CVU filing — read by section

Item 9A. Controls and Procedures

Item 9A. 
 CONTROLS AND
 PROCEDURES 

 Evaluation
of Disclosure Controls and Procedures 

 Our
management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of our disclosure controls and procedures, as of the end of the period covered by this Annual Report on Form 10-K. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of such date, our disclosure controls
and procedures were not effective due to the material weaknesses described below. 

 41 

 Management’s
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, 2021 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. 

 2021
Material Weaknesses 

 In
connection with management’s evaluation of the Company’s internal control over financial reporting described above,
management identified the deficiencies described below that constituted material weaknesses in our internal control over financial
reporting as of December 31, 2021. These deficiencies led to material errors in our previously issued consolidated financial statements
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, respectively, which in turn led to the restatement of those previously issued consolidated financial
statements, as described in Part II, Item 8, Note 16 “Restatement of Previously Issued Consolidated Financial Statements”
in the notes to the consolidated financial statements included in this Annual Report on Form 10-K. 

 (1) Control
 Environment, Risk Assessment, Control Activities and Monitoring 

 During
Q1 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: 

 ● 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, as detailed below. 

 ● The
 design and implementation of internal controls related to preparation and review of financial
 statement disclosures were not sufficient to ensure the completeness and accuracy of
 required disclosures: 

 42 

 (2) Accounting
 for Inventory & related IT environment 

 Those
which resulted in the need to restate the 2020 Financial Statements of CPI: 

 ● Double
 Labor and Overhead: The INFORXA module did not work as intended to prevent labor
 applied to inventory from being just the amount of labor incurred 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 perpetual inventory. 

 ● Unit
 of measure: As part of the Q1 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 INFORXA module. 

 ● 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. 

 ● QC01
 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 by Infor. 

 ● 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. 

 Those
which resulted in the need to restate the 2019 Financial Statements of CPI: 

 ● 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
Status of Previously Reported 2020 Material Weakness 

 In
connection with management’s evaluation of the Company’s internal control over financial reporting described above,
management has concluded that some, but not all, of the material weaknesses reported in its Annual Report on Form 10-K for the
year ended December 31, 2020 have been remediated and that some, but not all, internal controls put in place to prevent future
occurrences of these material weaknesses were effective as of December 31, 2021. 

 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. 

 43 

 CPI
is a non-accelerated filer for 2021. As such, CPI is not subject to the requirement to have an auditor attestation report on internal
control over financial reporting in the 10-K filed in 2022 for 2021. Accordingly, based upon its internal testing, management
believes that as of December 31, 2021, it has not successfully remediated all of the internal control weaknesses which gave rise
to the material errors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2020 as follows: 

 Control
Environment, Risk Assessment, Control Activities and Monitoring 

 Not
Remediated as of December 31, 2021 

 ● 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: 

 During
2021, the Company Diagnosed, designed, tested and implemented software changes to its perpetual inventory system to improve management’s
ability to properly value stated inventory costs. During 2022, the Company continues to improve its internal controls related
to monitoring and review of inventory costing. 

 ● The
 design and implementation of internal controls related to preparation and review of financial
 statement disclosures were not sufficient to ensure the completeness and accuracy of
 required disclosures: 

 During
2021, the Company recruited and hired a new Chief Financial Officer, a new Controller, and several new financial team members,
and implemented additional review and control procedures over the financial close and financial reporting processes of the Company.
During 2022, the Company continues to improve its internal controls over the preparation and review of financial statement disclosures. 

 Remediated
as of December 31, 2021 

 ● There
 were insufficiently documented Company accounting policies and insufficiently detailed
 Company procedures to put policies into effective action: 

 During
2021, management updated the Accounting Policies and Procedures Manual. 

 ● The
 design and implementation of internal controls related to cut-off procedures were not
 sufficient to ensure proper accounting for in-transit items: 

 During
2021, the Company implemented a newly designed month-end accrual for in-transit inventory. 

 ● 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: 

 During
2021, the Company implemented new accounting procedures to ensure reserves are established and maintained for anticipated contract
losses, reductions in the market values of inventory below cost, and excess or obsolete inventory. 

 ● The
 information technology general controls associated with proper change management were
 not sufficient to ensure the accuracy and adequacy of the resulting changes: 

 During
2021, the Company implemented a policy over IT Change Management. 

 Conclusion 

 As
described above, under the supervision and with the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2021. 

 Notwithstanding
the conclusion by our management that our controls and procedures as of December 31, 2021 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 Annual Report on Form 10-K 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. 

 44 

 The
Company was a non-accelerated filer for 2021. As such, the Company was not subject to the requirement to have an auditor attestation
report on internal control over financial reporting in this Annual Report on Form 10-K for the fiscal year ended December 31,
2021 or for the Comprehensive Form 10-K/A for the fiscal year ended December 31, 2020. 

 Changes
in Internal Control Over Financial Reporting 

 Other
than the remediation efforts underway as referred to above, there were no changes in our internal control over financial reporting
during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting other than as described above. 

 Limitations
on Effectiveness of Controls and Procedures 

 In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management
is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. 

 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 executive officers and members of the board
of directors: 

 Name 
 
 Age 
 
 Director
Since 
 
 Position
and Board Committees 
 
 Carey
 Bond 
 
 62 
 
 2016 
 
 Vice
Chairman of the board of directors Compensation and Human Resources Committee (Chair), Nominating and Corporate Governance
Committee, Strategic Planning Committee, Oversight Committee (Chair) 
 
 Richard
 S. Caswell 
 
 63 
 
 2020 
 
 Director 

 Audit
and Finance Committee (Chair) 
 
 Andrew
 L. Davis 
 
 54 
 
 – 
 
 Chief Financial Officer
 and Secretary 

 Michael
 Faber 
 
 63 
 
 2013 
 
 Director 

 Audit
and Finance Committee, Nominating and Corporate Governance Committee (Chair) 
 
 Dorith
 Hakim 
 
 57 
 
 2022 
 
 Chief Executive Officer
 and President and Director 

 Kenneth
 Hauser 
 
 59 
 
 – 
 
 Senior Vice President
 of Operations 

 Walter
 Paulick 
 
 76 
 
 1992 
 
 Director 

 Audit
and Finance Committee, Nominating and Corporate Governance Committee, Oversight Committee 
 
 Eric
 Rosenfeld 
 
 65 
 
 2003 
 
 Chairman
 Emeritus of the board of directors, Compensation and Human Resources Committee, Nominating and Corporate Governance
 Committee, Strategic Planning Committee (Chair) 
 
 Terry
 Stinson 
 
 80 
 
 2014 
 
 Chairman
of the board of directors Compensation and Human Resources Committee, Strategic Planning Committee 
 
 45 

 The
business experience of each of our directors and executive officers 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 and Human Resources Committee since June 2019, and chair
of our 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 NWI Aerostructures and NWI Precision,
business units of Stony Point Group, 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. 

 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 Mr. Davis has been employed by the Company since May 2021 and was appointed as our Chief Financial Officer and Secretary
in October 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 U.S. 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 and 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. 

 46 

 Dorith
Hakim has been our Chief Executive Officer, President and a director since March 2022. From March 2018 to August 2021, Ms.
Hakim served as Group Vice President of Parker Hannifin Aerospace where she directed global supply chain for 11 divisions, 25
manufacturing sites and two joint ventures and was accountable for $1.9 billion of spending. From July 2017 to February 2018,
Ms. Hakim was Vice President, Corporate Program Management and Operations Excellence at Triumph Group Inc. (“Triumph”)
where she was responsible for implementing best practices in Program Management, delivery, and quality performance as well as
continuous improvement for four divisions. From June 2016 to July 2017, Ms. Hakim was Vice President, Program Management Precision
Components at Triumph responsible for major programs within seven operating companies and 22 sites, overseeing delivery and quality
performance, proposal estimating, and customer contract negotiations. Ms. Hakim was employed by Sikorsky Aircraft Inc. as their
Director of Aftermarket Operations from June 2015 to April 2016, where she directed overhaul and repair facilities, customer service,
order management, material forecasting, forward stocking locations and material delivery functions supporting aircraft after delivery.
From August 2010 to June 2015, Ms. Hakim was President & General Manager of Sikorsky Global Helicopters, Inc. where she managed
fully integrated profit and loss including operations, continuous improvement, engineering, supply chain, facilities, health and
safety, finance, and human resources to support the final assembly and flight operations for the S-92®, S-76® and Light
Helicopter product lines and managed the completion center for all Sikorsky commercial aircraft. From November 2009 to August
2010, Ms. Hakim was Chief Procurement Officer at Vought Aircraft Inc. (“Vought”), where she was head of supply chain
with an over $1 billion budget across six sites and two subsidiaries. From February 2009 to October 2009, Ms. Hakim was Director,
Supply Chain Management-Integrated Aerosystems Division at Vought. Ms. Hakim also served in a number of capacities at Bell Helicopter
for over 21 years including as a Program Director of helicopter product lines and as a Director of strategic sourcing and supply
chain management. Ms. Hakim earned an Executive Master of Business Administration from Texas Christian University and a Bachelor
of Arts, Business Administration and Finance from H.E.C. at the University of Montreal. She is certified as Six Sigma Black Belt
and has received several executive leadership certifications. Ms. Hakim brings to our board of directors extensive experience
in the aerospace industry and, among other things, expertise in program, product, supply chain, operations, manufacturing, and
customer management. 

 Kenneth
Hauser has been our Senior Vice President of Operations since 2020. Between 2013 and 2020, he was our Vice President of Global
Supply Chain Management. Prior to that, he held the position of Director, Global Supply Chain Management for which he was hired
in 2011. Before 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. 

 Walter
Paulick has been a director since April 1992. He served as the chair of our Nominating and 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. 

