What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-04-08 compared with 2023-04-14 · 800 added, 674 removed, 680 unchanged (68% of the section changed)

1 unchanged sentence

of Disclosure Controls and Procedures

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.

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 weakness described

Annual Report on Internal Control over Financial Reporting

6 unchanged sentences

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;

reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management

and directors;

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.

to the maintenance of records that, in reasonable detail, accurately and fairly reflect

the transactions and dispositions of our assets;

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;

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.

of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

2 unchanged sentences

in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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, 2022 because of the material weaknesses described below.

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.

connection with management’s evaluation of the Company’s internal control over financial reporting described above,

management identified material weaknesses in its internal controls over the processing and accrual of vendor invoices, the

reconciliation of accounts receivable and contract assets, and the documentation with respect to its internal controls over

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, 2022.

Notwithstanding

the conclusion by our management that our controls and procedures as of December 31, 2022 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.

is a non-accelerated filer for 2022.

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 2023 for 2022.

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, 2023 because of the material

weakness described below.

A material weakness is

a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility

that a material misstatement of the Company’s annual or interim consolidated financial statements will not be prevented or detected

on a timely basis.

In connection with management’s

evaluation of the Company’s internal control over financial reporting described above, management identified a material weakness

in its internal controls relating to the inadequate review, assessment of and reporting of the Company’s temporary differences between

book and taxable income.

This material weakness led to the need to restate within Note 11 “Income Taxes” of this Annual Report

on Form 10-K the Company’s December 31, 2022 deferred tax assets and deferred tax liabilities balances, which had no impact to the

Company’s previously reported net deferred tax asset on its December 31, 2022 Balance Sheet and no impact to the Company’s

previously reported Net Income, Earnings Per Share or Cash Flow for the twelve months ended December 31, 2022.

The restatement of the

aforementioned balances, as well as additional details regarding the restatement adjustments, appears in Note 11 “Income Taxes”

of this Annual Report on Form 10-K.

The Company is in the process of remediating the aforementioned material weakness.

The Company’s

remediation plans currently include conducting a comprehensive review of the scope and work of its outside tax advisor, providing additional

education and training in tax accounting to the its finance personnel and requiring additional review of, approval over and documentation

of the work product of its tax advisor and tax accounting preparors.

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,

Notwithstanding the conclusion

by our management that our controls and procedures as of December 31, 2023 were not effective, as described above with respect to income

tax accounting, 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.

CPI is a non-accelerated

filer for 2023.

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 2024 for 2023.

in Internal Control Over Financial Reporting

were no changes in our internal control over financial reporting during the quarter ended December 31, 2022 that materially affected,

or are reasonably likely to materially affect, our internal control over financial reporting.

During the nine months ended September 30, 2022, we implemented additional

internal controls related to the monitoring and review of inventory costing, excess and obsolete materials and loss contracts.

on Effectiveness of Controls and Procedures

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.

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.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Other than as disclosed above, there were no changes

in our internal control over financial reporting during the quarter ended December 31, 2023 that materially affected, or are reasonably

likely to materially affect, our internal control over financial reporting.

During the quarter ended December 31, 2023, we

implemented additional internal controls related to the reconciliation of accounts receivable that include more timely account reconciliation

and transactional reviews, and strengthening oversight controls over the accounts receivable and billing function.

REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

I ncorporated

herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days after December 31,

EXECUTIVE COMPENSATION

I ncorporated

herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days after December 31,

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

I ncorporated

herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days after December 31,

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

I ncorporated

herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days after December 31,

PRINCIPAL ACCOUNTANT FEES AND SERVICES

ACCOUNTANT FEES AND SERVICES

I ncorporated

herein by reference from the Company’s definitive proxy statement, which will be filed no later than 120 days after December 31,

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents

are filed as part of this report:

AND FINANCIAL STATEMENT SCHEDULES

The following

documents are filed as part of this report:

Financial Statements:

2 unchanged sentences

Statements of Operations for the Years Ended December 31, 2023 and 2022

Statements of Shareholders’ Equity (Deficit) for the Years Ended December 31, 2022 and 2021

Statements of Shareholders’ Equity for the Years Ended December 31, 2023 and 2022

Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

to Financial Statements

(2) Financial

Statement Schedules:

Financial Statement Schedules:

The following Exhibits are filed as part of this report:

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

Securities of the Registrant.

Performance Equity Plan 2009 (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on April 30, 2009).

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).

Agreement of Lease, dated June 30, 2011, between Heartland Boys II L.P.

Equity Plan 2009 (incorporated by reference to Appendix A to the Company’s Proxy Statement on Schedule 14A filed on

April 30, 2009).

Long-Term Incentive Plan, as amended (incorporated by reference from Exhibit 99.1 to the Company’s Registration Statement

on Form S-8 filed on June 28, 2023).

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).

Lease Amendment, dated November 11, 2020, between Heartland Boys II L.P.

(incorporated by reference to Exhibit

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

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).

Second Lease Amendment, dated November 10, 2021, between Heartland Boys II L.P.

(incorporated by reference

to Exhibit 10.3.2 to the Company’s Annual Report on Form 10-K/A filed on November 24, 2021).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

(incorporated by reference

from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 12, 2021).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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).

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 November 11, 2022).

Twelfth 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 March 23, 2023).

Amended and Restated Continuing General Security Agreement among CPI Aerostructures, Inc.

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 March 23, 2023).

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 February 21, 2024.

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).

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).

(incorporated by reference

to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 28, 2016).

Subsidiaries of the Registrant.

4 unchanged sentences

Section 1350, as Adopted Pursuant to Section 905 of the Sarbanes-Oxley Act of 2002.

XBRL Instanse Document.

XBRL Taxonomy Extension Scheme Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

Cover page formatted as Inline XBRL and contained in Exhibit 101.

The Company’s Clawback Policy Relating to the Recovery of excessive Incentive-Based Compensation from Executive Officers in the Event of an Accounting Restatement.

XBRL Instanse

XBRL Taxonomy

Extension Scheme Document.

XBRL Taxonomy

Extension Calculation Linkbase Document.

XBRL Taxonomy

Extension Definition Linkbase Document.

XBRL Taxonomy

Extension Label Linkbase Document.

XBRL Taxonomy

Extension Presentation Linkbase Document.

formatted as Inline XBRL and contained in Exhibit 101.

Filed herewith.

1 unchanged sentence

Furnished herewith.

FORM 10-K SUMMARY

AEROSTRUCTURES, INC.

1 unchanged sentence

TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Financial Statements:

Consolidated Balance Sheets as of December 31, 2023 and 2022

Statements of Operations for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Shareholders’ Equity (Deficit) for the Years Ended December 31, 2022 and 2021

Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022

1 unchanged sentence

of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

of CPI Aerostructures, Inc.

Stockholders and the Board of Directors of CPI

Aerostructures, Inc.

Opinion on the Financial Statements

7 unchanged sentences

for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 11 to the financial statements,

the 2022 financial statements have been restated to correct a misstatement.

