What changed in this filing

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Item 9A. Controls and Procedures

2025-03-31 compared with 2024-04-08 · 631 added, 681 removed, 799 unchanged (62% of the section changed)

AND PROCEDURES

of Disclosure Controls and Procedures

Our management, with the participation of our

Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as of

the end of the period covered by this Annual Report on Form 10-K.

Based on such evaluation, our Chief Executive Officer and Chief Financial

Officer have concluded that as of such date, our disclosure controls and procedures were not effective due to the material weakness described

Annual Report on Internal Control over Financial Reporting

is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial

reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), is a process designed by, or under the supervision of, our

principal executive and principal financial officers and effected by our board of directors, management and other personnel, to

provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with U.S.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and

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 effective to provide reasonable

assurance that information we are required to disclose in reports that we file or

submit under the Exchange Act is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities

and Exchange Commission's (SEC) rules and forms and (2) accumulated and communicated to our management, including our CEO and CFO,

as appropriate to allow timely decisions regarding required disclosures.

Management’s Annual Report on

Internal Control over Financial Reporting

Management is responsible for establishing

and maintaining adequate internal control over financial reporting.

Internal control over financial reporting, as defined in Exchange

Act Rules 13a-15(f) and 15d-15(f), is a process designed by, or under the supervision of, our principal executive and principal

financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding

the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

GAAP and includes those policies and procedures that:

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.

Projections of

any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes

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

Management conducted an evaluation of the effectiveness of internal

control over financial reporting based on criteria established in Internal Control- Integrated Framework (2013) issued by the Committee

of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this evaluation, management concluded that the Company’s

internal control over financial reporting was not effective at the reasonable assurance level as of December 31, 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.

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S.

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

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal

control over financial reporting may not prevent or detect misstatements.

Projections of any evaluation of effectiveness to future

periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance

with the policies or procedures may deteriorate.

Management conducted an evaluation of the

effectiveness of internal control over financial reporting based on criteria established in Internal Control- Integrated Framework

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on this evaluation,

management concluded that the Company’s internal control over financial reporting was effective at the reasonable assurance

level as of December 31, 2024.

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.

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 for the twelve months ended December 31, 2023 relating to the

inadequate review, assessment of and reporting of the Company’s temporary differences between book and taxable income.

Company remediated the aforementioned material weakness.

The Company’s remediation included (a) we replaced the Company's outside tax accounting and tax return preparer with a new firm (the “Tax Accounting Firm”);

(b) we retained

the Tax Accounting Firm (i) to prepare the Company’s income tax accounting and disclosures for the year ended December 31, 2024 and (ii)

to review the income tax accounting and disclosures prepared by the predecessor firm for the quarter ended March 31, 2024 prior to the

filing of the Form 10-Q for the quarter ended March 31, 2024;

a high risk area, and (d) we adopted a tax accounting review checklist provided by our Sarbanes-Oxley consulting firm for use by CPI’s

finance management in reviewing the quarterly and annual work of the Tax Accounting Firm, beginning with the tax accounting for the quarter

ended June 30, 2024 and continuing through the year ended December 31, 2024.

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, 2024 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

2 unchanged sentences

reporting in the 10-K filed in 2025 for 2024.

in Internal Control Over Financial Reporting

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,

I ncorporated

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

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,

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,

ACCOUNTANT FEES AND SERVICES

Changes in Internal Control Over Financial Reporting

Other than as disclosed above, there were

no changes in our internal control over financial reporting during the quarter ended December 31, 2024 that materially affected,

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

Disclosure Pursuant to SEC Order Dated June 20, 2024

As mandated by the SEC in its Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, dated June 20, 2024 (Release No.

34-100389) (the “SEC Order”), and as previously disclosed in the Company’s Current Report on Form 8-K filed with the SEC on June 21, 2024, the Company undertook, among other things, to fully remediate its material weaknesses in ICFR and have effective ICFR and disclosure controls and procedures (“DCP”) by December 31, 2024 and to publicly disclose, concurrent with the filing of this Annual Report on Form 10-K, whether, in management’s opinion, the Company has fully remediated its material weaknesses in ICFR and has effective ICFR and DCP.

In compliance with the SEC Order, management confirms that, as of December 31, 2024, in its opinion, the Company has fully remediated its material weaknesses in ICFR and that the Company’s ICFR and DCP were effective as of that date.

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, 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, 2024.

Insider Trading

Policy and Procedures

The Company has

adopted an insider trading policy and related procedures that govern the purchase, sale, and other dispositions of Company securities

by directors, officers, and employees.

This policy is designed to promote compliance with insider trading laws, rules, and regulations,

as well as NYSE American listing standards.

The Company recognizes its obligation to comply with all applicable laws and regulations

regarding its own transactions in Company securities.

The Company’s

insider trading policy is filed as Exhibit 19 to this Annual Report on Form 10-K.

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, 2024.

SECURITY 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, 2024.

CERTAIN 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, 2024.

PRINCIPAL 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

AND FINANCIAL STATEMENT SCHEDULES

The following

documents are filed as part of this report:

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents

are filed as part of this report:

Financial Statements:

of Independent Registered Public Accounting Firm

Balance Sheets as of December 31, 2023 and 2022

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

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

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2024 and 2023

Consolidated Statements of Operations for the Years Ended December 31, 2024 and 2023

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2024 and 2023

Consolidated Statements of Cash Flows for the Years Ended December 31, 2024 and 2023

Notes to Financial Statements

Financial Statement Schedules:

12 unchanged sentences

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).

