What changed in this filing

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Item 1. Business

2022-08-19 compared with 2021-04-15 · 285 added, 253 removed, 239 unchanged (69% of the section changed)

Looking Statements

Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform

When used in this Annual Report on Form 10-K and in future filings by us with the Securities and Exchange Commission

(“SEC”), the words or phrases “will likely result,” “management expects” or “we expect,”

“will continue,” “is anticipated,” “estimated” or similar expressions are intended to identify

forward-looking statements.

In addition, any statements that refer to projections, forecasts or other

characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

are cautioned not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made.

There can be no assurance that future developments will be those that have been anticipated.

not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements.

Further, s uch statements

are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and

those presently anticipated or projected.

The risks are included in “Item 1A:

Risk Factors” and “Item 7:

Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.

have no obligation to publicly release the result of any revisions, which may be made to any forward-looking statements to reflect

anticipated or unanticipated events or circumstances occurring after the date of such statements.

should read the financial information set forth below in conjunction with our consolidated financial statements and notes thereto.

Aerostructures, Inc., including its wholly owned subsidiaries ("CPI Aero", ”CPI”, the "Company",

"us" or "we") is a manufacturer of structural assemblies, integrated systems, and kitted components for the

Aerostructures, Inc., including its wholly owned subsidiary Welding Metallurgy, Inc.

(“WMI”) and Compac Development

Corporation, a wholly owned subsidiary of WMI (collectively, “CPI Aero”, the “Company”, “us”

or “we”) is a manufacturer of structural assemblies, integrated systems, and kitted components for the domestic and

international aerospace and defense (“A&D”) markets.

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We are also a Tier 2 supplier to larger Tier 1 manufacturers and a prime contractor

Department of Defense ("DOD"), primarily the U.S.

Air Force ("USAF").

Our products are used by

OEMs within both commercial aerospace and national security end markets.

In addition to our assembly operations, we provide manufacturing

engineering, program management, supply chain management, and maintenance repair and overhaul ("MRO") services.

Department of Defense (“DOD”), primarily the United States (“U.S.”) Air Force (“USAF”).

Our products are used by OEMs within both commercial aerospace and national security markets.

In addition to our assembly operations,

we provide manufacturing engineering, program management, supply chain management, kitting and maintenance repair and overhaul

(“MRO”) services.

OEM customers in the defense sector include leading prime defense contractors such as:

Martin Corporation - we provide products used in the production of the F-35 Joint

Strike Fighter and an international variant of the F-16 Falcon.

We also provide structural

assemblies to Sikorsky, a Lockheed Martin company (“Sikorsky”), for many

of their military helicopter platforms including the UH-60 BLACK HAWK©, CH-53E,

and a special purpose helicopter;

Technologies Corporation - we provide products to three of their business divisions:

Space and Airborne Systems (the Next Generation Jammer – Mid-Band pod), Missile

Systems (wing), and Integrated Defense Systems (Evolved Sea Sparrow missile launcher

● Boeing - we provide critical wing structure for the A-10 re-wing program and welded

structure for the CH-47 Chinook;

Grumman (“NGC”) – we provide structural components and kits

for the E-2D Advanced Hawkeye, various integrated radar and laser pod structures, and

welded fluid tanks for a classified program;

and 72% of our revenue in 2020 and 2019, respectively, were generated by subcontracts with defense prime contractors.

Lockheed Martin

Corporation - we provide products used in the production of Lockheed Martin Corporation’s (“Lockheed Martin”)

F-35 Joint Strike Fighter and an international variant of the F-16 Falcon.

We also provide structural assemblies to Sikorsky,

a Lockheed Martin company (“Sikorsky”), for many of their military helicopter platforms including the UH-60 BLACK

HAWK©, CH-53E and CH53K, and a special purpose helicopter;

Raytheon Technologies

Corporation - we provide products to three business divisions of Raytheon Technologies Corporation (“Raytheon”):

Intelligence and Space (the Next Generation Jammer – Mid-Band pod), Missiles & Defense (missile wing and Evolved

Sea Sparrow missile launcher controller), and Collins Aerospace (Intelligence, Surveillance, and Reconnaissance airborne pods);

Company - we provide critical wing structure for The Boeing Company’s (“Boeing”) A-10 re-wing program

and welded structure for the CH-47 Chinook;

Northrop Grumman

Corporation – we provide structural components and kits for the Northrop Grumman Corporation (“NGC”)

E-2D Advanced Hawkeye, various integrated radar and laser pod structures, welded tubes and welded fluid tanks for a classified

and 80% of our revenue in 2021 and 2020, respectively, was generated by subcontracts with defense prime contractors.

