What changed in this filing

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Item 1. Business

2023-04-14 compared with 2022-08-19 · 421 added, 299 removed, 225 unchanged (76% of the section changed)

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

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

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

Air Force (“USAF”).

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

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(“MRO”) services.

Aero has over 40 years of experience as a contractor.

Our team possesses extensive technical expertise and program management

and integration capabilities.

Our competitive advantage lies in our ability to offer large contractor capabilities with the flexibility

and responsiveness of a small company, while staying competitive in cost and delivering superior quality products.

maintain a website located at www.cpiaero.com .

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

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

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

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

with the SEC.

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

on Form 10-K.

and started as a technical consulting firm on January 11, 1980, within a few years, Composite Products International Inc.

was manufacturing aircraft structural components for U.S.

military aircraft under contract to the U.S.

1980s, CPI was also providing structural components for civil aircraft in the commercial market.

the 1990s, CPI became a publicly traded company and changed its name to CPI Aerostructures, Inc.

The company continued to grow,

both in size and in its business.

Government contracts served as the mainstay of CPI Aero’s business, and the Company

continued to grow its presence in the commercial market as well.

Commitment to customer satisfaction and pride in a job well done

propelled CPI Aero to the forefront as a reputable and hardworking supplier to OEMs.

September 5, 2000, CPI Aero shares were listed on the American Stock Exchange (now known as NYSE American).

We also started to

focus on diversifying our business model to pursue more commercial contracts.

In 2007, the Company won three major contracts and

experienced great growth and expansion.

2018, CPI Aero acquired Welding Metallurgy Inc.

This allowed for a small but strategically important amount of vertical integration

in complex fusion welding and large diameter tube bending capability.

The acquisition included Miller Stuart and Compac Development

Corp., two other business lines that added fabrication of electrical cables, harnesses and enclosures to the Company’s capabilities.

CPI Aero continues to engage in traditional high quality structural assembly manufacturing while incorporating the latest in technology

to improve quality and streamline production.

Our success is rooted in our core company values, the dedication and skill of our

employees, and our commitment to providing our customers the full-service solution they require.

offer design, engineering, manufacture, build, maintenance, repair and overhaul (“MRO”) services, and supply chain

and kitting services capabilities to the aerospace and defense industry as follows:

● Aerostructures:

Production and Repair/Overhaul of Fielded Wing Structures and other Control Surfaces, Rudder Island, Engine

Inlets/Nacelles, Engine Exhaust Manifolds, Aircraft Doors and Windows, Aircraft Steps and Racks, and other Aircraft Secondary

● Aerosystems:

Pod Structures and Integration of Internal Systems, Radar Housing Structures, Panel Assemblies, Mechanical Door Locking

Systems, and Canopy Lifting Systems

Diameter Tube Bending:

Complex Ducts and Tubes in Steel, Aluminum, Titanium,

and Nickel Alloys

Specialty Welding:

Fusion Welded Fluid Tanks and Resistance Welding (Spot and

Cables, Harness, and Enclosures:

Wire Harnesses, Power Control Systems, Fuel

Management Systems, Power Distribution Systems, Fully Integrated Electrical Control Systems,

and enclosures

Services and Capabilities

a build-to-print structural component manufacturer, CPI Aero’s engineering focus is on executing customer contracts through

product realization, and to support collaborative design development using design for manufacturing and assembly, geometric dimensioning & tolerancing (“GD&T”), and tooling concept support.

Although not vertically integrated, CPI Aero has a deep

well of experience on various types of detail part manufacturing that allows us to provide detailed design for manufacturing input

during the design refinement process.

have significant experience working in a full model-based definition environment, both CATIA and NX, due to our long sustainment

support on older airframes.

CPI Aero also possesses the capability to work with traditional blueprints, mylars and loft.

has executed several projects where older engineering data sets were “rehabilitated” to fully model-based datasets

per customers’ requests.

Aero is capable and has experience in designing all types of assembly type tools up to and including large floor mounted, articulated

tooling at high levels of precision.

We are also capable of designing various types of tooling that can be 3D printed for rapid

Understanding our customers’ product performance needs and combining product GD&T layout and final tooling

definitions and requirements helps us ensure product realization success.