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).

Article V, Section 6 of Amended and Restated By-laws of the Company (incorporated by reference to Exhibit 3.1 to the Company’s

3 unchanged sentences

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).

2016 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.

32 unchanged sentences

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).

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).

Amendment to the Amended and Restated Credit Agreement (incorporated by reference from Exhibit 10.1 to the Company’s

4 unchanged sentences

Current Report on Form 8-K filed on February 21, 2024.

Fourteenth 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 13, 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).

and BankUnited

(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on

Form 8-K filed on March 28, 2016).

Insider Trading Policy

Subsidiaries of the Registrant.

Consent of Marcum LLP.

Consent of RSM US LLP.

4 unchanged sentences

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.

Instanse Document.

Taxonomy Extension Scheme Document.

Taxonomy Extension Calculation Linkbase Document.

Taxonomy Extension Definition Linkbase Document.

Taxonomy Extension Label Linkbase Document.

Taxonomy Extension Presentation Linkbase Document.

page formatted as Inline XBRL and contained in Exhibit 101.

Filed herewith.

1 unchanged sentence

Furnished herewith.

FORM 10-K SUMMARY

AEROSTRUCTURES, INC.

2 unchanged sentences

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Financial Statements:

5 unchanged sentences

of Independent Registered Public Accounting Firm

Stockholders and the Board of Directors of CPI

Aerostructures, Inc.

To the Shareholders and Board

of Directors of

CPI Aerostructures, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated

balance sheets of CPI Aerostructures, Inc.

and Subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements

of operations, shareholders’ equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated

financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material

respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows

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

As discussed in Note 11 to the financial statements,

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

audited the accompanying consolidated balance sheet of CPI Aerostructures, Inc.

and Subsidiaries (the "Company") as of December 31, 2024,

the related consolidated statements of operations, shareholders' equity and cash flow for the year ended December 31 , 2024, and the

related notes ( collectively referred to as the “financial statements”).

In our opinion, based on our audit, the financial

statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of

its operations and its cash flow for the year ended December 31, 2024 in conformity with accounting principles generally accepted in

the United States of America.

Basis for Opinion

These financial statements are the responsibility

of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and

are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and

regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the

standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial reporting.

These financial

statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial

statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United

States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws

and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance

with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether

the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were

we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s

internal control over financial reporting.

of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal

control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess

the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond

to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating

the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit included performing

procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures

that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the

financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for

Critical Audit Matters

The critical audit matters communicated below

are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to

the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our

especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion

on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions

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

Deferred Tax Asset Valuation Allowance

As described in Note 1 and Note 11 of the financial

statements, the Company’s net deferred tax asset of approximately $19.9 million is net of a valuation allowance of approximately

$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 future reversals of existing

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

We identified management’s determination

of the value of deferred tax assets as a critical audit matter as there is significant judgment required by management to conclude that

it is more likely than not that these deferred tax assets will be realized in future periods.

In addition, the auditing of these elements

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

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

Evaluated the reasonableness of management’s

estimate in regard to the ability to generate future taxable income and utilize the deferred tax assets by evaluating the forecast of

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 realize a benefit from its net deferred tax assets.

The critical audit matter communicated

below is a matter arising from the current period audit of the financial statements that were communicated or required to be communicated

to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved

our especially challenging, subjective, or complex judgments.

The communication of this critical audit matters did not alter in any way

our opinion on the financial statements, taken as a whole, and we are not, by communicating this critical audit matter below, providing

a separate opinion on this critical audit matter or on the accounts or disclosures to which they relate.

Revenue Recognition

As described in Note 2 of the financial statements,

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

and assumptions management makes regarding revenue and costs associated with long-term contracts with performance obligations satisfied

over time, we identified revenue recognition over these contracts as a critical audit matter.

Auditing these estimates required a high

degree of auditor judgement and increased audit effort.

Our audit procedures related to the Company's

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

· 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.

· Performed procedures to evaluate the reasonableness of the significant assumptions

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

of the Matter

in Notes 1 and 2 to the consolidated financial statements, the Company recognizes revenue from long-term contracts with performance obligations

satisfied over time by using an input method based on costs incurred as it best depicts the Company’s progress toward satisfaction

of the performance obligation.

Under this method, revenue arising from such contracts is recognized as work is performed based on the

ratio of costs incurred to date to the total estimated costs at completion of the performance obligations.

The estimation of these costs

requires judgment by the Company given the unique product specifications and requirements for contracts related to the design, development,

and manufacture of the product.

During the year ended December 31, 2024, the Company recognized approximately $80.1 million of revenue

judgment is required by management in determining the assumptions in estimating the estimated costs to complete on contracts for which

revenue is recognized over time using a cost-to-cost model.