have positioned our Company to take advantage of opportunities in the military aerospace market to a broad customer base, which

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OEM customers in the civil aviation market include:

Executive Jets – we provide engine inlet assemblies for the Phenom 300

business jet;

● Gulfstream –

we provide a critical structure used to produce the wing of Gulfstream Aircraft Company’s

flagship G650 large business jet and derivative models such as the G650ER.

and 21% of our revenue in 2020 and 2019, respectively, were generated by commercial contract sales.

also is a prime contractor to the DOD, primarily through contracts directly with the USAF and the Defense Logistics Agency (“DLA”).

Embraer Executive

Jets – we provide engine inlet assemblies for the Phenom 300 business jet;

Aircraft Company – we provide a critical structure used to produce the wing of Gulfstream Aircraft Company’s

large cabin executive business jets, including the flagship G650ER, the G700, and the recently announced G800.

and 10% of our revenue in 2021 and 2020, respectively, was generated by commercial contract sales.

Aero also is a prime contractor to the DOD, primarily through contracts directly with the USAF and the Defense Logistics Agency

(“DLA”), providing supply chain management, assembly & integration, and kitting services for the F-16 and T-38

3% and 10% of our revenue in 2021 and 2020, respectively, were generated by direct government sales.

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maintain a website located at www.cpiaero.com .

Our corporate filings, including our Annual

Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and reports filed

by our officers and directors under Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”),

and any amendments to those filings, are available, free of charge, on our website as soon as reasonably practicable after we

electronically file such material with the SEC.

The contents of our website are not incorporated in or otherwise to be regarded

as a part of this Annual Report on Form 10-K.

of our significant contracts are as follows:

Our corporate filings, including our Annual Report on Form 10-K, our Quarterly

Reports on Form 10-Q, our Current Reports on Form 8-K, our proxy statements and reports filed by our officers and directors under

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any amendments to those

filings, are available, free of charge, on our website as soon as reasonably practicable after we electronically file such material

with the SEC.

The contents of our website are not incorporated in or otherwise to be regarded as a part of this Annual Report

on Form 10-K.

most significant contracts are described below:

Aircraft – Subcontracts with Prime Contractors

E-2D Advanced Hawkeye:

The NGC E-2 Hawkeye is an all-weather, carrier-based tactical Airborne Early Warning

The twin turboprop aircraft was designed and developed in the 1950s by the Grumman Aircraft Company for the United States

The United States Navy aircraft has been progressively updated with the latest variant, the E-2D, first flying in 2007.

In 2008, we received an initial $7.9 million order from NGC to provide structural kits used in the production of Outer Wing Panels

(“OWP”) of the E-2D.

We initially valued the long-term agreement at approximately $98 million over an eight-year period,

with the potential to be in excess of $195 million over the life of the aircraft program.

In February of 2019, we announced a

new multi-year award valued at up to approximately $47.5 million.

In June 2020, we announced that we had received firm orders

valued in excess of $43 million and $5 million in long-lead funding in anticipation of purchase orders for OWP structural components

Since 2008, the cumulative orders we have received on this program through December 31, 2020 exceed $207 million.

The NGC E-2D Advanced Hawkeye is an all-weather, carrier-based tactical Airborne Early Warning

The twin turboprop aircraft was designed and developed in the 1950s by the Grumman Aircraft Company for the U.S.

Navy aircraft has been progressively updated with the latest variant, the E-2D, first flying in 2007.

In 2008, we received

an initial $7.9 million order from NGC to provide structural kits used in the production of Outer Wing Panels (“OWP”)

We initially valued the long-term agreement at approximately $98 million over an eight-year period, with the potential

to be in excess of $195 million over the life of the aircraft program.

In February of 2019, we announced a new multi-year award

valued at up to approximately $47.5 million.

In June 2020, we announced that we had received firm orders valued in excess of $43

million and $5 million in long-lead funding in anticipation of purchase orders for OWP structural components and kits.

the cumulative orders we have received on this program through December 31, 2021 exceed $227 million.

addition, in 2015 we won an award to supply structural components and kits for the Wet Outer Wing Panel (“WOWP”) on

the E-2D Advanced Hawkeye airborne early warning and control (“AEW&C”) aircraft that will be manufactured for

We are responsible for component source selection, supply chain management, delivery of kits, and are providing manufacturing

engineering services to NGC during the integration of the components into the WOWP.