CPI Aero’s engineering team is dedicated to providing our customers an experience where our activities are an extension

of their business and complement their engineering goals.

Aero is committed to achieving revenue, gross profit margin, and earnings growth through the successful implementation of our

business development strategy.

CPI Aero’s future strategic direction is tied to aerostructures, aerosystems, supply chain,

and kitting services, and a deeper market penetration of formerly acquired businesses in welding, tube bending, wire harnesses,

and electronics.

To accomplish this strategy, we are focused on executing on our current customer programs while pursuing new

aerospace build-to-print opportunities - in both new production and MRO statements of work.

believe that there has been a shift in the market for more build-to-print contracts by OEMs versus the recent past trend of design

and build contracts.

This trend fits in well with CPI Aero’s strengths.

In addition, we expect to identify and close contracts

for which we can provide more value added content to our customer (like integrating sub-assemblies into higher level Aerostructures

and Aerosystems statements of work) and we intend to pursue statements of work that require proportionately higher CPI Aero value

added content.

tenet of the CPI Aero business development strategy is portfolio reshaping of our existing business by identifying and closing

long-term agreements or multi-year contracts, which provides an opportunity to firm-up supplier agreements and secure supplier

final element of CPI Aero’s business development strategy is to build upon the Company’s existing customer relationships

and to develop relationships with new customers.

We intend to increase customer engagements by deploying our business development

personnel to solidify existing customer relationships which have been established by performance excellence, transparency and

trust over many years and multiple programs.

We also intend to add resources to our business development function to cultivate

new relationships with new customers.

will make sure each customer has the best possible buying experience, by ensuring we are a best value partner through the delivery

of high quality products delivered on time.

The CPI Aero team will always work in a collaborative way to meet customers’

needs and solve their problems.

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

reducing the impact of direct government contracting limitations.

Our success as a subcontractor to defense prime contractors

has provided us with opportunities to also act as a subcontractor to prime contractors in the production of commercial aircraft

time, our Company has expanded in both capabilities and size, as evidenced by our growth in our operational, global supply chain

management, program management, and engineering capabilities, as well as the growth in our manufacturing shop floor size and equipment

These expansions have provided us the ability to supply larger and more complex Aerostructures and Aerosystems products

in support of our government-based programs as well as to pursue opportunities within the commercial and business jet markets.

Our capabilities have also allowed us to obtain MRO, kitting, tube bending, welding, and electronics related contracts.

face competition in our role as both a prime contractor to the U.S.

Government and as a Tier 1 or Tier 2 subcontractor to military

and commercial aircraft manufacturers.

Within respect to Aerostructures products, we often compete against much larger Tier 1

suppliers, such as Triumph Group, Spirit Aerosystems, Kaman Aerospace, GKN Aerospace, Ducommun, and LMI Aerospace.

that we can compete effectively with these larger companies by delivering products with the same level of quality and performance

at a better value for our customer.

With respect to Aerosystems products, such as our portfolio of EW and ISR integrated pod structures,

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

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

We believe our unique skills related to

integrated pod structures combined with a very efficient and generally much lower cost structure create a competitive advantage

for bidding on Aerosystems contracts.

certain unrestricted contracts for the U.S.

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

Grumman, Lockheed Martin, and Boeing.

All of these competitors possess significantly larger infrastructures, greater resources

and the capabilities to respond to much larger contracts.

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

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

delivering superior quality products.

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

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

manufacturer.

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

so we also may act as a subcontractor to them in these situations.

Furthermore, in some cases these prime contractors are not

permitted to bid, for example when the U.S.

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

In these restricted

contracts for the U.S.

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

We believe we compete

effectively against the smaller competitors because of our 40 years of experience and expertise in responding to requests for

proposals for government contracts.

Approximately

$6.1 million and $4.7 million of our revenue for the years ended December 31, 2022 and 2021, respectively, were from customers

outside the U.S.

All other revenue for the years ended December 31, 2022 and 2021 has been attributable to customers within the

We have no assets outside the U.S.

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

we believe will reduce the potential impact of industry consolidation.

Our success as a subcontractor to defense prime contractors

has provided us with opportunities to also act as a subcontractor to prime contractors in the production of commercial aircraft

structures, which we believe will also reduce our exposure to defense industry consolidation, government spending decisions, and

other defense industry risks.