Basis for Opinion

32 unchanged sentences

on the critical audit matters or on the accounts or disclosures to which they relate.

Tax Asset Valuation Allowance

Deferred Tax Asset Valuation Allowance

As described in Note 1 and Note 11 of the financial

1 unchanged sentence

$0.6 million as of December 31, 2023.

The Company recognizes deferred tax assets and liabilities for the expected future income tax consequences

of events that have been recognized in the Company’s financial statements.

Valuation allowances are provided for deferred tax assets

where it is considered more likely than not that the Company will not realize the benefit of such assets.

In evaluating the realizability

of deferred tax assets in future periods, the available positive and negative evidence, including projected future taxable income exclusive

of reversing temporary differences, history of book losses, tax planning strategies, and results of recent operations, are considered.

The Company recognizes deferred tax assets and liabilities for the expected future income tax

consequences of events that have been recognized in the Company’s financial statements.

Valuation allowances are provided for deferred

tax assets where it is considered more likely than not that the Company will not realize the benefit of such assets.

In evaluating the

realizability of deferred tax assets in future periods, the available positive and negative evidence, including future reversals of existing

taxable temporary differences, projected future taxable income, loss carrybacks and tax-planning strategies are considered.

We identified management’s determination

3 unchanged sentences

involved complex and subjective auditor judgment, including the need to involve personnel with specialized skill and knowledge.

procedures to evaluate management’s determination that sufficient taxable income will not be generated to realize deferred tax assets

included the following, among others:

procedures related to the realization of the Company’s net deferred tax assets included the following, among others:

Evaluated the reasonableness of management’s

1 unchanged sentence

future taxable income, including testing of management’s assumptions used in their projections.

· Utilized personnel with specialized

knowledge and skill in accounting for income taxes to assist in the evaluation of management’s assessment of positive and negative

evidence and their conclusion that it is more likely than not that the Company will not realize a benefit from a portion of its deferred

· Utilized personnel with specialized knowledge and

skill in accounting for income taxes to assist in the evaluation of management’s assessment of positive and negative evidence and

their conclusion that it is more likely than not that the Company will realize a benefit from its net deferred tax assets.

Revenue Recognition

As described in Note 2 of the financial statements,

revenue for the year ended December 31, 2022 was $83 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.

revenue for the year ended December 31, 2023 was $86.5 million, including $82.7 million of revenue recognized using an over time revenue

recognition model.

As described in Note 1 of the financial statements, 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

5 unchanged sentences

revenue, costs and profit for these contracts included the following, among others:

· 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.

· 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.

· Performed journal entry testing related to revenue.

· Tested the accuracy and completeness of the costs incurred

to date on a sample of contracts.

· 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.

· Tested the accuracy and completeness of the costs incurred to date on a sample

of contracts.

· 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.

· Performed procedures to evaluate the reasonableness of the significant assumptions

used to estimate contract costs to complete on a sample of contracts.

/s/ RSM US LLP

2 unchanged sentences

April 5, 2024

CPI AEROSTRUCTURES, INC.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

BALANCE SHEETS

2 unchanged sentences

Insurance recovery receivable

Contract assets

Contract assets, net

Refundable income taxes

4 unchanged sentences

Deferred tax asset

Intangibles, net

LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current Liabilities:

12 unchanged sentences

Total Liabilities

Shareholders’ Equity (Deficit):

Commitments and Contingencies (see note 16)

Shareholders’ Equity:

Common stock - $ .001 par value;

4 unchanged sentences

( 69,004,926 )

Total Shareholders’ Equity (Deficit)

( 5,335,073 )

Total Liabilities and Shareholders’ Equity (Deficit)

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

notes to CONSOLIDATED financial statements

3 unchanged sentences

ended December 31, 2023 and 2022

$ 103,369,544

Cost of sales

1 unchanged sentence

Income from operations

Other income (expense):

Interest expense

1 unchanged sentence

( 2,271,101 )

Total other income (expense), net

Income before benefit for income taxes

Benefit from income taxes

( 13,349,414 )

Income before provision for income taxes

Provision for (benefit from) income taxes

( 6,553,131 )

Income per common share:

Income per common share-unrestricted shares

Income per common share-restricted shares

Income per common share-basic

Income per common share-diluted

Shares used in computing income per common share:

Unrestricted shares

Restricted shares

notes to CONSOLIDATED financial statements

1 unchanged sentence

AND SUBSIDIARIES

STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

STATEMENTS OF SHAREHOLDERS’ EQUITY

ended December 31, 2023 and 2022

5 unchanged sentences

$ ( 5,335,073 )

Common stock forfeited

Issuance of common stock upon settlement of restricted stock, net

Stock-based compensation expense

1 unchanged sentence

( 69,004,926 )

( 5,335,073 )

Common stock forfeited

Issuance of common stock upon settlement of restricted stock, net

Stock-based compensation expense

Shares withheld for tax withholdings

Balance at December 31, 2023

9 unchanged sentences

Amortization of debt issuance costs

Cash expended below (in excess of) rent expense

Stock-based compensation expense

1 unchanged sentence

( 13,363,661 )

Bad debt expense

Forgiveness of PPP loan

( 6,574,463 )

Bad debt expense

Changes in operating assets and liabilities:

Decrease (increase) in accounts receivable

Increase in insurance recovery receivable

( 2,850,000 )

Decrease in accounts receivable

Decrease (increase) in insurance recovery receivable

Increase in contract assets

2 unchanged sentences

Decrease in inventory

Increase in prepaid expenses and other current assets

Decrease in accounts payable and accrued expenses

Decrease (increase) in prepaid expenses and other current assets

Decrease in operating right-of-use assets

Increase (decrease) in accounts payable and accrued expenses

( 1,157,019 )

(Decrease) increase in litigation settlement obligation

( 3,600,000 )

Increase in litigation settlement obligation

Increase in contract liabilities

(Decrease) increase in contract liabilities

Decrease in lease liabilities

( 1,795,417 )

( 1,131,135 )

Decrease in loss reserve

5 unchanged sentences

Cash flows from financing activities:

Proceeds from line of credit

Principal payments on line of credit

Principal payments on long-term debt

1 unchanged sentence

( 3,115,181 )

Proceeds from insurance financing obligation

Repayments of insurance financing obligation

Taxes paid related to net share settlement of equity awards

Debt issuance costs

Net cash used in financing activities

7 unchanged sentences

Cash paid during the year for interest

Cash paid for (received from) income taxes

Cash paid for income taxes

notes to CONSOLIDATED financial statements

2 unchanged sentences

TO CONSOLIDATED FINANCIAL STATEMENTS

PRINCIPAL BUSINESS

ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company consists of CPI Aerostructures, Inc.

13 unchanged sentences

The Company has determined that it has a single operating and reportable segment.

balances have been reclassified to conform to presentation requirements, including consistent presentation of the components of

inventory (Note 5).

of Presentation and Principles of Consolidation

11 unchanged sentences

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.

Note 2, “Revenue Recognition”, for additional information regarding the Company’s revenue recognition policy.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company’s government contracts are subject to the procurement rules and regulations of the U.S.

contract terms are dictated by these rules and regulations.

