately $ 57,000 and $ 79,000 respectively, and as a component of selling, general and administrative expenses of approximately $ 122,000 and $ 186,000 respectively. During the year ended December 31, 2019, 35,000 stock options were exercised, pursuant to the provisions of the stock option plan, where the Company received no cash and 34,478 shares of its common stock in exchange for the 35,000 shares issued in the exercise. There were no stock options outstanding as of December 31, 2019. In 2009, the Company adopted the Performance Equity Plan 2009 (the “2009 Plan”). The 2009 Plan reserved 500,000 common shares for issuance. The 2009 Plan provides for the issuance of either incentive stock options or nonqualified stock options to employees, consultants or others who provide services to the Company. The Company has 46,230 shares available for grant under the 2009 Plan as of December 31, 2020. In 2016, the Company adopted the 2016 Long Term Incentive Plan (the “2016 Plan”). The 2016 Plan reserved 600,000 common shares for issuance, provided that, no more than 200,000 common shares be granted as incentive stock options. Awards may be made or granted to employees, officers, directors and consultants in the form of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards. Any shares of common stock granted in connection with awards other than stock options and stock appreciation rights are counted against the number of shares reserved for issuance under the 2016 Plan as one and one-half shares of common stock for every one share of common stock granted in connection with such award. Any shares of common stock granted in connection with stock options and stock appreciation rights are counted against the number of shares reserved for issuance under the 2016 Plan as one share for every one share of common stock issuable upon the exercise of such stock option or stock appreciation right awarded. In the fourth quarter of 2020 the company added 800,000 shares to the plan. The Company has 797,993 shares available for grant under the 2016 Plan as of December 31, 2020. F- 24 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 14. EMPLOYEE BENEFIT PLAN On September 11, 1996, the Company’s board of directors instituted a defined contribution plan under Section 401(k) of the Internal Revenue Code (the “Code”). On October 1, 1998, the Company amended and standardized its plan as required by the Code. Pursuant to the amended plan, qualified employees may contribute a percentage of their pretax eligible compensation to the Plan and the Company will match a percentage of each employee’s contribution. Additionally, the Company has a profit-sharing plan covering all eligible employees. Contributions by the Company are at the discretion of management. The amount of contributions recorded by the Company in 2020 and 2019 amounted to $ 288,553 and $ 412,990 , respectively. 15. MAJOR CUSTOMERS For the year ended December 31, 2020, 35 %, 11 %, 11 % and 9 % of our revenue were generated from our four largest customers. For the year ended December 31, 2019, 28 %, 18 %, 13 % and 12 % of our revenue were generated from our four largest customers. At December 31, 2020, 29 %, 24 % 15 % and 13 % of accounts receivable were due from our four largest customers. At December 31, 2019, 29 %, 24 %, 13 % and 12 % of accounts receivable were due from our four largest customers. At December 31, 2020, 39 %, 20 %, 12 % and 9 % of our contract assets were related to our four largest customers. At December 31, 2019, 50 %, 12 %, 11 %, and 7 % of our contract assets were related to our four largest customers. 16. LEGAL PROCEEDINGS Class Action Lawsuit As previously disclosed, a consolidated class action lawsuit has been filed against the Company, Douglas McCrosson, the Company’s Chief Executive Officer, Vincent Palazzolo, the Company’s former Chief Financial Officer, and the two underwriters of the Company’s October 16, 2018 offering of common stock, Canaccord Genuity LLC and B. Riley FBR. The Amended Complaint in the action asserts claims on behalf of two plaintiff classes: (i) purchasers of the Company’s common stock issued pursuant to and/or traceable to the Company’s offering conducted on or about October 16, 2018; and (ii) purchasers of the Company’s common stock between March 22, 2018 through February 14, 2020. The Amended Complaint alleges that the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act by negligently permitting false and misleading statements to be included in the registration statement and prospectus supplements issued in connection with its October 16, 2018 securities offering. The Amended Complaint also alleges that the defendants violated Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated by the SEC, by making false and misleading statements in the Company’s periodic reports filed between March 22, 2018 through February 14, 2020. Plaintiff seeks unspecified compensatory damages, including interest; rescission or a rescissory measure of damages; unspecified equitable or injunctive relief; and costs and expenses, including attorney’s fees and expert fees. On February 19, 2021, the Company moved to dismiss the Amended Complaint. Plaintiff submitted a brief in opposition to the motion to dismiss on April 23, 2021. On May 20, 2021, the parties reached a settlement, subject to court approval. On July 9, 2021, Plaintiff filed an unopposed motion for preliminary approval of the settlement. After satisfaction of our $ 750,000 retention, of which approximately $ 150,000 remained as of November 15, 2021, the settlement will be covered in large part by our directors’ and officers’ insurance. F- 25 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Shareholder Derivative Action Four shareholder derivative actions have been filed against current members of our board of directors and certain of our current and former officers. The first action (captioned Moulton v. McCrosson, et.al., No. 20-cv-02092) was filed in the United States District Court for the Eastern District of New York, and purports to assert derivative claims against the individual defendants for violations of Section 10(b) and 21(d) of the Exchange Act and breach of fiduciary duty, unjust enrichment, and contribution, and seeks to recover on behalf of the Company for any liability the Company might incur as a result of the individual defendants’ alleged misconduct. The complaint also seeks declaratory, equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs. On October 26, 2020, the plaintiff filed an amended complaint. On January 27, 2021, the Court stayed the action pursuant to a joint stipulation filed by the parties. The second action (captioned Woodyard v. McCrosson, et al., Index No. 613169/2020) was filed on September 17, 2020, in the Supreme Court of the State of New York (Suffolk County), and purports to assert derivative claims against the individual defendants for breach of fiduciary duty and unjust enrichment, and seeks to recover on behalf of the Company for any liability the Company might incur as a result of the individual defendants’ alleged misconduct, along with declaratory, equitable, injunctive and monetary relief, as well as attorneys’ fees and other costs. On December 22, 2020, the parties filed a joint stipulation staying the action pending further developments in the class action. The third action (captioned Berger v. McCrosson, et al., No. 1:20-cv-05454) was filed on November 10, 2020, in the United States District Court for the Eastern District of New York, and purports to assert derivative claims against current and former members of our board of directors, and certain of our current and former officers. The complaint, which is based on the shareholder’s inspection of certain corporate books and records, purports to assert derivative claims against the individual defendants for breach of fiduciary duty and unjust enrichment, and seeks to implement reforms to the Company’s corporate governance and internal procedures and to recover on behalf of the Company an unspecified amount of monetary damages. The complaint also seeks equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs. On March 19, 2021, the parties to the Moulton and Berger actions filed a joint stipulation consolidating the actions and staying the consolidated action pending