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

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

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

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

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

Sparrow missile launcher controller) and Collins Aerospace (intelligence, surveillance, and airborne reconnaissance pods);

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

and welded structure for the CH-47 Chinook;

and welded structures for the CH-47 Chinook helicopter;

Northrop Grumman

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and 87% of our revenue in 2022 and 2021, respectively, was generated by subcontracts with defense prime contractors.

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

we believe will reduce the potential impact of industry consolidation.

Our success as a subcontractor to defense prime contractors

has provided us with opportunities to act as a subcontractor to prime contractors in the production of commercial aircraft structures,

which we believe will also reduce our exposure to defense industry consolidation, government spending decisions, and other defense

industry risks.

OEM customers in the civil aviation market include:

Embraer Executive

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

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

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

Executive Jets – we provide engine inlet assemblies for Embraer S.A.’s (“Embraer”) Phenom

300 business jet;

Aircraft Company – until recently, we provided a critical structure used to produce the wing of Gulfstream Aircraft

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

This contract ended in 2022.

and 6% of our revenue in 2022 and 2021, respectively, was generated by commercial contract sales.

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10% and 7% of our revenue in 2022 and 2021, respectively, were generated by direct government sales.

Aero has over 40 years of experience as a contractor.

Our team possesses extensive technical expertise and program management

and integration capabilities.

Our competitive advantage lies in our ability to offer large contractor capabilities with the flexibility

and responsiveness of a small company, while staying competitive in cost and delivering superior quality products.

maintain a website located at www.cpiaero.com .

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

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

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

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

with the SEC.

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

on Form 10-K.

most significant contracts are described below:

Aircraft – Subcontracts with Prime Contractors

E-2D Advanced Hawkeye:

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

Advanced Hawkeye:

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

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

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

In 2008, we received

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

In 2008, we received an

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

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

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

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

we received additional orders valued at approximately $11 million.

Since 2008, the cumulative orders we have received on this

program through December 31, 2022 exceed $209 million.

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

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

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

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

for JASDF to be in excess of $37 million.

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

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

Under the terms of the purchase orders, WMI will manufacture more than

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

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

to be in excess of $20 million.

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

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

Under the terms of the purchase orders, WMI manufactured more than

140 different items in support of the production of at least 25 E-2D aircraft.

The period of performance is expected to be through

The period of performance was through December

31, 2022 with strong potential for follow-on orders.

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

The Raytheon NGJ-MB pod is an external jamming

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

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

The Raytheon NGJ-MB pod is an external jamming pod

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

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

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

Growlers during the production phase.

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

There are two pods

per aircraft.

Navy plans to install these pods on 139

EA-18G Growlers during the production phase.

There are two pods per aircraft.

There are also 11 EA-18Gs operated by the Royal

Australian Air Force.

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

Navy in April 2016, and CPI Aero has a contract

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

Navy in April 2016, and CPI Aero has a

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

furnished equipment.

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

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

All SDTA pods and AMS components

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

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

the SDTA phase to be approximately $60 million.

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

the production phase of the program.

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

of $210 million through 2030.

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

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

All SDTA pods and AMS components orders received

were valued in excess of $60 million and completed delivery as of December 31, 2022.

November 16, 2021 the Company announced it was authorized by Raytheon to start the production phase of the program.

was awarded low rate production (“LRIP”) I and II orders valued at approximately $18.5 million.

LRIP III, for which

the Company was awarded an order of approximately $14.0 million in October 2022, is estimated to be a greater than $25 million

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

Thunderbolt II “Warthog”:

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that provides close-air support of ground forces and employs a wide variety of conventional munitions including general-purpose

The simple, effective and survivable single-seat aircraft can be used against all ground targets, including tanks and other

armored vehicles.

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

This simple, effective and survivable single-seat aircraft can be used against all ground targets, including tanks and

other armored vehicles.

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

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

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

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

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

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

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

In March of 2022, CPI Aero announced

the receipt of additional purchase orders totaling approximately $3.2 million, bringing the total purchase orders received to

$23.4 million.