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

Regulation (“FAR”), which 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.

contractual terms allow, the Company invoices its customers on a progress basis.

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, 2022 and 2021, the Company had $ 3,763,608

and $ 6,195,672 , respectively, of uninsured balances.

The Company limits its credit risk by selecting financial institutions considered

to be highly credit worthy.

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.

which consist of raw materials, work in progress and finished goods, are reported at lower of cost or net realizable value using

weighted average actual cost.

and Equipment

and equipment are carried at cost, net of accumulated depreciation.

Depreciation is computed utilizing the straight-line method

over the estimated useful life of the asset.

Leasehold improvements depreciation is computed over the shorter of the lease term

or estimated useful life of the asset.

Additions and improvements are capitalized, while repairs and maintenance are expensed

Company leases a building and various equipment.

Under ASC 842, Leases (“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.

leases are included in ROU assets and operating lease liabilities in our consolidated balance sheets.

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.

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.

asset is amortized 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.

leases are treated as the purchase of an asset on a financing basis.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022, the Company has right of use assets and lease liabilities of $ 6,526,627 and $ 6,895,046 , respectively.

31, 2021, the Company had right of use assets and lease liabilities of $ 7,796,768 and $ 8,026,181 , respectively.

represents the excess of purchase price of an acquisition over the fair value of net assets acquired.

Goodwill is not amortized

but instead is assessed for impairment annually and when events and circumstances warrant an evaluation.

The Company evaluates

its goodwill on an annual basis during its fourth fiscal quarter.

The Company has determined that it has a single operating and

reportable segment, and assesses during its evaluation whether it believes it is more likely than not that the fair value of this

reporting unit is greater than or less than its carrying amount by comparing the fair value of this reporting unit with its carrying

If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the amount by which the carrying

value exceeds the fair value is recognized as an impairment loss.

The Company performed its annual impairment assessment of goodwill

as of December 31, 2022 and concluded that goodwill was not impaired.

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 by comparing

the estimated undiscounted cash flows expected to result from the use of the asset and the estimated amounts expected to be realized upon

the asset’s eventual disposition with the carrying value of the asset.

If the carrying amount of the asset exceeds the aforementioned

estimated expected undiscounted cash flows and estimated expected disposition proceeds, the Company measures the amount of the impairment

to record by comparing the carrying amount of the asset with its estimated fair value.

As of December 31, 2022, the Company determined

that long-lived assets were not impaired.

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 equal to the stated value at

December 31, 2022 and 2021.

December 31, 2022 and 2021, 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.

Carrying Amount

Line of credit and long-term debt

estimated the fair value of debt using market quotes and calculations based on market rates.

The Company complies with the accounting and disclosure requirements of

FASB ASC Topic 260, “Earnings Per Share” and uses the two-class method in the calculation of earnings per share.

per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period.

the twelve months ended December 31, 2022 and 2021, respectively, and as of December 31, 2022 and December 31, 2021, respectively, the

Company had restricted shares of common stock that were considered participating securities and unrestricted shares of common stock outstanding.

Earnings and losses are shared pro rata.

the years ended December 31, 2022 and 2021, respectively, our income per common share was calculated as follows:

Year ended December 31, 2022

Year ended December 31, 2021

Income per common share-unrestricted shares

Income per common share-restricted shares

Shares used in computing income per common share:

Unrestricted shares

Restricted shares

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

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.

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

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).

ASC 718 establishes accounting for stock-based awards exchanged for employee and nonemployees.

Under the provisions of ASC 718,

stock-based compensation cost is measured at the grant date, based on the fair value of the award on the grant date, and is recognized

as expense over the employee’s requisite service period (generally the vesting period of the equity grant).

stock awards are granted at the discretion of the Company’s board of directors.

These awards are restricted as to the transfer

of ownership and generally vest over the requisite service period.

The Company recognizes forfeitures at the time the forfeiture

Issued Accounting Standards

June 2016, the FASB issued Accounting Standard Update (“ASU”) 2016-13, Financial Instruments – Credit Losses

(Topic 326), which require that financial assets measured at amortized cost be presented at the net amount expected to be collected.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset to

present the net carrying value at the amount expected to be collected.

The income statement reflects the measurement of credit

losses for newly recognized financial assets, as well as the increase or decreases of expected credit losses that have taken place

during the period.

The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable

and supportable forecasts that affect the collectability of the reported amount.

On November 15, 2019, the FASB delayed the effective

date for smaller reporting companies.

The amendments in this update are now effective for fiscal years beginning after December

15, 2022 and interim periods within those annual periods.

Early adoption for fiscal years beginning after December 15, 2018 is

Management has evaluated the effect of this update on the Company’s consolidated financial statements and currently

believes it will not have a material impact.

December 31, 2022, our cash balance was $ 3,847,225 compared to $ 6,308,866 at December 31, 2021, a decrease of $ 2,461,641 .

accounts receivable, net balance at December 31, 2022 decreased to $ 4,857,772 from $ 4,967,714 at December 31, 2021.

31, 2022, we had working capital of $ 12,896,602 compared to working capital of $ 12,175,776 at December 31, 2021.

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.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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

This is known as the over time revenue recognition.

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 as a percentage of total estimated

costs at completion of the contract.

This is known as the over time revenue recognition model.

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 as a percentage of total

estimated costs at completion of the contract.

Company also has contracts that are considered point in time.

2 unchanged sentences

in most cases this will be based on shipping terms.

with Customers and Performance Obligations

majority of the Company’s revenues are from long-term contracts with the U.S.

23 unchanged sentences

performance obligations.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when or as the

6 unchanged sentences

contracts with the U.S.

government typically are subject to the 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

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

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.

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.

majority of the Company’s performance obligations are satisfied over time as the Company (i) sells products with no alternative

19 unchanged sentences

when control of the components has transferred to the customer.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

contracts contain forms of variable consideration, such as price discounts and performance penalties.

26 unchanged sentences

to adjust revenue in the period the change is determined.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

changes are required for the estimated total revenue on a contract, these changes are recognized on a cumulative catch-up basis

3 unchanged sentences

a provision for the remaining loss on the contract is recorded in the period in which the loss becomes evident.

Contract Acquisition Costs and Fulfillment Costs

acquisition costs are those incremental costs that the Company incurs to obtain a contract with a customer that it would not have

3 unchanged sentences

“Other Assets and Deferred Costs—Contracts with Customers.”

Company’s government contracts are subject to the procurement rules and regulations of the U.S.

contract terms are dictated by these rules and regulations.

Specifically, cost-based pricing is determined under the FAR, which

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

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.

contractual terms allow, the Company invoices its customers on a progress basis.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company maintains its cash in multiple financial institutions.

The balances are insured by the Federal Deposit Insurance Corporation

up to the limit of $ 250,000 .

From time to time, the Company’s balances may exceed these limits.

As of December 31, 2023

and 2022, the Company had $ 4,943,628 and $ 3,763,608 , respectively, of uninsured balances.