In late 2019, CPI Aero received additional

WOWP kit requirements increasing the total expected value of the WOWP program for Japan to be in excess of $37 million.

February 2020, the Company’s WMI subsidiary received from NGC approximately $4 million in purchase orders to provide numerous

the Japan Air Self Defense Force (“JASDF”).

We are responsible for component source selection, supply chain management,

delivery of kits, and are providing manufacturing engineering services to NGC during the integration of the components into the

In late 2019, CPI Aero received additional WOWP kit requirements increasing the total expected value of the WOWP program

for JASDF to be in excess of $37 million.

February 2020, the Company’s subsidiary WMI received from NGC approximately $4 million in purchase orders to provide numerous

welded structure and tubes for the E-2D Advanced Hawkeye.

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The period of performance is expected to be through

Next Generation Jammer – Mid-Band Pod (NGJ-MB):

The Raytheon NGJ-MB pod is an external jamming pod that will disrupt

and degrade enemy aircraft and ground radar and communication systems and will replace the ALQ-99 system on the U.S.

Growler carrier-based electronic warfare aircraft.

Navy plans to install these pods on 138 EA-18G Growlers during the

production phase.

There are 2 pods per aircraft.

2022 with strong potential for follow-on orders.

ALQ-249 Next Generation Jammer – Mid-Band Pod (“NGJ-MB”):

The Raytheon NGJ-MB pod is an external jamming

pod that will disrupt and degrade enemy aircraft and ground radar and communication systems and will replace the ALQ-99 system

Navy’s EA-6B Growler carrier-based electronic warfare aircraft.

Navy plans to install these pods on 139 EA-18G

Growlers during the production phase.

There are also 11 EA-18Gs operated by the Royal Australian Air Force.

There are two pods

per aircraft.

Raytheon received a $1 billion sole source contract from the U.S.

Navy in April

2016, and CPI has a contract with Raytheon to assemble the pod structural housing and air management system (“AMS”).

In 2019, Raytheon authorized CPI Aero to begin production of pod structures and air management system components for the System

Demonstration and Test Article (“SDTA”) phase of the NGJ-MB program.

All SDTA pods and AMS components are expected

to ship during 2021.

CPI Aero estimates the value of the NGJ-MB program through the SDTA phase to be approximately $60 million.

We believe that the total value of the NGJ-MB program through production will be in excess of $210 million through 2030.

Navy in April 2016, and CPI Aero has a contract

with Raytheon to assemble the pod structural housing and air management system (“AMS”) and integrate some Customer

Furnished Equipment.

In 2019, Raytheon authorized CPI Aero to begin production of pod structures and air management system components

for the System Demonstration and Test Article (“SDTA”) phase of the NGJ-MB program.

All SDTA pods and AMS components

are expected to complete shipping during the first quarter of 2022.

CPI Aero estimates the value of the NGJ-MB program through

the SDTA phase to be approximately $60 million.

On November 16, 2021 the Company announced it was authorized by Raytheon to start

the production phase of the program.

We believe that the total value of the NGJ-MB program through production will be in excess

of $210 million through 2030.

Thunderbolt II “Warthog” :

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armored vehicles.

On August 21, 2019, Boeing announced an award from the USAF with a maximum contract value of $999 million to

manage the production of up to 112 new wing sets and spares kits for A-10 aircraft.

The USAF ordered 27 wing sets immediately

at contract award.

In 2019, CPI announced the receipt of an Indefinite Delivery/Indefinite Quantity (IDIQ) contract with a maximum

ceiling value of $48 million from Boeing for structural assemblies for the A-10.

Under the terms of the IDIQ contract, CPI Aero

will manufacture major structural subassemblies of the A-10 aircraft’s wing.

The Company also announced that it has received

initial purchase orders under the IDIQ contract valued at approximately $6 million for the production of 4 shipsets of assemblies

and associated program start-up costs.

In May 2020, CPI Aero announced the receipt of additional purchase orders totaling approximately

$14 million from Boeing.

On August 21, 2019, Boeing announced it had received an Indefinite Delivery/Indefinite Quantity (“IDIQ”)

contract award from the USAF with a maximum contract value of $999 million to manage the production of up to 112 new wing sets

and spares kits for A-10 aircraft, and the USAF ordered 27 wing sets from Boeing immediately at contract award.

In 2019, CPI Aero

announced the receipt of an IDIQ contract with a maximum ceiling value of $48 million from Boeing for structural assemblies for

Under the terms of the IDIQ contract, CPI Aero will manufacture major structural subassemblies of the A-10 aircraft’s

The Company also announced that it has received initial purchase orders under the IDIQ contract valued at approximately

$6 million for the production of four shipsets of assemblies and associated program start-up costs.