Lightning II:

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

Allies are expected to

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

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

The Company has two significant contracts

for products used on the F-35.

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

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

CPI Aero made its first delivery under that contract

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

be delivered between 2020 and 2024.

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

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

allies are expected

to purchase hundreds of additional F-35s, with eight nations participating as cost-sharing partners in the program with the United

States, and six other nations allied with the U.S.

purchasing the F-35 via foreign military sales agreements with the DOD.

Company has two significant contracts for products used on the F-35.

In 2015, CPI Aero was awarded a multi-year contract to supply

four different lock assemblies for the arresting gear door on the F-35C Carrier Take Off and Landing variant.

CPI Aero made its

first delivery under that contract in May 2017.

In 2018, the Company received a new long-term agreement valued at approximately

$8 million for lock assemblies to be delivered between 2020 and 2024.

In November 2017, CPI Aero was awarded an additional $15.8

million multi-year contract to manufacture canopy activation drive shaft assemblies for the F-35A, F-35B, and F-35C variants.

“BLACK HAWK”:

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

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

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

and special operations.

More than 4,000 BLACK HAWK helicopters are in use today, operating in 29 countries.

CPI Aero and its WMI

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

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

The Company also is a Tier 2 supplier

to GKN Aerospace for ultimate use on the BLACK HAWK.

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

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

Also in 2017, the Company

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

performed since 2010.

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

from 2023-2027.

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

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

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

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

In May 2021, the Company announced

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

CPI Aero manufactures

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

The majority of CPI Aero’s contracts

for the BLACK HAWK are as a Tier 1 supplier to Sikorsky.

The Company also is a Tier 2 supplier to GKN Aerospace for products ultimately

used on the BLACK HAWK.

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

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

Also in 2017, the Company received an $8 million long-term

agreement through 2022 to manufacture machine gunner window assemblies for the BLACK HAWK, continuing work it has performed since

A third five-year long-term agreement was awarded in January 2022, also for gunner window assemblies, estimated at $13.6

million with a period of performance from 2023-2027.

Also, since October 2018, CPI Aero has received multiple purchase orders

totaling $22 million for hover infrared suppression system (“HIRSS”) module assemblies for use as spares on older

variants of the BLACK HAWK.

The HIRSS is a defensive countermeasures system that is integral to the survival of the BLACK HAWK

by reducing the opportunity for an infrared-seeking threat system to acquire, lock onto, track, and destroy the aircraft.

in May 2021, the Company announced receiving a multi-year contract valued at up to $17.2 million for the repair and overhaul

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

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

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

In June 2020, the Company announced that it had been

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

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

December 31, 2021.

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

contracted orders is possible.

Deliveries began in 2021 and will continue through 2024.

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

from Lockheed Martin as part of the previously announced multi-year contract to manufacture RI/DCC assemblies for new production

F-16 Block 70/72 aircraft, in March 2021 the Company announced that it had received an additional order for these assemblies for

$9.2 million and in November 2022, the Company announced another follow-on order for these assemblies for $4 million.

value of the RI/DCC program multi-year contract is approximately $25 million.

the strength of Lockheed Martin’s international sales forecast for the F-16, we believe a follow-on to the existing multi-year

contract is possible.

King Stallion:

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

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

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

Raytheon, to manufacture structural assemblies on an undisclosed vehicle.

In 2019, CPI Aero completed the initial order and in

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

The undisclosed vehicle is currently

under development.

Terms of the order will not be disclosed.

Through December 31, 2022, we had received orders valued at more than $2.7 million from Spirit AeroSystems, Inc.

addition, the Company also manufactures welded tubes for the CH-53K as a Tier 1 supplier to Sikorsky.

As of December 31, 2022,

the total value of orders received was $0.8 million.

These tubes will also be required for the multi-year on this program.

of this statement of work also includes CPI Aero intellectual property.

Pod Structure:

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an undisclosed application.

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

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

of assembly tooling, and the production of the prototypes.

The undisclosed pod structure is currently under development.

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

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

2021, the Company announced that Raytheon awarded the Company an approximately $6 million contract modification that changes the

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

In 2018, the Company started production of a welded tank for NGC for an undisclosed application on an undisclosed

The total value of orders received as of December 31, 2022 is approximately $3.2 million.