Complex auditor judgment was required in evaluating initial cost estimates

and expected costs to complete which was our principal consideration in determining the manner in which the Company recognizes revenue

was a critical audit matter.

primary procedures we performed to address this critical audit matter included the following:

• Obtaining an understanding of management’s process in developing

the cost estimates;

• Performed substantive test of details on a sample of contracts

with customers to ensure contract terms and any modifications were agreed to by the customer and ensuring overtime revenue recognition

was appropriate and in alignment with relevant accounting guidance based on the contracts terms and conditions;

• Evaluating management's ability to reasonably estimate costs

by performing a comparison of the actual costs to prior period estimates, including evaluating the timely identification of circumstances

that may warrant a modification to the estimated costs;

• Tested the estimated costs to complete on in process jobs that

were not completed during the year ended December 31, 2024 by comparing the estimated costs to complete at December 31, 2024 to actual

costs incurred subsequent to December 31, 2024;

• Performed inquiries with the Company's program management regarding

their basis of estimates, challenges or opportunities related to the program, actual performance to date compared to plan, and any recent

correspondence between the Company and the customer on changes in scope or terms;

• Tested the existence, accuracy, and completeness of costs incurred

to date on a sample of contracts;

• Tested the mathematical accuracy of managements calculations

of revenue recognized on a sample basis.

have served as the Company's auditor since 2024

March 31, 2025

of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of CPI Aerostructures,

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of CPI

Aerostructures, Inc.

and subsidiaries (the Company) as of December 31, 2023, the related consolidated statements of operations, shareholders'

equity and cash flows for the year then ended, and the related notes (collectively, the financial statements).

In our opinion, the financial

statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of

its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States

Basis for Opinion

These financial statements are the responsibility of the

Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to

be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations

of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free

of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of

material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall

presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ RSM US LLP

We have served as the Company's auditor since

We served as the Company's auditor from 2021 to 2024.

New York, New York

4 unchanged sentences

Current Assets:

Accounts receivable, net

Insurance recovery receivable

Contract assets, net

Refundable income taxes

Prepaid expenses and other current assets

Total Current Assets

Operating lease right-of-use assets

Property and equipment, net

Accounts receivable,

Contract assets,

Prepaid expenses

and other current assets

Total Current

Operating lease

right-of-use assets

Property and equipment,

Deferred tax asset,

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES AND

SHAREHOLDERS’ EQUITY

Current Liabilities:

Accounts payable

Accrued expenses

Litigation settlement obligation

Contract liabilities

Current portion of line of credit

Current portion of long-term debt

Operating lease liabilities

Current portion

of line of credit

Current portion

of long-term debt

Operating lease

Income taxes payable

Total Current Liabilities

Line of credit, net of current portion

Long-term operating lease liabilities

Long-term debt, net of current portion

Total Current

Line of credit,

net of current portion

Long-term operating

lease liabilities

Long-term debt,

net of current portion

Total Liabilities

Commitments and Contingencies (see note 16)

Shareholders’ Equity:

Common stock - $ .001 par value;

Commitments and

Contingencies (see note 15)

Shareholders’

Common stock - $ .001

authorized 50,000,000 shares, 12,978,741 and 12,771,434 shares, respectively, issued and outstanding

Additional paid-in capital

Additional paid-in

Accumulated deficit

1 unchanged sentence

( 51,803,722 )

Total Shareholders’ Equity

Total Liabilities and Shareholders’ Equity

Total Shareholders’

Total Liabilities

and Shareholders’ Equity

notes to CONSOLIDATED financial statements

4 unchanged sentences

Cost of sales

Selling, general and administrative expenses

Selling, general

and administrative expenses

Income from operations

Interest expense

( 2,455,214 )

( 2,271,101 )

Income before benefit for income taxes

Benefit from income taxes

( 13,349,414 )

( 6,553,131 )

Income per common share-basic

Income per common share-diluted

Shares used in computing income per common share:

Income before benefit

for income taxes

Provision (Benefit)

for income taxes

Income per common

share-diluted

Shares used in computing

income per common share:

notes to CONSOLIDATED financial statements

3 unchanged sentences

ended December 31, 2024 and 2023

Additional Paid-in

Shareholders’

2 unchanged sentences

( 69,004,926 )

$ ( 5,335,073 )

Issuance of common stock upon settlement of restricted stock, net

Issuance of common stock upon settlement of

restricted stock, net

Stock-based compensation expense

Shares withheld for tax withholdings

Balance at December 31, 2023

( 69,004,926 )

Issuance of common stock upon settlement of restricted stock, net

Issuance of common stock upon settlement of

restricted stock, net

Stock-based compensation expense

7 unchanged sentences

ended December 31, 2024 and 2023

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Cash flows from operating

Adjustments to reconcile net income to net cash

provided by operating activities:

Depreciation and amortization

2 unchanged sentences

Deferred income taxes

( 13,363,661 )

( 6,574,463 )

Bad debt expense

Provision for credit losses

Changes in operating assets and liabilities:

Decrease in accounts receivable

Decrease (increase) in insurance recovery receivable

Increase in contract assets

( 7,927,528 )

( 2,925,201 )

Decrease in insurance recovery receivable

Decrease (increase) in contract assets

Decrease in inventory

Decrease (increase) in prepaid expenses and other current assets

Decrease in prepaid expenses and other current

Decrease in operating right-of-use assets

Increase (decrease) in accounts payable and accrued expenses

(Decrease) increase in accounts payable and

accrued expenses

( 1,730,794 )

(Decrease) increase in litigation settlement obligation

Decrease in litigation settlement obligation

( 3,600,000 )

(Decrease) increase in contract liabilities

Decrease in lease liabilities

Decrease in contract liabilities

( 3,506,966 )

Decrease in lease liabilities

( 1,999,057 )

7 unchanged sentences

Principal payments on line of credit

Principal payments on long-term debt

( 2,650,000 )

( 3,115,181 )

Principal payments on long-term debt

Proceeds from insurance financing obligation

Repayments of insurance financing obligation

Taxes paid related to net share settlement of equity awards

Taxes paid related to net share settlement of

equity awards

Debt issuance costs

1 unchanged sentence

( 2,758,912 )

( 3,365,181 )

Net increase (decrease) in cash

( 2,461,641 )

Net increase in cash

Cash at beginning of year

41 unchanged sentences

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 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.