In May 2020, CPI Aero announced

the receipt of additional purchase orders totaling approximately $14 million from Boeing.

Lightning II:

The Lockheed F-35 Lightning II is a family of single-seat, single-engine, all-weather stealth multirole

fighters designed to perform ground attack, aerial reconnaissance, and air defense missions.

The DOD plans to acquire over 2,400

F-35's by 2034 and 11 other countries also have plans to acquire the aircraft.

The Company has two significant contracts for products

used on the F-35.

In 2015, CPI was awarded a multi-year contract to supply four different lock assemblies for the arresting gear

door on the F-35A CTOL.

CPI made its first delivery under that contract in May 2017.

In 2018, the Company received a new long-term

agreement value at approximately $8 million for lock assemblies to be delivered between 2020 and 2024.

In November 2017, CPI was

awarded an additional $15.8 million multi-year contract to manufacture canopy activation drive shaft assemblies for the F-35A,

F-35B, and F-35C aircraft.

The Lockheed Martin F-35 Lightning II is a family of single-seat, single-engine, all-weather stealth multirole

fighter aircraft that provides unmatched multi-role capability, survivability, and connectivity with data sharing capabilities

essential for Joint All Domain Operations.

Current DOD plans call for acquiring a total of 2,456 F-35s.

Allies are expected to

purchase hundreds of additional F-35s, with eight nations cost-sharing partners in the program with the United States and six

other allied nations purchasing the F-35 via Foreign Military Sales agreements with the DOD.

The Company has two significant contracts

for products used on the F-35.

In 2015, CPI Aero was awarded a multi-year contract to supply four different lock assemblies for

the arresting gear door on the F-35C Carrier Take Off and Landing variant.

CPI Aero made its first delivery under that contract

In 2018, the Company received a new long-term agreement value at approximately $8 million for lock assemblies to

be delivered between 2020 and 2024.

In November 2017, CPI Aero was awarded an additional $15.8 million multi-year contract to

manufacture canopy activation drive shaft assemblies for the F-35A, F-35B, and F-35C aircraft.

“BLACK HAWK”:

The Sikorsky UH-60 BLACK HAWK helicopter is the leader in multi-mission-type-aircraft.

the mission configurations its serves are troop transport, medical evacuation, electronic warfare, attack, assault support and

special operations.

The Sikorsky UH-60 BLACK HAWK helicopter is the leader in multi-mission rotary wing aircraft.

Among the mission configurations its serves are troop transport, medical evacuation, electronic warfare, attack, assault support

and special operations.

More than 3,000 BLACK HAWK helicopters are in use today, operating in 29 countries.

CPI Aero and its WMI subsidiary

manufacture several different structural assemblies, including welded structure, for the BLACK HAWK helicopter.

The majority of

CPI’s contracts for the BLACK HAWK are as a Tier 1 supplier to Sikorsky.

The Company also is a Tier 2 supplier to GKN Aerospace

for ultimate use on the BLACK HAWK.

In 2017, CPI Aero received an approximate $21 million long-term agreement through 2022 for

the production of fuel panel assemblies, work it has performed for Sikorsky since 2010.

Also in 2017, the Company received an

$8 million long-term agreement through 2022 to manufacture machine gunner window assemblies, continuing work it has performed

More recently, since October 2018, CPI Aero has received multiple purchase orders totaling $22 million for Hover Infrared

Suppression System (HIRSS) module assemblies for use as spares on older variants of the UH-60 BLACK HAWK helicopter.

CPI Aero and its WMI

subsidiary manufacture several different structural assemblies, including welded structure, for the BLACK HAWK helicopter.

majority of CPI Aero’s contracts for the BLACK HAWK are as a Tier 1 supplier to Sikorsky.

The Company also is a Tier 2 supplier

to GKN Aerospace for ultimate use on the BLACK HAWK.

In 2017, CPI Aero received an approximate $21 million long-term agreement

through 2022 for the production of fuel panel assemblies, work it has performed for Sikorsky since 2010.

Also in 2017, the Company

received an $8 million long-term agreement through 2022 to manufacture machine gunner window assemblies, continuing work it has

performed since 2010.

A third five-year LTA was awarded in January 2022 estimated at $13.6 million with a period of performance

from 2023-2027.