The Company limits its credit risk by

selecting financial institutions considered to be highly credit worthy.

for Credit Losses

Company maintains an allowance for credit losses on accounts receivable and contract assets.

The adequacy of the allowance is

assessed quarterly through consideration of factors such as age of the receivable and identification of any anticipated collectability

issues by account, if applicable.

The Company writes off accounts when they are deemed to be uncollectible.

which consist of raw materials, work in progress and finished goods, are reported at lower of cost or net realizable value using

the weighted average cost method.

The Company capitalizes labor, material, subcontractor

and overhead costs as work-in-process for contracts where control has not yet passed to the customer.

The Company regularly reviews

inventory quantities on hand, future purchase commitments with its suppliers, and the estimated usability for its inventory.

the Company’s review indicates a reduction in usability below carrying value, it reduces its net inventory to its net realizable

and Equipment

and equipment are carried at cost, net of accumulated depreciation.

Depreciation is computed utilizing the straight-line method

over the estimated useful life of the asset.

Leasehold improvements depreciation is computed over the shorter of the lease term

or estimated useful life of the asset.

Additions and improvements that extend the useful lives are capitalized, while repairs

and maintenance are expensed as incurred.

Company leases a building and various equipment.

Under ASC 842, Leases (“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.

leases are included in right-of-use (“ROU”) assets and operating lease liabilities in our consolidated balance sheets.

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.

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.

asset is amortized 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.

December 31, 2023, the Company has right of use assets and lease liabilities of $ 4,740,193 and $ 5,099,629 , respectively.

31, 2022, the Company had right of use assets and lease liabilities of $ 6,526,627 and $ 6,895,046 , respectively.

leases are treated as the purchase of an asset on a financing basis.

Assets under finance leases, which primarily represent machinery

and equipment, computer equipment, and leasehold improvements, are included in property and equipment, net, with the related liabilities

included in current portion of long-term debt and long-term debt on the consolidated balance sheets.

represents the excess of purchase price of an acquisition over the fair value of net assets acquired.

Goodwill is not amortized

but instead is assessed for impairment annually as of December 31 st and when events and circumstances warrant an evaluation.

The Company has determined that it has a single operating and reporting unit, and assesses during its evaluation whether it believes

it is more likely than not that the fair value of this reporting unit is greater than or less than its carrying amount by comparing

the fair value of this reporting unit with its carrying value.

If the carrying amount of a reporting unit exceeds the reporting

unit’s fair value, the amount by which the carrying value exceeds the fair value is recognized as an impairment loss.

Company performed its annual impairment assessment of goodwill as of December 31, 2023 and concluded that goodwill was not impaired.

The Company assessed goodwill using qualitative factors to determine whether it was more likely than not that the fair value is

less than its carrying value (step 0) and determined that no further testing was required.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an

asset may not be fully recoverable by comparing the estimated undiscounted cash flows expected to result from the use of the asset

and the estimated amounts expected to be realized upon the asset’s eventual disposition with the carrying value of the asset.

If the carrying amount of the asset exceeds the aforementioned estimated expected undiscounted cash flows and estimated expected

disposition proceeds, the Company measures the amount of the impairment to record by comparing the carrying amount of the asset

with its estimated fair value.

As of December 31, 2023, the Company determined that long-lived assets were not impaired.

fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value.

Level 1 refers to fair

values determined based on quoted prices in active markets for identical assets.

Level 2 refers to fair values estimated using

significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.

December 31, 2023 and 2022, 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.

carrying value of the line of credit and long-term debt approximates fair value (level 2) as the interest rate is based on market

Company complies with the accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share” and uses

the treasury stock method in the calculation of earnings per share.

Net income per common share is computed by dividing net income

by the weighted average number of common shares outstanding during the period.

and diluted income per common share is computed using the weighted average number of common shares outstanding.

Diluted income per

common share is adjusted for the incremental shares attributed to unvested RSUs.

There were 160,742 and 0 incremental shares

used in the calculation of diluted income per common share for the years ended December 31, 2023 and 2022, respectively.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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

Company accounts for stock-based compensation in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”).

ASC 718 establishes accounting for stock-based awards exchanged for employee and nonemployees.

Under the provisions of ASC 718,

stock-based compensation cost is measured at the grant date, based on the fair value of the award on the grant date, and is recognized

as expense over the employee’s requisite service period (generally the vesting period of the equity grant).

stock awards are granted at the discretion of the Company’s board of directors.

These awards are restricted as to the transfer

of ownership and generally vest over the requisite service period.

The Company recognizes forfeitures at the time the forfeiture

and Development

Customer-funded

research and development (“R&D”) costs are incurred pursuant to contractual arrangements requiring us to provide

a product meeting certain defined performance or other specifications, such as designs, and such contractual arrangements are

accounted for principally by the over time revenue recognition method.

Customer-funded R&D is included in the “Revenue”

and “Cost of sales” line items in our Consolidated Statements of Operations.

Period Reclassification

amounts in prior periods have been reclassified to conform with current period presentation within the Consolidated

Statement of Shareholder’s Equity and the Consolidated Statements of Cash Flows.

Issued Accounting Standards – Adopted

2023, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial

Instruments (ASU 2016-13), using a modified retrospective method, which did not result in a material impact on the Company’s

consolidated financial statements.

Issued Accounting Standards – Not Adopted

December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which focuses

on the rate reconciliation and income taxes paid.

2023-09 requires a public business entity (“PBE”) to disclose,

on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories

with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold.

In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local,

and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received.

the new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

An entity may

apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and

continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing

the revised disclosures for all period presented.

We expect this ASU to only impact our disclosures with no impacts to our results

of operations, cash flows, and financial condition.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Disaggregation

following table presents the Company’s revenue disaggregated by contract type and revenue recognition method:

December 31, 2022

December 31, 2021

Aerostructure

Kitting and Supply Chain Management

$ 103,369,544

Government subcontracts

Prime government contracts

Commercial contracts

December 31, 2023

2 unchanged sentences

Revenue recognized using point in time revenue recognition model

Favorable/(Unfavorable)

Adjustments to Gross Profit

review our Estimates at Completion (“EAC”) at least quarterly.

Due to the nature of the work required to be performed

on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject

to many inputs, and requires significant judgment by management on a contract-by-contract basis.

As part of this process, management

reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related

program schedule, identified risks and opportunities, and the related changes in estimates of revenues and costs.

The risks and

opportunities relate to management’s judgment about the ability and cost to achieve the schedule, consideration of customer-directed

delays or reductions in scheduled deliveries, technical requirements, customer activity levels, and related variable consideration.

Management must make assumptions and estimates regarding contract revenue and costs, including estimates of labor productivity

and availability, the complexity and scope of the work to be performed, the availability and cost of materials including any impact

from changing costs or inflation, the length of time to complete the performance obligation, the availability and timing of funding

from our customer, and overhead cost rates, among others.

in estimates of net sales, cost of sales, and the related impact to operating profit on contracts recognized over time are recognized

on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods based

on a performance obligation’s percentage-of-completion in the current period.