In late 2021, the Company received an initial purchase order from Raytheon to manufacture radar rack structures

for the B-52 Radar Modernization Program.

The value of the order was approximately $4.0 million for manufacturing engineering

services, development of assembly tooling, and the production of the initial units.

The Radar Rack structure is currently under

development with initial delivery expected in 2023.

We believe the potential total value of the program to be approximately $20.0

Aircraft – Prime Contracts with U.S.

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and logistical support for global F-16 aircraft MRO operations.

Through December 31, 2021 we have received almost $15 million

Through December 31, 2022, we had received almost $15 million

in orders on this program.

Pacer Classic III, Phase 2:

For more than 50 years, the Northrop T-38 has been the principal supersonic jet trainer used

For more than 50 years, the NGC T-38 has been the principal supersonic jet trainer used by

The T-38C Pacer Classic III Fuselage Structural Modification Kit Integration program (“PC III”) and the

Talon Repair Inspection and Maintenance (“TRIM”) programs are expected to increase the structural service life of

the T-38 beyond 2030.

Talon Repair Inspection and Maintenance (“TRIM”) program are expected to increase the structural service life of the

T-38 beyond 2030.

In 2015, CPI Aero was awarded Phase 2 of PC III and has received purchase orders valued at approximately $2

million from the USAF to provide structural modification kits for the PC III aircraft structural modification program.

December 2021, we have received $23.2 million in orders on this program.

December 31, 2022, we have received approximately $23 million in orders on this program.

Pacer Classic III, Phase 3 and TRIM:

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

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

In addition, CPI Aero received orders valued at approximately $2.3 million in 2022, bringing total orders under this

long term contract to approximately $34 million.

Aircraft – Subcontracts with Prime Contractors

G650/G650ER/G700 :

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

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

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

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

The G650ER is an extended range version of the aircraft.

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

In March 2008, Spirit AeroSystems, Inc.

awarded us a contract

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

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

Due to the impact of the COVID-19

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

On May 27, 2020, Triumph Group announced

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

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

G650 wing components from the Company.

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

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

We expect this work to continue through 2022.

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

that can carry

The Phenom 300 is a twin-engine, executive jet produced by Brazilian aircraft company Embraer that can carry

between six and 10 passengers and a crew of two.

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We estimate the potential value of the program to be in excess of $56 million.

and Marketing

are recognized within the aerospace industry as a Tier 1 or Tier 2 supplier to major aircraft suppliers.

Additionally, we may

bid for military contracts set aside specifically for small businesses.

are generally awarded initial contracts for our products and services through the process of competitive bidding.

begins when we first learn, formally or otherwise, of a potential contract from a prospective customer and concludes after all

negotiations are completed upon award.

When preparing our response to a prospective customer for a potential contract, we evaluate

the contract requirements and determine and outline the services and products we can provide to fulfill the contract at a competitive

times for our defense programs, after the initial contract, subsequent follow-on contracts are awarded on a sole-source basis,

subject to cost-justification and direct negotiation with our customer and in some cases, the federal government.

average sales cycle, which generally commences at the time a prospective customer issues a request for proposal and ends upon

delivery of the final product to the customer, varies widely.

of the complexities inherent in the aerospace industry, the time from the initial request for proposal to award ranges from as

little as a few weeks to several years.

Additionally, our contracts have ranged from six months to as long as 10 years.

repeat and follow-on jobs for current contracts frequently provide additional opportunities with minimal start-up costs and rapid

rates to production.

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

reducing the impact of direct government contracting limitations.

Our success as a subcontractor to defense prime contractors

has provided us with opportunities to act as a subcontractor to prime contractors in the production of commercial aircraft structures,

which also reduced our exposure to government spending decisions.

time, our Company has expanded in both size and capabilities, with growth in our operational and global supply chain program management.

These expansions have allowed us the ability to supply more complex aerostructure assemblies and aerosystems and structures in

support of our government-based programs as well as to pursue opportunities within the commercial and business jet markets.

capabilities have also allowed us to acquire MRO and kitting contracts.

Approximately

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

outside the U.S.

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

We have no assets outside the U.S.