 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 currently serves as a director
for several companies. Mr. Rosenfeld serves as lead independent director for Primo Water Corporation (formerly Cott), a leading
water delivery and filtration company. He is also on the board at Pangaea Logistics Solutions Ltd., a maritime logistics and shipping
company, Aecon Group, Inc., a construction company, and Algoma Steel, Inc., a fully integrated producer of hot and cold rolled
steel products. Mr. Rosenfeld has also served as Chairman and CEO for Arpeggio Acquisition Corporation, Rhapsody Acquisition Corporation,
Trio Merger Corp., Quartet Merger Corp. and Harmony Merger Corp., all blank check corporations that later merged with Hill International,
Primoris Services Corporation, SAExploration Holdings, Pangaea Logistics Solutions Ltd. and NextDecade Corporation, respectively.
Mr. Rosenfeld is currently the Chief SPAC Officer of Legato Merger Corp. II, a blank check corporation. 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. Mr.
Rosenfeld is also currently the CEO of Allegro Merger Corp., a non-listed shell company. He was also a director of Canaccord Genuity
Group, a full-service financial services company, NextDecade Corporation, a development stage company building natural gas liquefaction
plants, Absolute Software Corp., a leader in firmware-embedded endpoint security and management for computers and ultraportable
devices, AD OPT Technologies, an airline crew planning service, Sierra Systems Group Inc., an information technology, management
consulting and systems integration firm, Emergis Inc., an electronic commerce company, Hill International, a construction management
firm, Matrikon Inc., a company that provides industrial intelligence solutions, DALSA Corp., a digital imaging and semiconductor
firm, HIP Interactive, a video game company, GEAC Computer, a software company, Computer Horizons Corp. (Chairman), an IT services
company, Pivotal Corp., a cloud software firm, Call-Net Enterprises, a telecommunication firm, Primoris Services Corporation,
a specialty construction company and SAExploration Holdings, a seismic exploration company. 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 is a guest lecturer at Tulane Law School. 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. The board nominated Mr. Rosenfeld to be a director
because he has extensive experience serving on the boards of multinational public companies and in capital markets and mergers
and acquisitions transactions. Mr. Rosenfeld also has valuable experience in the operation of worldwide business faced with a
myriad of international business issues. Mr. Rosenfeld’s leadership and consensus-building skills, together with his experience
as a senior independent director of all boards on which he currently serves, make him an effective board member. 

 47 

 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. 

 Family
Relationships 

 There
are no family relationships among any of the Company’s directors or executive officers. 

 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 . 

 48 

 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. 

 Independence
of Directors/Audit Committee Financial Expert 

 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 and Corporate Governance Committee determined on December 29, 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, Dorith Hakim, is not independent because she is currently employed by
us. All members of our Audit and Finance, Compensation and Human Resources, and Nominating and Corporate Governance Committees
are independent. Our board of directors has determined that each of Messrs. Caswell and Faber, members of our Audit and Finance
Committee, meet the criteria of an “Audit Committee Financial Expert” under applicable SEC rules. 

 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. 

 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 and 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 and Human Resources Committee continued to engage the services of Talent
& Rewards LLC, an independent compensation consulting firm in 2021 to provide advice and guidance in evaluating and adjusting
the compensation of our Named Executive Officers. 

 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 and Human Resources
 Committee. 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 and Human Resources Committee. This variable at-risk
 compensation aligns executive interests with long-term shareholder value creation. 

 49 

 Summary
Compensation Table 

 The
following table sets forth the compensation paid to or earned by our Named Executive Officers for each of the fiscal years ended
December 31, 2021 and 2020. 

 Year 
 
 Salary 

 ($) (1) 
 
 Stock 

 Awards 

 ($) (2) 
 
 Non-Equity 

 Incentive 

 Compensation 

 ($) (3) 
 
 All
 Other 

 ($) 
 
 Total 

 ($) 

 Douglas
McCrosson 

 Former
Chief Executive Officer 
 
 2021 
 
 371,915 
 
 274,320 
 (4) 
 
 —  
 
 22,090 
 (7) 
 
 668,325 
 
 2020 
 
 365,768 
 
 138,630 
 (5) 
 
 —  
 (6) 
 
 24,780 
 (8) 
 
 529,178 
 
 Andrew
Davis 

 Chief
Financial Officer 
 
 2021 
 
 190,385 
 
 120,001 
 (9) 
 
 70,200 
 
 11,286 
 (10) 
 
 391,872 
 
 Kenneth
Hauser 

 Sr.
Vice President of Operations 
 
 2021 
 
 230,000 
 
 80,501 
 (11) 
 
 64,400 
 
 9,560 
 (13) 
 
 384,461 
 
 2020 
 
 230,006 
 
 40,333 
 (12) 
 
 68,425 
 
 9,916 
 (14) 
 
 348,680 
 
 (1) Reflects
 actual base salary amounts paid 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 2020 or, in the case of 2021, to be considered for award in cash to
 our Named Executive Officers as part of their performance-based annual bonus. Awards
 were earned in the year provided, but were or will not be made until the following fiscal
 year. 

 (4) Reflects
 the grant date fair value of 64,698 shares of restricted stock granted to Mr. McCrosson
 on April 21, 2021, which shares were subject to time-based and performance-based vesting
 over four years. Does not reflect the forfeiture of all unvested shares occurring following
 termination of his employment by the Company on March 8, 2022, 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 August 26, 2020, which shares were subject to time-based and performance-based vesting
 over four years. Does not reflect the forfeiture of all unvested shares occurring following
 termination of his employment by the Company on March 8, 2022, in accordance with the
 terms of his restricted stock award agreement with the Company. 

 (6) Mr.
 McCrosson and the Compensation and 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 was facing due to, among other things, economic conditions and
 uncertainties resulting from the COVID-19 pandemic. 

 (7) Represents
 (a) $9,695 of an automobile lease, insurance and maintenance attributable to personal
 use; (b) $6,595 of disability insurance premiums; and (c) $5,800 of 401(k) contributions. 

 (8) Represents
 (a) $12,394 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. 

 (9) Reflects
 the grant date fair value of 28,916 shares of restricted stock granted to Mr. Davis on
 May 12, 2021, which shares are subject to time-based and performance-based vesting over
 four years. 

 (10) Represents
 (a) $7,710 of an automobile allowance, insurance and maintenance attributable to personal
 use; and (b) $3,576 of 401(k) contributions. 

 (11) Reflects
 the grant date fair value of 18,986 shares of restricted stock granted to Mr. Hauser
 on April 21, 2021, which shares are subject to time-based and performance-based vesting
 over four years. Does not reflect the forfeiture of 4,272 shares by Mr. Hauser, in accordance
 with the terms of his restricted stock award agreement with the Company. 

 (12) Reflects
 the grant date fair value of 12,222 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 3,093 shares by Mr. Hauser on April
 21, 2021, in accordance with the terms of his restricted stock award agreement with the
 Company. 

 50 

 (13) Represents
 (a) $4,080 of an automobile allowance, insurance and maintenance attributable to personal
 use; (b) $881 of disability insurance premiums; and (c) $4,599 of 401(k) contributions. 

 (14) 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. 

 Compensation
Arrangements for Named Executive Officers 

 Douglas
McCrosson 

 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 and 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 was 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 $138,633) 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 and Human Resources Committee. 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 an aggregate of 89,056 shares
of restricted stock, representing the performance-based portion of the restricted stock granted in 2021, 2020, 2019, 2018, 2017
and 2016. 

 During
2021, Mr. McCrosson’s base salary was $374,905. On March 8, 2022, Mr. McCrosson’s employment was terminated by the
Company other than for cause, as defined in a Severance and Change in Control Agreement he entered into with us in 2016. Under
the terms of his Severance and Change in Control Agreement, Mr. McCrosson is being paid continued salary for 18 months following
the termination of his employment and all of his unvested equity awards were forfeited. No cash bonuses or other amounts were
paid or are payable to Mr. McCrosson in connection with the termination of his employment. 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 for 18 months following the termination of his employment, so long as we make severance pursuant to the
agreement. 

 Andrew
Davis 

 Mr.
Davis joined the Company in May 2021. During 2021, Mr. Davis’ base salary was $300,000 and he was entitled to receive a
non-discretionary performance based cash bonus equal to 40% of his base salary upon the attainment of Company growth targets determined
by the Company’s Chief Executive Officer. In addition, during 2021 Mr. Davis was awarded an aggregate of 28,916 shares of
restricted stock (with a fair market value on the date of grant of $120,001) 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 and Human Resources Committee. The fiscal
2021 metrics were targets measured by accounts payable delinquency, amount of bank debt minus cash and 2021 net profit. 

 In
2021, Mr. Davis 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. Davis 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 pursuant to the agreement. 

 51 

 Kenneth
Hauser 

 During
2020, Mr. Hauser’s base salary was $230,000 and 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 12,222 shares of restricted stock (with a fair market
value on the date of grant of $40,333) 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 and 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 an aggregate of 14,195 shares of restricted stock, representing the performance-based portion of the restricted stock
granted in 2020, 2019, 2018, 2017 and 2016. 

 During
2021, Mr. Hauser’s base salary was $230,000 and 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 2021, Mr. Hauser was awarded an aggregate of 18,986 shares of restricted stock (with a fair market
value on the date of grant of $80,501) 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 and Human Resources Committee. The fiscal 2021 metrics were growth targets
measured by accounts payable delinquency, amount of bank debt minus cash, and 2021 net profit. The 2021 performance-based vesting
metrics were not all met and, therefore, Mr. Hauser forfeited an aggregate of 19,982 shares of restricted stock, representing
the performance-based portion of the restricted stock granted in 2021, 2020, 2019, 2018, 2017 and 2016. 

 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 pursuant to the agreement. 