A significant change in one or more of these

estimates could affect the profitability of one or more of our performance obligations.

Our EAC adjustments also include the establishment

of, and changes to, loss provisions for our contracts accounted for on a percentage-of-completion basis.

EAC adjustments had the following impact on our gross profit during the years ended December 31, 2023 and 2022:

Favorable adjustments

(Unfavorable) adjustments

( 4,052,117 )

( 3,207,099 )

Net adjustments

$ ( 1,450,502 )

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

adjustments during the year ended December 31, 2023 included the NGC E-2D MY2 Outer Wing Panel (“OWP”) and NGC E-2D

Wet Outer Wing Panel programs.

Unfavorable adjustments during the year ended December 31, 2023 included the Boeing A-10 and Embraer

Phenom 300 programs.

Favorable adjustments during the year ended December 31, 2022 included the Raytheon NGJ Pods/AMS and Lockheed

Margin F-16 Rudder Island programs.

Unfavorable adjustments during the year ended December 31, 2022 included the NGC E-2D MY2

OWP and Embraer Phenom 300 programs.

Price Allocated to Remaining Performance Obligations

19 unchanged sentences

Contract liabilities

Net Contract assets

assets at December 31, 2023 increased $ 7,927,528 from December 31, 2022 due to the recognition of revenue during 2023 upon the

satisfaction or partial satisfaction of performance obligations for which we had not yet billed our customers as of December 31,

2023, primarily on our T-38 Pacer Classic program, our Lockheed Martin F-16 Rudder Island program and our NGC E-2D Advanced Hawkeye

liabilities decreased $ 64,097 during 2023, primarily due to revenue recognized on these performance obligations in excess of payments

recognized for the year ended December 31, 2023, that was included in the contract liabilities balances as of January 1, 2023

was $ 3.6 million.

was $ 3,816,336 .

Revenue recognized for the year ended December 31, 2022, that was included in the contract liabilities balances

as of January 1, 2021 was $ 1.6 million.

ACCOUNTS RECEIVABLE

receivable consists of trade receivables as follows:

Billed receivables

allowance for doubtful accounts

Total accounts receivable, net

as of January 1, 2022 was $ 3,598,601 .

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

receivable consists of trade receivables as follows:

Billed receivables

allowance for expected credit losses

Total accounts receivable, net

components of inventory consist of the following:

7 unchanged sentences

Inventory, net

PROPERTY AND EQUIPMENT

AND EQUIPMENT

components of property and equipment consist of the following:

12 unchanged sentences

expense for the years ended December 31, 2023 and 2022 was $ 470,950 and $ 563,096 , respectively.

the years ended December 31, 2022 and 2021, the Company did not acquire any property and equipment under finance leases.

acquired under finance leases as of December 31, 2022 and 2021, are as follows:

Machinery and equipment

Computer equipment

Leasehold improvements

Total assets acquired under finance leases

Less accumulated depreciation and amortization

( 1,698,476 )

( 1,439,073 )

Total assets acquired under finance leases, net

INTANGIBLES AND GOODWILL

components of intangibles and goodwill consist of the following:

Gross Intangibles

amortization of intangibles

Intangibles, net

AEROSTRUCTURES, INC.

5 unchanged sentences

As a result of the acquisition of WMI on December 30, 2018, the Company recorded Goodwill of $ 1,784,254 .

as a result of the acquisition, the Company recorded an intangible asset of $ 500,000 comprised of the value of the customer relationships

The useful life of the intangible asset was four years representing the remaining economic life at the time of acquisition,

and is fully amortized as of December 31, 2022.

Amortization expense was $ 125,000 during each of the years ended December 31,

2022 and December 31, 2021.

March 24, 2016, the Company entered into an Amended and Restated Credit Agreement with the lenders named therein and BankUnited,

4 unchanged sentences

The Revolving Loan bears interest at a rate based upon a pricing grid, as defined in the Credit Agreement.

May 11, 2021, the Company entered into a Waiver and Seventh Amendment (“Seventh” Amendment”) to the Credit Agreement.

Under the Seventh Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan

and the Term Loan to July 31, 2022 , and (b) amending the leverage ratio covenant.

Additionally, under the Seventh Amendment,

BankUnited waived late delivery of certain financial information.

October 28, 2021, the Company entered into a Waiver and Eighth Amendment (the “Eighth Amendment”) to the Credit Agreement.

Under the Eighth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Revolving Loan

and the Term Loan to December 31, 2022 , (b) reducing the availability under the Revolving Loan from $ 24 million to $ 21 million

while eliminating the requirement to maintain a minimum $ 3 .0 million in a combination of Revolving Loan availability and

unrestricted cash, (c) providing for the repayment of an additional $ 750,000 of the principal balance of the Term Loan in

three installments of $ 250,000 on November 30, 2021, December 31, 2021 and March 31, 2022 in addition to $ 200,000 regular

monthly principal payments through December 31, 2022, (d) amending the minimum debt service coverage ratio covenant, and (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.

April 12, 2022, the Company entered into a Consent, Waiver and Ninth Amendment (the “Ninth Amendment”) to the Credit

3 unchanged sentences

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 %;

on the Revolving Loan and the Term Loan 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 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

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.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

August 19, 2022, the Company entered into a Consent, Waiver and Tenth Amendment (the “Tenth Amendment”) to the Credit

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

12 unchanged sentences

to make two principal payments on the term loan of $ 250,000 on each of December 31, 2022 and March 31, 2023) and (c) decreasing

the interest rate on the Revolving Loan, the Term Loan and the Amendment Fee to the Prime Rate plus 3.5 % effective as of November

the interest rate on the Revolving Loan and on the Term Loan to the Prime Rate plus 3.5 % effective as of November 1, 2022.

March 23, 2023, the Company entered into a Twelfth Amendment to the Credit Agreement (the “Twelfth Amendment”).

25 unchanged sentences

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.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

increase in interest and an amendment fee provided for in the Eighth and Ninth Amendments are excluded for purposes of calculating

compliance with each of the financial covenants.

February 20, 2024, the Company entered into a Thirteenth Amendment to the Credit Agreement (the “Thirteenth Amendment”).

Under the Thirteenth Amendment, the parties amended the Credit Agreement by (a) extending the maturity date of the Company’s

existing revolving line of credit to August 31, 2025 ;

and (b) setting the aggregate maximum principal amount of all revolving

line of credit loans to $ 19,800,000 from January 1, 2024 through March 31, 2024, $ 19,080,000 from April 1, 2024 through June 30,

2024, $ 18,360,000 from July 1, 2024 through September 30, 2024, $ 17,640,000 from October 1, 2024 through December 31, 2024, $ 16,920,000

from January 1, 2025 through March 31, 2025, $ 16,200,000 from April 1, 2025 through June 30, 2025 and $ 15,480,000 thereafter,

and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first day of each

of December 31, 2023 and December 31, 2022, the Company had $ 20,040,000 and $ 21,000,000 , respectively, outstanding under the BankUnited

Revolving Loan Facility.

As of 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.

has recorded this payable to its financial statements accordingly.