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.

Company also has contracts that are considered point in time.

37 unchanged sentences

on the basis of cost.

contracts with the U.S.

government typically are subject to the Federal Acquisition Regulation (“FAR”), which provides

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

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.

contracts directly with the U.S.

government or subcontracted through its prime contractors, typically are subject to the Federal

Acquisition Regulation (“FAR”), which provides guidance on the types of costs that are allowable in establishing prices

for goods and services provided under U.S.

government contracts.

The pricing for commercial contractors are based on the specific

negotiations with each customer and any taxes imposed by governmental authorities are excluded from revenue.

The transaction price

is primarily comprised of fixed consideration as the customer typically pays a fixed fee for each product sold.

The Company does

not adjust the amount of revenue to be recognized under a customer contract for the effects of the time value of money when the

timing difference between receipt of payment and transferring the good or service is less than one year.

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

60 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.

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

Many of the contract terms are dictated by these rules and regulations.

Specifically, cost-based pricing is determined under the

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.

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.

31 unchanged sentences

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

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the

13 unchanged sentences

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.

lease expense is recognized on a straight-line basis over the expected lease term and recognized in cost of sales and selling,

general and administrative expenses.

December 31, 2024, the Company has right of use assets and lease liabilities of $ 2,856,200 and $ 3,100,572 , respectively.

15 unchanged sentences

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.

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 flow 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, 2024 and 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.

11 unchanged sentences

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.

Diluted income

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

There were 116,024 and 160,742 incremental

shares used in the calculation of diluted income per common share for the years ended December 31, 2024 and 2023, respectively.

AEROSTRUCTURES, INC.

30 unchanged sentences

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.

amounts in prior periods have been reclassified to conform with current period presentation.

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.

2024, the Company adopted ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, requiring

public entities to disclose information about their reportable segments’ significant expenses and other segment items on

an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements

in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual

The Company adopted ASU 202-07 during the year ended December 31, 2024.

Segment Reporting in the accompanying

notes to the consolidated financial statements for further detail.

Issued Accounting Standards – Not Adopted

November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures

(Subtopic 220-40):

Disaggregation of Income Statement Expenses , which requires disclosure in the notes to the financial statements

of specified information about certain costs and expenses.

In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting

Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date , which amends the

effective date of ASU 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting

periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.

Early adoption of ASU 2024-03 is permitted.

ASU 2024-03 should be applied either prospectively to financial statements issued

for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the new guidance to determine the impact it may have on its consolidated financial statements

and related disclosures, but expects additional disclosures upon adoption.

December 2023, the FASB issued ASU No.

20 unchanged sentences

Government subcontracts

Prime government contracts

Prime government

Commercial contracts

December 31, 2023

December 31, 2022

Revenue recognized using over time revenue recognition model

Revenue recognized using point in time revenue recognition model

Revenue recognized using

over time revenue recognition model

Revenue recognized using point in time revenue

recognition model

Favorable/(Unfavorable)

22 unchanged sentences

EAC adjustments had the following impact on our gross profit during the years ended December 31, 2024 and 2023:

Favorable adjustments

(Unfavorable) adjustments

( 4,052,117 )

( 3,207,099 )

Net adjustments

$ ( 1,450,502 )

unfavorable adjustments during the year ended December 31, 2024 compared to the year ended December 31, 2023 were a result of

increased material costs on various programs.

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

3 unchanged sentences

or partially satisfied performance obligations as of December 31, 2024.

ASSETS AND LIABILITIES

CONTRACT ASSETS

AND LIABILITIES

assets represent revenue recognized on contracts in excess of amounts invoiced to the customer and the Company’s right to

10 unchanged sentences

are classified as current liabilities.

of contract assets and liabilities

Schedule of contract assets and liabilities

Contract assets

Contract liabilities

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

assets at December 31, 2024 decreased $ 2,479,778 from December 31, 2023 due to the timing of billings as compared to the recognition

of revenue during 2024 upon the satisfaction or partial satisfaction of performance obligations.

liabilities decreased $ 3,506,966 during 2024, primarily due to revenue recognized on these performance obligations in excess of

payments received.

recognized for the year ended December 31, 2024, that was included in the contract liabilities balances as of January 1, 2024

2 unchanged sentences

as of January 1, 2023 was $ 3,816,336 .

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTS RECEIVABLE

receivable consists of trade receivables as follows:

December 31, 2024

December 31, 2023

December 31, 2022

Billed receivables

1 unchanged sentence

Total accounts receivable, net

CPI AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

components of inventory consist of the following:

1 unchanged sentence

Work in progress

Finished goods (Includes completed components)

Gross inventory

Inventory reserves

( 1,443,233 )

( 3,123,386 )

Inventory, net

AND EQUIPMENT

Finished goods

components of property and equipment consist of the following:

Useful Life (years)

Machinery and equipment

3 unchanged sentences

Leasehold improvements

Lesser of lease term or 10 years

Lesser of lease

term or 10 years

Total gross property and equipment

Less accumulated depreciation and amortization

( 10,868,224 )

( 10,397,273 )

Total property and equipment, net

expense for the years ended December 31, 2024 and 2023 was $ 430,006 and $ 470,950 , respectively.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company acquired WMI on December 20, 2018.