 Outstanding
Equity Awards at Fiscal Year-End 

 The
following tables summarize the outstanding stock awards as of December 31, 2021 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 – Former Chief Executive Officer 
 
 3/1/2017 
 — 
 17,294 
 — 
 47,213 

 3/20/2018 
 8,314 
 12,468 
 22,697 
 34,038 

 4/2/2019 
 21,004 
 10,502 
 57,341 
 28,670 

 8/27/2020 
 31,506 
 5,251 
 86,011 
 14,335 

 4/21/2021 
 64,698 
 — 
 176,626 
 — 

 Andrew Davis – Chief Financial Officer 
 
 5/12/2021 
 28,916 
 — 
 78,941 
 — 

 — 

 Kenneth Hauser – Sr. Vice President of Operations 
 
 3/1/2017 
 — 
 3,440 
 — 
 9,391 

 3/20/2018 
 1,648 
 2,469 
 4,499 
 6,740 

 4/2/2019 
 4,243 
 2,122 
 11,583 
 5,793 

 8/27/2020 
 9,166 
 1,528 
 25,023 
 4,171 

 4/21/2021 
 18,986 
 — 
 51,832 
 — 

 52 

 (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 and Human Resources Committee.
 The fiscal 2016 metrics were targets measured by EBITDA and revenue, the fiscal 2017
 metrics were targets measured by revenue and year-end inventory, the fiscal 2018 metrics
 were targets measured by backlog, revenue, and year-end inventory, the fiscal 2019 metrics
 were targets measured by measured by revenue, pre-tax income, and cash flow from operations,
 the fiscal 2020 metrics were targets measured by accounts payable delinquency, the ratio
 of bank debt to cash, and 2020 net profit, and the fiscal 2021 metrics were measured
 by accounts payable delinquency, bank debt minus cash and 2021 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, 2020 and 2021 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 may be forfeited
 in 2022 (as such shares had not been forfeited as of December 31, 2021). 

 (3) Calculated
 using the closing price per share of the Company’s common stock on the last date
 of fiscal year 2021. 

 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 

 On
March 8, 2022, Mr. McCrosson’s employment was terminated by the Company other than for cause, as defined in his Severance
and Change in Control Agreement. Under the terms of his Severance and Change in Control Agreement, Mr. McCrosson is being paid
continued salary for 18 months following the termination of his employment. No cash bonuses or other amounts were paid or are
payable to Mr. McCrosson in connection with the termination of his employment. 

 The
Severance and Change in Control agreements with Mr. Davis and Mr. Hauser provide for varying types and amounts of payments and
additional benefits upon termination of employment, depending on the circumstances of the termination as follows: 

 ● Termination
 without cause . If employment is terminated by the Company other than for cause, as
 defined in the Severance and Change in Control Agreements, then 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 Mr. Davis or Mr. Hauser 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. 

 53 

 ● Termination
 for disability . If Mr. Davis or Mr. Hauser 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 Mr. Davis or Mr. Hauser 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 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 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 of his outstanding
 stock options and restricted stock will vest immediately. Health insurance and other
 fringe benefits will continue for a period of six months after termination. 

 The
following table summarizes the amounts payable upon termination of employment for Mr. Davis and Mr. Hauser, assuming termination
occurred on December 31, 2021 under the Severance and Change in Control Agreements. 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, 2021, 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 

 Andrew Davis 
 370,200 
 — 
 — 
 — 
 370,200 
 — 
 450,000 
 78,941 

 Kenneth Hauser 
 294,400 
 — 
 — 
 — 
 294,400 
 — 
 345,000 
 92,937 

 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 and 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 and Human Resources Committee
is also tasked with reviewing the annual 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 and Finance Committee and Strategic Planning
Committee, $140,000 each; Chair of the Compensation and Human Resources Committee, $125,000; Chair of the Nominating and Corporate
Governance Committee, $120,000; and all other non-executive directors, $100,000 each. The Chair of the Oversight Committee is
paid $96,000 in cash for such role. 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. 

 The
following table summarizes the compensation of our non-executive directors for the year ended December 31, 2021. 

 Name 
 Fees 

Earned or

Paid in 

Cash ($) 
 Stock 

Awards 

($) (1) 
 Total ($) 

 Carey Bond 
 146,000 
 104,171 
 250,171 

 Richard Caswell 
 56,000 
 88,390 
 144,390 

 Michael Faber 
 48,000 
 75,760 
 123,760 

 Walter Paulick 
 40,000 
 63,134 
 103,134 

 Eric Rosenfeld 
 56,000 
 88,390 
 144,390 

 Terry Stinson 
 80,000 
 126,268 
 206,268 

 (1) Represents
 stock awarded to directors during 2021 in the form of RSUs, all of which had vested by
 December 31, 2021. The Company accounts for compensation expense associated with RSUs
 based on the fair value of the units on the date of grant. 

 54 

 Non-Employee
Director Stock Ownership Policy 

 In
order to align the long-term interests of non-employee directors with our shareholders, our board of directors has adopted a stock
ownership policy for non-employee directors. The policy provides that within five years of joining the board, non-employee directors
are expected to own shares of Company common stock equal to five times the then cash portion of the annual non-employee director’s
compensation. 

 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 August 1, 2022, 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; 

 ● each
 of our Named Executive Officers; and 

 ● all
 of our directors and executive officers as a group. 

 A
person is deemed to be the beneficial owner of securities that can be acquired by the person within 60 days from August 15, 2022. 

 Name and Address of Beneficial Owner (1) 
 
 Shares Beneficially

Owned (2) 
 
 Percent 

 of 

 Class (3) 
 
 Directors and Named Executive Officers: 
 
 Douglas McCrosson 
 
 58,927 
 
 * 
 
 Dorith Hakim 
 
 18,588 
 (4) 
 
 * 
 
 Andrew Davis 
 
 28,916 
 (5) 
 
 * 
 
 Kenneth Hauser 
 
 48,242 
 (6) 
 
 * 
 
 Carey Bond 
 
 95,120 
 
 * 
 
 Richard Caswell 
 
 58,461 
 
 * 
 
 Michael Faber 
 
 88,307 
 
 * 
 
 Walter Paulick 
 
 96,969 
 
 * 
 
 Eric Rosenfeld 
 
 813,117 
 (7) 
 
 6.6 
 % 

 Terry Stinson 
 
 156,037 
 
 1.3 
 % 

 All current directors and named executive officers as a group (nine persons) 
 
 1,462,684 
 
 11.9 
 % 

 More Than Five Percent Holders: 
 
 Royce & Associates, LLC 
 
 886,459 
 (8) 
 
 7.2 
 % 

 Globis Capital Partners, L.P. 
 
 854,628 
 (9) 
 
 6.9 
 % 

 * 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, except that the current business address of Douglas McCrosson is not known by the
Company. 

 (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 named 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 vested time-based restricted stock units (“RSUs”).
RSUs are granted yearly and vest quarterly. Such shares of restricted stock and such RSUs are included herein because they may be deemed
to be beneficially owned under Rule 13d-3 promulgated under the Exchange Act. 

 55 

 (3) As of August 15, 2022, there were 12,335,986 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 of August
15, 2022 upon the vesting of RSUs, if applicable and the denominator of which is 12,335,986, which is equal to the number of shares of
our common stock issued and outstanding as of August 15, 2022 plus the number of shares of our common stock such person can so acquire
during such 60-day period. 

 (4) Includes an aggregate of 18,588 shares subject to time-based vesting. 

 (5) Represents 28,916 shares subject to time-based or performance-based vesting. 

 (6) Includes an aggregate of 34,043 shares subject to time-based or performance-based vesting. 

 (7) Represents 302,847 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 is derived from an Amendment to Schedule 13G/A filed with the SEC on January 14,
 2022. The business address of Royce & Associates, LLC is 745 Fifth Avenue, New York, NY 10151. 

 (9) Globis Capital Advisors, L.L.C, Globis Capital Management, L.P., Globis Capital, L.L.C. and Paul Packer
share voting and dispositive power with respect to such shares. Information is derived from a Schedule 13G filed by Globis Capital Partners,
L.P. with the SEC on February 14, 2022. The business address of each of the reporting persons is 7100 W. Camino Real, Suite 302-48, Boca
Raton, FL 33433. 

 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 and 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 and 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 and 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 and 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, 2021. 

 56 

 Item
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 

 CohnReznick
LLP (“CohnReznick”) served as our independent registered public accounting firm from 2004 until the completion of
their review of the Company’s consolidated financial statements for the quarter ended March 31, 2021. In November 2021,
the Company engaged RSM US LLP (“RSM”) as our independent public accounting firm to review the Company’s consolidated
financial statements for the quarters ended June 30, 2021 and September 30, 2021 and to audit the Company’s financial statements
for the year ended December 31, 2021. RSM’s address is 4 Times Square, 151 West 42 nd Street, 19 th 
Floor, New York, NY 10036 and its PCAOB firm ID number is 49 . 

 The
following fees were invoiced or are expected to be invoiced by RSM to the Company for services which RSM rendered related to the
following 2021 activities: 

 Year
 Ended 

December 31, 

2021 
 
 Audit Fees (1) 
 $ 
 378,000 
 
 Audit-Related Fees 
 
 — 
 
 Tax Fees 
 
 — 
 
 All Other Fees 
 
 — 
 
 Total
 Fees 
 $ 
 378,000 
 
 (1) Audit
 fees consist of fees billed or expected to be billed
 for professional services by RSM for the audit of the Company’s consolidated
 financial statements for the year ended December 31, 2021 and the review of the Company’s
 consolidated financial statements for the quarters ended June 30, 2021 and September
 30, 2021, as well as related services to those engagements normally provided in connection
 with statutory and regulatory filings or engagements. 

 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 and Finance Committee.
Our Audit and Finance Committee approved all of the fees referred to in the rows titled “Audit Fees” and “Audit-Related
Fees” in the tables above. 

 57 

 PART
IV 

 Item
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 

 (a) The
following documents are filed as part of this report: 

 (1)
Financial Statements: 

 Reports of Independent Registered Public Accounting Firms 

 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 Aerostructures, 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 Aerostructures, 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 Aerostructures, 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 (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K/A filed on November 24, 2021). 

 3.2.1 
 
 Amended Article V, Section 6 of Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 22, 2021). 

 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 to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 15, 2011). 

 58 

 10.3.2 
 
 Lease Amendment, dated November 11, 2020, between Heartland Boys II L.P. and CPI Aerostructures, Inc. (incorporated by reference to Exhibit 10.3.2 to the Company’s Annual Report on Form 10-K/A filed on November 24, 2021). 

 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). 

 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
 Current Report on Form 8-K filed on October 28, 2021). 

 10.4.10 
 
 Consent, Waiver and Ninth 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 April 12, 2022). 

 10.4.11 
 
 Consent, Waiver and Tenth 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 19, 2022). 

 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). 