$ 1,200,000 of the revolving line of credit matures and is payable

by December 31, 2023 and the remaining balance of $ 19,800,000 of the revolving line of credit matures and is payable by November

$ 2,400,000 of the revolving line of credit matures and is payable by December 31, 2024 and the remaining

balance of $ 17,640,000 of the revolving line of credit matures and is payable by August 31, 2025.

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

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

described above, in connection with the Twelfth Amendment, the Company and BankUnited agreed to amend the Credit Agreement by:

15 unchanged sentences

addition to the Company’s existing obligation to make two principal payments on the term loan of $ 250,000 on each of December

31, 2022 and March 31, 2023) and (c) decreasing the interest rate on the Revolving Loan, the Term Loan and the Amendment Fee to

the Prime Rate plus 3.5 % effective as of November 1, 2022.

31, 2022 and March 31, 2023) and (c) decreasing the interest rate on the Revolving Loan and on the Term Loan to the Prime Rate

plus 3.5 % effective as of November 1, 2022.

described above, in connection with the Tenth Amendment, the Company and BankUnited agreed to amend the Credit Agreement by (a)

10 unchanged sentences

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 %;

on the Revolving Loan and on the Term Loan as follows:

through June 30, 2022, Prime Rate (as defined in the Credit Agreement)

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 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.

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.

2022, as consideration for the lenders entering into the Ninth Amendment, the Company paid a $ 62,833 fee to the lenders.

the Company paid to BankUnited, commitment and agent fees in the amount of $ 250,000 , together with out of pocket costs, expenses,

and reasonable attorney’s fees incurred by BankUnited in connection with the Eighth Amendment.

The Company has cumulatively

paid approximately $ 908,000 of total debt issuance costs in connection with the BankUnited Facility of which approximately $ 131,000

is included in other assets at December 31, 2022.

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 Coronavirus

Aid, Relief and Economic Security Act (“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”).

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.

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.

has cumulatively paid approximately $ 962,000 of total debt issuance costs in connection with the BankUnited Facility of which

approximately $ 82,000 and $ 131,000 is unamortized and included in other assets at December 31, 2023 and 2022, respectively.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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 as other income

during the year ended December 31, 2021.

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 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.

maturities of the long-term debt (excluding unamortized debt issuance costs) as of December 31, 2023, are as follows:

6 unchanged sentences

Revolving Loan and Term Loan was 12.00 % as of December 31, 2023.

December 31, 2022 and 2021, the Term Loan had an aggregate principal balance due of $ 1,583,333 and $ 4,483,333 , respectively, payable

in monthly installments, as defined in the Credit Agreement.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

the year ended December 31, 2023, the Term Loan was fully repaid.

At December 31, 2022, the Term Loan had an aggregate principal

balance due of $ 1,583,333 , payable in monthly installments, as defined in the Credit Agreement.

Company leases manufacturing and office space under an agreement classified as an operating lease.

11 unchanged sentences

Year ending December 31,

Total undiscounted operating lease payments

Total undiscounted

operating lease payments

Less imputed interest

Present value of operating lease payments

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

following table sets forth the ROU assets and operating lease liabilities as of December 31, 2023 and 2022:

3 unchanged sentences

Total lease liabilities

amortization expense of these assets under operating leases was $ 1,738,989 and $ 1,717,365 for the years ended December 31, 2022

and 2021, respectively.

Company’s weighted average remaining lease term for its operating leases is 2.5 years as of December 31, 2023.

1 unchanged sentence

weighted average discount rate for its operating leases is 5.43 % as of December 31, 2023.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

account for income taxes in accordance with ASC 740 Income Taxes.

8 unchanged sentences

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.

The Company generally is

no longer subject to U.S.

or state examinations by tax authorities for taxable years prior to 2019.

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.

provision (benefit) for income taxes consists of the following:

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.

(benefit) for income taxes consists of the following:

Year ended December 31,

1 unchanged sentence

( 6,428,448 )

difference between the income tax provision computed at the federal statutory rate and the actual tax provision (benefit) is accounted

for as follows:

computed at the federal statutory rate

State income tax,

Research and development

$ ( 13,349,414 )

$ ( 6,553,131 )

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

difference between the income tax provision computed at the federal statutory rate and the actual tax benefit is accounted for

Taxes computed at the federal statutory rate

State income tax, net

Research and development tax credit

Change in valuation allowance

PPP loan forgiveness

Accrued loss reserve

( 13,531,626 )

( 6,616,952 )

Accrued loss reserve adjustment

Permanent differences

Provision(benefit)

for income taxes

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

Allowance for doubtful accounts

Benefit for income taxes

$ ( 13,349,414 )

$ ( 6,553,131 )

components of deferred income tax assets and liabilities are as follows at December 31:

Deferred Tax Assets:

(As Restated)

Allowance for credit losses

Capitalized R&D

11 unchanged sentences

Valuation allowance

( 14,740,034 )

Deferred Tax Liabilities:

6 unchanged sentences

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

During our review of the Company’s deferred

income tax positions as of December 31, 2023, we determined that the following adjustments are needed to our previously reported December

31, 2022 deferred tax assets and liabilities balances, with no impact to our net deferred tax assets, due to the inadequate review, assessment

of and reporting of the Company’s temporary differences between book and taxable income.

More specifically, the adjustments are

required due to computational errors and incomplete analyses.

Accordingly, we have restated the balances as previously reported, where

needed, as follows:

Deferred Tax Assets:

2022 (as Previously Reported)

Restatement Adjustments

2022 (As Restated)

Allowance for credit losses

Capitalized R&D

Credit carryforwards

Inventory reserve

Accrued payroll

Loss contracts reserve

Restricted stock

Acquisition costs

Lease liability

Accrued legal

Disallowed interest expense

Net operating loss carryforward

( 1,979,629 )

Deferred tax assets

( 2,780,875 )

Valuation allowance

( 14,916,923 )

( 14,740,034 )

Deferred Tax Liabilities:

Prepaid expenses

Revenue recognition

( 2,625,299 )

Property and equipment

Deferred tax liabilities

$ ( 2,603,986 )

Net deferred tax assets

of December 31, 2023, the Company had approximately $ 74.7 million of gross net operating loss carryforwards (“NOLs”)

28 unchanged sentences

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.

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

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 realizability of deferred tax assets requires the determination of whether it is more likely than not that some portion or

4 unchanged sentences

Generally, more weight is given to objectively verifiable evidence, such as

the cumulative loss in recent years, as a significant piece of negative evidence to overcome.

a cumulative loss in recent years, as a significant piece of negative evidence to overcome.

As of December 31, 2023, the Company

achieved three years of cumulative book income, along with projections of profitability, for which management determined that

achieved three years of consecutive book and taxable income, along with projections of profitability, for which management determined that

there is sufficient positive evidence to conclude that it is more likely than not that a portion of the deferred tax assets will

As such, $ 6.5 million of the valuation allowance has been released as of December 31, 2022, leaving a balance in

the valuation allowance of $ 14.9 million as of December 31, 2022.