2 unchanged sentences

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

LINE OF CREDIT

AND LONG-TERM DEBT

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

3 unchanged sentences

loan commitment of $ 30 million (the “Revolving Loan”) and a $ 10 million term loan (“Term Loan”).

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

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

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

Loan and the Term Loan to September 30, 2023 , (b) providing for the repayment of an additional $ 750,000 of the principal

balance of the Term Loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31,

2023 in addition to $ 200,000 regular monthly principal payments through December 31, 2022 and (c) increasing the interest

on the Revolving Loan 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 November 1, 2022 through December 31, 2022, Prime Rate plus 7 %;

and from January 1, 2023 through

September 30, 2023, Prime Rate plus 8 %.

Additionally, under the Ninth Amendment, the Credit Agreement financial covenants

were amended.

BankUnited also waived or consented to certain covenant non-compliance, waived temporarily or consented to, late

delivery of certain financial information and waived permanently late delivery of certain pro-forma budget information.

The Revolving

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

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

30, 2022 up to (i) $ 566,025 of losses incurred and reserves taken under the Borrower’s welded product contracts, and (ii)

$ 367,045 of reserves taken with respect to the Borrower’s welded product inventory, and (c) waiving and/or consenting to

the exclusion from the Company’s covenant compliance requirements for the fiscal quarters ended March 31, 2022, June 30,

2022, September 30, 2022 and December 31, 2022 up to $ 795,997 of accrued severance and COBRA costs and employer taxes incurred

by the Company during the fiscal quarter ending March 31, 2022.

Additionally, under the Tenth Amendment, BankUnited waived or

consented to late delivery of certain financial information required by the Credit Agreement.

November 10, 2022, the Company entered into an Eleventh Amendment to the Credit Agreement (the “Eleventh Amendment”).

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

and the Term Loan to November 30, 2023 or with respect to the Term Loan, if earlier, until the outstanding principal balance is

paid in full (the “Term Loan Maturity Date”), (b) providing for regular monthly principal payments of $ 200,000 on

the Term Loan from January 1, 2023 through the Term Loan Maturity Date (in 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 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”).

14 unchanged sentences

in the previous paragraph):

(a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four

quarter period ended March 31, 2022, 0.95 to 1.0 for the trailing four quarter period ended June 30, 2022, and 1.5 to

1.0 for the trailing four quarter period ended September 30, 2022 and for the trailing four quarter periods ended thereafter;

(b) maximum leverage ratio of no less than 7.30 to 1.0 for the trailing four quarter period ended March 31, 2022, 6.30 to

1.0 for the trailing four quarter period ended June 30, 2022, 5.0 to 1.0 for the trailing four quarter period ended September

30, 2022 and 4.0 to 1.0 for the trailing four quarter periods thereafter;

each fiscal quarter being no less than $ 1.00 commencing June 30, 2022;

and (d) a minimum adjusted EBITDA at the end of each

quarter of no less than $ 1 .0 million (waived for the quarter ended March 31, 2022).

The additional principal payments,

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

compliance with each of the financial covenants.

(a) minimum debt service coverage ratio of no less than 1.5 to 1.0 for the trailing four quarter period

ended March 31, 2022, 0.95 to 1.0 for the trailing four quarter period ended June 30, 2022, and 1.5 to 1.0 for the trailing four

quarter period ended September 30, 2022 and for the trailing four quarter periods ended thereafter;

(b) maximum leverage ratio

of no less than 7.30 to 1.0 for the trailing four quarter period ended March 31, 2022, 6.30 to 1.0 for the trailing four quarter

period ended June 30, 2022, 5.0 to 1.0 for the trailing four quarter period ended September 30, 2022 and 4.0 to 1.0 for the trailing

four quarter periods thereafter;

commencing June 30, 2022;

and (d) a minimum adjusted EBITDA at the end of each quarter of no less than $ 1 .0 million (waived for

the quarter ended March 31, 2022).

The additional principal payments, increase in interest and 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”).

6 unchanged sentences

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.

$ 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:

(a) extending the maturity date of the Company’s existing revolving line of credit and its existing term loan to November

30, 2024 (under the terms of the Credit Agreement, the outstanding principal balance of the term loan will be repaid by June 30,

(b) providing for reduction of the aggregate maximum principal amount of all revolving line of credit loans to $ 20,520,000

from October 1, 2023 through December 31, 2023, $ 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, and $ 17,640,000 from October 1, 2024

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

November 13, 2024, the Company entered into a Fourteenth Amendment to the Credit Agreement (the “Fourteenth Amendment”).