further developments in the class action. The fourth action (captioned Wurst v. Bazaar, et al., Index No. 605244/2021) was filed on March 24, 2021, in the Supreme Court of the State of New York (Suffolk County), and purports to assert derivative claims against the Company’s current and former executive officers, certain board members, and the Company as a nominal defendant. The complaint purports to assert derivative claims against the individual defendants for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and seeks to recover on behalf of the Company for any liability the Company might incur as a result of the individual defendants’ alleged misconduct. The complaint also seeks declaratory, equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs. On April 12, 2021, the parties filed a joint stipulation staying the action pending further developments in the class action. Each of these derivative actions is based substantially on the same facts alleged in the class action complaint summarized above. SEC Investigation As previously disclosed, on May 22, 2020, the Company received a subpoena from the Securities and Exchange Commission (the “Commission”) Division of Enforcement (the “Division”) seeking documents and information relating, among other things, to previously disclosed errors in and restatement of the Company’s financial statements, the Company’s October 16, 2018 equity offering and the recent separation of the Company’s former Chief Financial Officers. By letter dated March 12, 2021 and received on March 16, 2021, the Division Staff notified the Company that the Division has concluded its investigation and, based on the information the Division has as of such date, it does not intend to recommend an enforcement action by the Commission against the Company. The Division’s notice was provided under the guidelines described in the final paragraph of Securities Act Release No. 5310 which states in part that the notice “must in no way be construed as indicating that the party has been exonerated or that no action may ultimately result from the staff’s investigation.” F- 26 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES 17. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS As previously reported, on June 4, 2021, the audit and finance committee (the “Audit and Finance Committee”) of the board of directors of CPI Aerostructures, Inc. (the “Company”), determined, based on the recommendation of management and in consultation with CohnReznick LLP (“CohnReznick”), the Company’s independent registered public accounting firm, that the Company’s financial statements which were included in its Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the Securities and Exchange Commission (the “SEC”) should no longer be relied upon due to errors in such financial statements relating to the recording and reporting of inventory costing and related internal controls (the “Inventory Costing Errors”) and that management’s reports on the effectiveness of internal control over financial reporting, press releases, and investor communications describing the Company’s financial statements for such periods should no longer be relied upon. The Company’s management identified the Inventory Costing Errors during its inventory testing procedures for the preparation of the Company’s financial statements for the quarterly period ended March 31, 2021. At the time of the June 2021 disclosure, the Company estimated and disclosed that the Inventory Costing Errors were expected to increase 2020 net loss reported on the Annual Report on Form 10-K for the year ended December 31, 2020 by $1.9 million to $2.3 million. The Company has now determined that the Inventory Costing Errors increased 2020 net loss by $ 2,010,084 . The correction of the Inventory Costing Errors resulted in the determination that certain contracts were in a loss position and certain inventory items required additional reserves. The Company re-evaluated the sufficiency of its provisions for loss contracts and inventory reserves that it had previously recorded and concluded that increases to these reserves were required. The insufficient reserves resulting from such reserve increases are referred to as “Additional Inventory Reserves” and “Loss Contract Reserve” and are together referred to as the “Insufficient Reserves.” It was further determined by management that the appropriate starting point for increasing the Insufficient Reserves was during the fourth quarter of 2019. On November 16, 2021, the Audit and Finance Committee determined, based on the analysis and recommendation of management and in consultation with CohnReznick, that the Company’s financial statements as of and for the period ended December 31, 2019 which were included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 should no longer be relied upon due to errors in such financial statements relating to the recording and reporting of the Insufficient Reserves, that, similarly, management’s reports on the effectiveness of internal control over financial reporting, press releases, and investor communications describing the Company’s financial statements for such period should no longer be relied upon, and stated that the Company expected to restate its Annual Report on Form 10-K for the years ended December 31, 2020 and December 31, 2019, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the SEC (the “Original Forms 10-Q”) by filing a comprehensive Form 10-K/A. The Company, upon conducting an analysis of the impact of the Insufficient Reserves on previously reported financial results, determined that net loss for the years ended December 31, 2020 and 2019 is $ 324,231 and $ 2,189,728 , respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Considering both the Inventory Costing Errors and the Insufficient Reserves, the Company determined that the net loss for the years ended December 31, 2020 and 2019 is $ 2,334,315 and $ 2,300,083 , respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and net loss for the quarters ended March 31, 2020 and June 30, 2020 is $ 544,836 and $ 763,730 , respectively, greater than the net loss reported in the respective Quarterly Reports on Form 10-Q for such periods and the net income for the quarter ended September 30, 2020 is $ 24,556 more than the net income reported in the Quarterly Report for such period. The Inventory Costing Errors resulted from software processing and coding errors, inconsistent units of measure being used for quantities ordered and quantities received of certain purchased parts, incorrect accruals to accounting periods of the cost of certain goods received and the Company not having a procedure to address over or under absorbed overhead costs at the end of accounting periods. The Inventory Costing Errors affected the income reported with respect to the Company’s product lines for which revenue is recognized when a product ships to customers, which accounted for approximately 15 % of total 2020 revenue (the “Non-POC Contracts”). The Inventory Costing Errors did not affect income reported with respect to the Company’s products for which revenue is recognized over time using percentage of completion accounting (the “POC Contracts”). The Loss Contract Reserve and the Additional Inventory Reserves also only affect the income reported with respect to the Company’s Non-POC Contracts, and do not affect the income reported with respect to the Company’s POC Contracts. The Inventory Costing Errors and the Insufficient Reserves did not affect either prior reported revenue or cash flow for fiscal 2020 and 2019. F- 27 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Management has considered the effect of the Inventory Costing Errors and the Insufficient Reserves on the Company’s prior conclusions of the adequacy of its internal control over financial reporting and disclosure controls and procedures as of the end of each of the applicable periods. As a result of the Inventory Costing Errors and the Insufficient Reserves, management has determined that a material weakness existed in the Company’s internal control over financial reporting as of the end of the quarterly periods ended March 31, 2020, June 30, 2020, September 30, 2020 and for the years ended December 31, 2020 and 2019. See Part II Item 9A – Controls and Procedures within this Comprehensive Form 10-K/A for a description of these matters. As a result of the restatement included herein caused by the Inventory Costing Errors and Insufficient Reserves, the Company is reporting herein net loss for the years ended December 31, 2020 and December 31, 2019 which is $ 2,334,315 and $ 2,300,083 , respectively, greater than the net loss reported in the Original Form 10-K and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, net loss for the quarters ended March 31, 2020 and June 30, 2020 which is $ 544,836 and $ 763,730 , respectively, greater than the net loss reported in the respective Original Forms 10-Q, and net income for the quarter ended September 30, 2020 which is $ 24,556 greater than the net income reported in the Original Form 10-Q. The Inventory Costing Errors and the Insufficient Reserves did not affect reported revenue or cash flows for the years ended December 31, 2020 or December 31, 2019, or for the quarters ended March 31, June 30 and September 30, 2020. 