As such, $ 14,170,891 of the valuation allowance was released during the fourth quarter of fiscal 2023, leaving a balance in

the valuation allowance of $ 569,143 as of December 31, 2023.

income tax (benefit) for the year ended December 31, 2023 was $ ( 13,349,414 ) , an effective tax (benefit) rate of ( 346.6 %) .

(benefit) was mostly the result of a reduction in the valuation allowance on deferred tax assets recorded by the Company during

the fourth quarter of fiscal year 2022 based on management’s estimates of the likelihood and level of the future taxable

income of the Company.

tax (benefit) was mostly the result of the aforementioned reduction in the valuation allowance on deferred tax assets.

Management makes these estimates quarterly in order to determine the appropriate level of valuation allowance

3 unchanged sentences

TO CONSOLIDATED FINANCIAL STATEMENTS

expenses consists of the following:

Accrued purchases

Accrued payroll

Accrued insurance

Accrued interest

Accrued professional fees and other

accrued expenses

compensation expense for restricted stock in the consolidated statements of operations is summarized as follows:

Selling, general

and administrative

stock-based compensation expense

Cost of sales

Selling, general and administrative

Total stock-based compensation expense

Company grants restricted stock units (“RSUs”) to its board of directors as partial compensation.

1 unchanged sentence

quarterly on a straight-line basis over a one-year period.

following table summarizes activity related to outstanding RSUs for the year ended December 31, 2023:

Weighted Average

Non-vested – January 1, 2023

Non-vested – December 31, 2023

Company grants shares of common stock (“Restricted Stock Awards”) to select employees.

In the event that the

employee’s employment is voluntarily terminated prior to certain vesting 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.

following table summarizes activity related to outstanding RSUs and Restricted Stock Awards for the year ended December 31, 2022:

These shares have various

vesting dates, ranging from vesting on the grant date to as late as four years from the date of grant.

In the event that the employee’s

employment is voluntarily terminated prior to certain vesting dates, portions of the shares may be forfeited.

December 31, 2023, the weighted average remaining amortization period was 2.7 years.

following table summarizes activity related to outstanding Restricted Stock Awards for the year ended December 31, 2023:

Restricted Stock Awards

2 unchanged sentences

Restricted Stock

Non-vested – January 1, 2023

Non-vested – December 31, 2023

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company grants shares of common stock (“Performance Restricted Stock Awards” or “PRSAs”) to select officers

as part of our long-term incentive program that will result in that number of PRSAs being paid out if the target performance metric

The award vesting is based on specific performance metrics related to accounts payable delinquency, debt, and net

income during the performance period.

The PRSAs vest at 0 % or 100 % and all three metrics must be met to vest at 100 % .

granted under this program will vest on the fourth anniversary of the grant date, subject to the aforementioned performance criteria.

At December 31, 2023, the weighted average remaining amortization period was 2.9 years.

following table summarizes activity related to outstanding PRSAs for the year ended December 31, 2023:

Weighted Average

Fair Value of

Non-vested – January 1, 2023

Non-vested – December 31, 2023

fair value of all RSUs, PRSAs and Restricted Stock Awards is based on the closing price of our common stock on the grant date.

All RSUs, PRSAs, and Restricted Stock Awards vest and settle in common stock (on a one-for-one basis).

of December 31, 2023, unamortized stock-based compensation costs related to restricted share arrangements was $ 274,415 .

addition, our income tax liabilities for 2023 and 2022 were reduced by $ 174,617 and $ 101,497 , respectively, due to recognized

tax benefits on stock-based compensation arrangements.

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, 2023.

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 2016 Plan, which increased the number of shares reserved for issuance under the 2016 Plan to 1,400,000 shares.

In the second

quarter of 2023, the Company added an additional 800,000 shares to the 2016 Plan, which increased the number of shares for reserved

for issuance under the 2016 Plan to 2,200,000 shares.

The Company has 619,055 shares available for grant under the 2016

Plan as of December 31, 2023.

AEROSTRUCTURES, INC.

15 unchanged sentences

At December 31, 2022,

30 %, 23 % and 18 % of accounts receivable were due from our three largest customers.

38 %, 21 %, 17 %, and 13 % of accounts receivable were due from our four largest customers.

December 31, 2023, 26 %, 23 %, 18 %, and 15 % of our contract assets were related to our four largest customers.

At December 31, 2022,

34 %, 16 % and 12 % of our contract assets were related to our three largest customers.

Action Lawsuit

A consolidated

class action lawsuit (captioned Rodriguez v.

CPI Aerostructures, Inc., et al.

20-cv-01026) was filed in the

District Court for the Eastern District of New York against the Company;

Douglas McCrosson, the Company’s former Chief Executive

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.

The Amended Complaint in the action asserted 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

The Amended Complaint alleged 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 alleged 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.

sought unspecified compensatory damages, including interest;

rescission or a rescissory measure of damages;

unspecified equitable or injunctive

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.

On August 5, 2022, the Plaintiff filed an unopposed motion for final approval.

The magistrate

judge held a hearing on the final approval motion on September 9, 2022.

On February 16, 2023, the magistrate judge recommended that the

Court grant the final approval motion in its entirety.

The Court adopted that recommendation in its entirety on March 10, 2023, and terminated

the case on March 13, 2023.

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.

27 %, 20 %, 16 %, and 16 % of our contract assets were related to our four largest customers.

AND CONTINGENCIES

Company may be involved in various claims, suits, assessments, investigations, and legal proceedings that arise from time to time

in the ordinary course of its business.

The Company accrues a liability when it is both probable a liability has been incurred

and the amount of the loss can be reasonably estimated.

The Company reviews these accruals at least quarterly and adjusts them

to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information.

To the extent

new information is obtained and the Company’s views on the probable outcomes of claims, suits, assessments, investigations,

or legal proceedings change, changes in the Company’s accrued liabilities would be recorded in the period such determination

For some matters, the amount of liability is not probable or the amount cannot be reasonably estimated and, therefore,

accruals have not been made.

of Shareholder Derivative Actions and Class Action Lawsuit

of Shareholder Derivative Actions

2020 and 2021, four shareholder derivative actions were filed against certain current and former members of our board of directors

and certain of our current and former officers.

four of the actions—each described in further detail below—were based on substantially

the same allegations and claims – specifically, that the defendants allegedly breached their fiduciary duties and/or violated

securities laws by permitting false and misleading statements to be included in the Company’s registration statement and

prospectus supplements issued in connection with the Company’s October 16, 2018 securities offering and/or by permitting

false and misleading statements to be made in the Company’s periodic reports filed between March 22, 2018 and February 14,

first action (captioned Moulton v.

McCrosson, et.al.

20-cv-02092) was filed in the U.S.

District Court for the Eastern District of

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.

20-cv-02092) was filed on May 7, 2020, in the U.S.

Court for the Eastern District of New York.

It purported 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 sought to recover on behalf

of the Company for any liability the Company might incur as a result of the individual defendants’ alleged misconduct.

complaint also sought declaratory, equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs.

second action (captioned Woodyard v.