Government-based

contracts are subject to national defense budget and procurement funding decisions that, accordingly, drive demand for our business

in that market.

Government spending and budgeting for procurement, operations and maintenance are affected not only by military

action, but also the related fiscal consequences of these actions, as well as the political process.

G650/G650ER/G700 :

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

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

Gulfstream began the G650 program in 2005 and revealed it

to the public in 2008.

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

The G650ER is an extended range version

of the aircraft.

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

In March 2008, Spirit AeroSystems, Inc.

awarded us a contract to provide fixed leading edges for the Gulfstream G650 business jet, and derivative models, a commercial

program that Spirit was supporting.

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

to the impact of the COVID-19 pandemic, in May 2020, Triumph Group cancelled nearly all open orders with the Company.

2020, Triumph Group announced it had reached an agreement in principle to sell the G650 wing program to Gulfstream Aerospace,

and on June 12, 2020, we received a joint communication from Gulfstream Aerospace and Triumph Group that stated Gulfstream’s

intention to continue to purchase G650 wing components from the Company.

Since October of 2020, we received purchase orders directly

from Gulfstream for wing components for use on the G650, G650ER and/or G700 aircraft valued at approximately $4 million.

completed deliveries to Gulfstream in 2022.

produce custom assemblies pursuant to long-term contracts and customer purchase orders.

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Standards Codification Topic 606 (“ASC 606”).

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

duration of the program.

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

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

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

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

Unfunded backlog is the estimated amount of future orders under the

expected duration of the program.

Substantially all of our unfunded backlog is subject to termination at will and rescheduling,

without significant penalty.

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

the contract may call for performance that is expected to take a number of years.

Therefore, our funded backlog does not include

the full value of our contracts.

total backlog at December 31, 2022 is primarily comprised of long-term programs with Raytheon (NGJ-MB;

B-52 Radar Rack), USAF

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

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

TacSAR pods) and Embraer (Phenom 300).

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

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

F-35), Raytheon (NGJ-MB;

B-52 Radar Rack)

and Embraer (Phenom 300).

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

Advanced Tactical Pods,

B-52 Radar Rack), USAF (T-38), Boeing (A-10), Sikorsky (UH-60 and CH-53K), NGC (E-2D), Lockheed Martin (F-16;

F-35), Collins Aerospace

(MS-110 and TacSAR pods) and Embraer (Phenom 300).

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

with the USAF (T-38), Boeing (A-10), Sikorsky (UH-60), Raytheon (NGJ-MB, Advanced Tactical Pods, B-52 Radar Rack), Lockheed Martin

F-35), NGC (E-2D), Collins Aerospace (MS-110 and TacSAR pods) and Embraer (Phenom 300).

total backlog as of December 31, 2022 and 2021 was as follows:

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Approximately

98% of the total amount of our backlog at December 31, 2021 was attributable to government contracts, compared to 96% at December

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

98% of the total amount of our backlog at both December 31, 2022 and 2021 was attributable to government contracts.

attributable to government contracts at December 31, 2022 and 2021 was as follows:

$ 119,133,000

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we believe that the loss of any single supplier would not have a material adverse effect on our business.

face competition in our role as both a prime contractor to the U.S.

Government and as a Tier 1 or Tier 2 subcontractor to military

and commercial aircraft manufacturers.

Within our aerostructures capability, we often compete against much larger Tier 1

suppliers, such as Triumph Group, Spirit AeroSystems, Kaman Aerospace, GKN, Ducommun, and LMI Aerospace.

We believe that

we can compete effectively with these larger companies by delivering products with the same level of quality and performance at

a better value for our customer.

Within our aerosystems capability, such as our portfolio of EW and ISR integrated pod structures,

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

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

We believe our unique skills related to

integrated pod structures combined with a very efficient and generally much lower cost structure creates a competitive advantage

for bidding on aerosystems contracts.

certain unrestricted contracts for the U.S.

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

Lockheed Martin, and Boeing.

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

the capabilities to respond to much larger contracts.

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

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

delivering superior quality products.

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

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

manufacturer.

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

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

Further, in some cases these companies

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

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

restricted contracts for the U.S.