 10.6** 
 
 Severance and Change in Control Agreement, dated March 9, 2022, between the Company and Dorith Hakim (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 9, 2022). 

 21* 
 
 Subsidiaries of the Registrant. 

 23.1* 
 
 Consent of CohnReznick LLP. 

 23.2* 
 
 Consent of RSM US LLP 

 31.1* 
 
 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 

 31.2* 
 
 Certification 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. 

 104* 
 
 Cover
 page formatted as Inline XBRL and contained in Exhibit 101 

 * Filed
herewith. 

 ** Management
contract compensatory plan or arrangement. 

 *** Furnished
herewith. 

 Item
16. FORM 10-K SUMMARY 

 None 

 59 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 INDEX
TO FINANCIAL STATEMENTS 

 Report
 of Independent Registered Public Accounting Firm (For the Year Ended
December 31, 2021) 
 F-1 

 Report of Independent Registered Public Accounting Firm (For the Year Ended December 31, 2020) 
 F-3 

 Consolidated
 Financial Statements: 
 
 Consolidated Balance Sheets as of December 31, 2021 and 2020 (As Restated) 
 F-4 

 Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 (As Restated) 
 F-5 

 Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2021 and 2020 (As Restated) 
 F-6 

 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 (As Restated) 
 F-7 

 Notes to Consolidated Financial Statements 
 F-8 - F-48 

 60 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 Report
of Independent Registered Public Accounting Firm 

 To the Stockholders and the Board of Directors
of CPI Aerostructures, Inc.

 Opinion
on the Financial Statements 

 We
have audited the accompanying consolidated balance sheet of CPI Aerostructures, Inc. and Subsidiaries (the Company) as of December 31,
2021, the related consolidated statements of operations, shareholders’ deficit and cash flows for the year then ended, and the
related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations
and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 

 Basis
for Opinion 

 These
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. 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 U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 

 We
conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 audit
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
audit included performing procedures to assess the risks of material misstatement of the 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 financial statements. Our audit also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit 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 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 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 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 

 Inventory
Valuation 

 As
described in Note 1 of the financial statements, inventories are reported at lower of cost or net realizable value using weighted average
actual cost. As described in Note 5 of the financial statements, the Company's inventory balance was $4 million as of December 31, 2021. 

 Given
the complexity and subjectivity of valuation of inventories of the Company’s wholly owned subsidiary, Welding Metallurgy, Inc.
(WMI), we identified inventory valuation for WMI as a critical audit matter. Auditing these calculations and estimates required a high
degree of auditor judgement and increased audit effort. 

 Our
audit procedures related to the Company's valuation of inventory included the following, among others: 

 • We
 obtained an understanding of management’s process around the valuation of inventory,
 including inventory reserves. 

 • Performed
 substantive test of details on a sample of inventory transactions by tracing inventory items
 to underlying invoices and payroll support. We also tested the overhead applied by testing
 the supporting documentation to costs incurred and testing the appropriateness of amounts
 capitalized. 

 • Reviewed
 and tested management's inventory reserve estimate by recalculating amounts reserved and
 comparing to recorded amounts. 

 Revenue
Recognition 

 As
described in Note 2 of the financial statements, revenue for the year ended December 31, 2021 was $103 million. The majority of the Company's
revenues are from long-term contracts with performance obligations 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 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. 

 Given
the complexity and significant estimates and assumptions management makes regarding revenue and costs associated with long-term contracts
with performance obligations satisfied over time, we identified revenue recognition over these contracts as a critical audit matter.
Auditing these estimates required a high degree of auditor judgement and increased audit effort. 

 Our
audit procedures related to the Company's revenue, costs and profit for these contracts included the following, among others: 

 • We
 obtained an understanding of management’s process related to the accounting for contract
 revenue including cost to complete estimates for long-term contracts with performance obligations
 satisfied over time. 

 • Performed
 substantive test of details on a sample of contracts with customers to ensure modifications
 were agreed to by the customer. 

 • We
 performed substantive analytical procedures relating to revenue using disaggregated data. 

 • We
 performed journal entry testing related to revenue. 

 • Tested
 the accuracy and completeness of the costs incurred to date on a sample of contracts. 

 • We
 performed procedures, including a retrospective and prospective review, over estimated costs
 to complete on a sample of contracts. 

 • On
 a sample of contracts, we evaluated whether the revenue recognition over time on contracts
 was appropriate based on the terms and conditions. 

 • Tested
 the mathematical accuracy of management’s calculation of revenue recognized on a sample
 basis. 

 /s/ RSM US LLP

 We have served as the Company's auditor since
2021.

 New York, New York

 August 19, 2022

 F- 2 

 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
sheet of CPI Aerostructures, Inc. and Subsidiaries (the “Company”) as of December 31, 2020, and the related consolidated
statements of operations, shareholders’ deficit and cash flows for the year 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 the results of its operations and its cash
flows for the year 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 16 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
audit. 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 audit in accordance with the standards
of the PCAOB. Those standards require that we plan and perform the audit 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 audit we were 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 audit 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 audit 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 audit provides
a reasonable basis for our opinion.

 /s/ CohnReznick LLP

 We served as the Company’s auditors from 2004
to December 2021

 New York, New York

 April 15, 2021, except for the effects on the
consolidated financial statements and related footnotes of the restatement described in Note 16, as to which the date is November
24, 2021. 

 F- 3 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
BALANCE SHEETS 

 December 31,

2021 
 December 31,

2020 
 (As Restated – see Note 16) 
 
 ASSETS 
 
 Current Assets: 
 
 Cash 
 $ 6,308,866 
 $ 6,033,537 

 Accounts receivable, net 
 4,967,714 
 4,962,906 

 Insurance recovery receivable 
 2,850,000 
 — 

 Contract assets 
 24,459,339 
 19,729,638 

 Inventory 
 4,028,925 
 6,386,288 

 Refundable income taxes 
 40,000 
 40,000 

 Prepaid expenses and other current assets 
 625,075 
 534,857 

 Total Current Assets 
 43,279,919 
 37,687,226 

 Operating lease right-of-use assets 
 7,796,768 
 4,075,048 

 Property and equipment, net 
 1,646,863 
 2,521,742 

 Intangibles, net 
 125,000 
 250,000 

 Goodwill 
 1,784,254 
 1,784,254 

 Other assets 
 372,741 
 191,179 

 Total Assets 
 $ 55,005,545 
 $ 46,509,449 

 LIABILITIES AND SHAREHOLDERS’ DEFICIT 
 
 Current Liabilities: 
 
 Accounts payable 
 $ 10,429,018 
 $ 12,092,684 

 Accrued expenses 
 6,102,587 
 5,937,921 

 Litigation settlement obligation 
 3,003,259 
 — 

 Contract liabilities 
 5,122,766 
 1,650,549 

 Loss reserve 
 1,495,714 
 2,009,247 

 Current portion of long-term debt 
 3,365,181 
 6,501,666 

 Operating lease liabilities 
 1,580,453 
 1,819,237 

 Income taxes payable 
 5,165 
 948 

 Total Current Liabilities 
 31,104,143 
 30,012,252 

 Line of credit 
 21,250,000 
 20,738,685 

 Long-term operating lease liabilities 
 6,445,728 
 2,537,149 

 Long-term debt, net of current portion 
 1,540,747 
 6,205,095 

 Total Liabilities 
 60,340,618 
 59,493,181 

 Shareholders’ Deficit: 
 
 Common stock - $ .001 par value; authorized 50,000,000 shares, 12,335,683 and 11,951,271 shares, respectively, issued and outstanding 
 12,336 
 11,951 

 Additional paid-in capital 
 72,833,742 
 72,005,841 

 Accumulated deficit 
 ( 78,181,151 ) 
 ( 85,001,524 ) 

 Total Shareholders’ Deficit 
 ( 5,335,073 ) 
 ( 12,983,732 ) 

 Total Liabilities and Shareholders’ Deficit 
 $ 55,005,545 
 $ 46,509,449 

 see
notes to CONSOLIDATED financial statements 

 F- 4 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
STATEMENTS OF OPERATIONS 

 Years ended December 31,

 2021
 
 2020 
 (As Restated 
 see Note 16) 
 
 Revenue 
 $ 103,369,544 
 $ 87,584,690 

 Cost of sales 
 88,364,452 
 77,824,732 

 Gross profit 
 15,005,092 
 9,759,958 

 Selling, general and administrative expenses 
 11,823,921 
 12,046,170 

 Income (loss) from operations 
 3,181,171 
 ( 2,286,212 ) 

 Other income (expense): 
 
 Other income 
 4,795,000 
 — 

 Interest expense 
 ( 1,141,189 ) 
 ( 1,421,955 ) 

 Total other income (expense), net 
 3,653,811 
 ( 1,421,955 ) 

 Income (loss) before provision for income taxes 
 6,834,982 
 ( 3,708,167 ) 

 Provision for (benefit from) income taxes 
 14,609 
 ( 53,414 ) 

 Net income (loss) 
 $ 6,820,373 
 $ ( 3,654,753 ) 

 Income (loss) per common share-basic 
 $ 0.56 
 $ ( 0.31 ) 

 Income (loss) per common share-diluted 
 $ 0.56 
 $ ( 0.31 ) 

 Shares used in computing income (loss) per common share: 
 
 Basic 
 12,193,826 
 11,884,307 

 Diluted 
 12,193,826 
 11,884,307 

 see
notes to CONSOLIDATED financial statements 

 F- 5 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT 

 Years
ended December 31, 2021 and 2020 (As Restated see Note 16) 

 Common
 Stock Shares 
 Common Stock 
 Amount 
 Additional Paid-in 
 Capital 
 Accumulated
 Deficit 
 Total
 Shareholders’
 (Deficit) 

 Balance at January 1, 2020 (as restated) 
 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 (as restated) 
 11,951,271 
 11,951 
 72,005,841 
 ( 85,001,524 ) 
 ( 12,983,732 ) 

 Net income 
 
 6,820,373 
 6,820,373 

 Common stock forfeited 
 ( 41,199 ) 
 ( 42 ) 
 — 
 — 
 ( 42 ) 