Under the Fourteenth Amendment, the parties amended the Credit Agreement by:

(i) extending the maturity date of the Company’s

existing revolving line of credit (the “Revolving Credit Loans”) to August 31, 2026 ;

(ii) reducing the Base Rate Margin

(as defined in the Credit Agreement) from 3.50 % to 2.0 %;

(iii) resetting the aggregate maximum principal amount of all Revolving

Credit Loans to $ 16,890,000 from January 1, 2025 through March 31, 2025, $ 16,140,000 from April 1, 2025 through June 30, 2025,

$ 15,390,000 from July 1, 2025 through September 30, 2025, $ 14,640,000 from October 1, 2025 through December 31, 2025, $ 13,890,000

from January 1, 2026 through March 31, 2026, $ 13,140,000 from April 1, 2026 through June 30, 2026, and $ 12,390,000 from July 1,

2026 onward and for payments to be made by the Company to comply therewith (if any such payments are necessary), on the first

day of each such period;

and (c) payment of a $ 250,000 capitalized fee incurred in connection with the Eighth Amendment to the

Credit Agreement in two installments, the first installment to be paid on June 1, 2023 in the amount of $ 116,667 and the second

installment to be paid July 1, 2023 in the amount of $ 133,333 , together with all unpaid interest accrued at the term loan interest

rate on the capitalized fee through each such date.

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

(a) extending the maturity date of the Revolving Loan and the Term Loan to November 30, 2023 or with respect to the Term Loan,

if earlier, until the outstanding principal balance is paid in full (the “Term Loan Maturity Date”), (b) providing

for regular monthly principal payments of $ 200,000 on the Term Loan from January 1, 2023 through the Term Loan Maturity Date (in

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 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)

amending the maximum leverage ratio applicable for the fiscal quarter ending on September 30, 2022, and (b) consenting to and

waiving certain covenant non-compliance under the Credit Agreement.

Under the Tenth Amendment, there are no changes to interest

rates or repayment schedule and the terms pertaining to interest rates and repayment schedule remain the same as described below

as per the Ninth Amendment.

The Tenth Amendment had no effect on the interest rates on the Revolving Term Loan or Term Loan.

described above, in connection with the Ninth Amendment, the Company and BankUnited agreed to extend the maturity dates of the

Revolving Loan and Term Loan to September 30, 2023 , provide for the repayment of an additional $ 750,000 of the principal balance

of the term loan in three installments of $ 250,000 on September 30, 2022, December 31, 2022 and March 31, 2023 (in addition to

the $ 750,000 in additional principal payments as required by the Eighth Amendment due on November 30, 2021, December 31, 2021

and March 31, 2022), as well as the $ 200,000 regular monthly principal payments paid monthly through maturity, increase the interest

on the Revolving Loan 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 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.

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

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.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year ending December 31,

in the long-term debt are financing leases and notes payable totaling $ 70,981 and $ 207,414 at December 31, 2023 and 2022, respectively,

including a current portion of $ 44,498 and $ 136,433 , respectively.

and (iv) requiring the Company, if it does not deliver to BankUnited, N.A.

by December 31, 2025, a commitment

letter with banks and terms and conditions reasonably acceptable to the Lenders for refinancing the obligations under the Credit

Agreement, to make a payment by January 31, 2026, equal to 2 % of the aggregate outstanding principal amount of the Revolving Credit

Loans as of December 31, 2025, with 50 % of such payment applied to reduce the aggregate outstanding principal and the remaining

50 % retained by the Lenders as an amendment fee with respect to the Fourteenth Amendment.

of December 31, 2024 and 2023, the Company had $ 17,390,000

and $ 20,040,000 , respectively, outstanding under the BankUnited Revolving Loan Facility.

$ 2,750,000 of the revolving line of credit

matures and is payable by December 31, 2025 and the remaining balance of $ 14,640,000 of the revolving line of credit matures and is

payable by August 31, 2026.

BankUnited Facility is secured by all of the Company’s assets and both the Revolving Loan and Term Loan bear interest at

the Prime Rate + 3.50 %.

the Prime Rate + 2.0 % per the 14 th Amendment effective on November 13, 2024.

Prior to the amendment, interest was equal

to the prime rate + 3.5 %.

The Prime Rate was 7.50 % as of December 31, 2024 and as such, the Company’s interest rate on the

Revolving Loan and Term Loan was 9.50 % as of December 31, 2024.

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.

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

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

which approximately $ 36,000 and $ 82,000 is unamortized and included in other assets at December 31, 2024 and 2023, respectively.

maturities of the long-term debt (excluding unamortized debt issuance costs) as of December 31, 2024, are 26,483 maturing during

in the long-term debt are financing leases and notes payable totaling $ 26,483 and $ 70,981 at December 31, 2024 and 2023, respectively,

including a current portion of $ 26,483 and $ 44,498 , respectively.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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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, 2024 and 2023:

ROU assets, net

Current operating lease liabilities

Long-term operating lease liabilities

Current operating

lease liabilities

Long-term operating

lease liabilities

Total lease liabilities

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

The Company’s

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

Company’s weighted average remaining lease term for its operating leases is 1.5

years as of December 31, 2024.

The Company’s weighted average discount rate for its operating leases is 5.56 %

as of December 31, 2024.

Cash paid for the year ended December 31, 2024 and 2023 was $ 2,228,784 and $ 2,151,050 , respectively.

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

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generally ranges between two and five years depending on the jurisdiction.

(benefit) for income taxes consists of the following:

Year ended December 31,

( 12,608,425 )

( 6,428,448 )

$ ( 13,349,414 )

$ ( 6,553,131 )

AEROSTRUCTURES, INC.