Since October 2018, CPI Aero has received multiple purchase orders totaling $22 million for Hover Infrared Suppression

System (“HIRSS”) module assemblies for use as spares on older variants of the UH-60 BLACK HAWK helicopter.

is a defensive countermeasures system that is integral to the survival of the UH-60 Black Hawk by reducing the opportunity for

an infrared-seeking threat system to acquire, lock onto, track, and destroy the helicopter.

In May 2021, the Company announced

receiving a multi-year contract valued at up to $17.2 million for the repair and overhaul

of outboard stabilator assemblies in support of the Sikorsky MH-60 SEAHAWK .

Fighting Falcon:

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In 2019, the Company announced it had

been awarded a multi-year contract by Lockheed Martin to manufacture Rudder Island and Drag Chute Canister (RI/DCC) assemblies

for the F-16V.

been awarded a multi-year contract by Lockheed Martin to manufacture Rudder Island and Drag Chute Canister (“RI/DCC”)

assemblies for the F-16V.

The RI/DCC is a large structural sub-assembly that is installed on the tail section of the aircraft.

are expected to begin during late 2020 and continue through 2024.

In June 2020, the Company announced that it had been awarded

a follow-on order from Lockheed Martin to manufacture structural assemblies for new production F-16 Block 70/72 aircraft.

total value of the RI/DCC program is approximately $21 million and we have received more than $8.7 million in orders through December

Deliveries are expected to begin during late 2020 and continue through 2024.

In June 2020, the Company announced that it had been

awarded a follow-on order from Lockheed Martin to manufacture structural assemblies for new production F-16 Block 70/72 aircraft.

The total value of the RI/DCC program is approximately $21 million and we have received more than $20.6 million in orders through

December 31, 2021.

Given the strength of Lockheed’s International Sales Forecast for the F-16, a follow-on to the existing

contracted orders is possible.

King Stallion:

The CH-53K is a heavy-lift helicopter being developed by Sikorsky for the United States Marine Corps.

testing began in 2018.

We manufacture composite electronics racks as a Tier 2 supplier to Spirit AeroSystems, Inc., the manufacturer

of the CH-53K cockpit and cabin.

Through December 31, 2020, we have received orders for development and test valued at more than

$2.5 million, including a $1.1 million order for rack with delivery requirements commencing in mid-2020 through 2021.

The CH-53K is a heavy-lift helicopter being developed by Sikorsky for the U.S.

Marine Corps.

We manufacture

composite electronics racks as a Tier 2 supplier to Spirit AeroSystems, Inc., the manufacturer of the CH-53K cockpit and cabin.

Through December 31, 2021, we had received orders valued at more than $3.6 million.

In 2018 the Company received an initial purchase order from Raytheon Missile Systems Company, a subsidiary of

Raytheon Company, to manufacture structural assemblies on an undisclosed vehicle.

In 2019 CPI Aero completed the initial order

and in January 2021 announced a subsequent purchase order to manufacture additional units.

Raytheon, to manufacture structural assemblies on an undisclosed vehicle.

In 2019, CPI Aero completed the initial order and in

January 2021, CPI Aero announced a subsequent purchase order to manufacture additional units.

The undisclosed vehicle is currently

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an undisclosed application.

The initial value of the order is approximately $2.3 million for manufacturing engineering service,

development of assembly tooling and the production of the prototypes.

The undisclosed vehicle is currently under development.

A prototype is expected to be manufactured during 2021.

The value of the order was approximately $2.3 million for manufacturing engineering service, development

of assembly tooling and the production of the prototypes.

The undisclosed pod structure is currently under development.

2021, the Company announced Raytheon awarded an approximate $6 million contract modification that changes the scope of work the

Company would perform and increases the quantity of pods to be produced.

Aircraft – Prime Contracts with U.S.

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the structural service life of T-38A and T-38 model types, as well as T-38C models that were not modified during PC III.

December 31 2020, the Company has received orders valued at approximately $15.3 million for the PC III, Phase 3 and TRIM programs.

In February 2021, the Company announced it had received orders for additional requirements valued at $8.7 million, bringing total

orders under this long term contract to approximately $24 million.

December 31 2020, the Company had received orders valued at approximately $15.3 million for the PC III, Phase 3 and TRIM programs,

and in 2021, the Company announced it had received three separate orders for additional requirements valued at approximately $16.2

million, bringing total orders under this long term contract to approximately $31.5 million.

Aircraft – Subcontracts with Prime Contractors

The Gulfstream G650 is a twin-engine business jet airplane produced

by Gulfstream Aerospace that can be configured to carry from 11 to 18 passengers.

Gulfstream began the G650 program in 2005 and revealed it to the public in 2008.