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

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

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

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

Coronavirus Pandemic Impact on Our Business

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

pandemic has contributed to a general slowdown in the global economy, has adversely impacted the businesses of certain of our

customers and suppliers, and, if it continues for an extended period of time, it could adversely impact our results of operations

and financial condition.

In response to the COVID-19 impact on our business, we have been and continue to actively mitigate costs.

We have also been taking actions to preserve capital and protect the long-term needs of our businesses, including negotiating

progress payments with our customers and reducing discretionary spending.

For more information on the current and potential impact

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

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

transmission within the workplace.

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

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

These measures continued into 2021.

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

We have taken

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

For example, we have curtailed discretionary

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

We have also taken action to more closely manage the flow

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

Since May 2021 and through the date

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

However, we believe that the impact

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

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

Most non-manufacturing

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

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

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

pandemic has contributed to a general slowdown in the global economy, continued supply chain challenges and an adverse impacts

to the businesses of certain of our customers and suppliers.

During 2020 in response to the COVID-19 impact on our business, we

took actions to preserve capital and protect the long-term needs of our businesses, including negotiating progress payments with

our customers and reducing discretionary spending.

2021 and 2022, we continued to follow and adapt measures implemented in 2020 in an attempt to reduce the adverse effects of COVID-19

on our business, workplace and workforce.

For example, we have curtailed discretionary spending and business travel, and taken

other steps to preserve cash.

We have also taken action to more closely manage the flow of materials to be more responsive to

unanticipated changes in customer delivery schedules.

Since May 2021, we have experienced a decrease in the impact of COVID-19.

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

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

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

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

Environmental

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Occupational Safety and Health Administration,

various state agencies and county and local authorities acting in cooperation with federal and state authorities.

things, these regulatory bodies impose restrictions to control air, soil and water pollution, to protect against occupational

exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release

of certain hazardous chemicals and substances.

various state, county, and local agencies acting in cooperation with federal and state authorities.

Among other things, these

regulatory bodies impose restrictions to control air, soil, and water pollution, to protect against occupational exposure to chemicals,

including health and safety risks, and to require notification or reporting of the storage, use, and release of certain hazardous

chemicals and substances.

The extensive regulatory framework imposes compliance burdens and risks on us.

Governmental authorities have the power to enforce compliance with these regulations and to obtain injunctions or impose civil

and criminal fines in the case of violations.

Governmental authorities

have the power to enforce compliance with these regulations and to obtain injunctions or impose civil and criminal fines in the

case of violations.

Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”) imposes strict, joint and

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and thinners, which are classified under applicable laws as hazardous chemicals and substances.

We have obtained a permit from

the Town of Islip, New York, Building Division in order to maintain a paint booth containing flammable liquids.

We follow all federal, state and

local rules and regulations regarding the disposal of these chemicals and associated waste.

We have obtained a permit from the

Town of Islip, New York, Building Division in order to maintain a paint booth containing flammable liquids.

Aviation Administration Regulation

50 unchanged sentences

umbrella liability insurance policy.

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

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

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

Additionally,

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

Government that occurs

after the U.S.

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

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

Additionally, we maintain $10.0 million of director and officers’ liability insurance.

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

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

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

that occurs after the U.S.

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

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

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

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Capital Management

of December 31, 2021, we had 249 full-time employees.

We employ temporary personnel with specialized disciplines on an as-needed

We depend on a highly educated and skilled workforce.

We seek to advance a diverse, equitable and inclusive work environment

for all employees.

Our ability to attract, develop and retain the best talent, particularly those with technical, engineering

and science backgrounds or experience, is critical for us to execute our strategy and grow our businesses.

Our management, with

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

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

to operate our business.

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

work from home when possible and implementing safety protocols to support our essential employees required to work onsite, such

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

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

costs during fiscal year 2022.

Management is reallocating resources and reducing operating and general administrative expenses

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

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

In connection with the cost reduction initiative, the

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

of our employees is a member of a union.

We believe that our relations with our employees are good.

ability to attract, develop and retain top talent across all of our business functions, and particularly in highly technical areas,

has a significant impact on organizational success.

Accordingly, our human capital management strategy places a significant focus

on both attracting a diverse, highly skilled workforce and engaging and developing talent from within by creating a work environment

that promotes inclusion and equitability.