2020 and 2019 Restatement The following is a discussion of the restatement adjustments that were made to the Company’s previously issued December 31, 2020 and December 31, 2019 consolidated financial statements due to the Inventory Costing Errors, Loss Contract Reserve and Additional Inventory Reserves. (a) Inventory Costing Errors The Company determined that the Inventory Costing Errors resulted in incorrectly reported inventory values and reported income for the annual periods ended December 31, 2020 and December 31, 2019, and the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. The Inventory Costing Errors were comprised of the following: 1) Labor costs for work in process were overstated in the detailed inventory records due to an automated reversing entry not processing correctly; 2) A customized IT program to calculate weighted average cost was not tested thoroughly enough, which allowed errors in average cost calculations to occur in certain situations; 3) Units of Measure were not consistent between quantities ordered and quantities received for certain classes of purchased parts, which resulted in overstatements of inventory values due to units of measure not being consistent with unit prices on purchase orders to suppliers; 4) The cost of goods received which had not yet processed through the Company’s quality inspection process at the time of the period-end accounting closes were not properly accrued to the period financial statements; 5) The Company did not have a process to address over-absorbed or under-absorbed overhead costs at the end of each accounting period. (b) Loss Contract Reserve After correcting its financial statements for the Inventory Costing Errors, the Company determined that is was a party to some contracts to deliver product upon which the Company would lose money, and thus the Company’s Loss Contract Reserve was increased accordingly for the year ended December 31, 2020 and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. (c) Additional Inventory Reserves After correcting its financial statements for the Inventory Costing Errors, the Company determined that its inventory required additional reserves to reflect current market value and demand, and thus the Company’s Inventory Reserves were increased accordingly for the year ended December 31, 2020 and December 31, 2019, and for the quarterly periods ended March 31, 2020, June 30, 2020 and September 30, 2020. F- 28 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES (d) Income taxes There were no material tax adjustments to the Company’s Provision for/(benefit from) income taxes or Net deferred tax assets (liabilities) related to the impact of the 2020 and 2019 Restatement. The following tables present the impact of the restatement on the Company’s previously reported financial statements as of December 31, 2020; September 30, 2020; June 30, 2020 and March 31, 2020 and December 31, 2019: F- 29 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Balance Sheets The effect of the Restatement described above on the accompanying consolidated balance sheets as of December 31, 2020; September 30, 2020; June 30, 2020; March 31, 2020 and December 31, 20019 are as follows : Consolidated Balance Sheet as at December 31, 2020 As Previously Reported Inventory Costing Errors Loss Contract Reserve Additional Inventory Reserve As Restated ASSETS Current Assets: Cash $ 6,033,537 $ — $ — $ — $ 6,033,537 Accounts receivable, net 4,962,906 4,962,906 Contract assets 19,729,638 19,729,638 Inventory 9,567,921 ( 1,875,950 ) ( 1,305,683 ) 6,386,288 Refundable income taxes 40,000 40,000 Prepaid expenses and other current assets 534,857 534,857 Total Current Assets $ 40,868,859 $ ( 1,875,950 ) $ — $ ( 1,305,683 ) $ 37,687,226 Operating lease right-of-use assets 4,075,048 4,075,048 Property and equipment, net 2,521,742 2,521,742 Intangibles, net 250,000 250,000 Goodwill 1,784,254 1,784,254 Other assets 191,179 191,179 Total Assets 49,691,082 $ ( 1,875,950 ) $ — $ ( 1,305,683 ) $ 46,509,449 Liabilities and Shareholders’ Deficit Current Liabilities: Accounts payable $ 12,092,684 $ 12,092,684 Accrued expenses 5,693,518 244,403 5,937,921 Contract liabilities 1,650,549 1,650,549 Loss reserve 800,971 1,208,276 2,009,247 Current portion of long-term debt 6,501,666 6,501,666 Operating lease liabilities 1,819,237 1,819,237 Income taxes payable 862 86 948 Total Current Liabilities 28,559,487 244,489 1,208,276 — 30,012,252 Line of credit 20,738,685 20,738,685 Long-term operating lease liabilities 2,537,149 2,537,149 Long-term debt, net of current portion 6,205,095 6,205,095 Total Liabilities 58,040,416 244,489 1,208,276 — 59,493,181 Shareholders’ Deficit: Common stock 11,951 11,951 Additional paid-in capital 72,005,841 72,005,841 Accumulated deficit ( 80,367,126 ) ( 2,120,439 ) $ ( 1,208,276 ) ( 1,305,683 ) ( 85,001,524 ) Total Shareholders’ Deficit ( 8,349,334 ) ( 2,120,439 ) ( 1,208,276 ) ( 1,305,683 ) ( 12,983,732 ) Total Liabilities and Shareholders’ Deficit $ 49,691,082 $ ( 1,875,950 ) — $ ( 1,305,683 ) $ 46,509,449 F- 30 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Consolidated Balance Sheet as at September 30, 2020 As Previously Reported Inventory Costing Errors Loss Contract Reserve Additional Inventory Reserve As Restated ASSETS Current Assets: Cash $ 3,589,095 $ — $ — $ — $ 3,589,095 Restricted cash 1,380,684 1,380,684 Accounts receivable, net 7,309,323 7,309,323 Contract assets 18,409,267 18,409,267 Inventory 8,742,093 ( 962,577 ) ( 1,226,852 ) 6,552,664 Refundable income taxes 35,459 35,459 Prepaid expenses and other current assets 600,889 600,889 Total Current Assets 40,066,810 ( 962,577 ) — ( 1,226,852 ) 37,877,381 Operating lease right-of-use assets 2,730,567 2,730,567 Property and equipment, net 2,618,887 2,618,887 Intangibles, net 281,250 281,250 Goodwill 1,784,254 1,784,254 Other assets 205,844 205,844 Total Assets 47,687,612 $ ( 962,577 ) $ — $ ( 1,226,852 ) $ 45,498,183 Liabilities and Shareholders’ Deficit Current Liabilities: Accounts payable $ 13,009,645 $ 13,009,645 Accrued expenses 3,333,335 86,467 3,419,802 Contract liabilities 2,469,441 2,469,441 Loss reserve 1,569,447 1,308,197 2,877,644 Current portion of long-term debt 5,377,559 5,377,559 Operating lease liabilities 1,821,136 1,821,136 Income taxes payable 1,216 1,216 Total Current Liabilities 27,581,779 86,467 1,308,197 — 28,976,443 Line of credit 20,738,685 20,738,685 Long-term operating lease liabilities 1,212,573 1,212,573 Long-term debt, net of current portion 7,811,467 7,811,467 Total Liabilities 57,344,504 86,467 1,308,197 — 58,739,168 Shareholders’ Deficit: Common stock 11,926 11,926 Additional paid-in capital 71,972,011 71,972,011 Accumulated deficit ( 81,640,829 ) ( 1,049,044 ) $ ( 1,308,197 ) ( 1,226,852 ) ( 85,224,922 ) Total Shareholders’ Deficit ( 9,656,892 ) ( 1,049,044 ) ( 1,308,197 ) ( 1,226,852 ) ( 13,240,985 ) Total Liabilities and Shareholders’ Deficit $ 47,687,612 $ ( 962,577 ) — $ ( 1,226,852 ) $ 45,498,183 F- 31 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Consolidated Balance Sheet as at June 30, 2020 As Previously Reported Inventory Costing Errors Loss Contract Reserve Additional Inventory Reserve As Restated ASSETS Current Assets: Cash $ 6,749,201 $ — $ — $ — $ 6,749,201 Restricted cash 1,380,684 1,380,684 Accounts receivable, net 