The G650 is Gulfstream’s largest and fastest

business jet.

G650/G650ER/G700 :

The Gulfstream G650 is a twin-engine business jet airplane produced by Gulfstream Aerospace

that can be configured to carry from 11 to 18 passengers.

Gulfstream began the G650 program in 2005 and revealed it to the public

The G650 is Gulfstream’s largest and fastest business jet.

The G650ER is an extended range version of the aircraft.

In 2020, Gulfstream announced the launch of a new derivative

In 2020, Gulfstream announced the launch of a new derivative the G700.

In March 2008, Spirit AeroSystems, Inc.

awarded us a contract to provide fixed leading edges (FLE) for the Gulfstream

G650 business jet, and derivative models, a commercial program that Spirit was supporting.

In December 2014, Spirit transferred

its work-scope on this program to Triumph Group.

Due to the impact of the COVID-19 pandemic, in May 2020, Triumph Group cancelled

nearly all open orders with the Company.

On May 27, 2020, Triumph Group announced it had reached an agreement in principle to

sell the G650 wing program to Gulfstream Aerospace, and on June 12, 2020, we received a joint communication from Gulfstream Aerospace

and Triumph Group that stated Gulfstream’s intention at the conclusion of the transaction is to continue to purchase G650

wing components from the Company.

In December 2020, we received purchase orders directly from Gulfstream for wing components for

use on the G650, G650ER and/or G700 aircraft.

awarded us a contract

to provide fixed leading edges for the Gulfstream G650 business jet, and derivative models, a commercial program that Spirit was

In December 2014, Spirit transferred its work-scope on this program to Triumph Group.

Due to the impact of the COVID-19

pandemic, in May 2020, Triumph Group cancelled nearly all open orders with the Company.

On May 27, 2020, Triumph Group announced

it had reached an agreement in principle to sell the G650 wing program to Gulfstream Aerospace, and on June 12, 2020, we received

a joint communication from Gulfstream Aerospace and Triumph Group that stated Gulfstream’s intention to continue to purchase

G650 wing components from the Company.

In December 2020, we received purchase orders directly from Gulfstream for wing components

for use on the G650, G650ER and/or G700 aircraft.

We expect this work to continue through 2022.

The Phenom 300 is a twin-engine, executive jet produced by Brazilian aircraft company Embraer, S.A.

that can carry

between 6 and 10 passengers and a crew of 2.

We have been producing engine inlet assemblies for Embraer under a long-term agreement

we entered into in 2012.

between six and 10 passengers and a crew of two.

We have been producing engine inlet assemblies for Embraer under a long-term

agreement we entered into in 2012.

We have received approximately $40.3 million in orders on this program through December 31

the potential value of the program to be in excess of $52 million.

We estimate the potential value of the program to be in excess of $52 million.

and Marketing

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Approximately

$2.9 million and $3.3 million of our revenue for the years ended December 31, 2020 and 2019, respectively, were from

customers outside the U.S.

All other revenue for the years ended December 31, 2020 and 2019 has been attributable to

customers within the U.S.

$4.7 million and $2.9 million of our revenue for the years ended December 31, 2021 and 2020, respectively, were from customers

outside the U.S.

All other revenue for the years ended December 31, 2021 and 2020 has been attributable to customers within the

We have no assets outside the U.S.

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values under such contracts and purchase orders, excluding the portion previously included in operating revenues pursuant to Accounting

Standards Codification Topic 606 (“ASC606”), and including estimates of future contract price escalation.

Unfunded backlog

is the estimated amount of future orders under the expected duration of the program.

Substantially all of our backlog is subject

to termination at will and rescheduling, without significant penalty.

Funds are often appropriated for programs or contracts on

a yearly or quarterly basis, even though the contract may call for performance that is expected to take a number of years.

our funded backlog does not include the full value of our contracts.

total backlog at December 31, 2020 is primarily comprised of long-term programs with Raytheon (Next Generation Jammer –

Mid Band), Northrop Grumman (E-2D), USAF (T-38), Boeing (A-10), and Embraer (Phenom 300).

Funded backlog is primarily

from purchase orders under long-term contracts with Northrop Grumman (E-2D), Sikorsky (BLACK HAWK), Lockheed Martin (F-16V), and

the USAF (T-38).

Approximately 54% of the funded backlog at December 31, 2020 is expected to be recognized as revenue during 2021.

Standards Codification Topic 606 (“ASC606”).

Unfunded backlog is the estimated amount of future orders under the expected

duration of the program.