 Stock-based compensation expense 
 425,611 
 427 
 827,901 
 — 
 828,328 

 Balance at December 31, 2021 
 12,335,683 
 $ 12,336 
 $ 72,833,742 
 $ ( 78,181,151 ) 
 $ ( 5,335,073 ) 

 see
notes to CONSOLIDATED financial statements 

 F- 6 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 CONSOLIDATED
STATEMENTS OF CASH FLOWS 

 Years ended December 31,

 2021
 
 2020 
 (As Restated – see Note 16) 
 
 Cash flows from operating activities: 
 
 Net income (loss) 
 $ 6,820,373 
 $ ( 3,654,753 ) 

 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: 
 
 Depreciation and amortization 
 1,029,067 
 1,032,986 

 Amortization of debt issuance costs 
 49,642 
 95,429 

 Cash expended in excess of rent expense 
 ( 51,925 ) 
 ( 137,737 ) 

 Stock-based compensation expense 
 828,286 
 711,344 

 Bad debt expense (recovery) 
 127,413 
 ( 23,395 ) 

 Forgiveness of PPP loan 
 ( 4,795,000 ) 
 — 

 Changes in operating assets and liabilities: 
 
 (Increase) decrease in accounts receivable 
 ( 132,221 ) 
 2,090,091 

 Increase in contract assets 
 ( 4,729,701 ) 
 ( 4,448,831 ) 

 Decrease (increase) in inventory 
 2,357,363 
 ( 1,480,035 ) 

 (Increase) decrease in prepaid expenses and other current assets 
 ( 321,422 ) 
 187,107 

 Decrease in refundable income taxes 
 — 
 434,904 

 (Decrease) increase in accounts payable and accrued expenses 
 ( 1,499,000 ) 
 7,458,527 

 Increase (decrease) in contract liabilities 
 3,472,217 
 ( 1,911,158 ) 

 Decrease in loss reserve 
 ( 513,533 ) 
 ( 1,956,666 ) 

 Increase in insurance receivable 
 ( 2,850,000 ) 
 — 

 Increase in settlement of litigation obligation 
 3,003,259 
 — 

 Increase (decrease) in income taxes payable 
 4,217 
 ( 268 ) 

 Net cash provided by (used in) operating activities 
 2,799,035 
 ( 1,602,455 ) 

 Cash flows from investing activities: 
 
 Purchase of property and equipment 
 ( 29,188 ) 
 ( 146,788 ) 

 Net cash used in investing activities 
 ( 29,188 ) 
 ( 146,788 ) 

 Cash flows from financing activities: 
 
 Proceeds from PPP loan 
 — 
 4,795,000 

 Proceeds from line of credit 
 511,315 
 — 

 Principal payments on long-term debt 
 ( 3,005,833 ) 
 ( 2,337,473 ) 

 Debt issuance costs 
 — 
 ( 107,540 ) 

 Net cash (used) provided by financing activities 
 ( 2,494,518 ) 
 2,349,987 

 Net increase in cash and restricted cash 
 275,329 
 600,744 

 Cash at beginning of year 
 6,033,537 
 5,432,793 

 Cash at end of year 
 $ 6,308,866 
 $ 6,033,537 

 Supplemental schedule of noncash investing activities: 
 
 Eqsuipment acquired under capital lease 
 $ — 
 $ 134,900 

 Supplemental schedule of cash flow information: 
 
 Cash paid during the year for interest 
 $ 1,139,532 
 $ 1,490,152 

 Cash paid for (received from) income taxes 
 $ 10,392 
 $ ( 488,052 ) 

 See
notes to CONSOLIDATED financial statements 

 F- 7 

 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, 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 intercompany
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 follows 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- 8 

 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 four 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, 2021 and 2020, the Company had $ 6,195,672 
and $ 6,024,418 , 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, net of reserves. The Company calculates and maintains
its accounts receivable reserves based on customer account agings as well as identification of any anticipated collectability
issues by account, if applicable. 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- 9 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 At
December 31, 2021 the Company has right of use assets and lease liabilities of approximately $ 7.8 million and $ 8.0 million respectively.
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 undiscounted 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, 2021 and 2020. 

 Fair
Value 

 At
December 31, 2021 and 2020, the fair values of the Company’s current assets and current liabilities approximated their carrying
values because of the short-term nature of these instruments. 

 2021 
 
 2020 
 
 Carrying
 Amount 
 
 Fair
 Value 
 
 Carrying
 Amount 
 
 Fair
 Value 
 
 Debt 
 
 Line
 of credit and long-term debt 
 
 $ 
 26,155,928 
 
 $ 
 26,155,928 
 
 $ 
 33,445,446 
 
 $ 
 33,445,446 
 
 We
estimated the fair value of debt using market quotes and calculations based on market rates. 

 Income
(loss) per share 

 Basic
income (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 of that were used in the calculation of diluted earnings per
common share in 2021 since the restricted stock units were fully vested by December 31 2021. Since the Company was in a loss position
in 2020, 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 recognizes the effect of an income
tax position only if, based on its merits, the position is more likely than not to be sustained on audit by the taxing authorities. 

 The
Company’s policy is to record estimated interest and penalties related to uncertain tax positions in income tax expense. 

 F- 10 

 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 and there was
no impact of the adoption to the Company’s financial statements. 

 Liquidity 

 At
December 31, 2021, our cash balance was $ 6,308,866 compared to $ 6,033,537 at December 31, 2020, an increase of $ 275,329 . Our accounts
receivable balance at December 31, 2021 increased to $ 4,967,714 from $ 4,962,906 at December 31, 2020. At December 31, 2021, we
had working capital of $ 12,175,606 compared to working capital of $ 7,674,974 at December 31, 2020. 

 On
May 11, 2021, we entered into a Consent, Waiver and Seventh Amendment (the “Seventh Amendment”) to the Company’s
credit facility (the “BankUnited Facility” or the “Credit Agreement”) with BankUnited, N.A. (“BankUnited”)
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. Additionally, under
the Seventh Amendment, BankUnited waived late delivery of certain financial information. 

 On
October 28, 2021, we entered into 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 December 31, 2022, (d) amending the minimum debt service coverage ratio covenant and (e) amending the maximum
leverage coverage ratio. Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and waived
temporarily, late delivery of certain financial information. In connection with the Eighth Amendment, a $ 250,000 amendment
fee (the “Amendment Fee”) was earned by the lenders on December 31, 2021 which the Company elected to pay in kind
and accrue and capitalize rather than pay in cash. As at December 31, 2021, the Amendment Fee payable was posted by BankUnited
to the Revolving Loan and on February 11, 2022, in agreement with the Company, the Amendment Fee was reclassified by BankUnited
to the Term Loan. The Company has recorded this payable to its financial statements accordingly. 

 On
April 12, 2022 the Company entered into a Consent, Waiver and Ninth Amendment (the “Ninth Amendment”) to the Credit
Agreement. Under the Ninth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving
Loan and the Term Loan to September 30, 2023 , (b) providing for the repayment of an additional $ 750,000 of the principal
balance of the Term Loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31,
2023 in addition to $ 200,000 regular monthly principal payments through December 31, 2022 and (c) increasing the interest
on the Revolving Loan, Term Loan, and the Amendment Fee as follows: through June 30, 2022, Prime Rate (as defined in the Credit
Agreement) plus 2.5 %; from July 1, 2022 through August 31, 2022, Prime Rate plus 5 %; from September 1, 2022 through
October 31, 2022, Prime Rate plus 6 %; from November 1, 2022 through December 31, 2022, Prime Rate plus 7 %;
and from January 1, 2023 through September 30, 2023, Prime Rate plus 8 %. Additionally, under the Ninth Amendment, the Credit
Agreement financial covenants were amended. BankUnited also waived or consented to certain covenant non-compliance, waived temporarily
or consented to, late delivery of certain financial information and waived permanently late delivery of certain pro-forma budget
information. 

 F- 11 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 On
August 19, 2022, we entered into a Consent, Waiver and Tenth Amendment (the “Tenth Amendment”) to the Credit Agreement. Under
the Tenth Amendment, the parties amended the Credit Agreement by (a) increasing the maximum leverage ratio applicable for the fiscal
quarter ending September 30, 2022 to 5.0 
 to 1.0, (b) waiving and/or consenting to the
exclusion from the Company’s covenant compliance requirements for the fiscal quarters ended December 31, 2021, March 31, 2022,
June 30, 2022 and September 30, 2022 up to (i) $ 566,024.81 
 of losses incurred and reserves taken under the
Borrower’s welded product contracts, and (ii) $ 367,044.51 
 of reserves taken with respect to the Borrower’s
welded product inventory, and (c) waiving and/or consenting to the exclusion from the Company’s covenant compliance requirements
for the fiscal quarters ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 up to $ 795,997.06 
 of accrued severance and COBRA costs and employer
taxes incurred by the Company during the fiscal quarter ended March 31, 2022. Additionally, under the Tenth Amendment, BankUnited waived
or consented to late delivery of certain financial information required by the Credit Agreement. 

 The
Credit Agreement, as amended, requires us to maintain the following financial covenants (subject to the exclusions provided for
in the previous paragraph): (a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four
quarter period ended March 31, 2022, 0.95 to 1.0 for the trailing four quarter period ended June 30, 2022, and 1.5 to
1.0 for the trailing four quarter period ended September 30, 2022 and for the trailing four quarter periods ended thereafter;
(b) maximum leverage ratio of no less than 7.30 to 1.0 for the trailing four quarter period ended March 31, 2022, 6.30 to
1.0 for the trailing four quarter period ended June 30, 2022, and 5.0 to 1.0 for the trailing four quarter period ended
September 30, 2022 and 4.0 to 1 for the trailing four quarter periods thereafter; (c) minimum net income after taxes as of the
end of each fiscal quarter being no less than $ 1.00 commencing June 30, 2022; and (d) a minimum adjusted EBITDA at the end
of each quarter of no less than $ 1 .0 million (waived for the quarter ended March 31, 2022). The additional principal
payments, increase in interest and the Amendment Fee provided for in the Eight Amendment and Ninth Amendment are excluded for
purposes of calculating compliance with each of the financial covenants. 