6,958,417 6,958,417 Contract assets 15,566,681 15,566,681 Inventory 7,658,508 ( 794,960 ) ( 1,157,695 ) 5,705,853 Refundable income taxes 36,973 36,973 Prepaid expenses and other current assets 864,781 864,781 Total Current Assets 39,215,245 ( 794,960 ) — ( 1,157,695 ) 37,262,590 Operating lease right-of-use assets 3,122,360 3,122,360 Property and equipment, net 2,840,872 2,840,872 Intangibles, net 312,500 312,500 Goodwill 1,784,254 1,784,254 Other assets 123,013 123,013 Total Assets $ 47,398,244 $ ( 794,960 ) $ — $ ( 1,157,695 ) $ 45,445,589 Liabilities and Shareholders’ Deficit Current Liabilities: Accounts payable $ 9,078,736 $ 9,078,736 Accrued expenses 3,825,606 141,638 3,967,244 Contract liabilities 4,995,427 4,995,427 Loss reserve 2,101,123 1,514,356 3,615,479 Current portion of long-term debt 4,728,515 4,728,515 Operating lease liabilities 1,783,249 1,783,249 Income taxes payable 1,216 1,216 Total Current Liabilities 26,513,872 141,638 1,514,356 — 28,169,866 Line of credit 26,738,685 26,738,685 Long-term operating lease liabilities 1,680,897 1,680,897 Long-term debt, net of current portion 3,077,992 3,077,992 Total Liabilities 58,011,446 141,638 1,514,356 — 59,667,440 Shareholders’ Deficit: Common stock 11,856 11,856 Additional paid-in capital 71,830,980 71,830,980 Accumulated deficit ( 82,456,038 ) ( 936,598 ) $ ( 1,514,356 ) ( 1,157,695 ) ( 86,064,687 ) Total Shareholders’ Deficit ( 10,613,202 ) ( 936,598 ) ( 1,514,356 ) ( 1,157,695 ) ( 14,221,851 ) Total Liabilities and Shareholders’ Deficit $ 47,398,244 $ ( 794,960 ) — $ ( 1,157,695 ) $ 45,445,589 F- 32 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Consolidated Balance Sheet as at March 31, 2020 As Previously Reported Inventory Costing Errors Loss Contract Reserve Additional Inventory Reserve As Restated ASSETS Current Assets: Cash $ 1,998,697 $ — $ — $ — $ 1,998,697 Restricted cash 1,380,684 1,380,684 Accounts receivable, net 6,107,968 6,107,968 Contract assets 15,814,549 15,814,549 Inventory 6,940,139 ( 353,212 ) ( 1,094,244 ) 5,492,683 Refundable income taxes 473,398 473,398 Prepaid expenses and other current assets 688,006 688,006 Total Current Assets 33,403,441 ( 353,212 ) — ( 1,094,244 ) 31,955,985 Operating lease right-of-use assets 3,507,760 3,507,760 Property and equipment, net 3,061,106 3,061,106 Intangibles, net 343,750 343,750 Goodwill 1,784,254 1,784,254 Other assets 151,041 151,041 Total Assets 42,251,352 $ ( 353,212 ) $ — $ ( 1,094,244 ) $ 40,803,896 Liabilities and Shareholders’ Deficit Current Liabilities: Accounts payable $ 8,255,635 $ 8,255,635 Accrued expenses 3,051,727 73,142 3,124,869 Contract liabilities 4,749,373 4,749,373 Loss reserve 2,145,556 1,324,321 3,469,877 Current portion of long-term debt 2,460,639 2,460,639 Operating lease liabilities 1,745,616 1,745,616 Income taxes payable 1,216 1,216 Total Current Liabilities 22,409,762 73,142 1,324,321 — 23,807,225 Line of credit 26,738,685 26,738,685 Long-term operating lease liabilities 2,142,574 2,142,574 Long-term debt, net of current portion 1,165,905 1,165,905 Total Liabilities 52,456,926 73,142 1,324,321 — 53,854,389 Shareholders’ Deficit: Common stock 11,837 11,837 Additional paid-in capital 71,641,796 71,641,796 Accumulated deficit ( 81,859,207 ) ( 426,354 ) ( 1,324,321 ) ( 1,094,244 ) ( 84,704,126 ) Total Shareholders’ Deficit ( 10,205,574 ) ( 426,354 ) ( 1,324,321 ) ( 1,094,244 ) ( 13,050,493 ) Total Liabilities and Shareholders’ Deficit $ 42,251,352 $ ( 353,212 ) — $ ( 1,094,244 ) $ 40,803,896 F- 33 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Consolidated Balance Sheet as at December 31, 2019 As Previously Reported Inventory Costing Errors Loss Contract Reserve Additional Inventory Reserve As Restated ASSETS Current Assets: Cash $ 4,052,109 $ — $ — $ — $ 4,052,109 Restricted cash 1,380,684 1,380,684 Accounts receivable, net 7,029,602 7,029,602 Contract assets 15,280,807 15,280,807 Inventory 5,891,386 ( 110,355 ) ( 874,778 ) 4,906,253 Refundable income taxes 474,904 474,904 Prepaid expenses and other current assets 721,964 721,964 Total Current Assets 34,831,456 ( 110,355 ) — ( 874,778 ) 33,846,323 Operating lease right-of-use assets 3,886,863 3,886,863 Property and equipment, net 3,282,939 3,282,939 Intangibles, net 375,000 375,000 Goodwill 1,784,254 1,784,254 Other assets 179,068 179,068 Total Assets $ 44,339,580 $ ( 110,355 ) $ — $ ( 874,778 ) $ 43,354,447 Liabilities and Shareholders’ Deficit Current Liabilities: Accounts payable $ 8,199,557 $ 8,199,557 Accrued expenses 2,372,522 2,372,522 Contract liabilities 3,561,707 3,561,707 Loss reserve 2,650,963 1,314,950 3,965,913 Current portion of long-term debt 2,484,619 2,484,619 Operating lease liabilities 1,709,153 1,709,153 Income taxes payable 1,216 1,216 Total Current Liabilities 20,979,737 — 1,314,950 — 22,294,687 Line of credit 26,738,685 26,738,685 Long-term operating lease liabilities 2,596,784 2,596,784 Long-term debt, net of current portion 1,764,614 1,764,614 Total Liabilities 52,079,820 — 1,314,950 — 53,394,770 Shareholders’ Deficit: Common stock 11,819 11,819 Additional paid-in capital 71,294,629 71,294,629 Accumulated deficit ( 79,046,688 ) ( 110,355 ) ( 1,314,950 ) ( 874,778 ) ( 81,346,771 ) Total Shareholders’ Deficit ( 7,740,240 ) ( 110,355 ) ( 1,314,950 ) ( 874,778 ) ( 10,040,323 ) Total Liabilities and Shareholders’ Deficit $ 44,339,580 $ ( 110,355 ) — $ ( 874,778 ) $ 43,354,447 F- 34 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Statements of Operations The effect of the Restatement described above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2020 is as follows : Consolidated Statement of Operation For the twelve months ended December 31, 2020 As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 87,584,690 $ — $ — $ — $ 87,584,690 Cost of sales 75,490,503 $ 2,009,998 ( 106,674 ) 430,905 77,824,732 Gross profit 12,094,187 ( 2,009,998 ) 106,674 ( 430,905 ) 9,759,958 Selling, general and administrative expenses 12,046,170 12,046,170 Profit (loss) from operations 48,017 ( 2,009,998 ) 106,674 ( 430,905 ) ( 2,286,212 ) Other expense: Interest expense ( 1,421,955 ) ( 1,421,955 ) Loss before provision for income taxes ( 1,373,938 ) ( 2,009,998 ) 106,674 ( 430,905 ) ( 3,708,167 ) Benefit from income taxes ( 53,500 ) 86 — — ( 53,414 ) Net loss $ ( 1,320,438 ) $ ( 2,010,084 ) $ 106,674 $ ( 430,905 ) $ ( 3,654,753 ) Loss per common share - basic $ ( 0.11 ) $ ( 0.17 ) $ 0.01 $ ( 0.04 ) $ ( 0.31 ) Loss per common share - diluted $ ( 0.11 ) $ ( 0.17 ) $ 0.01 $ ( 0.04 ) ( 0.31 ) Basic 11,884,307 — — — 11,884,307 Diluted 11,884,307 — — — 11,884,307 F- 35 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES The effect of the Restatement described above on the accompanying consolidated statement of operations for the three and nine months ended September 30, 2020 is as follows : Consolidated Statement of Operation For the three months ended September 30, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 25,576,718 $ — $ — $ — $ 25,576,718 Cost of sales 21,394,243 112,446 ( 206,159 ) 69,157 21,369,687 Gross profit 4,182,475 ( 112,446 ) 206,159 ( 69,157 ) 4,207,031 Selling, general and administrative expenses 3,050,644 3,050,644 Profit from operations 1,131,831 ( 112,446 ) 206,159 ( 69,157 ) 1,156,387 Other expense: Interest expense ( 309,008 ) ( 309,008 ) Income before provision for income taxes 822,823 ( 112,446 ) 206,159 ( 69,157 ) 847,379 Provision for income taxes 7,614 — — — 7,614 Net Income $ 815,209 $ ( 112,446 ) $ 206,159 $ ( 69,157 ) $ 839,765 Income per common share - basic $ 0.07 $ ( 0.01 ) $ 0.02 $ ( 0.01 ) $ 0.07 Income per common share - diluted $ 0.07 $ ( 0.01 ) $ 0.02 $ ( 0.01 ) $ 0.07 Basic 11,894,469 — — — 11,894,469 Diluted 11,894,469 — — — 11,917,149 F- 36 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Consolidated Statement of Operation For the nine months ended September 30, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 62,175,872 $ — $ — $ — $ 62,175,872 Cost of sales 54,715,508 938,689 ( 6,753 ) 352,074 55,999,518 Gross profit 7,460,364 ( 938,689 ) 6,753 ( 352,074 ) 6,176,354 Selling, general and administrative expenses 8,958,986 8,958,986 Loss from operations ( 1,498,622 ) ( 938,689 ) 6,753 ( 352,074 ) ( 2,782,632 ) Other expense: Interest expense ( 1,085,805 ) ( 1,085,805 ) Loss before provision for income taxes ( 2,584,427 ) ( 938,689 ) 6,753 ( 352,074 ) ( 3,868,437 ) Provision for income taxes 9,714 — — — 9,714 Net loss $ ( 2,594,141 ) $ ( 938,689 ) $ 6,753 $ ( 352,074 ) $ ( 3,878,151 ) Loss per common share - basic $ ( 0.22 ) $ ( 0.08 ) $ 0.00 $ ( 0.03 ) $ ( 0.33 ) Loss per common share - diluted $ ( 0.22 ) $ ( 0.08 ) $ 0.00 $ ( 0.03 ) ( 0.33 ) Basic 11,862,506 — — — 11,862,506 Diluted 11,862,506 — — — 11,862,506 F- 37 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES The effect of the Restatement described above on the accompanying consolidated statement of operations for the three and six months ended June 30, 2020 is as follows : Consolidated Statement of Operation For the three months ended June 30, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 19,740,767 $ — $ — $ — $ 19,740,767 Cost of sales 17,160,698 $ 510,244 190,035 63,451 17,924,428 Gross profit 2,580,069 ( 510,244 ) ( 190,035 ) ( 63,451 ) 1,816,339 Selling, general and administrative expenses 2,815,252 2,815,252 Loss from operations ( 235,183 ) ( 510,244 ) ( 190,035 ) ( 63,451 ) ( 998,913 ) Other expense: Interest expense ( 360,126 ) ( 360,126 ) Profit before provision for income taxes ( 595,309 ) ( 510,244 ) ( 190,035 ) ( 63,451 ) ( 1,359,039 ) Provision for income taxes 1,522 — — — 1,522 Net profit $ ( 596,831 ) $ ( 510,244 ) $ ( 190,035 ) $ ( 63,451 ) $ ( 1,360,561 ) Loss per common share - basic $ ( 0.05 ) $ ( 0.04 ) $ ( 0.02 ) $ ( 0.00 ) $ ( 0.11 ) Loss per common share - diluted $ ( 0.05 ) $ ( 0.04 ) $ ( 0.02 ) $ ( 0.00 ) ( 0.11 ) Basic 11,855,404 — — — 11,855,404 Diluted 11,855,404 — — — 11,855,404 F- 38 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Consolidated Statement of Operation For the six months ended June 30, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 36,599,154 $ — $ — $ — $ 36,599,154 Cost of sales 33,321,265 826,243 199,406 282,917 34,629,831 Gross profit 3,277,889 ( 826,243 ) ( 199,406 ) ( 282,917 ) 1,969,323 Selling, general and administrative expenses 5,908,342 5,908,342 Loss from operations ( 2,630,453 ) ( 826,243 ) ( 199,406 ) ( 282,917 ) ( 3,939,019 ) Other expense: Interest expense ( 776,797 ) ( 776,797 ) Loss before provision for income taxes ( 3,407,250 ) ( 826,243 ) ( 199,406 ) ( 282,917 ) ( 4,715,816 ) Provision for income taxes 2,100 — — — 2,100 Net loss $ ( 3,409,350 ) $ ( 826,243 ) $ ( 199,406 ) $ ( 282,917 ) $ ( 4,717,916 ) Loss per common share - basic $ ( 0.29 ) $ ( 0.07 ) $ ( 0.02 ) $ ( 0.02 ) $ ( 0.40 ) Loss per common share - diluted $ ( 0.29 ) $ ( 0.07 ) $ ( 0.02 ) $ ( 0.02 ) ( 0.40 ) Basic 11,846,260 — — — 11,846,260 Diluted 11,846,260 — — — 11,846,260 F- 39 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES The effect of the Restatement described above on the accompanying consolidated statement of operations for the three months ended March 31, 2020 is as follows : Consolidated Statement of Operation For the three months ended March 31, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 16,858,386 $ — $ — $ — $ 16,858,386 Cost of sales 16,160,567 315,999 9,371 219,466 16,705,403 Gross profit 697,819 ( 315,999 ) ( 9,371 ) ( 219,466 ) 152,983 Selling, general and administrative expenses 3,093,090 3,093,090 Loss from operations ( 2,395,271 ) ( 315,999 ) ( 9,371 ) ( 219,466 ) ( 2,940,107 ) Other expense: Interest expense ( 416,670 ) ( 416,670 ) Loss before provision for income taxes ( 2,811,941 ) ( 315,999 ) ( 9,371 ) ( 219,466 ) ( 3,356,777 ) Provision for income taxes 578 — — — 578 Net loss $ ( 2,812,519 ) $ ( 315,999 ) $ ( 9,371 ) $ ( 219,466 ) $ ( 3,357,355 ) Loss per common share - basic $ ( 0.24 ) $ ( 0.03 ) $ ( 0.00 ) $ ( 0.02 ) $ ( 0.29 ) Loss per common share - diluted $ ( 0.24 ) $ ( 0.03 ) $ ( 0.00 ) $ ( 0.02 ) ( 0.29 ) Basic 11,837,014 — — — 11,837,014 Diluted 11,837,014 — — — 11,837,014 F- 40 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES The effect of the Restatement described above on the accompanying consolidated statement of operations for the twelve months ended December 31, 2019 is as follows : Consolidated Statement of Operation For the twelve months ended December 31, 2019 As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Revenue $ 87,518,688 $ — $ — $ — $ 87,518,688 Cost of sales 78,386,997 110,355 1,314,950 874,778 80,687,080 Gross profit 9,131,691 ( 110,355 ) ( 1,314,950 ) ( 874,778 ) 6,831,608 Selling, general and administrative expenses 11,562,781 11,562,781 Loss from operations ( 2,431,090 ) ( 110,355 ) ( 1,314,950 ) ( 874,778 ) ( 4,731,173 ) Other income (expense): Other income 89,666 89,666 Interest expense ( 2,104,851 ) ( 2,104,851 ) Loss before provision for income taxes ( 4,446,275 ) ( 110,355 ) ( 1,314,950 ) ( 874,778 ) ( 6,746,358 ) Provision for income taxes 3,877 — — — 3,877 Net loss $ ( 4,450,152 ) $ ( 110,355 ) $ ( 1,314,950 ) $ ( 874,778 ) $ ( 6,750,235 ) Loss per common share - basic $ ( 0.38 ) $ ( 0.01 ) $ ( 0.11 ) $ ( 0.07 ) $ ( 0.57 ) Loss per common share - diluted $ ( 0.38 ) $ ( 0.01 ) $ ( 0.11 ) $ ( 0.07 ) $ ( 0.57 ) Basic 11,808,052 — — — 11,808,052 Diluted 11,808,052 — — — 11,808,052 F- 41 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Cumulative Effect of Prior Period Adjustments The following table presents the impact of the Restatement on the Company’s shareholders’ deficit as of December 31, 2019 (as restated) and December 31, 2020 (as restated) : Common Stock Shares Common Stock Additional Paid-in Capital Accumulated Deficit Total Shareholders’ Deficit Balance, December 31, 2019 (As previously reported) 11,818,830 $ 11,819 $ 71,294,629 $ ( 79,046,688 ) $ ( 7,740,240 ) Inventory Costing Errors — — — ( 110,355 ) ( 110,355 ) Loss Contract Reserve — — — ( 1,314,950 ) ( 1,314,950 ) Inventory Reserve — — — ( 874,778 ) ( 874,778 ) Cumulative restatement adjustments — — — ( 2,300,083 ) ( 2,300,083 ) Balance, December 31, 2019 (As Restated) 11,818,830 $ 11,819 $ 71,294,629 $ ( 81,346,771 ) $ ( 10,040,323 ) Net Loss (as previously reported) $ ( 2,812,519 ) $ ( 2,812,519 ) Inventory Costing Errors — — — ( 315,999 ) ( 315,999 ) Loss Contract Reserve — — — ( 9,371 ) ( 9,371 ) Inventory Reserve — — — ( 219,466 ) ( 219,466 ) Cumulative restatement adjustments — — — ( 544,836 ) ( 544,836 ) Net Loss (as restated) ( 3,357,355 ) ( 3,357,355 ) Balance, March 31, 2020 (As Restated) 11,837,218 $ 11,837 $ 71,641,796 $ ( 84,704,126 ) $ ( 13,050,493 ) Net Loss (as previously reported) $ ( 596,831 ) $ ( 596,831 ) Inventory Costing Errors — — — ( 510,244 ) ( 510,244 ) Loss Contract Reserve — — — ( 190,035 ) ( 190,035 ) Inventory Reserve — — — ( 63,451 ) ( 63,451 ) Cumulative restatement adjustments — — — ( 763,730 ) ( 763,730 ) Net Loss (as restated) ( 1,360,561 ) ( 1,360,561 ) Stock-based compensation 18,388 19 189,184 — 189,203 Balance, June 30, 2020 (As Restated) 11,855,606 $ 11,856 $ 71,830,980 $ ( 86,064,687 ) $ ( 14,221,851 ) Net Income (as previously reported) $ 815,209 $ 815,209 Inventory Costing Errors — — — ( 112,446 ) ( 112,446 ) Loss Contract Reserve — — — 206,159 206,159 Inventory Reserve — — — ( 69,157 ) ( 69,157 ) Cumulative restatement adjustments — — — 24,556 24,556 Net Income (as restated) 839,765 839,765 Stock-based compensation 70,571 70 141,031 — 141,101 Balance, September 30, 2020 (As Restated) 11,926,177 $ 11,926 $ 71,972,011 $ ( 85,224,922 ) $ ( 13,240,985 ) Net Income $ 1,273,703 $ 1,273,703 Inventory Costing Errors — — — ( 1,071,395 ) ( 1,071,395 ) Loss Contract Reserve — — — 99,921 99,921 Inventory Reserve — — — ( 78,831 ) ( 78,831 ) Cumulative restatement adjustments — — — ( 1,050,305 ) ( 1,050,305 ) Net income (as restated) 223,398 223,398 Stock-based compensation 25,094 25 33,830 — 33,855 Balance, December 31, 2020 (As Restated) 11,951,271 $ 11,951 $ 72,005,841 $ ( 85,001,524 ) $ ( 12,983,732 ) F- 42 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Statement of Cash Flows The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December 31, 2020 is as follows : Consolidated Statements of Cash Flows for the twelve months ended December 31, 2020 As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Cash flows from operating activities: Net Loss $ ( 1,320,438 ) $ ( 2,010,084 ) $ 106,674 $ ( 430,905 ) $ ( 3,654,753 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,032,986 1,032,986 Amortization of debt issuance cost 95,429 95,429 Cash expended in excess of rent expense ( 137,737 ) ( 137,737 ) Stock-based compensation