Substantially all of our backlog is subject to termination at will and rescheduling, without significant

Funds are often appropriated for programs or contracts on a yearly or quarterly basis, even though the contract may call

for performance that is expected to take a number of years.

Therefore, our funded backlog does not include the full value of our

total backlog at December 31, 2021 is primarily comprised of long-term programs with Raytheon (NGJ-MB;

B-52 Radar Rack), USAF

(T-38), Boeing (A-10), Sikorsky (UH-60), Northrop Grumman (E-2D), Lockheed Martin (F-16;

F-35), Collins Aerospace (MS-110 and

TacSAR pods) and Embraer (Phenom 300).

Funded backlog is primarily from purchase orders under long-term contracts with the USAF

(T-38), Boeing (A-10), Sikorsky (UH-60), Northrop Grumman (E-2D), Lockheed Martin (F-16;

F-35), Raytheon (NGJ-MB;

B-52 Radar Rack)

and Embraer (Phenom 300).

Approximately 52% of the funded backlog at December 31, 2021 is expected to be recognized as revenue

total backlog as of December 31, 2021 and 2020 was as follows:

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$ 490,632,000

$ 456,788,000

backlog attributable to commercial contracts at December 31, 2021 and 2020 was as follows:

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we find more limited competition and are not aware of competition from any of the aerostructures companies mentioned above.

these cases, we typically compete with the internal manufacturing arm of our customer.

these cases, we typically compete with the internal manufacturing arm of our customers.

We believe our unique skills related to

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Government, we may compete against well-established prime contractors, including NGC,

Lockheed and Boeing.

All of these competitors possess significantly larger infrastructures, greater resources and the capabilities

to respond to much larger contracts.

We believe that our competitive advantage lies in our ability to offer large contractor

capabilities with the flexibility and responsiveness of a small company, while staying competitive in cost and delivering superior

quality products.

While larger prime contractors compete for significant modification awards, they generally do not compete

for awards in smaller modifications, spares and replacement parts, even for aircraft for which they are the original manufacturer.

certain instances, the large prime contractors often subcontract much of the work they win to their Tier 1 suppliers so we also

may act as a subcontractor to some of these major prime contractors.

Further, in some cases these companies are not permitted

to bid, for example when the U.S.

Lockheed Martin, and Boeing.

All of these competitors possess significantly larger infrastructures, greater resources and

the capabilities to respond to much larger contracts.

We believe that our competitive advantage lies in our ability to offer

large contractor capabilities with the flexibility and responsiveness of a small company, while staying competitive in cost and

delivering superior quality products.

While larger prime contractors compete for significant modification awards, they generally

do not compete for awards in smaller modifications, spares and replacement parts, even for aircraft for which they are the original

manufacturer.

In certain instances, the large prime contractors often subcontract much of the work they win to their Tier

1 suppliers so we also may act as a subcontractor to some of these major prime contractors.

Further, in some cases these companies

are not permitted to bid, for example when the U.S.

Government designates a contract as a Small Business Set-Aside.

In these restricted contracts

restricted contracts for the U.S.

Government, CPI Aero typically competes against numerous small business competitors.

We believe we compete effectively

against the smaller competitors because smaller competitors generally do not have the expertise we have in responding to requests

for proposals for government contracts, nor will they typically have the more than 40 years of past performance in conducting

thousands of contracts for the U.S.

believe we compete effectively against the smaller competitors because smaller competitors generally do not have the expertise

we have in responding to requests for proposals for government contracts, nor will they typically have the more than 40 years

of past performance in conducting thousands of contracts for the U.S.

Coronavirus Pandemic Impact on Our Business

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

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 and adjust production schedules.

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.

information on the current and potential impact of the COVID-19 pandemic on our business, see Risk Factors included in Part I,

Item 1A of this Annual Report on Form 10-K.

During the latter part of that quarter and subsequent to that 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.

address the transmission of COVID-19, such as the imposition of travel restrictions and the adoption of remote work.

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.

For more information on the current and potential impact

of the COVID-19 pandemic on our business, see Risk Factors included in Part I, Item 1A of this Annual Report on Form 10-K.

late 2020, we began to experience an increased rate of employees testing positive for COVID-19 and we took steps to mitigate virus

transmission within the workplace.

These steps included adding a second manufacturing shift to lessen employee density on the

manufacturing floor and to require most non-manufacturing personnel to work from home.

These measures continued into 2021.

these measures, we experienced a relatively high level of absenteeism directly or indirectly related to COVID-19.

We have taken

mitigating steps in an attempt to reduce the adverse effects of COVID-19 on our business.