1 unchanged sentence

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Year ended December 31,

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

for as follows:

Taxes computed at the federal statutory rate

3 unchanged sentences

( 13,531,626 )

( 6,616,952 )

Accrued loss reserve adjustment

Permanent differences

Benefit for income taxes

$ ( 13,349,414 )

Provision (Benefit) for income taxes

$ ( 13,349,414 )

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Deferred Tax Assets:

(As Restated)

Allowance for credit losses

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Lease liability

Accrued legal

Disallowed interest expense

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Valuation allowance

( 14,740,034 )

Deferred Tax Liabilities:

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Net deferred tax assets

AEROSTRUCTURES, INC.

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, 2024, the Company had approximately $ 66 .0 million of gross net operating loss carryforwards (“NOLs”)

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The state NOLs begin to expire

a result of the Tax Cuts and Jobs Act of 2017 and the Coronavirus Aid, Relief, and Economic Security Act of 2020, federal NOLs

arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules.

Our pre-2018 NOLs totaled

approximately $ 60.3 million;

these NOLs will expire in varying amounts from 2034 through 2039, if not utilized, and can offset

100% of future taxable income for regular tax purposes.

Our NOLs arising in 2018, 2019 and 2020 can generally be carried back

five years, carried forward indefinitely and can offset 100% of taxable income for tax years before January 1, 2021 and up to

80% of taxable income for tax years after December 31, 2020.

Any NOLs arising on or after January 1, 2021, cannot be carried back,

can generally be carried forward indefinitely and can offset up to 80% of future taxable income.

The state NOLs begin to expire

ability to fully recognize the benefits from our NOLs is dependent upon our ability to generate sufficient income prior to their

In addition, our NOL carryforwards may be limited if we experience an ownership change as defined by Section 382 of

the Internal Revenue Code (“Section 382”).

In general, an ownership change under Section 382 occurs if 5% shareholders

increase their collective ownership of the aggregate amount of our outstanding shares by more than 50 percentage points over a

relevant lookback period.

The Company has completed a Section 382 analysis for the year ended December 31, 2022, and believes

that no ownership change occurred during the relevant lookback period that would limit our ability to use our NOLs.

additional equity securities in the future may trigger an ownership change under IRC Section 382, which could significantly limit

our ability to utilize our tax benefits.

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.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

Company will recognize a tax liability 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.

For income tax purposes, the Company has

historically calculated taxable income from its long-term contracts with customers using methodology governed under Internal Revenue

Code (“IRC”) Section 460 (“Section 460”) utilizing the simplified method of cost allocation.

The financial

statements have been prepared to reflect a change in tax reporting methods to another method that is acceptable under Section 460,

the percentage of completion method which approximates the revenue included for U.S.

GAAP reporting.

This type of change from one

acceptable method to another is not automatic and subject to an approval process with the IRS.

The result of this change had no

impact on the financial position or earnings reported by the Company, and only had disclosure impact in regard to the components of

deferred tax assets and liabilities.

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

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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 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, $ 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 %) .

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

to include in the Company’s financial statements at the balance sheet date.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

For the period ended December 31,

2023, the Company achieved three years of cumulative book and taxable income, along with projections of profitability, for which

management determined that there was sufficient positive evidence to conclude that it is more likely than not that a portion of

the deferred tax assets will be realized.

As such, $ 14,170,891 of the valuation allowance was released during the fourth quarter

During 2024 the Company continued to assess its ability to realize its deferred tax asset.

The Company continued to be

profitable in 2024 and there was no significant change to the Company’s forecast of income or its ability to realize the

deferred tax asset at December 31, 2024.

The increase of $ 404,224 is most significantly related to the state valuation allowance.

income tax for the year ended December 31, 2024 was $ 1,143,454 , which was an effective tax rate of 25.7 %.

The tax rate was primarily

due to federal and state statutory rates in 2024.

Management makes these estimates quarterly in order to determine the appropriate

level of valuation allowance to include in the Company’s financial statements at the balance sheet date.

expenses consists of the following:

3 unchanged sentences

Accrued interest

Accrued professional fees and other

accrued expenses

Accrued professional fees and other accrued

STOCK-BASED COMPENSATION

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, 2024.

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.

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 308,094 shares available for grant under the

2016 Plan as of December 31, 2024.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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following table summarizes activity related to outstanding RSUs for the year ended December 31, 2024:

Weighted Average

Non-vested – January

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

These shares have various

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

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

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following table summarizes activity related to outstanding Restricted Stock Awards for the year ended December 31, 2024:

Restricted Stock Awards

Weighted Average

Fair Value of

Restricted Stock

Non-vested – January

Non-vested – December 31, 2024

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

5 unchanged sentences

At December 31, 2024, the weighted average remaining amortization period was 2.4 years.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

following table summarizes activity related to outstanding PRSAs for the year ended December 31, 2024:

7 unchanged sentences

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.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

EMPLOYEE BENEFIT

September 11, 1996, the Company’s board of directors instituted a defined contribution plan under Section 401(k) of the

8 unchanged sentences

recorded by the Company during the years ended December 31, 2024 and 2023 amounted to $ 305,934 and $ 300,600 , respectively.

the year ended December 31, 2023, 30 %, 26 %, 13 %, and 12 % of our revenue was generated from our four largest customers.

year ended December 31, 2022, 35 %, 17 %, 12 % and 10 % of our revenue was generated from our four largest customers.

December 31, 2023, 30 %, 17 %, 12 %, and 11 % of accounts receivable were due from our four largest customers.