By providing our valued employees the opportunity to enhance their skillsets, develop

their careers and pursue excellence through numerous training and development opportunities, we consistently emphasize the importance

of innovation and continuous improvement throughout our organization.

attract and compensate our employees by offering a competitive total rewards package which includes benefits, resources, and programs

that support health, physical, mental, and financial wellness.

The benefits package we offer, coupled with employee recognition

opportunities and employee engagement activities help create a comprehensive employee experience.

We periodically benchmark our

benefits programs and associated costs to remain competitive.

of December 31, 2022, we had 208 full-time employees as compared to 249 full-time employees as of December 31, 2021.

On an as-needed

basis, we employ temporary personnel with specialized disciplines to fill staffing gaps.

We do not have any employees represented

by a union, and we believe that our relations with our employees are good.

We provide our team members with ongoing opportunities

to share thoughts and perspectives on company and employment-related matters through surveys, all-hands meetings, and management

open door policies.

Our management, with oversight from the Compensation and Human Resources Committee of our board of directors,

monitors the hiring, retention, and management of our employees and regularly conducts succession planning to ensure that we continue

to cultivate the pipeline of talent needed to operate our business.

response to the COVID-19 pandemic, we began allowing employees to work from home and made changes to shift work to promote social

distancing among our manufacturing personnel.

We are implementing a continuing work from home program to provide our employees

with flexibility and a competitive work benefit.

We are prepared to implement shift changes should an uptick in COVID-19 require

such a response.

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

reduce costs during fiscal year 2022.

Management has reallocated resources and reduced operating and general administrative expenses

to more properly align the Company’s costs to revenue given the timing differences between the conclusion of certain mature

programs and the commencement of new programs in 2022.

In connection with the cost reduction initiative, the Company executed

a headcount reduction and furlough action in March 2022 and implemented cost controls and cuts during the balance of fiscal year

The Company recorded severance costs related to the headcount reduction in its first fiscal quarter of 2022 and the cost

reductions of these actions positively impacted the financial results of the Company beginning in the second fiscal quarter of

and Inclusion

value diversity and inclusion in our workforce as we understand that diversity of background, thought, and experience leads to

greater innovation and improved business results.

We are committed to increasing and retaining diversity at all levels of our

workforce, and focus on diversity and inclusion throughout our recruitment, hiring, and

onboarding processes.

Over the last two years, we have increased diversity on our board of directors by 16% and executive management

our total employee population and based on employees who self-identify, as of December 31, 2022, approximately 20% of our workforce

are female, 33% are multicultural and 5% are veterans.

the safety and well-being of our employees is a top priority.

The goal of our safety program is to increase safety knowledge and

awareness throughout the organization to ensure occupational health, reduce risk, and prevent incidents.

We regularly benchmark

our safety performance, self-audit our safety compliance, and provide our employees with safety-related training.

We conduct an

investigation, including root cause analysis and corrective action, any time a safety incident or a near miss occurs.

Safety Committee is comprised of employees from various disciplines throughout the organization who meet on a regular basis to

execute continuous improvement strategies, develop methods to increase ownership of safety throughout the organization, establish

new safety initiatives, and assess safety performance.

monitor the effectiveness of our safety program by comparing recordable incidents and incident severity year over year.

the number of safety incidents with the total recordable incident rate (“TRIR”) metric and the severity of incidents

with the days away restricted and transferred (“DART”) metric.

The table below represents our result from the two

most recent calendar years:

= total number of recordable cases x 200,000 / total hours worked

= number of cases with days away from work x 200,000 / total hours worked by all employees

a positive impact on the community around us is one of our most important values.

We donate to local charitable organizations,

such as United Way of Long Island, through both monetary contributions, as well as “drives” to collect and deliver

employee donated food and school supplies.

We actively engage and educate local high school students from surrounding districts

about the manufacturing and engineering industry and career trajectory.

This includes, hosting educational experiences and shop

tours with high school and trade school classes, participating in career development fairs and other industry events, and offering

internship and apprenticeship opportunities for students from local trade schools.

In addition to educational involvement, members

of our leadership team participate on the boards of the local aviation college and trade associations that support and advance

the interests of the local community.

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

What changed 10-K

Item 1. Business