For example, we have curtailed discretionary

spending and business travel, and taken other steps to preserve cash.

We have also taken action to more closely manage the flow

of materials to be more responsive to unanticipated changes in customer delivery schedules.

Since May 2021 and through the date

of this Annual Report on Form 10-K, we have experienced a decrease in the impact of COVID-19.

However, we believe that the impact

of COVID-19 on illness and absence rates, workflows and productivity at the Company and our business providers has been a contributing

factor to the time required for our financial statement closing processes and the delayed filing of our SEC reports.

Most non-manufacturing

personnel have now returned to their regular in-person work schedules and we have returned to a single day shift manufacturing

operation, although we do continue to experience employees and business partners with new COVID-19 diagnoses on an intermittent

basis and we take needed steps to mitigate these impacts on the Company’s operation as they occur.

Environmental

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Contract Compliance

Our government contracts and

sub-contracts are subject to the procurement rules and regulations of the U.S.

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 provide guidance on the types of costs that are allowable in establishing prices for goods and services under U.S.

government contracts and sub-contracts are subject to the procurement rules and regulations of the U.S.

contract terms are dictated by these rules and regulations.

Specifically, cost-based pricing is determined under the Federal Acquisition

Regulation (“FAR”), which provide 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, we may be audited in respect

of the direct and allocated indirect costs attributed thereto.

These audits may result in adjustments to our contract costs.

Additionally,

we may be subject to U.S.

Government inquiries and investigations because of our participation in government procurement.

or investigation can result in fines or limitations on our ability to continue to bid for government contracts and fulfill existing contracts.

We believe that we are in compliance with all federal, state and local laws and regulations governing our operations and have obtained

all material licenses and permits required for the operation of our business.

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, we may be audited in respect of the direct and allocated indirect costs attributed thereto.

may result in adjustments to our contract costs.

Additionally, we may be subject to U.S.

Government inquiries and investigations

because of our participation in government procurement.

Any inquiry or investigation can result in fines or limitations on our

ability to continue to bid for government contracts and fulfill existing contracts.

We believe that we are in compliance with

all federal, state and local laws and regulations governing our operations and have obtained all material licenses and permits

required for the operation of our business.

Government generally has the ability to terminate our contracts, in whole or in part, without prior notice, for convenience

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umbrella liability insurance policy.

Additionally, we maintain a $10 million director and officers’ insurance policy.

believe this coverage is adequate for claims that have been and may be brought against us, and for the types of products presently

marketed because of the strict inspection standards imposed on us by our customers before they take possession of our products.

Additionally, the FAR generally provide that we will not be held liable for any loss of or damage to property of the U.S.

that occurs after the U.S.

Government accepts delivery of our products and that results from any defects or deficiencies in our

products unless the liability results from willful misconduct or lack of good faith on the part of our managerial personnel.

Additionally, we maintain $15 million of director and officers’ insurance.

this coverage is adequate for claims that have been and may be brought against us, and for the types of products presently marketed

because of the strict inspection standards imposed on us by our customers before they take possession of our products.

Additionally,

the FAR generally provide that we will not be held liable for any loss of or damage to property of the U.S.

Government that occurs

after the U.S.

Government accepts delivery of our products and that results from any defects or deficiencies in our products unless

the liability results from willful misconduct or lack of good faith on the part of our managerial personnel.

of our current assembly processes or products is protected by patents.

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Our management, with

oversight from the Compensation & Human Resources Committee of our board of directors, monitors the hiring, retention and

management of our employees and regularly conducts succession planning to ensure that we continue to cultivate the pipeline of

talent needed to operate our business.

oversight from the Compensation and Human Resources Committee of our board of directors, monitors the hiring, retention and management

of our employees and regularly conducts succession planning to ensure that we continue to cultivate the pipeline of talent needed

to operate our business.

addition, we have taken measures to protect our workforce in response to the COVID-19 pandemic, including allowing employees to

1 unchanged sentence

as making changes to shift work to promote social distancing among our manufacturing personnel, and providing masks and hand sanitizer.

the first quarter of 2022, the Company began a cost reduction initiative designed to improve operational efficiency and reduce

costs during fiscal year 2022.

Management is reallocating resources and reducing operating and general administrative expenses

to more properly align the Company’s costs to anticipated near-term revenue given the timing differences between the conclusion

of certain mature programs and the commencement of new programs in 2022.

In connection with the cost reduction initiative, the

Company executed a headcount reduction and furlough action in March 2022.

of our employees is a member of a union.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business