McCrosson, et al.

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.

613169/2020) was filed on September 17, 2020, in

the Supreme Court of the State of New York (Suffolk County).

It purported to assert derivative claims against the individual defendants

for breach of fiduciary duty and unjust enrichment and sought 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.

third action (captioned Berger v.

McCrosson, et al.

1:20-cv-05454) was filed on November 10, 2020, in the U.S.

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

District Court for the Eastern District of New York.

The complaint, which was based on the shareholder’s inspection of certain

corporate books and records, purported to assert derivative claims against the individual defendants for breach of fiduciary duty

and unjust enrichment, and sought 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 sought equitable, injunctive,

and monetary relief, as well as attorneys’ fees and other costs.

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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

fourth action (captioned Wurst, et al.

Bazaar, et al.

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.

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 magistrate judge held a conference on September 9, 2022 in the consolidated federal action.

February 14, 2023, the magistrate judge recommended that the Court grant the motion in its entirety.

On March 6, 2023, the court granted preliminary approval

of the proposed settlement.

The proposed settlement is subject to final approval by the court.

addition to requiring final approval by the court, the proposed settlement is subject to certain conditions, including the filing with

the SEC of the stipulation of settlement agreed to by the Company and plaintiff (the “Stipulation of Settlement”), and sending

notice to potential class members.

The terms of the proposed settlement are set forth in the Stipulation of Settlement.

Should the proposed

settlement receive final approval from the Court, it 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.

In addition, the Company and/or its insurer have agreed to pay a total of $ 585,000 in attorneys’ fees to plaintiffs’ counsel.

Litigation Settlement Obligation

and Insurance Recovery Receivable Pertaining to the Class Action Lawsuit and Shareholder Derivative Action

The attorneys’

fees for both the Class Action Lawsuit and the Shareholder Derivative Action will be covered and paid by our directors’ and officers’

insurance carrier, after satisfaction of our $ 750,000 retention.

As of December 31, 2022, we have previously paid and accrued to

our financial statements covered expenses totaling $ 750,000 , and have therefore met our insurance carrier’s directors’ and

officers’ retention requirement, which caps the Company’s expenses pertaining to the class action suit at $ 750,000 .

December 31, 2022, 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 $ 3,600,000 and an insurance recovery receivable of $ 3,600,000

owing from the Company’s insurance carrier to the Company with respect to the settlement obligation;

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.

605244/2021) was filed on March 24, 2021, in the

Supreme Court of the State of New York (Suffolk County).

The complaint purported to assert derivative claims against the individual

defendants for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, and sought to recover on behalf of

the Company for any liability the Company might incur as a result of the individual defendants’ alleged misconduct.

complaint also sought declaratory, equitable, injunctive, and monetary relief, as well as attorneys’ fees and other costs.

June 13, 2022, 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,

plaintiffs in the consolidated federal action filed an unopposed motion for preliminary approval of the settlement.

14, 2023, the magistrate judge recommended that the court grant the motion in its entirety.

On March 6, 2023, the Court granted

preliminary approval of the proposed settlement.

May 17, 2023, plaintiffs in the consolidated federal action filed an unopposed motion for final approval of the settlement.

magistrate judge held a final approval hearing on June 7, 2023.

On October 27, 2023, the magistrate judge recommended that the

Court grant the final approval motion in its entirety.

On December 11, 2023, the Court adopted that recommendation and entered

orders granting final approval to the settlement and closing the case.

to the settlement agreement, after the federal court’s final approval of the settlement, the plaintiffs in the Woodyard

and Wurst state-court actions voluntarily requested that those actions be dismissed.

The parties to the Woodyard

action filed a stipulation of dismissal on December 15, 2023, and the Court entered an order dismissing the action on December

The parties to the Wurst action filed a stipulation of dismissal on December 14, 2023, and the Court entered

an order dismissing the action on December 18, 2023.

part of the settlement, the Company agreed to undertake (or confirm that it has undertaken already) certain corporate governance

In addition, the Company and/or its insurer have agreed to pay a total of $ 585,000 in attorneys’ fees to plaintiffs’

The Company’s insurer paid the full amount due of $ 585,000 .

Because the settlement amount was transferred to counsel

for plaintiffs on May 5, 2023 from the escrow account established for this purpose, we relieved from our balance sheet, as of

that date, the amounts previously owed from our directors’ and officers’ insurance carrier and to that plaintiff.

of Class Action Lawsuit

consolidated class action lawsuit (captioned Rodriguez v.

CPI Aerostructures, Inc., et al.

20-cv-01026) was

filed in the U.S.

District Court for the Eastern District of New York 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.

The Amended Complaint

in the action asserted 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 alleged 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.

Amended Complaint also alleged 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 sought unspecified compensatory

damages, including interest;

rescission or a rescissory measure of damages;

unspecified equitable or injunctive relief;

and expenses, including attorney’s fees and expert fees.

On February 19, 2021, the Company moved to dismiss the Amended

Plaintiff submitted a brief in opposition to the motion to dismiss on April 23, 2021.

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.

On August 5, 2022, the Plaintiff filed an unopposed

motion for final approval.

The magistrate judge held a hearing on the final approval motion on September 9, 2022.

16, 2023, the magistrate judge recommended that the Court grant the final approval motion in its entirety.

The Court adopted that

recommendation in its entirety on March 10, 2023, and terminated the case on March 13, 2023.

On May 5, 2023, the Settlement Amount

was transferred to plaintiff’s counsel from the escrow account established for this purpose.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Settlement Obligation and Insurance Recovery Receivable Pertaining to the Class Action Lawsuit and Shareholder Derivative Action

attorneys’ fees for both the class action lawsuit and the shareholder derivative actions were covered and paid by our directors’

and officers’ insurance carrier, after satisfaction of our $ 750,000 retention.

As of December 31, 2023, we had previously

paid and accrued to our financial statements covered expenses totaling $ 750,000 , and had therefore met our insurance carrier’s

directors’ and officers’ retention requirement, which capped the Company’s expenses pertaining to the class

action suit at $ 750,000 .

Because the Settlement Amount was transferred to counsel for plaintiff in the class action lawsuit on

May 5, 2023, from the escrow account established for this purpose, we have relieved from our balance sheet, as of that date, the

amounts previously owed from our directors’ and officers’ insurance carrier and to that plaintiff.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report

5 unchanged sentences

of the registrant and in the capacities and on the dates indicated:

Terry Stinson

Chairman of the

Board of Directors

April 14, 2023

Terry Stinson

Vice Chairman of

the Board of Directors

April 14, 2023

Chief Executive Officer and

April 14, 2023

President (Principal

Executive Officer)

Richard Caswell

Financial Officer and Secretary

2 unchanged sentences

Michael Faber

April 14, 2023

Michael Faber

Richard Caswell

April 14, 2023

Richard Caswell

Executive Officer and President

(Principal Executive Officer)

Pamela Levesque

Rick Rosenjack

/s/ Terry Stinson

Chairman of the

Board of Directors

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 9A. Controls and Procedures