expense 711,344 711,344 Bad debt expense ( 23,395 ) ( 23,395 ) Changes in operating assets and liabilities: Decrease in accounts receivable 2,090,091 2,090,091 Increase in contract assets ( 4,448,831 ) ( 4,448,831 ) Increase in inventory ( 3,676,535 ) 1,765,595 430,905 ( 1,480,035 ) Decrease in prepaid expenses and other current assets 187,107 187,107 Decrease in refundable income taxes 434,904 434,904 Increase in accounts payable and accrued expenses 7,214,124 244,403 7,458,527 Decrease in contract liabilities ( 1,911,158 ) ( 1,911,158 ) Decrease in loss reserve ( 1,849,992 ) ( 106,674 ) ( 1,956,666 ) Decrease in income taxes payable ( 354 ) 86 ( 268 ) Net cash used in operating activities ( 1,602,455 ) — — — ( 1,602,455 ) Cash flows from investing activities: Purchase of property and equipment ( 146,788 ) — — — ( 146,788 ) Net cash used in investing activities ( 146,788 ) — — — ( 146,788 ) Cash flows from financing activities: Proceeds from PPP loan 4,795,000 4,795,000 Payments on long-term debt ( 2,337,473 ) ( 2,337,473 ) Debt issuance costs ( 107,540 ) ( 107,540 ) Net cash provided by financing activities 2,349,987 — — — 2,349,987 Net increase in cash and restricted cash 600,744 — — — 600,744 Cash and restricted cash at beginning of year 5,432,793 — — — 5,432,793 Cash and restricted cash at end of year $ 6,033,537 $ — $ — $ — $ 6,033,537 Supplemental schedule of noncash investing activities: Equipment acquired under capital lease $ 134,900 $ — $ — $ — $ 134,900 Supplemental schedule of cash flow information: Cash paid during the year for interest $ 1,490,152 $ — $ — $ — $ 1,490,152 Cash (received) from income taxes $ ( 488,052 ) $ — $ — $ — $ ( 488,052 ) F- 43 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Statement of Cash Flows The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the nine months ended September 30, 2020 is as follows: Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Cash flows from operating activities: Net Loss $ ( 2,594,141 ) $ ( 938,689 ) $ 6,753 $ ( 352,074 ) $ ( 3,878,151 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 769,690 769,690 Amortization of debt issuance cost 80,764 80,764 Cash expended in excess of rent expense ( 115,932 ) ( 115,932 ) Stock-based compensation expense 677,489 677,489 Bad debt expense ( 47,410 ) ( 47,410 ) Changes in operating assets and liabilities: Increase in accounts receivable ( 232,310 ) ( 232,310 ) Increase in contract assets ( 3,128,460 ) ( 3,128,460 ) Increase in inventory ( 2,850,707 ) 852,222 352,074 ( 1,646,411 ) Decrease in prepaid expenses and other current assets 121,075 121,075 Decrease in refundable income taxes 439,445 439,445 Increase in accounts payable and accrued expenses 5,770,902 86,467 5,857,369 Decrease in contract liabilities ( 1,092,266 ) ( 1,092,266 ) Decrease in loss reserve ( 1,081,516 ) ( 6,753 ) ( 1,088,269 ) Net cash used in operating activities ( 3,283,377 ) — — — ( 3,283,377 ) Cash flows from investing activities: Purchase of property and equipment ( 11,888 ) ( 11,888 ) Net cash used in investing activities ( 11,888 ) ( 11,888 ) Cash flows from financing activities: Proceeds from PPP loan 4,795,000 4,795,000 Payments on long-term debt ( 1,855,209 ) ( 1,855,209 ) Debt issuance costs ( 107,540 ) ( 107,540 ) Net cash provided by financing activities 2,832,251 2,832,251 Net decrease in cash and restricted cash ( 463,014 ) ( 463,014 ) Cash and restricted cash at beginning of year 5,432,793 5,432,793 Cash and restricted cash at end of year $ 4,969,779 $ — $ — $ — $ 4,969,779 Supplemental schedule of cash flow information: Cash paid during the year for interest $ 1,156,126 $ — $ — $ — $ 1,156,126 Cash (received) from income taxes $ ( 449,749 ) $ — $ — $ — $ ( 449,749 ) F- 44 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Statement of Cash Flows The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the six months ended June 30, 2020 is as follows: Consolidated Statements of Cash Flows for the six months ended June 30, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Cash flows from operating activities: Net Loss $ ( 3,409,350 ) $ ( 826,243 ) $ ( 199,406 ) $ ( 282,917 ) $ ( 4,717,916 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 512,567 512,567 Amortization of debt issuance cost 56,055 56,055 Cash expended in excess of rent expense ( 77,288 ) ( 77,288 ) Stock-based compensation expense 536,388 536,388 Bad debt expense ( 73,352 ) ( 73,352 ) Changes in operating assets and liabilities: Decrease in accounts receivable 144,537 144,537 Increase in contract assets ( 285,875 ) ( 285,875 ) Increase in inventory ( 1,767,122 ) 684,605 282,917 ( 799,600 ) Increase in prepaid expenses and other current assets ( 142,816 ) ( 142,816 ) Decrease in refundable income taxes 437,931 437,931 Increase in accounts payable and accrued expenses 2,332,263 141,638 2,473,901 Decrease in contract liabilities 1,433,720 1,433,720 Decrease in loss reserve ( 549,840 ) 199,406 ( 350,434 ) Net cash used in operating activities ( 852,182 ) — — — ( 852,182 ) Cash flows from investing activities: Purchase of property and equipment ( 8,000 ) ( 8,000 ) Net cash used in investing activities ( 8,000 ) ( 8,000 ) Cash flows from financing activities: Proceeds from PPP loan 4,795,000 4,795,000 Payments on long-term debt ( 1,237,726 ) ( 1,237,726 ) Net cash provided by financing activities 3,557,274 3,557,274 Net increase in cash and restricted cash 2,697,092 2,697,092 Cash and restricted cash at beginning of year 5,432,793 5,432,793 Cash and restricted cash at end of year $ 8,129,885 $ — $ — $ — $ 8,129,885 Supplemental schedule of cash flow information: Cash paid during the year for interest $ 845,962 $ — $ — $ — $ 845,962 Cash (received) from income taxes $ ( 449,749 ) $ — $ — $ — $ ( 449,749 ) F- 45 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Statement of Cash Flows The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the three months ended March 31, 2020 is as follows: Consolidated Statements of Cash Flows for the three months ended March 31, 2020 (Unaudited) As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Cash flows from operating activities: Net Loss $ ( 2,812,519 ) $ ( 315,999 ) $ ( 9,371 ) $ ( 219,466 ) $ ( 3,357,355 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 256,284 256,284 Amortization of debt issuance cost 35,437 35,437 Amortization of right of use asset ( 38,644 ) ( 38,644 ) Stock-based compensation expense 347,185 347,185 Bad debt expense ( 51,369 ) ( 51,369 ) Changes in operating assets and liabilities: Decrease in accounts receivable 973,002 973,002 Increase in contract assets ( 533,743 ) ( 533,743 ) Increase in inventory ( 1,048,752 ) 242,857 219,466 ( 586,429 ) Decrease in prepaid expenses and other current assets 26,549 26,549 Decrease in refundable income taxes 1,506 1,506 Increase in accounts payable and accrued expenses 735,282 73,142 808,424 Increase in contract liabilities 1,187,667 1,187,667 Decrease in loss reserve ( 505,407 ) 9,371 ( 496,036 ) Net cash used in operating activities ( 1,427,522 ) — — — ( 1,427,522 ) Cash flows from investing activities: Purchase of property and equipment ( 3,200 ) ( 3,200 ) Net cash used in investing activities ( 3,200 ) ( 3,200 ) Cash flows from financing activities: Payments on long-term debt ( 622,690 ) ( 622,690 ) Debt issuance costs — — Net cash used in financing activities ( 622,690 ) ( 622,690 ) Net decrease in cash and restricted cash ( 2,053,412 ) ( 2,053,412 ) Cash and restricted cash at beginning of year 5,432,793 5,432,793 Cash and restricted cash at end of period $ 3,379,381 $ — $ — $ — $ 3,379,381 Supplemental schedule of cash flow information: Cash paid during the year for interest $ 450,191 $ — $ — $ — $ 450,191 Cash (received) from income taxes $ ( 928 ) $ — $ — $ — $ ( 928 ) F- 46 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Impact on Consolidated Statement of Cash Flows The effect of the Restatement described above on the accompanying consolidated statement of cash flows for the twelve months ended December 31, 2019 is as follows: Consolidated Statements of Cash Flows for the twelve months ended December 31, 2019 As Previously Reported Inventory Costing Errors Loss Contract Reserve Inventory Reserve As Restated Cash flows from operating activities: Net Loss $ ( 4,450,152 ) $ ( 110,355 ) $ ( 1,314,950 ) $ ( 874,778 ) $ ( 6,750,235 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,124,063 1,124,063 Amortization of debt issuance cost 95,507 95,507 Cash expended in excess of rent expense ( 112,048 ) ( 112,048 ) Stock-based compensation expense 730,564 730,564 Common Stock Issued as Employee Compensation 32,324 32,324 Bad debt expense 34,098 34,098 Changes in operating assets and liabilities: Decrease in accounts receivable 1,807,802 1,807,802 Decrease in contract assets 2,308,059 2,308,059 Decrease in inventory 227,336 110,355 874,778 1,212,469 Decrease in prepaid expenses and other current assets 1,202,189 1,202,189 Decrease in refundable income taxes 394,902 394,902 Decrease in accounts payable and accrued expenses ( 678,380 ) ( 678,380 ) Decrease in contract liabilities ( 1,968,872 ) ( 1,968,872 ) Decrease in loss reserve ( 1,012,597 ) 1,314,950 302,353 Decrease in income taxes payable ( 112,777 ) ( 112,777 ) Net cash used in operating activities ( 377,982 ) — — — ( 377,982 ) Cash flows from investing activities: Purchase of property and equipment ( 436,010 ) ( 436,010 ) Net cash used in investing activities ( 436,010 ) ( 436,010 ) Cash flows from financing activities: Proceeds from Line of Credit 4,000,000 4,000,000 Payments of Line of Credit ( 1,300,000 ) ( 1,300,000 ) Payments on long-term debt ( 2,436,786 ) ( 2,436,786 ) Debt issuance costs ( 25,000 ) ( 25,000 ) Stock offering costs paid ( 119,571 ) ( 119,571 ) Net cash provided by financing activities 118,643 118,643 Net decrease in cash and restricted cash ( 695,349 ) ( 695,349 ) Cash and restricted cash at beginning of year 6,128,142 6,128,142 Cash and restricted cash at end of year $ 5,432,793 $ — $ — $ — $ 5,432,793 Supplemental schedule of noncash investing activities: Equipment acquired under capital lease $ 399,800 $ — $ — $ — $ 399,800 Supplemental schedule of cash flow information: Cash paid during the year for interest $ 2,066,174 $ — $ — $ — $ 2,066,174 Cash (received) from income taxes $ ( 378,652 ) $ — $ — $ — $ ( 378,652 ) F- 47 18. SUBSEQUENT EVENTS Paycheck Protection Program (PPP) Loan On April 10, 2020, the Company obtained a loan from Dime Community Bank (formerly BNB Bank) as the lender (“Dime”), in the principal amount of $ 4,795,000 pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security (CARES) Act as administered by the U.S. Small Business Administration (“SBA”). In November 2020, the Company submitted its forgiveness application and the loan necessity questionnaire to the SBA through Dime. On July 13, 2021, the Company received notification through Dime that the PPP Loan and accrued interest thereon have been fully forgiven by the SBA and that the forgiveness payment date was July 1, 2021. The forgiveness of the PPP Loan will be recognized during the Company’s third fiscal quarter ending September 30, 2021. Restatement due to Inventory Costing Errors and Insufficient Reserves As previously reported, on June 4, 2021, the audit and finance committee (the “Audit and Finance Committee”) of the board of directors of CPI Aerostructures, Inc. (the “Company”), determined, based on the recommendation of management and in consultation with CohnReznick LLP (“CohnReznick”), the Company’s independent registered public accounting firm, that the Company’s financial statements which were included in its Annual Report on Form 10-K for the year ended December 31, 2020 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the Securities and Exchange Commission (the “SEC”) should no longer be relied upon due to errors in such financial statements relating to the recording and reporting of inventory costing and related internal controls (the “Inventory Costing Errors”) and that management’s reports on the effectiveness of internal control over financial reporting, press releases, and investor communications describing the Company’s financial statements for such periods should no longer be relied upon. The Company’s management identified the Inventory Costing Errors during its inventory testing procedures for the preparation of the Company’s financial statements for the quarterly period ended March 31, 2021. At the time of the June 2021 disclosure, the Company estimated and disclosed that the Inventory Costing Errors were expected to increase 2020 net loss reported on the Annual Report on Form 10-K for the year ended December 31, 2020 by $1.9 million to $2.3 million. The Company has now determined that the Inventory Costing Errors increased 2020 net loss by $ 2,010,084 . The correction of the Inventory Costing Errors resulted in the determination that certain contracts were in a loss position and certain inventory items required additional reserves. The Company re-evaluated the sufficiency of its provisions for loss contracts and inventory reserves that it had previously recorded and concluded that increases to these reserves were required. The insufficient reserves resulting from such reserve increases are referred to as “Additional Inventory Reserves” and “Loss Contract Reserve” and are together referred to as the “Insufficient Reserves.” It was further determined by management that the appropriate starting point for increasing the Insufficient Reserves was during the fourth quarter of 2019. On November 16, 2021, the Audit and Finance Committee determined, based on the analysis and recommendation of management and in consultation with CohnReznick, that the Company’s financial statements as of and for the period ended December 31, 2019 which were included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 should no longer be relied upon due to errors in such financial statements relating to the recording and reporting of the Insufficient Reserves, that, similarly, management’s reports on the effectiveness of internal control over financial reporting, press releases, and investor communications describing the Company’s financial statements for such period should no longer be relied upon, and stated that the Company expected to restate its Annual Report on Form 10-K for the years ended December 31, 2020 and December 31, 2019, and its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020 as filed with the SEC (the “Original Forms 10-Q”) by filing a comprehensive Form 10-K/A. The Company, upon conducting an analysis of the impact of the Insufficient Reserves on previously reported financial results, determined that net loss for the years ended December 31, 2020 and 2019 is $ 324,231 and $ 2,189,728 , respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Considering both the Inventory Costing Errors and the Insufficient Reserves, the Company determined that the net loss for the years ended December 31, 2020 and 2019 is $ 2,334,315 and $ 2,300,083 , respectively, greater than the net loss reported in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020 and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and net loss for the quarters ended March 31, 2020, June 30, 2020 is $ 544,836 and $ 763,730 , respectively, greater than the net loss reported in the respective Quarterly Reports on Form 10-Q for such periods and the net income for the quarter ended September 30, 2020 is $ 24,556 more than the net income reported in the Quarterly Report for such period. F- 48 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES The Inventory Costing Errors resulted from software processing and coding errors, inconsistent units of measure being used for quantities ordered and quantities received of certain purchased parts, incorrect accruals to accounting periods of the cost of certain goods received and the Company not having a procedure to address over or under absorbed overhead costs at the end of accounting periods. The Inventory Costing Errors affected the income reported with respect to the Company’s product lines for which revenue is recognized when a product ships to customers, which accounted for approximately 15 % of total 2020 revenue (the “Non-POC Contracts”). The Inventory Costing Errors did not affect income reported with respect to the Company’s products for which revenue is recognized over time using percentage of completion accounting (the “POC Contracts”). The Loss Contract Reserve and the Additional Inventory Reserves also only affect the income reported with respect to the Company’s Non-POC Contracts, and do not affect the income reported