 It
is management’s estimation that there will likely not be any individual conditions or combination of events that will occur
in the coming year which would cause the Company to be unable to meet its obligations or otherwise continue as a going concern.
However, there can be no assurance that such plans will accomplish their intended goals. 

 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,
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
Company and Air Industries entered into a 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 CPI Aero agreed to give up the
right to pursue the additional disputed working capital amount of approximately $ 2.1 million. 

 F- 12 

 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. 

 F- 13 

 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 and revenue recognition method: 

 Year Ended
 December 31, 2021 
 Year Ended
 December 31, 2020 

 Aerostructure 
 $ 35,312,287 
 $ 34,248,296 

 Aerosystems 
 31,259,852 
 14,787,309 

 Kitting and Supply Chain Management 
 36,797,405 
 38,549,085 

 Total 
 $ 103,369,544 
 $ 87,584,690 

 Year Ended
 December 31, 2021 
 Year Ended
 December 31, 2020 

 Revenue recognized using over time revenue recognition model 
 $ 93,833,181 
 $ 75,991,062 

 Revenue recognized using point in time revenue recognition model 
 9,536,363 
 11,593,627 

 Total 
 $ 103,369,544 
 $ 87,584,690 

 F- 14 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 Transaction
Price Allocated to Remaining Performance Obligations 

 As
of December 31, 2021, the aggregate amount of transaction price allocated to the remaining performance obligations was approximately
$ 134.7 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, 2021. The Company estimates that it will recognize approximately
 52 % of this amount in fiscal year 2022, approximately 42 % in fiscal year 2023 and the remainder in fiscal year 2024. 

 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. 

 Schedule
of Contract assets and liabilities 

 December 31, 

 2021 
 2020 

 Contract assets 
 $ 24,459,339 
 $ 19,729,638 

 Contract liabilities 
 5,122,766 
 1,650,549 

 Net Contract assets 
 $ 19,336,573 
 $ 18,079,089 

 Revenue
recognized for the year ended December 31, 2021, that was included in the contract liabilities balances as of January 1, 2021
was $ 1.6 million and as of January 1, 2020 was $ 3.6 million . 

 4. 
 ACCOUNTS RECEIVABLE 

 Accounts
receivable consists of trade receivables as follows: 

 December 31, 

 2021 
 2020 

 Billed receivables 
 $ 5,177,601 
 $ 5,226,468 

 Less: allowance for doubtful accounts 
 ( 209,887 ) 
 ( 263,562 ) 

 Total accounts receivable, net 
 $ 4,967,714 
 $ 4,962,906 

 F- 15 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 5. 
 INVENTORY 

 The
components of inventory consisted of the following: 

 December 31, 

 2021 
 2020 

 Raw materials 
 $ 3,603,359 
 $ 2,218,981 

 Work in progress 
 1,413,672 
 2,645,548 

 Finished goods (Includes completed components) 
 1,998,049 
 4,251,982 

 Gross inventory 
 $ 7,015,080 
 $ 9,116,511 

 Inventory reserves 
 ( 2,986,155 ) 
 ( 2,730,222 ) 

 Inventory, net 
 $ 4,028,925 
 $ 6,386,288 

 6. 
 PROPERTY AND EQUIPMENT 

 Schedule of property plant and equipment 

 December
 31, 
 
 Estimated 
 
 2021 
 
 2020 
 
 Useful
 Life (years) 
 
 Machinery and equipment 
 
 $ 
 3,978,662 
 
 $ 
 3,964,491 
 
 5 to
 7 
 
 Computer equipment 
 
 4,191,040 
 
 4,179,087 
 
 5 
 
 Furniture and fixtures 
 
 709,350 
 
 709,350 
 
 7 
 
 Automobiles and trucks 
 
 13,162 
 
 13,162 
 
 5 
 
 Leasehold improvements 
 
 2,588,826 
 
 2,585,762 
 
 Lesser of lease
 term or 10 years 
 
 Total gross property
 and equipment 
 
 11,481,040 
 
 11,451,852 
 
 Less accumulated
 depreciation and amortization 
 
 ( 9,834,177 
 ) 
 
 ( 8,930,110 
 ) 
 
 Total
 property and equipment, net 
 
 $ 
 1,646,863 
 
 $ 
 2,521,742 
 
 Depreciation
and amortization expense for the years ended December 31, 2021 and 2020 was $ 904,067 and $ 907,984 , respectively. 

 During
the years ended December 31, 2021 and 2020, the Company acquired $ 0 and $ 134,900 , respectively, of property and equipment under
capital leases. The assets acquired under capital lease as of December 31, 2021 and 2020, are as follows: 

 December 31, 

 2021 
 2020 

 Machinery and equipment 
 $ 1,114,044 
 $ 1,114,044 

 Computer equipment 
 527,188 
 527,188 

 Leasehold improvements 
 399,800 
 399,800 

 Total assets acquired under capital lease 
 2,041,032 
 2,041,032 

 Less accumulated depreciation and amortization 
 ( 1,439,073 ) 
 ( 1,079,666 ) 

 Total assets acquired under capital lease, net 
 $ 601,959 
 $ 961,366 

 7. 
 INTANGIBLES AND GOODWILL 

 Schedule of intangibles and goodwill 

 December 31, 

 2021 
 2020 

 Gross Intangibles 
 $ 500,000 
 $ 500,000 

 Less: amortization of intangibles 
 ( 375,000 ) 
 ( 250,000 ) 

 Intangibles, net 
 $ 125,000 
 $ 250,000 

 Goodwill 
 $ 1,784,254 
 $ 1,784,254 

 F- 16 

 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 . 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 was $ 125,000 during each of the years ended December 31, 2021 and December 31, 2020. 

 8. 
 LINE
 OF CREDIT 

 On
March 24, 2016, the Company entered into the Credit Agreement. The BankUnited Facility originally 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 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 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. Additionally, under the Seventh Amendment, BankUnited waived late delivery of certain financial information. 

 On
October 28, 2021, the Company 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 December 31, 2022, (d) amending the minimum debt service coverage ratio covenant, (e) amending
the maximum leverage ratio covenant. Additionally, under the Eighth Amendment, BankUnited waived certain covenant non-compliance and
waived temporarily, late delivery of certain financial information. In connection with the Eighth Amendment, a $ 250,000 
amendment fee (the “Amendment Fee”) was earned by the lenders on December 31, 2021 which the Company elected to pay in
kind and accrue and capitalize rather than pay in cash. As at December 31, 2021, the Amendment Fee payable was posted by BankUnited
to the Revolving Loan and on February 11, 2022, in agreement with the Company, the Amendment Fee was reclassified by BankUnited to
the Term Loan. The Company has recorded this payable to its financial statements accordingly. 

 On
April 12, 2022 the Company entered into a Consent, Waiver and Ninth Amendment (the “Ninth Amendment”) to the Credit
Agreement. Under the Ninth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving
Loan and the Term Loan to September 30, 2023 , (b) providing for the repayment of an additional $ 750,000 of the principal
balance of the Term Loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31,
2023 in addition to $ 200,000 regular monthly principal payments through December 31, 2022 and (c) increasing the interest
on the Revolving Loan, Term Loan, and the Amendment Fee as follows: through June 30, 2022, Prime Rate (as defined in the Credit
Agreement) plus 2.5 %; from July 1, 2022 through August 31, 2022, Prime Rate plus 5 %; from September 1, 2022 through
October 31, 2022, Prime Rate plus 6 %; from November 1, 2022 through December 31, 2022, Prime Rate plus 7 %;
and from January 1, 2023 through September 30, 2023, Prime Rate plus 8 %. Additionally, under the Ninth Amendment, the Credit
Agreement financial covenants were amended. BankUnited also waived or consented to certain covenant non-compliance, waived temporarily
or consented to, late delivery of certain financial information and waived permanently late delivery of certain pro-forma budget
information. 

 F- 17 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 On
August 19, 2022, we entered into the Tenth Amendment. Under the Tenth Amendment, the parties amended the Credit Agreement by (a) increasing
the maximum leverage ratio applicable for the fiscal quarter ending September 30, 2022 to 5.0 
 to 1.0, (b) waiving and/or consenting to the
exclusion from the Company’s covenant compliance requirements for the fiscal quarters ended December 31, 2021, March 31, 2022,
June 30, 2022 and September 30, 2022 up to (i) $ 566,024.81 
 of losses incurred and reserves taken under the
Borrower’s welded product contracts, and (ii) $ 367,044.51 
 of reserves taken with respect to the Borrower’s
welded product inventory, and (c) waiving and/or consenting to the exclusion from the Company’s covenant compliance requirements
for the fiscal quarters ended March 31, 2022, June 30, 2022, September 30, 2022 and December 31, 2022 up to $ 795,997.06 
 of accrued severance and COBRA costs and employer
taxes incurred by the Company during the fiscal quarter ending March 31, 2022. Additionally, under the Tenth Amendment, BankUnited waived
or consented to late delivery of certain financial information required by the Credit Agreement. 

 The
Credit Agreement, as amended, requires us to maintain the following financial covenants (subject to the exclusions provided for
in the previous paragraph): (a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four
quarter period ended March 31, 2022, 0.95 to 1.0 for the trailing four quarter period ended June 30, 2022, and 1.5 to
1.0 for the trailing four quarter period ended September 30, 2022 and for the trailing four quarter periods ended thereafter;
(b) maximum leverage ratio of no less than 7.30 to 1.0 for the trailing four quarter period ended March 31, 2022, 6.30 to
1.0 for the trailing four quarter period ended June 30, 2022, and 5.0 to 1.0 for the trailing four quarter period ended
September 30, 2022 and 4.0 to 1.0 for the trailing four quarter periods thereafter; (c) minimum net income after taxes as of the
end of each fiscal quarter being no less than $ 1.00 commencing June 30, 2022; and (d) a minimum adjusted EBITDA at the end
of each quarter of no less than $ 1 .0 million (waived for the quarter ended March 31, 2022). The additional principal
payments, increase in interest and the Amendment Fee provided for in the Eight Amendment and Ninth Amendment are excluded for
purposes of calculating compliance with each of the financial covenants. 