At December 31, 2022,

the year ended December 31, 2024, 36 %, 24 %, and 14 % of our revenue was generated from our three largest customers.

ended December 31, 2023, 30 %, 26 %, 13 % and 12 % of our revenue was generated from our four largest customers.

December 31, 2024, 21 %, 18 %, 16 %, 12 %, 12 % and 12 % of accounts receivable were due from our six largest customers.

31, 2023, 30 %, 17 %, 12 %, and 11 % 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.

December 31, 2024, 31 %, 27 %, and 20 % of our contract assets were related to our three largest customers.

At December 31, 2023,

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

AND CONTINGENCIES

December 31, 2024, 13 %, 12 %, 11 % and 11 % of our AP was from our top 4 largest vendors.

At December 31, 2023, no vendors accounted

for more than 10% of accounts payable.

COMMITMENTS AND

CONTINGENCIES

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

9 unchanged sentences

accruals have not been made.

The Company reached a settlement with the SEC on June 20, 2024 related

to the Company's previously announced and filed restatements of certain of its financial statements for fiscal periods between January

1, 2018 and December 31, 2022.

Under the terms of this settlement, if the Company fails to comply with various undertakings, a civil monetary

penalty in the amount of $ 400,000 will be due to the SEC by June 30, 2025 (the “Undertakings”).

The Undertakings are as follows:

(a) the Company shall fully remediate its outstanding material weaknesses in Internal Controls over Financial Reporting (“ICFR”)

and have effective ICFR and disclosure controls and procedures (“DCP”) by December 31, 2024;

(b) the Company shall publicly

disclose, concurrent with the filing of the 2024 Form 10-K, whether in management's opinion, the Company has fully remediated its material

weaknesses in ICFR and has effective ICFR and DCP;

and (c) the Company shall certify, in writing, compliance with the undertaking(s) set

The certification shall be made by the Company's CEO and identify the undertaking(s), provide written evidence of compliance

in the form of a narrative, and be supported by exhibits sufficient to demonstrate compliance.

The certification and supporting material

shall be submitted to the SEC no later than sixty (60) days from the date of the completion of the undertakings.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

of Shareholder Derivative Actions and Class Action Lawsuit

10 unchanged sentences

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

Court for the Eastern District of New York.

District Court

for the Eastern District of New York.

It purported to assert derivative claims against the individual defendants for violations

4 unchanged sentences

McCrosson, et al.

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

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

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

5 unchanged sentences

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 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.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

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.

March 19, 2021, the parties to the Moulton and Berger actions filed a joint stipulation consolidating the actions (under

the caption In re CPI Aerostructures Stockholder Derivative Litigation , No.

20-cv-02092) and staying the consolidated action.

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 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.

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.

The 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

17 unchanged sentences

an order dismissing the action on December 18, 2023.

AEROSTRUCTURES, INC.

AND SUBSIDIARIES

TO CONSOLIDATED FINANCIAL STATEMENTS

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

7 unchanged sentences

CPI Aerostructures, Inc., et al.

20-cv-01026) was

filed in the U.S.

20-cv-01026) was filed

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

Douglas McCrosson, the Company’s

former Chief Executive Officer;

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.

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.

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;

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.

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.

May 20, 2021, the parties reached a settlement in the amount of $ 3,600,000 , subject to court approval.

13 unchanged sentences

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

8 unchanged sentences

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

manage our business activities on a consolidated basis and operate as a single operating segment.

We primarily derive our revenue

in the United States by supplying aircraft parts, complex aerostructure assemblies, aerosystems, MRO and kitting contracts for

fixed wing aircraft and helicopters in both the commercial and defense markets.

The accounting policies are the same as those

described in Note 1 – Principal Business Activity and Summary of Significant Accounting Policies.

CODM is our Chief Executive Officer, Dorith Hakim.

The CODM reviews financial information presented on a consolidated basis for

purposes of making operating decisions including the allocation of resources and assessing financial performance.

the Company has only one

operating segment and is managed on a consolidated basis, the measure of profit or loss is consolidated net income or loss, which

include all significant expenses and assets as presented in the consolidated financial statements which is consistent with the

information provided to the CODM.

Refer to the Consolidated Balance Sheet and the Consolidated Statements of Operations for the

financial information with respect to the Company’s single operating segment for the years ended December 31, 2024 and

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

1 unchanged sentence

AEROSTRUCTURES, INC.

Financial Officer and Secretary

Philip Passarello

Financial Officer

financial and accounting officer)

1 unchanged sentence

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

Vice Chairman of

the Board of Directors

Chairman of the

Board of Directors

March 31, 2025

Richard Caswell

March 31, 2025

Richard Caswell

Financial Officer and Secretary

(Principal Financial

and Accounting Officer)

Michael Faber

March 31, 2025

Michael Faber

Executive Officer and President

(Principal Executive Officer)

Pamela Levesque

Chief Executive

Officer and President

March 31, 2025

(Principal Executive

March 31, 2025

Pamela Levesque

Philip Passarello

Chief Financial

March 31, 2025

Philip Passarello

(Principal Financial

and Accounting Officer)

Rick Rosenjack

March 31, 2025

Rick Rosenjack

/s/ Terry Stinson

Chairman of the

Board of Directors

Terry Stinson

Vice Chairman

of the Board of Directors

March 31, 2025

Terry Stinson

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