with respect to the Company’s POC Contracts. The Inventory Costing Errors and the Insufficient Reserves did not affect either prior reported revenue or cash flow for fiscal 2020 and 2019. Management has considered the effect of the Inventory Costing Errors and the Insufficient Reserves on the Company’s prior conclusions of the adequacy of its internal control over financial reporting and disclosure controls and procedures as of the end of each of the applicable periods. As a result of the Inventory Costing Errors and the Insufficient Reserves, management has determined that a material weakness existed in the Company’s internal control over financial reporting as of the end of the quarterly periods ended March 31, 2020, June 30, 2020, September 30, 2020 and for the years ended December 31, 2020 and 2019. See Part II Item 9A – Controls and Procedures within this Comprehensive Form 10-K/A for a description of these matters. As a result of the restatement included herein caused by the Inventory Costing Errors and Insufficient Reserves, the Company is reporting herein net loss for the years ended December 31, 2020 and December 31, 2019 which is $ 2,334,315 and $ 2,300,083 , respectively, greater than the net loss reported in the Original Form 10-K and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, net loss for the quarters ended March 31, 2020 and June 30, 2020 which is $ 544,836 and $ 763,730 , respectively, greater than the net loss reported in the respective Original Forms 10-Q, and net income for the quarter ended September 30, 2020 which is $ 24,556 greater than the net income reported in the Original Form 10-Q. The Inventory Costing Errors and the Insufficient Reserves did not affect reported revenue or cash flows for the years ended December 31, 2020 or December 31, 2019, or for the quarters ended March 31, June 30 and September 30, 2020. This Comprehensive Form 10-K/A contains our audited restated annual financial statements as of and for the years ended December 31, 2020 and 2019, as well as our unaudited restated quarterly financial statements as of and for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020. The restatement is discussed in more detail within Note 17, “Restatement of Previously Issued Consolidated Financial Statements”. Amendments to BankUnited Facility On May 11, 2021, we entered into the Seventh Amendment. Under the Seventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to July 31, 2022 , and (b) amending the leverage ratio covenant for the fiscal quarters ending on and after March 31, 2021, to 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended). Additionally, under the Seventh Amendment, BankUnited waived late delivery of certain financial information. On October 28, 2021, we entered into the Eighth Amendment. Under the Eighth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan and the Term Loan to December 31, 2022 , (b) reducing the availability under the Revolving Loan from $ 24 million to $ 21 million while eliminating the requirement to maintain a minimum $ 3 .0 million in a combination of Revolving Loan availability and unrestricted cash, (c) providing for the repayment of an additional $ 750,000 of the principal balance of the Term Loan in three installments of $ 250,000 on November 30, 2021, December 31, 2021 and March 31, 2022 in addition to $ 200,000 regular monthly principal payments through maturity, (d) amending the minimum debt service coverage ratio covenant for the fiscal quarters ending on and after June 30, 2021 to provide for a ratio of 1.5 to 1.0, and (e) amending the maximum leverage ratio covenant as follows: for the fiscal quarter ending on March 31, 2021 - 5.0 to 1.0; for the fiscal quarter ending June 30, 2021 - 4.75 to 1.0; for the fiscal quarter ending September 30, 2021 - 4.25 to 1.0 and for the fiscal quarter ended December 31, 2021 and thereafter - 4.0 to 1.0, determined at the end of each fiscal quarter for the trailing four-quarter period then ended (or, in the case of the fiscal quarter ended March 31, 2021, determined on an annualized basis for the three-quarter period then ended). Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and waived temporarily, late delivery of certain financial information. F- 49 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES NYSE American Delinquency Notices On May 25, 2021, we received a notice from NYSE American LLC stating that our failure to timely file our Quarterly Report on Form 10-K for the three months ended March 31, 2021 caused us to be out of compliance with the NYSE American LLC’s continued listing standards under the timely filing criteria included in Section 1007 of the Company Guide. In accordance with Section 1007 of the Company Guide, we will have until November 24, 2021 as an Initial Cure Period to file the Form 10-Q with the SEC. If we fail to file the Form 10-Q during the Initial Cure Period, the NYSE American exchange may, in its sole discretion, provide an Additional Cure Period of up to six months. We have requested an Additional Cure Period. However, there can be no assurance that NYSE American will grant us the Additional Cure Period or that we will be able to file the Form 10-Q within the Additional Cure Period. If we are not granted an Additional Cure Period or if we are unable to file the Form 10-Q within the Additional Cure Period, our common stock may be delisted from the NYSE American exchange. On September 17, 2021, we received notice from NYSE American LLC indicating that the Company does not meet the continued listing standards set forth in Part 10 of the Company Guide. The Company is not in compliance with Section 1003(a)(i) of the Company Guide since it has stockholders’ equity of less than $ 2 .0 million and losses from continuing operations and/or net losses in two of its three most recent fiscal years and Section 1003(a)(ii) of the Company Guide since it has stockholders’ equity of less than $ 4 .0 million and losses from continuing operations and/or net losses in three of its four most recent fiscal years. The Company has therefore become subject to the procedures and requirements of Section 1009 of the Company Guide and was required to, and timely did, submit a plan to NYSE American LLC addressing how the Company intends to regain compliance with the continued listing standards by March 17, 2023 (the “Plan”). On November 19, 2021, we received notice from NYSE American LLC that has accepted the Plan, subject to periodic review, including quarterly monitoring, for compliance with the Plan. If the Company is not in compliance with the continued listing standards by March 17, 2023 or if the Company does not make progress consistent with the Plan during the plan period, the NYSE Regulation staff may initiate delisting proceedings, as appropriate. See “Risk Factors - If our common stock is delisted from the NYSE American exchange, our business, financial condition, results of operations and stock price could be adversely affected, and the liquidity of our stock and our ability to obtain financing could be impaired.”. Extension of Lease Agreement on Corporate Headquarters, Manufacturing and Office Space On November 10, 2021, the Company executed the second amendment to the lease agreement for its manufacturing and office space, which extends the lease agreement’s expiration date to April 30, 2026. F- 50 CPI AEROSTRUCTURES, INC. AND SUBSIDIARIES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 24, 2021 CPI AEROSTRUCTURES, INC. (Registrant) By: /s/ Andrew L. Davis Andrew L. Davis Chief Financial Officer and Secretary (Principal financial and accounting officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Terry Stinson Chairman of the Board of November 24, 2021 Terry Stinson Directors /s/Carey Bond Carey Bond Vice Chairman of the Board of Directors November 24, 2021 /s/ Douglas McCrosson Chief Executive Officer and November 24, 2021 Douglas McCrosson President (Principal Executive Officer) /s/ Andrew L. Davis Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) November 24, 2021 Andrew L. Davis /s/ Walter Paulick Director November 24, 2021 Walter Paulick /s/ Eric Rosenfeld Director November 24, 2021 Eric Rosenfeld /s/ Michael Faber Director November 24, 2021 Michael Faber /s/ Richard Caswell Director November 24, 2021 Richard Caswell 51