 F- 18 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 As
of December 31, 2021 and December 31, 2020, the Company had $ 21,250,000 and $ 20,738,780 , respectively, outstanding under the BankUnited
Revolving Loan Facility. As at December 31, 2021, the Amendment Fee payable was posted by BankUnited to the Revolving Loan and
on February 11, 2022, in agreement with the Company, the Amendment Fee was reclassified by BankUnited to the Term Loan. The Company
has recorded this payable to its financial statements accordingly. 

 The
BankUnited Facility is secured by all of the Company’s assets. 

 9. 
 DEBT 

 As
described above, in connection with the Tenth Amendment, the Company and BankUnited agreed to amend the Credit Agreement by (a)
amending the maximum leverage ratio applicable for the fiscal quarter ending on September 30, 2022, and (b) consenting to and
waiving certain covenant non-compliance under the Credit Agreement. Under the Tenth Amendment, there are no changes to interest
rates or repayment schedule and the terms pertaining to interest rates and repayment schedule remain the same as described below
as per the Ninth Amendment. The Tenth Amendment had no effect on the interest rates on the Revolving Term Loan or Term Loan. 

 As
described above, in connection with the Ninth Amendment, the Company and BankUnited agreed to extend the maturity dates of the
Revolving Loan and Term Loan to September 30, 2023 , provide for the repayment of an additional $ 750,000 of the principal balance
of the term loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31, 2023 (in addition to
the $ 750,000 in additional principal payments as required by the Eighth Amendment due on November 30, 2021, December 31, 2021
and March 31, 2022), as well as the $ 200,000 regular monthly principal payments paid monthly through maturity, increase the interest
on the Revolving Loan, Term Loan, and the Amendment Fee as follows: through June 30, 2022, Prime Rate (as defined in the Credit
Agreement) plus 2.5 %; from July 1, 2022 through August 31, 2022, Prime Rate plus 5 %; from September 1, 2022 through
October 31, 2022, Prime Rate plus 6 %; from November 1, 2022 through December 31, 2022, Prime Rate plus 7 %;
and from January 1, 2023 through September 30, 2023, Prime Rate plus 8 %, waive or consent to certain covenant non-compliance,
and waive temporarily or consented to, late delivery of certain financial information and waived permanently late delivery of
certain pro-forma budget information. 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 $ 250,000 in 2021, together with out of pocket costs, expenses,
and reasonable attorney’s fees incurred by BankUnited in connection with the Eighth Amendment. 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 has cumulatively paid approximately $ 846,000 of
total debt issuance costs in connection with the BankUnited Facility of which approximately $ 265,000 is included in other assets
at December 31, 2021. 

 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 was evidenced by the Note. Subject to the terms of the Note, the PPP Loan bore interest at a fixed rate of one percent
( 1 %) per annum, with the first six months of interest deferred, had an initial term of two years , and was unsecured and guaranteed
by the Small Business Administration (SBA). The Note provided for customary events of default including, among other things, cross-defaults
on any other loan with the Lender. The PPP Loan could have been 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. All amounts have been classified as current or long term in accordance with the Note
terms. 

 F- 19 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 On
July 13, 2021, the Company received notification through Dime that the PPP Loan and accrued interest thereon were fully forgiven
by the SBA and that the forgiveness payment date was July 1, 2021. The forgiveness of the PPP Loan was recognized during the Company’s
third fiscal quarter ending September 30, 2021. 

 The
SBA reserves the right to audit any PPP Loan, for eligibility and other criteria, regardless of size. These audits may occur after
forgiveness has been granted. In accordance with the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”),
all borrowers are required to maintain their PPP loan documentation for six years after the PPP Loan was forgiven and to provide
that documentation to the SBA upon request. 

 The
maturities of the long-term debt (excluding unamortized debt issuance costs) as of December 31, 2021, are as follows: 

 Year ending December 31, 
 
 2022 
 
 $ 
 3,365,181 
 
 2023 
 
 1,719,766 
 
 2024 
 
 44,498 
 
 2025 
 
 26,483 
 
 2026 
 
 — 
 
 Total 
 
 $ 
 5,155,928 
 
 Included
in the long-term debt are financing leases and notes payable $ 422,595 and $ 678,428 at December 31, 2021 and 2020, respectively,
including a current portion of $ 215,181 and $ 255,833 , respectively. 

 The
BankUnited Facility is secured by all of the Company’s assets and both the Revolving Loan and Term Loan bear interest at
the Prime Rate + 0.75 % as of December 31, 2021. 

 At
December 31, 2021 and December 31, 2020, the Term Loan, had an aggregate principal balance due of $ 4,483,333 and $ 7,233,333 , respectively,
payable in monthly installments, as defined in the Credit Agreement. 

 F- 20 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 10. 
 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, as amended,
expires on April 30, 2026 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, 2021 and 2020, the Company’s operating lease expense was $ 1,873,455 and $ 1,625,539 respectively. 

 Future
minimum lease payments under non-cancellable operating leases as of December 31, 2021 were as follows: 

 Year ending December 31, 
 
 2022 
 $ 1,946,746 

 2023 
 2,028,443 

 2024 
 2,105,636 

 2025 
 2,160,206 

 2026 
 727,128 

 Total undiscounted operating lease payments 
 8,968,159 

 Less imputed interest 
 ( 941,978 ) 

 Present value of operating lease payments 
 $ 8,026,181 

 The
following table sets forth the ROU assets and operating lease liabilities as of December 31, 2021 and 2020: 

 2021 
 2020 

 Assets 
 
 ROU Assets-Net 
 $ 7,796,768 
 $ 4,075,048 

 Liabilities 
 
 Current operating lease liabilities 
 $ 1,580,453 
 $ 1,819,237 

 Long-term operating lease liabilities 
 6,445,728 
 2,537,149 

 Total ROU liabilities 
 $ 8,026,181 
 $ 4,356,386 

 The
non-cash amortization expense of these assets under operating leases was $ 1,717,365 and $ 1,783,280 for the years ended December
31, 2021 and 2020, respectively. 

 The
Company’s weighted average remaining lease term for its operating leases is 4.3 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- 21 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 11. 
 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, 
 2021 
 2020 

 Current: 
 
 Federal 
 $ 1,210 
 $ ( 57,788 ) 

 State 
 13,399 
 4,374 

 Deferred: 
 
 Federal 
 — 
 — 

 State 
 — 
 — 

 Total 
 $ 14,609 
 $ ( 53,414 ) 

 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, 
 2021 
 2020 

 Taxes computed at the federal statutory rate 
 $ 1,435,346 
 $ ( 778,715 ) 

 State income tax, net 
 10,585 
 3,454 

 Research and development tax credit 
 ( 198,507 ) 
 ( 210,374 ) 

 Change in valuation allowance 
 ( 247,094 ) 
 943,047 

 PPP Loan forgiveness 
 ( 1,006,950 ) 
 — 

 Other 
 ( 22,879 ) 
 — 

 Refund from IRS audit 
 — 
 ( 57,787 ) 

 Permanent differences 
 44,108 
 46,961 

 Provision(benefit) for income taxes 
 $ 14,609 
 $ ( 53,414 ) 

 The
components of deferred income tax assets and liabilities are as follows: 

 Deferred Tax Assets: 
 2021 
 2020 

 Allowance for doubtful accounts 
 $ 45,794 
 $ 56,884 

 Credit carryforwards 
 2,005,909 
 1,758,809 

 Inventory reserve 
 1,137,436 
 1,046,890 

 Accrued Payroll 
 88,118 
 — 

 Loss contracts reserve 
 185,329 
 260,780 

 Restricted stock 
 191,076 
 189,072 

 Other 
 20,244 
 18,654 

 Acquisition costs 
 86,841 
 93,063 

 Lease liability 
 1,751,168 
 950,141 

 Accrued legal 
 33,438 
 — 

 Disallowed interest expense 
 801,385 
 909,800 

 Net operating loss carryforward 
 20,140,818 
 20,953,330 

 Deferred tax assets 
 26,487,556 
 26,237,423 

 Valuation allowance 
 ( 22,235,611 ) 
 ( 22,704,931 ) 

 Deferred Tax Liabilities: 
 
 Prepaid expenses 
 136,381 
 115,437 

 Revenue recognition 
 2,144,797 
 2,086,045 

 Property and equipment 
 269,653 
 441,590 

 ROU asset 
 1,701,114 
 889,420 

 Deferred tax liabilities 
 $ 4,251,945 
 $ 3,532,492 

 Net deferred tax liabilities 
 $ — 
 $ — 

 F- 22 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 As
of December 31, 2021 the Company had approximately $ 88.6 million of gross net operating loss carryforwards (“NOLs”)
for federal tax purposes and approximately $ 37.8 million of post apportionment NOLs for state tax purposes. 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. 

 As
a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, federal NOLs
arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Our pre-2018 NOLs totaled
approximately $ 78.9 million ; these NOLs will expire in varying amounts from 2034 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 taxable income for tax years before January 1, 2021 and up to
 80 % of 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 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. The Company has not completed a Section 382 analysis for the year ended December 31, 2021; however,
The Company believes that no ownership change occurred during the relevant lookback period that would limit our ability to use
our NOLs. 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 for the year ended December 31, 2021 was $ 14,609 , an effective tax rate of 0.21 %. The tax provision was
mostly the result of state franchise and minimum taxes. 

 F- 23 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 12. 
 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 income (loss) for the years ended December 31, 2021 and 2020, respectively, includes approximately $ 828,000 
and $ 711,000 of stock based compensation expense, respectively, for the grant of RSUs and shares. 

 In
January 2021, the Company granted 135,512 restricted stock units (“RSUs”) to its board of directors as partial compensation
for the 2021 year. RSUs vest quarterly on a straight-line basis over a one-year period. In January 2020, the Company granted 73,551 
RSUs to its board of directors as partial compensation for the 2020 year. 

 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. 

 The
Company’s net income (loss) for the years ended December 31, 2021 and 2020, respectively, includes approximately $ 546,000 
and $ 532,000 , 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
April 2021, the Company granted 137,512 RSUs to various officers and employees. In May 2021, the Company granted 28,916 to an
officer. 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 2025 based upon the service and performance thresholds.
In April 2021, 33,915 of the shares granted between 2017 and 2020 were forfeited because the Company failed to achieve certain
performance criteria for the year ended December 31, 2020. 

 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. 

 The
Company’s net income (loss) for the years ended December 31, 2021 and 2020 includes approximately $ 282,000 and $ 179,000 ,
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 $ 51,000 and $ 57,000 , respectively, and as a component of selling, general
and administrative expenses of approximately $ 231,000 and $ 122,000 , respectively. 

 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 2,364 shares available for grant under the
2009 Plan as of December 31, 2021. 

 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 472,681 shares available for grant under the 2016 Plan as of December 31, 2021. 

 F- 24 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 13. 
 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 2021 and 2020 amounted to $ 381,066 and $ 288,553 , respectively. 

 14. 
 MAJOR
 CUSTOMERS 

 For
the year ended December 31, 2021, 32 %, 19 %, 12 % and 10 % of our revenue was generated from our four largest customers. For the
year ended December 31, 2020, 35 %, 11 %, 11 % and 9 % of our revenue was generated from our four largest customers. 

 At
December 31, 2021, 30 %, 23 % and 18 % of accounts receivable were due from our three largest customers. At December 31, 2020, 29 %,
 24 %, 15 % and 13 % of accounts receivable were due from our four largest customers. 

 At
December 31, 2021, 34 %, 16 % and 12 % of our contract assets were related to our three largest customers. At December 31, 2020,
 39 %, 20 %, 12 %, and 9 % of our contract assets were related to our four largest customers. 

 15. 
 LEGAL
 PROCEEDINGS 

 Class
Action Lawsuit 

 As
previously disclosed, a consolidated class action lawsuit (captioned Rodriguez v.
CPI Aerostructures, Inc., et al. , No. 20-cv-01026) has been filed in the U.S. District Court for the Eastern District
of New York 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 As previously disclosed, a consolidated class action lawsuit (captioned Rodriguez
v. CPI Aerostructures, Inc., et al. , No. 20-cv-01026) has been filed against the Company, Douglas McCrosson, the Company’s
former 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 and 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 Securities Exchange Act of 1934, as
amended (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 and 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 in the amount of $ 3,600,000 , subject to court approval. On July 9, 2021, Plaintiff
filed an unopposed motion for preliminary approval of the settlement. On November 10, 2021, a magistrate judge recommended that
the Court grant the motion for preliminary approval in its entirety. The Court adopted the recommendation on May 27, 2022, and
entered an order granting preliminary approval of the settlement on June 7, 2022. The magistrate judge will hold a hearing on
September 9, 2022 to decide whether to grant final approval of the settlement. After satisfaction of our $ 750,000 retention,
the Settlement Amount will be covered and paid by our directors’ and officers’ insurance carrier. As of March 31,
2021, we have previously paid or accrued to our financial statements covered expenses totaling $ 750,000 , and have therefore met
our directors’ and officers’ retention requirement, which caps the Company’s expenses pertaining to the class
action suit. 

 As
of December 31, 2021, in order to reflect the amounts owed from our directors’ and officers’ insurance carrier and
to the Plaintiffs, we have recorded to our balance sheet a litigation settlement obligation of $ 3,003,259 and an insurance recovery
receivable of $ 2,850,000 ; this obligation and receivable will be relieved from our balance sheet upon the payment of the Settlement
Amount to the Plaintiff by our directors’ and officers’ insurance carrier. 

 F- 25 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 
 
 Shareholder
Derivative Action 

 Four
shareholder derivative actions, each based on substantially the same facts as those alleged in the class action discussed above,
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. It purports to assert derivative claims against the individual defendants for violations
of Section 10(b) and 21D of the Exchange Act, 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. 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). It 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. 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
(under the caption In re CPI Aerostructures Stockholder Derivative Litigation , No. 20-cv-02092) 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). 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. 

 On
June 13, 2022, the plaintiffs in the consolidated federal action informed the Court that the Company and all defendants had reached
an agreement in principle with all plaintiffs to settle the shareholder derivative lawsuits described above. On June 16,
2022, the plaintiffs in the consolidated federal action filed an unopposed motion for preliminary approval of the settlement.
On July 22, 2022, the Court referred the motion to the magistrate judge; the motion remains pending. The settlement is subject
to Court approval and, if approved, will result in the dismissal of the shareholder derivative lawsuits. As part of
the proposed settlement, the Company has agreed to undertake (or confirm that it has undertaken already) certain corporate governance
reforms and to pay attorneys’ fees to plaintiffs’ counsel. The attorneys’ fees will be covered and paid by our
directors’ and officers’ insurance carrier, after satisfaction of our $ 750,000 retention. 

 SEC
Investigation 

 On
May 22, 2020, the Company received a subpoena from the SEC 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, 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 SEC 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 

 16. 
 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”), then 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 the 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 Form 10-K 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 
 
 Income (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 
 
 Income
 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 

 CPI
AEROSTRUCTURES, INC. AND SUBSIDIARIES 

 17.
 SUBSEQUENT EVENTS 

 NYSE American
Listing Standards Non-Compliance and Delisting Determination 
 
 On
May 19, 2022, the NYSE American exchange (the “Exchange”) announced the suspension of trading of our common stock
due to non-compliance with the SEC annual and quarterly report timely filing criteria provided for in Section 1007 of the Exchange’s
Company Guide (the “Company Guide”) and announced that it was initiating proceedings to delist our common stock. As
a result of the suspension, our common stock began trading on May 20, 2022 under the symbol “CVUA” on the OTC Pink
Limited Information market tier, which is operated by OTC Markets Group Inc. The Company filed a request for review of the Exchange’s
determination to initiate delisting proceedings to a Committee of the Board of Directors of NYSE Regulation (the “Committee”).
A hearing for this review before a Listing Qualification Panel of the Committee has been scheduled for September 7, 2022 (the
“Hearing”). The delisting action has been stayed pending the outcome of the review although trading of our common
stock on the Exchange remains suspended. 

 We will become current with our SEC reports upon the filing of our Quarterly Report on Form 10-Q for the three months ended March 31, 2022 (the “2022 Q1 Form 10- Q”) and our Quarterly Report on Form 10-Q for the three and six months ended June 30, 2022 (the “2022 Q2 Form 10-Q”). The Company believes that becoming current with our SEC reports will resolve the condition that led to NYSE American suspending trading in the Company’s common stock on the Exchange and its determination to commence proceedings to delist the common stock from the Exchange. The 2022 Q1 Form 10-Q and 2022 Q2 Form 10-Q will be filed as soon as practicable. We cannot assure you that if the Company becomes current with our SEC reports before the Hearing or the outcome of the Hearing will result in the Exchange changing its delisting determination or that our common stock will resume trading on the Exchange in the future. 

 On
September 17, 2021, we received notice from the Exchange 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
is therefore subject to the procedures and requirements of Section 1009 of the Company Guide and was required to, and timely did,
submit a plan to the Exchange 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 the Exchange that it accepted the Plan,
subject to periodic review, including quarterly monitoring, for compliance with the Plan. If the Company’s common stock
is not delisted from the Exchange as a result of the Company’s delayed filings as described above and (i) the Company is
not in compliance with the continued listing standards by March 17, 2023 or (ii) the Company does not make progress consistent
with the Plan during the plan period, the Exchange staff may initiate delisting proceedings as appropriate. 

 Trading
of Common Stock on Expert Market 

 The
Company is not current in its SEC reporting obligations with respect to its 2022 Q1 Form 10-Q. Companies that are not current
in their SEC reporting obligations in accordance with the provisions of Rule 15c-11 (“Rule 15c2-11”) promulgated under
the Securities Exchange Act of 1934, as amended, do not have current information publicly available and do not meet the requirements
for ongoing quoting of their securities on one of the public markets (the “OTC Markets”) operated by the OTC Markets
Group. Effective July 15, 2022, the Company’s common stock is quoted on the OTC Markets Group’s “Expert
Market.” 

 The
Expert Market is available for unsolicited quotes only, meaning broker-dealers may use the Expert Market to publish unsolicited
quotes representing orders from retail and institutional investors who are not affiliates or insiders of the Company. Quotations
in Expert Market securities are made available to broker-dealers, institutions, and other sophisticated investors. Accordingly,
investors are not assured of the opportunity to purchase or sell their shares when they desire to do so or at all. 

 See
Part I Item 1A Risk Factors - “There is currently a very limited trading market for our common stock and investors are
not assured of the opportunity to make transactions in our common stock.” Cost reduction
initiative 

 During
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. The Company executed a headcount reduction and furlough
action in March 2022 and is implementing cost controls and cuts during the balance of fiscal year 2022. The Company anticipates
recording severance costs related to the headcount reduction in its first fiscal quarter of 2022 and the cost reductions of these
actions are anticipated to positively impact the financial results of the Company beginning in the second fiscal quarter of 2022. 

 F- 48 

 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: August 19, 2022 
 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 Directors 
 
 August 19, 2022 

 Terry Stinson 
 
 /s/Carey
Bond 

 Carey
Bond 
 
 Vice Chairman of
 the Board of Directors 
 
 August 19, 2022 

 /s/Dorith
 Hakim 
 
 Chief Executive Officer and 
 
 August 19, 2022 

 Dorith Hakim 
 
 President (Principal
 Executive Officer) 
 
 /s/
 Andrew L. Davis 
 
 Chief
Financial Officer and Secretary 

 August
19, 2022 

 Andrew L. Davis 
 
 (Principal
Financial and Accounting Officer) 
 
 /s/
 Walter Paulick 
 
 Director 
 
 August 19, 2022 

 Walter Paulick 
 
 /s/
 Eric Rosenfeld 
 
 Director 
 
 August 19, 2022 

 Eric Rosenfeld 
 
 /s/
 Michael Faber 
 
 Director 
 
 August 19, 2022 

 Michael Faber 
 
 /s/
 Richard Caswell 
 
 Director 
 
 August 19, 2022 

 Richard Caswell 
 
 F- 49
CPI AEROSTRUCTURES INC 10-K

Item 9A. Controls and Procedures
